GENERAL DYNAMICS CORP (GD)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per-share amounts or unless otherwise noted)

For an overview of our operating segments, including a discussion of our major products and services, see the Business discussion contained in Item 1. The following discussion of our financial condition and results of operations for 2024 compared with 2023 should be read in conjunction with our Consolidated Financial Statements included in Item 8, while a discussion of 2023 compared with 2022 can be found in Item 7 of our annual report on Form 10-K for the year ended December 31, 2023.

BUSINESS ENVIRONMENT

GLOBAL EVENTS

The coronavirus (COVID-19) pandemic caused significant disruptions to national and global economies and government activities, including supply chain and staffing challenges. Additionally, in response to the Russian invasion of Ukraine, the United States and several other countries imposed economic and trade sanctions, export controls and other restrictions targeting Russia and Belarus. Lastly, the impact of the conflict in the Middle East continues to evolve. The disruptions caused by these events continue to impact global economies and businesses, including ours. The primary impact to our business is supply chain challenges, including availability of parts, quality escapes and inflationary pressures.

In our Aerospace segment, supply chain challenges paced our ability to ramp up production at the rate we like in response to strong customer demand for our aircraft, causing out-of-sequence manufacturing that increased costs and decreased operational efficiency. In addition, the conflict in the Middle East impacted the delivery schedule for our Israel-based supplier of mid-cabin aircraft. Within our defense segments, the COVID-19 pandemic resulted in supply chain challenges that continue to impact our Marine Systems segment. The Russia-Ukraine conflict and increased threat environment have created additional demand for certain of our products and services, particularly in our Combat Systems segment.

Any longer-term impact of these global events to our business is currently unknown due to the uncertainty around duration and their broader impact. For additional information, see the Risk Factors in Part I, Item 1A.

OUR MARKETS

With approximately 70% of our revenue from the U.S. government, government spending levels — particularly defense spending — influence our financial performance. The Congress has not yet passed a defense appropriations bill for the government’s current fiscal year. However, the government has been operating under a continuing resolution (CR) that provides funding for some federal agencies through March 14, 2025. When the government operates under a CR, all programs of record are funded at the prior year’s appropriated levels until the current year appropriations bill is signed into law. Therefore, the U.S. Department of Defense (DoD) is prohibited from starting new programs or increasing funding on existing programs unless there is an exception for the program included in the CR. The current CR included exceptions allowing the DoD to obligate additional funds for two fiscal year 2024 and one fiscal year 2025 Virginia-class submarines, and for non-executive pay improvements and infrastructure

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investments to support the submarine industrial base. In addition, the CR included an exception allowing the DoD to obligate funds for the construction of the second submarine under the existing Columbia-class submarine contract. We do not anticipate the current CR having a material impact on our results of operations, financial condition or cash flows. However, the impact to our business from an extended CR or government shutdown that may result from any continuing delay by Congress to pass a new defense appropriations bill would depend on the duration and government implementation of the CR or shutdown.

The long-term outlook for our U.S. defense business is influenced by the U.S. military’s funding priorities, the diversity of our programs and customers, our insight into customer requirements stemming from our incumbency on core programs, our ability to evolve our products to address a fast-changing threat environment and our proven track record of successful contract execution.

International demand for military equipment and technologies presents opportunities for our non-U.S. operations and exports from our North American businesses. While the revenue potential can be significant, there are risks to doing business in foreign countries, including changing budget priorities and overall spending pressures unique to each country.

In our Aerospace segment, we expect our investment in the development of new aircraft products and technologies to support the segment’s long-term growth. Similarly, we believe our aircraft services business will be a source of steady revenue growth as the global business jet fleet continues to grow.

RESULTS OF OPERATIONS

INTRODUCTION

The following paragraphs explain how we recognize revenue and operating costs in our operating segments and the terminology we use to describe our operating results.

In the Aerospace segment, we record revenue on contracts for new aircraft when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft. Revenue associated with the segment’s services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, and the level and type of aircraft services performed during the period.

The majority of the Aerospace segment’s operating costs relates to new aircraft production on firm orders and consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely on the number and type of aircraft delivered. Operating costs in the Aerospace segment’s services businesses are recognized generally as incurred.

For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Aircraft mix can also refer to the stage of program maturity for our aircraft models. A new aircraft model typically has lower margins in its initial production lots, and then margins generally increase as we realize efficiencies in the production process. Additional factors affecting the segment’s earnings and margin include the volume, mix and profitability

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of services work performed, the market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the segment.

In the defense segments, revenue on long-term government contracts is recognized generally over time as the work progresses, either as products are produced or as services are rendered. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses. Variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts. Because costs are used as a measure of progress, year-over-year variances in costs result in corresponding variances in revenue, which we generally refer to as volume.

Operating earnings and margin in the defense segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value (or vice versa) that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Higher or lower margins can result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) and type of work (e.g., development/production). Contract mix can also refer to the stage of program maturity for our long-term production contracts. New long-term production contracts typically have lower margins initially, and then margins generally increase as we achieve learning curve improvements or realize other cost reductions.

CONSOLIDATED OVERVIEW

2024 IN REVIEW

•Strong operating performance:

◦Revenue of $47.7 billion, an increase of 12.9% from 2023

◦Operating earnings of $4.8 billion, an increase of 13% from 2023, with sequential growth throughout the year

◦Diluted earnings per share of $13.63, up 13.4% from 2023

◦Cash provided by operating activities of $4.1 billion, or 109% of net earnings

•Backlog of $90.6 billion, supporting our long-term growth expectations:

◦Strong Gulfstream aircraft order activity, including orders across all aircraft models

◦Several significant contract awards received in our defense segments, including $3.7 billion of combined awards from the U.S. Navy for advance procurement and other work for the Virginia-class submarine program

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Our consolidated revenue increased in 2024 driven by growth across all segments, including double digit percentage growth in our Aerospace and Marine Systems segments. Operating margin increased 10 basis points.

REVIEW OF OPERATING SEGMENTS

Following is a discussion of operating results and outlook for each of our operating segments. For the Aerospace segment, results are analyzed by specific types of products and services, consistent with how the segment is managed. For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results. Additional information regarding our segments can be found in Note O to the Consolidated Financial Statements in Item 8.

AEROSPACE

Operating Results

The increase in the Aerospace segment’s revenue in 2024 consisted of the following:

Aircraft manufacturing revenue increased in 2024 due primarily to the number and mix of aircraft deliveries, including our ultra-long-range, ultra-large-cabin G700 aircraft, which began deliveries in the second quarter of 2024 following U.S. Federal Aviation Administration (FAA) and European Union Aviation Safety Agency (EASA) certification. The number of G700 deliveries in 2024 was impacted by supplier quality escapes, late delivery of components and out of station work. Aircraft services revenue was higher in 2024 due to increased customer demand for aircraft maintenance based on established maintenance cycles, a larger installed base and customer flight activity.

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The increase in the segment’s operating earnings in 2024 consisted of the following:

Aircraft manufacturing operating earnings increased in 2024 but not at the same rate as revenue, reflecting additional costs associated with the initial deliveries of G700 aircraft due to out of station work caused by supplier quality escapes and late delivery of components. Aircraft services operating earnings were higher in 2024 due to higher volume. G&A/other expenses increased in 2024 consistent with the growth in the business. In total, the Aerospace segment’s operating margin decreased 70 basis points in 2024.

2025 Outlook

We expect the Aerospace segment’s 2025 revenue to increase to approximately $12.7 billion with operating margin of approximately 13.7%.

MARINE SYSTEMS

Operating Results

The increase in the Marine Systems segment’s revenue in 2024 consisted of the following:

Revenue from U.S. Navy ship construction and engineering was up in 2024 due primarily to increased volume on the Columbia-class and Virginia-class submarine programs. The Marine Systems segment’s operating margin decreased 50 basis points in 2024 due to a $123 unfavorable profit adjustment in the fourth quarter of 2024 on the Virginia-class Block IV contract as it approaches completion in 2026. The Virginia-class program has been impacted by supplier quality issues and late supply chain deliveries causing cost growth and schedule delays.

2025 Outlook

We expect the Marine Systems segment’s 2025 revenue to increase to approximately $15 billion with operating margin of approximately 6.8%.

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COMBAT SYSTEMS

Operating Results

The increase in the Combat Systems segment’s revenue in 2024 consisted of the following:

Weapons systems and munitions revenue increased in 2024 due to heightened demand for artillery products. Revenue from U.S. military vehicles was up in 2024 due primarily to higher volume on the U.S. Army’s M10 Booker combat vehicle program. The Combat Systems segment’s operating margin increased 30 basis points compared with 2023 driven by favorable contract mix.

2025 Outlook

We expect the Combat Systems segment’s 2025 revenue to increase to approximately $9.1 billion with operating margin of approximately 14.5%.

TECHNOLOGIES

Operating Results

The increase in the Technologies segment’s revenue in 2024 consisted of the following:

*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance

The Technologies segment’s revenue increased in 2024 due primarily to strong demand for IT services, including the ramp-up of new programs, offset partially by C5ISR solutions program timing and the ramp-down of legacy programs. Overall, the segment’s margin increased 30 basis points compared with 2023 due to strong operating performance.

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2025 Outlook

We expect the Technologies segment’s 2025 revenue to increase to approximately $13.5 billion with operating margin of approximately 9.2%.

CORPORATE

Corporate operating costs totaled $139 in 2024 and $160 in 2023 and consisted primarily of equity-based compensation expense. Corporate operating costs are expected to be approximately $150 in 2025.

OTHER INFORMATION

PRODUCT AND SERVICE REVENUE AND OPERATING COSTS

The increase in product revenue in 2024 consisted of the following:

Aircraft manufacturing revenue increased due to additional aircraft deliveries. Ship construction revenue was up due primarily to higher volume on the Columbia-class and Virginia-class submarine programs. Weapons systems and munitions revenue increased due to heightened demand for artillery products. In 2024, product operating costs increased at a higher rate than revenue due to supplier quality issues and late supply chain deliveries on the Virginia-class Block IV contract within our Marine Systems segment and additional costs associated with initial deliveries of G700 aircraft due to out of station work caused by supplier quality escapes and late delivery of components in our Aerospace segment.

The increase in service revenue in 2024 consisted of the following:

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Aircraft services revenue increased due to additional maintenance work. C5ISR solutions and IT services revenue was up due to higher volume, including the ramp-up of new programs. Ship services revenue increased due to higher volume on the Columbia-class submarine program. The primary drivers of the increase in service operating costs were the changes in volume on the programs described above.

G&A EXPENSES

As a percentage of revenue, G&A expenses decreased to 5.4% in 2024 compared with 5.7% in 2023 due to growth in revenue. We expect G&A expenses as a percentage of revenue in 2025 to be generally consistent with 2024.

OTHER, NET

Net other income was $68 in 2024 and $82 in 2023 and represents primarily the non-service components of pension and other post-retirement benefits. In 2025, we expect net other income to be approximately $50.

INTEREST, NET

Net interest expense was $324 in 2024 and $343 in 2023. See Note K to the Consolidated Financial Statements in Item 8 for additional information regarding our debt obligations, including interest rates. We expect 2025 net interest expense to be consistent with 2024.

PROVISION FOR INCOME TAX, NET

Our effective tax rate was 16.7% in 2024 and 16.8% in 2023. For further discussion, including a reconciliation of our effective tax rate from the statutory federal rate, see Note D to the Consolidated Financial Statements in Item 8. For 2025, we expect a full-year effective tax rate of approximately 17.5%, generally consistent with our original expectations for 2024 before declining due to certain U.S. and foreign tax credits and benefits and other timing items.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

Our total backlog, including funded and unfunded portions, was $90.6 billion on December 31, 2024, compared to $93.6 billion at the end of 2023. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note B to the Consolidated Financial Statements in Item 8. Our total estimated contract value, which combines total backlog with estimated potential contract value, was $144 billion on December 31, 2024.

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The following table details the backlog and estimated potential contract value of each segment at the end of 2024 and 2023:

For additional information about our major products and services in backlog see the Business discussion contained in Item 1.

AEROSPACE

Aerospace funded backlog represents primarily new aircraft orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to provide future aircraft maintenance and support services. The Aerospace segment ended 2024 with backlog of $19.7 billion.

Orders in 2024 reflected strong demand across our portfolio of products and services, including orders for all models of Gulfstream aircraft. The segment’s book-to-bill ratio (orders divided by revenue) was 1-to-1 in 2024, even as revenue grew by more than 30% year over year.

Beyond total backlog, estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On December 31, 2024, estimated potential contract value in the Aerospace segment was $1.1 billion.

Demand for Gulfstream aircraft remains strong across customer types and geographic regions, generating orders from public and privately held companies, individuals, and governments around the world. Geographically, U.S. customers represented 54% of the segment’s orders in 2024 and 56% of the segment’s backlog on December 31, 2024, demonstrating continued strong domestic demand.

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The following represents Gulfstream aircraft (in units) in backlog by region on December 31, 2024:

DEFENSE SEGMENTS

The total backlog in our defense segments represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of total backlog includes items that have been authorized and appropriated by the Congress and funded by customers, as well as commitments by international customers that are approved and funded similarly by their governments. The unfunded portion of total backlog includes the amounts we believe are likely to be funded, but there is no guarantee that future budgets and appropriations will provide the same funding level currently anticipated for a given program.

Estimated potential contract value in our defense segments includes unexercised options associated with existing firm contracts and unfunded work on indefinite delivery, indefinite quantity (IDIQ) contracts. Contract options represent agreements to perform additional work under existing contracts at the election of the customer. We recognize options in backlog when the customer exercises the option and establishes a firm order. For IDIQ contracts, we evaluate the amount of funding we expect to receive and include this amount in our estimated potential contract value. This amount is often less than the total IDIQ contract value, particularly when the contract has multiple awardees. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value.

Total backlog in our defense segments was $70.9 billion on December 31, 2024, compared with $73.2 billion at year-end 2023. In 2024, the total book-to-bill ratio in our defense segments was 1-to-1. Estimated potential contract value in our defense segments was $52.2 billion on December 31, 2024, up 37.8% compared with $37.9 billion at year-end 2023.

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MARINE SYSTEMS

The Marine Systems segment’s backlog consists of very long-term submarine and surface ship construction programs, as well as numerous engineering and repair contracts. The segment’s total estimated contract value remained steady compared with year-end 2023.

Significant contract awards in the Marine Systems segment during 2024 include:

•$780 from the U.S. Navy for the construction of an additional John Lewis-class (T-AO-205) fleet replenishment oiler. The contract including options for an additional seven T-AO-205 oilers has a maximum potential value of more than $6.7 billion.

•$2.9 billion from the Navy for long-lead materials for Block V and Block VI Virginia-class submarines.

•$205 from the Navy for planning yard services for the Arleigh Burke-class (DDG-51) guided-missile destroyer program. The contract including options has a maximum potential value of $1.1 billion.

•$770 from the Navy for lead yard services, development studies, design and engineering efforts, procurement and delivery of initial spare parts to support maintenance availabilities for Virginia-class submarines.

•$530 from the Navy to provide maintenance, modernization and repair services for the DDG-51 destroyer, USS Hartford Los Angeles-class submarine and Wasp-class amphibious assault ship programs.

•$455 from the Navy to provide engineering, technical, design and planning yard support services for operational strategic and attack submarines.

•$255 for future technology development on the next-generation attack submarine, SSN(X), program for the Navy.

•$115 for advanced nuclear plant studies (ANPS) in support of the Columbia-class submarine program.

•$55 from the Navy to support non-nuclear maintenance on submarines based at the New England Naval Submarine Support Facility.

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The following represents the Marine Systems segment’s total estimated contract value by major program on December 31, 2024:

COMBAT SYSTEMS

The Combat Systems segment’s backlog consists of a mix of U.S. and international combat vehicles, weapons systems and munitions programs. The vehicle programs are generally long-term franchise programs, while the weapons systems and munitions programs tend to be shorter-term in nature. The segment’s backlog was up 16.8% from year-end 2023 to $17 billion. The segment’s estimated potential contract value was $8.6 billion on December 31, 2024, compared with $6.2 billion at year-end 2023.

Significant contract awards in the Combat Systems segment during 2024 include:

•$2 billion for various munitions and ordnance. These contracts have a maximum potential value of $3.2 billion.

•An IDIQ contract to provide medium-caliber ammunition cartridges for the U.S. Army. The contract has a maximum potential value of $3 billion among two awardees.

•$1.6 billion from the Army to produce 155mm artillery projectile metal parts and propelling bag charges and establish additional capacity for artillery propellant. The contracts have a maximum potential value of $2.5 billion.

•$1.3 billion for the production of Pandur 6x6 wheeled combat vehicles from the Austrian Federal Ministry of Defense. The contract including options has a maximum potential value of $2 billion.

•Two contracts from the Canadian government for the Logistics Vehicle Modernization (LVM) program to provide a new fleet of light and heavy armored vehicles and logistics support services for the Canadian Army. These contracts including options have a maximum potential value of $1.9 billion. The scope of the work is shared with an industry partner.

•$605 from the Army for Stryker vehicle upgrades, systems technical support and inventory management. The contracts have a maximum potential value of $1.1 billion.

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•$350 from the Army for Abrams main battle tank upgrades, engineering and logistics support services, and system and sustainment technical support services.

•$325 from the Army for the third phase of the low-rate initial production (LRIP) of the M10 Booker Combat Vehicle.

•$325 from the Canadian government to produce armored combat support vehicles (ACSVs).

•$285 to produce Abrams main battle tanks in the system enhancement package version 3 (SEPv3) configuration for Romania.

•$280 from the Army to produce Stryker Sgt. Stout vehicles and provide long-lead materials to support the future retrofit of the vehicles to a dual Stinger Vehicle Universal Launcher (SVUL) configuration.

The following represents the Combat Systems segment’s total estimated contract value by market on December 31, 2024:

TECHNOLOGIES

The Technologies segment’s backlog consists of thousands of contracts and task orders across a mix of U.S. and non-U.S. government and commercial customers. These contracts can be shorter-cycle or span multiple years, but commonly include a smaller, initially funded order. Therefore, our estimated potential contract value of $34 billion is an important indicator of future orders and revenue. In 2024, approximately 75% of the segment’s orders were from additional work on IDIQ contracts or the exercise of options. The segment’s total estimated contract value was $48.1 billion on December 31, 2024, up 18.1% compared with $40.8 billion at year-end 2023.

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Significant contract awards in the Technologies segment during 2024 include:

•$50 from the U.S. Air Force to modernize, integrate and operate the DoD’s Mission Partner Environments (MPEs), enabling the military and its partners to securely communicate and share real-time information at multiple levels of classification. The contract has a maximum potential value of $5.6 billion.

•$2.2 billion for several key classified contracts. These contracts have a maximum potential value of $4.4 billion.

•A contract from the U.S. Space Force to provide sustainment services for the Mobile User Objective System (MUOS) satellite communications system. The contract has a maximum potential value of $2.2 billion.

•Four IDIQ contracts from the Canadian government to support the Land Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) system for the Canadian Army. The contracts have a maximum potential value of $1.3 billion.

•$125 to modernize the U.S. Central Command’s (CENTCOM) enterprise IT infrastructure. The contract including options has a maximum potential value of $920.

•$140 from the Navy to manufacture and test various components for MK54 torpedoes and for general engineering services. The contract including options has a maximum potential value of $810.

•$340 from the Navy to provide full life cycle and operational support for the Trident II Fire Control System (FCS) onboard Ohio-class submarines and continue the development, production and installation of FCS for all new Columbia-class submarines. The contract including options has a maximum potential value of $620.

•$605 for multiple awards from the U.S. Space Development Agency (SDA) to develop and integrate ground systems for the low-Earth orbit (LEO) satellite network.

•$205 from the North Carolina Department of Health and Human Services to operate its Medicaid Management Information System. The contract including options has a maximum potential value of $525.

•$515 from the National Geospatial-Intelligence Agency (NGA) to provide hybrid cloud services and IT design, engineering, and operations and sustainment services.

•$280 for two awards from the New York State Department of Health to operate and modernize the state’s health insurance exchange and to support and enhance the state’s Medicaid Management Information System. These contracts including options have a maximum potential value of $480.

•$235 from the Centers for Medicare and Medicaid Services (CMS) to provide cloud services and software tools and to support the Benefits Coordination & Recovery Center. The contracts including options have a maximum potential value of $470.

•$115 from the Department of Veteran Affairs (VA) under the Veterans Intake, Conversion and Communications Services (VICCS) program to digitally convert historical veteran records and automate data extraction of existing records. The contract including options has a maximum potential value of $345.

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The following represents the Technologies segment’s total estimated contract value by customer on December 31, 2024:

LIQUIDITY AND CAPITAL RESOURCES

We place a strong emphasis on cash flow generation, which is underpinned by an operating discipline focused on cost control and working capital management. This emphasis gives us the flexibility for prudent capital deployment, while allowing us to maintain an appropriate debt level, and preserves a strong balance sheet for future opportunities.

We evaluate a variety of capital deployment options based on current market conditions and our long-term outlook, and we believe agility is a key component of our capital deployment strategy as market conditions change over time. Our capital deployment priorities include investments in our business infrastructure, products and services to drive long-term growth, a predictable dividend, strategic acquisitions and opportunistic share repurchases.

We believe cash generated by operating activities, supplemented by commercial paper issuances, is sufficient to satisfy our short- and long-term liquidity needs. An additional potential source of capital is the issuance of long-term debt in capital market transactions.

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We ended 2024 with a cash and equivalents balance of $1.7 billion compared with $1.9 billion at the end of 2023. The following is a discussion of our major operating, investing and financing activities in 2024 and 2023, as classified on the Consolidated Statement of Cash Flows in Item 8:

OPERATING ACTIVITIES

Cash provided by operating activities was $4.1 billion in 2024 compared with $4.7 billion in 2023. The primary driver of cash flows in both years was net earnings. Cash flows in 2024 were affected negatively by growth in operating working capital, particularly driven by the ramp-up in production of new Gulfstream aircraft models, offset partially by an increase in customer deposits driven by Gulfstream aircraft orders in our Aerospace segment. Cash flows in 2023 were affected positively by a decrease in unbilled receivables due to the receipt of progress payments on large international vehicle contracts in our Combat Systems segment and an increase in customer deposits driven by Gulfstream aircraft orders, offset partially by an increase in inventory due primarily to the ramp-up in production of new Gulfstream aircraft models.

INVESTING ACTIVITIES

Cash used by investing activities was $953 in 2024 and $941 in 2023. Our investing activities include cash paid for capital expenditures and business acquisitions; purchases, sales and maturities of marketable securities; and proceeds from asset sales.

Capital Expenditures. The primary use of cash for investing activities in both years was capital expenditures. Capital expenditures were $916 in 2024 and $904 in 2023. Capital expenditures include equipment and facility enhancements to support new and existing programs across our businesses.

FINANCING ACTIVITIES

Cash used by financing activities was $3.4 billion in 2024 and $3.1 billion in 2023. Financing activities include the use of cash for repurchases of common stock, payment of dividends, and debt and commercial paper repayments. Our financing activities also include proceeds received from debt and commercial paper issuances and employee stock option exercises.

Dividends. On March 6, 2024, our board of directors (Board) declared an increased quarterly dividend of $1.42 per share, the 27th consecutive annual increase. Previously, the Board had increased the quarterly dividend to $1.32 per share in March 2023. Cash dividends paid were $1.5 billion in 2024 and $1.4 billion in 2023.

Share Repurchases. Our Board from time to time authorizes management’s repurchase of outstanding shares of our common stock on the open market. On December 4, 2024, the Board authorized management to repurchase up to 10 million additional shares of the company’s outstanding stock. We paid $1.5 billion and $434 in 2024 and 2023, respectively, to repurchase our outstanding

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shares. On December 31, 2024, 9.2 million shares remained authorized by our Board for repurchase, representing 3.4% of our total shares outstanding.

Debt Issuances and Repayments. In November 2024, we repaid fixed-rate notes of $500, and in May and August 2023, we repaid fixed-rate notes of $750 and $500, respectively, all at their respective scheduled maturities using cash on hand. Fixed-rate notes of $750 mature in both April and May 2025. We currently plan to repay these notes at maturity using cash on hand, potentially supplemented by commercial paper or other borrowings. For additional information regarding our debt obligations, including scheduled debt maturities and interest rates, see Note K to the Consolidated Financial Statements in Item 8.

On December 31, 2024, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. Separately, we have a $4 billion committed bank credit facility for general corporate purposes and working capital needs and to support our commercial paper issuances. We also have an effective shelf registration on file with the Securities and Exchange Commission (SEC) that allows us to access the debt markets.

NON-GAAP FINANCIAL MEASURES

We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow and return on invested capital (ROIC) to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, GAAP measures.

Free Cash Flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles free cash flow with net cash from operating activities, as classified on the Consolidated Statement of Cash Flows in Item 8:

Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as net earnings plus after-tax interest and amortization expense, calculated using the

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statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and average shareholders’ equity excluding accumulated other comprehensive loss. Average debt and average shareholders’ equity excluding accumulated other comprehensive loss are calculated using the respective balances at the end of the preceding year and the respective balances at the end of each of the four quarters of the year presented. ROIC excludes goodwill impairments and non-economic accounting changes as they are not reflective of company performance.

ROIC is calculated as follows:

CASH REQUIREMENTS

The following is a discussion of how we expect to meet the future cash requirements from known contractual and other obligations.

The majority of our revenue is derived from long-term contracts and programs that can span several years. We similarly enter into long-term agreements with suppliers and subcontractors for goods and services in support of these contracts and programs with payment terms that are generally aligned with the payment terms from our customers. In some instances, we require advance payments or deposits from our customers, which help fund our purchase commitments and reduce the risk of customer performance.

Additionally, we have significant liabilities under our defined benefit retirement plans. As these liabilities are settled using plan assets, our future cash requirements associated with these liabilities are generally limited to the annual cash contributions to these plans required in accordance with Internal Revenue Service (IRS) regulations. See Note S to the Consolidated Financial Statements in Item 8 for additional information.

Other obligations, such as scheduled principal and interest payments on our fixed-rate notes, and scheduled payments in accordance with our lease agreements are expected to be satisfied using cash generated from operations. See Notes J and K to the Consolidated Financial Statements in Item 8 for additional information.

ADDITIONAL FINANCIAL INFORMATION

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue

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and expenses during the reporting period. We employ judgment in making our estimates, but they are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods presented.

In our opinion, the following policies are critical and require the use of significant judgment in their application:

Revenue. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue. A contract’s transaction price is allocated to each distinct performance obligation within that contract and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time.

Substantially all of our revenue in the defense segments is recognized over time because control is transferred continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

Most of our revenue recognized at a point in time is for the manufacture of business jet aircraft in our Aerospace segment. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

The majority of our revenue is derived from long-term contracts and programs that can span several years. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. We estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. For discussion of our contract estimates, the assumptions used, and the impact of changes in estimates, see Note B to the Consolidated Financial Statements in Item 8.

Consistent with industry practice, we classify assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period.

Long-lived Assets and Goodwill. We review long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We assess the recoverability of the carrying value of assets held for use based on a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of the long-lived assets over the estimated fair value as determined by discounted cash flows.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually at each of our reporting units or when circumstances indicate that the likelihood of an impairment is greater than 50%. Such circumstances include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. Our reporting

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units are consistent with our operating segments in Note O to the Consolidated Financial Statements in Item 8. We use both qualitative and quantitative approaches when testing goodwill for impairment. When determining the approach to be used, we consider the current facts and circumstances of each reporting unit as well as the excess of each reporting unit’s estimated fair value over its carrying value based on our most recent quantitative assessments. Our qualitative approach evaluates the business environment and various events impacting the reporting unit including, but not limited to, macroeconomic conditions, changes in the business environment and reporting unit-specific events. If, based on the qualitative assessment, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then a quantitative assessment is not necessary. However, if a quantitative assessment is determined to be necessary, we compare the fair value of a reporting unit to its carrying value and, if necessary, recognize an impairment loss for the amount by which the carrying value exceeds the reporting unit’s fair value.

Our estimate of a reporting unit’s fair value is based primarily on the discounted cash flows of the underlying operations and requires the use of judgment by management. The process requires numerous assumptions, including the timing of work embedded in our backlog, our performance and profitability under our contracts, our success in securing future business, the appropriate risk-adjusted interest rate used to discount the projected cash flows, and terminal-value growth rates applied to the final year of projected cash flows. Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis. To assess the reasonableness of our discounted cash flows, we compare the sum of our reporting units’ fair value to our market capitalization. Additionally, we evaluate the reasonableness of each reporting unit’s fair value by comparing the fair value to peer companies and recent relevant market transactions.

In the fourth quarter of 2024, we completed qualitative assessments for each of our reporting units. Our Aerospace, Marine Systems and Combat Systems reporting units’ estimated fair values significantly exceeded their respective carrying values based on our most recent quantitative assessments, which were performed in the fourth quarter of 2018. Our Technologies reporting unit’s estimated fair value exceeded its carrying value by approximately 25% at the time of our last quantitative assessment in the fourth quarter of 2022. Our qualitative assessments this year did not present indicators of impairment.

Commitments and Contingencies. We are subject to litigation and other legal proceedings arising either from the normal course of business or under provisions relating to the protection of the environment. Estimating liabilities and costs associated with these matters requires the use of judgment. We record a liability associated with claims or pending or threatened litigation when it is probable a loss has been incurred and the amount is reasonably estimable. The ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

Retirement Plans. Our pension and other post-retirement benefit costs and obligations depend on several assumptions and estimates, which are based on our best judgment, including consideration of current and future market conditions. For a discussion of our assumptions and any changes to these assumptions, as well as the impact of these changes, which is reported as an actuarial gain or loss in the reconciliation of the change in the benefit obligation, see Note S to the Consolidated Financial Statements in Item 8. The key assumption is the interest rates used to discount estimated future pension benefits. We base the discount rates on a current yield curve developed from a portfolio of high-quality, fixed-income investments with maturities consistent with the projected benefit payout period. The effect of a 25-basis-point increase or decrease in the discount rate assumption on the December 31, 2024, pension benefit obligation is ($261) or $272, respectively.

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As described in Note S to the Consolidated Financial Statements in Item 8, our contractual arrangements with the U.S. government provide for the recovery of benefit costs for our government retirement plans. We have elected to defer recognition of the benefit costs until such costs can be allocated to contracts. Therefore, the impact of annual changes in financial reporting assumptions on the retirement benefit cost for these plans does not immediately affect our operating results.

GUARANTOR FINANCIAL INFORMATION

The outstanding notes described in Note K to the Consolidated Financial Statements in Item 8, issued by General Dynamics Corporation (the parent), are fully and unconditionally guaranteed on an unsecured, joint and several basis by several of the parent’s 100%-owned subsidiaries (the guarantors). The guarantee of each guarantor ranks equally in right of payment with all other existing and future senior unsecured indebtedness of such guarantor. A listing of the guarantors is included in an exhibit to this Form 10-K.

Because the parent is a holding company, its cash flow and ability to service its debt, including the outstanding notes, depends on the performance of its subsidiaries and the ability of those subsidiaries to distribute cash to the parent, whether by dividends, loans or otherwise. Holders of the outstanding notes have a direct claim only against the parent and the guarantors.

Under the relevant indenture, the guarantee of each guarantor is limited to the maximum amount that can be guaranteed without rendering the guarantee voidable under applicable laws relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each indenture also provides that, in the event (1) of a merger, consolidation or sale or disposition of all or substantially all of the assets of a guarantor (other than a transaction with the parent or any of its subsidiaries) or (2) there occurs a transfer, sale or other disposition of the voting stock of a guarantor so that the guarantor is no longer a subsidiary of the parent, then the guarantor or the entity acquiring the assets (in the event of the sale or other disposition of all or substantially all of the assets of a guarantor) will be released and relieved of any obligations under the guarantee.

The following summarized financial information presents the parent and guarantors (collectively, the combined obligor group) on a combined basis. The summarized financial information of the combined obligor group excludes net investment in and earnings of subsidiaries related to interests held by the combined obligor group in subsidiaries that are not guarantors of the notes.

STATEMENT OF EARNINGS INFORMATION

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BALANCE SHEET INFORMATION

The summarized balance sheet information presented above includes the funded status of the company’s primary qualified U.S. government pension plans as the parent has the ultimate obligation for the plans.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per-share amounts or unless otherwise noted)

For an overview of our operating segments, including a discussion of our major products and services, see the Business discussion contained in Item 1. The following discussion of our financial condition and results of operations for 2023 compared with 2022 should be read in conjunction with our Consolidated Financial Statements included in Item 8, while a discussion of 2022 compared with 2021 can be found in Item 7 of our annual report on Form 10-K for the year ended December 31, 2022.

BUSINESS ENVIRONMENT

GLOBAL EVENTS

The coronavirus (COVID-19) pandemic caused significant disruptions to national and global economies and government activities, including supply chain and staffing challenges. Additionally, in response to the Russian invasion of Ukraine, the United States and several other countries imposed economic and trade sanctions, export controls and other restrictions (collectively, global sanctions) targeting Russia and Belarus. The conflict and these sanctions have caused some disruptions to global economies and some global businesses, including heightened cybersecurity risks, increased energy costs and foreign currency exchange rate fluctuations, as well as exacerbated existing supply chain challenges and inflationary pressures. Lastly, the impact of the war between Israel and Hamas continues to evolve.

The disruptions caused by these events continue to impact global economies and businesses. The primary impact to our business is supply chain challenges, including inflationary pressures. In our Aerospace segment, supply chain challenges have paced our ability to ramp up production in response to strong customer demand for our aircraft and have caused out-of-sequence manufacturing, which increases costs and decreases operational efficiency. This includes the Israel-Hamas war’s impact on our Israel-based supplier of mid-cabin aircraft. Within our defense segments, the COVID-19 pandemic resulted in supply chain challenges and impacted the regional availability of skilled labor, which we continue to experience, particularly in our Marine Systems segment. The Russia-Ukraine conflict and increased threat environment has created additional demand for our products and services, particularly in our Combat Systems segment.

Any longer-term impact of these global events to our business is currently unknown due to the uncertainty around duration and their broader impact. For additional information, see the Risk Factors in Part I, Item 1A.

OUR MARKETS

With approximately 70% of our revenue from the U.S. government, government spending levels — particularly defense spending — influence our financial performance. The Congress has not yet passed a defense appropriations bill for the government’s current fiscal year. However, the government has been operating under a continuing resolution (CR) that provides funding for some federal agencies through March 1, 2024, and other federal agencies through March 8, 2024. When the government operates under a CR, all programs of record are funded at the prior year’s appropriated levels until the current year appropriations bill is signed into law. Therefore, the U.S. Department of Defense (DoD) is prohibited

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from starting new programs or increasing funding on existing programs unless there is an exception for the program included in the CR. The current CR included an exception allowing the DoD to obligate funds for the construction of the second submarine under the existing Columbia-class submarine program. We do not anticipate the current CR having a material impact on our results of operations, financial condition or cash flows. However, the impact to our business from an extended CR or government shutdown that may result from any continuing delay by Congress to pass a new defense appropriations bill would depend on the duration and government implementation of the CR or shutdown.

The long-term outlook for our U.S. defense business is influenced by the U.S. military’s funding priorities, the diversity of our programs and customers, our insight into customer requirements stemming from our incumbency on core programs, our ability to evolve our products to address a fast-changing threat environment and our proven track record of successful contract execution.

International demand for military equipment and technologies presents opportunities for our non-U.S. operations and exports from our North American businesses. While the revenue potential can be significant, there are risks to doing business in foreign countries, including changing budget priorities and overall spending pressures unique to each country.

In our Aerospace segment, we expect our investment in the development of new aircraft products and technologies to support the segment’s long-term growth. Similarly, we believe our aircraft services business will be a source of steady revenue growth as the global business jet fleet continues to grow.

RESULTS OF OPERATIONS

INTRODUCTION

The following paragraphs explain how we recognize revenue and operating costs in our operating segments and the terminology we use to describe our operating results.

In the Aerospace segment, we record revenue on contracts for new aircraft when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft. Revenue associated with the segment’s services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, and the level and type of aircraft services performed during the period.

The majority of the Aerospace segment’s operating costs relates to new aircraft production on firm orders and consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely on the number and type of aircraft delivered. Operating costs in the Aerospace segment’s services businesses are recognized generally as incurred.

For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Aircraft mix can also refer to the stage of program maturity for our aircraft models. A new aircraft model typically has lower margins in its initial production lots, and then margins generally increase as we realize efficiencies in the production process.

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Additional factors affecting the segment’s earnings and margin include the volume, mix and profitability of services work performed, the market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the segment.

In the defense segments, revenue on long-term government contracts is recognized generally over time as the work progresses, either as products are produced or as services are rendered. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses. Variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts. Because costs are used as a measure of progress, year-over-year variances in costs result in corresponding variances in revenue, which we generally refer to as volume.

Operating earnings and margin in the defense segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value (or vice versa) that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Higher or lower margins can result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) and type of work (e.g., development/production). Contract mix can also refer to the stage of program maturity for our long-term production contracts. New long-term production contracts typically have lower margins initially, and then margins generally increase as we achieve learning curve improvements or realize other cost reductions.

CONSOLIDATED OVERVIEW

2023 IN REVIEW

•Strong operating performance:

◦Record-high revenue of $42.3 billion, an increase of 7.3% from 2022

◦Operating earnings of $4.2 billion with sequential growth throughout the year

◦Record-high cash provided by operating activities of $4.7 billion, or 142% of net earnings

•Record-high year-end backlog of $93.6 billion increased $2.5 billion, or 2.7%, from 2022, driven by significant order activity during the year supporting our long-term growth expectations:

◦Strong Gulfstream aircraft order activity, including orders across all aircraft models

◦Several significant contract awards received in our defense segments, including $3 billion of combined awards from the U.S. Navy for advance procurement and other work for the Virginia-class submarine program

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Our consolidated revenue increased in 2023 driven by growth in each of our defense segments, particularly submarine construction and engineering in our Marine Systems segment. Operating margin decreased in 2023 due primarily to supply-chain cost pressure in our Marine Systems segment and lower-margin artillery facilities expansion work in our Combat Systems segment.

REVIEW OF OPERATING SEGMENTS

Following is a discussion of operating results and outlook for each of our operating segments. For the Aerospace segment, results are analyzed by specific types of products and services, consistent with how the segment is managed. For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results. Additional information regarding our segments can be found in Note O to the Consolidated Financial Statements in Item 8.

AEROSPACE

Operating Results

The increase in the Aerospace segment’s revenue in 2023 consisted of the following:

Aircraft services revenue was higher in 2023 due to an increase in demand for maintenance work based on established maintenance cycles, a larger installed base of aircraft, and strong customer flight activity. Aircraft manufacturing revenue decreased in 2023 due primarily to fewer deliveries of our large-cabin aircraft resulting from supply chain constraints.

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The increase in the segment’s operating earnings in 2023 consisted of the following:

Aircraft services operating earnings were up in 2023 due to higher volume and a favorable mix of services. While aircraft manufacturing operating earnings in 2023 reflected the impact of higher production costs resulting from supply chain challenges, 2022 earnings were impacted to a greater extent by customer accommodation costs associated with a G500/G600 airworthiness directive. G&A expenses decreased in 2023, offset partially by increased R&D expenses associated with ongoing product development efforts, particularly those related to the G700 certification. In total, the Aerospace segment’s operating margin increased 50 basis points in 2023 to 13.7%.

2024 Outlook

We expect the Aerospace segment’s 2024 revenue to increase to approximately $12 billion due to an increase in new aircraft deliveries to approximately 160, including the entry into service of the new G700 aircraft. We expect the segment’s operating margin to be approximately 15%.

MARINE SYSTEMS

Operating Results

The increase in the Marine Systems segment’s revenue in 2023 consisted of the following:

Revenue from U.S. Navy ship construction and engineering was up in 2023 due primarily to increased volume on the Columbia-class submarine program. The Marine Systems segment’s operating margin decreased 110 basis points in 2023 due to supply chain impacts to the Virginia-class submarine schedule and cost growth on the Arleigh Burke-class (DDG-51) guided-missile destroyer program.

2024 Outlook

We expect the Marine Systems segment’s 2024 revenue to increase to approximately $12.8-12.9 billion with operating margin of approximately 7.6%.

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COMBAT SYSTEMS

Operating Results

The increase in the Combat Systems segment’s revenue in 2023 consisted of the following:

Revenue from international military vehicles increased in 2023 due to higher volume on several wheeled and tracked vehicle contracts, including the sale of the Abrams main battle tank to U.S. allies and partners. Weapons systems and munitions revenue was up due to increased demand and facility expansion efforts associated with increased artillery production. Revenue from U.S. military vehicles increased due primarily to higher volume on the U.S. Army’s M10 Booker combat vehicle program (formerly known as Mobile Protected Firepower). The Combat Systems segment’s operating margin decreased 80 basis points compared with 2022 driven primarily by lower-margin artillery facilities expansion work.

2024 Outlook

We expect the Combat Systems segment’s 2024 revenue to increase to approximately $8.5 billion with operating margin of approximately 14.4%.

TECHNOLOGIES

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Operating Results

The increase in the Technologies segment’s revenue in 2023 consisted of the following:

*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance

The Technologies segment’s revenue was up due primarily to strong demand for IT services and the acquisition of a C5ISR solutions business in 2022. Overall, the segment’s margin decreased 50 basis points compared with 2022 due to program mix.

2024 Outlook

We expect the Technologies segment’s 2024 revenue to increase to $13 billion with operating margin of around 9.5%.

CORPORATE

Corporate operating costs totaled $160 in 2023 and $118 in 2022 and consisted primarily of equity-based compensation expense. Corporate operating costs are expected to be approximately $125 in 2024.

OTHER INFORMATION

PRODUCT AND SERVICE REVENUE AND OPERATING COSTS

The increase in product revenue in 2023 consisted of the following:

Ship construction revenue increased due primarily to higher volume on the Columbia-class submarine program. Military vehicle production revenue was up due primarily to higher volume on several international wheeled and tracked vehicle contracts. Weapons systems and munitions revenue was up due to increased demand and facility expansion efforts associated with increased artillery

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production. In 2023, product operating costs increased at a higher rate than revenue due to supply chain impacts and cost growth within our Marine Systems segment.

The increase in service revenue in 2023 consisted of the following:

Services revenue increased in 2023 due to a higher volume of engineering work on the Columbia-class submarine program, increased demand for IT services and additional aircraft maintenance work. In 2023, the primary driver of the increase in service operating costs was the change in volume described above.

G&A EXPENSES

As a percentage of revenue, G&A expenses decreased to 5.7% in 2023 compared with 6.1% in 2022 due to growth in revenue. We expect G&A expenses as a percentage of revenue in 2024 to be generally consistent with 2023.

OTHER, NET

Net other income was $82 in 2023 and $189 in 2022 and represents primarily the non-service components of pension and other post-retirement benefits. The decrease in pension income was driven primarily by higher interest rates and a change in investment mix in one of our plans due to its improved funded status. In 2024, we expect net other income to be approximately $50.

INTEREST, NET

Net interest expense was $343 in 2023 and $364 in 2022, reflecting the repayment of our scheduled debt maturities in 2023 and 2022. See Note K to the Consolidated Financial Statements in Item 8 for additional information regarding our debt obligations, including interest rates. We expect 2024 net interest expense to be approximately $320.

PROVISION FOR INCOME TAX, NET

Our effective tax rate increased to 16.8% in 2023 from 16% in 2022. For further discussion, including a reconciliation of our effective tax rate from the statutory federal rate, see Note D to the Consolidated Financial Statements in Item 8. For 2024, we anticipate a slightly higher full-year effective tax rate of approximately 17.5%. The increase in our effective tax rate in 2023 and the expected increase in 2024 are due principally to higher taxes on foreign earnings.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

Our total backlog, including funded and unfunded portions, was $93.6 billion on December 31, 2023, compared to $91.1 billion at the end of 2022. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note B to the Consolidated Financial

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Statements in Item 8. Our total estimated contract value, which combines total backlog with estimated potential contract value, was $132 billion on December 31, 2023.

The following table details the backlog and estimated potential contract value of each segment at the end of 2023 and 2022:

For additional information about our major products and services in backlog see the Business discussion contained in Item 1.

AEROSPACE

Aerospace funded backlog represents primarily new aircraft orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to provide future aircraft maintenance and support services. The Aerospace segment ended 2023 with backlog of $20.5 billion, up 4.8% from $19.5 billion at year-end 2022.

Orders in 2023 reflected strong demand across our portfolio of products and services, including orders for all models of Gulfstream aircraft. The segment’s book-to-bill ratio (orders divided by revenue) was 1.2-to-1 in 2023.

Beyond total backlog, estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On December 31, 2023, estimated potential contract value in the Aerospace segment was $451.

Demand for Gulfstream aircraft remains strong across customer types and geographic regions, generating orders from public and privately held companies, individuals, and governments around the world. Geographically, U.S. customers represented 68% of the segment’s orders in 2023 and 59% of the segment’s backlog on December 31, 2023, demonstrating continued strong domestic demand.

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The following represents Gulfstream aircraft (in units) in backlog by region on December 31, 2023:

DEFENSE SEGMENTS

The total backlog in our defense segments represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of total backlog includes items that have been authorized and appropriated by the Congress and funded by customers, as well as commitments by international customers that are approved and funded similarly by their governments. The unfunded portion of total backlog includes the amounts we believe are likely to be funded, but there is no guarantee that future budgets and appropriations will provide the same funding level currently anticipated for a given program.

Estimated potential contract value in our defense segments includes unexercised options associated with existing firm contracts and unfunded work on indefinite delivery, indefinite quantity (IDIQ) contracts. Contract options represent agreements to perform additional work under existing contracts at the election of the customer. We recognize options in backlog when the customer exercises the option and establishes a firm order. For IDIQ contracts, we evaluate the amount of funding we expect to receive and include this amount in our estimated potential contract value. This amount is often less than the total IDIQ contract value, particularly when the contract has multiple awardees. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value.

Total backlog in our defense segments was $73.2 billion on December 31, 2023, compared with $71.6 billion at year-end 2022. In 2023, the total book-to-bill ratio in our defense segments was slightly above 1-to-1. Estimated potential contract value in our defense segments was $37.9 billion on December 31, 2023, compared with $35.9 billion at year-end 2022.

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MARINE SYSTEMS

The Marine Systems segment’s backlog consists of very long-term submarine and surface ship construction programs, as well as numerous engineering and repair contracts. The segment’s backlog and estimated potential contract value remained steady compared with year-end 2022.

Significant contract awards in the Marine Systems segment during 2023 include:

•$1.7 billion from the U.S. Navy for lead yard services, development studies and design efforts, procurement and delivery of initial spare parts to support maintenance availabilities for Virginia-class submarines.

•$300 for advanced nuclear plant studies (ANPS) in support of the Columbia-class submarine program. The contracts, including options, have a maximum potential value of $1.5 billion.

•$1.3 billion from the Navy for long-lead materials and advance construction for Block V and long-lead materials for Block VI Virginia-class submarines.

•$720 from the Navy to provide maintenance and modernization services for the DDG-51 destroyer, San Antonio-class amphibious transport dock and Wasp-class amphibious assault ship programs. The awards including options have a maximum potential value of $1.2 billion.

•$735 from the Navy for construction of an additional John Lewis-class (T-AO-205) fleet replenishment oiler.

•$95 from the Navy to provide maintenance and support non-nuclear maintenance on submarines based at the New London Naval Submarine Support Facility in Connecticut. The awards have a maximum potential value of $460.

•A contract from the Navy to provide ongoing lead yard services for the DDG-51 program. The contract including options has a maximum potential value of $420.

•$220 from the Navy to provide in-service support of systems and components on the USS Jimmy Carter (SSN 23).

•A contract from the Navy for the construction of three Flight III DDG-51 destroyers.

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The following represents the Marine Systems segment’s total estimated contract value by major program on December 31, 2023:

COMBAT SYSTEMS

The Combat Systems segment’s backlog consists of a mix of U.S. and international combat vehicles, weapons systems and munitions programs. The vehicle programs are generally long-term franchise programs, while the weapons systems and munitions programs tend to be shorter-term in nature. The segment’s backlog was up 9.7% from year-end 2022 to $14.5 billion. The segment’s estimated potential contract value was $6.2 billion on December 31, 2023, compared with $5.4 billion at year-end 2022.

Significant contract awards in the Combat Systems segment during 2023 include:

•$1.7 billion for various munitions and ordnance. The awards have a maximum potential value of $3.2 billion.

•$1 billion from the U.S. Army to establish additional capacity for 155mm projectile metal parts and M795 load, assemble and pack (LAP) production and artillery propellant. The contracts, including follow-on production, have a maximum potential value of $2.4 billion.

•$920 from the Army for Stryker vehicle upgrades, spare parts, and inventory management and support services.

•$695 from the Army to advance to the detailed design and prototype build and test phases of the XM30 Mechanized Infantry Combat Vehicle (MICV) competition, formerly known as the Optionally Manned Fighting Vehicle (OMFV). The award including options has a maximum potential value of $770.

•$755 from the Army to upgrade Abrams main battle tanks to the system enhancement package version 3 (SEPv3) configuration and provide system and sustainment technical support services for the Abrams program.

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•$305 to produce light armored vehicles (LAVs) and provide the associated spares and logistics support services for Colombia.

•$260 from the Army for the second phase of low-rate initial production (LRIP) of the M10 Booker Combat Vehicle.

•$230 to provide maintenance and modernization for the Leopard fleet of vehicles for the Spanish Ministry of Defence.

•$205 to produce Abrams main battle tanks in the SEPv3 configuration for Poland, bringing the total firm backlog for the program to $1.1 billion.

The following represents the Combat Systems segment’s total estimated contract value by market on December 31, 2023:

TECHNOLOGIES

The Technologies segment’s backlog consists of thousands of contracts and task orders across a mix of U.S. and non-U.S. government and commercial customers. These contracts can be shorter-cycle or span multiple years, but commonly include a small, initially funded order. Therefore, our estimated potential contract value of $28 billion is an important indicator of future orders and revenue. In 2023, approximately 80% of the segment’s orders were from additional work on IDIQ contracts or the exercise of options. The segment’s total estimated contract value was $40.8 billion on December 31, 2023, compared with $39.6 billion at year-end 2022.

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Significant contract awards in the Technologies segment during 2023 include:

•An IDIQ contract to provide full spectrum security support services to protect mission critical infrastructure for the U.S. Air Force. The contract has a maximum potential value of $4.5 billion between two awardees.

•$1.4 billion for several key classified contracts. The contracts have a maximum potential value of $3.1 billion.

•An IDIQ contract from the Indian Health Service (IHS) to modernize its electronic health record (EHR) system. The contract has a maximum potential value of $2.5 billion.

•$130 to provide flight simulation and training services for the Army. The contract has a maximum potential value of $1.7 billion.

•An IDIQ contract to provide mission command training and technical support services for the Army. The contract has a maximum potential value of $975 among multiple awardees.

•$55 to continue infrastructure modernization of the U.S. Department of Homeland Security’s (DHS) St. Elizabeth’s Campus in Washington, D.C. The contract including options has a maximum potential value of $710.

•$95 from U.S. Special Operations Command (USSOCOM) to provide a full range of activities to support USSOCOM operations, including program management, mission infrastructure and training services. The contract including options has a maximum potential value of $490.

•An IDIQ contract to provide sustainment services, spare parts and obsolescence risk management services, and system readiness for the Army’s Prophet Enhanced sensor systems. The contract has a maximum potential value of $480.

•A contract from the Centers for Medicare and Medicaid Services (CMS) to continue operating and modernizing the agency’s Healthcare Integrated General Ledger Accounting System (HIGLAS) application. The contract including options has a maximum potential value of $450.

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The following represents the Technologies segment’s total estimated contract value by customer on December 31, 2023:

LIQUIDITY AND CAPITAL RESOURCES

We place a strong emphasis on cash flow generation, which is underpinned by an operating discipline focused on cost control and working capital management. This emphasis gives us the flexibility for prudent capital deployment, while allowing us to step down debt over time, and preserves a strong balance sheet for future opportunities.

We evaluate a variety of capital deployment options based on current market conditions and our long-term outlook, and we believe agility is a key component of our capital deployment strategy as market conditions change over time. Our capital deployment priorities include investments in our products and services to drive long-term growth, a predictable dividend, strategic acquisitions and opportunistic share repurchases.

We believe cash generated by operating activities, supplemented by commercial paper issuances, is sufficient to satisfy our short- and long-term liquidity needs. An additional potential source of capital is the issuance of long-term debt in capital market transactions.

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We ended 2023 with a cash and equivalents balance of $1.9 billion compared with $1.2 billion at the end of 2022. The following is a discussion of our major operating, investing and financing activities in 2023 and 2022, as classified on the Consolidated Statement of Cash Flows in Item 8:

OPERATING ACTIVITIES

Cash provided by operating activities was $4.7 billion in 2023 compared with $4.6 billion in 2022. The primary driver of cash inflows in both years was net earnings. Cash flows in both periods were affected positively by an increase in customer deposits driven by Gulfstream aircraft orders, offset partially by an increase in inventory due primarily to new aircraft models awaiting certification from the U.S. Federal Aviation Administration (FAA). Cash flows in 2023 were also affected positively by a decrease in unbilled receivables due to the receipt of progress payments on large international vehicle contracts in our Combat Systems segment.

INVESTING ACTIVITIES

Cash used by investing activities was $941 in 2023 and $1.5 billion in 2022. Our investing activities include cash paid for capital expenditures and business acquisitions; purchases, sales and maturities of marketable securities; and proceeds from asset sales.

Capital Expenditures. The primary use of cash for investing activities in both years was capital expenditures. Capital expenditures were $904 in 2023 and $1.1 billion in 2022. Capital expenditures include equipment and facility enhancements to support new and existing programs across our businesses.

FINANCING ACTIVITIES

Cash used by financing activities was $3.1 billion in 2023 and $3.5 billion in 2022. Financing activities include the use of cash for repurchases of common stock, payment of dividends, and debt and commercial paper repayments. Our financing activities also include proceeds received from debt and commercial paper issuances and employee stock option exercises.

Dividends. On March 8, 2023, our board of directors (Board) declared an increased quarterly dividend of $1.32 per share, the 26th consecutive annual increase. Previously, the Board had increased the quarterly dividend to $1.26 per share in March 2022. Cash dividends paid were $1.4 billion in 2023 and 2022.

Share Repurchases. Our Board from time to time authorizes management to repurchase outstanding shares of our common stock on the open market. We paid $434 and $1.2 billion in 2023 and 2022, respectively, to repurchase our outstanding shares. On December 31, 2023, 4.7 million shares remained authorized by our Board for repurchase, representing 1.7% of our total shares outstanding.

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Debt Issuances and Repayments. In May and August 2023, we repaid fixed-rate notes of $750 and $500, respectively, and in November 2022, we repaid fixed-rate notes of $1 billion, all at their respective scheduled maturities using cash on hand. Fixed-rate notes of $500 mature in November 2024. We currently plan to repay these notes at maturity using cash on hand, potentially supplemented by commercial paper or other borrowings. For additional information regarding our debt obligations, including scheduled debt maturities and interest rates, see Note K to the Consolidated Financial Statements in Item 8.

On December 31, 2023, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. Separately, we have a $4 billion committed bank credit facility for general corporate purposes and working capital needs and to support our commercial paper issuances. We also have an effective shelf registration on file with the Securities and Exchange Commission (SEC) that allows us to access the debt markets.

NON-GAAP FINANCIAL MEASURES

We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow and return on invested capital (ROIC) to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, GAAP measures.

Free Cash Flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles the free cash flow with net cash provided by operating activities, as classified on the Consolidated Statement of Cash Flows in Item 8:

Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as net earnings plus after-tax interest and amortization expense, calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and average shareholders’ equity excluding accumulated other comprehensive loss. Average debt and average shareholders’ equity excluding accumulated other comprehensive loss are calculated using the

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respective balances at the end of the preceding year and the respective balances at the end of each of the four quarters of the year presented. ROIC excludes goodwill impairments and non-economic accounting changes as they are not reflective of company performance.

ROIC is calculated as follows:

CASH REQUIREMENTS

The following is a discussion of how we expect to meet the future cash requirements from known contractual and other obligations.

The majority of our revenue is derived from long-term contracts and programs that can span several years. We similarly enter into long-term agreements with suppliers and subcontractors for goods and services in support of these contracts and programs with payment terms that are generally aligned with the payment terms from our customers. In some instances, we require advance payments or deposits from our customers, which help fund our purchase commitments and reduce the risk of customer performance.

Additionally, we have significant liabilities under our defined benefit retirement plans. As these liabilities are settled using plan assets, our future cash requirements associated with these liabilities are generally limited to the annual cash contributions to these plans required in accordance with Internal Revenue Service (IRS) regulations. See Note S to the Consolidated Financial Statements in Item 8 for additional information.

Other obligations, such as scheduled principal and interest payments on our fixed-rate notes, and scheduled payments in accordance with our lease agreements are expected to be satisfied using cash generated from operations. See Notes J and K to the Consolidated Financial Statements in Item 8 for additional information.

ADDITIONAL FINANCIAL INFORMATION

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We employ judgment in making our estimates, but they are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We

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believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods presented.

In our opinion, the following policies are critical and require the use of significant judgment in their application:

Revenue. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue. A contract’s transaction price is allocated to each distinct performance obligation within that contract and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time.

Substantially all of our revenue in the defense segments is recognized over time because control is transferred continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

Most of our revenue recognized at a point in time is for the manufacture of business jet aircraft in our Aerospace segment. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

The majority of our revenue is derived from long-term contracts and programs that can span several years. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. We estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. For discussion of our contract estimates, the assumptions used, and the impact of changes in estimates, see Footnote B to the Consolidated Financial Statements in Item 8.

Consistent with industry practice, we classify assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period.

Long-lived Assets and Goodwill. We review long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We assess the recoverability of the carrying value of assets held for use based on a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of the long-lived assets over the estimated fair value as determined by discounted cash flows.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually at each of our reporting units or when circumstances indicate that the likelihood of an impairment is greater than 50%. Such circumstances include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. Our reporting units are consistent with our operating segments in Note O to the Consolidated Financial Statements in Item 8. We use both qualitative and quantitative approaches when testing goodwill for impairment. When determining the approach to be used, we consider the current facts and circumstances of each

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reporting unit as well as the excess of each reporting unit’s estimated fair value over its carrying value based on our most recent quantitative assessments. Our qualitative approach evaluates the business environment and various events impacting the reporting unit including, but not limited to, macroeconomic conditions, changes in the business environment and reporting unit-specific events. If, based on the qualitative assessment, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then a quantitative assessment is not necessary. However, if a quantitative assessment is determined to be necessary, we compare the fair value of a reporting unit to its carrying value and, if necessary, recognize an impairment loss for the amount by which the carrying value exceeds the reporting unit’s fair value.

Our estimate of a reporting unit’s fair value is based primarily on the discounted cash flows of the underlying operations and requires the use of judgment by management. The process requires numerous assumptions, including the timing of work embedded in our backlog, our performance and profitability under our contracts, our success in securing future business, the appropriate risk-adjusted interest rate used to discount the projected cash flows, and terminal-value growth rates applied to the final year of projected cash flows. Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis. To assess the reasonableness of our discounted cash flows, we compare the sum of our reporting units’ fair value to our market capitalization. Additionally, we evaluate the reasonableness of each reporting unit’s fair value by comparing the fair value to peer companies and recent relevant market transactions.

In the fourth quarter of 2023, we completed qualitative assessments for our Aerospace, Marine Systems and Combat Systems reporting units as the estimated fair values of each of the reporting units significantly exceeded the respective carrying values based on our most recent quantitative assessments, which were performed in the fourth quarter of 2018. Our qualitative assessments did not present indicators of impairment for the reporting units.

In the fourth quarter of 2023, we also completed a qualitative assessment for our Technologies reporting unit as its estimated fair value exceeded its carrying value by approximately 25% at the time of our last quantitative assessment in the fourth quarter of 2022. Interest rates rose over the last year, but the increase was within the tolerances established in our previous quantitative analysis. Our qualitative assessment this year did not present any other indicators of impairment. However, if interest rates were to continue to increase without an offsetting increase in future cash flow projections, the estimated fair value of the reporting unit would decrease and could put the reporting unit at risk of goodwill impairment.

Commitments and Contingencies. We are subject to litigation and other legal proceedings arising either from the normal course of business or under provisions relating to the protection of the environment. Estimating liabilities and costs associated with these matters requires the use of judgment. We record a charge against earnings when a liability associated with claims or pending or threatened litigation is probable and when our exposure is reasonably estimable. The ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

Retirement Plans. Our pension and other post-retirement benefit costs and obligations depend on several assumptions and estimates, which are based on our best judgment, including consideration of current and future market conditions. For a discussion of our assumptions and any changes to these assumptions, as well as the impact of these changes, which is reported as an actuarial gain or loss in the reconciliation of the change in the benefit obligation, see Note S to the Consolidated Financial Statements in Item 8. The key assumption is the interest rates used to discount estimated future pension benefits. We base the discount rates on a current yield curve developed from a portfolio of high-quality,

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fixed-income investments with maturities consistent with the projected benefit payout period. The effect of a 25-basis-point increase or decrease in the discount rate assumption on the December 31, 2023, pension benefit obligation is ($317) or $332, respectively.

As described in Note S to the Consolidated Financial Statements in Item 8, our contractual arrangements with the U.S. government provide for the recovery of benefit costs for our government retirement plans. We have elected to defer recognition of the benefit costs until such costs can be allocated to contracts. Therefore, the impact of annual changes in financial reporting assumptions on the retirement benefit cost for these plans does not immediately affect our operating results.

GUARANTOR FINANCIAL INFORMATION

The outstanding notes described in Note K to the Consolidated Financial Statements in Item 8, issued by General Dynamics Corporation (the parent), are fully and unconditionally guaranteed on an unsecured, joint and several basis by several of the parent’s 100%-owned subsidiaries (the guarantors). The guarantee of each guarantor ranks equally in right of payment with all other existing and future senior unsecured indebtedness of such guarantor. A listing of the guarantors is included in an exhibit to this Form 10-K.

Because the parent is a holding company, its cash flow and ability to service its debt, including the outstanding notes, depends on the performance of its subsidiaries and the ability of those subsidiaries to distribute cash to the parent, whether by dividends, loans or otherwise. Holders of the outstanding notes have a direct claim only against the parent and the guarantors.

Under the relevant indenture, the guarantee of each guarantor is limited to the maximum amount that can be guaranteed without rendering the guarantee voidable under applicable laws relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each indenture also provides that, in the event (1) of a merger, consolidation or sale or disposition of all or substantially all of the assets of a guarantor (other than a transaction with the parent or any of its subsidiaries) or (2) there occurs a transfer, sale or other disposition of the voting stock of a guarantor so that the guarantor is no longer a subsidiary of the parent, then the guarantor or the entity acquiring the assets (in the event of the sale or other disposition of all or substantially all of the assets of a guarantor) will be released and relieved of any obligations under the guarantee.

The following summarized financial information presents the parent and guarantors (collectively, the combined obligor group) on a combined basis. The summarized financial information of the combined obligor group excludes net investment in and earnings of subsidiaries related to interests held by the combined obligor group in subsidiaries that are not guarantors of the notes.

STATEMENT OF EARNINGS INFORMATION

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BALANCE SHEET INFORMATION

The summarized balance sheet information presented above includes the funded status of the company’s primary qualified U.S. government pension plans as the parent has the ultimate obligation for the plans.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per-share amounts or unless otherwise noted)

For an overview of our operating segments, including a discussion of our major products and services, see the Business discussion contained in Item 1. The following discussion of our financial condition and results of operations for 2022 compared with 2021 should be read in conjunction with our Consolidated Financial Statements included in Item 8, while a discussion of 2021 compared with 2020 can be found in Item 7 of our annual report on Form 10-K for the year ended December 31, 2021.

BUSINESS ENVIRONMENT

GLOBAL EVENTS

The coronavirus (COVID-19) pandemic has caused significant disruptions to national and global economies and government activities since March 2020. During this time, we have continued to conduct our operations while responding to the pandemic with actions to mitigate adverse consequences to our employees, business, supply chain and customers.

In February 2022, Russian forces invaded Ukraine. In response, the United States and several other countries imposed economic and trade sanctions, export controls and other restrictions (collectively, global sanctions) targeting Russia and Belarus. The conflict and these sanctions have caused some disruptions to global economies and some global businesses, including heightened cybersecurity risks, increased energy costs and foreign currency exchange rate fluctuations, as well as exacerbated existing supply chain challenges and inflationary pressures.

In our Aerospace segment, we continue to see strong order activity as we emerge from the impacts of the COVID-19 pandemic. However, this segment is the most impacted relatively by the global sanctions, particularly our aircraft services business in Europe, which we have offset to date through additional services revenue in other regions. Across the aerospace industry, the global sanctions impact sales to certain individuals and entities and exports of associated aircraft parts and related services.

Within our defense segments, the COVID-19 pandemic created some staffing and supply chain challenges, particularly in our Marine Systems (especially in the submarine supply chain) and Technologies segments. The Russia-Ukraine conflict could continue to impact future U.S. government defense spending due to the heightened national security threat and the need to replenish stockpiles that have been reduced in support of Ukraine. Internationally, many countries in the region have expressed a renewed commitment to defense-related spending. As a result, we have seen signals of additional demand for our products and services.

Any longer-term impact of these global events to our business is currently unknown due to the uncertainty around duration and their broader impact. For additional information, see the Risk Factors in Part I, Item 1A. The Review of Operating Segments includes information on these global events for the affected segments.

OUR MARKETS

With approximately 70% of our revenue from the U.S. government, government spending levels — particularly defense spending — influence our financial performance. On December 29, 2022, the fiscal

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year (FY) 2023 defense appropriations bill was signed into law. It totaled approximately $798 billion, representing an increase of approximately 10% over the enacted FY 2022 spending level.

The long-term outlook for our U.S. defense business is influenced by the U.S. military’s funding priorities, the diversity of our programs and customers, our insight into customer requirements stemming from our incumbency on core programs, our ability to evolve our products to address a fast-changing threat environment and our proven track record of successful contract execution.

International demand for military equipment and technologies presents opportunities for our non-U.S. operations and exports from our North American businesses. While the revenue potential can be significant, there are risks to doing business in foreign countries, including changing budget priorities and overall spending pressures unique to each country.

In our Aerospace segment, we expect our investment in the development of new aircraft products and technologies to support the segment’s long-term growth. Similarly, we believe the aircraft services business will be a source of steady revenue growth as the global business jet fleet continues to grow.

RESULTS OF OPERATIONS

INTRODUCTION

The following paragraphs explain how we recognize revenue and operating costs in our operating segments and the terminology we use to describe our operating results.

In the Aerospace segment, we record revenue on contracts for new aircraft when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft. Revenue associated with the segment’s services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, and the level and type of aircraft services performed during the period.

The majority of the Aerospace segment’s operating costs relates to new aircraft production on firm orders and consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely on the number and type of aircraft delivered. Operating costs in the Aerospace segment’s services businesses are recognized generally as incurred.

For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Aircraft mix can also refer to the stage of program maturity for our aircraft models. A new aircraft model typically has lower margins in its initial production lots, and then margins generally increase as we realize efficiencies in the production process. Additional factors affecting the segment’s earnings and margin include the volume, mix and profitability of services work performed, the market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the segment.

In the defense segments, revenue on long-term government contracts is recognized generally over time as the work progresses, either as products are produced or as services are rendered. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at

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completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses. Variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts. Because costs are used as a measure of progress, year-over-year variances in costs result in corresponding variances in revenue, which we generally refer to as volume.

Operating earnings and margin in the defense segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value (or vice versa) that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Higher or lower margins can result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) and type of work (e.g., development/production). Contract mix can also refer to the stage of program maturity for our long-term production contracts. New long-term production contracts typically have lower margins initially, and then margins generally increase as we achieve learning curve improvements or realize other cost reductions.

CONSOLIDATED OVERVIEW

2022 IN REVIEW

•Strong operating performance:

◦Record-high revenue of $39.4 billion, an increase of 2.4% from 2021

◦Operating earnings of $4.2 billion with sequential growth throughout the year

◦Record-high diluted earnings per share of $12.19, up 5.5% from 2021

◦Record-high cash provided by operating activities of $4.6 billion, or 135% of net earnings

•Record-high backlog of $91.1 billion increased $3.5 billion, or 4%, from 2021, driven by significant order activity during the year supporting our long-term growth expectations:

◦Outstanding Gulfstream aircraft order activity, including orders across all aircraft models

◦Several significant contract awards received in our defense segments, including $5.4 billion of combined awards from the U.S. Navy for advance procurement and other work for the Columbia-class submarine program

Our consolidated revenue increased in 2022 from growth in U.S. Navy ship construction in our Marine Systems segment and aircraft services activity in our Aerospace segment. Operating earnings increased

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in 2022 due primarily to strong operating performance in our Aerospace segment, while we managed through the impacts of supply chain challenges and inflationary pressure across the business.

REVIEW OF OPERATING SEGMENTS

Following is a discussion of operating results and outlook for each of our operating segments. For the Aerospace segment, results are analyzed by specific types of products and services, consistent with how the segment is managed. For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results. Additional information regarding our segments can be found in Note O to the Consolidated Financial Statements in Item 8.

AEROSPACE

Operating Results

The increase in the Aerospace segment’s revenue in 2022 consisted of the following:

Revenue was up in our Aerospace segment driven by an increase in demand for aircraft services, particularly maintenance work, and increased activity at our fixed-base operator (FBO) facilities due to growing global air travel.

The increase in the segment’s operating earnings in 2022 consisted of the following:

Aircraft manufacturing operating earnings were up in 2022 due to a favorable mix of aircraft deliveries and ongoing improvements in manufacturing efficiency. Earnings in 2022 were somewhat impacted by customer accommodations associated with a G500/G600 airworthiness directive while 2021 earnings included mark-to-market adjustments related to aircraft that were in the G500 test program. In 2022, operating earnings from aircraft services were up due to higher volume and favorable cost performance. These increases were offset partially by higher G&A/other expenses due primarily to increased R&D expenses associated with ongoing product development efforts. In total, the Aerospace segment’s operating margin increased 50 basis points in 2022 to 13.2%.

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2023 Outlook

We expect the Aerospace segment’s 2023 revenue to increase to approximately $10.4 billion due to an increase in new aircraft deliveries to 145. We expect the segment’s operating margin to be approximately 14.6%. This outlook assumes the certification and entry into service of the new G700 aircraft.

MARINE SYSTEMS

Operating Results

The increase in the Marine Systems segment’s revenue in 2022 consisted of the following:

Revenue from U.S. Navy ship construction was up across our shipyards in 2022 due to increased volume on the Columbia-class submarine program, the John Lewis-class (T-AO-205) fleet replenishment oiler program and the Arleigh Burke-class (DDG-51) destroyer program. These increases were offset partially by lower submarine engineering volume. Overall, the Marine Systems segment’s operating margin decreased 20 basis points in 2022 due to program mix and supply chain impacts to the Virginia-class submarine schedule, offset partially by improved performance at NASSCO.

2023 Outlook

We expect the Marine Systems segment’s 2023 revenue to remain steady at approximately $10.9 billion. Operating margin is expected to be approximately 8.1% driven by program mix across our shipyards and ongoing supply chain challenges.

COMBAT SYSTEMS

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Operating Results

The change in the Combat Systems segment’s revenue in 2022 consisted of the following:

Revenue from international military vehicles was down in 2022, but this decrease was offset largely by increased revenue from U.S. Stryker wheeled combat vehicles, particularly the maneuver short-range air defense (M-SHORAD) variant.

The strengthening of the U.S. dollar against the euro and British pound has negatively impacted the Combat Systems segment’s results in 2022, specifically the translation of our international revenue from local currencies into U.S. dollars. Had foreign exchange rates in 2022 held constant from 2021, the Combat Systems segment’s revenue would have increased 2.1% in 2022 compared to 2021.

The Combat Systems segment’s operating margin increased 20 basis points compared with 2021 driven by favorable contract mix and strong operating performance.

2023 Outlook

We expect the Combat Systems segment’s 2023 revenue to be approximately $7.3 billion with operating margin of approximately 14.7%.

TECHNOLOGIES

Operating Results

The increase in the Technologies segment’s revenue in 2022 consisted of the following:

*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance

The group’s revenue was up despite continued delays in customer order activity as revenue from IT services increased on several programs, particularly with the group’s federal civilian customers. This increase was offset partially by decreased revenue from C5ISR solutions due to supply chain disruptions. The Technologies segment’s operating margin decreased 40 basis points compared with 2021 due primarily to the mix of service activity and product volume.

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2023 Outlook

We expect the Technologies segment’s 2023 revenue to be between $12.5 and $12.6 billion with operating margin of around 9.5% driven by a shift in the mix of IT service activity and hardware volume.

CORPORATE

Corporate operating costs totaled $118 in 2022 and $84 in 2021 and consisted primarily of equity-based compensation expense. The increase was due primarily to accelerated recognition of equity-based compensation expense. Corporate operating costs are expected to be approximately $140 in 2023.

OTHER INFORMATION

PRODUCT AND SERVICE REVENUE AND OPERATING COSTS

The increase in product revenue in 2022 consisted of the following:

Ship construction revenue increased due to higher volume on the Columbia-class submarine, T-AO-205 oiler and DDG-51 destroyer programs. In 2022, the primary driver of the increase in product operating costs was the change in volume described above.

The increase in service revenue in 2022 consisted of the following:

Aircraft services revenue increased due to additional maintenance work and FBO activity. In 2022, the primary driver of the increase in service operating costs was the change in volume described above.

G&A EXPENSES

As a percentage of revenue, G&A expenses were 6.1% in 2022 and 5.8% in 2021, reflecting an increase in equity-based compensation expense. We expect G&A expenses as a percentage of revenue in 2023 to be generally consistent with 2022.

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OTHER, NET

Net other income was $189 in 2022 and $134 in 2021 and represents primarily the non-service components of pension and other post-retirement benefits. In 2023, we expect net other income to decrease to approximately $80 due to lower pension income. The decrease in pension income is driven primarily by higher interest rates and a change in investment mix in one of our plans due to its improved funded status.

INTEREST, NET

Net interest expense was $364 in 2022 and $424 in 2021, reflecting repayment of our scheduled debt maturities in 2021. See Note K to the Consolidated Financial Statements in Item 8 for additional information regarding our debt obligations, including interest rates. We expect 2023 net interest expense to be consistent with 2022.

PROVISION FOR INCOME TAX, NET

Our effective tax rate was 16% in 2022 and 15.9% in 2021. For further discussion, including a reconciliation of our effective tax rate from the statutory federal rate, see Note D to the Consolidated Financial Statements in Item 8. For 2023, we anticipate a slightly higher full-year effective tax rate of approximately 17% due to higher taxes on foreign earnings.

In August 2022, the president signed into law the Inflation Reduction Act of 2022, which contained provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks, both of which we do not expect to have a material impact on our results of operations, financial condition or cash flows.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

Our total backlog, including funded and unfunded portions, was $91.1 billion on December 31, 2022, up 4% from $87.6 billion at the end of 2021. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note B to the Consolidated Financial Statements in Item 8. Our total estimated contract value, which combines total backlog with estimated potential contract value, was $127.7 billion on December 31, 2022.

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The following table details the backlog and estimated potential contract value of each segment at the end of 2022 and 2021:

For additional information about our major products and services in backlog see the Business discussion contained in Item 1.

AEROSPACE

Aerospace funded backlog represents primarily new aircraft orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to provide future aircraft maintenance and support services. The Aerospace segment ended 2022 with backlog of $19.5 billion, up 19.8% from $16.3 billion at year-end 2021.

Orders in 2022 reflected strong demand across our product and services portfolio, including orders for all models of Gulfstream aircraft. The segment’s book-to-bill ratio (orders divided by revenue) was 1.5-to-1 in 2022.

Beyond total backlog, estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On December 31, 2022, estimated potential contract value in the Aerospace segment was $685.

Demand for Gulfstream aircraft remains strong across customer types and geographic regions, generating orders from public and privately held companies, individuals, and governments around the world. Geographically, U.S. customers represented 70% of the segment’s orders in 2022 and 59% of the segment’s backlog on December 31, 2022, demonstrating continued strong domestic demand.

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The following represents Gulfstream aircraft (in units) in backlog by region on December 31, 2022:

DEFENSE SEGMENTS

The total backlog in our defense segments represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of total backlog includes items that have been authorized and appropriated by the U.S. Congress and funded by customers, as well as commitments by international customers that are approved and funded similarly by their governments. The unfunded portion of total backlog includes the amounts we believe are likely to be funded, but there is no guarantee that future budgets and appropriations will provide the same funding level currently anticipated for a given program.

Estimated potential contract value in our defense segments includes unexercised options associated with existing firm contracts and unfunded work on indefinite delivery, indefinite quantity (IDIQ) contracts. Contract options represent agreements to perform additional work under existing contracts at the election of the customer. We recognize options in backlog when the customer exercises the option and establishes a firm order. For IDIQ contracts, we evaluate the amount of funding we expect to receive and include this amount in our estimated potential contract value. This amount is often less than the total IDIQ contract value, particularly when the contract has multiple awardees. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value.

Total backlog in our defense segments was $71.6 billion on December 31, 2022, compared with $71.3 billion at year-end 2021. In 2022, the total book-to-bill ratio in our defense segments was 1-to-1. Estimated potential contract value in our defense segments was $35.9 billion on December 31, 2022, compared with $38.2 billion at year-end 2021.

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MARINE SYSTEMS

The Marine Systems segment’s backlog consists of very long-term submarine and surface ship construction programs, as well as numerous engineering and repair contracts. The segment’s book-to-bill ratio was 1.1-to-1 in 2022, resulting in backlog growth of 1.9% from year-end 2021 to $45.7 billion. The segment’s estimated potential contract value was $3.7 billion on December 31, 2022, compared with $4.3 billion at year-end 2021.

Significant contract awards in the Marine Systems segment during 2022 include:

•$5.4 billion from the Navy for the Columbia-class submarine program for advance procurement and advance construction of critical components and material to support follow-on submarines, efforts to support continuous missile tube production, enhancements to develop the submarine industrial base, and sustained class maintenance and support. The awards also include options totaling $585 of additional potential contract value.

•$2 billion from the Navy for long-lead materials and construction of an additional Expeditionary Sea Base (ESB) auxiliary support ship and two additional T-AO-205 oilers. The awards also include a $715 option for an additional T-AO-205 oiler.

•$1.2 billion from the Navy to provide maintenance, modernization and repair services for the DDG-51 destroyer, Wasp-class amphibious assault ship and Los Angeles-class submarine programs.

•$580 from the Navy for lead yard services, development studies and design efforts for Virginia-class submarines. The awards also include options totaling $320 of additional potential contract value.

•$235 from the Navy to provide engineering, technical, design and planning yard support services for operational strategic and attack submarines.

•$170 from the Navy for advanced nuclear plant studies (ANPS) in support of the Columbia-class submarine program.

•$145 from the Navy to provide ongoing planning and lead yard services for the DDG-51 destroyer program.

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The following represents the Marine Systems segment’s total estimated contract value by major program on December 31, 2022:

COMBAT SYSTEMS

The Combat Systems segment’s backlog consists of a mix of U.S. and international combat vehicles, weapons systems and munitions programs. The vehicle programs are generally long-term franchise programs, while the weapons systems and munitions programs tend to be shorter-term in nature. The segment’s backlog was up from year-end 2021 to $13.3 billion. The segment’s estimated potential contract value was $5.4 billion on December 31, 2022, compared with $6.9 billion at year-end 2021.

Significant contract awards in the Combat Systems segment during 2022 include:

•$1 billion for various munitions and ordnance with additional option value of $465.

•$410 from the U.S. Army to begin low-rate initial production (LRIP) of the Mobile Protected Firepower (MPF) vehicle. The contract has a maximum potential value of $1.1 billion.

•A contract worth up to $1.1 billion to produce Abrams main battle tanks in the system enhancement package version 3 (SEPv3) configuration for Poland.

•$770 from the Army for Abrams main battle tank upgrades, engineering and logistics support services, and system and sustainment technical support services.

•$760 from the Army for Stryker vehicle upgrades, spare parts, and inventory management and support services.

•$440 from the Army to produce Stryker M-SHORAD vehicles.

•$355 to produce Abrams main battle tanks in the SEPv3 configuration for Australia.

•$320 to upgrade Ulan tracked vehicles for Austria.

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•$230 to produce Piranha armored combat vehicles for Switzerland.

•$60 to produce M3 amphibious bridge systems for an international customer. The contract has a maximum potential value of $210.

The following represents the Combat Systems segment’s total estimated contract value by market on December 31, 2022:

TECHNOLOGIES

The Technologies segment’s backlog consists of thousands of contracts and task orders across a mix of U.S. and non-U.S. government and commercial customers. These contracts can be shorter-cycle or span multiple years, but commonly include a small, initially funded order. Therefore, our estimated potential contract value of $26.9 billion is an important indicator of future orders and revenue. In 2022, approximately 75% of the segment’s orders were from additional work on IDIQ contracts or the exercise of options. The segment’s total estimated contract value remained steady compared with year-end 2021.

Significant contract awards in the Technologies segment during 2022 include:

•An IDIQ contract from the National Geospatial-Intelligence Agency (NGA) to provide hybrid cloud services and IT design, engineering, and operations and sustainment services. The contract has a maximum potential value of $4.5 billion over 10 years.

•$1.6 billion for several key classified contracts.

•An IDIQ contract to provide IT infrastructure and modernization support services for the U.S. Air Forces in Europe under the Europe-Wide Information Technology and Enterprise Network (EITEN) program. The contract has a maximum potential value of $910.

•$80 from the U.S. Environmental Protection Agency for managed application, information, networking, enterprise and security services. The contract has a maximum potential value of $660.

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•An IDIQ contract from the Army to develop and field adversarial electronic warfare threat systems and capabilities in support of the Army’s test and training communities. The contract has a maximum potential value of $580.

•$375 from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.

•$160 from the U.S. Space Development Agency to build and operate ground systems for the new low-earth orbit (LEO) satellite network. The contract has a maximum potential value of $325.

•An IDIQ contract for the development and sustainment of applications and websites for the Administrative Office of the United States Courts (AOUSC). The contract has a maximum potential value of $300.

The following represents the Technologies segment’s total estimated contract value by customer on December 31, 2022:

LIQUIDITY AND CAPITAL RESOURCES

We place a strong emphasis on cash flow generation, which is underpinned by an operating discipline focused on cost control and working capital management. This emphasis gives us the flexibility for prudent capital deployment, while allowing us to step down debt over time, and preserves a strong balance sheet for future opportunities.

We evaluate a variety of capital deployment options based on current market conditions and our long-term outlook, and we believe agility is a key component of our capital deployment strategy as market conditions change over time. Our capital deployment priorities include investments in our products and services to drive long-term growth, a predictable dividend, strategic acquisitions and opportunistic share repurchases.

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We believe cash generated by operating activities, supplemented by commercial paper issuances, is sufficient to satisfy our short- and long-term liquidity needs. An additional potential source of capital is the issuance of long-term debt in capital market transactions.

We ended 2022 with a cash and equivalents balance of $1.2 billion compared with $1.6 billion at the end of 2021. The following is a discussion of our major operating, investing and financing activities in 2022 and 2021, as classified on the Consolidated Statement of Cash Flows in Item 8:

OPERATING ACTIVITIES

Cash provided by operating activities was $4.6 billion in 2022 compared with $4.3 billion in 2021. The primary driver of cash inflows in both years was net earnings. Cash flows in both years were affected positively by an increase in customer deposits driven by Gulfstream aircraft orders. While cash flows in 2021 were affected positively by a reduction in inventory from the sale of G500 flight-test aircraft in our Aerospace segment, cash flows in 2022 were affected negatively by growth in inventory related to new aircraft models awaiting certification from the U.S. Federal Aviation Administration (FAA).

INVESTING ACTIVITIES

Cash used by investing activities was $1.5 billion in 2022 and $882 in 2021. Our investing activities include cash paid for capital expenditures and business acquisitions; purchases, sales and maturities of marketable securities; and proceeds from asset sales.

Capital Expenditures. The primary use of cash for investing activities in both years was capital expenditures. Capital expenditures were $1.1 billion in 2022 and $887 in 2021. Capital expenditures have been at an elevated level the past two years as we continue to invest in our shipyards, particularly for the planned growth in submarine construction. Other capital expenditures include equipment and facility enhancements to support new and existing programs across our businesses. We expect capital expenditures to be just below 2.5% of revenue in 2023.

Business Acquisitions. In 2022, we acquired a provider of mission-critical embedded computing solutions for U.S. Navy platforms in our Technologies segment.

FINANCING ACTIVITIES

Cash used by financing activities was $3.5 billion in 2022 and $4.6 billion in 2021. Financing activities include the use of cash for repurchases of common stock, payment of dividends, and debt and commercial paper repayments. Our financing activities also include proceeds received from debt and commercial paper issuances and employee stock option exercises.

Dividends. On March 2, 2022, our board of directors declared an increased quarterly dividend of $1.26 per share, the 25th consecutive annual increase. Previously, the board had increased the quarterly

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dividend to $1.19 per share in March 2021. Cash dividends paid were $1.4 billion in 2022 and $1.3 billion in 2021.

Share Repurchases. Our board of directors from time to time authorizes management to repurchase outstanding shares of our common stock on the open market. We paid $1.2 billion and $1.8 billion in 2022 and 2021, respectively, to repurchase our outstanding shares. On December 31, 2022, 6.7 million shares remained authorized by our board of directors for repurchase, representing 2.4% of our total shares outstanding.

Debt Issuances and Repayments. In November 2022, we repaid fixed-rate notes of $1 billion at the scheduled maturity using cash on hand. Fixed-rate notes of $750 and $500 mature in May 2023 and August 2023, respectively. We currently plan to repay these notes at maturity using cash on hand, potentially supplemented by commercial paper or other borrowings. For additional information regarding our debt obligations, including scheduled debt maturities and interest rates, see Note K to the Consolidated Financial Statements in Item 8.

On December 31, 2022, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. Separately, we have a $4 billion committed bank credit facility for general corporate purposes and working capital needs and to support our commercial paper issuances. We also have an effective shelf registration on file with the Securities and Exchange Commission (SEC) that allows us to access the debt markets.

NON-GAAP FINANCIAL MEASURES

We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow and return on invested capital (ROIC) to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, GAAP measures.

Free Cash Flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles the free cash flow with net cash provided by operating activities, as classified on the Consolidated Statement of Cash Flows in Item 8:

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Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as net earnings plus after-tax interest and amortization expense, calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and average shareholders’ equity excluding accumulated other comprehensive loss. Average debt and average shareholders’ equity excluding accumulated other comprehensive loss are calculated using the respective balances at the end of the preceding year and the respective balances at the end of each of the four quarters of the year presented. ROIC excludes goodwill impairments and non-economic accounting changes as they are not reflective of company performance.

ROIC is calculated as follows:

CASH REQUIREMENTS

The following is a discussion of how we expect to meet the future cash requirements from known contractual and other obligations.

The majority of our revenue is derived from long-term contracts and programs that can span several years. We similarly enter into long-term agreements with suppliers and subcontractors for goods and services in support of these contracts and programs with payment terms that are generally aligned with the payment terms from our customers. In some instances, we require advance payments or deposits from our customers, which help fund our purchase commitments and reduce the risk of customer performance.

Additionally, we have significant liabilities under our defined benefit retirement plans. As these liabilities are settled using plan assets, our future cash requirements associated with these liabilities are generally limited to the annual cash contributions to these plans required in accordance with Internal Revenue Service (IRS) regulations. See Note S to the Consolidated Financial Statements in Item 8 for additional information.

Other obligations, such as scheduled principal and interest payments on our fixed-rate notes, and scheduled payments in accordance with our lease agreements are expected to be satisfied using cash generated from operations. See Notes J and K to the Consolidated Financial Statements in Item 8 for additional information.

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ADDITIONAL FINANCIAL INFORMATION

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We employ judgment in making our estimates, but they are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods presented.

In our opinion, the following policies are critical and require the use of significant judgment in their application:

Revenue. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue. A contract’s transaction price is allocated to each distinct performance obligation within that contract and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time.

Substantially all of our revenue in the defense segments is recognized over time because control is transferred continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses.

Most of our revenue recognized at a point in time is for the manufacture of business jet aircraft in our Aerospace segment. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

The majority of our revenue is derived from long-term contracts and programs that can span several years. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.

The nature of our contracts gives rise to several types of variable consideration, including claims, award fees and incentive fees. We include in our contract estimates additional revenue for contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs

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incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include award fees or incentive fees in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award experience, anticipated performance and our best judgment at the time.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. The aggregate impact of adjustments in contract estimates increased our operating earnings (and diluted earnings per share) by $370 ($1.05) in 2022 and $377 ($1.06) in 2021. While no adjustment on any one contract was material to the Consolidated Financial Statements in 2022 or 2021, our Marine Systems segment’s 2022 results were affected negatively by supply chain impacts to the Virginia-class submarine schedule, offset partially by improved performance on auxiliary and support ships.

Consistent with industry practice, we classify assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period.

Long-lived Assets and Goodwill. We review long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We assess the recoverability of the carrying value of assets held for use based on a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of the long-lived assets over the estimated fair value as determined by discounted cash flows.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually at each of our reporting units or when circumstances indicate that the likelihood of an impairment is greater than 50%. Such circumstances include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. Our reporting units are consistent with our operating segments in Note O to the Consolidated Financial Statements in Item 8. We use both qualitative and quantitative approaches when testing goodwill for impairment. When determining the approach to be used, we consider the current facts and circumstances of each reporting unit as well as the excess of each reporting unit’s estimated fair value over its carrying value based on our most recent quantitative assessments. Our qualitative approach evaluates the business environment and various events impacting the reporting unit including, but not limited to, macroeconomic conditions, changes in the business environment and reporting unit-specific events. If, based on the qualitative assessment, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then a quantitative assessment is not necessary. However, if a quantitative assessment is determined to be necessary, we compare the fair value of a reporting unit to its carrying value and, if necessary, recognize an impairment loss for the amount by which the carrying value exceeds the reporting unit’s fair value.

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Our estimate of fair value is based primarily on the discounted cash flows of the underlying operations and requires the use of judgment by management. The process requires numerous assumptions, including the timing of work embedded in our backlog, our performance and profitability under our contracts, our success in securing future business, the appropriate risk-adjusted interest rate used to discount the projected cash flows, and terminal-value growth rates applied to the final year of projected cash flows. Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis. To assess the reasonableness of our discounted cash flows, we compare the sum of our reporting units’ fair value to our market capitalization. Additionally, we evaluate the reasonableness of each reporting unit’s fair value by comparing the fair value to peer companies and recent relevant market transactions.

In the fourth quarter of 2022, we completed qualitative assessments for our Aerospace, Marine Systems and Combat Systems reporting units as the estimated fair values of each of the reporting units significantly exceeded the respective carrying values based on our most recent quantitative assessments, which were performed in the fourth quarter of 2018. Our qualitative assessments did not present indicators of impairment for the reporting units.

In the fourth quarter of 2022, we completed a quantitative assessment for our Technologies reporting unit, and the results indicated that no impairment existed. The Technologies reporting unit’s estimated fair value exceeded its carrying value by approximately 25%. The fair value of the Technologies reporting unit decreased since our previous quantitative assessment, performed in the fourth quarter of 2020, driven by the negative impact of increased interest rates on our discounted projected cash flows. As a result, a material decrease in the fair value or increase in carrying value would put the reporting unit at risk of goodwill impairment. For example, a 50-basis-point increase in interest rates would lower our discounted projected cash flows and negatively impact the fair value of the Technologies reporting unit, reducing the cushion to approximately 15%. We believe the projections and assumptions we used in estimating fair value are reasonable, but it is possible actual experience could differ.

Commitments and Contingencies. We are subject to litigation and other legal proceedings arising either from the normal course of business or under provisions relating to the protection of the environment. Estimating liabilities and costs associated with these matters requires the use of judgment. We record a charge against earnings when a liability associated with claims or pending or threatened litigation is probable and when our exposure is reasonably estimable. The ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

Retirement Plans. Our pension and other post-retirement benefit costs and obligations depend on several assumptions and estimates, which are based on our best judgment, including consideration of current and future market conditions. For a discussion of our assumptions and any changes to these assumptions, as well as the impact of these changes, which is reported as an actuarial gain or loss in the reconciliation of the change in the benefit obligation, see Note S to the Consolidated Financial Statements in Item 8. The key assumption is the interest rates used to discount estimated future pension benefits. We base the discount rates on a current yield curve developed from a portfolio of high-quality, fixed-income investments with maturities consistent with the projected benefit payout period. The effect of a 25-basis-point increase or decrease in the discount rate assumption on the December 31, 2022, pension benefit obligation is ($319) and $334, respectively.

As described in Note S to the Consolidated Financial Statements in Item 8, our contractual arrangements with the U.S. government provide for the recovery of benefit costs for our government retirement plans. We have elected to defer recognition of the benefit costs until such costs can be

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allocated to contracts. Therefore, the impact of annual changes in financial reporting assumptions on the retirement benefit cost for these plans does not immediately affect our operating results.

GUARANTOR FINANCIAL INFORMATION

The outstanding notes described in Note K to the Consolidated Financial Statements in Item 8, issued by General Dynamics Corporation (the parent), are fully and unconditionally guaranteed on an unsecured, joint and several basis by several of the parent’s 100%-owned subsidiaries (the guarantors). The guarantee of each guarantor ranks equally in right of payment with all other existing and future senior unsecured indebtedness of such guarantor. A listing of the guarantors is included in an exhibit to this Form 10-K.

Because the parent is a holding company, its cash flow and ability to service its debt, including the outstanding notes, depends on the performance of its subsidiaries and the ability of those subsidiaries to distribute cash to the parent, whether by dividends, loans or otherwise. Holders of the outstanding notes have a direct claim only against the parent and the guarantors.

Under the relevant indenture, the guarantee of each guarantor is limited to the maximum amount that can be guaranteed without rendering the guarantee voidable under applicable laws relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each indenture also provides that, in the event (1) of a merger, consolidation or sale or disposition of all or substantially all of the assets of a guarantor (other than a transaction with the parent or any of its subsidiaries) or (2) there occurs a transfer, sale or other disposition of the voting stock of a guarantor so that the guarantor is no longer a subsidiary of the parent, then the guarantor or the entity acquiring the assets (in the event of the sale or other disposition of all or substantially all of the assets of a guarantor) will be released and relieved of any obligations under the guarantee.

The following summarized financial information presents the parent and guarantors (collectively, the combined obligor group) on a combined basis. The summarized financial information of the combined obligor group excludes net investment in and earnings of subsidiaries related to interests held by the combined obligor group in subsidiaries that are not guarantors of the notes.

STATEMENT OF EARNINGS INFORMATION

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BALANCE SHEET INFORMATION

The summarized balance sheet information presented above includes the funded status of the company’s primary qualified U.S. government pension plans as the parent has the ultimate obligation for the plans.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per-share amounts or unless otherwise noted)

For an overview of our operating segments, including a discussion of our major products and services, see the Business discussion contained in Item 1. The following discussion of our financial condition and results of operations for 2021 compared with 2020 should be read in conjunction with our Consolidated Financial Statements included in Item 8, while a discussion of 2020 compared with 2019 can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

BUSINESS ENVIRONMENT

GLOBAL PANDEMIC UPDATE

The coronavirus (COVID-19) pandemic has caused significant disruptions to national and global economies and government activities since March 2020. During this time, we have continued to conduct our operations while responding to the pandemic with actions to mitigate adverse consequences to our employees, business, supply chain and customers. Consistent with our prioritization of the health and safety of our employees, we continue to encourage and promote vaccination across the company. Any long-term impact to our business is currently unknown due to the uncertainty around the pandemic’s duration and its broader impact. For additional information, see the Risk Factors in Part I, Item 1A.

The United States and other governments have taken several steps to respond to the pandemic. On September 9, 2021, the president signed Executive Order 14042, initiating a process whereby covered federal contractors and subcontractors must implement federally required vaccine mandates. A clause implementing the federal contractor vaccine mandate has been incorporated into a number of our federal contracts. In light of certain court orders, however, the Office of Management and Budget has stated that the U.S. government will not take action to enforce this clause until further notice. If ultimately upheld, this federal contract requirement may affect various business units differently. We are working closely with our customer to ensure that we minimize disruptions and potential employee attrition in the event that applicable contract modifications are enforceable and as additional modifications are received that could trigger implementation. To the extent that we or our subcontractors experience employee attrition and/or work stoppages, our costs could increase, schedules could slip on affected programs and our ability to perform under some contracts could be negatively affected, particularly in those instances where we cannot receive cost reimbursement.

Our Aerospace segment’s operating results have experienced the most significant impact from the pandemic. New aircraft deliveries in 2021 reflected our decision in 2020 to reduce production rates to accommodate supply chain challenges and reduced demand due to the pandemic. However, aircraft demand has been strong in 2021, with orders reaching their highest level in over a decade. Similarly, demand for aircraft services has improved as air travel has increased, but remains below pre-pandemic levels in some regions of the world. Our U.S. government business continues to experience some disruption from the COVID-19 pandemic, particularly in our Technologies segment. The Review of Operating Segments includes additional information on the impacts of the pandemic for the affected segments.

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OUR MARKETS

With approximately 70% of our revenue from the U.S. government, government spending levels — particularly defense spending — influence our financial performance. The Congress has not yet passed a defense appropriations bill for the government’s fiscal year (FY) 2022 despite the fact that the new year began on October 1, 2021. However, on December 3, 2021, a continuing resolution (CR) was signed into law, providing funding for federal agencies through February 18, 2022. When the government operates under a CR, all programs of record are funded at the prior year’s appropriated levels, and the Department of Defense (DoD) is prohibited from starting new programs. While this could result in delayed revenue growth as programs that were expected to have increased funding levels continue to operate at the prior-year levels until the current-year appropriations bill is passed, we do not anticipate that the current CR, or any subsequent extensions, will have a material impact on our results of operations, financial condition or cash flows.

The long-term outlook for our U.S. defense business is influenced by the U.S. military’s funding priorities, the diversity of our programs and customers, our insight into customer requirements stemming from our incumbency on core programs, our ability to evolve our products to address a fast-changing threat environment and our proven track record of successful contract execution.

International demand for military equipment and technologies presents opportunities for our non-U.S. operations and exports from our North American businesses. While the revenue potential can be significant, there are risks to doing business in foreign countries, including changing budget priorities and overall spending pressures unique to each country.

In our Aerospace segment, we expect our investment in the development of new aircraft products and technologies to support the segment’s long-term growth. Similarly, we believe the aircraft services business will be a source of steady revenue growth as the global business jet fleet continues to grow and the impact of the pandemic subsides.

OTHER LEGISLATIVE ACTIVITY

In November 2021, the U.S. House of Representatives passed the Build Back Better Act (BBBA), which provides for changes to U.S. corporate income taxation. BBBA would delay until 2026 the requirement to capitalize and amortize over five years certain research and experimental expenditures beginning in 2022 that were previously deductible immediately.

We cannot determine whether some or all of the proposals that were included in BBBA will be enacted into law or what, if any, change may be made to such proposals prior to enactment. If the requirement to capitalize and amortize research and experimental expenditures were delayed via passage of BBBA or other legislation, it would delay the temporary increase in our tax payments otherwise beginning in 2022 that would be caused by the capitalization requirement.

RESULTS OF OPERATIONS

INTRODUCTION

The following paragraphs explain how we recognize revenue and operating costs in our operating segments and the terminology we use to describe our operating results.

In the Aerospace segment, we record revenue on contracts for new aircraft when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully

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outfitted aircraft. Revenue associated with the segment’s custom completions of narrow-body and wide-body aircraft and the segment’s services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, progress on aircraft completions, and the level and type of aircraft services performed during the period.

The majority of the Aerospace segment’s operating costs relates to new aircraft production on firm orders and consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely on the number and type of aircraft delivered. Operating costs in the Aerospace segment’s completions and services businesses are recognized generally as incurred.

For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Aircraft mix can also refer to the stage of program maturity for our aircraft models. A new aircraft model typically has lower margins in its initial production lots, and then margins generally increase as we realize efficiencies in the production process. Additional factors affecting the segment’s earnings and margin include the volume, mix and profitability of completions and services work performed, the market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the segment.

In the defense segments, revenue on long-term government contracts is recognized generally over time as the work progresses, either as products are produced or as services are rendered. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses. Variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts. Because costs are used as a measure of progress, year-over-year variances in cost result in corresponding variances in revenue, which we generally refer to as volume.

Operating earnings and margin in the defense segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value (or vice versa) that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Higher or lower margins can result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) and type of work (e.g., development/production). Contract mix can also refer to the stage of program maturity for our long-term production contracts. New long-term production contracts typically have lower margins initially, and then margins generally increase as we achieve learning curve improvements or realize other cost reductions.

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CONSOLIDATED OVERVIEW

2021 IN REVIEW

•Strong operating performance:

◦Revenue of $38.5 billion, an increase of 1.4% from 2020.

◦Operating earnings of $4.2 billion with sequential growth throughout the year.

◦Diluted earnings per share of $11.55, up 5% from 2020.

◦Cash provided by operating activities of $4.3 billion, or 131% percent of net earnings.

•Backlog of $87.6 billion, supporting our long-term growth expectations:

◦Significant Gulfstream aircraft order activity, including orders for the recently announced G400 and G800 aircraft.

Our consolidated revenue increased in 2021 driven by growth in U.S. Navy ship construction in our Marine Systems segment. Higher aircraft services activity was offset by a planned reduction in aircraft deliveries in our Aerospace segment. Lower C5ISR solutions revenue was offset partially by increased IT services activity in our Technologies segment and international vehicle revenue in our Combat Systems segment. Operating margin remained steady in 2021.

REVIEW OF OPERATING SEGMENTS

Following is a discussion of operating results and outlook for each of our operating segments. For the Aerospace segment, results are analyzed by specific types of products and services, consistent with how the segment is managed. For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results. Additional information regarding our segments can be found in Note O to the Consolidated Financial Statements in Item 8.

AEROSPACE

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Operating Results

The increase in the Aerospace segment’s revenue in 2021 consisted of the following:

Aircraft services revenue was higher in 2021 due to increased air travel driving additional demand for maintenance work and activity at our fixed-base operator (FBO) facilities. Aircraft manufacturing revenue decreased in 2021 due to fewer aircraft deliveries, reflecting the full impact of our decision in 2020 to reduce aircraft production rates in response to the COVID-19 pandemic.

The change in the segment’s operating earnings in 2021 consisted of the following:

Aircraft manufacturing operating earnings were down in 2021 due to the planned reduced aircraft production and delivery rates and mark-to-market adjustments related to G500 test aircraft. In 2021, aircraft manufacturing operating earnings were also impacted negatively by the settlement of claims with a supplier related to the assignment of warranties following the end of G550 production.

These decreases were offset partially by increased aircraft services operating earnings due to higher volume and a favorable mix of aircraft services. The operating earnings variance also reflects restructuring actions taken in 2020 to adjust the workforce size to the revised production levels.

Operating earnings in 2021 reflected higher G&A/other expenses due primarily to increased R&D expenses associated with ongoing product development efforts, including flight test activities for the G700, which is scheduled to enter service in the fourth quarter of 2022. In total, the Aerospace segment’s operating margin decreased 70 basis points in 2021 to 12.7%.

2022 Outlook

We expect the Aerospace segment’s 2022 revenue to increase to approximately $8.4 billion due to increased new aircraft deliveries with operating margin of approximately 12.8%. We expect aircraft deliveries to continue to increase in 2023 and 2024, resulting in additional revenue growth of $2 billion in 2023 and $1.6 billion in 2024 and operating margin expansion of 200 basis points and 100 basis points, respectively.

MARINE SYSTEMS

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Operating Results

The increase in the Marine Systems segment’s revenue in 2021 consisted of the following:

Revenue from U.S. Navy ship construction was up across our shipyards in 2021 due to increased volume on the Columbia-class submarine program, the John Lewis-class (T-AO-205) fleet replenishment oiler program and the Arleigh Burke-class (DDG-51) destroyer program. These increases were offset partially by delivery of our last commercial containership in backlog in 2020 and lower volume on the Columbia-class design contract. Overall, the Marine Systems segment’s operating margin decreased 30 basis points in 2021, reflecting the shift in mix to early work on new submarine programs with typical lower initial profit rates.

2022 Outlook

We expect the Marine Systems segment’s 2022 revenue to be approximately $10.8 billion. Operating margin is expected to be approximately 8.6% as each shipyard continues to come down the learning curve on their major construction programs.

COMBAT SYSTEMS

Operating Results

The increase in the Combat Systems segment’s revenue in 2021 consisted of the following:

Revenue was up in the Combat Systems segment in 2021 due to higher volume on international wheeled vehicle programs, including contracts to produce armored combat support vehicles (ACSVs) and light armored vehicles (LAVs) for the Canadian government and a variety of wheeled and tactical vehicles for a number of European customers. Volume was also up on U.S. Stryker wheeled combat vehicles, particularly in support of the maneuver short-range air defense (M-SHORAD) variant. The Combat Systems segment’s operating margin increased 10 basis points compared with 2020 driven by favorable contract mix and strong operating performance.

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2022 Outlook

We expect the Combat Systems segment’s 2022 revenue to be between $7.15 and $7.25 billion with operating margin of approximately 14.5%.

TECHNOLOGIES

Operating Results

The change in the Technologies segment’s revenue in 2021 consisted of the following:

*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance

C5ISR solutions revenue decreased due to timing on several international programs, and supply chain shortages and impacts to U.S. government acquisition cycles resulting from the COVID-19 pandemic. The decrease in C5ISR solutions revenue was also due to approximately $115 of revenue in 2020 from a satellite communications business that was sold in the second quarter of that year. These decreases were offset partially by increased IT services revenue due to the ramp up of several new programs and higher volume on existing programs due to the reopening of, and increased access to, customer sites following limitations imposed in 2020 due to the pandemic.

The Technologies segment’s operating margin increased 60 basis points compared with 2020 due to favorable contract mix and reduced COVID-related impacts in our IT services business, particularly customer reimbursement of idle workforce cost at zero fee in 2020 and early 2021. Additionally, operating results in 2020 included an approximate $40 loss on a contract with a non-U.S. customer from schedule delays caused by COVID-related travel restrictions, offset partially by a gain on the sale of the satellite communications business.

2022 Outlook

We expect the Technologies segment’s 2022 revenue to be between $12.8 and $13 billion with operating margin of around 10%.

CORPORATE

Corporate operating results totaled $84 in 2021 and $56 in 2020 and consisted primarily of equity-based compensation expense. Corporate operating costs are expected to be approximately $110 in 2022, driven by accelerated recognition of stock option expense.

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OTHER INFORMATION

PRODUCT AND SERVICE REVENUE AND OPERATING COSTS

The increase in product revenue in 2021 consisted of the following:

Ship construction revenue increased driven by higher U.S. Navy ship construction volume across our shipyards. This increase was offset partially by lower aircraft manufacturing revenue due to fewer aircraft deliveries and revenue in 2020 from a satellite communications business that was sold in the second quarter of that year. In 2021, the primary drivers of the changes in product operating costs were the changes in volume described above.

The increase in service revenue in 2021 consisted of the following:

Services revenue increased due to higher aircraft services revenue driven by additional maintenance work and FBO activity, and the ramp up of several new IT services programs and higher volume on existing programs. In 2021, the primary drivers of the changes in service operating costs were the changes in volume described above.

G&A EXPENSES

As a percentage of revenue, G&A expenses were 5.8% in 2021 and 2020. We expect G&A expenses as a percentage of revenue in 2022 to be generally consistent with 2021.

OTHER, NET

Net other income was $134 in 2021 and $82 in 2020 and represents primarily the non-service components of pension and other post-retirement benefits. In 2022, we expect net other income to be approximately $170, reflecting continued growth in income from the non-service components of pension and other post-retirement benefits.

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INTEREST, NET

Net interest expense was $424 in 2021 and $477 in 2020. See Note K to the Consolidated Financial Statements in Item 8 for additional information regarding our debt obligations, including interest rates. We expect 2022 net interest expense to be approximately $380, reflecting repayment of our scheduled debt maturities in 2021.

PROVISION FOR INCOME TAX, NET

Our effective tax rate was 15.9% in 2021 and 15.3% in 2020. For further discussion, including a reconciliation of our effective tax rate from the statutory federal rate, see Note D to the Consolidated Financial Statements in Item 8. For 2022, we anticipate a full-year effective tax rate of approximately 16%.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

Our total backlog, including funded and unfunded portions, was $87.6 billion on December 31, 2021. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note B to the Consolidated Financial Statements in Item 8. Our total estimated contract value, which combines total backlog with estimated potential contract value, was $127.5 billion on December 31, 2021.

The following table details the backlog and estimated potential contract value of each segment at the end of 2021 and 2020:

For additional information about our major products and services in backlog see the Business discussion contained in Item 1.

AEROSPACE

Aerospace funded backlog represents new aircraft and custom completion orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to

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provide future aircraft maintenance and support services. The Aerospace segment ended 2021 with backlog of $16.3 billion, up 40% from $11.6 billion at year-end 2020.

Reflecting strong demand across our aircraft portfolio, orders in 2021 were the highest in more than a decade. The segment’s book-to-bill ratio (orders divided by revenue) was 1.6-to-1 in 2021. Our December 31, 2021, backlog included orders for the new G400 and G800 aircraft, which are scheduled to enter service in 2025 and 2023, respectively.

Beyond total backlog, estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On December 31, 2021, estimated potential contract value in the Aerospace segment was $1.7 billion.

Demand for Gulfstream aircraft remains strong across customer types and geographic regions, generating orders from public and privately held companies, individuals, and governments around the world. Geographically, U.S. customers represented approximately 70% of the segment’s orders in 2021 and 57% of the segment’s backlog on December 31, 2021, demonstrating continued strong domestic demand.

The following represents Gulfstream aircraft (in units) in backlog by region on December 31, 2021:

DEFENSE SEGMENTS

The total backlog in our defense segments represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of total backlog includes items that have been authorized and appropriated by the U.S. Congress and funded by customers, as well as commitments by international customers that are approved and funded similarly by their governments. The unfunded portion of total backlog includes the amounts we believe are likely to be funded, but there is no guarantee that future budgets and appropriations will provide the same funding level currently anticipated for a given program.

Estimated potential contract value in our defense segments includes unexercised options associated with existing firm contracts and unfunded work on indefinite delivery, indefinite quantity (IDIQ)

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contracts. Contract options represent agreements to perform additional work under existing contracts at the election of the customer. We recognize options in backlog when the customer exercises the option and establishes a firm order. For IDIQ contracts, we evaluate the amount of funding we expect to receive and include this amount in our estimated potential contract value. This amount is often less than the total IDIQ contract value, particularly when the contract has multiple awardees. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value.

Total backlog in our defense segments was $71.3 billion on December 31, 2021, compared with $77.9 billion at year-end 2020, due primarily to continued performance on significant multi-year contracts in the Marine Systems segment. The Technologies segment achieved a book-to-bill ratio of 1-to-1 in 2021. Estimated potential contract value in our defense segments was $38.2 billion on December 31, 2021, compared with $42.4 billion at year-end 2020.

MARINE SYSTEMS

The Marine Systems segment’s backlog consists of very long-term submarine and surface ship construction programs, as well as numerous engineering and repair contracts. The segment’s backlog and estimated potential contract value were down compared with year-end 2020 due to continued performance on significant multi-year contracts.

We received the following significant contract awards in the Marine Systems segment during 2021:

•$1.9 billion from the Navy for the construction of a tenth submarine in Block V of the Virginia-class submarine program.

•$1.4 billion from the Navy to provide ongoing lead yard services for the Virginia-class and Columbia-class submarine programs.

•$385 from the Navy for advanced nuclear plant studies (ANPS) in support of the Columbia-class submarine program.

•$355 from the Navy to provide maintenance and repair services for the DDG-51 destroyer, San Antonio-class amphibious transport dock, Ticonderoga-class guided-missile cruiser, Whidbey Island-class dock landing ship, Los Angeles-class submarine and Nimitz-class aircraft carrier programs.

•$140 from the Navy to provide ongoing planning and lead yard services for the DDG-51 destroyer program.

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The following represents the Marine Systems segment’s total estimated contract value by major program on December 31, 2021:

COMBAT SYSTEMS

The Combat Systems segment’s backlog consists of a mix of U.S. and international combat vehicles, weapons systems and munitions programs. The vehicle programs are generally long-term, franchise programs, while the weapons systems and munitions programs tend to be shorter-term in nature. The segment’s backlog and estimated potential contract value were down compared with year-end 2020 due to continued performance on significant multi-year contracts.

We received the following significant contract awards in the Combat Systems segment during 2021:

•$845 from the U.S. Army for Stryker vehicle upgrades, inventory management and support services.

•$665 for various munitions, ordnance and missile subcomponents.

•$555 to produce Piranha 5 wheeled armored vehicles and provide associated support services to the Romanian Armed Forces.

•$435 from the Army to produce Stryker M-SHORAD vehicles.

•$360 from the Army for Abrams main battle tank upgrades, mission control units and systems technical support.

•$305 for the production of an M1A2 Abrams tank variant for an international customer.

•$175 from the Army for the production of Hydra-70 rockets.

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The following represents the Combat Systems segment’s total estimated contract value by market on December 31, 2021:

TECHNOLOGIES

The Technologies segment’s backlog consists of thousands of contracts and task orders across a mix of U.S. and non-U.S. government and commercial customers. These contracts can be shorter-cycle or span multiple years, but commonly include a small, initially funded order. Therefore, our estimated potential contract value of $27 billion is an important indicator of future orders and revenue. In 2021, approximately 60% of the segment’s orders were from additional work on IDIQ contracts or the exercise of options. Our total estimated contract value decreased slightly in 2021 driven by impacts to customer acquisition cycles resulting from the COVID-19 pandemic.

We received the following significant contract awards in the Technologies segment during 2021:

•A contract to provide IT and technical support services to the Defense Intelligence Agency (DIA) and the National Geospatial-Intelligence Agency (NGA) under the Solutions for the Information Technology Enterprise (SITE) III program. The program has a maximum potential value of $12.6 billion among multiple awardees.

•$2.5 billion for several key contracts for classified customers and additional IDIQ awards with a maximum potential value of $4.2 billion among multiple awardees.

•An IDIQ contract to provide ship, carrier, submarine and service craft modernization for the Navy. The program has a maximum potential value of $805 among multiple awardees.

•$355 to design, develop, implement and operate a state’s healthcare exchange. The contract has a maximum potential value of $600.

•$35 for hardware, software and logistics sustainment support for the Army. The contract has a maximum potential value of $535.

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•$395 from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.

•$285 from the Centers for Medicare and Medicaid Services (CMS) for several contracts, including work to provide cloud services and software tools.

The following represents the Technologies segment’s total estimated contract value by customer on December 31, 2021:

LIQUIDITY AND CAPITAL RESOURCES

We place a strong emphasis on cash flow generation, which is underpinned by an operating discipline focused on cost control and working capital management. This emphasis gives us the flexibility for prudent capital deployment, while allowing us to step down debt over time, and preserves a strong balance sheet for future opportunities.

We evaluate a variety of capital deployment options based on current market conditions and our long-term outlook, and we believe agility is a key component of our capital deployment strategy as market conditions change over time. Our capital deployment priorities include investments in our products and services to drive long-term growth, a predictable dividend, strategic acquisitions and opportunistic share repurchases.

We believe cash generated by operating activities, supplemented by commercial paper issuances, is sufficient to satisfy our short- and long-term liquidity needs. An additional potential source of capital is the issuance of long-term debt in capital market transactions.

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We ended 2021 with a cash and equivalents balance of $1.6 billion compared with $2.8 billion at the end of 2020. The following is a discussion of our major operating, investing and financing activities in 2021 and 2020, as classified on the Consolidated Statement of Cash Flows in Item 8:

OPERATING ACTIVITIES

Cash provided by operating activities was $4.3 billion in 2021 compared with $3.9 billion in 2020. The primary driver of cash inflows in both years was net earnings. Cash flows in 2021 were affected positively by an increase in customer deposits driven by Gulfstream aircraft orders and the continued reduction in inventory from the sale of G500 flight-test aircraft in our Aerospace segment. Cash flows in 2020 were affected negatively by the change in customer deposits and inventory in our Aerospace segment due to our position in the development and production cycles of our Gulfstream aircraft models.

INVESTING ACTIVITIES

Cash used by investing activities was $882 in 2021 and $974 in 2020. Our investing activities include cash paid for capital expenditures and business acquisitions; purchases, sales and maturities of marketable securities; and proceeds from asset sales.

Capital Expenditures. The primary use of cash for investing activities in both years was capital expenditures. Capital expenditures were $887 in 2021 and $967 in 2020. Capital expenditures have been at an elevated level the past two years as we continue to invest in our shipyards, particularly for the planned growth in submarine construction. Other capital expenditures include equipment and facility enhancements to support new and existing programs across our businesses. We expect capital expenditures to be approximately 2.5% of revenue in 2022.

FINANCING ACTIVITIES

Cash used by financing activities was $4.6 billion in 2021 and $903 in 2020. Financing activities include the use of cash for repurchases of common stock, payment of dividends, and debt and commercial paper repayments. Our financing activities also include a source of cash from proceeds received from debt and commercial paper issuances and employee stock option exercises.

Dividends. On March 3, 2021, our board of directors declared an increased quarterly dividend of $1.19 per share, the 24th consecutive annual increase. Previously, the board had increased the quarterly dividend to $1.10 per share in March 2020. Cash dividends paid were $1.3 billion in 2021 and $1.2 billion in 2020.

Share Repurchases. Our board of directors from time to time authorizes management to repurchase outstanding shares of our common stock on the open market. We paid $1.8 billion and $587 in 2021 and 2020, respectively, to repurchase our outstanding shares. On December 31, 2021, 12.1 million shares remained authorized by our board of directors for repurchase, representing 4.3% of our total shares outstanding.

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Debt Issuances and Repayments. In May 2021, we issued $1.5 billion of fixed-rate notes. The proceeds, together with cash on hand and commercial paper issuances, were used to repay fixed- and floating-rate notes totaling $2.5 billion that matured in May 2021 and for general corporate purposes. In July 2021, we repaid an additional $500 of fixed-rate notes at the scheduled maturity. Fixed-rate notes of $1 billion mature in November 2022, and we currently plan to repay these notes using cash on hand, potentially supplemented by commercial paper or other borrowings. For additional information regarding our debt obligations, including scheduled debt maturities and interest rates, see Note K to the Consolidated Financial Statements in Item 8.

On December 31, 2021, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. Separately, we have $5 billion in committed bank credit facilities for general corporate purposes and working capital needs and to support our commercial paper issuances. We also have an effective shelf registration on file with the Securities and Exchange Commission (SEC) that allows us to access the debt markets.

NON-GAAP FINANCIAL MEASURES

We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow from operations and return on invested capital (ROIC) to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, other GAAP measures.

Free Cash Flow. We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities, as classified on the Consolidated Statement of Cash Flows in Item 8:

Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as net earnings plus after-tax interest and amortization expense, calculated using the

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statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and average shareholders’ equity excluding accumulated other comprehensive loss. Average debt and average shareholders’ equity excluding accumulated other comprehensive loss are calculated using the respective balances at the end of the preceding year and the respective balances at the end of each of the four quarters of the year presented. ROIC excludes goodwill impairments and non-economic accounting changes as they are not reflective of company performance.

ROIC is calculated as follows:

CASH REQUIREMENTS

The following is a discussion of how we expect to meet the future cash requirements from known contractual and other obligations.

The majority of our revenue is derived from long-term contracts and programs that can span several years. We similarly enter into long-term agreements with suppliers and subcontractors for goods and services in support of these contracts and programs with payment terms that are generally aligned with the payment terms from our customers. In some instances, we require advance payments or deposits from our customers, which help fund our purchase commitments and reduce the risk of customer performance.

Additionally, we have significant liabilities under our defined benefit retirement plans. As these liabilities are settled using plan assets, our future cash requirements associated with these liabilities are generally limited to the annual cash contributions to these plans required in accordance with Internal Revenue Service (IRS) regulations. See Note S to the Consolidated Financial Statements in Item 8 for additional information.

Other obligations, such as scheduled principal and interest payments on our fixed-rate notes, and scheduled payments in accordance with our lease agreements are expected to be satisfied using cash generated from operations. See Notes J and K to the Consolidated Financial Statements in Item 8 for additional information.

ADDITIONAL FINANCIAL INFORMATION

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent

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assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We employ judgment in making our estimates, but they are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods presented.

In our opinion, the following policies are critical and require the use of significant judgment in their application:

Revenue. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue. A contract’s transaction price is allocated to each distinct performance obligation within that contract and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time.

Substantially all of our revenue in the defense segments is recognized over time, because control is transferred continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses.

Most of our revenue recognized at a point in time is for the manufacture of business jet aircraft in our Aerospace segment. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

The majority of our revenue is derived from long-term contracts and programs that can span several years. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.

The nature of our contracts gives rise to several types of variable consideration, including claims, award fees and incentive fees. We include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include award fees or incentive fees in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award experience, anticipated performance and our best judgment at the time.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of

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the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. The aggregate impact of adjustments in contract estimates increased our operating earnings (and diluted earnings per share) by $377 ($1.06) in 2021 and $283 ($0.78) in 2020. No adjustment on any one contract was material to the Consolidated Financial Statements in 2021 or 2020.

Consistent with industry practice, we classify assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period.

Long-lived Assets and Goodwill. We review long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We assess the recoverability of the carrying value of assets held for use based on a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of the long-lived assets over the estimated fair value as determined by discounted cash flows.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually at each of our reporting units or when circumstances indicate that the likelihood of an impairment is greater than 50%. Such circumstances include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. Our reporting units are consistent with our operating segments in Note O to the Consolidated Financial Statements in Item 8. We use both qualitative and quantitative approaches when testing goodwill for impairment. When determining the approach to be used, we consider the current facts and circumstances of each reporting unit as well as the excess of each reporting unit’s estimated fair value over its carrying value based on our most recent quantitative assessments. Our qualitative approach evaluates the business environment and various events impacting the reporting unit including, but not limited to, macroeconomic conditions, changes in the business environment and reporting unit-specific events. If, based on the qualitative assessment, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then a quantitative assessment is not necessary. However, if a quantitative assessment is determined to be necessary, we compare the fair value of a reporting unit to its carrying value and, if necessary, recognize an impairment loss for the amount by which the carrying value exceeds the reporting unit’s fair value.

Our estimate of fair value is based primarily on the discounted cash flows of the underlying operations and requires the use of judgment by management. The process requires numerous assumptions, including the timing of work embedded in our backlog, our performance and profitability under our contracts, our success in securing future business, the appropriate risk-adjusted interest rate used to discount the projected cash flows, and terminal-value growth rates applied to the final year of projected cash flows. Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis. To assess the reasonableness of our discounted cash flows, we compare the sum of our reporting units’ fair value to our market capitalization. Additionally, we evaluate the reasonableness of each reporting unit’s fair value by comparing the fair value to peer companies and recent relevant market transactions.

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As of December 31, 2021, we completed qualitative assessments for our reporting units as the estimated fair values of each of the reporting units significantly exceeded the respective carrying values based on our most recent quantitative assessments, which were performed as of December 31, 2018, for the Aerospace, Marine Systems and Combat Systems reporting units, and as of December 31, 2020, for the Technologies reporting unit. Our qualitative assessments, including consideration of the impact of the COVID-19 pandemic, did not present indicators of impairment for the reporting units.

Commitments and Contingencies. We are subject to litigation and other legal proceedings arising either from the normal course of business or under provisions relating to the protection of the environment. Estimating liabilities and costs associated with these matters requires the use of judgment. We record a charge against earnings when a liability associated with claims or pending or threatened litigation is probable and when our exposure is reasonably estimable. The ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

Retirement Plans. Our pension and other post-retirement benefit costs and obligations depend on several assumptions and estimates, which are based on our best judgment, including consideration of current and future market conditions. For a discussion of our assumptions and any changes to these assumptions, as well as the impact of these changes, which is reported as an actuarial gain or loss in the reconciliation of the change in the benefit obligation, see Note S to the Consolidated Financial Statements in Item 8. The key assumption is the interest rates used to discount estimated future pension benefits. We base the discount rates on a current yield curve developed from a portfolio of high-quality, fixed-income investments with maturities consistent with the projected benefit payout period. The effect of a 25-basis-point increase or decrease in the discount rate assumption on the December 31, 2021, pension benefit obligation is ($509) and $536, respectively.

As described under Other Contract Costs in Note A to the Consolidated Financial Statements in Item 8, our contractual arrangements with the U.S. government provide for the recovery of benefit costs for our government retirement plans. We have elected to defer recognition of the benefit costs until such costs can be allocated to contracts. Therefore, the impact of annual changes in financial reporting assumptions on the retirement benefit cost for these plans does not immediately affect our operating results.

GUARANTOR FINANCIAL INFORMATION

The outstanding notes described in Note K to the Consolidated Financial Statements in Item 8, issued by General Dynamics Corporation (the parent), are fully and unconditionally guaranteed on an unsecured, joint and several basis by several of the parent’s 100%-owned subsidiaries (the guarantors). The guarantee of each guarantor ranks equally in right of payment with all other existing and future senior unsecured indebtedness of such guarantor. A listing of the guarantors is included in an exhibit to this Form 10-K.

Because the parent is a holding company, its cash flow and ability to service its debt, including the outstanding notes, depends on the performance of its subsidiaries and the ability of those subsidiaries to distribute cash to the parent, whether by dividends, loans or otherwise. Holders of the outstanding notes have a direct claim only against the parent and the guarantors.

Under the relevant indenture, the guarantee of each guarantor is limited to the maximum amount that can be guaranteed without rendering the guarantee voidable under applicable laws relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each

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indenture also provides that, in the event (1) of a merger, consolidation or sale or disposition of all or substantially all of the assets of a guarantor (other than a transaction with the parent or any of its subsidiaries) or (2) there occurs a transfer, sale or other disposition of the voting stock of a guarantor so that the guarantor is no longer a subsidiary of the parent, then the guarantor or the entity acquiring the assets (in the event of the sale or other disposition of all or substantially all of the assets of a guarantor) will be released and relieved of any obligations under the guarantee.

The following summarized financial information presents the parent and guarantors (collectively, the combined obligor group) on a combined basis. The summarized financial information of the combined obligor group excludes net investment in and earnings of subsidiaries related to interests held by the combined obligor group in subsidiaries that are not guarantors of the notes.

STATEMENT OF EARNINGS INFORMATION

BALANCE SHEET INFORMATION

The summarized balance sheet information presented above includes the funded status of the company’s primary qualified U.S. government pension plans as the parent has the ultimate obligation for the plans.

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