Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENT OF EARNINGS

			Year Ended December 31
(Dollars in millions, except per-share amounts)			2023						2022						2021
Revenue:
Products			$	24,595					$	23,022					$	22,428
Services			17,677						16,385						16,041
			42,272						39,407						38,469
Operating costs and expenses:
Products			(20,591)						(18,981)						(18,524)
Services			(15,009)						(13,804)						(13,537)
General and administrative (G&A)			(2,427)						(2,411)						(2,245)
			(38,027)						(35,196)						(34,306)
Operating earnings			4,245						4,211						4,163
Other, net			82						189						134
Interest, net			(343)						(364)						(424)
Earnings before income tax			3,984						4,036						3,873
Provision for income tax, net			(669)						(646)						(616)
Net earnings			$	3,315					$	3,390					$	3,257
Earnings per share
Basic			$	12.14					$	12.31					$	11.61
Diluted			$	12.02					$	12.19					$	11.55

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

			Year Ended December 31
(Dollars in millions)						2023						2022						2021
Net earnings						$	3,315					$	3,390					$	3,257
Changes in unrealized cash flow hedges						10						(190)						(174)
Foreign currency translation adjustments						413						(278)						(103)
Changes in retirement plans’ funded status						722						241						2,365
Other comprehensive income (loss), pretax						1,145						(227)						2,088
Provision for income tax, net						(152)						(5)						(458)
Other comprehensive income (loss), net of tax						993						(232)						1,630
Comprehensive income						$	4,308					$	3,158					$	4,887

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

CONSOLIDATED BALANCE SHEET

			December 31
(Dollars in millions)			2023						2022
ASSETS
Current assets:
Cash and equivalents			$	1,913					$	1,242
Accounts receivable			3,004						3,008
Unbilled receivables			7,997						8,795
Inventories			8,578						6,322
Other current assets			2,123						1,696
Total current assets			23,615						21,063
Noncurrent assets:
Property, plant and equipment, net			6,198						5,900
Intangible assets, net			1,656						1,824
Goodwill			20,586						20,334
Other assets			2,755						2,464
Total noncurrent assets			31,195						30,522
Total assets			$	54,810					$	51,585
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt			$	507					$	1,253
Accounts payable			3,095						3,398
Customer advances and deposits			9,564						7,436
Other current liabilities			3,266						3,254
Total current liabilities			16,432						15,341
Noncurrent liabilities:
Long-term debt			8,754						9,243
Other liabilities			8,325						8,433
Commitments and contingencies (see Note M)
Total noncurrent liabilities			17,079						17,676
Shareholders’ equity:
Common stock			482						482
Surplus			3,760						3,556
Retained earnings			39,270						37,403
Treasury stock			(21,054)						(20,721)
Accumulated other comprehensive loss			(1,159)						(2,152)
Total shareholders’ equity			21,299						18,568
Total liabilities and shareholders’ equity			$	54,810					$	51,585

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

			Year Ended December 31
(Dollars in millions)			2023						2022						2021
Cash flows from operating activities – continuing operations:
Net earnings			$	3,315					$	3,390					$	3,257
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation of property, plant and equipment			608						586						568
Amortization of intangible and finance lease right-of-use assets			255						298						322
Equity-based compensation expense			181						165						126
Deferred income tax benefit			(177)						(178)						(66)
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable			38						46						138
Unbilled receivables			913						(256)						(410)
Inventories			(2,219)						(980)						405
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable			(303)						224						194
Customer advances and deposits			2,415						2,082						354
Income taxes payable			(209)						(436)						(45)
Other, net			(107)						(362)						(572)
Net cash provided by operating activities			4,710						4,579						4,271
Cash flows from investing activities:
Capital expenditures			(904)						(1,114)						(887)
Other, net			(37)						(375)						5
Net cash used by investing activities			(941)						(1,489)						(882)
Cash flows from financing activities:
Dividends paid			(1,428)						(1,369)						(1,315)
Repayment of fixed-rate notes			(1,250)						(1,000)						(2,500)
Purchases of common stock			(434)						(1,229)						(1,828)
Proceeds from commercial paper, gross (maturities greater than 3 months)			—						—						1,997
Repayment of commercial paper, gross (maturities greater than 3 months)			—						—						(1,997)
Proceeds from fixed-rate notes			—						—						1,497
Repayment of floating-rate notes			—						—						(500)
Other, net			18						127						56
Net cash used by financing activities			(3,094)						(3,471)						(4,590)
Net cash (used) provided by discontinued operations			(4)						20						(20)
Net increase (decrease) increase in cash and equivalents			671						(361)						(1,221)
Cash and equivalents at beginning of year			1,242						1,603						2,824
Cash and equivalents at end of year			$	1,913					$	1,242					$	1,603

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

			Common Stock												Retained						Treasury						Accumulated Other Comprehensive						Total Shareholders’
(Dollars in millions)			Par						Surplus						Earnings						Stock						Loss						Equity
December 31, 2020			$	482					$	3,124					$	33,498					$	(17,893)					$	(3,550)					$	15,661
Net earnings			—						—						3,257						—						—						3,257
Cash dividends declared			—						—						(1,335)						—						—						(1,335)
Equity-based awards			—						154						—						109						—						263
Shares purchased			—						—						—						(1,835)						—						(1,835)
Other comprehensive income			—						—						—						—						1,630						1,630
December 31, 2021			482						3,278						35,420						(19,619)						(1,920)						17,641
Net earnings			—						—						3,390						—						—						3,390
Cash dividends declared			—						—						(1,391)						—						—						(1,391)
Equity-based awards			—						278						—						105						—						383
Shares purchased			—						—						—						(1,207)						—						(1,207)
Other comprehensive loss			—						—						—						—						(232)						(232)
Other			—						—						(16)						—						—						(16)
December 31, 2022			482						3,556						37,403						(20,721)						(2,152)						18,568
Net earnings			—						—						3,315						—						—						3,315
Cash dividends declared			—						—						(1,448)						—						—						(1,448)
Equity-based awards			—						204						—						101						—						305
Shares purchased			—						—						—						(434)						—						(434)
Other comprehensive income			—						—						—						—						993						993
December 31, 2023			$	482					$	3,760					$	39,270					$	(21,054)					$	(1,159)					$	21,299

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services.

The following is a discussion of certain significant accounting policies, and further discussion is contained in the notes to these financial statements.

Basis of Consolidation and Classification. The Consolidated Financial Statements include the accounts of General Dynamics Corporation and our wholly owned and majority-owned subsidiaries. We eliminate all intercompany balances and transactions in the Consolidated Financial Statements.

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.

Use of Estimates. The nature of our business requires that we make estimates and assumptions in accordance with U.S. generally accepted accounting principles (GAAP). These estimates and assumptions 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 base our estimates on historical experience, currently available information and various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

Research and Development Expenses. Company-sponsored research and development (R&D) expenses, including Aerospace product-development costs, were $510 in 2023, $480 in 2022 and $415 in 2021. R&D expenses have trended upward driven by activities primarily associated with ongoing new aircraft development efforts. R&D expenses are included in operating costs and expenses in the Consolidated Statement of Earnings in the period in which they are incurred. Customer-sponsored R&D expenses are charged directly to the related contracts.

The Aerospace segment has cost-sharing arrangements with some of its suppliers that enhance the segment’s internal development capabilities and offset a portion of the financial cost associated with the segment’s product development efforts. These arrangements explicitly state that supplier contributions are for reimbursement of costs we incur in the development of new aircraft models and technologies, and we retain substantial rights in the products developed under these arrangements. We record amounts received from these cost-sharing arrangements as a reduction of R&D expenses. We have no obligation to refund any amounts received under the agreements regardless of the outcome of the development efforts. Under the typical terms of an agreement, payments received from suppliers for their share of the costs are based on milestones and are recognized as received. Our policy is to defer payments in excess of the costs we have incurred.

Interest, Net. Net interest expense consisted of the following:

Year Ended December 31			2023						2022						2021
Interest expense			$	399					$	391					$	431
Interest income			(56)						(27)						(7)
Interest expense, net			$	343					$	364					$	424

See Note K for information regarding our debt obligations, including interest rates.

Cash and Equivalents and Investments in Debt and Equity Securities. We consider securities with a maturity of three months or less to be cash equivalents. Our cash balances are invested primarily in time deposits rated A-/A3 or higher. Our investments in other securities are included in other current and noncurrent assets on the Consolidated Balance Sheet. We report our equity securities at fair value with subsequent changes in fair value recognized in net earnings. We report our available-for-sale debt securities at fair value with unrealized gains and losses recognized as a component of other comprehensive (loss) income in the Consolidated Statement of Comprehensive Income. We had no material trading or held-to-maturity debt securities on December 31, 2023 or 2022. See Note P for additional information regarding our investments in debt and equity securities.

Acquisitions. In the last three years, we acquired a business in our Aerospace segment and a business in our Technologies segment. The operating results of these acquisitions have been included in our reported results since their respective closing dates. The purchase prices of the acquisitions have been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.

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%. Our reporting units are consistent with our operating segments in Note O. 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.

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.

For a summary of our goodwill by reporting unit, see Note H.

Recent Accounting Pronouncements. In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Improvements to Reportable Segment Disclosures, effective for fiscal years beginning after December 15, 2023. The ASU adds disclosure requirements for segment expense information. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, effective for annual periods beginning after December 15, 2024. The ASU requires disclosure of disaggregated income tax information, including the effective tax rate reconciliation and income taxes paid. There are other ASUs that have been issued by the FASB but are not yet effective. We expect to implement these new standards by their effective dates, and do not expect their adoption to have a material impact on our results of operations, financial condition or cash flows.

B. REVENUE

Performance Obligations. 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. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product life cycle (development, production, maintenance and support). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract.

Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue from products and services transferred to customers over time accounted for 79% of our revenue in 2023, 77% in 2022 and 78% in 2021. 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.

Revenue from goods and services transferred to customers at a point in time accounted for 21% of our revenue in 2023, 23% in 2022 and 22% in 2021. 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.

On December 31, 2023, we had $93.6 billion of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 40% of our remaining performance obligations as revenue in 2024, an additional 40% by the end of 2026 and the balance thereafter.

Contract Estimates. 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.

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 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. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is identified.

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates increased our revenue, operating earnings and diluted earnings per share as follows:

Year Ended December 31			2023						2022						2021
Revenue			$	191					$	343					$	411
Operating earnings			112						370						377
Diluted earnings per share			$	0.32					$	1.05					$	1.06

While no adjustment on any one contract was material to the Consolidated Financial Statements in 2023, 2022 or 2021, our Marine Systems segment’s 2023 results were affected negatively by supply chain impacts to the Virginia-class submarine schedule and cost growth on the Arleigh Burke-class (DDG-51) guided-missile destroyer program, offset partially by improved performance on the John Lewis-class (T-AO-205) fleet replenishment oiler program.

We have large, long-term contracts with the U.S. Navy for Virginia-class submarines and an international customer for tracked vehicles in which our estimates for contract revenue include variable consideration from anticipated contract modifications. For both contracts, it is reasonably possible that the actual amount of variable consideration realized could be less than our estimate, which could have a material unfavorable impact on our results of operations.

Revenue by Category. Our portfolio of products and services consists of more than 9,000 active contracts. The following series of tables presents our revenue disaggregated by several categories.

Revenue by major products and services was as follows:

Year Ended December 31			2023						2022						2021
Aircraft manufacturing			$	5,710					$	5,876					$	5,864
Aircraft services			2,911						2,691						2,271
Total Aerospace			8,621						8,567						8,135
Nuclear-powered submarines			8,631						7,310						7,117
Surface ships			2,698						2,561						2,328
Repair and other services			1,132						1,169						1,081
Total Marine Systems			12,461						11,040						10,526
Military vehicles			5,036						4,581						4,699
Weapons systems, armament and munitions			2,442						2,024						2,006
Engineering and other services			790						703						646
Total Combat Systems			8,268						7,308						7,351
Information technology (IT) services			8,459						8,195						8,069
C5ISR* solutions			4,463						4,297						4,388
Total Technologies			12,922						12,492						12,457
Total revenue			$	42,272					$	39,407					$	38,469

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

Revenue by contract type was as follows:

Year Ended December 31, 2023			Aerospace						Marine Systems						Combat Systems						Technologies						Total Revenue
Fixed-price			$	7,645					$	6,202					$	7,321					$	5,646					$	26,814
Cost-reimbursement			—						6,258						880						5,457						12,595
Time-and-materials			976						1						67						1,819						2,863
Total revenue			$	8,621					$	12,461					$	8,268					$	12,922					$	42,272
Year Ended December 31, 2022
Fixed-price			$	7,626					$	6,509					$	6,434					$	5,402					$	25,971
Cost-reimbursement			—						4,529						813						5,190						10,532
Time-and-materials			941						2						61						1,900						2,904
Total revenue			$	8,567					$	11,040					$	7,308					$	12,492					$	39,407
Year Ended December 31, 2021
Fixed-price			$	7,329					$	6,711					$	6,400					$	5,362					$	25,802
Cost-reimbursement			—						3,812						890						5,195						9,897
Time-and-materials			806						3						61						1,900						2,770
Total revenue			$	8,135					$	10,526					$	7,351					$	12,457					$	38,469

Our segments operate under fixed-price, cost-reimbursement and time-and-materials contracts. Our production contracts are primarily fixed-price. Under these contracts, we agree to perform a specific scope of work for a fixed amount. Contracts for research, engineering, repair and maintenance, and other services are typically cost-reimbursement or time-and-materials. Under cost-reimbursement contracts, the customer reimburses contract costs incurred and pays a fixed, incentive or award-based fee. The amount for an incentive or award fee is determined by our ability to achieve targets set in the contract, such as cost, quality, schedule and performance. Under time-and-materials contracts, the customer pays a fixed hourly rate for direct labor and generally reimburses us for the cost of materials.

Each of these contract types presents advantages and disadvantages. Typically, we assume more risk with fixed-price contracts. However, these types of contracts offer additional profits when we complete the work for less than originally estimated. Cost-reimbursement contracts generally subject us to lower risk. Accordingly, the associated base fees are usually lower than fees earned on fixed-price contracts. Under time-and-materials contracts, our profit may vary if actual labor-hour rates vary significantly from the negotiated rates. Also, because these contracts may provide little or no fee for managing material costs, the content mix can impact profitability.

Revenue by customer was as follows:

Year Ended December 31, 2023			Aerospace						Marine Systems						Combat Systems						Technologies						Total Revenue
U.S. government:
Department of Defense (DoD)			$	303					$	12,325					$	4,580					$	7,512					$	24,720
Non-DoD			—						3						10						4,698						4,711
Foreign military sales (FMS)			69						129						651						47						896
Total U.S. government			372						12,457						5,241						12,257						30,327
U.S. commercial			5,398						2						233						200						5,833
Non-U.S. government			493						2						2,692						388						3,575
Non-U.S. commercial			2,358						—						102						77						2,537
Total revenue			$	8,621					$	12,461					$	8,268					$	12,922					$	42,272
Year Ended December 31, 2022
U.S. government:
DoD			$	313					$	10,874					$	4,082					$	6,981					$	22,250
Non-DoD			—						2						9						4,797						4,808
FMS			120						158						325						30						633
Total U.S. government			433						11,034						4,416						11,808						27,691
U.S. commercial			5,236						3						237						233						5,709
Non-U.S. government			587						3						2,563						404						3,557
Non-U.S. commercial			2,311						—						92						47						2,450
Total revenue			$	8,567					$	11,040					$	7,308					$	12,492					$	39,407
Year Ended December 31, 2021
U.S. government:
DoD			$	255					$	10,325					$	3,869					$	6,937					$	21,386
Non-DoD			—						6						10						4,846						4,862
FMS			84						186						294						34						598
Total U.S. government			339						10,517						4,173						11,817						26,846
U.S. commercial			4,381						3						223						201						4,808
Non-U.S. government			622						4						2,881						415						3,922
Non-U.S. commercial			2,793						2						74						24						2,893
Total revenue			$	8,135					$	10,526					$	7,351					$	12,457					$	38,469

Contract Balances. 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. In our defense segments, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers, particularly on our international contracts, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period. In our Aerospace segment, we generally receive deposits from customers upon contract execution and upon achievement of contractual milestones. These deposits are liquidated when revenue is recognized. Changes in the contract asset and

liability balances during the year ended December 31, 2023, were not materially impacted by any other factors.

Revenue recognized in 2023, 2022 and 2021 that was included in the contract liability balance at the beginning of each year was $4.2 billion, $4 billion and $3.4 billion, respectively. This revenue represented primarily the sale of business jet aircraft.

C. EARNINGS PER SHARE

We compute basic earnings per share (EPS) using net earnings for the period and the weighted average number of common shares outstanding during the period. Basic weighted average shares outstanding decreased in 2023 and 2022 due to share repurchases. See Note N for further discussion of our share repurchases. Diluted EPS incorporates the additional shares issuable upon the assumed exercise of stock options and the release of restricted stock and restricted stock units (RSUs).

Basic and diluted weighted average shares outstanding were as follows (in thousands):

Year Ended December 31			2023						2022						2021
Basic weighted average shares outstanding			273,143						275,311						280,427
Dilutive effect of stock options and restricted stock/RSUs*			2,582						2,858						1,590
Diluted weighted average shares outstanding			275,725						278,169						282,017

*Excludes outstanding options to purchase shares of common stock that had exercise prices in excess of the average market price of our common stock during the year and, therefore, the effect of including these options would be antidilutive. These options totaled 2,961 in 2023, 1,466 in 2022 and 5,037 in 2021.

D. INCOME TAXES

Income Tax Provision. We calculate our provision for federal, state and foreign income taxes based on current tax law. The following is a summary of our net provision for income taxes for continuing operations:

Year Ended December 31			2023						2022						2021
Current:
U.S. federal			$	619					$	649					$	515
State			27						52						30
Foreign			200						123						137
Total current			846						824						682
Deferred:
U.S. federal			(131)						(196)						(53)
State			7						(11)						(5)
Foreign			(53)						29						(8)
Total deferred			(177)						(178)						(66)
Provision for income taxes, net			$	669					$	646					$	616
Net income tax payments			$	1,100					$	1,245					$	740

The reported tax provision differs from the amounts paid because some income and expense items are recognized in different time periods for financial reporting than for income tax purposes. This includes the impact of the requirement, effective January 1, 2022, to capitalize and amortize over five years certain research and development expenditures that were previously deductible immediately for tax purposes, which contributed to increased net income tax payments.

State and local income taxes allocable to U.S. government contracts are included in operating costs and expenses in the Consolidated Statement of Earnings and, therefore, are not included in the provision above.

The reconciliation from the statutory federal income tax rate to our effective income tax rate follows:

Year Ended December 31			2023						2022						2021
Statutory federal income tax rate			21.0		%				21.0		%				21.0		%
Domestic tax credits			(3.3)						(1.5)						(2.0)
Equity-based compensation			(0.4)						(0.8)						(0.1)
Foreign-derived intangible income			(1.6)						(1.6)						(1.5)
State tax on commercial operations, net of federal benefits			0.7						0.8						0.5
Global impact of international operations			0.5						0.1						(1.0)
Tax impact of restructuring			—						(1.9)						—
Other, net			(0.1)						(0.1)						(1.0)
Effective income tax rate			16.8		%				16.0		%				15.9		%

Net Deferred Tax Liability. The tax effects of temporary differences between reported earnings and taxable income consisted of the following:

December 31			2023						2022
Research and development expenditures			$	670					$	313
Lease liabilities			414						373
Retirement benefits			311						461
Tax loss and credit carryforwards			267						259
Salaries and wages			215						200
Workers’ compensation			148						135
Other			373						358
Deferred assets			2,398						2,099
Valuation allowances			(241)						(237)
Net deferred assets			$	2,157					$	1,862
Intangible assets			$	(1,057)					$	(1,044)
Contract accounting methods			(528)						(291)
Property, plant and equipment			(422)						(444)
Lease right-of-use assets			(395)						(356)
Capital Construction Fund qualified ships			(57)						(57)
Other			(325)						(316)
Deferred liabilities			$	(2,784)					$	(2,508)
Net deferred tax liability			$	(627)					$	(646)

Our deferred tax assets and liabilities are included in other noncurrent assets and liabilities on the Consolidated Balance Sheet. Our net deferred tax liability consisted of the following:

December 31			2023						2022
Deferred tax asset			$	28					$	39
Deferred tax liability			(655)						(685)
Net deferred tax liability			$	(627)					$	(646)

We believe it is more likely than not that we will generate sufficient taxable income in future periods to realize our deferred tax assets, subject to the valuation allowances recognized.

Our deferred tax balance associated with our retirement benefits includes a deferred tax asset of $488 on December 31, 2023, and $637 on December 31, 2022, related to the amounts recorded in accumulated other comprehensive loss (AOCL) to recognize the funded status of our retirement plans. For a reconciliation of the increase in funded status of our defined benefit plans in 2023, see Note S.

One of our deferred tax liabilities results from our participation in the Capital Construction Fund (CCF), a program established by the U.S. government and administered by the Maritime Administration that supports the acquisition, construction, reconstruction or operation of U.S. flag merchant marine vessels. The program allows us to defer federal and state income taxes on earnings derived from eligible programs as long as the proceeds are deposited in the fund and withdrawals are used for qualified activities. We had U.S. government accounts receivable pledged (and thereby deposited) to the CCF of $315 and $299 on December 31, 2023 and 2022, respectively.

On December 31, 2023, we had net operating loss carryforwards of $945, substantially all of which are associated with jurisdictions that have an indefinite carryforward period.

Tax Uncertainties. We participate in the Internal Revenue Service (IRS) Compliance Assurance Process (CAP), a real-time audit of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through 2022.

For all periods open to examination by tax authorities, we periodically assess our liabilities and contingencies based on the latest available information. Where we believe there is more than a 50% chance that our tax position will not be sustained, we record our best estimate of the resulting tax liability, including interest, in the Consolidated Financial Statements. We include any interest or penalties incurred in connection with income taxes as part of income tax expense.

Based on all known facts and circumstances and applicable tax law, we believe the total amount of any unrecognized tax benefits on December 31, 2023, was not material to our results of operations, financial condition or cash flows. In addition, there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will vary significantly over the next 12 months, producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.

E. ACCOUNTS RECEIVABLE

Accounts receivable represent amounts billed and currently due from customers. Payment is typically received from our customers either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Accounts receivable consisted of the following:

December 31			2023						2022
Non-U.S. government			$	1,389					$	1,470
U.S. government			1,126						1,093
Commercial			489						445
Total accounts receivable			$	3,004					$	3,008

Receivables from non-U.S. government customers included amounts related to long-term production programs for the Spanish Ministry of Defence of $1.1 billion and $1.2 billion on December 31, 2023 and 2022, respectively. A different ministry, the Spanish Ministry of Industry, has funded work on these programs in advance of costs incurred by the company. The cash advances are reported on the Consolidated Balance Sheet in current customer advances and deposits and will be repaid to the Ministry of Industry as we collect on the outstanding receivables from the Ministry of Defence. The net amounts for these programs on December 31, 2023 and 2022, were advance payments of $271 and $91, respectively. With respect to our other receivables, we expect to collect substantially all of the year-end 2023 balance during 2024.

F. UNBILLED RECEIVABLES

Unbilled receivables represent revenue recognized on long-term contracts (contract costs and estimated profits) less associated advances and progress billings. These amounts will be billed in accordance with the agreed-upon contractual terms. Unbilled receivables consisted of the following:

December 31			2023						2022
Unbilled revenue			$	40,552					$	39,482
Advances and progress billings			(32,555)						(30,687)
Net unbilled receivables			$	7,997					$	8,795

On December 31, 2023 and 2022, net unbilled receivables included $1.2 billion and $1.7 billion, respectively, associated with a large international tracked vehicle contract in our Combat Systems segment. The contract, signed in 2010, had been experiencing an unbilled receivables build-up since 2021. Based on ongoing discussions with the customer and continued successful program activity, the customer resumed payments on the contract in the first quarter of 2023. Other than the balance related to the tracked vehicle contract, we expect to bill substantially all of the remaining year-end 2023 net unbilled receivables balance during 2024, and the amount not expected to be billed in 2024 results primarily from the agreed-upon contractual billing terms.

G&A costs in unbilled revenue on December 31, 2023 and 2022, were $483 and $559, respectively.

G. INVENTORIES

The majority of our inventories are for business jet aircraft. Our inventories are stated at the lower of cost or net realizable value. Work in process represents largely labor, material and overhead costs associated with aircraft in the manufacturing process and is based primarily on the estimated average unit cost in a production lot. Substantially all of our raw materials are valued on either the average cost or the first-in, first-out method. We record pre-owned aircraft acquired in connection with the sale of new aircraft at the lower of the trade-in value or the estimated net realizable value.

Inventories consisted of the following:

December 31			2023						2022
Work in process			$	5,655					$	4,182
Raw materials			2,886						2,072
Finished goods			22						17
Pre-owned aircraft			15						51
Total inventories			$	8,578					$	6,322

The increase in total inventories during 2023 was due to the ramp-up in production of new Gulfstream aircraft models, including the G700 in anticipation of its certification from the U.S. Federal Aviation Administration, as well as increased production of in-service aircraft reflecting strong customer demand. Customer deposits associated with firm orders for these aircraft, which are reported in customer advances and deposits and other noncurrent liabilities on the Consolidated Balance Sheet, have correspondingly increased.

H. GOODWILL AND INTANGIBLE ASSETS

Goodwill. The changes in the carrying amount of goodwill by reporting unit were as follows:

			Aerospace						Marine Systems						Combat Systems						Technologies						Total Goodwill
December 31, 2021 (a)			$	3,039					$	297					$	2,827					$	13,935					$	20,098
Acquisitions			—						—						—						336						336
Other (c)			(20)						—						(61)						(19)						(100)
December 31, 2022 (a)			3,019						297						2,766						14,252						20,334
Acquisitions (b)			—						—						—						16						16
Other (c)			180						—						46						10						236
December 31, 2023 (a)			$	3,199					$	297					$	2,812					$	14,278					$	20,586

(a)Goodwill in the Technologies reporting unit was net of $1.8 billion of accumulated impairment losses.

(b)Included adjustments during the purchase price allocation period.

(c)Consisted primarily of adjustments for foreign currency translation.

Intangible Assets. Intangible assets consisted of the following:

			Gross Carrying Amount (a)			Accumulated Amortization			Net Carrying Amount						Gross Carrying Amount (a)			Accumulated Amortization			Net Carrying Amount
December 31			2023												2022
Contract and program intangible assets (b)			$	3,256		$	(1,868)		$	1,388					$	3,247		$	(1,688)		$	1,559
Trade names and trademarks			542			(288)			254						496			(248)			248
Technology and software			65			(51)			14						64			(48)			16
Other intangible assets			64			(64)			—						64			(63)			1
Total intangible assets			$	3,927		$	(2,271)		$	1,656					$	3,871		$	(2,047)		$	1,824

(a)Changes in gross carrying amounts consisted primarily of adjustments for foreign currency translation and write-offs of fully amortized intangible assets.

(b)Consisted of acquired backlog and probable follow-on work and associated customer relationships.

We did not recognize any impairments of our intangible assets in 2023, 2022 or 2021. The amortization lives (in years) of our intangible assets on December 31, 2023, were as follows:

Intangible Asset						Range of Amortization Life
Contract and program intangible assets						7-30
Trade names and trademarks						30
Technology and software						7-15
Other intangible assets						7

Amortization expense is included in operating costs and expenses in the Consolidated Statement of Earnings. Amortization expense for intangible assets was $194 in 2023, $202 in 2022 and $226 in 2021. We expect to record annual amortization expense over the next five years as follows:

Year Ended December 31			Amortization Expense
2024			$	181
2025			174
2026			170
2027			162
2028			137

I. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment (PP&E) is carried at historical cost, net of accumulated depreciation. Net PP&E by major asset class consisted of the following:

December 31			2023						2022
Machinery and equipment			$	6,806					$	6,620
Buildings and improvements			4,654						4,238
Construction in process			1,086						1,020
Land and improvements			454						414
Total PP&E			13,000						12,292
Accumulated depreciation			(6,802)						(6,392)
PP&E, net			$	6,198					$	5,900

We depreciate most of our assets using the straight-line method and the remainder using accelerated methods. Buildings and improvements are depreciated over periods of up to 50 years. Machinery and equipment are depreciated over periods of up to 30 years. Our government customers provide certain facilities and equipment for our use that are not included above.

J. LEASES

We determine at its inception whether an arrangement that provides us control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize an ROU asset and lease liability for leases with terms of 12 months or less. Some of our leases include options to extend the term of the lease for up to 29 years or to terminate the lease within one year. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate on the commencement date to calculate the present value of future payments.

Certain of our leases include variable payments, which may be calculated based on the Consumer Price Index (CPI) or similar indices at the lease commencement date. To the extent these variable payments are not considered fixed, we exclude such payments from the ROU asset and lease liability and expense as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease, such as commissions.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For all other types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.

Our leases are for office space, manufacturing facilities, and machinery and equipment. Real estate represents more than 75% of our lease obligations.

The components of lease costs were as follows:

Year Ended December 31			2023						2022						2021
Finance lease cost:
Amortization of ROU assets			$	61					$	96					$	96
Interest on lease liabilities			14						14						20
Operating lease cost			320						308						323
Short-term lease cost			76						68						71
Variable lease cost			34						23						18
Sublease income			(17)						(17)						(18)
Total lease costs, net			$	488					$	492					$	510

Additional information related to leases was as follows:

Year Ended December 31			2023						2022						2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	322					$	307					$	322
Operating cash flows from finance leases			13						13						21
Financing cash flows from finance leases			55						80						66
ROU assets obtained in exchange for lease liabilities:
Operating leases			279						297						249
Finance leases			240						4						27

Additional quantitative lease information was as follows:

December 31			2023						2022
Weighted-average remaining lease term:
Operating leases			11.8 years						12.4 years
Finance leases			14.3 years						15.7 years
Weighted-average discount rate:
Operating leases			4		%				3		%
Finance leases			4		%				4		%

The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on the Consolidated Balance Sheet on December 31, 2023:

Year Ended December 31			Operating Leases						Finance Leases
2024			$	300					$	79
2025			224						67
2026			181						45
2027			153						38
2028			121						32
Thereafter			732						321
Total future lease payments			1,711						582
Less imputed interest			336						135
Present value of future lease payments			1,375						447
Less current portion of lease liabilities			260						65
Long-term lease liabilities			$	1,115					$	382
ROU assets			$	1,280					$	407

On December 31, 2022, operating and finance lease liabilities and the related ROU assets were as follows:

			Operating Leases						Finance Leases
Current portion of lease liabilities			$	250					$	38
Long-term lease liabilities			1,106						224
ROU assets			1,263						227

Lease liabilities are included on the Consolidated Balance Sheet in current and noncurrent other liabilities, while ROU assets are included in noncurrent other assets.

On December 31, 2023, we had additional future payments on leases that had not yet commenced of $216. These leases will commence in 2024 and 2025, and have lease terms ranging from one to 9 years.

K. DEBT

Debt consisted of the following:

December 31						2023						2022
Fixed-rate notes due:			Interest rate:
May 2023			3.375%			$	—					$	750
August 2023			1.875%			—						500
November 2024			2.375%			500						500
April 2025			3.250%			750						750
May 2025			3.500%			750						750
June 2026			1.150%			500						500
August 2026			2.125%			500						500
April 2027			3.500%			750						750
November 2027			2.625%			500						500
May 2028			3.750%			1,000						1,000
April 2030			3.625%			1,000						1,000
June 2031			2.250%			500						500
April 2040			4.250%			750						750
June 2041			2.850%			500						500
November 2042			3.600%			500						500
April 2050			4.250%			750						750
Other			Various			90						90
Total debt principal						9,340						10,590
Less unamortized debt issuance costs and discounts						79						94
Total debt						9,261						10,496
Less current portion						507						1,253
Long-term debt						$	8,754					$	9,243

In May and August of 2023, we repaid fixed-rate notes of $750 and $500, respectively, at their respective scheduled maturities using cash on hand. Interest payments associated with our debt were $378 in 2023, $383 in 2022 and $433 in 2021.

The aggregate amounts of scheduled principal maturities of our debt are as follows:

Year Ended December 31			Debt Principal
2024			$	507
2025			1,504
2026			1,003
2027			1,253
2028			1,004
Thereafter			4,069
Total debt principal			$	9,340

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. This credit facility expires in March 2027. We may renew or replace this credit facility in whole or in part at or prior to its expiration date. We also have an effective shelf registration on file with the Securities and Exchange Commission (SEC) that allows us to access the debt markets.

Our financing arrangements contain a number of customary covenants and restrictions. We were in compliance with all covenants and restrictions on December 31, 2023.

L. OTHER LIABILITIES

A summary of significant other liabilities by balance sheet caption follows:

December 31			2023						2022
Salaries and wages			$	1,191					$	1,116
Dividends payable			362						347
Lease liabilities			325						288
Workers’ compensation			237						215
Other			1,151						1,288
Total other current liabilities			$	3,266					$	3,254
Customer deposits on commercial contracts			$	2,576					$	2,175
Retirement benefits			2,219						2,453
Lease liabilities			1,497						1,330
Other			2,033						2,475
Total other liabilities			$	8,325					$	8,433

M. COMMITMENTS AND CONTINGENCIES

Litigation

In 2015, Electric Boat Corporation, a subsidiary of General Dynamics Corporation, received a civil investigative demand from the U.S. Department of Justice regarding an investigation of potential False Claims Act violations relating to alleged failures of Electric Boat’s quality system with respect to allegedly non-conforming parts purchased from a supplier. In 2016, Electric Boat was made aware that it is a defendant in a lawsuit related to this matter which had been filed under seal in U.S. district court. Also in 2016, the Suspending and Debarring Official for the U.S. Department of the Navy issued a show cause letter to Electric Boat requesting that Electric Boat respond to the official’s concerns regarding Electric Boat’s oversight and management with respect to its quality assurance systems for subcontractors and suppliers. Electric Boat responded to the show cause letter and engaged in discussions with the U.S. government.

In the third quarter of 2019, the Department of Justice declined to intervene in the qui tam action, noting that its investigation continues, and the court unsealed the relator’s complaint. In the fourth quarter of 2020, the relator filed a second amended complaint. In the third quarter of 2021, the court dismissed the relator’s complaint with prejudice. The relator appealed the dismissal of the complaint to the United States Court of Appeals, which was not granted. In the third quarter of 2023, the Court of Appeals affirmed dismissal of the relator’s complaint with prejudice. The relator thereafter filed a

petition for rehearing with the Court of Appeals. Given the current status of these matters, we are unable to express a view regarding the ultimate outcome or, if the outcome is adverse, to estimate an amount or range of reasonably possible loss. Depending on the outcome of these matters, there could be a material impact on our results of operations, financial condition and cash flows.

On October 6, 2023, a putative class action lawsuit was filed in the United States District Court for the Eastern District of Virginia against General Dynamics Corporation, certain of its subsidiaries and various other companies alleging that they conspired, in violation of the Sherman Act, not to solicit naval architects and marine engineers from each other. The named plaintiffs purport to represent a class of individuals consisting of all naval architects and marine engineers employed by the shipyard and consultancy defendants, their predecessors, their subsidiaries and/or their related entities in the United States at any time since January 1, 2000. The plaintiffs allege that the conspiracy suppressed compensation paid to the putative class members, and the plaintiffs seek trebled monetary damages, attorneys’ fees, injunctive and other equitable relief. We are defending the matter. However, given the current status of this matter, we are unable to express a view regarding the ultimate outcome or, if the outcome is adverse, to estimate an amount or range of reasonably possible loss. Depending on the outcome of this matter, there could be a material impact on our results of operations, financial condition and cash flows.

Additionally, various other claims and legal proceedings incidental to the normal course of business are pending or threatened against us. These other matters relate to such issues as government investigations and claims, the protection of the environment, asbestos-related claims and employee-related matters. The nature of litigation is such that we cannot predict the outcome of these other matters. However, based on information currently available, we believe any potential liabilities in these other proceedings, individually or in the aggregate, will not have a material impact on our results of operations, financial condition or cash flows.

Environmental

We are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. We are directly or indirectly involved in environmental investigations or remediation at some of our current and former facilities and third-party sites that we do not own but where we have been designated a potentially responsible party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. Based on historical experience, we expect that a significant percentage of the total remediation and compliance costs associated with these facilities will continue to be allowable contract costs and, therefore, recoverable under U.S. government contracts.

As required, we provide financial assurance for certain sites undergoing or subject to investigation or remediation. We accrue environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. Where applicable, we seek insurance recovery for costs related to environmental liabilities. We do not record insurance recoveries before collection is considered probable. Based on all known facts and analyses, we do not believe that our liability at any individual site, or in the aggregate, arising from such environmental conditions will be material to our results of operations, financial condition or cash flows. We also do not believe that the range of reasonably possible additional loss beyond what has been recorded would be material to our results of operations, financial condition or cash flows.

Other

Government Contracts. As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, including claims for fines, penalties, and compensatory and

treble damages. We believe the outcome of such ongoing government audits and investigations will not have a material impact on our results of operations, financial condition or cash flows.

In the performance of our contracts, we routinely request contract modifications that require additional funding from the customer. Most often, these requests are due to customer-directed changes in the scope of work. While we are entitled to recovery of these costs under our contracts, the administrative process with our customer may be protracted. Based on the circumstances, we periodically file requests for equitable adjustment (REAs) that are sometimes converted into claims. In some cases, these requests are disputed by our customer. We believe our outstanding modifications, REAs and other claims will be resolved without material impact to our results of operations, financial condition or cash flows.

Letters of Credit and Guarantees. In the ordinary course of business, we have entered into letters of credit, bank guarantees, surety bonds and other similar arrangements with financial institutions and insurance carriers totaling approximately $1.6 billion on December 31, 2023. In addition, from time to time and in the ordinary course of business, we contractually guarantee the payment or performance of our subsidiaries arising under certain contracts.

Aircraft Trade-ins. In connection with orders for new aircraft in contract backlog, some Gulfstream customers hold options to trade in aircraft as partial consideration in their new-aircraft transaction. These trade-in commitments are generally structured to establish the fair market value of the trade-in aircraft at a date generally 45 or fewer days preceding delivery of the new aircraft to the customer. At that time, the customer is required to either exercise the option or allow its expiration. Other trade-in commitments are structured to guarantee a predetermined trade-in value. These commitments present more risk in the event of an adverse change in market conditions. In either case, any excess of the preestablished trade-in price above the fair market value at the time the new aircraft is delivered is treated as a reduction of revenue in the new-aircraft sales transaction. As of December 31, 2023, the estimated change in fair market values from the date of the commitments was not material.

Labor Agreements. On December 31, 2023, approximately one-fifth of the employees of our subsidiaries were working under collectively bargained terms and conditions, including 62 collective agreements that we have negotiated directly with unions and works councils. A number of these agreements expire within any given year. Historically, we have been successful at renegotiating these labor agreements without any material disruption of operating activities. In 2024, we expect to negotiate the terms of 20 agreements covering approximately 2,100 employees. We do not expect the renegotiations will, either individually or in the aggregate, have a material impact on our results of operations, financial condition or cash flows.

Product Warranties. We provide warranties to our customers associated with certain product sales. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability recorded at each balance sheet date is based generally on the number of months of warranty coverage remaining for the products delivered and the average historical monthly warranty payments. Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion. Our other warranty obligations, primarily for business jet aircraft, are included in other current and noncurrent liabilities on the Consolidated Balance Sheet.

The changes in the carrying amount of warranty liabilities for each of the past three years were as follows:

Year Ended December 31			2023						2022						2021
Beginning balance			$	603					$	641					$	660
Warranty expense			90						99						104
Payments			(101)						(116)						(124)
Adjustments			5						(21)						1
Ending balance			$	597					$	603					$	641

N. SHAREHOLDERS’ EQUITY

Authorized Stock. Our authorized capital stock consists of 500 million shares of $1 per share par value common stock and 50 million shares of $1 per share par value preferred stock. The preferred stock is issuable in series, with the rights, preferences and limitations of each series to be determined by our board of directors (Board).

Shares Issued and Outstanding. On December 31, 2023, we had 481,880,634 shares of common stock issued and 273,599,948 shares of common stock outstanding, including unvested restricted stock of 441,075 shares. On December 31, 2022, we had 481,880,634 shares of common stock issued and 274,411,106 shares of common stock outstanding. No shares of our preferred stock were outstanding on either date. The only changes in our shares outstanding during 2023 and 2022 resulted from shares repurchased in the open market and share activity under our equity compensation plans. See Note R for additional details.

Share Repurchases. Our Board, from time to time, authorizes management to repurchase outstanding shares of our common stock on the open market. In 2023, we repurchased 2 million of our outstanding shares for $434. On December 31, 2023, 4.7 million shares remained authorized by our Board for repurchase, representing 1.7% of our total shares outstanding. We repurchased 5.3 million shares for $1.2 billion in 2022 and 10.3 million shares for $1.8 billion in 2021.

Dividends per Share. Our Board declared dividends per share of $5.28 in 2023, $5.04 in 2022 and $4.76 in 2021. We paid cash dividends of $1.4 billion in 2023 and 2022, and $1.3 billion in 2021.

Accumulated Other Comprehensive Loss. The changes, pretax and net of tax, in each component of AOCL consisted of the following:

			Changes in Unrealized Cash Flow Hedges						Foreign Currency Translation Adjustments			Changes in Retirement Plans’ Funded Status			AOCL
December 31, 2020			$	272					$	641		$	(4,463)		$	(3,550)
Other comprehensive income, pretax			(174)						(103)			2,365			2,088
Provision from income tax, net			46						—			(504)			(458)
Other comprehensive income, net of tax			(128)						(103)			1,861			1,630
December 31, 2021			144						538			(2,602)			(1,920)
Other comprehensive loss, pretax			(190)						(278)			241			(227)
Provision for income tax, net			50						—			(55)			(5)
Other comprehensive loss, net of tax			(140)						(278)			186			(232)
December 31, 2022			4						260			(2,416)			(2,152)
Other comprehensive income, pretax			10						413			722			1,145
Provision for income tax, net			(3)						—			(149)			(152)
Other comprehensive income, net of tax			7						413			573			993
December 31, 2023			$	11					$	673		$	(1,843)		$	(1,159)

Amounts reclassified out of AOCL related primarily to changes in our retirement plans’ funded status and included pretax recognized net actuarial losses and amortization of prior service credit. See Note S for these amounts, which are included in our net annual pension and other post-retirement benefit cost (credit).

O. SEGMENT INFORMATION

We have four operating segments: Aerospace, Marine Systems, Combat Systems and Technologies. We organize our segments in accordance with the nature of products and services offered. We measure each segment’s profitability based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our segments.

Summary financial information for each of our segments follows:

			Revenue (a)												Operating Earnings												Revenue from U.S. Government
Year Ended December 31			2023			2022			2021						2023			2022			2021						2023			2022			2021
Aerospace			$	8,621		$	8,567		$	8,135					$	1,182		$	1,130		$	1,031					$	372		$	433		$	339
Marine Systems			12,461			11,040			10,526						874			897			874						12,457			11,034			10,517
Combat Systems			8,268			7,308			7,351						1,147			1,075			1,067						5,241			4,416			4,173
Technologies			12,922			12,492			12,457						1,202			1,227			1,275						12,257			11,808			11,817
Corporate (b)			—			—			—						(160)			(118)			(84)						—			—			—
Total			$	42,272		$	39,407		$	38,469					$	4,245		$	4,211		$	4,163					$	30,327		$	27,691		$	26,846

(a)See Note B for additional revenue information by segment.

(b)Corporate operating costs consisted primarily of equity-based compensation expense.

The following is additional summary financial information for each of our segments:

			Identifiable Assets												Capital Expenditures												Depreciation and Amortization
Year Ended December 31			2023			2022			2021						2023			2022			2021						2023			2022			2021
Aerospace			$	15,099		$	12,676		$	11,748					$	200		$	214		$	102					$	200		$	195		$	205
Marine Systems			6,209			5,864			5,294						511			530			573						217			191			165
Combat Systems			10,479			11,032			11,657						107			94			100						108			105			109
Technologies			19,534			19,700			19,490						85			175			111						327			383			401
Corporate			3,489			2,313			1,884						1			101			1						11			10			10
Total			$	54,810		$	51,585		$	50,073					$	904		$	1,114		$	887					$	863		$	884		$	890

The following table presents our revenue by geographic area based on the location of our customers:

Year Ended December 31			2023						2022						2021
North America:
United States			$	36,160					$	33,400					$	31,654
Other			961						934						934
Total North America			37,121						34,334						32,588
Europe			2,765						2,238						2,675
Asia/Pacific			1,086						1,224						1,269
Africa/Middle East			1,147						1,365						1,703
South America			153						246						234
Total revenue			$	42,272					$	39,407					$	38,469

Our revenue from non-U.S. operations was $4.3 billion in 2023, $4 billion in 2022 and $4.4 billion in 2021, and earnings from continuing operations before income taxes from non-U.S. operations were $631 in 2023, $567 in 2022 and $588 in 2021. The long-lived assets associated with these operations were 4% of our total long-lived assets on December 31, 2023, 2022 and 2021.

P. FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. Various valuation approaches can be used to determine fair value, each requiring different valuation inputs. The following hierarchy classifies the inputs used to determine fair value into three levels:

• Level 1 – quoted prices in active markets for identical assets or liabilities.

• Level 2 – inputs, other than quoted prices, observable by a marketplace participant either directly or indirectly.

• Level 3 – unobservable inputs significant to the fair value measurement.

We did not have any significant non-financial assets or liabilities measured at fair value on December 31, 2023 or 2022.

Our financial instruments include cash and equivalents, accounts receivable and payable, marketable securities held in trust and other investments, short- and long-term debt, and derivative financial instruments. The carrying values of cash and equivalents and accounts receivable and payable on the Consolidated Balance Sheet approximate their fair value. The following tables present the fair values of

our other financial assets and liabilities on December 31, 2023 and 2022, and the basis for determining their fair values:

			Carrying Value						Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Financial Assets (Liabilities)			December 31, 2023
Measured at fair value:
Marketable securities held in trust:
Cash and equivalents			$	21					$	21					$	—					$	21					$	—
Available-for-sale debt securities			115						115						—						115						—
Commingled equity funds			49						49						49						—						—
Commingled fixed-income funds			6						6						6						—						—
Other investments			40						40						23						—						17
Cash flow hedge assets			109						109						—						109						—
Cash flow hedge liabilities			(61)						(61)						—						(61)						—
Measured at amortized cost:
Short- and long-term debt principal			(9,340)						(8,764)						—						(8,764)						—
			December 31, 2022
Measured at fair value:
Marketable securities held in trust:
Cash and equivalents			$	7					$	7					$	—					$	7					$	—
Available-for-sale debt securities			107						107						—						107						—
Commingled equity funds			42						42						42						—						—
Commingled fixed-income funds			6						6						6						—						—
Other investments			17						17						—						—						17
Cash flow hedge assets			109						109						—						109						—
Cash flow hedge liabilities			(67)						(67)						—						(67)						—
Measured at amortized cost:
Short- and long-term debt principal			(10,590)						(9,773)						—						(9,773)						—

Our Level 1 assets include commingled equity and fixed-income funds that are valued using a unit price or net asset value (NAV). These funds are actively traded and valued using quoted prices for identical securities from the market exchanges. The fair value of our Level 2 assets and liabilities, which consist primarily of fixed-income securities, cash flow hedges and our fixed-rate notes, is determined under a market approach using valuation models that incorporate observable inputs such as interest rates, bond yields and quoted prices for similar assets. Our Level 3 assets include direct private equity investments that are measured using inputs unobservable to a marketplace participant.

Q. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to market risk, primarily from foreign currency exchange rates, commodity prices and investments. We may use derivative financial instruments to hedge some of these risks as described below. We do not use derivative financial instruments for trading or speculative purposes.

Foreign Currency Risk. Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. To the extent possible, we include terms in our contracts that are designed to protect us from this risk. Otherwise, we enter into derivative financial instruments, principally foreign currency forward purchase and sale contracts, designed to offset and minimize our risk. The dollar-weighted one-year average maturity of these instruments generally matches the duration of the activities that are at risk.

Commodity Price Risk. We are subject to commodity price risk, primarily on long-term, fixed-price contracts. To the extent possible, we include terms in our contracts that are designed to protect us from these risks. Some of the protective terms included in our contracts are considered derivative financial instruments but are not accounted for separately because they are clearly and closely related to the host contract. We have not entered into any material commodity hedging contracts but may do so as circumstances warrant. We do not believe that changes in commodity prices will have a material impact on our results of operations or cash flows.

Investment Risk. Our investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of up to five years. On December 31, 2023 and 2022, we held $1.9 billion and $1.2 billion in cash and equivalents, respectively, but held no material marketable securities other than those held in trust to meet some of our obligations under workers’ compensation and non-qualified pension plans. On December 31, 2023 and 2022, we held marketable securities in trust of $191 and $162, respectively. These marketable securities are reflected at fair value on the Consolidated Balance Sheet in other current and noncurrent assets. See Note P for additional details.

Hedging Activities. We had notional forward exchange contracts outstanding of $5.7 billion and $6.9 billion on December 31, 2023 and 2022, respectively. These derivative financial instruments are cash flow hedges and are reflected at fair value on the Consolidated Balance Sheet in other current assets and liabilities. See Note P for additional details.

Changes in fair value (gains and losses) related to derivative financial instruments that qualify as cash flow hedges are deferred in AOCL until the underlying transaction is reflected in earnings. Alternatively, gains and losses on derivative financial instruments that do not qualify for hedge accounting are recorded each period in earnings. All gains and losses from derivative financial instruments recognized in the Consolidated Statement of Earnings are presented in the same line item as the underlying transaction, generally operating costs and expenses.

Net gains and losses recognized in earnings on derivative financial instruments that do not qualify for hedge accounting were not material to our results of operations in any of the past three years. Net gains and losses reclassified to earnings from AOCL related to qualified hedges were also not material to our results of operations in any of the past three years, and we do not expect the amount of these gains and losses that will be reclassified to earnings during the next 12 months to be material.

We had no material derivative financial instruments designated as fair value or net investment hedges on December 31, 2023 and 2022.

Foreign Currency Financial Statement Translation. We translate foreign currency balance sheets from our international businesses’ functional currency (generally the respective local currency) to U.S. dollars at the end-of-period exchange rates, and statements of earnings at the average exchange rates for each period. The resulting foreign currency translation adjustments are a component of AOCL.

We do not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations’ results into U.S. dollars. The impact of translating our non-U.S. operations’ revenue and earnings into U.S. dollars was not material to our results of operations in any of the past three years. In addition, the effect of changes in foreign exchange rates on non-U.S. cash balances was not material in any of the past three years.

R. EQUITY COMPENSATION PLANS

Equity Compensation Overview. We have equity compensation plans for employees, as well as for non-employee members of our Board. The equity compensation plans seek to provide an effective means of attracting and retaining directors, officers and key employees, and to provide them with incentives to enhance our growth and profitability. Under the equity compensation plans, awards may be granted to officers, employees or non-employee directors in common stock, options to purchase common stock, restricted shares of common stock, participation units (including RSUs, stock appreciation rights and phantom stock units) or any combination of these.

Annually, we grant awards of stock options, restricted stock and RSUs to participants in our equity compensation plans in early March. Additionally, we may make limited ad hoc grants on a quarterly basis for new hires or promotions. We issue common stock under our equity compensation plans from treasury stock. On December 31, 2023, in addition to the shares reserved for issuance upon the exercise of outstanding stock options, approximately 17 million shares have been authorized for awards that may be granted in the future.

Equity-based Compensation Expense. Equity-based compensation expense is included in G&A expenses. The following table details the components of equity-based compensation expense recognized in net earnings in each of the past three years:

Year Ended December 31			2023						2022						2021
Stock options			$	65					$	71					$	46
Restricted stock/RSUs			78						59						53
Total equity-based compensation expense, net of tax			$	143					$	130					$	99

Stock Options. Stock options granted under our equity compensation plans are issued with an exercise price at the fair value of our common stock determined by the average of the high and low stock prices as listed on the New York Stock Exchange (NYSE) on the date of grant. Participants generally vest in stock options over three years – with 50% of the options vesting after two years and the remaining 50% vesting the following year – and expire 10 years after the grant date.

We recognize compensation expense related to stock options on a straight-line basis over the vesting period of the awards, net of estimated forfeitures, except for awards to retirement-eligible participants that are recognized on an accelerated basis effective with the 2022 grant. Estimated forfeitures are based on our historical forfeiture experience. We estimate the fair value of stock options on the date of grant using the Black-Scholes option pricing model with the following assumptions for each of the past three years:

Year Ended December 31			2023						2022						2021
Expected volatility			22.7-22.9%						22.4-23.0%						26.7-27.3%
Weighted average expected volatility			22.8		%				22.5		%				27.3		%
Expected term (in months)			60						60						60
Risk-free interest rate			3.6-4.7%						1.7-4.2%						0.6-1.2%
Expected dividend yield			2.3		%				2.3		%				2.9		%

We determine the above assumptions based on the following:

• Expected volatility is based on the historical volatility of our common stock

• Expected term is based on assumptions used by a set of comparable peer companies

• Risk-free interest rate is the yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option at the grant date

• Expected dividend yield is based on our historical dividend yield

The resulting weighted average fair value per stock option granted (in dollars) was $47.46 in 2023, $38.93 in 2022 and $28.87 in 2021. Stock option expense reduced pretax operating earnings (and on a diluted per-share basis) by $82 ($0.24) in 2023, $91 ($0.26) in 2022 and $58 ($0.16) in 2021. On December 31, 2023, we had $34 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 1.7 years.

A summary of stock option activity during 2023 follows:

In Shares and Dollars			Shares Under Option						Weighted Average Exercise Price Per Share
Outstanding on December 31, 2022			10,777,058						$	184.33
Granted			1,549,440						227.39
Exercised			(1,012,376)						163.82
Forfeited/canceled			(103,639)						200.03
Outstanding on December 31, 2023			11,210,483						$	191.99
Vested and expected to vest on December 31, 2023			11,102,763						$	191.68
Exercisable on December 31, 2023			7,075,047						$	177.55

Summary information with respect to our stock options’ intrinsic value and remaining contractual term on December 31, 2023, follows:

			Weighted Average Remaining Contractual Term (in years)						Aggregate Intrinsic Value
Outstanding			6.1						$	759
Vested and expected to vest			6.1						755
Exercisable			4.8						581

In the table above, intrinsic value is calculated as the excess, if any, of the market price of our stock on the last trading day of the year over the exercise price of the options. For stock options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise and the exercise price. The total intrinsic value of stock options exercised was $75 in 2023, $205 in 2022 and $62 in 2021.

Restricted Stock/RSUs. Grants of restricted stock are awards of shares of common stock. RSUs represent obligations that have a value derived from or related to the value of our common stock, and are payable in cash or common stock. The fair value of restricted stock and RSUs equals the average of the high and low market prices of our common stock as listed on the NYSE on the date of grant.

Participants generally vest in restricted stock and RSUs, over a three-year restriction period after the grant date, during which recipients may not sell, transfer, pledge, assign or otherwise convey their restricted shares to another party. During this period, restricted stock recipients receive cash dividends on their restricted shares and are entitled to vote those shares, while RSU recipients receive dividend-equivalent units instead of cash dividends and are not entitled to vote their RSUs or dividend-equivalent units.

We grant RSUs with one or more performance measures (performance stock units or PSUs) determined by the compensation committee of the Board as described in our proxy statement. Depending on the company’s performance, the number of PSUs earned may be less than, equal to or greater than the original number of PSUs awarded subject to a payout range.

We recognize compensation expense related to restricted stock and RSUs on a straight-line basis over the vesting period of the awards, except for restricted stock awards to retirement-eligible participants that are recognized on an accelerated basis. Compensation expense related to restricted stock and RSUs reduced pretax operating earnings (and on a diluted per-share basis) by $99 ($0.28) in 2023, $74 ($0.21) in 2022 and $68 ($0.19) in 2021. On December 31, 2023, we had $88 of unrecognized compensation cost related to restricted stock and RSUs, which is expected to be recognized over a weighted average period of 1.8 years.

A summary of restricted stock and RSU activity during 2023 follows:

In Shares and Dollars			Shares/ Share-Equivalent Units						Weighted Average Grant-Date Fair Value Per Share
Nonvested at December 31, 2022			1,267,551						$	194.38
Granted			469,235						238.47
Vested			(415,380)						161.52
Forfeited			(30,504)						225.54
Nonvested at December 31, 2023			1,290,902						$	215.91

The total fair value of vesting shares was $96 in 2023, $95 in 2022 and $52 in 2021.

S. RETIREMENT PLANS

We provide retirement benefits to eligible employees through a variety of plans:

• Defined contribution

• Defined benefit

◦Pension (qualified and non-qualified)

◦Other post-retirement benefit

Substantially all of our plans use a December 31 measurement date, consistent with our fiscal year.

Defined Contribution Plans

We provide eligible employees the opportunity to participate in defined contribution plans (commonly known as 401(k) plans), which permit contributions on a before-tax and after-tax basis. Employees may contribute to various investment alternatives. In most of these plans, we match a portion of the employees’ contributions. Our contributions to these plans totaled $462 in 2023, $415 in 2022 and $398 in 2021. The defined-contribution plans held approximately 16 million shares of our common stock, representing approximately 6% of our outstanding shares, on December 31, 2023 and 2022.

Defined Benefit Plans

Plan Descriptions. We have trusteed, qualified pension plans covering eligible employees aligned with the markets in our business: U.S. government, non-U.S. government and commercial. Some of these plans require employees to make contributions to the plan. We also sponsor several non-qualified pension plans, which provide eligible executives with additional benefits, including excess benefits over limits imposed on qualified plans by federal tax law. The principal factors affecting the benefits earned by participants in our pension plans are employees’ years of service and compensation levels. Our primary U.S. pension plans, which comprise the majority of our unfunded obligation, were closed to new salaried participants on January 1, 2007, and were closed to new hourly participants in subsequent collective bargaining agreements over the next several years. Additionally, we have made several changes to these plans for certain participants that limit or cease the benefits that accrue for future service.

In addition to pension benefits, we maintain plans that provide post-retirement health care and life insurance coverage for certain employees and retirees. These benefits vary by employment status, age, service and salary level at retirement. The coverage provided and the extent to which the retirees share in the cost of the program vary throughout the company. The plans provide health care and life insurance benefits only to those employees who retire directly from our service and not to those who terminate service prior to eligibility for retirement.

Contributions. It is our policy to fund our qualified pension plans in a manner that optimizes the tax deductibility and contract recovery of contributions considered within our capital deployment framework. Therefore, we may make discretionary contributions in addition to the required contributions determined in accordance with IRS regulations. We contributed $106 to our qualified pension plans in 2023. In 2024, our required contributions are $73.

We maintain several tax-advantaged accounts, primarily Voluntary Employees’ Beneficiary Association (VEBA) trusts, to fund the obligations for some of our other post-retirement benefit plans. For non-funded plans, claims are paid as received. Contributions to our other post-retirement benefit plans were not material in 2023 and are not expected to be material in 2024.

Benefit Payments. We expect the following benefits to be paid from our defined benefit plans over the next 10 years:

			Pension Benefits						Other Post-Retirement Benefits
2024			$	953					$	50
2025			946						49
2026			965						47
2027			975						46
2028			977						44
2029-2033			4,855						201

Benefit Cost. Our annual benefit cost consists of five primary elements:

• The cost of benefits earned by employees for services rendered during the year

• An interest charge on our plan liabilities

• An expected return on our plan assets for the year

• Actuarial gains and losses, which result from changes in assumptions and differences between actual and expected return on assets and participant experience

• The cost or credit attributed to prior service resulting from changes we make to plan benefit terms

For qualified pension plans and other post-retirement benefit plans, actuarial gains and losses and prior service costs or credits are initially deferred in AOCL and then amortized on a straight-line basis over future years. For our qualified U.S. government pension plans, we amortize actuarial gains and losses over a custom amortization period based on the amount of pension costs allocable to our U.S. government contracts. For the remaining qualified pension plans and other post-retirement benefit plans, we amortize only the amount of actuarial gains and losses that exceeds 10% of the greater of plan assets or benefit obligations. This amount is amortized over the average remaining service period of plan participants who are active employees unless all or almost all of a plan’s participants are inactive or are not accruing additional benefits. In such cases, the amortization period is based on the average remaining life expectancy of the plan participants. To further reduce the volatility of our annual benefit cost, gains and losses resulting from the return on plan assets are included over five years in the determination of the amortizable amount of actuarial gains and losses. For non-qualified pension plans, we recognize actuarial gains and losses immediately.

Net annual benefit cost (credit) consisted of the following:

			Pension Benefits
Year Ended December 31			2023						2022						2021
Service cost			$	66					$	102					$	119
Interest cost			650						400						360
Expected return on plan assets			(829)						(907)						(963)
Net actuarial loss			752						171						352
Prior service credit			(13)						(20)						(20)
Settlement/curtailment/other			3						4						70
Net annual benefit cost (credit)			$	629					$	(250)					$	(82)

			Other Post-Retirement Benefits
Year Ended December 31			2023						2022						2021
Service cost			$	4					$	6					$	10
Interest cost			30						19						19
Expected return on plan assets			(32)						(31)						(36)
Net actuarial gain			(30)						(16)						—
Prior service cost			2						1						—
Settlement/curtailment/other			5						(11)						—
Net annual benefit credit			$	(21)					$	(32)					$	(7)

Our contractual arrangements with the U.S. government provide for the recovery of pension and other post-retirement benefit costs related to employees working on government contracts. The amount allocated to U.S. government contracts is determined in accordance with the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS), which may result in a timing difference with the amount determined under GAAP. We defer this difference on the Consolidated Balance Sheet. At this time, cumulative benefit costs exceed the amount allocated to contracts, and the difference is reported in other current assets. To the extent there is a non-service component of net annual benefit cost (credit) for our defined benefit plans, it is reported in other income (expense) in the Consolidated Statement of Earnings.

Funded Status. We recognize an asset or liability on the Consolidated Balance Sheet equal to the funded status of each of our defined benefit plans. The funded status is the difference between the fair value of the plan’s assets and its benefit obligation. The following is a reconciliation of the benefit obligations and plan/trust assets, and the resulting funded status, of our defined benefit plans:

			Pension Benefits												Other Post-Retirement Benefits
Year Ended December 31			2023						2022						2023						2022
Change in Benefit Obligation
Benefit obligation at beginning of year			$	(13,505)					$	(17,779)					$	(617)					$	(840)
Service cost			(66)						(102)						(4)						(6)
Interest cost			(650)						(400)						(30)						(19)
Amendments			1						6						(5)						(1)
Actuarial (loss) gain			(377)						3,884						8						185
Settlement/curtailment/other			(52)						36						(3)						9
Benefits paid			913						850						53						55
Benefit obligation at end of year			$	(13,736)					$	(13,505)					$	(598)					$	(617)
Change in Plan/Trust Assets
Fair value of assets at beginning of year			$	11,435					$	15,167					$	626					$	777
Actual return on plan assets			1,177						(2,916)						57						(115)
Employer contributions			106						50						—						—
Settlement/curtailment/other			59						(37)						—						—
Benefits paid			(891)						(829)						(34)						(36)
Fair value of assets at end of year			$	11,886					$	11,435					$	649					$	626
Funded status at end of year			$	(1,850)					$	(2,070)					$	51					$	9

The overall increase in our pension benefit obligation for the year ended December 31, 2023, was due primarily to actuarial loss created by the change in the weighted-average discount rate, which decreased from 5.08% at December 31, 2022, to 4.83% at December 31, 2023.

The overall decrease in our pension benefit obligation for the year ended December 31, 2022, was due primarily to actuarial gains created by the change in the weighted-average discount rate, which increased from 2.84% at December 31, 2021, to 5.08% at December 31, 2022.

Amounts recognized on the Consolidated Balance Sheet consisted of the following:

			Pension Benefits												Other Post-Retirement Benefits
December 31			2023						2022						2023						2022
Noncurrent assets			$	140					$	169					$	316					$	261
Current liabilities			(23)						(23)						(13)						(15)
Noncurrent liabilities			(1,967)						(2,216)						(252)						(237)
Net (liability) asset recognized			$	(1,850)					$	(2,070)					$	51					$	9

Amounts deferred in AOCL for our defined benefit plans consisted of the following:

			Pension Benefits												Other Post-Retirement Benefits
December 31			2023						2022						2023						2022
Net actuarial loss (gain)			$	2,674					$	3,404					$	(303)					$	(299)
Prior service (credit) cost			(52)						(61)						12						9
Total amount recognized in AOCL, pretax			$	2,622					$	3,343					$	(291)					$	(290)

The following is a reconciliation of the change in AOCL for our defined benefit plans:

			Pension Benefits												Other Post-Retirement Benefits
Year Ended December 31			2023						2022						2023						2022
Net actuarial loss (gain)			$	29					$	(61)					$	(33)					$	(39)
Prior service (credit) cost			(1)						(5)						5						2
Amortization of:
Net actuarial (loss) gain from prior years			(752)						(171)						30						16
Prior service credit (cost)			13						20						(2)						(1)
Settlement/curtailment/other			(10)						(3)						(1)						1
Change in AOCL, pretax			$	(721)					$	(220)					$	(1)					$	(21)

A pension plan’s funded status is the difference between the plan’s assets and its projected benefit obligation (PBO). The PBO is the present value of future benefits attributed to employee services rendered to date, including assumptions about future compensation levels. On December 31, 2023 and 2022, most of our pension plans had a PBO that exceeded the plans’ assets. Summary information for those plans follows:

December 31			2023						2022
PBO			$	(13,019)					$	(12,897)
Fair value of plan assets			11,029						10,657

A pension plan’s accumulated benefit obligation (ABO) is the present value of future benefits attributed to employee services rendered to date, excluding assumptions about future compensation levels. The ABO for all pension plans was $13.6 billion and $13.4 billion on December 31, 2023 and 2022, respectively. The ABO for all other post-retirement plans was $598 and $616 on December 31, 2023 and 2022, respectively. On December 31, 2023 and 2022, most of our defined benefit plans had an ABO that exceeded the plans’ assets. Summary information for those plans follows:

			Pension Benefits												Other Post-Retirement Benefits
December 31			2023						2022						2023						2022
ABO			$	(12,900)					$	(12,793)					$	(275)					$	(270)
Fair value of plan assets			11,029						10,657						22						20

Assumptions. We calculate the plan assets and liabilities for a given year and the net annual benefit cost for the subsequent year using assumptions determined as of December 31 of the year in question.

The following table summarizes the weighted average assumptions used to determine our benefit obligations:

Assumptions on December 31			2023						2022
Pension Benefits
Benefit obligation discount rate			4.83		%				5.08		%
Rate of increase in compensation levels			2.60		%				2.62		%
Other Post-Retirement Benefits
Benefit obligation discount rate			4.89		%				5.16		%
Health care cost trend rate:
Trend rate for next year			6.25		%				6.50		%
Ultimate trend rate			5.00		%				5.00		%
Year rate reaches ultimate trend rate			2032						2032

The following table summarizes the weighted average assumptions used to determine our net annual benefit cost:

Assumptions for Year Ended December 31			2023						2022						2021
Pension Benefits
Discount rates:
Benefit obligation			5.08		%				2.84		%				2.54		%
Service cost			4.50		%				2.51		%				2.25		%
Interest cost			4.98		%				2.31		%				1.87		%
Expected long-term rate of return on assets			6.34		%				6.78		%				7.14		%
Rate of increase in compensation levels			2.60		%				2.52		%				2.63		%
Other Post-Retirement Benefits
Discount rates:
Benefit obligation			5.16		%				2.89		%				2.52		%
Service cost			5.26		%				3.32		%				2.97		%
Interest cost			5.09		%				2.33		%				1.83		%
Expected long-term rate of return on assets			5.04		%				5.12		%				6.33		%

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.

We determine the long-term rates of return on assets based on consideration of historical and forward-looking returns and the current and expected asset allocation. In 2023, we decreased the expected long-term rates of return on assets by 44 basis points for our pension plans and by 8 basis points for our other post-retirement benefit plans, resulting from changes in our asset allocations.

Retirement plan assumptions are based on our best judgment, including consideration of current and future market conditions. Given the long-term nature of the assumptions being made, actual outcomes can and often do differ from these estimates. Changes in these estimates impact future pension and other post-retirement benefit costs. As previously discussed, our contractual arrangements with the U.S. government provide for the recovery of pension and other post-retirement benefit costs. Therefore, the impact of annual changes in financial reporting assumptions on the cost for these plans does not immediately affect our operating results.

Assets. A committee of our Board is responsible for the strategic oversight of our defined benefit plan assets held in trust. Management develops investment policies and provides oversight of a third-party investment manager who reports to the committee on a regular basis. The outsourced third-party investment manager develops investment strategies and makes all day-to-day investment decisions related to defined benefit plan assets in accordance with our investment policy and target allocation percentages with the objective of generating future returns at or above our assumed long-term rates of return used to determine net annual benefit cost.

Our investment policy endeavors to strike the appropriate balance between asset growth and funded status protection. The objective of the policy is to generate asset returns that will increase the funded status of our plans while systematically reducing cost and deficit risk as funded status of the plans improve. Several of our U.S. pension plans are now utilizing a target asset allocation strategy that will automatically increase investments in liability-hedging assets (primarily commingled fixed-income funds) and decrease investments in return-seeking assets (primarily commingled equity funds) as the plans reach specific funded status targets. At the end of 2023, our target asset allocation ranges for plans that are less than fully funded were 40-70% return-seeking assets and 30-60% liability-hedging assets.

More than 90% of our pension plan assets are held in a single trust for our primary qualified U.S. government and commercial pension plans. On December 31, 2023, the trust was invested largely in commingled funds comprised primarily of equity and fixed-income securities. The trust also invests in other asset classes consistent with our investment policy. Our investment policy allows the use of derivative instruments when appropriate to reduce anticipated asset volatility, to gain exposure to an asset class or to adjust the duration of fixed-income assets.

We hold assets in VEBA trusts for some of our other post-retirement benefit plans. On December 31, 2023, these trusts were invested largely in fixed-income securities and commingled funds comprised primarily of equity and fixed-income securities. Our asset allocation strategy for the VEBA trusts considers funded status, potential fluctuations in our other post-retirement benefit obligation, the taxable nature of certain VEBA trusts, tax deduction limits on contributions and the regulatory environment.

Our defined benefit plan assets are reported at fair value. See Note P for a discussion of the hierarchy for determining fair value. Our Level 1 assets include commingled equity and fixed-income funds that are valued using a unit price or NAV. These funds are actively traded and valued using quoted prices for identical securities from the market exchanges. Our Level 2 assets include fixed-income securities and commingled equity and fixed-income funds whose underlying investments are valued using observable marketplace inputs. The fair value of plan assets invested in fixed-income securities is generally determined under a market approach using valuation models that incorporate observable inputs such as interest rates, bond yields and quoted prices for similar assets. Our plan assets invested in Level 2 commingled funds are valued using a unit price or NAV obtained from the fund’s transfer agent or investment manager that is based on the underlying, observable investments of the fund. Our Level 3 assets consist of insurance deposit contracts, retirement annuity contracts and real estate funds.

Certain investments valued using NAV as a practical expedient are excluded from the fair value hierarchy but are included in the tables below to permit reconciliation to total plan assets. These investments are redeemable at NAV generally on a monthly or quarterly basis, and most have redemption notice periods of up to 90 days. The unfunded commitments related to these investments were not material on December 31, 2023 or 2022.

The fair value of our pension plan assets by investment category and the corresponding level within the fair value hierarchy were as follows:

			Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Asset Category			December 31, 2023
Cash and equivalents			$	216					$	10					$	206					$	—
Commingled funds:
Equity funds			4,152						446						3,706						—
Fixed-income funds			6,663						226						6,437						—
Real estate funds			13						—						—						13
Other investments:
Insurance deposit contracts			184						—						—						184
Retirement annuity contracts			25						—						—						25
Total plan assets in fair value hierarchy			$	11,253					$	682					$	10,349					$	222
Plan assets measured using NAV as a practical expedient:
Real estate funds			581
Equity funds			42
Hedge funds			10
Total pension plan assets			$	11,886

			Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Asset Category			December 31, 2022
Cash and equivalents			$	100					$	19					$	81					$	—
Commingled funds:
Equity funds			4,429						468						3,961						—
Fixed-income funds			5,798						275						5,523						—
Real estate funds			12						—						—						12
Other investments:
Insurance deposit contracts			161						—						—						161
Retirement annuity contracts			23						—						—						23
Total plan assets in fair value hierarchy			$	10,523					$	762					$	9,565					$	196
Plan assets measured using NAV as a practical expedient:
Real estate funds			733
Hedge funds			141
Equity funds			38
Total pension plan assets			$	11,435

The fair value of our other post-retirement benefit plan assets by category and the corresponding level within the fair value hierarchy were as follows:

			Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)
Asset Category (a)			December 31, 2023
Cash and equivalents			$	19					$	—					$	19
Commingled funds:
Equity funds			118						71						47
Fixed-income funds			94						10						84
Fixed-income securities			411						—						411
Total plan assets in fair value hierarchy			$	642					$	81					$	561
Plan assets measured using NAV as a practical expedient:
Real estate funds			7
Hedge funds			—
Total other post-retirement benefit plan assets			$	649

(a)We had no Level 3 investments on December 31, 2023.

			Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)
Asset Category (a)			December 31, 2022
Cash and equivalents			$	16					$	—					$	16
Commingled funds:
Equity funds			112						65						47
Fixed-income funds			75						10						65
Fixed-income securities			413						—						413
Total plan assets in fair value hierarchy			$	616					$	75					$	541
Plan assets measured using NAV as a practical expedient:
Real estate funds			8
Hedge funds			2
Total other post-retirement benefit plan assets			$	626

(a)We had no Level 3 investments on December 31, 2022.

Changes in our Level 3 defined benefit plan assets during 2023 and 2022 were as follows:

			Insurance Deposits Contracts						Retirement Annuity Contracts												Real Estate Funds						Total Level 3 Assets
December 31, 2021			$	163					$	35											$	8					$	206
Actual return on plan assets:
Unrealized losses, net			(10)						(12)												—						(22)
Realized losses, net			—						—												(1)						(1)
Purchases, sales and settlements, net			8						—												5						13
December 31, 2022			161						23												12						196
Actual return on plan assets:
Unrealized gains (losses), net			23						2												(1)						24
Realized gains, net			—						—												3						3
Purchases, sales and settlements, net			—						—												(1)						(1)
December 31, 2023			$	184					$	25											$	13					$	222

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

General Dynamics Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying Consolidated Balance Sheet of General Dynamics Corporation and subsidiaries (the Company) as of December 31, 2023 and 2022, the related Consolidated Statements of Earnings, Comprehensive Income, Cash Flows, and Shareholders’ Equity for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 8, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimates used to recognize revenue for select long-term contracts

As discussed in Note B to the consolidated financial statements, accounting for long-term contracts involves estimating total contract revenue and costs. Revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying performance obligations.

For a select group of long-term contracts in the defense segments, we identified the assessment of certain assumptions that are an input into the amount of revenue recognized during the period as a critical audit matter. Examples of these assumptions are estimates of labor hours, the cost of materials for the work to be performed and the transaction price. The evaluation of one or more of the assumptions used to recognize revenue for the select group of long-term contracts required a high level of subjective auditor judgment due to the nature of the individual contracts and related contract performance risks. Specifically, changes to certain assumptions may have a significant impact on the revenue recorded during the period.

The following are primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the assumptions used to recognize revenue for the select group of long-term contracts. This included contract-level controls over certain revenue and cost assumptions. For certain contracts, we compared the Company’s historical estimates of costs to actual costs incurred to assess the Company’s ability to estimate accurately. Based on the nature of the individual contract, we evaluated certain revenue and cost assumptions by:

–reading the underlying contract and any related amendments to obtain an understanding of the contractual requirements and related performance obligations

–assessing the enforceable rights and obligations of the underlying contractual terms when changes to price or scope, or both, are not yet agreed

–assessing costs incurred to date and the relative progress toward satisfying the performance obligation(s) of the contract

–assessing, if relevant, the estimated costs at completion by considering similar or predecessor contracts and programs

–inquiring of financial and operational personnel of the Company to identify factors that should be considered within the estimated costs at completion or indications of potential management bias

–inspecting correspondence, if any, between the Company and the customer regarding actual to date and expected performance

–analyzing the sufficiency of the Company’s assessment of contract performance risks included within the estimated costs at completion.

Discount rates used in pension benefit obligation

As discussed in Note S to the consolidated financial statements, the Company’s pension benefit obligation and the associated plan assets were $13.7 billion and $11.9 billion, respectively, on December 31, 2023. The weighted-average discount rate assumption used in estimating the pension benefit obligation as of December 31, 2023, of 4.83% was based 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 selected discount rates have a significant effect on the measurement of the pension benefit obligation.

We identified the evaluation of the discount rates for certain plans’ pension benefit obligations to be a critical audit matter, due to the extent of specialized skills required to assess the discount rate assumption used to discount estimated future benefit payments. In addition, certain plans’ pension benefit obligations were sensitive to changes in this assumption.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the pension benefit obligation process. This included a control related to the determination of the discount rate assumption. We involved an actuarial professional with specialized skills and knowledge, who assisted in:

–evaluating the Company’s methodology used to develop the discount rates

–checking the accuracy of the discount rates using the cash flows and spot rates provided by the Company

–evaluating the Company’s determination of the discount rates by comparing changes in the discount rates from the prior year against changes in published indices using publicly available market data.

						/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

McLean, Virginia

February 8, 2024