PROXY STATEMENT

The Board of Directors of General Dynamics Corporation is soliciting your proxy for the Annual Meeting of Shareholders to be held on May 4, 2016,3, 2017, at 9:009 a.m. local time, or at any adjournment or postponement of the meeting. This Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders and proxy card are being distributed on or about March 18, 2016,23, 2017, to holders of General Dynamics common stock, par value $1.00 per share (Common Stock).

Proxy Summary

This summary highlights selected information that is provided in more detail throughout this Proxy Statement. This summary does not contain all of the information you should consider before voting. You should read the full Proxy Statement before casting your vote.

VOTING MATTERSAND BOARD RECOMMENDATIONS

At this year’s Annual Meeting, we are asking our shareholders to vote on the following matters:

Additional information about the Annual Meeting and voting can be found beginning on page 70.71.

General Dynamics 20162017 Proxy Statement     1

20162017 BOARDOF DIRECTORS NOMINEES

Balanced Director Tenure (Current Directors)		Strong Director Engagement (20152016 Attendance)

A COMMITMENTTO SOUND CORPORATE GOVERNANCE

Our Board of Directors believes that a commitment to good corporate governance enhances shareholder value. Sound corporate governance starts with a strong value system, and the value system starts in the boardroom. The General Dynamics’ corporateDynamics ethos – our distinguishing moral nature – is rooted in five overarching values.

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Highlights of our governance practices include:

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SHAREHOLDER ENGAGEMENT

Our Board is Committed to Robust Shareholder Engagement.  Over the past several years, members of our Board and senior management, including our independent Lead Director and compensation committee chair, have engaged with holders of over 65 percent of our outstanding Common StockOur shareholder engagement program allows us to discuss corporate governance and executive compensation matters. Recently, we solicited input from, and considered the viewsmatters with shareholders, as well as other items of manyinterest to our shareholders. As part of our shareholders priorongoing program, in 2016 we reached out to holders representing over 65 percent of our December 2015 adoption of proxy access.outstanding common stock. In addition, in 2015 the Board formed anad hoc group of directors, anchored by the chairman and the independent Lead Director, to liaise with significant shareholders. Our Board remains committed to soliciting and understanding shareholder views and responding as appropriate.

PERFORMANCEAND EXECUTIVE COMPENSATION HIGHLIGHTS

Creating Sustainable Long-Term Shareholder Value.  Over the past three years,In 2016, we have focused relentlesslycontinued our long-term focus on continuous improvement throughout our operations and the wise deployment of capital to increase shareholder value. In 2015, this approach again delivered us a year of improved operational resultsexcellence, resulting in positive operating leverage, strong earnings and record-setting financial performance, some of which is highlighted below.margin. We deployed capital prudently through continued investment in the future growth areas of our company and by returning 2.11.6 times our free cash flow from operations to shareholders in the form of dividends and share repurchases. Our continued focus on operational improvement, successfulIn addition to our strong operating performance, we added new contracts to backlog, creating the opportunity for strong execution on our robust backlog andwell into the continued demand for our products and services throughout each business unit leaves us well-positioned to deliver on our commitment to long-term value creation.future.

A Consistent Focus on Aligning Compensation with PerformancePerformance.  .Our compensation philosophy at General Dynamics is to align executive compensation with company, business group and individual performance, and to provide the incentives necessary to attract, motivate and retain the executives that help drive the company’s success. We have received positive shareholder feedback about our executive compensation program, and received a nearlygreater than 90% vote in favor of our executive compensation program at last year’s annual meeting. Our program’spay-for-performance philosophy has generated strong results for the company.

Commitment to Continuous Assessment of our Compensation Program.  As a result of our ongoing conversation with shareholders, we made several changes to our compensation program in 2016 and early 2017. These changes are designed to better align with market best practices and provide for increased transparency and alignment between senior management and shareholders. In 2016, we eliminated all legacy excise taxgross-ups and established a target bonus program for our named executive officers which provides for a cap on bonuses paid to named executive officers. In early 2017, we established market-based long-term incentive (LTI) guidelines for our named executive officers.

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ELECTIONOFTHE BOARDOF DIRECTORSOFTHE COMPANY

(PROPOSAL 1)

Director NominationsNominations.  .General Dynamics’ directors are elected at each annual meeting of shareholders and hold office forone-year terms or until successors are elected and qualified. The Nominating and Corporate Governance Committee considers director nominees from various sources and chooses nominees with the primary goal of ensuring the Board collectively serves the interests of shareholders.

Diversity and InclusionInclusion.  .In order to sustain a global business, we must bring together a group of people with a vision for the future and diversity of thought. We must have leadership, at both the executive and Board levels, to develop and execute our business objectives better than our competition. At the heart of our company are diverse executives, managers and employees worldwide who rely on their intimate knowledge of customer requirements and a unique blend of skill and innovation to develop and deliver the best possible products and services.

Our currentThe nominees for election to the Board members come from a variety of backgrounds and bring a diverse set of skills and experiences to the boardroom. This ensures that our directors bring a broad perspective to the company on a range of important issues.

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Director Skills and ExperienceExperience.  .In assessing director candidates, the Nominating and Corporate Governance Committee considers the background and professional experience of the candidates in the context of the current Board composition to ensure a diverse range of backgrounds, talent, skill and expertise, including gender and racial diversity. Relevant criteria considered by the committee include: business and financial expertise, technical expertise and familiarity with issues affecting aerospace and defense

General Dynamics 2016 Proxy Statement     5

20162017 Director Nominees.The following 1211 nominees are standing for election to the Board of Directors at the Annual Meeting. All nominees are currently serving as directors. If any nominee withdraws or for any reason is unable to serve as a director, your proxy will be voted for any remaining nominees (except as otherwise indicated in your proxy) and any replacement nominee designated by the Nominating and Corporate Governance Committee of the Board of Directors.

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General Dynamics 2016 Proxy Statement     11

General Dynamics 2017 Proxy Statement     11

Director Retirement.  William Fricks will not stand for re-election at the Annual Meeting. General Dynamics and the Board appreciate his many years of dedicated service and valuable counsel as a member of the Board.

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GOVERNANCEOFTHE COMPANY

OUR COMMITMENTTO STRONG CORPORATE GOVERNANCE

The General Dynamics Board of Directors believes that a commitment to good corporate governance enhances shareholder value. To that end, General Dynamics is committed to employing strong corporate governance practices to promote a culture of ethics and integrity that defines how we do business. At the core, we are in business to earn a fair return for our shareholders.

On the recommendation of the Nominating and Corporate Governance Committee, the Board has adopted the General Dynamics Corporate Governance Guidelines to provide a framework for effective governance of the Board and the company. The guidelines establish policies and practices with respect to Board operations and responsibilities, including board structure and composition, director independence, executive and director compensation, succession planning and the receipt of concerns and complaints by the Board. The Board regularly reviews these guidelines and updates them periodically in response to changing regulatory requirements, feedback from shareholders on governance matters and evolving best practices in corporate governance.

The Board believes that its commitment to good governance is demonstrated by key corporate governance practices, including:

These and other practices are highlighted on page 3.

OUR CULTUREOF ETHICS

As part of our commitment to strong corporate governance practices, we maintain an active and robust ethics program. Our ethics program is rooted in our ethos – our distinguishing moral nature. Our ethos is defined by five values:

As a community of people dedicated to our ethos, we stand against those who betray others, trod upon others’ rights or disrespect the rule of law. Each of us has an obligation to behave according to our values. In that way, we can ensure that we continue to be good stewards of the investments in us by our shareholders, customers, employees and communities, now and in the future.

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We also have adopted ethics codes specifically applicable to our Board of Directors and our financial professionals. The Code of Conduct for Members of the Board of Directors embodies our Board’s commitment to manage our business in accordance with the highest standards of ethical conduct. The Code of Ethics for Financial Professionals, which supplements the Blue Book, applies to our Chief Executive Officer, Chief Financial Officer, Controllerchief executive officer, chief financial officer, controller and persons performing similar financial functions.

Any amendments to or waivers from the Standards of Business Ethics and Conduct, Code of Ethics for Financial Professionals or Code of Conduct for Members of the Board of Directors on behalf of any of our executive officers, financial professionals or directors will be disclosed on our website. The current Standards of Business Ethics and Conduct are available on our website at www.gd.com/Responsibility.

BOARD LEADERSHIP STRUCTURE

Our Board comprises independent, accomplished and experienced directors who provide advice and oversight to further the interests of our company and our shareholders. Our Board believes that its organizational structure provides a framework for it to provide independent leadership and engagement while ensuring appropriate insight into the operations and strategic issues of the company.

Chairman – Strong and Effective Leadership.Our Board elects a Chairman from among the directors and determines whether to separate or combine the roles of Chairman and Chief Executive Officer based on what it believes best serves the needs of the company and its shareholders at any particular time. The Board believes that Ms. Novakovic’s deep understanding of the company’s business,day-to-day operations, growth opportunities, challenges and risk management practices gained through several leadership positions enable her to provide strong and effective leadership to the Board and to ensure that the Board is informed of important issues facing the company. The Board also believes that having a combined role promotes a cohesive, strong and consistent vision and strategy for the company.

Independent Lead Director – Additional Independent Oversight.The Board has created the position of a Lead Director, elected annually by the Board from among the independent directors. Mr. Crown currently serves as Lead Director. The Board believes the Lead Director position provides additional independent oversight of senior management and board matters. The selection of a Lead Director facilitates communication among the directors or between any of them and the chairman. Directors frequently communicate among themselves and directly with the chairman. The Lead Director’s authority and responsibilities are as follows:

DIRECTOR INDEPENDENCE

Independence Standards.Our Board of Directors assesses the independence of our directors and examines the nature and extent of any relationships between General Dynamics and our directors, their families and their affiliates. Our Board has established an objective that at leasttwo-thirds of the directors be independent directors. For a director to be considered independent, the Board

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BOARD MEETINGS, BUSINESS UNIT VISITSAND ATTENDANCE

During 2015,2016, the Board of Directors held eight meetings. This included athree-day meeting in February to review our 20152016 operating plan, including the operating plans of each of our business groups. In August 2015,2016, the Board visited the Pittsfield, Massachusetts,San Diego facility of our General Dynamics Mission SystemsNASSCO business unit and met with that business unit’s management team. Each of our directors attended at least 8886% percent of the meetings of the Board and committees on which they served in 2015,2016, with eight9 of our current 12 directors attending 100 percent of the Board and committee meetings. We encourage directors to attend each annual meeting of shareholders, and in 20152016 all of our directors attended the annual meeting.

EXECUTIVE SESSIONSOFTHE BOARD

Our Board holds executive sessions of thenon-management directors in conjunction withfollowing all regularly scheduled Board meetings. Thenon-management directors may also meet without management present at other times as requested by anynon-management director. The independent Lead Director serves as chair at the executive sessions.

BOARD COMMITTEES

The Board of Directors has established the following four standing committees to assist in executing its duties: Audit, Compensation, Finance and Benefit Plans, and Nominating and Corporate Governance. The primary responsibilities of each of the committees are described below, together with the current membership and number of meetings held in 2015.2016. Currently, three of the four Board committees are composed of independent,non-management directors, including those committees that are required by the rules of the New York Stock Exchange to be composed solely of independent directors. Each of the Board committees has a written charter. Copies of these charters are available on our website at www.gd.com/CorporateGovernance, or in print upon request.

Committee Members.Listed below are the members of each of the four standing committees as of March 3, 2016.6, 2017.

AuditAUDIT Committee

Compensation CommitteeCOMMITTEE

Finance and Benefit Plans Committee

Nominating and Corporate Governance Committee

Mary T. Barra

COMPENSATION

Nicholas D. Chabraja

James S. Crown

Rudy F. deLeon

COMMITTEE

FINANCEAND

BENEFIT PLANS William P. Fricks  COMMITTEE

NOMINATINGAND

CORPORATE

GOVERNANCE

John M. Keane

COMMITTEE

Lester L. Lyles  Mary T. Barra

Nicholas D. Chabraja

James S. Crown

Mark Malcolm    Rudy F. deLeon

William P. Fricks

James N. Mattis  John M. Keane

William A. Osborn

Lester L. Lyles

Mark M. Malcolm

William A. Osborn

Laura J. Schumacher

Peter A. Wall

Lead Director		Chairperson		Member		Audit Committee Financial Expert

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Committee Responsibilities.Following are descriptions of the primary areas of responsibility for each of the four committees.

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Pursuant to its charter, the Compensation Committee has engaged PricewaterhouseCoopers LLP (PwC) as a compensation consultant to provide advice on executive compensation matters. In early 2015, the Committee, after reviewing the factors influencing independence (as specified by the New York Stock Exchange listing standards) including the fees paid by the company to PwC for other services, engaged PwC for compensation consulting services. PwC is also available to provide advice to the chairman of the Committee or the Committee as a whole on executive compensation matters on an as-needed basis. PwC attends Committee meetings upon the request of the Committee’s chair and may also provide observations and insights to the Committee related to the amount or form of compensation for our executives.

During 2015, at the Committee’s request, PwC performed the following specific services:

In 2015, the chair of the Committee approved fees of approximately $53,000 to PwC in its capacity as external advisor to the Committee. Management neither made, nor recommended, the decision to engage PwC. The PwC group providing compensation services to the Committee reports directly to the chair of the Committee and is not involved in providing any other services to the company. During 2015, the company retained PwC to provide services to the company unrelated to executive compensation, including tax and other business-related services. The aggregate fees paid for those services in 2015 were approximately $7.4 million. In February 2016, the Committee undertook an assessment of PwC’s services for the Committee and the company as well as other factors influencing independence (as specified by the New York Stock Exchange listing standards) and determined that no conflict of interest exists. The Committee further concluded that PwC is independent of management as a consultant and is duly qualified to assist the Committee.

RISK OVERSIGHT

General Dynamics has a comprehensive risk management program conducted by senior management and overseen by the Board of Directors. In particular, the Board oversees management’s identification and prioritization of risks. We believe that our risk management processes are well supported by the current board leadership structure.

How We Manage Risk.The following summarizes the key elements of the Board’s, senior management’s and external advisors’ roles in our risk management program.

The Role of the Board of Directors in Risk Management.The full Board reviews and approves annually a corporate policy addressing the delegation of authority and assignment of management responsibility to ensure that the responsibilities and authority delegated to senior management are appropriate from an operational and risk-management perspective. In addition, the Board assesses the company’s strategic and operational risks throughout the year, with particular focus on these risks at an annualthree-day Board meeting in late January/early February. At this meeting, senior management reports on opportunities and risks in the

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The Role of External Advisors in Risk Management.  The company’s external advisors support the risk management program in a number of ways. Specifically, external advisors support the program by: (1) auditing our financial statements,statements; (2) reviewing and suggesting updates and improvements of our risk management processes and procedures,procedures; (3) assisting in the implementation of Board and senior management responsibilities regarding risk management,management; and (4) supporting and assisting with public disclosure regarding risk management and company risks.

Succession Planning and Risk Management.  The Board considers senior management succession planning a core part of the company’s risk management program. At least annually, the Board reviews with the chief executive officer succession planning for senior leadership positions, and the timing and development required to ensure continuity of leadership over the short-short term and long-terms, to manage risk in this area.long term.

DIRECTOR ORIENTATIONAND CONTINUING EDUCATION

Within six months of election to the Board, each new director receives an orientation that consists of a series ofin-person briefings provided by corporate officers on our business operations; significant financial, accounting and risk-management matters; corporate governance; ethics; and key policies and practices. The new director receives briefings on the responsibilities, duties and activities of the committees on which the director will initially serve. The new director is also provided the opportunity to visit business units within each of the four business groups and receive briefings from the respective group executive vice president and members of the business unit management team.

In addition, to further support directors, the general counsel and chief financial officer periodically provide materials and briefing sessions on subjects that assist directors in fulfilling their duties. Annually, the Board holds athree-day meeting with our senior

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RELATED PERSON TRANSACTIONS POLICY

Our Board of Directors has adopted a written policy on the review and approval of related person transactions. Related persons covered by the policy are:

A related person transaction is defined by this policy as a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which: General Dynamics will be a participant; the amount involved exceeds $120,000; and any related person will have a direct or indirect material interest. The following interests and transactions are not subject to the policy:

The Nominating and Corporate Governance Committee is responsible for reviewing, approving and, where applicable, ratifying related person transactions. If a member of the committee has an interest in a related person transaction, then he or she will not be part of the review process.

In considering the appropriate action to be taken regarding a related person transaction, the committee or the Board will consider the best interests of General Dynamics and whether the transaction is fair to the company, is on terms that would be obtainable in anarm’s-length transaction or is pursuant to a company discount program for which the related person is eligible, serves a compelling business reason and any other factors it deems relevant. As a condition to approving or ratifying any related person transaction, the committee or the Board may impose whatever conditions and standards it deems appropriate, including periodic monitoring of ongoing transactions.

The following transactions with a related person were determined to pose no actual conflict of interest and were reviewed and approved by the committee or the Board pursuant to our related person transactions policy:

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DIRECTOR COMPENSATION

We compensate eachnon-management director for service on the Board of Directors. The Compensation Committee reviews director compensation on an annual basis.

2015 Compensation2016 Compensation.  .Director compensation for 2015 included the following:2016 was:

In early 2015, at the requestAs part of the committee, management reviewed director compensationCompensation Committee’s annual review in early 2016 and at peer companies. In support of this review,its request, management engaged Meridian Compensation Partners, LLC (Meridian),Aon Hewitt to conduct a director compensation survey. MeridianAon Hewitt provided director compensation data for the peer group that we used to benchmark executive compensation thatwhich showed General Dynamics slightly above the median for equity compensation and slightly below the median for equitycash compensation. TheFollowing this review, the Compensation Committee reviewed the survey data for the peer group and, based on this review, recommended a $20,000 increase in the annual equity award from $122,000 to $142,000. No otherno changes to director compensation were made. No changes in director compensation occurred in 2012, 2013 or 2014, other than the introduction of the per diem fee in 2012.compensation.

Non-management directors have the option of receiving all or part of their annual retainers in the form of Common Stock. The annual retainer, additional committee chair retainer (if any) and attendance fees paid to each director during 20152016 are reflected in the Fees Earned or Paid in Cash column of the Director Compensation for Fiscal Year 20152016 table, irrespective of whether a director took the annual retainer in shares of Common Stock. The annual equity award consists of restricted stock and stock options granted pursuant to our shareholder-approved equity compensation plan and on the same terms, limits and schedule as awards to other plan participants.

In light of the travel required by service on the Board, we also provide each director with accidental death and dismemberment insurance coverage. Payments by General Dynamics for director accidental death and dismemberment insurance premiums are reflected in the All Other Compensation column of the Director Compensation for Fiscal Year 20152016 table.

2016 Compensation2017 Compensation.  .In early 2016,2017, as part of its annual review of director compensation, the Compensation Committee requested that management update its director compensation analysis. Management again engaged Aon Hewitt to provide survey data for the same peer group used forto benchmark executive compensation and discussed in the “Compensation Discussion and Analysis” section on page 46.

compensation. The committee reviewed the survey data regarding director compensation provided by Aon Hewitt. This information showed that the directors’ pay program was approximate toannual retainer and the medianvalue of the peer group.annual equity award were below the median. Based on this review, the committee recommended no changesincreased the annual retainer to director compensation.$85,000 and increased the value of the annual equity award to approximately $150,000. Although the program is reviewed annually, this is the first change to cash compensation since 2011 and the first change to equity compensation since 2015.

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DIRECTOR STOCK OWNERSHIP GUIDELINES

The Board of Directors believes that each director should develop a meaningful ownership position in General Dynamics. Therefore, the Board of Directors adopted stock ownership guidelines fornon-management directors. Pursuant to these guidelines, eachnon-management director is expected to own at least 4,000 shares of our Common Stock within five years of electionhaving a value equal to at least 8 times the then-current annual retainer.Non-management directors are subject to the Board. Eachsame holding requirements as our named executive officers and are expected to retain shares upon the vesting of our directors who has served onrestricted stock or exercise of options until the Board for five years or more currently holds more than 4,000 shares of our Common Stock.ownership guidelines are met. Management directors are subject to the ownership requirements discussed under “Compensation Discussion and Analysis – Stock Ownership Guidelines.”

DIRECTOR COMPENSATION TABLE

The table below provides total compensation for the last completed fiscal year2016 for each of General Dynamics’non-management directors serving during the year. The number of shares of restricted stock and stock options awarded to the directors annually are the same for each director.

DIRECTOR COMPENSATIONFOR FISCAL YEAR 2015

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ADVISORY VOTEONTHESELECTIONOF INDEPENDENT AUDITORS

(PROPOSAL 2)

The Audit Committee of the Board of Directors has the sole authority to retain the company’s independent auditors and is responsible for the compensation and oversight of the work of the independent auditors for the purpose of preparing or issuing an audit report or related work. The Audit Committee has selected KPMG LLP (KPMG), an independent registered public accounting firm, as our independent auditors for 2016.2017. KPMG has been retained as the company’s independent auditorauditors since 2002. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent auditoraudit firm. The members of the Audit Committee believe that the continued retention of KPMG to serve as the company’s independent auditorauditors is in the best interests of the company and its shareholders.

Your Board of Directors is submitting this selection of KPMG as the independent auditors for 20162017 to an advisory vote of the shareholders. The Sarbanes-Oxley Act of 2002 requires that the Audit Committee be directly responsible for the appointment, compensation and oversight of the audit work of the independent auditors. Nevertheless, as a good corporate governance practice, your Board has determined to solicit the vote of the shareholders on an advisory basis in making this appointment.

If the shareholders do not vote on an advisory basis in favor of the selection of KPMG as our independent auditors, the Audit Committee will reconsider whether to engage KPMG and may ultimately determine to engage that firm or another audit firm without resubmitting the matter to shareholders. Even if the shareholders vote in favor of the selection of KPMG, the Audit Committee may in its sole discretion terminate the engagement of KPMG and direct the appointment of another independent auditoraudit firm at any time during the year.

Audit andNon-Audit Fees.The following table shows aggregate fees for professional services rendered by KPMG for the audit of our annual consolidated financial statements for the years 20152016 and 2014,2015, and fees billed for other services rendered by KPMG during those years.

Auditor Independence.Independence.The Audit Committee has considered whether the services rendered by KPMG are compatible with maintaining KPMG’s independence. Representatives of KPMG are expected to attend the Annual Meeting, may make a statement if they desire to do so and will be available to respond to questions.

Policy onPre-Approval.The company and the Audit Committee are committed to ensuring the independence of the external auditors, both in fact and in appearance. Therefore, in accordance with the applicable rules of the Securities and Exchange Commission, the Audit Committee has established policies and procedures forpre-approval of all audit and permittednon-audit services provided by the independent auditors. The Audit Committee determines annually whether to approve all audit and permittednon-audit services proposed to be performed by the independent auditors (including an estimate of fees). If other audit or permittednon-audit services not included in thepre-approved services are required during the year, such services, subject to ade minimis exception for non-audit services must be approved in advance by the Audit Committee. The Audit Committee may delegate authority to grantpre-approvals to its chair or a subcommittee as it deems appropriate, subject to a reporting obligation to the Audit Committee. All audit and permittednon-audit services listed above werepre-approved.

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The following Audit Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement or any portion hereof into any filing under the Securities Act of 1933, as amended (Securities Act) or the Securities Exchange Act of 1934, as amended (Exchange Act), and shall not otherwise be deemed filed under such acts.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors has furnished the following report.

FiveThe following five directors serve on the Audit Committee: William P. Fricks (Chair), James S. Crown, Lester L. Lyles, Mark M. Malcolm and William A. Osborn.

None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange and Rule10A-3 of the Exchange Act. The Board has determined that Mr. Fricks, Mr. Malcolm and Mr. Osborn each qualifies as an “audit committee financial expert” as defined by the Securities and Exchange Commission (SEC) in Item 407(d) of RegulationS-K. The Audit Committee is governed by a written charter approved by the Board. In accordance with that charter, the Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of General Dynamics. The Committee held nineeight meetings in 2015.2016.

The Audit Committee has reviewed and discussed with management and the company’s independent auditors for 2015,2016, KPMG LLP, an independent registered public accounting firm, the company’s audited consolidated financial statements as of December 31, 2015,2016, and for the year ended on that date. Management is responsible for the company’s financial reporting process, including maintaining a system of internal controls, and for preparing the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). KPMG is responsible for auditing those consolidated financial statements and for expressing an opinion on the conformity of the consolidated financial statements with GAAP. In addition, in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the Audit Committee reviewed and discussed with management, the company’s internal auditors and KPMG, management’s report on the operating effectiveness of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, of 2002, including KPMG’s related report and attestation.

The Audit Committee has discussed with KPMG the matters required under applicable professional auditing standards and regulations adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has received and reviewed the written disclosures and letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, and has discussed with KPMG its independence, including the compatibility ofnon-audit services with maintaining KPMG’s independence. Based on the foregoing discussions and reviews, the Audit Committee has satisfied itself as to the independence of KPMG.

In reliance on the reviews and discussions described above, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited consolidated financial statements in the company’s Annual Report on Form10-K as of and for the year ended December 31, 2015,2016, for filing with the SEC.

This report is submitted by the Audit Committee.

February 6, 20164, 2017

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ADVISORY VOTETO APPROVE EXECUTIVE COMPENSATION

(ProposalPROPOSAL 3)

As required by Section 14A of the Exchange Act, we are seeking shareholder input on our executive compensation as disclosed in this Proxy Statement. The Board and the Compensation Committee actively monitor our executive compensation practices in light of the industry in which we operate and the marketplace for talent in which we compete. We remain focused on compensating our executive officers fairly and in a manner that emphasizes performance while providing the tools necessary to attract and retain the best talent.

As described in the Compensation Discussion and Analysis section, beginning on the following page, our executive compensation program is designed to create incentives both for strong operational performance in the current year and for the long-term benefit of the company, thereby closely aligning the interests of management with the interests of our shareholders.

For these reasons, the Board recommends shareholders vote in favor of the following resolution:

“Resolved, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

The vote is advisory and is not binding on the Board. However, the Compensation Committee of the Board expects to take into account the outcome of the vote as it continues to consider the company’s executive compensation program.

ADVISORY VOTEONTHE FREQUENCYOF FUTURE EXECUTIVE COMPENSATION ADVISORY VOTES

(PROPOSAL 4)

As required by Section 14A of the Exchange Act, we are seeking shareholder input on how often we will seeknon-binding advisory votes regarding the compensation of our named executive officers as disclosed in future proxy statements, similar to Proposal 3 in this Proxy Statement (we refer to those future votes as “Future Advisory Compensation Votes”). We are required to hold Future Advisory Compensation Votes at least once every three years. Accordingly, shareholders may indicate their preference on the frequency of Future Advisory Compensation Votes by voting for one of the following options:

The Board recommends that shareholders vote in favor of holding Future Advisory Compensation Votes every year. Please note that you are being asked to indicate your preference on the above choices, and you are not voting to approve or disapprove the Board’s recommendation.

The Board believes that the optimal frequency for holding Future Advisory Compensation Votes is every year. The Board believes an annual vote, together with the company’s shareholder engagement program, will allow the company to stay aligned with shareholders’ views on our executive compensation program.

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COMPENSATION DISCUSSIONAND ANALYSIS

In the Compensation Discussion and Analysis, we describe the details of our named executive officer executive compensation program.

The section is organized as follows:

Table of Contents

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This Compensation Discussion and Analysis (CD&A) describes the compensation of our Named Executive Officers (NEOs) for 20152016 and includes the following individuals:

Ms. Novakovic became Chairman and CEO on January 1, 2013. Prior to her appointment as Chairman and CEO, she served from May 2012 through December 2012 as President and Chief Operating Officer, and from May 2010 through May 2012 as Executive Vice President, Marine Systems. To the extent there are references to Ms. Novakovic’s compensation prior to 2013 in this CD&A, it includes compensation for service in her prior roles.