10-Q 1 gd-2014092810q.htm 10-Q GD-2014.09.28 10Q



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2014
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-3671

GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
13-1673581
State or other jurisdiction of incorporation or organization
 
I.R.S. employer identification no.
 
 
 
2941 Fairview Park Drive, Suite 100
Falls Church, Virginia
 
22042-4513
Address of principal executive offices
 
Zip code
(703) 876-3000
Registrant’s telephone number, including area code
    
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ü No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ü No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ü Accelerated Filer __ Non-Accelerated Filer __ Smaller Reporting Company ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ü
331,389,741 shares of the registrant’s common stock, $1 par value per share, were outstanding on September 28, 2014.

1



INDEX

 
 
 
PART I -
PAGE
Item 1 -
 
 
 
 
 
 
 
 
Item 2 -
Item 3 -
Item 4 -
 
PART II -
Item 1 -
Item 1A -
Item 2 -
Item 6 -
 
            

2



PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

 
Three Months Ended
(Dollars in millions, except per-share amounts)
September 29, 2013
 
September 28, 2014
Revenues:
 
 
 
Products
$
4,752

 
$
4,909

Services
2,983

 
2,842

 
7,735

 
7,751

Operating costs and expenses:
 
 
 
Products
3,700

 
3,866

Services
2,577

 
2,408

General and administrative (G&A)
497

 
478

 
6,774

 
6,752

Operating earnings
961

 
999

Interest, net
(22
)
 
(21
)
Other, net
4

 
1

Earnings from continuing operations before income tax
943

 
979

Provision for income tax, net
291

 
285

Earnings from continuing operations
652

 
694

Discontinued operations, net of tax of ($2) in 2013 and $1 in 2014
(1
)
 
2

Net earnings
$
651

 
$
696

 
 
 
 
Earnings per share
 
 
 
Basic:
 
 
 
Continuing operations
$
1.86

 
$
2.09

Discontinued operations

 
0.01

Net earnings
$
1.86

 
$
2.10

Diluted:
 
 
 
Continuing operations
$
1.84

 
$
2.05

Discontinued operations

 
0.01

Net earnings
$
1.84

 
$
2.06

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


3



CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

 
Nine Months Ended
(Dollars in millions, except per-share amounts)
September 29, 2013
 
September 28, 2014
Revenues:
 
 
 
Products
$
13,981

 
$
14,005

Services
8,902

 
8,485

 
22,883

 
22,490

Operating costs and expenses:
 
 
 
Products
10,979

 
10,967

Services
7,633

 
7,246

G&A
1,506

 
1,455

 
20,118

 
19,668

Operating earnings
2,765

 
2,822

Interest, net
(63
)
 
(67
)
Other, net
4

 
2

Earnings from continuing operations before income tax
2,706

 
2,757

Provision for income tax, net
844

 
821

Earnings from continuing operations
1,862

 
1,936

Discontinued operations, net of tax of $1 in 2013 and ($38) in 2014

 
(104
)
Net earnings
$
1,862

 
$
1,832

 
 
 
 
Earnings per share
 
 
 
Basic:
 
 
 
Continuing operations
$
5.31

 
$
5.75

Discontinued operations

 
(0.31
)
Net earnings
$
5.31

 
$
5.44

Diluted:
 
 
 
Continuing operations
$
5.27

 
$
5.64

Discontinued operations

 
(0.30
)
Net earnings
$
5.27

 
$
5.34

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


4



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 
Three Months Ended
Nine Months Ended
(Dollars in millions)
September 29, 2013
 
September 28, 2014
September 29, 2013
 
September 28, 2014
Net earnings
$
651

 
$
696

$
1,862

 
$
1,832

Gains (losses) on cash flow hedges
12

 
(60
)

 
(69
)
Unrealized gains on securities

 
1

7

 
7

Foreign currency translation adjustments
152

 
(235
)
(92
)
 
(226
)
Change in retirement plans' funded status
95

 
61

299

 
177

Other comprehensive income (loss), pretax
259

 
(233
)
214

 
(111
)
Provision for income tax, net
39

 

108

 
41

Other comprehensive income (loss), net of tax
220

 
(233
)
106

 
(152
)
Comprehensive income
$
871

 
$
463

$
1,968

 
$
1,680

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


5



CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions)
December 31, 2013
 
September 28, 2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
5,301

 
$
5,105

Accounts receivable
4,370

 
4,181

Contracts in process
4,780

 
4,436

Inventories
2,890

 
3,139

Other current assets
821

 
1,308

Total current assets
18,162

 
18,169

Noncurrent assets:
 
 
 
Property, plant and equipment, net
3,359

 
3,322

Intangible assets, net
1,044

 
929

Goodwill
11,932

 
11,756

Other assets
997

 
1,135

Total noncurrent assets
17,332

 
17,142

Total assets
$
35,494

 
$
35,311

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
1

 
$
501

Accounts payable
2,216

 
2,390

Customer advances and deposits
6,584

 
7,990

Other current liabilities
3,458

 
3,789

Total current liabilities
12,259

 
14,670

Noncurrent liabilities:
 
 
 
Long-term debt
3,908

 
3,410

Other liabilities
4,826

 
4,221

Commitments and contingencies (See Note L)


 


Total noncurrent liabilities
8,734

 
7,631

Shareholders' equity:
 
 
 
Common stock
482

 
482

Surplus
2,226

 
2,467

Retained earnings
19,428

 
20,631

Treasury stock
(6,450
)
 
(9,233
)
Accumulated other comprehensive loss
(1,185
)
 
(1,337
)
Total shareholders' equity
14,501

 
13,010

Total liabilities and shareholders' equity
$
35,494

 
$
35,311

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


6



CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended
(Dollars in millions)
September 29, 2013
 
September 28, 2014
Cash flows from operating activities - continuing operations:
 
 
 
Net earnings
$
1,862

 
$
1,832

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation of property, plant and equipment
280

 
285

Amortization of intangible assets
112

 
91

Stock-based compensation expense
90

 
94

Excess tax benefit from stock-based compensation
(19
)
 
(66
)
Deferred income tax provision
51

 
94

Discontinued operations, net of tax

 
104

(Increase) decrease in assets, net of effects of business acquisitions:
 
 
 
Accounts receivable
(181
)
 
189

Contracts in process
(119
)
 
380

Inventories
(212
)
 
(259
)
Increase (decrease) in liabilities, net of effects of business acquisitions:
 
 
 
Accounts payable
(1
)
 
174

Customer advances and deposits
16

 
1,231

Income taxes payable
80

 
148

Other current and noncurrent liabilities
(183
)
 
(238
)
Other, net
(223
)
 
(261
)
Net cash provided by operating activities
1,553

 
3,798

Cash flows from investing activities - continuing operations:
 
 
 
Purchases of held-to-maturity securities

 
(500
)
Capital expenditures
(267
)
 
(337
)
Other, net
55

 
11

Net cash used by investing activities
(212
)
 
(826
)
Cash flows from financing activities - continuing operations:
 
 
 
Purchases of common stock
(696
)
 
(3,117
)
Dividends paid
(394
)
 
(618
)
Proceeds from option exercises
484

 
475

Other
46

 
66

Net cash used by financing activities
(560
)
 
(3,194
)
Net cash (used) provided by discontinued operations
(12
)
 
26

Net increase (decrease) in cash and equivalents
769

 
(196
)
Cash and equivalents at beginning of period
3,296

 
5,301

Cash and equivalents at end of period
$
4,065

 
$
5,105

Supplemental cash flow information:
 
 
 
Cash payments for:
 
 
 
Income taxes
$
713

 
$
573

Interest
$
66

 
$
65

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

7



CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

 
Common Stock
 
Retained
 
Treasury
 
Accumulated
Other 
Comprehensive
 
Total
Shareholders’    
(Dollars in millions)
Par
 
Surplus
 
Earnings
 
Stock
 
Loss
 
Equity
Balance, December 31, 2012
$
482

 
$
1,988

 
$
17,860

 
$
(6,165
)
 
$
(2,775
)
 
$
11,390

Net earnings

 

 
1,862

 

 

 
1,862

Cash dividends declared

 

 
(591
)
 

 

 
(591
)
Stock-based awards

 
173

 

 
383

 

 
556

Shares purchased

 

 

 
(718
)
 

 
(718
)
Other comprehensive income

 

 

 

 
106

 
106

Balance, September 29, 2013
$
482

 
$
2,161

 
$
19,131

 
$
(6,500
)
 
$
(2,669
)
 
$
12,605

 
 
 
 
 
 
 
 
 
 
 


Balance, December 31, 2013
$
482

 
$
2,226

 
$
19,428

 
$
(6,450
)
 
$
(1,185
)
 
$
14,501

Net earnings

 

 
1,832

 

 

 
1,832

Cash dividends declared

 

 
(629
)
 

 

 
(629
)
Stock-based awards

 
241

 

 
377

 

 
618

Shares purchased

 

 

 
(3,160
)
 

 
(3,160
)
Other comprehensive loss

 

 

 

 
(152
)
 
(152
)
Balance, September 28, 2014
$
482

 
$
2,467

 
$
20,631

 
$
(9,233
)
 
$
(1,337
)
 
$
13,010

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


8



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per-share amounts or unless otherwise noted)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Classification. The unaudited Consolidated Financial Statements include the accounts of General Dynamics Corporation and our wholly owned and majority-owned subsidiaries. We eliminate all inter-company balances and transactions in the unaudited Consolidated Financial Statements.
Consistent with defense industry practice, we classify assets and liabilities related to long-term production contracts as current, even though some of these amounts may not be realized within one year.
Interim Financial Statements. The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These rules and regulations permit some of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) to be condensed or omitted.
Our fiscal quarters are 13 weeks in length. Because our fiscal year ends on December 31, the number of days in our first and fourth quarters varies slightly from year to year. Operating results for the three- and nine-month periods ended September 28, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
The unaudited Consolidated Financial Statements contain all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations and financial condition for the three- and nine-month periods ended September 29, 2013, and September 28, 2014.
These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013. The unaudited Consolidated Financial Statements have been restated to reflect the results of operations of our axle business in discontinued operations (see further discussion below).
Revenue Recognition. We account for revenues and earnings using the percentage-of-completion method. Under this method, contract costs and revenues are recognized as the work progresses, either as the products are produced or as services are rendered. We estimate the profit on a contract as the difference between the total estimated revenue and costs to complete a contract and recognize that profit over the life of the contract. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the loss in the quarter it is identified.
We review and update our contract estimates regularly. We recognize changes in estimated profit on contracts under the reallocation method. Under the reallocation method, the impact of a revision in estimate is recognized prospectively over the remaining contract term. The net increase in our operating earnings (and on a per-share basis) from the favorable impact of revisions in contract estimates totaled $105 ($0.19) and $296 ($0.54) for the three- and nine-month periods ended September 29, 2013, and $13 ($0.02) and $103 ($0.20) for the three- and nine-month periods ended September 28, 2014, respectively. While no revisions on any one contract were material to our unaudited Consolidated Financial Statements in the third quarter and first nine months of 2014, the amount decreased compared with the prior-year periods as 2013 included higher favorable revisions in contract estimates on several programs that neared completion in the Combat Systems and Information Systems and Technology groups.

9



In the second quarter of 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 prescribes a single, common revenue standard that replaces most existing revenue recognition guidance in GAAP. The standard outlines a five-step model, whereby revenue is recognized as performance obligations within a contract are satisfied. The standard also requires new, expanded disclosures regarding revenue recognition. ASU 2014-09 is effective in the first quarter of 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We have not yet selected a transition method nor have we determined the effect of the standard on our consolidated financial statements.
The required adoption of the ASU in 2017 will preclude our use of the reallocation method of recognizing revisions in estimated profit on contracts discussed above. Because changes in estimated profit will be recognized in the period they are identified (cumulative catch-up method), rather than prospectively over the remaining contract term, we expect that the impact of revisions of contract estimates may be larger and potentially more variable from period to period. Anticipated losses on contracts will continue to be recognized in the quarter they are identified.
Discontinued Operations. In June 2014, we committed to a plan to sell our axle business in the Combat Systems group. Accordingly, the assets and liabilities of the business, including an allocation of goodwill, were reported as held for sale and included in other current assets and liabilities on the unaudited Consolidated Balance Sheets. When a business is held for sale, management is required to evaluate the net assets of the business for impairment based on its fair value less cost to sell. Based on this analysis, we recognized a $106 after-tax loss in the second quarter.
In late 2013, we settled our litigation with the U.S. Navy related to a terminated contract in the company’s discontinued tactical military aircraft business. Under the terms of the settlement agreement, the Navy received a $198 credit that will be utilized over several years as the company renders design and construction services on the DDG-1000 program. This activity is reported in net cash from discontinued operations on the Consolidated Statements of Cash Flows.
Subsequent Events. We have evaluated material events and transactions that have occurred after September 28, 2014, and concluded that no subsequent events have occurred that require adjustment to or disclosure in this Form 10-Q.

B. ACQUISITIONS, INTANGIBLE ASSETS AND GOODWILL
We did not acquire any businesses in 2013 or the first nine months of 2014.

The changes in the carrying amount of goodwill by reporting unit for the nine months ended
September 28, 2014, were as follows:

 
Aerospace
 
Combat Systems
 
Marine Systems
 
Information Systems and Technology
 
Total Goodwill
December 31, 2013 (a)
$
2,741

 
$
2,849

 
$
289

 
$
6,053

 
$
11,932

Other (b)
(104
)
 
(59
)
 

 
(13
)
 
(176
)
September 28, 2014
$
2,637

 
$
2,790

 
$
289

 
$
6,040

 
$
11,756

(a)Goodwill on December 31, 2013, in the Information Systems and Technology reporting unit is net of $1,994 of accumulated impairment losses.
(b)Consists primarily of adjustments for foreign currency translation.

10



Intangible assets consisted of the following:
 
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
 
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
 
December 31, 2013
 
September 28, 2014
Contract and program intangible assets*
$
1,790

$
(1,189
)
$
601

 
$
1,626

$
(1,102
)
$
524

Trade names and trademarks
507

(103
)
404

 
487

(118
)
369

Technology and software
130

(92
)
38

 
129

(94
)
35

Other intangible assets
155

(154
)
1

 
155

(154
)
1

Total intangible assets
$
2,582

$
(1,538
)
$
1,044

 
$
2,397

$
(1,468
)
$
929

* Consists of acquired backlog and probable follow-on work and related customer relationships.

The decrease in the gross carrying amount and accumulated amortization of contract and program intangible assets from December 31, 2013, to September 28, 2014, is primarily due to the write-off of fully amortized assets in the Information Systems and Technology group. Amortization expense was $33 and $112 for the three- and nine-month periods ended September 29, 2013, and $30 and $91 for the three- and nine-month periods ended September 28, 2014, respectively.


C. EARNINGS PER SHARE
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 have decreased throughout 2013 and 2014 due to share repurchases. Diluted EPS incorporates the additional shares issuable upon the assumed exercise of stock options and the release of restricted shares and restricted stock units (RSUs). Diluted EPS in 2014 also includes contingently issuable shares associated with the settlement of our accelerated share repurchase (ASR) program that expires in the fourth quarter of 2014. See Note J for additional details of our share repurchases and the ASR.
Basic and diluted weighted average shares outstanding were as follows (in thousands):

 
Three Months Ended
Nine Months Ended
 
September 29, 2013
September 28, 2014
September 29, 2013
September 28, 2014
Basic weighted average shares outstanding
349,337

331,811

350,774

336,911

Dilutive effect of other securities*
3,581

6,370

2,348

6,203

Diluted weighted average shares outstanding
352,918

338,181

353,122

343,114

* Excludes the following outstanding options to purchase shares of common stock and nonvested restricted stock/RSUs because the effect of including these securities would be antidilutive: 2013 - 10,992 and 2014 - 3,446.

D. 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:


11



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; and
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, 2013, or September 28, 2014, except for our assets held for sale (discussed in Note A) that were measured at fair value using Level 3 inputs. Our estimate of fair value considered the discounted projected cash flows of the underlying operations and an evaluation of market prices for similar assets.
Our financial instruments include cash and equivalents, marketable securities and other investments; accounts receivable and accounts payable; short- and long-term debt; and derivative financial instruments. The carrying values of cash and equivalents, accounts receivable and accounts payable on the Consolidated Balance Sheets approximate their fair value. The following tables present the fair values of our other financial assets and liabilities on December 31, 2013, and September 28, 2014, 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) (a)
Financial assets (liabilities) (b)
December 31, 2013
Other investments
$
183

 
$
183

 
$
134

 
$
49

Derivatives
10

 
10

 

 
10

Long-term debt,
     including current portion
(3,909
)
 
(3,758
)
 

 
(3,758
)
 
 
 
 
 
 
 
 
 
September 28, 2014
Held-to-maturity marketable securities
$
500

 
$
500

 
$
10

 
$
490

Other investments
170

 
170

 
106

 
64

Derivatives
(61
)
 
(61
)
 

 
(61
)
Long-term debt,
     including current portion
(3,911
)
 
(3,879
)
 

 
(3,879
)
(a)Determined under a market approach using valuation models that incorporate observable inputs such as interest rates, bond yields and quoted prices for similar assets and liabilities.
(b)We had no Level 3 financial instruments on December 31, 2013, or September 28, 2014.

E. INCOME TAXES
Deferred Taxes. Our net deferred tax asset (liability) was included on the Consolidated Balance Sheets in other assets and liabilities as follows:

 
December 31, 2013
 
September 28, 2014
Current deferred tax asset
$
35

 
$
32

Current deferred tax liability
(300
)
 
(563
)
Noncurrent deferred tax asset
462

 
597

Noncurrent deferred tax liability
(135
)
 
(92
)
Net deferred tax asset (liability)
$
62

 
$
(26
)

12



Tax Uncertainties. 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 percent 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.
We participate in the Internal Revenue Service (IRS) Compliance Assurance Process, a real-time audit of our consolidated corporate federal income tax return. The IRS has examined our consolidated federal income tax returns through 2012. We do not expect the resolution of tax matters for open years to have a material impact on our results of operations, financial condition, cash flows or effective tax rate.
Based on all known facts and circumstances and current tax law, the total amount of unrecognized tax benefits on September 28, 2014, is not material to our results of operations, financial condition or cash flows, and if recognized, would not have a material impact on our effective tax rate. In addition, there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will significantly vary over the next 12 months, producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.

F. CONTRACTS IN PROCESS
Contracts in process represent recoverable costs and, where applicable, accrued profit related to long-term contracts that have been inventoried until the customer is billed, and consisted of the following:
 
December 31, 2013
 
September 28, 2014
Contract costs and estimated profits
$
7,961

 
$
7,209

Other contract costs
1,178

 
1,073

 
9,139

 
8,282

Advances and progress payments
(4,359
)
 
(3,846
)
Total contracts in process
$
4,780

 
$
4,436

Contract costs consist primarily of labor, material, overhead and G&A expenses. Other contract costs represent amounts that are not currently allocable to government contracts, such as a portion of our estimated workers’ compensation obligations, other insurance-related assessments, pension and other post-retirement benefits and environmental expenses. These costs will become allocable to contracts generally after they are paid. We expect to recover these costs through ongoing business, including existing backlog and probable follow-on contracts. If the backlog in the future does not support the continued deferral of these costs, the profitability of our remaining contracts could be adversely affected.

G. INVENTORIES
Our inventories represent primarily business-jet components and 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 of the units in a production lot. Raw materials are valued primarily on 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.

13



Inventories consisted of the following:
 
December 31, 2013
 
September 28, 2014
Work in process
$
1,633

 
$
1,843

Raw materials
1,210

 
1,244

Finished goods
29

 
23

Pre-owned aircraft
18

 
29

Total inventories
$
2,890

 
$
3,139


H. DEBT
Debt consisted of the following:
 
 
December 31, 2013
 
September 28, 2014
Fixed-rate notes due:
Interest Rate
 
 
 
January 2015
1.375%
$
500

 
$
500

July 2016
2.250%
500

 
500

November 2017
1.000%
896

 
897

July 2021
3.875%
499

 
499

November 2022
2.250%
991

 
992

November 2042
3.600%
498

 
498

Other
Various
25

 
25

Total debt
 
3,909

 
3,911

Less current portion
 
1

 
501

Long-term debt
 
$
3,908

 
$
3,410

Our fixed-rate notes are fully and unconditionally guaranteed by several of our 100-percent-owned subsidiaries (see Note O for condensed consolidating financial statements). We have the option to redeem the notes prior to their maturity in whole or part for the principal plus any accrued but unpaid interest and applicable make-whole amounts. As we approach the maturity date of the fixed-rate notes due in January 2015, we will determine whether to repay these notes with cash on hand or refinance the obligation.
On September 28, 2014, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. We have $2 billion in committed bank credit facilities that provide backup liquidity to our commercial paper program. These credit facilities include a $1 billion multi-year facility expiring in July 2016 and a $1 billion multi-year facility expiring in July 2018. These facilities are required by rating agencies to support our commercial paper issuances. We may renew or replace, in whole or part, these credit facilities at or prior to their expiration dates. Our commercial paper issuances and the bank credit facilities are guaranteed by several of our 100-percent-owned subsidiaries. In addition, we have approximately $265 in committed bank credit facilities to provide backup liquidity to our European businesses.
Our financing arrangements contain a number of customary covenants and restrictions. We were in compliance with all material covenants on September 28, 2014.

14




I. OTHER LIABILITIES
A summary of significant other liabilities by balance sheet caption follows:

 
December 31, 2013
 
September 28, 2014
Salaries and wages
$
801

 
$
720

Workers' compensation
497

 
466

Retirement benefits
303

 
301

Deferred income taxes
300

 
563

Income taxes payable
36

 
115

Other (a)
1,521

 
1,624

Total other current liabilities
$
3,458

 
$
3,789

 
 
 
 
Retirement benefits
$
3,064

 
$
2,612

Customer deposits on commercial contracts 
677

 
502

Deferred income taxes
135

 
92

Other (b)
950

 
1,015

Total other liabilities
$
4,826

 
$
4,221

(a)Consists primarily of dividends payable, environmental remediation reserves, warranty reserves, liabilities of discontinued operations and insurance-related costs.
(b)Consists primarily of liabilities for warranty reserves and workers' compensation and liabilities of discontinued operations.

J. SHAREHOLDERS' EQUITY
Dividends per Share. Dividends declared per share were $0.56 and $1.68 for the three- and nine-month periods ended September 29, 2013, and $0.62 and $1.86 for the three- and nine-month periods ended September 28, 2014, respectively. Cash dividends paid were $196 and $394 for the three- and nine-month periods ended September 29, 2013, and $207 and $618 for the three- and nine-month periods ended September 28, 2014. In advance of possible tax increases, we accelerated our first quarter 2013 dividend payments to December 2012.
Share Repurchases. In the first nine months of 2014, we repurchased approximately 28.8 million of our outstanding shares. Of this amount, 11.4 million shares were repurchased on January 24, 2014, for $1.2 billion under an ASR program facilitated through a financial institution. Our final cost of the ASR program will be determined based on the weighted-average daily market price of our stock during the term of the agreement, which expires in the fourth quarter of 2014. On February 5, 2014, with shares from the prior authorization largely exhausted by the ASR program, the board of directors authorized management to repurchase 20 million additional shares of common stock on the open market. Subsequently, we repurchased an additional 17.4 million shares for approximately $2 billion. On September 28, 2014, 2.6 million shares remained authorized by our board of directors for repurchase, approximately 1 percent of our total shares outstanding. We repurchased 9.2 million shares for a total of approximately $700 in the first nine months of 2013.

15



Accumulated Other Comprehensive Loss. The changes, pretax and net of tax, in each component of accumulated other comprehensive loss (AOCL) consisted of the following:
 
Gains on Cash Flow Hedges
Unrealized Gains on Securities
Foreign Currency Translation Adjustments
Changes in Retirement Plans’ Funded Status
AOCL
Balance, December 31, 2012
$
6

$
7

$
1,092

$
(3,880
)
$
(2,775
)
Other comprehensive (loss) income, pretax

7

(92
)
299

214

(Benefit) provision for income tax, net
(1
)
2

(1
)
108

108

Other comprehensive (loss) income, net of tax
1

5

(91
)
191

106

Balance, September 29, 2013
$
7

$
12

$
1,001

$
(3,689
)
$
(2,669
)

 
Gains (Losses) on Cash Flow Hedges
Unrealized Gains on Securities
Foreign Currency Translation Adjustments
Changes in Retirement Plans’ Funded Status
AOCL
Balance, December 31, 2013
$
9

$
15

$
974

$
(2,183
)
$
(1,185
)
Other comprehensive (loss) income, pretax
(69
)
7

(226
)
177

(111
)
(Benefit) provision for income tax, net
(18
)
3

(5
)
61

41

Other comprehensive (loss) income, net of tax
(51
)
4

(221
)
116

(152
)
Balance, September 28, 2014
$
(42
)
$
19

$
753

$
(2,067
)
$
(1,337
)

Amounts reclassified out of AOCL related primarily to changes in retirement plans' funded status and consisted of pretax recognized net actuarial losses of $336 and $228 for the nine-month periods ended September 29, 2013, and September 28, 2014, respectively. This was partially offset by pretax amortization of prior service credit of $40 and $51 for the nine-month periods ended September 29, 2013, and September 28, 2014, respectively. These AOCL components are included in our net periodic pension and other post-retirement benefit cost. See Note M for additional details.

K. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risk, primarily from foreign currency exchange rates, interest rates, commodity prices and investments. We may use derivative financial instruments to hedge some of these risks as described below. We do not use derivatives for trading or speculative purposes.
Foreign Currency Risk and Hedging Activities. Our foreign currency exchange rate risk related to receipts from customers, payments to suppliers and inter-company 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 two-year average maturity of these instruments matches the duration of the activities that are at risk. We had $1.7 billion in notional forward exchange contracts outstanding on December 31, 2013, and $5 billion on September 28, 2014. The increase in the amount of outstanding foreign currency forward contracts is due to significant international contract awards in 2014. We recognize derivative financial instruments on the Consolidated Balance Sheets at fair value (see Note D).
We record changes in the fair value of derivative financial instruments in operating costs and expenses in the Consolidated Statements of Earnings or in other comprehensive loss (OCL) within the

16



Consolidated Statements of Comprehensive Income depending on whether the derivative is designated and qualifies for hedge accounting. Gains and losses related to derivatives that qualify as cash flow hedges are deferred in OCL until the underlying transaction is reflected in earnings. We adjust derivative financial instruments not designated as cash flow hedges to market value each period and record the gain or loss in the Consolidated Statements of Earnings. The gains and losses on these instruments generally offset losses and gains on the assets, liabilities and other transactions being hedged. Gains and losses resulting from hedge ineffectiveness are recognized in the Consolidated Statements of Earnings for all derivative financial instruments, regardless of designation.
Net gains and losses recognized in earnings, including gains and losses related to hedge ineffectiveness, were not material to our results of operations for the three- and nine-month periods ended September 29, 2013, and September 28, 2014. Net gains and losses reclassified to earnings from OCL were not material to our results of operations for the three- and nine-month periods ended September 29, 2013, and September 28, 2014, 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, 2013, or September 28, 2014.
Interest Rate Risk. Our financial instruments subject to interest rate risk include fixed-rate long-term debt obligations and variable-rate commercial paper. However, the risk associated with these instruments is not material.
Commodity Price Risk. We are subject to risk of rising labor and commodity prices, primarily on long-term fixed-price contracts. To the extent possible, we include terms in our contracts that are designed to protect us from this risk. Some of the protective terms included in our contracts are considered derivatives 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 labor or 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 September 28, 2014, we held $5.1 billion in cash and equivalents and $500 of marketable securities reported in other current assets. Our marketable securities had an average duration of four months and an average credit rating of AA-. Historically, we have not experienced material gains or losses on these instruments due to changes in interest rates or market values.
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 OCL.
We do not hedge the fluctuation in reported revenues and earnings resulting from the translation of these international operations' results into U.S. dollars. The impact of translating our international operations’ revenues and earnings into U.S. dollars was not material to our results of operations for the three- and nine-month periods ended September 29, 2013, or September 28, 2014. In addition, the effect of changes in foreign exchange rates on non-U.S. cash balances was not material in the first nine months of either 2013 or 2014.


17



L. COMMITMENTS AND CONTINGENCIES
Litigation
Various claims and other legal proceedings incidental to the normal course of business are pending or threatened against us. These 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 matters. However, based on information currently available, we believe any potential liabilities in these 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
Portugal Program. In the third quarter of 2014, we reached a settlement with the Portuguese Ministry of National Defense and Ministry of Economy relating to a dispute arising from a contract in our Combat Systems group’s European Land Systems business to provide armored vehicles. The settlement provides for the delivery of vehicles and a significant reduction in our offset obligations and related bank guarantees. The settlement did not have a material impact on our results of operations, financial condition or cash flows.
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 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 upon the circumstances, we periodically file claims or requests for equitable adjustment (REAs). In some cases, these requests are disputed by our customer. We believe our outstanding modifications 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 $1.2 billion on September 28, 2014. In addition, from time to

18



time and in the ordinary course of business, we contractually guarantee the payment or performance obligations of our subsidiaries arising under certain contracts.
Aircraft Trade-ins. In connection with orders for new aircraft in funded contract backlog, our Aerospace group has outstanding options with some customers to trade in aircraft as partial consideration in their new-aircraft transaction. These trade-in commitments are structured to establish the fair market value of the trade-in aircraft at a date generally 120 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. Any excess of the pre-established 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.
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 generally based on the number of months of warranty coverage remaining for 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 Sheets.
The changes in the carrying amount of warranty liabilities for the nine-month periods ended September 29, 2013, and September 28, 2014, were as follows:

Nine Months Ended
September 29, 2013
 
September 28, 2014
Beginning balance
$
316

 
$
354

Warranty expense
84

 
108

Payments
(50
)
 
(54
)
Adjustments
(4
)
 
6

Ending balance
$
346

 
$
414



19



M. RETIREMENT PLANS
We provide defined-contribution benefits, as well as defined-benefit pension and other post-retirement benefits, to eligible employees.
Net periodic cost associated with our defined-benefit pension and other post-retirement benefit plans for the three- and nine-month periods ended September 29, 2013, and September 28, 2014, consisted of the following:

 
Pension Benefits
Other Post-retirement Benefits
Three Months Ended
September 29, 2013
 
September 28, 2014
September 29, 2013
 
September 28, 2014
Service cost
$
80

 
$
49

$
4

 
$
3

Interest cost
124

 
133

13

 
13

Expected return on plan assets
(148
)
 
(164
)
(7
)
 
(8
)
Recognized net actuarial loss
106

 
73

6

 
2

Amortization of prior service (credit) cost
(16
)
 
(16
)
2

 

Net periodic cost
$
146

 
$
75

$
18

 
$
10

 
Pension Benefits
Other Post-retirement Benefits
Nine Months Ended
September 29, 2013
 
September 28, 2014
September 29, 2013
 
September 28, 2014
Service cost
$
240

 
$
145

$
12

 
$
9

Interest cost
372

 
399

39

 
39

Expected return on plan assets
(444
)
 
(492
)
(21
)
 
(24
)
Recognized net actuarial loss
318

 
221

18

 
7

Amortization of prior service (credit) cost
(46
)
 
(50
)
6

 
(1
)
Net periodic cost
$
440

 
$
223

$
54

 
$
30

Our contractual arrangements with the U.S. government provide for the recovery of contributions to our pension and other post-retirement benefit plans covering employees working in our defense business groups. For non-funded plans, our government contracts allow us to recover claims paid. Following payment, these recoverable amounts are allocated to contracts and billed to the customer in accordance with the Cost Accounting Standards (CAS) and specific contractual terms. For some of these plans, the cumulative pension and post-retirement benefit cost exceeds the amount currently allocable to contracts. To the extent recovery of the cost is considered probable based on our backlog and probable follow-on contracts, we defer the excess in contracts in process on the Consolidated Balance Sheets until the cost is allocable to contracts. See Note F for discussion of our deferred contract costs. For other plans, the amount allocated to contracts and included in revenues has exceeded the plans’ cumulative benefit cost. We have deferred recognition of these excess earnings to provide a better matching of revenues and expenses. These deferrals have been classified against the plan assets on the Consolidated Balance Sheets.
In 2011, changes were made to the CAS to harmonize the regulations with the Pension Protection Act of 2006 (PPA). For certain contracts awarded prior to February 27, 2012, we are entitled to recover additional pension costs from our customers resulting from the CAS harmonization with the PPA. We submitted REAs of approximately $165 for these contracts in 2012. These REAs remained outstanding on September 28, 2014, and are subject to negotiation with our customer, the U.S. Department of Defense.


20



N. BUSINESS GROUP INFORMATION
We operate in four business groups: Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. We organize our business groups in accordance with the nature of products and services offered. These business groups derive their revenues from business aviation; combat vehicles, weapons systems and munitions; military and commercial shipbuilding and related services; and communication and information technology systems and solutions, respectively. We measure each group’s profit based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our business groups.
Summary financial information for each of our business groups follows:
 
Revenues
Operating Earnings
Three Months Ended
September 29, 2013
September 28, 2014
September 29, 2013
September 28, 2014
Aerospace
$
2,152

$
2,289

$
369

$
411

Combat Systems
1,306

1,395

228

232

Marine Systems
1,697

1,820

170

170

Information Systems and Technology
2,580

2,247

216

202

Corporate*


(22
)
(16
)
 
$
7,735

$
7,751

$
961

$
999


 
Revenues
Operating Earnings
Nine Months Ended
September 29, 2013
September 28, 2014
September 29, 2013
September 28, 2014
Aerospace
$
5,983

$
6,409

$
1,068

$
1,199

Combat Systems
4,241

4,118

658

591

Marine Systems
5,082

5,272

507

510

Information Systems and Technology
7,577

6,691

599

573

Corporate*


(67
)
(51
)
 
$
22,883

$
22,490

$
2,765

$
2,822

*Corporate operating results consist primarily of stock option expense.



21



O. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The fixed-rate notes described in Note H are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain of our 100-percent-owned subsidiaries (the guarantors). The following condensed consolidating financial statements illustrate the composition of the parent, the guarantors on a combined basis (each guarantor together with its majority-owned subsidiaries) and all other subsidiaries on a combined basis.

CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended September 29, 2013
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenues
$

$
6,925

$
810

$

$
7,735

Cost of sales
2

5,629

646


6,277

G&A
19

410

68


497

Operating earnings
(21
)
886

96


961

Interest, net
(23
)
1



(22
)
Other, net
1


3


4

Earnings before income tax
(43
)
887

99


943

Provision for income tax, net
(15
)
290

16


291

Discontinued operations, net of tax
(1
)



(1
)
Equity in net earnings of subsidiaries
680



(680
)

Net earnings
$
651

$
597

$
83

$
(680
)
$
651

Comprehensive income
$
871

$
611

$
236

$
(847
)
$
871

Three Months Ended September 28, 2014
 
 
 
 
 
Revenues
$

$
6,761

$
990

$

$
7,751

Cost of sales
(1
)
5,512

763


6,274

G&A
16

397

65


478

Operating earnings
(15
)
852

162


999

Interest, net
(21
)
(4
)
4


(21
)
Other, net
(2
)
2

1


1

Earnings before income tax
(38
)
850

167


979

Provision for income tax, net
(8
)
268

25


285

Discontinued operations, net of tax
2




2

Equity in net earnings of subsidiaries
724



(724
)

Net earnings
$
696

$
582

$
142

$
(724
)
$
696

Comprehensive income
$
463

$
570

$
(120
)
$
(450
)
$
463



22



CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS (UNAUDITED)
Nine Months Ended September 29, 2013
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenues
$

$
20,244

$
2,639

$

$
22,883

Cost of sales
10

16,454

2,148


18,612

G&A
56

1,229

221


1,506

Operating earnings
(66
)
2,561

270


2,765

Interest, net
(69
)
4

2


(63
)
Other, net


4


4

Earnings before income tax
(135
)
2,565

276


2,706

Provision for income tax, net
(35
)
804

75


844

Discontinued operations, net of tax





Equity in net earnings of subsidiaries
1,962



(1,962
)

Net earnings
$
1,862

$
1,761

$
201

$
(1,962
)
$
1,862

Comprehensive income
$
1,968

$
1,794

$
95

$
(1,889
)
$
1,968

Nine Months Ended September 28, 2014
 
 
 
 
 
Revenues
$

$
19,592

$
2,898

$

$
22,490

Cost of sales
8

15,943

2,262


18,213

G&A
44

1,165

246


1,455

Operating earnings
(52
)
2,484

390


2,822

Interest, net
(68
)
(4
)
5


(67
)
Other, net
(4
)
5

1


2

Earnings before income tax
(124
)
2,485

396


2,757

Provision for income tax, net
(31
)
788

64


821

Discontinued operations, net of tax
(104
)



(104
)
Equity in net earnings of subsidiaries
2,029



(2,029
)

Net earnings
$
1,832

$
1,697

$
332

$
(2,029
)
$
1,832

Comprehensive income
$
1,680

$
1,680

$
86

$
(1,766
)
$
1,680




23



CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
December 31, 2013
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and equivalents
$
4,179

$

$
1,122

$

$
5,301

Accounts receivable

1,451

2,919


4,370

Contracts in process
571

3,124

1,085


4,780

Inventories
 
 
 
 
 
Work in process

1,623

10


1,633

Raw materials

1,172

38


1,210

Finished goods

24

5


29

Pre-owned aircraft

18



18

Other current assets
424

203

194


821

Total current assets
5,174

7,615

5,373


18,162

Noncurrent assets:
 
 
 
 
 
Property, plant and equipment
156

5,827

1,169


7,152

Accumulated depreciation of PP&E
(64
)
(3,062
)
(667
)

(3,793
)
Intangible assets

1,614

968


2,582

Accumulated amortization of intangible assets

(1,111
)
(427
)

(1,538
)
Goodwill

8,041

3,891


11,932

Other assets
600

483

398

(484
)
997

Investment in subsidiaries
35,071



(35,071
)

Total noncurrent assets
35,763

11,792

5,332

(35,555
)
17,332

Total assets
$
40,937

$
19,407

$
10,705

$
(35,555
)
$
35,494

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Customer advances and deposits
$

$
3,493

$
3,091

$

$
6,584

Other current liabilities
868

3,644

1,163


5,675

Total current liabilities
868

7,137

4,254


12,259

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
3,883

25



3,908

Other liabilities
2,333

2,007

486


4,826

Total noncurrent liabilities
6,216

2,032

486


8,734

Intercompany
19,352

(19,697
)
345



Shareholders' equity:
 
 
 
 
 
Common stock
482

6

3,570

(3,576
)
482

Other shareholders' equity
14,019

29,929

2,050

(31,979
)
14,019

Total shareholders' equity
14,501

29,935

5,620

(35,555
)
14,501

Total liabilities and shareholders' equity
$
40,937

$
19,407

$
10,705

$
(35,555
)
$
35,494



24



CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
September 28, 2014
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and equivalents
$
2,257

$

$
2,848

$

$
5,105

Accounts receivable

1,404

2,777


4,181

Contracts in process
516

2,911

1,009


4,436

Inventories
 
 
 
 
 
Work in process

1,832

11


1,843

Raw materials

1,212

32


1,244

Finished goods

15

8


23

Pre-owned aircraft

29



29

Other current assets
753

394

161


1,308

Total current assets
3,526

7,797

6,846


18,169

Noncurrent assets:
 
 
 
 
 
Property, plant and equipment
209

5,947

1,151


7,307

Accumulated depreciation of PP&E
(69
)
(3,228
)
(688
)

(3,985
)
Intangible assets

1,452

945


2,397

Accumulated amortization of intangible assets

(1,019
)
(449
)

(1,468
)
Goodwill

7,991

3,765


11,756

Other assets
474

400

337

(76
)
1,135

Investment in subsidiaries
37,270



(37,270
)

Total noncurrent assets
37,884

11,543

5,061

(37,346
)
17,142

Total assets
$
41,410

$
19,340

$
11,907

$
(37,346
)
$
35,311

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term debt
$
500

$
1

$

$

$
501

Customer advances and deposits

3,614

4,376


7,990

Other current liabilities
1,268

3,664

1,247


6,179

Total current liabilities
1,768

7,279

5,623


14,670

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
3,386

24



3,410

Other liabilities
1,797

1,988

436


4,221

Total noncurrent liabilities
5,183

2,012

436


7,631

Intercompany
21,449

(21,573
)
124



Shareholders' equity:
 
 
 
 
 
Common stock
482

6

2,043

(2,049
)
482

Other shareholders' equity
12,528

31,616

3,681

(35,297
)
12,528

Total shareholders' equity
13,010

31,622

5,724

(37,346
)
13,010

Total liabilities and shareholders' equity
$
41,410

$
19,340

$
11,907

$
(37,346
)
$
35,311



25



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 29, 2013
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Net cash provided by operating activities *
$
(445
)
$
1,983

$
15

$

$
1,553

Net cash used by investing activities *
1

(188
)
(25
)

(212
)
Cash flows from financing activities:
 
 
 
 
 
Purchases of common stock
(696
)



(696
)
Proceeds from option exercises
484




484

Dividends paid
(394
)



(394
)
Other, net
19


27


46

Net cash used by financing activities *
(587
)

27


(560
)
Net cash used by discontinued operations
(12
)



(12
)
Cash sweep/funding by parent
1,801

(1,795
)
(6
)


Net increase in cash and equivalents
758


11


769

Cash and equivalents at beginning of period
2,300


996


3,296

Cash and equivalents at end of period
$
3,058

$

$
1,007

$

$
4,065

Nine Months Ended September 28, 2014
 
 
 
 
 
Net cash provided by operating activities *
$
(237
)
$
2,140

$
1,895

$

$
3,798

Cash flows from investing activities:
 
 
 
 
 
Purchases of held-to-maturity securities
(500
)



(500
)
Capital expenditures
(54
)
(257
)
(26
)

(337
)
Other, net
2

19

(10
)

11

Net cash used by investing activities *
(552
)
(238
)
(36
)

(826
)
Cash flows from financing activities:
 
 
 
 
 
Purchases of common stock
(3,117
)



(3,117
)
Dividends paid
(618
)