10-Q 1 gd-2015100410q.htm 10-Q 10-Q



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 October 4, 2015
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
316,128,160 shares of the registrant’s common stock, $1 par value per share, were outstanding on October 4, 2015.

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)
October 4, 2015
 
September 28, 2014
Revenue:
 
 
 
Products
$
5,119

 
$
4,909

Services
2,875

 
2,842

 
7,994

 
7,751

Operating costs and expenses:
 
 
 
Products
4,037

 
3,866

Services
2,447

 
2,408

General and administrative (G&A)
476

 
478

 
6,960

 
6,752

Operating earnings
1,034

 
999

Interest, net
(23
)
 
(21
)
Other, net
2

 
1

Earnings from continuing operations before income tax
1,013

 
979

Provision for income tax, net
280

 
285

Earnings from continuing operations
733

 
694

Discontinued operations, net of tax of ($7) in 2015 and $1 in 2014

 
2

Net earnings
$
733

 
$
696

 
 
 
 
Earnings per share
 
 
 
Basic:
 
 
 
Continuing operations
$
2.31

 
$
2.09

Discontinued operations

 
0.01

Net earnings
$
2.31

 
$
2.10

Diluted:
 
 
 
Continuing operations
$
2.28

 
$
2.05

Discontinued operations

 
0.01

Net earnings
$
2.28

 
$
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)
October 4, 2015
 
September 28, 2014
Revenue:
 
 
 
Products
$
15,189

 
$
14,005

Services
8,471

 
8,485

 
23,660

 
22,490

Operating costs and expenses:
 
 
 
Products
11,887

 
10,967

Services
7,185

 
7,246

G&A
1,446

 
1,455

 
20,518

 
19,668

Operating earnings
3,142

 
2,822

Interest, net
(64
)
 
(67
)
Other, net
5

 
2

Earnings from continuing operations before income tax
3,083

 
2,757

Provision for income tax, net
882

 
821

Earnings from continuing operations
2,201

 
1,936

Discontinued operations, net of tax of ($7) in 2015 and ($38) in 2014

 
(104
)
Net earnings
$
2,201

 
$
1,832

 
 
 
 
Earnings per share
 
 
 
Basic:
 
 
 
Continuing operations
$
6.79

 
$
5.75

Discontinued operations

 
(0.31
)
Net earnings
$
6.79

 
$
5.44

Diluted:
 
 
 
Continuing operations
$
6.68

 
$
5.64

Discontinued operations

 
(0.30
)
Net earnings
$
6.68

 
$
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)
October 4, 2015
 
September 28, 2014
October 4, 2015
 
September 28, 2014
Net earnings
$
733

 
$
696

$
2,201

 
$
1,832

Gains (losses) on cash flow hedges
53

 
(60
)
(331
)
 
(69
)
Unrealized (losses) gains on securities
(4
)
 
1

(4
)
 
7

Foreign currency translation adjustments
(195
)
 
(235
)
(230
)
 
(226
)
Change in retirement plans' funded status
99

 
61

287

 
177

Other comprehensive loss, pretax
(47
)
 
(233
)
(278
)
 
(111
)
Provision (benefit) for income tax, net
46

 

(25
)
 
41

Other comprehensive loss, net of tax
(93
)
 
(233
)
(253
)
 
(152
)
Comprehensive income
$
640

 
$
463

$
1,948

 
$
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)
October 4, 2015
 
December 31, 2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
3,372

 
$
4,388

Accounts receivable
3,796

 
4,050

Contracts in process
4,215

 
4,591

Inventories
3,239

 
3,221

Other current assets
666

 
1,157

Total current assets
15,288

 
17,407

Noncurrent assets:
 
 
 
Property, plant and equipment, net
3,370

 
3,329

Intangible assets, net
800

 
912

Goodwill
11,533

 
11,731

Other assets
1,989

 
1,976

Total noncurrent assets
17,692

 
17,948

Total assets
$
32,980

 
$
35,355

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
501

 
$
501

Accounts payable
2,387

 
2,057

Customer advances and deposits
5,871

 
7,335

Other current liabilities
4,419

 
3,858

Total current liabilities
13,178

 
13,751

Noncurrent liabilities:
 
 
 
Long-term debt
2,912

 
3,410

Other liabilities
6,156

 
6,365

Commitments and contingencies (See Note L)


 


Total noncurrent liabilities
9,068

 
9,775

Shareholders' equity:
 
 
 
Common stock
482

 
482

Surplus
2,697

 
2,548

Retained earnings
22,655

 
21,127

Treasury stock
(11,915
)
 
(9,396
)
Accumulated other comprehensive loss
(3,185
)
 
(2,932
)
Total shareholders' equity
10,734

 
11,829

Total liabilities and shareholders' equity
$
32,980

 
$
35,355

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)
October 4, 2015
 
September 28, 2014
Cash flows from operating activities - continuing operations:
 
 
 
Net earnings
$
2,201

 
$
1,832

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation of property, plant and equipment
272

 
285

Amortization of intangible assets
88

 
91

Equity-based compensation expense
84

 
94

Excess tax benefit from stock-based compensation
(69
)
 
(66
)
Deferred income tax provision
88

 
94

Discontinued operations, net of tax

 
104

(Increase) decrease in assets, net of effects of business acquisitions:
 
 
 
Accounts receivable
254

 
189

Contracts in process
391

 
380

Inventories
(29
)
 
(259
)
Increase (decrease) in liabilities, net of effects of business acquisitions:
 
 
 
Accounts payable
334

 
174

Customer advances and deposits*
(1,508
)
 
1,231

Income taxes payable
13

 
148

Other current and noncurrent liabilities
206

 
(238
)
Other, net
(155
)
 
(261
)
Net cash provided by operating activities
2,170

 
3,798

Cash flows from investing activities:
 
 
 
Maturities of held-to-maturity securities
500

 

Purchases of held-to-maturity securities

 
(500
)
Capital expenditures
(360
)
 
(337
)
Proceeds from sales of assets
290

 
7

Other, net
(12
)
 
4

Net cash provided (used) by investing activities
418

 
(826
)
Cash flows from financing activities:
 
 
 
Purchases of common stock
(2,729
)
 
(3,117
)
Dividends paid
(655
)
 
(618
)
Repayment of fixed-rate notes
(500
)
 

Proceeds from stock option exercises
240

 
475

Other, net
71

 
66

Net cash used by financing activities
(3,573
)
 
(3,194
)
Net cash (used) provided by discontinued operations
(31
)
 
26

Net decrease in cash and equivalents
(1,016
)
 
(196
)
Cash and equivalents at beginning of period
4,388

 
5,301

Cash and equivalents at end of period
$
3,372

 
$
5,105

Supplemental cash flow information:
 
 
 
Cash payments for:
 
 
 
Income taxes
$
776

 
$
573

Interest
$
62

 
$
65

* Cash flows in the first nine months of 2014 include significant customer deposits related to a large contract for a Middle Eastern customer awarded in our Combat Systems group. In 2015, these deposits are being utilized to fund supplier commitments on the program, which negatively affects operating cash flows.

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
December 31, 2014
$
482

 
$
2,548

 
$
21,127

 
$
(9,396
)
 
$
(2,932
)
 
$
11,829

Net earnings

 

 
2,201

 

 

 
2,201

Cash dividends declared

 

 
(673
)
 

 

 
(673
)
Equity-based awards

 
149

 

 
210

 

 
359

Shares purchased

 

 

 
(2,729
)
 

 
(2,729
)
Other comprehensive loss

 

 

 

 
(253
)
 
(253
)
October 4, 2015
$
482

 
$
2,697

 
$
22,655

 
$
(11,915
)
 
$
(3,185
)
 
$
10,734

 
 
 
 
 
 
 
 
 
 
 


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
)
Equity-based awards

 
241

 

 
377

 

 
618

Shares purchased

 

 

 
(3,160
)
 

 
(3,160
)
Other comprehensive loss

 

 

 

 
(152
)
 
(152
)
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 October 4, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
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 October 4, 2015, 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, 2014.
Revenue Recognition. We account for revenue and earnings using the percentage-of-completion method. Under this method, contract costs and revenue 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 expected 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-related 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 diluted per-share basis) from the impact of revisions in contract estimates totaled favorable changes of $44 ($0.09) and $152 ($0.30) for the three- and nine-month periods ended October 4, 2015, and $13 ($0.02) and $103 ($0.20) for the three- and nine-month periods ended September 28, 2014, respectively. No revisions on any one contract were material to our unaudited Consolidated Financial Statements in the third quarter or first nine months of 2015 or 2014.
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.

9



ASU 2014-09 is effective in the first quarter of 2018 for public companies. However, entities can elect to adopt one year earlier in the first quarter of 2017. The standard permits the use of either the retrospective or cumulative effect transition method. We have not yet selected a transition date or method nor have we determined the effect of the standard on our consolidated financial statements as the standard has not been finalized, and we continue to analyze the standard's impact on our contract portfolio.
The required adoption of the ASU will preclude our use of the reallocation method of recognizing revisions in estimated profit on contracts discussed above. As 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. We completed the sale of our axle business in the Combat Systems group in January 2015. The 2014 financial statements have been restated to reflect the results of operations of this business in discontinued operations.
Subsequent Events. We have evaluated material events and transactions that have occurred after October 4, 2015, and concluded that none have occurred that require adjustment to or disclosure in the unaudited Consolidated Financial Statements.

B. ACQUISITIONS, INTANGIBLE ASSETS AND GOODWILL
We have not acquired any businesses in 2015. In 2014, our Information Systems and Technology group acquired a provider of IT support to U.S. special operations forces.
The operating results of this acquisition have been included with our reported results since the closing date. The purchase price of this acquisition has been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.
The changes in the carrying amount of goodwill by reporting unit for the nine months ended October 4, 2015, were as follows:
 
Aerospace
 
Combat Systems
 
Information Systems and Technology
 
Marine Systems
 
Total Goodwill
December 31, 2014 (a)
$
2,555

 
$
2,750

 
$
6,137

 
$
289

 
$
11,731

Acquisitions/divestitures (b)

 

 
(76
)
 

 
(76
)
Other (c)
29

 
(120
)
 
(31
)
 

 
(122
)
October 4, 2015
$
2,584

 
$
2,630

 
$
6,030

 
$
289

 
$
11,533

(a)Goodwill on December 31, 2014, in the Information Systems and Technology reporting unit is net of $1,994 of accumulated impairment losses.
(b)Includes adjustments during the purchase price allocation period for the acquisition discussed above and an allocation of goodwill associated with the sale of a commercial cybersecurity business in the second quarter of 2015.
(c)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
 
October 4, 2015
 
December 31, 2014
Contract and program intangible assets*
$
1,627

$
(1,190
)
$
437

 
$
1,652

$
(1,123
)
$
529

Trade names and trademarks
463

(124
)
339

 
462

(113
)
349

Technology and software
119

(95
)
24

 
130

(97
)
33

Other intangible assets
154

(154
)

 
154

(153
)
1

Total intangible assets
$
2,363

$
(1,563
)
$
800

 
$
2,398

$
(1,486
)
$
912

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

Amortization expense was $29 and $88 for the three- and nine-month periods ended October 4, 2015, and $30 and $91 for the three- and nine-month periods ended September 28, 2014. We expect to record amortization expense of $116 in 2015.


C. EARNINGS PER SHARE
We compute basic earnings per share (EPS) using net earnings for the period and the weighted average number of common shares outstanding during the period. Basic weighted average shares outstanding have decreased throughout 2015 and 2014 due to share repurchases. See Note J for additional details of our 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).
Basic and diluted weighted average shares outstanding were as follows (in thousands):
 
Three Months Ended
Nine Months Ended
 
October 4, 2015
September 28, 2014
October 4, 2015
September 28, 2014
Basic weighted average shares outstanding
316,680

331,811

323,996

336,911

Dilutive effect of stock options and restricted stock/RSUs*
5,258

6,370

5,418

6,203

Diluted weighted average shares outstanding
321,938

338,181

329,414

343,114

* Excludes outstanding options to purchase shares of common stock because these options had exercise prices in excess of the average market price of our common stock during the period and therefore the effect of including these options would be antidilutive. These options totaled 2,034 and 1,605 for the three- and nine-month periods ended October 4, 2015, and 4,456 and 3,446 for the three- and nine-month periods ended September 28, 2014, respectively.

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:

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.

11



We did not have any significant non-financial assets or liabilities measured at fair value on October 4, 2015, or December 31, 2014, except for the assets of our axle business that were classified as held for sale on December 31, 2014, and were measured at fair value using Level 3 inputs.
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 payable and short-term debt on the Consolidated Balance Sheets approximate their fair value. The following tables present the fair values of our other financial assets and liabilities on October 4, 2015, and December 31, 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)
October 4, 2015
Available-for-sale securities
$
169

 
$
169

 
$
101

 
$
68

Derivatives
(585
)
 
(585
)
 

 
(585
)
Long-term debt,
     including current portion
(3,413
)
 
(3,401
)
 

 
(3,401
)
 
 
 
 
 
 
 
 
 
December 31, 2014
Held-to-maturity marketable securities (c)
$
500

 
$
500

 
$
10

 
$
490

Available-for-sale securities
188

 
188

 
123

 
65

Derivatives
(276
)
 
(276
)
 

 
(276
)
Long-term debt,
     including current portion
(3,911
)
 
(3,911
)
 

 
(3,911
)
(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 October 4, 2015, or December 31, 2014.
(c)Included in other current assets on the December 31, 2014, Consolidated Balance Sheet.

E. INCOME TAXES
Net Deferred Tax Asset. Our net deferred tax asset was included on the Consolidated Balance Sheets in other assets and liabilities as follows:
 
October 4, 2015
 
December 31, 2014
Current deferred tax asset
$
11

 
$
16

Current deferred tax liability
(873
)
 
(729
)
Noncurrent deferred tax asset
1,496

 
1,439

Noncurrent deferred tax liability
(81
)
 
(82
)
Net deferred tax asset
$
553

 
$
644


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.

12



We participate in the Internal Revenue Service (IRS) Compliance Assurance Process, a real-time audit of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through 2013. 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, we believe the total amount of any unrecognized tax benefits on October 4, 2015, 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:
 
October 4, 2015
 
December 31, 2014
Contract costs and estimated profits
$
7,581

 
$
7,494

Other contract costs
1,018

 
1,064

 
8,599

 
8,558

Advances and progress payments
(4,384
)
 
(3,967
)
Total contracts in process
$
4,215

 
$
4,591


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:
 
October 4, 2015
 
December 31, 2014
Work in process
$
1,882

 
$
1,828

Raw materials
1,314

 
1,290

Finished goods
24

 
28

Pre-owned aircraft
19

 
75

Total inventories
$
3,239

 
$
3,221


H. DEBT
Debt consisted of the following:
 
 
October 4, 2015
 
December 31, 2014
Fixed-rate notes due:
Interest Rate
 
 
 
January 2015
1.375%
$

 
$
500

July 2016
2.250%
500

 
500

November 2017
1.000%
898

 
897

July 2021
3.875%
500

 
499

November 2022
2.250%
993

 
992

November 2042
3.600%
498

 
498

Other
Various
24

 
25

Total debt
 
3,413

 
3,911

Less current portion
 
501

 
501

Long-term debt
 
$
2,912

 
$
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. In January 2015, we repaid $500 of fixed-rate notes on their scheduled maturity date.
On October 4, 2015, 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 bank credit facilities are guaranteed by several of our 100-percent-owned subsidiaries. In addition, we have approximately $120 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 covenants on October 4, 2015.

14




I. OTHER LIABILITIES
A summary of significant other liabilities by balance sheet caption follows:
 
October 4, 2015
 
December 31, 2014
Deferred income taxes
$
873

 
$
729

Fair value of cash flow hedges
686

 
292

Salaries and wages
732

 
718

Workers' compensation
391

 
420

Retirement benefits
314

 
309

Other (a)
1,423

 
1,390

Total other current liabilities
$
4,419

 
$
3,858

 
 
 
 
Retirement benefits
$
4,432

 
$
4,596

Customer deposits on commercial contracts 
557

 
617

Deferred income taxes
81

 
82

Other (b)
1,086

 
1,070

Total other liabilities
$
6,156

 
$
6,365

(a)Consists primarily of dividends payable, taxes 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.

The increase in the fair value of our cash flow hedge liabilities from December 31, 2014, to October 4, 2015, largely corresponds to the unrecognized losses on cash flow hedges deferred in accumulated other comprehensive loss (AOCL). These losses will be deferred in AOCL until the underlying transaction is reflected in earnings, at which time we believe the losses will be offset by corresponding gains in the remeasurement of the underlying transactions being hedged.

J. SHAREHOLDERS' EQUITY
Share Repurchases. In 2015, we repurchased approximately 19.3 million of our outstanding shares for $2.7 billion. On June 4, 2015, the board of directors authorized management to repurchase 10 million shares of common stock on the open market following a previous 10 million-share authorization in February 2015. On October 4, 2015, 3.1 million shares remained authorized by our board of directors for repurchase, approximately 1 percent of our total shares outstanding. We repurchased 29 million shares for a total of $3.4 billion in 2014.
Dividends per Share. Dividends declared per share were $0.69 and $2.07 for the three- and nine-month periods ended October 4, 2015, and $0.62 and $1.86 for the three- and nine-month periods ended September 28, 2014, respectively. Cash dividends paid were $223 and $655 for the three- and nine-month periods ended October 4, 2015, and $207 and $618 for the three- and nine-month periods ended September 28, 2014, respectively.

15



Accumulated Other Comprehensive Loss. The changes, pretax and net of tax, in each component of AOCL consisted of the following:
 
(Losses) Gains on Cash Flow Hedges
Unrealized Gains on Securities
Foreign Currency Translation Adjustments
Changes in Retirement Plans’ Funded Status
AOCL
December 31, 2014
$
(173
)
$
22

$
541

$
(3,322
)
$
(2,932
)
Other comprehensive loss, pretax
(331
)
(4
)
(230
)
287

(278
)
Benefit for income tax, net
(115
)
(1
)
(6
)
97

(25
)
Other comprehensive loss, net of tax
(216
)
(3
)
(224
)
190

(253
)
October 4, 2015
$
(389
)
$
19

$
317

$
(3,132
)
$
(3,185
)
December 31, 2013
$
9

$
15

$
974

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

(226
)
177

(111
)
Provision for income tax, net
(18
)
3

(5
)
61

41

Other comprehensive loss, net of tax
(51
)
4

(221
)
116

(152
)
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 $334 and $228 for the nine-month periods ended October 4, 2015, and September 28, 2014, respectively. This was partially offset by pretax amortization of prior service credit of $54 and $51 for the nine-month periods ended October 4, 2015, 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 relates 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 3-year average maturity of these instruments matches the duration of the activities that are at risk.
We had $8 billion in notional forward exchange contracts outstanding on October 4, 2015, and $9.1 billion on December 31, 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 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

16



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 October 4, 2015, 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 October 4, 2015, 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 October 4, 2015, or December 31, 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 October 4, 2015, we held $3.4 billion in cash and equivalents, but held no marketable securities.
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 revenue and earnings resulting from the translation of these international operations' results into U.S. dollars. Although negative, the impact of translating our non-U.S. operations’ revenue and earnings into U.S. dollars was not material to our results of operations for the three- and nine-month periods ended October 4, 2015, 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 2015 or 2014.

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.

17



Environmental
We are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. We are directly or indirectly involved in environmental investigations or remediation at some of our current and former facilities and third-party sites that we do not own but where we have been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. Based on historical experience, we expect that a significant percentage of the total remediation and compliance costs associated with these facilities will continue to be allowable contract costs and, therefore, recoverable under U.S. government contracts.
As required, we provide financial assurance for certain sites undergoing or subject to investigation or remediation. We accrue environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. Where applicable, we seek insurance recovery for costs related to environmental liabilities. We do not record insurance recoveries before collection is considered probable. Based on all known facts and analyses, we do not believe that our liability at any individual site, or in the aggregate, arising from such environmental conditions, will be material to our results of operations, financial condition or cash flows. We also do not believe that the range of reasonably possible additional loss beyond what has been recorded would be material to our results of operations, financial condition or cash flows.
Other
Government Contracts. As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, including claims for fines, penalties, and compensatory and treble damages. We believe the outcome of such ongoing government audits and investigations will not have a material impact on our results of operations, financial condition or cash flows.
In the performance of our contracts, we routinely request contract modifications that require additional funding from the customer. Most often, these requests are due to customer-directed changes in the scope of work. While we are entitled to recovery of these costs under our contracts, the administrative process with our customer may be protracted. Based upon the circumstances, we periodically file requests for equitable adjustment (REAs) that are sometimes converted into claims. In some cases, these requests are disputed by our customer. We believe our outstanding modifications, REAs and 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 billion on October 4, 2015. In addition, from time to 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 outfitted 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

18



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 October 4, 2015, and September 28, 2014, were as follows:
Nine Months Ended
October 4, 2015
 
September 28, 2014
Beginning balance
$
428

 
$
354

Warranty expense
128

 
108

Payments
(92
)
 
(54
)
Adjustments
(1
)
 
6

Ending balance
$
463

 
$
414


M. RETIREMENT PLANS
We provide defined-contribution benefits, as well as some remaining defined-benefit pension and other post-retirement benefits.
Net periodic cost associated with our defined-benefit pension and other post-retirement benefit plans for the three- and nine-month periods ended October 4, 2015, and September 28, 2014, consisted of the following:
 
Pension Benefits
Other Post-retirement Benefits
Three Months Ended
October 4, 2015
 
September 28, 2014
October 4, 2015
 
September 28, 2014
Service cost
$
57

 
$
49

$
3

 
$
3

Interest cost
133

 
133

11

 
13

Expected return on plan assets
(174
)
 
(164
)
(8
)
 
(8
)
Recognized net actuarial loss
110

 
73

2

 
2

Amortization of prior service credit
(17
)
 
(16
)
(1
)
 

Net periodic cost
$
109

 
$
75

$
7

 
$
10

Nine Months Ended
October 4, 2015
 
September 28, 2014
October 4, 2015
 
September 28, 2014
Service cost
$
171

 
$
145

$
9

 
$
9

Interest cost
399

 
399

33

 
39

Expected return on plan assets
(522
)
 
(492
)
(24
)
 
(24
)
Recognized net actuarial loss
329

 
221

5

 
7

Amortization of prior service credit
(51
)
 
(50
)
(3
)
 
(1
)
Net periodic cost
$
326

 
$
223

$
20

 
$
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 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

19



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 revenue has exceeded the plans’ cumulative benefit cost. We have deferred recognition of these excess earnings to provide a better matching of revenue and expenses. These deferrals have been classified against the plan assets on the Consolidated Balance Sheets.

N. BUSINESS GROUP INFORMATION
We operate in four business groups: Aerospace, Combat Systems, Information Systems and Technology and Marine Systems. 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; communication and information technology systems and solutions; and military and commercial shipbuilding and services, respectively. We measure each group’s profitability based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our business groups.
Summary financial information for each of our business groups follows:
 
Revenue
Operating Earnings
Three Months Ended
October 4, 2015
September 28, 2014
October 4, 2015
September 28, 2014
Aerospace
$
2,343

$
2,289

$
426

$
411

Combat Systems
1,345

1,395

218

232

Information Systems and Technology
2,219

2,247

219

202

Marine Systems
2,087

1,820

181

170

Corporate*


(10
)
(16
)
 
$
7,994

$
7,751

$
1,034

$
999

Nine Months Ended
October 4, 2015
September 28, 2014
October 4, 2015
September 28, 2014
Aerospace
$
6,709

$
6,409

$
1,296

$
1,199

Combat Systems
4,116

4,118

648

591

Information Systems and Technology
6,804

6,691

673

573

Marine Systems
6,031

5,272

556

510

Corporate*


(31
)
(51
)
 
$
23,660

$
22,490

$
3,142

$
2,822

*Corporate operating results consist primarily of stock option expense.



20



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 October 4, 2015
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenue
$

$
7,037

$
957

$

$
7,994

Cost of sales
1

5,729

754


6,484

G&A
9

399

68


476

Operating earnings
(10
)
909

135


1,034

Interest, net
(23
)
(1
)
1


(23
)
Other, net
2




2

Earnings before income tax
(31
)
908

136


1,013

Provision for income tax, net
(47
)
296

31


280

Equity in net earnings of subsidiaries
717



(717
)

Net earnings
$
733

$
612

$
105

$
(717
)
$
733

Comprehensive income
$
640

$
613

$
(33
)
$
(580
)
$
640

Three Months Ended September 28, 2014
 
 
 
 
 
Revenue
$

$
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



21



CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS (UNAUDITED)
Nine Months Ended October 4, 2015
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenue
$

$
20,688

$
2,972

$

$
23,660

Cost of sales
(2
)
16,765

2,309


19,072

G&A
33

1,196

217


1,446

Operating earnings
(31
)
2,727

446


3,142

Interest, net
(66
)
(2
)
4


(64
)
Other, net
3

2



5

Earnings before income tax
(94
)
2,727

450


3,083

Provision for income tax, net
(88
)
884

86


882

Equity in net earnings of subsidiaries
2,207



(2,207
)

Net earnings
$
2,201

$
1,843

$
364

$
(2,207
)
$
2,201

Comprehensive income
$
1,948

$
1,850

$
(59
)
$
(1,791
)
$
1,948

Nine Months Ended September 28, 2014
 
 
 
 
 
Revenue
$

$
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




22



CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
October 4, 2015
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and equivalents
$
1,284

$

$
2,088

$

$
3,372

Accounts receivable

1,506

2,290


3,796

Contracts in process
547

2,638

1,030


4,215

Inventories
 
 
 
 
 
Work in process

1,870

12


1,882

Raw materials

1,285

29


1,314

Finished goods

17

7


24

Pre-owned aircraft

19



19

Other current assets
236

205

225


666

Total current assets
2,067

7,540

5,681


15,288

Noncurrent assets:
 
 
 
 
 
Property, plant and equipment
177

6,263

1,089


7,529

Accumulated depreciation of PP&E
(57
)
(3,411
)
(691
)

(4,159
)
Intangible assets

1,444

919


2,363

Accumulated amortization of intangible assets

(1,100
)
(463
)

(1,563
)
Goodwill

8,041

3,492


11,533

Other assets
1,590

204

195


1,989

Investment in subsidiaries
39,254



(39,254
)

Total noncurrent assets
40,964

11,441

4,541

(39,254
)
17,692

Total assets
$
43,031

$
18,981

$
10,222

$
(39,254
)
$
32,980

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

$
1

$

$

$
501

Customer advances and deposits

2,807

3,064


5,871

Other current liabilities
1,434

3,669

1,703


6,806

Total current liabilities
1,934

6,477

4,767


13,178

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
2,888

24



2,912

Other liabilities
3,311

2,373

472


6,156

Total noncurrent liabilities
6,199

2,397

472


9,068

Intercompany
24,164

(23,520
)
(644
)


Shareholders' equity:
 
 
 
 
 
Common stock
482

6

2,354

(2,360
)
482

Other shareholders' equity
10,252

33,621

3,273

(36,894
)
10,252

Total shareholders' equity
10,734

33,627

5,627

(39,254
)
10,734

Total liabilities and shareholders' equity
$
43,031

$
18,981

$
10,222

$
(39,254
)
$
32,980



23



CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2014
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and equivalents
$
2,536

$

$
1,852

$

$
4,388

Accounts receivable

1,379

2,671


4,050

Contracts in process
542

2,966

1,083


4,591

Inventories
 
 
 
 
 
Work in process

1,818

10


1,828

Raw materials

1,260

30


1,290

Finished goods

20

8


28

Pre-owned aircraft

75



75

Other current assets
781

215

161


1,157

Total current assets
3,859

7,733

5,815


17,407

Noncurrent assets:
 
 
 
 
 
Property, plant and equipment
148

6,035

1,109


7,292

Accumulated depreciation of PP&E
(52
)
(3,246
)
(665
)

(3,963
)
Intangible assets

1,484

914


2,398

Accumulated amortization of intangible assets

(1,042
)
(444
)

(1,486
)
Goodwill

8,095

3,636


11,731

Other assets
1,479

213

284


1,976

Investment in subsidiaries
37,449



(37,449
)

Total noncurrent assets
39,024

11,539

4,834

(37,449
)
17,948

Total assets
$
42,883

$
19,272

$
10,649

$
(37,449
)
$
35,355

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

$
1

$

$

$
501

Customer advances and deposits

3,529

3,806


7,335

Other current liabilities
1,298

3,511

1,106


5,915

Total current liabilities
1,798

7,041

4,912


13,751

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
3,386

24



3,410

Other liabilities
3,514

2,369

482


6,365

Total noncurrent liabilities
6,900

2,393

482


9,775

Intercompany
22,356

(22,557
)
201



Shareholders' equity:
 
 
 
 
 
Common stock
482

6

2,043

(2,049
)
482

Other shareholders' equity
11,347

32,389

3,011

(35,400
)
11,347

Total shareholders' equity
11,829

32,395

5,054

(37,449
)
11,829

Total liabilities and shareholders' equity
$
42,883

$
19,272

$
10,649

$
(37,449
)
$
35,355



24



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended October 4, 2015
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Net cash provided by operating activities*
$
(330
)
$
1,916

$
584

$

$
2,170

Cash flows from investing activities:
 
 
 
 
 
Maturities of held-to-maturity securities
500




500

Capital expenditures
(29
)
(314
)
(17
)

(360
)
Proceeds from sales of assets
162

128



290

Other, net
2

(14
)


(12
)
Net cash provided by investing activities
635

(200
)
(17
)

418

Cash flows from financing activities:
 
 
 
 
 
Purchases of common stock
(2,729
)



(2,729
)
Dividends paid
(655
)



(655
)
Repayment of fixed-rate notes
(500
)



(500
)
Proceeds from stock option exercises
240




240

Other, net
69

2



71

Net cash used by financing activities
(3,575
)
2



(3,573
)
Net cash used by discontinued operations
(31
)



(31
)
Cash sweep/funding by parent
2,049

(1,718
)
(331
)


Net decrease in cash and equivalents
(1,252
)

236


(1,016
)
Cash and equivalents at beginning of period
2,536


1,852


4,388

Cash and equivalents at end of period
$
1,284

$

$
2,088

$

$
3,372

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