General Dynamics 2013 Annual Report Download - page 45

We record amounts received from these cost-sharing arrangements as
a reduction of R&D expenses. We have no obligation to refund any
amounts received under the agreement regardless of the outcome of
the development effort. Under the terms of each agreement, payments
received from suppliers for their share of the costs are based typically
on milestones and are generally recognized as received.
Interest, Net. Net interest expense consisted of the following:
Year Ended December 31 2011 2012 2013
Interest expense $ 155 $ 168 $ 103
Interest income (14) (12) (17)
Interest expense, net $ 141 $ 156 $ 86
Interest payments $ 133 $ 186 $ 94
The decrease in interest expense from 2012 results from our debt
refinancing completed in December 2012 that lowered the weighted-
average interest rate on our outstanding debt from 3.9 percent to 2.2
percent. See Note J to the Consolidated Financial Statements for
additional information regarding our debt obligations.
Cash and Equivalents and Investments in Debt and Equity
Securities. We consider securities with a maturity of three months or
less to be cash equivalents. We report our investments in available-for-
sale securities at fair value. Changes in the fair value of available-for-
sale securities are recognized as a component of other comprehensive
income (loss) in the Consolidated Statements of Comprehensive
Income (Loss). The interest income on these securities is a component
of our net interest expense in the Consolidated Statements of Earnings
(Loss). These investments are included in other current and noncurrent
assets on the Consolidated Balance Sheets (see Note D). We had no
trading or held-to-maturity securities on December 31, 2012 or 2013.
Long-lived Assets and Goodwill. We review long-lived assets,
including intangible assets subject to amortization, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. We assess the
recoverability of the carrying value of assets held for use based on a
review of undiscounted projected cash flows. Impairment losses, where
identified, are measured as the excess of the carrying value of the
long-lived asset over its fair value as determined by discounted
projected cash flows.
We review goodwill for impairment annually or when circumstances
indicate that an impairment is more likely than not. Goodwill represents
the purchase price paid in excess of the fair value of net tangible and
intangible assets acquired. The test for goodwill impairment is a two-step
process to first identify potential goodwill impairment for each reporting
unit and then, if necessary, measure the amount of the impairment loss.
Our reporting units are consistent with our business groups in Note Q. For
a summary of our goodwill by reporting unit, see Note B.
Subsequent Events. In January 2014, we entered into an
accelerated share repurchase (ASR) agreement with a financial
institution. Under the ASR program, we repurchased 11.4 million shares
of our common stock for $1.2 billion on January 24, 2014, funded by
cash on hand. Our final cost will be determined based on the volume-
weighted average daily market price of our stock during the term of the
agreement, which expires later in 2014. On February 5, 2014, with
shares from the prior authorization exhausted by the ASR program, the
board of directors authorized management to repurchase 20 million
additional shares of common stock on the open market, approximately 6
percent of our total shares outstanding as of December 31, 2013.
We have evaluated other material events and transactions that have
occurred after December 31, 2013, and concluded that none have
occurred that require adjustment to or disclosure in the Consolidated
Financial Statements.
B. ACQUISITIONS, DIVESTITURES, GOODWILL AND INTANGIBLE
ASSETS
Acquisitions and Divestitures
We did not acquire any businesses in 2013. In 2012, we acquired seven
businesses for an aggregate of $444, funded by cash on hand:
Aerospace
•A fixed-base operator at Houston Hobby Airport that provides fuel,
catering, maintenance, repair and overhaul services to private aircraft
(on February 29).
Combat Systems
•The defense operations of Gayston Corporation, a business that
supplies precision metal components used in several munitions
programs (on August 27).
Marine Systems
•The Ship Repair and Coatings Division of Earl Industries, an East
Coast ship-repair company that supports the U.S. Navy fleet in
Norfolk, Virginia, and Mayport, Florida (on July 31).
•Applied Physical Sciences Corp., a provider of applied submarine
research and development services (on December 21).
Information Systems and Technology
•IPWireless, Inc., a provider of 3G and 4G Long Term Evolution (LTE)
wireless broadband network equipment and solutions for public safety
and military customers (on June 8).
•Open Kernel Labs, Inc., a provider of virtualization software for
securing wireless communications, applications and content for
mobile devices and automotive in-vehicle infotainment systems (on
August 17).
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