General Dynamics 2015 Annual Report Download - page 38

Previously, the cost was determined using a single weighted-average
discount rate derived from the yield curve. Under the refined method,
known as the spot rate approach, we will use individual spot rates
along the yield curve that correspond with the timing of each benefit
payment. We believe this change provides a more precise
measurement of service and interest costs by improving the correlation
between projected cash outflows and corresponding spot rates on the
yield curve. Compared to the previous method, the spot rate approach
will decrease the service and interest components of our benefit costs
slightly in 2016. There is no impact on the total benefit obligation. We
will account for this change prospectively as a change in accounting
estimate.
These retirement plan estimates are based on our best judgment,
including consideration of current and future market conditions. In the
event any of the assumptions change, pension and post-retirement
benefit cost could increase or decrease. For further discussion,
including the impact of hypothetical changes in the discount rate and
expected long-term rate of return on plan assets, see Note P to the
Consolidated Financial Statements in Item 8.
As discussed under Deferred Contract Costs, our contractual
arrangements with the U.S. government provide for the recovery of
benefit costs for our government retirement plans. We have elected to
defer recognition of the benefit costs that cannot currently be allocated
to contracts to provide a better matching of revenue and expenses.
Accordingly, the impact on the retirement benefit cost for these plans
that results from annual changes in assumptions does not impact our
earnings.
New Accounting Standards. There are several new accounting
standards that have been issued by the FASB, but are not yet effective.
•ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03
requires debt issuance costs to be presented on the balance sheet
as a deduction from the carrying amount of the related debt liability,
consistent with the presentation of debt discounts. Previously, debt
issuance costs were presented as a deferred asset, separate from
the related debt liability. ASU 2015-03 does not affect the
recognition and measurement guidance for debt issuance costs.
While ASU 2015-03 was not effective until January 1, 2016, we
elected to early adopt the standard. See Notes A and J to the
Consolidated Financial Statements in Item 8 for further discussion of
ASU 2015-03.
•ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of
Inventory. ASU 2015-11 changes the measurement principle for
certain inventory methods from the lower of cost or market to the
lower of cost and net realizable value (NRV). The ASU also eliminates
the requirement to consider replacement cost or NRV less a normal
profit margin when measuring inventory. We intend to adopt the
standard prospectively on the effective date of January 1, 2017. We
do not expect the adoption of ASU 2015-11 to have a material effect
on our results of operations, financial condition or cash flows.
•ASU 2015-17, Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes. ASU 2015-17 requires that deferred
tax assets and liabilities be classified as noncurrent on the
Consolidated Balance Sheets. ASU 2015-17 is effective on January 1,
2017, with early adoption permitted, and may be applied either
prospectively or retrospectively. We have not yet selected a transition
date or method nor have we determined the effect of the ASU on our
Consolidated Balance Sheets. See Note E to the Consolidated
Financial Statements in Item 8 for further discussion of our net
deferred tax assets.
•ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial
Liabilities. ASU 2016-01 addresses certain aspects of recognition,
measurement, presentation and disclosure of financial instruments.
Specific to our business, ASU 2016-01 requires equity investments to
be measured at fair value with changes in fair value recognized in net
income. The ASU eliminates the available-for-sale classification for
equity investments that recognized changes in the fair value as a
component of other comprehensive income. We intend to adopt the
standard on the effective date with a cumulative-effect adjustment to
the Consolidated Balance Sheets as of January 1, 2018. We do not
expect the adoption of ASU 2016-01 to have a material effect on our
results of operations, financial condition or cash flows.
Other ASUs issued by the FASB but not yet effective are not expected
to have a material effect on our Consolidated Financial Statements.
34 General Dynamics Annual Report 2015