GD » Topics » ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This excerpt taken from the GD 10-Q filed May 5, 2009.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2008.

This excerpt taken from the GD 10-K filed Feb 20, 2009.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, primarily from foreign currency exchange rates, interest rates, commodity prices and investments.

Foreign Currency Risk

Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and certain inter-company transactions denominated in currencies other than our (or one of our subsidiaries’) functional currency. We may enter into foreign currency forward contracts from time to time to fix, or limit the adverse impact on, the amount of firmly committed and forecasted non-functional payments, receipts and inter-company transactions related to our ongoing business and operational financing activities. These contracts are designed to minimize our risk when we enter into transactions outside our functional currency. We do not use derivatives for trading or speculative purposes.

On December 31, 2008 and 2007, we had $2.4 billion and $1.7 billion, respectively, in notional forward and option contracts outstanding. A 10 percent unfavorable exchange rate movement in our portfolio of foreign currency forward contracts would have resulted in an incremental recognized pretax loss of $12 in 2008 and $29 in 2007, and an incremental unrecognized pretax loss of $112 in 2008 and $53 in 2007. This exchange-rate sensitivity relates primarily to changes in the U.S. dollar/ Canadian dollar, euro/Swiss franc, pound sterling/euro and U.S. dollar/euro exchange rates. We believe these hypothetical recognized and unrecognized losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. We believe these forward and option contracts and the offsetting underlying commitments, when taken together, do not create material market risk.

Interest Rate Risk

Financial instruments subject to interest rate risk include fixed-rate long-term debt obligations, variable-rate commercial paper and short-term investments. On December 31, 2008, we had $3.1 billion par value of fixed-rate debt and $905 in commercial paper outstanding. Our fixed-rate debt obligations are not putable, and we do not trade these securities in the market. A 10 percent unfavorable interest rate movement would not have a material impact on the fair value of our debt obligations.

We have credit facilities with major banks of $1 billion expiring in July 2009 and $975 expiring in December 2011. These facilities are required by rating agencies to support the A1/P1 rating of our commercial paper issuances. We may renew or replace, in whole or in part, the facility that expires in July 2009.

Commodity Price Risk

We are also 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 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 five years. We held $1.8 billion in cash and equivalents and marketable securities to be used for general corporate purposes on December 31, 2008. Our marketable securities have an average duration of two months and an average credit rating of AA+. Given that our investments had an aggregate weighted average maturity of 23 days as of December 31, 2008, a 10 percent unfavorable interest rate movement would have no immediate material impact on the value of the holdings in either year. Historically, we have not experienced material gains or losses on these instruments due to changes in interest rates or market values.

 

General Dynamics 2008 Annual Report    35


Table of Contents
This excerpt taken from the GD 10-Q filed Nov 4, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2007.

This excerpt taken from the GD 10-Q filed Aug 5, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2007.

This excerpt taken from the GD 10-Q filed May 6, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2007.

This excerpt taken from the GD 10-K filed Feb 22, 2008.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company is exposed to market risk, primarily from foreign currency exchange rates, interest rates and commodity prices.

Foreign Currency Risk

The company’s foreign currency exchange rate risk relates to receipts from customers, payments to suppliers, outstanding debt and certain inter-company transactions denominated in currencies other than the company’s (or one of its subsidiaries’) functional currency. The company may enter into foreign currency forward contracts from time to time to fix the amount of firmly committed and forecasted non-functional payments, receipts and inter-company transactions related to its ongoing business and operational financing activities. These contracts are designed to minimize non-functional currency risks and/or risks associated with international subsidiaries that may enter into transactions outside of their own functional currency.

At December 31, 2007 and 2006, the company had $1.7 billion and $1.1 billion, respectively, in notional contracts outstanding. A 10 percent unfavorable exchange rate movement in the company’s portfolio of foreign currency forward contracts would have resulted in an incremental recognized pretax loss of $29 in 2007 and $4 in 2006, and an incremental unrecognized pretax loss of $53 in 2007 and $40 in 2006. This exchange-rate sensitivity relates primarily to changes in U.S. dollar/Canadian dollar and euro/Swiss franc exchange rates. The company believes the recognized and unrecognized losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. When taken together, these forward contracts and the offsetting underlying commitments do not create material market risk.

Interest Rate Risk

Financial instruments subject to interest rate risk include fixed-rate debt obligations, variable-rate commercial paper and short-term investments. As of December 31, 2007 and 2006, the company had only fixed-rate debt outstanding. The company’s fixed-rate debt obligations are not putable and are not traded by the company in the market. A 10 percent change in current interest rates would not have a material impact on the fair value of the company’s fixed-rate debt obligations. The company would be subject to interest rate risk from outstanding commercial paper, but there were no outstanding balances at year-end 2007 or 2006.

The company’s investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of five years. The company held $3.1 billion in cash and equivalents and short-term investments to be used for general corporate purposes as of December 31, 2007, and $1.6 billion as of December 31, 2006. Given the weighted average maturity of 15 days as of December 31, 2007, and 11 days as of December 31, 2006, a 10 percent unfavorable interest rate movement would have no immediate material impact on the value of the holdings in either year. Historically, the company has not experienced material gains or losses on these instruments due to changes in interest rates.

Commodity Price Risk

The company is also subject to risk of rising labor and commodity prices, primarily on long-term fixed-price contracts. To the extent possible, the company includes terms in its contracts that are designed to protect it from this risk. The company has not entered into commodity hedging contracts but may do so as circumstances warrant. Some of the protective terms included in the company’s contracts are considered derivatives but are not accounted for separately because they are clearly and closely related to the host contract. The company does not believe that changes in labor or commodity prices will have a material impact on its results of operations or cash flows.

 

General Dynamics 2007 Annual Report    35


Table of Contents
This excerpt taken from the GD 10-Q filed Oct 31, 2007.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2006.

This excerpt taken from the GD 10-Q filed Aug 1, 2007.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2006.

This excerpt taken from the GD 10-Q filed May 2, 2007.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2006.

This excerpt taken from the GD 10-K filed Feb 23, 2007.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company is exposed to market risk, primarily from foreign currency exchange rates and interest rates. The company’s foreign currency exchange rate risk relates to receipts from customers, payments to suppliers, long-term debt and certain inter-company transactions denominated in currencies other than the company’s (or one of its subsidiaries’) functional currency. The company may enter into foreign currency forward contracts from time to time to fix the amount of firmly committed and forecasted non-functional payments, receipts and inter-company transactions related to its ongoing business and operational financing activities. These contracts are designed to minimize non-functional currency risks and/or risks associated with international subsidiaries that may enter into transactions outside of their own functional currency.

At December 31, 2006 and 2005, the company had $1.1 billion and $760, respectively, in notional contracts outstanding. A 10 percent unfavorable exchange rate movement in the company’s portfolio of foreign currency forward contracts would have resulted in an incremental realized pretax loss of $4 in 2006 and $5 in 2005, and an incremental unrealized pretax loss of $40 in 2006 and $26 in 2005. This exchange-rate sensitivity relates primarily to changes in U.S. dollar/Canadian dollar exchange rates. The company believes the realized and unrealized losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. When taken together, these forward contracts and the offsetting underlying commitments do not create material market risk.

Financial instruments subject to interest rate risk include fixed-rate long-term debt obligations, variable-rate commercial paper and short-term investments. As of December 31, 2006, the company had only fixed-rate debt outstanding. The company’s fixed-rate debt obligations are not putable and are not traded by the company in the market. The company would be subject to interest rate risk from outstanding commercial paper, but there were no outstanding balances at year-end 2006 or 2005.

The company’s investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of five years. As of December 31, 2006, the company held $1.6 billion in cash and equivalents to be used for general corporate purposes. Given the average weighted maturity of 11 days, a 10 percent unfavorable interest rate movement would have no immediate material impact on the value of the holdings. Historically, the company has not experienced material gains or losses on these instruments due to changes in interest rates.

The company is also subject to risk of rising labor and commodity prices, primarily on long-term fixed-price contracts. To the extent possible, the company includes terms in its contracts that are designed to protect it from this risk. The company has not entered into commodity hedging contracts but may do so as circumstances warrant. Some of the protective terms included in the company’s contracts are considered derivatives but are not accounted for separately because they are clearly and closely related to the host contract. The company does not believe that changes in labor or commodity prices will have a material impact on its results of operations or cash flows.

 

General Dynamics 2006 Annual Report    35


Table of Contents
This excerpt taken from the GD 10-Q filed Nov 2, 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2005.

This excerpt taken from the GD 10-Q filed Aug 3, 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2005.

This excerpt taken from the GD 10-Q filed May 4, 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2005.

This excerpt taken from the GD 10-K filed Mar 3, 2006.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company is exposed to market risk, primarily related to interest rates and foreign currency exchange rates. Financial instruments subject to interest rate risk include fixed-rate long-term debt obligations, variable-rate commercial paper and short-term investments. As of December 31, 2005, the company had no material short-term investments and no outstanding commercial paper. Fixed-rate debt obligations issued by the company are generally not putable and are not actively traded by the company in the market. Therefore, the company does not believe its exposure to interest rate risk is material for its fixed-rate debt.

The company may enter into interest rate swap agreements to manage its exposure to interest rate fluctuations. At December 31, 2005, no interest rate swap agreements were in effect.

The company also is subject to foreign currency exchange rate risk relating to receipts from customers, payments to suppliers, long-term debt and certain inter-company transactions in foreign currencies. The company principally uses foreign currency forward contracts from time to time to hedge the price risk associated with firmly committed and forecasted foreign-denominated payments, receipts and inter-company transactions related to its ongoing business and operational financing activities. Foreign currency contracts are sensitive to changes in foreign currency exchange rates. At December 31, 2005 and 2004, a 10 percent unfavorable exchange rate movement in the company’s portfolio of foreign currency forward contracts would have resulted in an incremental realized loss of $5 and $14 (pretax), respectively, and an incremental unrealized loss of $26 and $56 (pretax), respectively. This exchange rate sensitivity relates primarily to changes in the U.S. dollar/Canadian dollar exchange rates. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, these realized and unrealized losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. When taken together, these forward contracts and the offsetting underlying commitments do not create material market risk.

 

General Dynamics 2005 Annual Report    33


Table of Contents
This excerpt taken from the GD 10-K filed Mar 4, 2005.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

The company is exposed to market risk, primarily related to interest rates and foreign currency exchange rates. Financial instruments subject to interest rate risk include fixed-rate long-term debt obligations, variable-rate commercial paper and short-term investments. As of December 31, 2004, the company had no short-term investments. Fixed-rate debt obligations issued by the company are generally not putable and are not actively traded by the company in the market. Therefore, exposure to interest rate risk is not believed to be material for the company’s fixed-rate debt. A hypothetical 100 basis-point increase in market interest rates applicable to the company’s commercial paper balances would not have a material effect on its results of operations, financial condition or cash flows.

 

The company may enter into interest rate swap agreements to manage its exposure to interest rate fluctuations. At December 31, 2004, no interest rate swap agreements were in effect.

 

The company also is subject to foreign currency exchange rate risk relating to receipts from customers, payments to suppliers, long-term debt and certain inter-company transactions in foreign currencies. The company principally uses foreign currency forward contracts from time to time to hedge the price risk associated with firmly committed and forecasted foreign-denominated payments, receipts and inter-company transactions related to its ongoing business and operational financing activities. Foreign currency contracts are sensitive to changes in foreign currency exchange rates. At December 31, 2004, a 10 percent unfavorable exchange rate movement in the company’s portfolio of foreign currency forward contracts would have resulted in an incremental realized loss of $14 (pretax) and an incremental unrealized loss of $56 (pretax). Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, such realized and unrealized losses would be offset by corresponding gains, respectively, in the remeasurement of the underlying transactions being hedged. When taken together, these forward contracts and the offsetting underlying commitments do not create material market risk.

 

General Dynamics 2004 Annual Report    29


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