GD 2014 11-K Plan 5.0


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________
FORM 11-K
_____________________
 
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS
PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-3671
 
 
 
A.
Full title of the plan and the address of the plan, if different from that of the issuer named below:
GENERAL DYNAMICS CORPORATION
401(K) PLAN 5.0
 
B.
Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
GENERAL DYNAMICS CORPORATION
2941 Fairview Park Drive, Suite 100
Falls Church, Virginia 22042-4513



GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0

Table of Contents
 
 
 
 
Page(s)
Report of Independent Registered Public Accounting Firm
Statements of Net Assets Available for Benefits as of December 31, 2014 and 2013
Statement of Changes in Net Assets Available for Benefits for the year ended December 31, 2014
Notes to Financial Statements
5 - 16
Schedule H, Line 4(a) – Schedule of Delinquent Participant Contributions for the year ended December 31, 2014
Schedule H, Line 4(i) – Schedule of Assets (Held at End of Year) as of December 31, 2014





Report of Independent Registered Public Accounting Firm
The Participants and Audit Committee of the General Dynamics Corporation 401(k) Plan 5.0:
We have audited the accompanying statements of net assets available for benefits of the General Dynamics Corporation 401(k) Plan 5.0 (the Plan) as of December 31, 2014 and 2013, and the related statement of changes in net assets available for benefits for the year ended December 31, 2014. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2014 and 2013, and the changes in net assets available for benefits for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
The supplemental information in the accompanying schedules of Schedule H, Line 4a - Schedule of Delinquent Participant Contributions for the year ended December 31, 2014 and Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2014 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s 2014 financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements but include supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedules of Schedule H, Line 4a - Schedule of Delinquent Participant Contributions for the year ended December 31, 2014 and Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2014 are fairly stated in all material respects in relation to the 2014 financial statements as a whole.  
/s/ KPMG LLP
McLean, VA
June 25, 2015




2

GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Statements of Net Assets Available for Benefits
December 31, 2014 and 2013

 
 
2014
 
2013
Assets:
 
 
 
 
Investments in Master Trust at fair value (note 4)
 
$
2,677,163,098

 
$
2,203,941,161

Notes receivable from participants
 
52,341,700

 
43,922,204

Contributions receivable – employer
 
2,659,493

 
2,459,027

Contributions receivable – participant
 
1,522,475

 
1,833,672

Due from merged plans
 

 
30,060,856

Total assets
 
2,733,686,766

 
2,282,216,920

Liabilities:
 
 
 
 
Accrued administrative expenses
 
222,611

 
152,812

Net assets reflecting all investments at fair value
 
2,733,464,155

 
2,282,064,108

Adjustment from fair value to contract value for fully
benefit-responsive investment contracts
 
(16,795,146
)
 
(7,416,570
)
Net assets available for benefits
 
$
2,716,669,009

 
2,274,647,538

See accompanying notes to financial statements.


3

GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2014

 
 
Additions to net assets attributed to:
 
Participation in net income of Master Trust (note 4)
$
463,837,598

Interest income from notes receivable from participants
1,583,086

Contributions:
 
Rollovers
3,623,774

Participant
83,195,473

Employer
44,780,184

Total contributions
131,599,431

Total additions
597,020,115

Deductions from net assets attributed to:
 
Benefits paid to participants (note 7)
165,375,522

Administrative expenses
1,146,830

Total deductions
166,522,352

Net increase prior to transfers
430,497,763

Net transfer to and from other plans within the master trust (note 1)
11,523,708

Net increase
442,021,471

Net assets available for benefits:
 
Beginning of year
2,274,647,538

End of year
$
2,716,669,009

See accompanying notes to financial statements.

4


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013




(1)
Plan Description

The following description of the General Dynamics Corporation 401(k) Plan 5.0 (the Plan) provides only general information. Participants should refer to the Plan Document and related amendments for a more complete description of the Plan’s provisions.
(a)
General
The Plan is a defined contribution plan covering eligible employees of General Dynamics Corporation (the Company, Employer, Plan Administrator, or the Plan Sponsor) and its subsidiaries. Employees subject to a collective bargaining agreement are not eligible to participate in this Plan. The Plan is one of four plans that utilize the General Dynamics Corporation 401(k) Plan Master Trust Agreement (Master Trust).
The net transfers to and from plans within the Master Trust are a result of individual participants transferring jobs which causes them to become a participant in a different plan that also participates in the Master Trust.
(b)
Plan Administration
Fidelity Management Trust Company (Fidelity) holds the Plan’s assets as the Plan’s trustee and Fidelity Workplace Services, LLC is the Plan’s recordkeeper.
(c)
Contributions
Participants are eligible to participate in the Plan upon hire.  Participants may contribute 1% to 50% of eligible compensation, as defined in the Plan Document, as pre-tax deferrals, Roth deferrals or after-tax contributions, up to the statutory limits defined by the Internal Revenue Code (IRC).  The Plan has an automatic enrollment feature under which new employees who do not make a contrary election within thirty days will automatically be enrolled in the Plan with a deferral rate of 3%.  Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions.  Participants may also contribute amounts representing distributions from other qualified plans (rollovers).  The Plan has an Employer matching contribution of up to 100% of the first 4% of eligible compensation contributed to the Plan, and 50% of the next 2% of eligible compensation contributed to the Plan.  The Plan is intended to be a safe-harbor plan as defined in the IRC.
(d)
Participant Accounts
Each participant directs his or her contributions to be invested in various funds. Changes to investment elections can be made according to rules set by the Company. Each participant’s account is credited with the participant’s contribution and allocations of (a) the Company’s contribution and (b) Plan earnings and losses, less an allocation of administrative expenses. The benefit to which a participant is entitled is the vested balance of his or her account.
(e)
Vesting
Participants’ contributions and Company matching contributions made on or subsequent to January 1, 2007, are always 100% vested.
(f)
Notes Receivable from Participants
The Plan permits active participants to borrow the lesser of $50,000 less the highest outstanding note receivable (or participant loans or loan) balance during the last 12 months, or 50% of the vested amount in their accounts (subject to limits defined in the Plan Document and by the IRC). Loans are secured by the remaining balance in the participants’ accounts. Participants are required to repay the loan by regular payroll deductions over a period of up to five years. The Plan also offers primary residence loans (with terms up to 20 years). Loans are issued at the U.S. prime rate of interest. Participant loans outstanding at December 31, 2014, bear interest at rates that range from 3.12% to 10.40%. Participant loans are recorded at amortized cost, which is the remaining unpaid principal balance plus any accrued but unpaid interest. Delinquent loans are reclassified as distributions based upon the terms of the Plan Document.
(g)
Payment of Benefits
On termination of service, a participant (or designated beneficiary) may elect to (a) receive a lump‑sum amount equal to the value of the participant’s vested interest in his or her account, (b) roll over the value of the participant’s vested interest in his or her account into an eligible retirement plan, (c) receive annual or monthly fixed-amount

 
5
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


installment payments, or (d) receive a partial distribution of his or her total account balance. Active participants may be eligible to receive in‑service or hardship withdrawals or withdrawals allowed under the IRC for participants that reach age 59½, subject to the provisions in the Plan Document.
(h)
Forfeited Accounts
Forfeitures are used to reduce Employer contributions. At December 31, 2014 and 2013, participants’ forfeited nonvested accounts were not significant. Forfeitures used during 2014 to reduce Employer contributions were not significant.
(i)
Administrative Expenses
The Master Trust generally pays the administrative expenses of the Plan. The Plan Document provides that the Company may reimburse the Plan for administrative expenses. The Company did not reimburse any administrative expenses in 2014.
Company employees perform certain administrative functions that are not reimbursed by the Master Trust. The Plan Document provides that the Company is entitled to reimbursement for certain costs incurred on behalf of the Plan. The Company did not seek reimbursement for these costs in 2014.
Administrative expenses included in the Statement of Changes in Net Assets Available for Benefits are expenses that have been specifically identified as expenses of this Plan.
(j)
Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, liquidity and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.

(2)
Summary of Significant Accounting Policies

(a)
Basis of Accounting
The accompanying financial statements are prepared under the accrual basis of accounting.
(b)
New Accounting Pronouncement
In May 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent), (“ASU 2015-07”). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value practical expedient. ASU 2015-07 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The standard requires the use of the retrospective transition method. Management is currently evaluating the impact of the standard on the financial statements.
(c)
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value with the exception of fully benefit‑responsive investment contracts (referred to herein as guaranteed investment contracts or GICs), which are adjusted from fair value to contract value. The Master Trust has both direct and indirect investments in GICs through its investment in the Fixed Income Fund.
Purchases and sales of investments are recorded on the trade date. Investment income consists of dividend income, interest income, and net appreciation (depreciation) in the fair value of investments. Dividends are recognized on the ex‑dividend date, the date on which an entity or an individual must own the stock to receive the pending dividend. Interest income is recorded on an accrual basis. Net appreciation (depreciation) includes the gains and losses on investments bought and sold as well as held during the year.

 
6
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


(d)
Payment of Benefits
Benefits are recorded when paid.
(e)
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
(f)
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation.

(3)
Tax Status
The Internal Revenue Service (IRS) issued a favorable determination letter on May 30, 2014, indicating that the Plan is a qualified plan under Section 401(a) of the IRC. The Plan is exempt from federal income tax under Section 501(a) of the IRC. Although the Plan has been amended subsequent to the date of the latest determination from the IRS, the Plan Sponsor and the Plan’s counsel believe the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC.
U.S. GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2014 and 2013, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine examinations by tax jurisdictions. There are currently no audits in progress for any tax periods. Under the IRS statute of limitations, the Plan is no longer subject to income tax examinations for years prior to 2011.

(4)
Investments

(a)
General
The Plan’s investments are held by the Master Trust, which was established for the investment of the Plan’s assets and the assets of the General Dynamics Corporation 401(k) Plan 3.0, the General Dynamics Corporation 401(k) Plan 4.5, and the General Dynamics Corporation 401(k) Plan for Represented Employees, collectively the Plans. Each of the Plans has a pro rata interest in the Master Trust. Net assets and participation in the net income of the Master Trust are allocated to the Plans according to each Plan’s participants’ investment elections and earnings and losses thereon. At December 31, 2014 and 2013, the Plan’s interest in the net assets of the Master Trust was approximately 21% and 20%, respectively.


 
7
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


The following table presents the investments of the Master Trust as of December 31, 2014 and 2013:
 
 
2014
 
2013
Participant-Directed Brokerage accounts
 
 
 
 
Equity securities
 
$
73,930,585

 
$
47,400,811

Registered investment companies
 
48,947,692

 
32,513,083

Interest bearing cash
 
32,558,711

 
25,566,615

General Dynamics Corporation common stock
 
3,407,807,484

 
2,543,378,903

Equity securities
 
1,138,745,540

 
1,032,284,124

Fixed Income Fund (Synthetic GICs)
 
 
 
 
Wrapper contracts
 
21,833,136

 
24,481,676

Mortgage-backed securities
 
632,170,465

 
725,043,217

Asset-backed securities
 
112,954,166

 
85,586,186

Corporate debt obligations
 
926,217,924

 
955,786,820

U.S. government debt obligations
 
854,645,826

 
906,707,081

Foreign government debt obligations
 
11,012,042

 
1,830,425

Overnight deposit accounts
 
166,554,397

 
161,096,213

Collective trusts
 
2,536,490

 
29,144,831

Interest bearing cash
 
29,354,109

 
47,062,151

Units of collective trusts
 
4,868,218,344

 
4,211,014,209

Registered investment companies
 
231,236,182

 
158,010,913

Overnight deposit accounts
 
14,650,298

 
20,412,469

Interest bearing cash
 
5,691,077

 
3,566,870

Total investments at fair value
 
12,579,064,468

 
11,010,886,597

Non-interest bearing accounts
 
30,876,190

 

Pending trades receivable and interest receivable
 
236,265,996

 
1,884,068,665

Total assets
 
12,846,206,654

 
12,894,955,262

Pending trades payable and accrued expenses
 
(392,809,188
)
 
(2,062,405,169
)
Total liabilities
 
(392,809,188
)
 
(2,062,405,169
)
Net assets of Master Trust before adjustment to contract value
 
12,453,397,466

 
10,832,550,093

Adjustment from fair value to contract value for fully benefit-responsive investment contracts
 
(72,772,198
)
 
(33,528,140
)
Net assets of Master Trust
 
$
12,380,625,268

 
$
10,799,021,953

 
 The Plans’ interests in the Master Trust’s net assets at December 31, 2014 and 2013 were as follows:

 
8
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


 
 
2014
 
2013
General Dynamics Corporation 401(k) Plan 3.0
 
$
3,468,207,367

 
$
3,247,426,122

General Dynamics Corporation 401(k) Plan 4.5
 
4,927,552,012

 
4,222,196,109

General Dynamics Corporation 401(k) Plan 5.0
 
2,660,367,952

 
2,196,524,591

General Dynamics Corporation 401(k) Plan for Represented Employees
 
1,324,497,937

 
1,132,875,131

Total
 
$
12,380,625,268

 
$
10,799,021,953

Net investment income for the Master Trust for the year ended December 31, 2014, consisted of the following:
 
 
Net appreciation on equity securities other than Company stock
$
102,755,653

Net appreciation on Company stock
1,090,909,248

Net appreciation in collective trust funds
408,167,502

Net appreciation in registered investment companies
2,025,545

Interest on fixed income fund
48,776,319

Dividends on Company stock
59,209,192

Dividends other than on Company stock
18,097,022

Total
$
1,729,940,481

The net investment income for the Master Trust is net of investment manager fees.
The Plans’ interests in the Master Trust’s investment income for the year ended December 31, 2014, were as follows:
 
 
General Dynamics Corporation 401(k) Plan 3.0
$
418,586,154

General Dynamics Corporation 401(k) Plan 4.5
604,252,878

General Dynamics Corporation 401(k) Plan 5.0
463,837,598

General Dynamics Corporation 401(k) Plan for
Represented Employees
243,263,851

Total
$
1,729,940,481

 
The fair value of the Master Trust’s investments that represented 5% or more of the Master Trust’s ending net assets as of December 31, 2014 and 2013, were as follows: 
 
 
2014
 
2013
General Dynamics Corporation common stock
 
$
3,407,807,484

 
$
2,543,378,903

Fixed Income Fund
 
2,628,296,959

 
2,647,345,994

Northern Trust S&P 500 Non-Lending Fund
 
1,759,840,278

 
1,553,538,888

Northern Trust Extended Market Index Fund
 
791,651,423

 
773,647,226

 

(b)
Fixed Income Fund (Synthetic GIC)
The Fixed Income Fund holds fully benefit-responsive investment contracts (wrapper contracts) with Metropolitan Life Insurance Company (MetLife) in order to provide participants with a stable, fixed-rate of return on investments, and protection of principal from changes in market interest rates. MetLife’s financial strength rating from Standard & Poor’s at December 31, 2014 was AA‑. The Fixed Income Fund consists of synthetic guaranteed investment contracts (“synthetic GICs”) that are valued at the estimated fair value of the underlying investments of the contracts, primarily debt securities and wrapper contracts. Interest is credited to the contracts at interest rates that reflect the performance of the underlying portfolio. MetLife resets the interest rates semi‑annually based on the market value of the portfolio and the guaranteed value over the weighted average duration of the investments. Participants will receive the principal and accrued interest upon withdrawal for events such as transfers to other Plan investment options or payments for retirement, termination of

 
9
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


employment, disability, death and in‑service withdrawals as permitted by the Plan. The fixed income fund also invests in two stable value collective trusts.
The contract value of the Fixed Income Fund at December 31, 2014 and 2013, was $2,555,524,761 and $2,613,817,854, respectively, as compared to the fair value of $2,628,296,959 and $2,647,345,994, respectively. The average yield for the portfolio of fully benefit-responsive investment contracts based on actual earnings was 1.87% and 1.80%, for 2014 and 2013, respectively. The average yield based on the interest rate credited to participants at December 31, 2014 and 2013, was 2.05% and 1.59%, respectively. The crediting interest rate resets semi-annually and is based on an agreed‑upon formula with the issuers, but cannot be less than zero. The key factors that influence future interest crediting rates could include the following: the level of market interest rates; the difference between the fully benefit-responsive investment contracts' book and market values; the amount and timing of Participant contributions; transfers and withdrawals into/out of the fully benefit-responsive investment contracts; and the duration of the underlying investments backing the fully benefit-responsive investment contracts.


(c)
Fair Value Determination
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 under U.S. GAAP:
Level 1 - Quoted prices (unadjusted) in active markets for identical investments.

General Dynamics Corporation Common Stock, Investments in Equity Securities, Units of Registered Investment Companies, Interest Bearing Cash and Overnight Deposit Accounts:
General Dynamics Corporation common stock, investments in equity securities and units of registered investment companies are valued using quoted prices in an active market. The fair value of interest bearing cash balances and overnight deposit accounts have been determined based upon the deposit account balance, with no discounts for credit quality or liquidity restrictions.
Level 2 - Inputs include:

*
Quoted prices for similar assets or liabilities in active markets
*
Quoted prices for identical or similar assets or liabilities in inactive markets
*
Inputs other than quoted prices that are observable for the assets or liabilities
*
Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means

If the assets or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Units of Collective Trusts:
Units of collective trusts are private investment securities valued using the Net Asset Value (NAV) provided by the Plan’s trustee. NAV is based on the value of the underlying assets owned minus its liabilities, divided by the number of units outstanding. Investments in collective trusts are redeemable daily at NAV, and there are no restrictions on redemptions. Investments in collective trusts have investment strategies consistent with their classifications in the tables that follow. The NAV is quoted on a private market that is not active. However, the unit price is based primarily on underlying investments that are traded on an active market.
Asset-Backed, Mortgaged-Backed, Corporate Debt Obligations, U.S. Government Debt Obligations and Foreign Government Obligations:
Asset-backed and mortgage-backed securities are valued at their most recent bid prices (sales prices if their principal market is an exchange) in the principal market in which such securities are traded, as determined by recognized dealers in such securities, or are valued on the basis of information provided by a pricing service.

 
10
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


The fair values of corporate debt obligations are estimated based on yields currently available on comparable securities of issues with similar credit ratings. The fair values of U.S. government debt obligations and foreign government debt obligations are estimated based on current rates for similar instruments.
Level 3 - Inputs are unobservable to the market participant

Wrapper Contracts:
Investments in wrapper contracts are valued at fair value using a discounted cash flow model which considers recent fee bids as determined by recognized dealers, discount rate, and the duration of the underlying portfolio of securities. The contracts are unallocated in nature and are fully benefit-responsive. Therefore, net assets available for benefits reflects the Plan’s interest in the contract value of the Fixed Income Fund because the Plan’s allocable share of the difference between fair value and contract value for this investment is presented as a separate adjustment in the Statement of Net Assets Available for Benefits. There are no reserves against contract values (which represent contributions made under the contract, plus earnings, less withdrawals and administrative expenses) for credit risk of the contract issuer or otherwise. Wrapper contracts provide the Fixed Income Fund with the ability to use contract value accounting to maintain a constant $1.00 unit price. Wrapper contracts also provide for the payment of Participant-directed withdrawals and exchanges at contract value (principal and interest accrued to date) during the term of the wrapper contracts. However, withdrawals prompted by certain events (e.g., layoffs, retirement during specified early retirement window periods, spin-offs, sale of a division, facility closings, plan terminations, partial plan terminations, changes in law or regulation, material breach of contract responsibilities, loss of the Plan’s qualified status, etc.) may be paid at fair value which may be less than contract value. Currently, management believes that the occurrence of an event that would cause the Plan to be paid at less than contract value is not probable. A wrap issuer may terminate a wrapper contract at any time; however, if the fair value of the contract is less than the contract value, the wrap issuer can either hold the contract until the fair value and contract value are equal or make up the difference between the two. If the funds in the wrapper contracts are needed for benefit payments prior to contract maturity, they may be withdrawn without penalty.
The following tables present the fair values of the Master Trust’s assets on December 31, 2014 and 2013, and the basis for determining their fair values:



















 
11
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


 
 
Fair value
 
Quoted price in active markets for identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
December 31, 2014:
 
 
 
 
 
 
 
 
General Dynamics Corporation
common stock
 
$
3,407,807,484

 
$
3,407,807,484

 
$

 
$

Participant-Directed Brokerage account:
 
 
 
 
 
 
 
 
Equity securities
 
73,930,585

 
73,930,585

 

 

Registered investment companies
 
48,947,692

 
48,947,692

 

 

Interest bearing cash
 
32,558,711

 
32,558,711

 

 

Investments in other equity securities
U.S. companies:
 
 
 
 
 
 
 
 
Financial
 
130,159,223

 
130,159,223

 

 

Capital goods
 
26,493,904

 
26,493,904

 

 

Consumer durables and apparel
 
70,298,665

 
70,298,665

 

 

Energy
 
71,233,080

 
71,233,080

 

 

Food and beverage
 
61,855,628

 
61,855,628

 

 

Healthcare and pharmaceutical
 
146,331,144

 
146,331,144

 

 

Hospitality
 
33,655,881

 
33,655,881

 

 

Media and telecommunications
 
136,200,047

 
136,200,047

 

 

Retail
 
65,630,967

 
65,630,967

 

 

Technology
 
345,206,065

 
345,206,065

 

 

Other
 
51,680,936

 
51,680,936

 

 

Synthetic guaranteed investment contracts:
 
 
 
 
 
 
Wrapper contracts
 
21,833,136

 

 

 
21,833,136

Mortgage-backed securities
 
632,170,465

 

 
632,170,465

 

Asset-backed securities
 
112,954,166

 

 
112,954,166

 

Corporate debt obligations
 
926,217,924

 

 
926,217,924

 

U.S. government debt obligations
 
854,645,826

 

 
854,645,826

 

Foreign government debt obligations
 
11,012,042

 

 
11,012,042

 

Overnight deposit accounts
 
166,554,397

 
166,554,397

 
—    

 

Collective trusts
 
2,536,490

 

 
2,536,490

 

Interest bearing cash
 
29,354,109

 
29,354,109

 
—    

 

Units of collective trusts:
 
 
 
 
 
 
 
 
Large cap U.S. equity
 
1,797,989,702

 

 
1,797,989,702

 

Small/mid cap U.S. equity
 
1,038,899,035

 

 
1,038,899,035

 

Blended equity/bond fund
 
46,342,652

 

 
46,342,652

 

International equity
 
96,722,304

 

 
96,722,304

 

Fixed income
 
506,285,942

 

 
506,285,942

 

Target date 2010 – 2020
 
497,330,088

 

 
497,330,088

 

Target date 2025 – 2035
 
656,191,772

 

 
656,191,772

 

Target date 2040 – 2050
 
207,949,334

 

 
207,949,334

 

Target date 2055 – 2060
 
20,507,515

 

 
20,507,515

 

Registered investment companies
 
231,236,182

 
231,236,182

 

 

Overnight deposit accounts
 
14,650,298

 
14,650,298

 

 

Interest bearing cash
 
5,691,077

 
5,691,077

 

 

 
 
$
12,579,064,468

 
$
5,149,476,075

 
$
7,407,755,257

 
$
21,833,136


 
12
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


 
 
Fair value
 
Quoted price in active markets for identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
December 31, 2013:
 
 
 
 
 
 
 
 
General Dynamics Corporation
common stock
 
$
2,543,378,903

 
$
2,543,378,903

 
$

 
$

Participant-Directed Brokerage account:
 
 
 
 
 
 
 
 
Equity securities
 
47,400,811

 
47,400,811

 

 
$

Registered investment companies
 
32,513,083

 
32,513,083

 

 

Interest bearing cash
 
25,566,615

 
25,566,615

 

 

Investments in other equity securities
U.S. companies:
 
 
 
 
 
 
 
 
Financial
 
121,415,799

 
121,415,799

 

 

Capital goods
 
18,578,759

 
18,578,759

 

 

Consumer durables and apparel
 
46,941,360

 
46,941,360

 

 

Energy
 
70,967,104

 
70,967,104

 

 

Food and beverage
 
55,938,807

 
55,938,807

 

 

Healthcare and pharmaceutical
 
141,769,747

 
141,769,747

 

 

Hospitality
 
50,393,625

 
50,393,625

 

 

Media and telecommunications
 
113,888,143

 
113,888,143

 

 

Retail
 
74,306,043

 
74,306,043

 

 

Technology
 
294,871,589

 
294,871,589

 

 

Other
 
43,213,148

 
43,213,148

 

 

Synthetic guaranteed investment contracts:
 
 
 
 
 
 
Wrapper contracts
 
24,481,676

 

 

 
24,481,676

Mortgage-backed securities
 
725,043,217

 

 
725,043,217

 

Asset-backed securities
 
85,586,186

 

 
85,586,186

 

Corporate debt obligations
 
955,786,820

 

 
955,786,820

 

U.S. government debt obligations
 
906,707,081

 

 
906,707,081

 

Foreign government debt obligations
 
1,830,425

 

 
1,830,425

 

Overnight deposit accounts
 
161,096,213

 
161,096,213

 

 

Collective trusts
 
29,144,831

 

 
29,144,831

 

Interest bearing cash
 
47,062,151

 
47,062,151

 

 

Units of collective trusts:
 
 
 
 
 
 
 
 
Large cap U.S. equity
 
1,582,540,815

 

 
1,582,540,815

 

Small/mid cap U.S. equity
 
937,913,740

 

 
937,913,740

 

Blended equity/bond fund
 
36,670,242

 

 
36,670,242

 

International equity
 
57,353,370

 

 
57,353,370

 

Fixed income
 
508,885,931

 

 
508,885,931

 

Target date 2010 – 2020
 
415,344,386

 

 
415,344,386

 

Target date 2025 – 2035
 
511,921,158

 

 
511,921,158

 

Target date 2040 – 2050
 
150,817,149

 

 
150,817,149

 

Target date 2055 – 2060
 
9,567,418

 

 
9,567,418

 

Registered investment companies
 
158,010,913

 
158,010,913

 

 

Overnight deposit accounts
 
20,412,469

 
20,412,469

 

 

Interest bearing cash
 
3,566,870

 
3,566,870

 

 

 
 
$
11,010,886,597

 
$
4,071,292,152

 
$
6,915,112,769

 
$
24,481,676

 

 
13
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013



The table below presents a reconciliation of Plan investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2014, including the reporting classifications for the applicable gains and losses included in the Statement of Changes in Net Assets Available for Benefits:

 
 
Fair Value 
Measurements
Using Significant
Unobservable Inputs
(Level 3)
Wrapper contracts:
 
Beginning balance, January 1, 2014
$
24,481,676

Total gains or losses included in change in net assets available for benefits:
 
Unrealized depreciation (relating to assets held at end of year)
(2,648,540
)
Net depreciation in fair value of investments
(2,648,540
)
Ending balance, December 31, 2014
$
21,833,136


The valuation methods described above may produce a fair value that is not indicative of a net realizable value or reflective of future fair values. Furthermore, although the Plan Sponsor believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of financial instruments could result in a different fair value measurement at the reporting date.
(a)
To-Be-Announced Securities (TBA Securities)
The Master Trust may purchase or sell securities on a delayed delivery.  Payment and delivery may take several weeks after the date of the transaction.  The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The underlying securities are valued at current market value with daily fluctuations in the market value included in net appreciation (depreciation) in fair value of investments. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract terms, or if the issuer does not issue the securities due to political, economic or other factors.  Such commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.  At December 31, 2014 and 2013, the Master Trust has recorded approximately $216 million and $149 million, respectively, of pending sales of TBA securities.  These pending sales are reflected as both a negative amount within the mortgage-backed securities investment category in the preceding disclosures at fair value and a corresponding pending trade receivable at contractual value. 
In addition, at December 31, 2014 and 2013, the Master Trust has recorded approximately $303 million and $468 million, of pending purchases of TBA securities.   These pending purchases are reflected as both positive amounts within the mortgage-backed securities asset category in the preceding disclosures at fair value and a corresponding pending trade payable at contractual value.
Plan management believes that it is appropriate to present these TBA securities at their gross amounts based on the Plan’s policy to record purchases and sales of securities on a trade date basis.

(5)
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). In the event the Plan is terminated, each participant will automatically become vested in his or her unvested Company contributions. Each participant will receive payments based on the specific dollar amounts and shares of the Company’s common stock in his or her account.


 
14
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013


(6)
Party‑in‑Interest Transactions
The Plan may, at the discretion of the Plan’s participants or via the Company match, invest through the Master Trust an unlimited amount of its assets in the Company’s common stock. The Master Trust held 24,762,422 and 26,618,275 shares of the Company’s common stock as of December 31, 2014 and 2013, respectively. Dividends earned by the Master Trust on the Company’s common stock were $59,209,192 for the year ended December 31, 2014.
The Plan also invests, through the Master Trust, in investment funds managed by the trustee or affiliates of the trustee of the Plan or by one of its investment managers. These funds are considered party in interest investments. In addition, the Plan invests, through the Master Trust, in common stocks of certain of its service providers which are also considered party in interest investments. These transactions qualify as exempt party-in-interest transactions.
Notes receivable from participants are also considered party in interest transactions.

(7)
Reconciliation of Financial Statements to Form 5500

The following is a reconciliation of net assets available for benefits at December 31, 2014 and 2013, as reported in the financial statements to the Form 5500:
 
 
2014
 
2013
Net assets available for benefits as reported in the financial statements
 
$
2,716,669,009

 
$
2,274,647,538

Delinquent notes receivable in financial statements recorded as distributions in the Form 5500
 
(1,923,209
)
 
(1,768,023
)
Net assets available for benefits as reported in the Form 5500
 
$
2,714,745,800

 
$
2,272,879,515

The following is a reconciliation of benefits paid to participants for the year ended December 31, 2014, as reported in the financial statements to the Form 5500:
 
 
Net increase prior to transfers per financial statements
$
430,497,763

Deemed distributions of participant loans reported in the 2014 Form 5500
(1,923,209
)
Deemed distributions of participant loans reported in the 2013 Form 5500
1,768,023

Net income (loss) per the Form 5500
$
430,342,577



 
15
(Continued)


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Notes to Financial Statements
December 31, 2014 and 2013



(8)
Subsequent Events

Plan management has evaluated subsequent events for recognition and disclosure through June 25, 2015.


 
16
 


GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Schedule H, Line 4a – Schedule of Delinquent Participant Contributions
Year ended December 31, 2014

Participant contributions transferred late to plan
 
Total that constitute nonexempt prohibited
transactions: $141,746
 
Total fully corrected
under VFCP
and PTE
2002-51
Check here if late participant loan repayments are included [X]
 
Contributions
not corrected
 
Contributions
corrected
outside VFCP
 
Contributions
pending
correction in
VFCP
 
2012
 
$

 
$
137,176

 
$

 
$

2013
 

 
98

 

 

2014
 

 
4,472

 

 

See accompanying Report of Independent Registered Public Accounting Firm.


17

GENERAL DYNAMICS CORPORATION
401(k) PLAN 5.0
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
December 31, 2014

 
 
 
 
 
 
 
 
 
(a)
 
(b) Identity of issuer, borrower,
lessor or similar party
 
(c) Description of investment including maturity date, rate of interest,
collateral par or maturity date
 
(d) Cost
 
(e) Current value
*
 
Participant Loans
 
Interest Rates (3.12-10.40%)
 
#
 
50,418,491

*
Party-in-interest
#
Cost information omitted for participant directed investments
See accompanying Report of Independent Registered Public Accounting Firm.

18



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees having administrative responsibility for the Plan have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
 
GENERAL DYNAMICS CORPORATION
 
 
 
 
As Plan Administrator of the General Dynamics Corporation 401(k) Plan 5.0
 
 
by
 
/s/ John M. Ohrnberger
 
 
John M. Ohrnberger
Staff Vice President, Compensation & Benefits
Dated: June 25, 2015