Northrop Grumman Announces Change in Pension Accounting
- Adopts Mark-to-Market Method to Simplify Pension Accounting
- No Effect on Cash Flow, Pension Funding Requirements or Participant Benefits
- New Method Expected to Increase 2018, 2019 and 2020 Earnings from Net FAS/CAS Adjustment
Under MTM accounting, the company now plans to recognize pension and OPEB actuarial gains and losses, largely related to changes in discount rates and differences between expected and actual plan asset returns, in the fourth quarter of the year they are incurred rather than amortizing them over time. The elimination of amortization of gains and losses is expected to increase 2018 pre-tax earnings by
For 2019, the adoption of the MTM method is expected to increase the company's net FAS/CAS adjustment to
Schedule 1 of this release updates the company's
SCHEDULE 1
2018-2020 Pension Accounting Update (Excluding MTM Adjustments)
As of October 24, 20181 | Pension Accounting Update2,3 | |||||||||
($ in millions) | 2018E | 2019E | 2020E | 2018E | 2019E | 2020E | ||||
Total Net FAS/ CAS adjustment | ~1,110 | ~750 | ~825 | ~1,645 | ~1,350 | ~1,350 | ||||
CAS | ~1,000 | ~850 | ~800 | ~1,000 | ~850 | ~800 | ||||
FAS service expense | ~(405) | ~(400) | ~(350) | ~(405) | ~(400) | ~(350) | ||||
FAS non-service benefit | ~515 | ~300 | ~375 | ~1,050 | ~900 | ~900 | ||||
Required funding | ~90 | ~180 | ~270 | ~90 | ~180 | ~270 | ||||
1 Assumes a 4.18% discount rate for 2019 and 2020, 2018 plan asset return of 0%, and an 8% expected long-term rate of return for all years presented, subject to change depending upon actual results. | ||||||||||
2 Assumes a 4.25% discount rate for 2019 and 2020, 2018 plan asset return of 0%, and an 8% expected long-term rate of return for all years presented, subject to change depending upon actual results. | ||||||||||
3 Updated accounting treatment will include a MTM adjustment to be recorded in Q4 of each year. | ||||||||||
SCHEDULE 2
2018 MTM Adjustment Sensitivities
($ in millions) | Change | Inc/(Dec) to Expense | |
Discount rate | |||
+25 basis points | ~(1,000) | ||
-25 basis points | ~1,000 | ||
Plan asset returns | |||
+100 basis points | ~(300) | ||
-100 basis points | ~300 |
2019 and Beyond FAS Pension Expense Sensitivities
($ in millions) | Change | Inc/(Dec) to Expense | |
Discount rate | |||
+25 basis points | ~35 | ||
-25 basis points | ~(35) | ||
Plan asset returns | |||
+100 basis points | ~(25) | ||
-100 basis points | ~25 |
Forward-Looking Statements
This press release contains statements, other than statements of historical fact, that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “intend,” “may,” “could,” “plan,” “project,” “forecast,” “believe,” “estimate,” “guidance,” “outlook,” “anticipate,” “trends,” “goals” and similar expressions generally identify these forward-looking statements. Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or cash flows. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified and discussed more fully in the section entitled “Risk Factors” in our 2017 Annual Report on Form 10-K, the section entitled “Risk Factors” in the Form 10-Q for the quarter ended
Contact: | Steve Movius (Investors) | |
703-280-4575 | ||
steve.movius@ngc.com | ||
Source: Northrop Grumman Corporation