Northrop Grumman 2012 Annual Report Download - page 81

NORTHROP GRUMMAN CORPORATION
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The changes in the fair value of the pension and VEBA plan trust assets measured using Level 3 significant
unobservable inputs during 2012 and 2011, are as follows:
$ in millions Domestic
equities Asset Backed High yield debt Hedge funds Private equities Real Estate Total
Balance as of December 31, 2010 $2 $4 $78 $1,521 $1,945 $1,402 $4,952
Actual return on plan assets:
Unrealized gains (losses), net — — (2)(43) 19 198 172
Realized gains (losses), net — — — 25 (13)(4) 8
Purchases — — 10 413 503 460 1,386
Sales — — (45)(511)(356)(268)(1,180)
Balance as of December 31, 2011 $2 $4 $41 $1,405 $2,098 $1,788 $5,338
Actual return on plan assets:
Unrealized gains (losses), net 5 — 10 13 (122) 68 (26)
Realized gains (losses), net (5) — — 47 — — 42
Purchases — — — — 259 846 1,105
Sales — — (23)(707)(255)(446)(1,431)
Balance as of December 31, 2012 $2 $4 $28 $758 $1,980 $2,256 $5,028
Generally, investments are valued based on information in financial publications of general circulation, statistical
and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide
offers. Domestic and international equities consist primarily of common stocks and institutional common trust
funds. Investments in common and preferred shares are valued at the last reported sales price of the stock on the last
business day of the reporting period. Units in common trust funds and hedge funds are valued based on the
redemption price of units owned by the trusts at year-end. Fair value for real estate and private equity partnerships is
primarily based on valuation methodologies that include third party appraisals, comparable transactions, discounted
cash flow valuation models, and public market data.
Non-government fixed income securities are invested across various industry sectors and credit quality ratings.
Generally, investment guidelines are written to limit securities, for example, to no more than 5 percent of each trust
account, and to exclude the purchase of securities issued by the company. The number of real estate and private
equity partnerships is 164 and the unfunded commitments are $810 million and $882 million as of December 31,
2012, and 2011, respectively. For alternative investments that cannot be redeemed, such as limited partnerships, the
typical investment term is ten years. For alternative investments that permit redemptions, such redemptions are
generally made quarterly and require a 90-day notice. The company is generally unable to determine the final
redemption date and amount until the request is processed by the investment fund and therefore categorizes such
alternative investments as Level 3 assets.
For the years ended December 31, 2012, and 2011, the defined benefit pension and VEBA trusts did not hold any
Northrop Grumman common stock.
Benefit Payments
The following table reflects estimated future benefit payments, based upon the same assumptions used to measure
the benefit obligation, and includes expected future employee service, as of December 31, 2012:
$ in millions Pension Plans Medical and
Life Plans
Year Ending December 31
2013 $1,291 $147
2014 1,347 153
2015 1,402 157
2016 1,454 160
2017 1,507 162
2018 through 2022 8,410 829
In 2013, the company expects to contribute the required minimum funding level of approximately $66 million to its
pension plans and approximately $110 million to its other post-retirement benefit plans. The company also expects