Northrop Grumman 2013 Annual Report Download - page 64

NORTHROP GRUMMAN CORPORATION
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year incurred because it is allocated as production costs and a portion remains in inventory at the end of a reporting
period. The company’s funding policy for the qualified pension plans is to contribute, at a minimum, the statutorily
required amount to an irrevocable trust.
Stock Compensation
The company’s stock compensation plans are classified as equity plans and compensation expense is recognized
over the vesting period (generally three years), net of estimated forfeitures. The company issues stock awards in the
form of restricted performance stock rights and restricted stock rights under its existing plans. The fair value of stock
awards is determined based on the closing market price of the company’s common stock on the grant date. At each
reporting date, the number of shares is adjusted to equal the number ultimately expected to vest.
Foreign Currency Translation
For operations outside the U.S. that have functional currencies other than the U.S. dollar, results of operations and
cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at end-
of-period exchange rates. Translation adjustments are generally included as a component of other comprehensive
income in the consolidated statements of earnings and comprehensive income.
Accounting Standards Updates
Accounting standards updates effective after December 31, 2013, are not expected to have a material effect on the
company’s financial position, annual results of operations and/or cash flows.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
December 31
$ in millions 2013 2012
Unamortized benefit plan costs, net of tax benefit of $1,972 in 2013 and $3,149 in 2012 ($3,000)($4,790)
Cumulative translation adjustment 18 4
Net unrealized loss on marketable securities and cash flow hedges, net of tax benefit of
$1 in 2013 and $0 in 2012 (2)(1)
Total accumulated other comprehensive loss ($2,984)($4,787)
Unamortized benefit plan costs consist primarily of net after-tax actuarial losses totaling $3.3 billion and $5.1 billion
as of December 31, 2013 and 2012, respectively. Net actuarial gains or losses are re-determined annually and
principally arise from changes in the rate used to discount our benefit obligations, as well as differences in expected
and actual returns on plan assets.
Reclassifications from other comprehensive income to net earnings related to the amortization of benefit plan costs
were losses of $319 million, $204 million and $91 million, net of taxes, for the years ended December 31, 2013,
2012 and 2011, respectively. The reclassifications represent the amortization of net actuarial losses and prior service
credits for the company's retirement benefit plans, and are included in the computation of net periodic pension cost
(See Note 13 for further information).
Reclassifications from other comprehensive income to net earnings, relating to cumulative translation adjustments,
marketable securities and effective cash flow hedges for the years ended December 31, 2013, 2012 and 2011,
respectively, were not material. Reclassifications for cumulative translation adjustments and marketable securities
are recorded in other income, and reclassifications for effective cash flow hedges are recorded in operating income.
2. EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK
Basic Earnings Per Share
Basic earnings per share from both continuing and discontinued operations are calculated by dividing the respective
earnings by the weighted-average number of shares of common stock outstanding during each period.
Diluted Earnings Per Share
Diluted earnings per share includes the dilutive effect of awards granted to employees under stock-based
compensation plans. The dilutive effect of these securities totaled 4.3 million, 4.8 million and 4.8 million shares for
the years ended December 31, 2013, 2012 and 2011, respectively. The weighted-average diluted shares outstanding
for the years ended December 31, 2012 and 2011, excludes anti-dilutive stock options to purchase approximately 1.8
million and 2.8 million shares, respectively, because such options have exercise prices in excess of the average