Northrop Grumman 2014 Annual Report Download

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2014
ANNUAL REPORT

Table of contents

  • Page 1
    ANNUAL REPORT 2014

  • Page 2
    ...14 13 12 14 12 SALES ( $ in millions ) OPERATING INCOME ( $ in millions ) DILUTED EPS $2.71 $2,806 $2,833 $2.15 $2,593 14 13 12 14 13 12 14 $2,032 $2,442 13 $2.38 12 CASH DIVIDENDS DECLARED ( per common share ) ADJUSTED CASH PROVIDED BY OPERATIONS ( $ in millions ) ADJUSTED...

  • Page 3
    ..., in terms of giving back, supporting local needs and sustaining the environment. In 2014, Northrop Grumman, the Northrop Grumman Foundation and ECHO - our Employees Charity Organization - contributed a total of $25.3 million in support of science, technology, engineering and math (STEM) programs...

  • Page 4
    ...; Electronic Systems A top provider of sensor systems and integrated solutions in support of U.S. and allied forces. Key business focus areas include radar for manned and unmanned aircraft and ground systems and ship-based applications; electrooptical lasers and infrared sensors in ground, air and...

  • Page 5
    ... global security missions. We deliver innovative solutions which reduce our customers' costs of operation and improve mission effectiveness. Our team has over 80 years of experience working shoulderto-shoulder with our customers wherever their mission takes them. NORTHROP GRUMMAN 2014 ANNUAL REPORT...

  • Page 6
    ... STEPHEN C. MOVIUS Corporate Vice President and Treasurer, Vice President Investor Relations Corporate Vice President and President, Information Systems BOARD OF DIRECTORS (As of December 31, 2014) WESLEY G. BUSH Chairman, Chief Executive Officer and President, Northrop Grumman Corporation WILLIAM...

  • Page 7
    ... Drive, Falls Church, Virginia 22042 (703) 280-2900 (Address and telephone number of principal executive offices) Securities registered pursuant to section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1 par value New York Stock Exchange Securities...

  • Page 8
    ...Securities Selected Financial Data Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7. Overview Consolidated Operating Results Segment Operating Results Product and Service Analysis Backlog Liquidity and Capital Resources Critical Accounting Policies...

  • Page 9
    ... Procedures Item 9B. Other Information Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security...

  • Page 10
    ... Programs & Technology. Unmanned Systems - designs, develops, manufactures, and integrates ISR unmanned systems for tactical and strategic missions. Key ISR programs include the RQ-4 Global Hawk reconnaissance system, a proven high-altitude long-endurance system providing near real-time high...

  • Page 11
    NORTHROP GRUMMAN CORPORATION combat air vehicle for carrier-based operations; and the Common Mission Management System, providing high performance service based on ground control solutions enabling unmanned mission capabilities. Military Aircraft Systems - designs, develops, manufactures, and ...

  • Page 12
    ..., international and commercial customers. Products and services focus on the fields of command and control (C2), communications, cyber, air and missile defense, intelligence processing, civil security, health technology and government support systems. The segment consists of seven business areas...

  • Page 13
    NORTHROP GRUMMAN CORPORATION Key programs for the Information Systems segment include the Joint National Integration Center Research and Development (JRDC) contract, which supports the technical infrastructure, modeling and simulation, test and evaluation, and management of the Missile Defense ...

  • Page 14
    NORTHROP GRUMMAN CORPORATION COMPETITIVE CONDITIONS We compete with many companies in the defense, intelligence and federal markets. BAE Systems, Boeing, Booz Allen Hamilton, Finmeccanica, General Dynamics, L-3 Communications, Lockheed Martin, Raytheon and Thales are some of our primary competitors....

  • Page 15
    ... statements in Part II, Item 8. EXECUTIVE OFFICERS See Part III, Item 10, for information about our executive officers. AVAILABLE INFORMATION Our principal executive offices are located at 2980 Fairview Park Drive, Falls Church, Virginia 22042. Our telephone number is (703) 280-2900 and our home...

  • Page 16
    ... more about us by reviewing our SEC filings on the investor relations page of our website. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including Northrop Grumman Corporation. You may also obtain these materials...

  • Page 17
    ... for the security of our country, the defense industrial base, including Northrop Grumman, and the customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base. Members of Congress continue to discuss various options to address sequestration in...

  • Page 18
    ... and government budgets, as well as global economic conditions and fluctuations in foreign currency exchange rates. Our international contracts may include industrial cooperation agreements requiring specific in-country purchases, investments, manufacturing agreements or other financial obligations...

  • Page 19
    ... type contracts for development programs with complex design and technical challenges. These cost type programs typically have award or incentive fees that are subject to uncertainty and may be earned over extended periods or towards the end of the contract. In these cases, the associated financial...

  • Page 20
    ...on our cash flows. The cost accounting rules have been revised in order to partially harmonize the measurement and period of assignment of defined benefit pension plan costs allocable to U.S. Government contracts and the minimum required contribution under the Employee Retirement Income Security Act...

  • Page 21
    NORTHROP GRUMMAN CORPORATION DoD, may turn to commercial contractors, rather than traditional defense contractors, for some products and services, or may utilize small business contractors or determine to source work internally rather than hiring a contractor. We also are seeing an increasing number...

  • Page 22
    ... and prime contractors provide for certain indemnification and other protection under certain of our government related contracts, including pursuant to, or in connection with, Public Law 85-804, the Price-Anderson Nuclear Industries Indemnity Act and the Terrorism Risk Insurance Reauthorization Act...

  • Page 23
    ..., in loss of life or property. Among the factors that may affect revenue and profitability could be inaccurate cost estimates, design issues, human factors, unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to...

  • Page 24
    NORTHROP GRUMMAN CORPORATION Unforeseen environmental costs could have an adverse effect on our financial position, results of operations and/ or cash flows. Our operations are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. In addition, ...

  • Page 25
    ... Distribution Agreement, from and after the spin-off transaction, each of HII and Northrop Grumman is generally responsible for the debts, liabilities and other obligations related to the business or businesses that it owns and operates following the consummation of the spin-off. It is possible that...

  • Page 26
    ..., Redondo Beach, San Diego and San Jose, CA; Aurora and Colorado Springs CO; Annapolis Junction, MD; Bellevue, NE; Beavercreek, OH; and Chantilly, Chester, Fairfax, Herndon, McLean and Richmond, VA. TECHNICAL SERVICES Sierra Vista, AZ; Warner Robins, GA; Lake Charles, LA; Hill Air Force Base...

  • Page 27
    NORTHROP GRUMMAN CORPORATION from existing and future investigations, lawsuits, claims and other legal proceedings, please see Risk Factors in Part I, Item 1A. Item 4. Mine Safety Disclosures No information is required in response to this item. -18-

  • Page 28
    ... consolidated reporting system for the New York Stock Exchange Composite Transactions. 2014 January to March April to June July to September October to December HOLDERS The approximate number of common stockholders was 26,699 as of January 29, 2015. DIVIDENDS Quarterly dividends per common share for...

  • Page 29
    NORTHROP GRUMMAN CORPORATION PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFLIATED PURCHASERS The table below summarizes our repurchases of common stock during the three months ended December 31, 2014: Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs ($ ...

  • Page 30
    ... of Cumulative Five Year Total Return Among Northrop Grumman Corporation, the S&P 500 Index, and the S&P Aerospace & Defense Index (1) (2) (3) (4) (5) Assumes $100 invested at the close of business on December 31, 2009, in Northrop Grumman Corporation common stock, Standard & Poor's (S&P) 500...

  • Page 31
    ...(1) Total sales Operating income Earnings from continuing operations Basic earnings per share, from continuing operations Diluted earnings per share, from continuing operations Cash dividends declared per common share Year-End Financial Position Total assets Notes payable to banks and long-term debt...

  • Page 32
    ... to include long range strike, missile defense, command and control, network communications, enhanced situational awareness, satellite systems, restricted programs, cyber, technical services and information technology, as well as numerous homeland security programs. The company believes it...

  • Page 33
    ... in Part I, Item 1A. Operating Performance Assessment We manage and assess our business based on our performance on contracts and programs (typically two or more closely-related contracts). Sales from our portfolio of long-term contracts are primarily recognized using the cost-tocost method of...

  • Page 34
    ... sales from the respective prior years: Variance from Prior Year 2014 2013 (17) 0% $ 37 (198) (3%) 199 (374) (6%) (760) (44) (2%) (176) (49) 3% 143 (682) (3%) $ (557) $ in millions Aerospace Systems Electronic Systems Information Systems Technical Services Intersegment sales elimination Total sales...

  • Page 35
    ... by segment are presented in the table below: Year Ended December 31 2014 2013 2012 $ 372 $ 394 $ 436 207 312 426 73 49 120 44 43 53 (32) (45) (50) $ 664 $ 753 $ 985 $ in millions Aerospace Systems Electronic Systems Information Systems Technical Services Eliminations Net favorable adjustments...

  • Page 36
    ...: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. This section discusses segment sales, operating income and operating margin rates. The reconciliation of segment sales to total sales is provided in Note 3 to the consolidated financial statements in Part II, Item...

  • Page 37
    ... Total operating income Net FAS/CAS Pension Adjustment For financial statement purposes, we account for our employee pension plans in accordance with GAAP under FAS. However, the cost of these plans is charged to our contracts in accordance with the FAR and the related CAS that govern such plans...

  • Page 38
    ...contract margin rates across the segment principally related to prior net favorable adjustments. ELECTRONIC SYSTEMS Year Ended December 31 2014 2013 2012 $ 6,951 $ 7,149 $ 6,950 1,148 1,226 1,187 16.5% 17.1% 17.1% $ in millions Sales Operating income Operating margin rate 2014 - Electronic Systems...

  • Page 39
    NORTHROP GRUMMAN CORPORATION INFORMATION SYSTEMS Year Ended December 31 2014 2013 2012 $ 6,222 $ 6,596 $ 7,356 611 633 761 9.8% 9.6% 10.3% $ in millions Sales Operating income Operating margin rate 2014 - Information Systems sales for 2014 decreased $374 million, or 6 percent, as compared with ...

  • Page 40
    ... Information Systems Product Service Technical Services Product Service Segment Totals Total Product Total Service Intersegment eliminations Total Segment(1) 2014 Sales $ 7,986 2,011 5,532 1,419 1,335 4,887 184 2,615 $ $ Costs 6,897 1,785 4,622 1,181 1,244 4,367 173 2,365 Year Ended December 31 2013...

  • Page 41
    ...capital. We believe these measures are useful to investors in assessing our financial performance and condition. During the second quarter of 2013, the company's board of directors authorized a new share repurchase program of up to $4.0 billion of the company's common stock ("2013 Repurchase Program...

  • Page 42
    NORTHROP GRUMMAN CORPORATION board of directors authorized a new share repurchase program of up to an additional $3.0 billion of the company's common stock ("2014 Repurchase Program"). By its terms, repurchases under the 2014 Repurchase Program will commence upon completion of the 2013 Repurchase ...

  • Page 43
    ... funding requirements for retirement and other post-retirement benefit plans, as set forth by the Employee Retirement Income Security Act, as amended (ERISA). For further information about future minimum contributions for these plans, see Note 12 to the consolidated financial statements in Part II...

  • Page 44
    ... management to project sales, operating expenses, working capital, capital spending and cash flows for the reporting units over a multi-year period, as well as determine the weighted-average cost of capital (WACC) used as a discount rate and terminal value assumptions. The WACC takes into account...

  • Page 45
    ... our pension and other post-retirement benefit obligations. The discount rate is generally based on the yield of high-quality corporate fixed-income investments. At the end of each year, the discount rate is determined using a portfolio of bonds matching the notional cash outflows related to benefit...

  • Page 46
    ... management team and outside investment advisers, management develops expected long-term returns for each of the plans' strategic asset classes. In addition to our historical investment performance, we consider several factors, including current market data such as yields/price-earnings ratios...

  • Page 47
    ... in remediation technology. For further information on litigation, commitments and contingencies, see Risk Factors in Part I, Item 1A, and Note 1, Note 10 and Note 11 to the consolidated financial statements in Part II, Item 8. OTHER MATTERS Off-Balance Sheet Arrangements As of December 31, 2014, we...

  • Page 48
    ... to fair value risk if we repurchase or exchange long-term debt prior to maturity. FOREIGN CURRENCY RISK We are exposed to foreign currency risk with respect to our international operations. We enter into foreign currency forward contracts to manage a portion of the exchange rate risk related to...

  • Page 49
    ... Board of Directors and Shareholders of Northrop Grumman Corporation Falls Church, Virginia We have audited the accompanying consolidated statements of financial position of Northrop Grumman Corporation and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated...

  • Page 50
    NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE (LOSS) INCOME Year Ended December 31 2014 2013 2012 $ 14,015 9,964 23,979 10,431 7,947 2,405 3,196 (282) 23 2,937 868 2,069 9.91 208.8 9.75 212.1 2,069 $ 14,033 10,628 24,...

  • Page 51
    ... liabilities Long-term debt, net of current portion of $3 in 2014 and $2 in 2013 Pension and other post-retirement benefit plan liabilities Other non-current liabilities Total liabilities Commitments and contingencies (Note 11) Shareholders' equity Preferred stock, $1 par value; 10,000,000 shares...

  • Page 52
    ... taxes payable Retiree benefits Other, net Net cash provided by operating activities Investing activities Capital expenditures Maturities of short-term investments Other investing activities, net Net cash used in investing activities Financing activities Common stock repurchases Cash dividends paid...

  • Page 53
    ... of year Common stock repurchased Shares issued for employee stock awards and options End of year Paid-in capital Beginning of year Common stock repurchased Stock compensation Other End of year Retained earnings Beginning of year Common stock repurchased Net earnings Dividends declared End of year...

  • Page 54
    ... SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Northrop Grumman Corporation (herein referred to as "Northrop Grumman," the "company," "we," "us," or "our") is a leading global security company. We provide innovative products, systems and solutions in unmanned systems; cyber; command, control...

  • Page 55
    ... the consolidated statements of earnings and comprehensive (loss) income and are generally allocated to government contracts. Company-sponsored IR&D expenses totaled $569 million, $507 million and $520 million, in 2014, 2013 and 2012, respectively. Expenses for research and development funded by the...

  • Page 56
    ... consisting of bank time deposits and investments in institutional money market funds. The company does not invest in high yield or high risk securities. Cash in bank accounts at times may exceed federally insured limits. Accounts Receivable and Inventoried Costs Accounts receivable include amounts...

  • Page 57
    ... of lease classification as capital or operating and defines the initial lease term to include renewal options determined to be reasonably assured. The majority of our leases are operating leases. Many of the company's real property lease agreements contain incentives for tenant improvements, rent...

  • Page 58
    ... employees. The company also provides post-retirement benefits other than pensions, consisting principally of health care and life insurance benefits, to eligible retirees and qualifying dependents. In most cases, our defined contribution plans provide for a cash matching of employee contributions...

  • Page 59
    ... of taxes, for the years ended December 31, 2014, 2013 and 2012, 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 12...

  • Page 60
    ... CORPORATION 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 3.3 million, 4.3 million and 4.8 million shares for the years ended December 31, 2014...

  • Page 61
    NORTHROP GRUMMAN CORPORATION $20.1 billion, $21.3 billion and $22.3 billion, or 84 percent, 86 percent and 88 percent, of total sales for the years ended December 31, 2014, 2013 and 2012, respectively. International Sales International sales (which include foreign military sales) amounted to $3.0 ...

  • Page 62
    ... in millions Intersegment sales and operating income Aerospace Systems Electronic Systems Information Systems Technical Services Total Other Financial Information The following tables represent assets, capital expenditures and depreciation and amortization by segment: December 31 2014 2013 $ 6,844...

  • Page 63
    ...payable Deferred federal and foreign income taxes Total federal and foreign income taxes Year Ended December 31 2014 2013 2012 $ $ 701 10 711 157 868 $ $ 803 28 831 80 911 $ $ 912 15 927 60 987 Earnings from foreign operations before income taxes are not material for all periods presented...

  • Page 64
    NORTHROP GRUMMAN CORPORATION Income tax expense differs from the amount computed by multiplying the statutory federal income tax rate times earnings before income taxes due to the following: Year Ended December 31 2014 2013 2012 $ 1,028 $ 1,002 $ 1,038 (51) - - (48) (63) (42) (43) (37) - (18) (9) 9 ...

  • Page 65
    ... Tax Assets Retiree benefits Accrued employee compensation Provisions for accrued liabilities Stock-based compensation Other Gross deferred tax assets Less valuation allowance Net deferred tax assets Deferred Tax Liabilities Goodwill Property, plant and equipment, net Contract accounting differences...

  • Page 66
    NORTHROP GRUMMAN CORPORATION Changes in the carrying amounts of goodwill for the years ended December 31, 2014 and 2013, were as follows: Aerospace Systems $ 3,758 - $ 3,758 - $ 3,758 Electronic Systems $ 2,410 - $ 2,410 - $ 2,410 Information Technical Systems Services $ 5,287 $ 976 7 - $ 5,294 $ ...

  • Page 67
    NORTHROP GRUMMAN CORPORATION Investments in Marketable Securities The company holds a portfolio of marketable securities to partially fund non-qualified employee benefit plans consisting of securities that are classified as either trading or available-for-sale. These assets are recorded at fair ...

  • Page 68
    ... Litigation On May 4, 2012, the company commenced an action, Northrop Grumman Systems Corp. v. United States, in the U.S. Court of Federal Claims. This lawsuit relates to an approximately $875 million firm fixed price contract awarded to the company in 2007 by the U.S. Postal Service (USPS) for the...

  • Page 69
    NORTHROP GRUMMAN CORPORATION of the contract price, and approximately $115 million based on the company's assertions that, through various acts and omissions over the life of the contract, the USPS adversely affected the cost and schedule of performance and materially altered the company's ...

  • Page 70
    ...31, 2014, or its annual results of operations or cash flows. 11. COMMITMENTS AND CONTINGENCIES Guarantees of Subsidiary Performance Obligations From time to time in the ordinary course of business, the company guarantees obligations of its subsidiaries under certain contracts. Generally, the company...

  • Page 71
    ... its employees. Pension benefits for most employees are based on the employee's years of service, age and compensation. It is the policy of the company to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S. Government...

  • Page 72
    NORTHROP GRUMMAN CORPORATION Summary Plan Results The cost to the company of its retirement benefit plans is shown in the following table: Year Ended December 31 Medical and Pension Benefits Life Benefits 2014 2014 2013 2012 2013 $ 457 1,260 (1,871) (59) 327 1 115 $ 516 1,117 (1,809) (58) 608 - 374 ...

  • Page 73
    ...retiree health care and life insurance benefit plans. Pension benefits data includes the qualified plans, foreign plans and domestic unfunded non-qualified plans for benefits provided to directors, officers and certain employees. The company uses a December 31 measurement date for its plans. Pension...

  • Page 74
    ... in 2015 net periodic benefit cost Net actuarial loss Prior service credit Pension Benefits Medical and Life Benefits $ 682 (60) $ 27 (28) The accumulated benefit obligation for all defined benefit pension plans was $30.3 billion and $25.7 billion at December 31, 2014 and 2013, respectively...

  • Page 75
    ... management team and outside investment advisers, management develops expected long-term returns for each of the plans' strategic asset classes. In addition to our historical investment performance, we consider several factors, including current market data such as yields/price-earnings ratios...

  • Page 76
    ... International equities Fixed income securities U.S. Treasuries U.S. Government Agency Non-U.S. Government Corporate debt Asset backed High yield debt Bank loans Alternative Investments Hedge funds Private equities Real estate Other Fair value of plan assets at the end of the year Level 1 2014 2013...

  • Page 77
    ... 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...

  • Page 78
    ... pension contributions of approximately $500 million in 2015. 13. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS Stock Compensation Plans At December 31, 2014, Northrop Grumman had stock-based compensation awards outstanding under the following plans: the 2001 Long-Term Incentive Stock...

  • Page 79
    NORTHROP GRUMMAN CORPORATION Compensation Expense Stock-based compensation expense and the related tax benefits for the years ended December 31, 2014, 2013 and 2012, are as follows: Year Ended December 31 2014 2013 2012 $ - 134 134 29 52 81 $ 4 140 144 25 16 41 $ 10 173 183 26 19 45 $ in millions ...

  • Page 80
    ... and pay out based on the achievement of financial metrics for the three-year period ending December 31, 2016. In 2015, the company expects to issue to employees approximately 2.6 million shares of common stock with a grant date fair value of $107 million, principally related to the 2012 RPSR awards...

  • Page 81
    ... 2013, the company repurchased 6.6 million shares of common stock for $699 million. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures DISCLOSURE CONTROLS AND PROCEDURES Our principal executive officer (Chairman, Chief...

  • Page 82
    NORTHROP GRUMMAN CORPORATION Item 9B. Other Information None. -73-

  • Page 83
    MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Northrop Grumman Corporation (the company) prepared and is responsible for the consolidated financial statements and all related financial information contained in this Annual Report. This responsibility includes ...

  • Page 84
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Northrop Grumman Corporation Falls Church, Virginia We have audited the internal control over financial reporting of Northrop Grumman Corporation and subsidiaries (the "Company") as of December 31, 2014, based on...

  • Page 85
    ... Vice President, General Counsel, Secretary and Director, BAE Systems, Inc. (2002-2009) Corporate Vice President and President, Enterprise Shared Services (2010-2012); Sector Vice President and General Manager, Targeting Systems Division, Electronic Systems Sector (2010); Prior to 2010, Sector Vice...

  • Page 86
    ... Information Systems sector (2011-2013); Vice President, Internal Audit (2010-2011); Vice President and Chief Financial Officer, Enterprise Shared Services (2008-2010) Vice President and General Manager, Integrated Logistics and Modernization Division, Technical Services Sector (2010-2012); Director...

  • Page 87
    ... and Compensation Committee Report, will be incorporated herein by reference to the Proxy Statement for the 2015 Annual Meeting of Stockholders to be filed within 120 days after the end of the company's fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 88
    ...filed October 25, 1994) First Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation, The Bank of New York Mellon (successor trustee to JPMorgan Chase Bank and The Chase Manhattan Bank, N.A.), Titan II, Inc. (formerly known as Northrop Grumman Corporation...

  • Page 89
    ... to Northrop Grumman Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4(q) to Form 10-K for the year ended December 31, 2002, filed March 24, 2003) Third Supplemental Indenture dated as...

  • Page 90
    ... Systems Corporation); The Bank of New York Mellon, as successor trustee; Northrop Grumman Corporation; and Northrop Grumman Systems Corporation (incorporated by reference to Exhibit 4(p) to Form 10K for the year ended December 31, 2009, filed February 9, 2010) Tenth Supplemental Indenture dated...

  • Page 91
    ... Northrop Grumman Space & Mission Systems Corp. (predecessor-in-interest to Northrop Grumman Systems Corporation) (incorporated by reference to Exhibit 4.2 to Form 10-Q for the quarter ended March 31, 2003, filed May 14, 2003) Northrop Grumman Corporation 1993 Stock Plan for Non-Employee Directors...

  • Page 92
    ...Director Award Terms Under the 2011 Long-Term Incentive Stock Plan effective December 21, 2011 (incorporated by reference to Exhibit 10(j)(ii) to Form 10-K for the year ended December 31, 2011, filed February 7, 2012) *(ii) Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors...

  • Page 93
    ... Electronic Systems Executive Pension Plan (Amended and Restated Effective as of January 1, 2014) (incorporated by reference to Exhibit 10(n) to Form 10-K for the year ended December 31, 2013, filed February 3, 2014) Severance Plan for Elected and Appointed Officers of Northrop Grumman Corporation...

  • Page 94
    ... year ended December 31, 2012, filed February 4, 2013) The 2002 Incentive Compensation Plan of Northrop Grumman Corporation, As Amended and Restated effective January 1, 2009 (incorporated by reference to Exhibit 10.6 to Form 10-Q for the quarter ended March 31, 2009, filed April 22, 2009) Northrop...

  • Page 95
    ... compensation effective January 1, 2010 (incorporated by reference to Exhibit 10.2 to Form 8-K filed December 21, 2009) Northrop Grumman Corporation 1995 Stock Plan for Non-Employee Directors, as Amended as of May 16, 2007 (incorporated by reference to Exhibit A to the Company's Proxy Statement...

  • Page 96
    ... February 2015. NORTHROP GRUMMAN CORPORATION By: /s/ Michael A. Hardesty Michael A. Hardesty Corporate Vice President, Controller, and Chief Accounting Officer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf...

  • Page 97
    ... above, divided by sales. Management uses pension-adjusted operating margin rate, as reconciled below, as an internal measure of financial performance. SEGMENT OPERATING INCOME: Total earnings from our four segments including allocated pension expense recognized under CAS. Reconciling items to...

  • Page 98
    ... by operating activities before discretionary $ pension contributions Total Year ($M) 2014 2013 Segment Operating Income Segment operating margin rate Reconciliation to operating income Net FAS/CAS pension adjustment Unallocated corporate expenses Other Operating income Operating margin rate...

  • Page 99
    ... press releases and this annual report, can be found at: www.northropgrumman.com DIVIDEND REINVESTMENT PROGRAM Registered owners of Northrop Grumman Corporation common stock are eligible to participate in the company's Automatic Dividend Reinvestment Plan. Under this plan, shares are purchased...

  • Page 100
    2980 Fairview Park Drive Falls Church, VA 22042-4511 www.northropgrumman.com