Northrop Grumman 2014 Annual Report Download - page 67

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NORTHROP GRUMMAN CORPORATION
-58-
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
value on a recurring basis and substantially all of these instruments are valued using Level 1 inputs, with an
immaterial amount valued using Level 2 inputs. As of December 31, 2014 and 2013, marketable securities of $336
million and $310 million, respectively, were included in other non-current assets in the consolidated statements of
financial position.
Derivative Financial Instruments and Hedging Activities
The company's derivative portfolio consists primarily of foreign currency forward contracts. The notional value of
the company's derivative portfolio at December 31, 2014 and 2013, was $146 million and $161 million, respectively.
The portion of the notional value designated as cash flow hedges at December 31, 2014 and 2013, was $34 million
and $77 million, respectively.
Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at
fair value on a recurring basis. Substantially all of these instruments are valued using Level 2 inputs. Where model-
derived valuations are appropriate, the company utilizes the income approach to determine the fair value and uses
the applicable London Interbank Offered Rate (LIBOR) swap rates.
Unrealized gains or losses on the effective portion of cash flow hedges are reclassified from other comprehensive
income to operating income upon the recognition of the underlying hedged transaction. Hedge contracts not
designated for hedge accounting and the ineffective portion of cash flow hedges are recorded in other income. The
derivative fair values and related unrealized gains/losses at December 31, 2014 and 2013, were not material.
Long-Term Debt
The fair value of long-term debt is calculated using Level 2 inputs, based on interest rates available for debt with
terms and maturities similar to the company’s existing debt arrangements.
9. LONG-TERM DEBT
Credit Facility
The company maintains an unsecured credit facility in an aggregate principal amount of $1.775 billion (the Credit
Agreement). The Credit Agreement contains customary terms and conditions, including covenants restricting the
company's ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake
other fundamental changes and incur liens. The company also cannot permit the ratio of its debt to capitalization (as
set forth in the Credit Agreement) to exceed 65 percent. At December 31, 2014, the company was in compliance
with all covenants under the Credit Agreement and there was no balance outstanding under this facility.
Issuance and Redemption
During the second quarter of 2013, the company issued $2.85 billion of unsecured senior notes (the Notes). The
company used a portion of the net proceeds to redeem $850 million of unsecured senior notes due in 2014 and 2015.