Northrop Grumman Adopts Mark-to-Market Method for Pension Accounting

   By Patrick Chu

Northrop Grumman Corp. (NOC) said it will transition to a different method of accounting for pension and other post-retirement benefits starting Dec. 31.

The Falls Church, Va.-based defense contractor said it will adopt the mark-to-market method of accounting to recognize pension and other post-retirement benefit actuarial gains and losses in the fourth quarter of the year they are incurred rather than amortizing them over time.

Mark-to-market accounting has been adopted by many major U.S. corporations and is considered the preferred accounting method under generally accepted accounting principles because it provides a more current picture of pension plan performance.

The elimination of amortization is expected to increase 2018 pre-tax earnings by $535 million before the fourth-quarter 2018 accounting adjustment, the company said.

Assuming a 4.25% discount rate and zero percent plan asset returns in 2018, the increase in 2018 pre-tax earnings resulting from the elimination of amortization would be partially offset by a fourth-quarter 2018 mark-to-market adjustment of $500 million, according to a company forecast.

"For 2019, the adoption of the MTM method is expected to increase the company's net FAS/CAS (financial accounting standards/cost accounting standards) adjustment to $1.35 billion from $750 million, and increase pre-tax earnings by approximately $600 million, before any fourth-quarter 2019 MTM adjustment," Northrop Grumman said in a statement. "The increase reflects the elimination of future amortization of actuarial gains and losses."

Northrop Grumman said it will provide recast prior-period financial statements, reflecting the adoption of the mark-to-market accounting method when it posts fourth-quarter and 2018 earnings results on Jan. 31.

Write to Patrick Chu at Patrick.Chu@wsj.com

(END) Dow Jones Newswires

December 10, 2018 18:48 ET (23:48 GMT)

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