Northrop Grumman Adopts Mark-to-Market Method for Pension Accounting
December 10 2018 - 7:03PM
Dow Jones News
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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