x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DELAWARE
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80-0640649
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2980 Fairview Park Drive,
Falls Church, Virginia
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22042
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(Address of principal executive offices)
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(Zip Code)
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Yes
x
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No
o
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Yes
x
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No
o
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Emerging growth company
o
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Yes
o
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No
x
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Page
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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Three Months Ended March 31
|
||||||
$ in millions, except per share amounts
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2018
|
|
2017
|
||||
Sales
|
|
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|
||||
Product
|
$
|
4,289
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$
|
3,997
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Service
|
2,446
|
|
|
2,413
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Total sales
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6,735
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|
6,410
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Operating costs and expenses
|
|
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|
||||
Product
|
3,265
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|
|
2,983
|
|
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Service
|
1,905
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|
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1,867
|
|
||
General and administrative expenses
|
711
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|
|
698
|
|
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Operating income
|
854
|
|
|
862
|
|
||
Other income (expense)
|
|
|
|
||||
Interest expense
|
(143
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)
|
|
(75
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)
|
||
Net FAS (non-service) pension benefit (expense)
|
120
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|
|
(18
|
)
|
||
Other, net
|
40
|
|
|
19
|
|
||
Earnings before income taxes
|
871
|
|
|
788
|
|
||
Federal and foreign income tax expense
|
132
|
|
|
138
|
|
||
Net earnings
|
$
|
739
|
|
|
$
|
650
|
|
|
|
|
|
||||
Basic earnings per share
|
$
|
4.24
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$
|
3.72
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Weighted-average common shares outstanding, in millions
|
174.3
|
|
|
174.8
|
|
||
Diluted earnings per share
|
$
|
4.21
|
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$
|
3.69
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Weighted-average diluted shares outstanding, in millions
|
175.4
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176.1
|
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||
|
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|
||||
Net earnings (from above)
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$
|
739
|
|
|
$
|
650
|
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Other comprehensive income
|
|
|
|
||||
Change in unamortized benefit plan costs, net of tax
|
86
|
|
|
99
|
|
||
Change in cumulative translation adjustment
|
(2
|
)
|
|
4
|
|
||
Other, net
|
(1
|
)
|
|
2
|
|
||
Other comprehensive income, net of tax
|
83
|
|
|
105
|
|
||
Comprehensive income
|
$
|
822
|
|
|
$
|
755
|
|
$ in millions
|
March 31,
2018 |
|
December 31,
2017 |
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
10,369
|
|
|
$
|
11,225
|
|
Accounts receivable, net
|
1,241
|
|
|
1,054
|
|
||
Unbilled receivables, net
|
3,869
|
|
|
3,465
|
|
||
Inventoried costs, net
|
435
|
|
|
398
|
|
||
Prepaid expenses and other current assets
|
243
|
|
|
445
|
|
||
Total current assets
|
16,157
|
|
|
16,587
|
|
||
Property, plant and equipment, net of accumulated depreciation of $5,119 for 2018 and $5,066 for 2017
|
4,285
|
|
|
4,225
|
|
||
Goodwill
|
12,455
|
|
|
12,455
|
|
||
Deferred tax assets
|
474
|
|
|
447
|
|
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Other non-current assets
|
1,424
|
|
|
1,414
|
|
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Total assets
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$
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34,795
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$
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35,128
|
|
|
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|
||||
Liabilities
|
|
|
|
||||
Trade accounts payable
|
$
|
1,395
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$
|
1,661
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|
Accrued employee compensation
|
1,204
|
|
|
1,382
|
|
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Advance payments and amounts in excess of costs incurred
|
1,479
|
|
|
1,761
|
|
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Other current liabilities
|
2,337
|
|
|
2,288
|
|
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Total current liabilities
|
6,415
|
|
|
7,092
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|
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Long-term debt, net of current portion of $868 for 2018 and $867 for 2017
|
14,392
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|
|
14,399
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|
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Pension and other post-retirement benefit plan liabilities
|
5,362
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5,511
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Other non-current liabilities
|
946
|
|
|
994
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|
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Total liabilities
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27,115
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27,996
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|
||
|
|
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|
||||
Commitments and contingencies (Note 7)
|
|
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|
||||
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|
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Shareholders’ equity
|
|
|
|
||||
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding
|
—
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—
|
|
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Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2018—174,382,256 and 2017—174,085,619
|
174
|
|
|
174
|
|
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Paid-in capital
|
—
|
|
|
44
|
|
||
Retained earnings
|
13,205
|
|
|
11,632
|
|
||
Accumulated other comprehensive loss
|
(5,699
|
)
|
|
(4,718
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)
|
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Total shareholders’ equity
|
7,680
|
|
|
7,132
|
|
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Total liabilities and shareholders’ equity
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$
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34,795
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$
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35,128
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Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Operating activities
|
|
|
|
||||
Net earnings
|
$
|
739
|
|
|
$
|
650
|
|
Adjustments to reconcile to net cash used in operating activities:
|
|
|
|
||||
Depreciation and amortization
|
122
|
|
|
104
|
|
||
Stock-based compensation
|
19
|
|
|
17
|
|
||
Deferred income taxes
|
(55
|
)
|
|
(9
|
)
|
||
Changes in assets and liabilities:
|
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|
|
||||
Accounts receivable, net
|
(187
|
)
|
|
(317
|
)
|
||
Unbilled receivables, net
|
(404
|
)
|
|
(665
|
)
|
||
Inventoried costs, net
|
(37
|
)
|
|
(27
|
)
|
||
Prepaid expenses and other assets
|
13
|
|
|
(53
|
)
|
||
Accounts payable and other liabilities
|
(590
|
)
|
|
(357
|
)
|
||
Income taxes payable, net
|
197
|
|
|
152
|
|
||
Retiree benefits
|
(56
|
)
|
|
86
|
|
||
Other, net
|
2
|
|
|
(20
|
)
|
||
Net cash used in operating activities
|
(237
|
)
|
|
(439
|
)
|
||
|
|
|
|
||||
Investing activities
|
|
|
|
||||
Capital expenditures
|
(305
|
)
|
|
(216
|
)
|
||
Other, net
|
(2
|
)
|
|
2
|
|
||
Net cash used in investing activities
|
(307
|
)
|
|
(214
|
)
|
||
|
|
|
|
||||
Financing activities
|
|
|
|
||||
Common stock repurchases
|
—
|
|
|
(229
|
)
|
||
Cash dividends paid
|
(198
|
)
|
|
(166
|
)
|
||
Payments of employee taxes withheld from share-based awards
|
(79
|
)
|
|
(90
|
)
|
||
Net (payments to) proceeds from credit facilities
|
(14
|
)
|
|
—
|
|
||
Other, net
|
(21
|
)
|
|
—
|
|
||
Net cash used in financing activities
|
(312
|
)
|
|
(485
|
)
|
||
Decrease in cash and cash equivalents
|
(856
|
)
|
|
(1,138
|
)
|
||
Cash and cash equivalents, beginning of year
|
11,225
|
|
|
2,541
|
|
||
Cash and cash equivalents, end of period
|
$
|
10,369
|
|
|
$
|
1,403
|
|
|
Three Months Ended March 31
|
||||||
$ in millions, except per share amounts
|
2018
|
|
2017
|
||||
Common stock
|
|
|
|
||||
Beginning of year
|
$
|
174
|
|
|
$
|
175
|
|
Common stock repurchased
|
—
|
|
|
(1
|
)
|
||
Shares issued for employee stock awards and options
|
—
|
|
|
1
|
|
||
End of period
|
174
|
|
|
175
|
|
||
Paid-in capital
|
|
|
|
||||
Beginning of year
|
44
|
|
|
—
|
|
||
Stock compensation
|
(44
|
)
|
|
—
|
|
||
End of period
|
—
|
|
|
—
|
|
||
Retained earnings
|
|
|
|
||||
Beginning of year
|
11,632
|
|
|
10,734
|
|
||
Impact from adoption of ASU 2018-02 and ASU 2016-01 (See Note 1)
|
1,064
|
|
|
—
|
|
||
Common stock repurchased
|
—
|
|
|
(215
|
)
|
||
Net earnings
|
739
|
|
|
650
|
|
||
Dividends declared
|
(195
|
)
|
|
(159
|
)
|
||
Stock compensation
|
(35
|
)
|
|
(72
|
)
|
||
End of period
|
13,205
|
|
|
10,938
|
|
||
Accumulated other comprehensive loss
|
|
|
|
||||
Beginning of year
|
(4,718
|
)
|
|
(5,546
|
)
|
||
Impact from adoption of ASU 2018-02 and ASU 2016-01 (See Note 1)
|
(1,064
|
)
|
|
—
|
|
||
Other comprehensive income, net of tax
|
83
|
|
|
105
|
|
||
End of period
|
(5,699
|
)
|
|
(5,441
|
)
|
||
Total shareholders’ equity
|
$
|
7,680
|
|
|
$
|
5,672
|
|
Cash dividends declared per share
|
$
|
1.10
|
|
|
$
|
0.90
|
|
|
Three Months Ended March 31
|
||||||
$ in millions, except per share data
|
2018
|
|
2017
|
||||
Operating Income
|
$
|
116
|
|
|
$
|
141
|
|
Net Earnings
(1)
|
92
|
|
|
92
|
|
||
Diluted earnings per share
(1)
|
0.52
|
|
|
0.52
|
|
(1)
|
Based on statutory tax rates in effect for each period presented.
|
$ in millions
|
March 31,
2018 |
|
December 31,
2017 |
$ Change
|
% Change
|
|||||||
Unbilled receivables, net
|
$
|
3,869
|
|
|
$
|
3,465
|
|
$
|
404
|
|
12
|
%
|
Advance payments and amounts in excess of costs incurred
|
(1,479
|
)
|
|
(1,761
|
)
|
282
|
|
(16
|
)%
|
|||
Net contract assets (liabilities)
|
$
|
2,390
|
|
|
$
|
1,704
|
|
$
|
686
|
|
40
|
%
|
$ in millions
|
March 31,
2018 |
|
December 31,
2017 |
||||
Unamortized benefit plan costs, net of tax benefit of $1,968 for 2018 and $3,056 for 2017
|
$
|
(5,560
|
)
|
|
$
|
(4,586
|
)
|
Cumulative translation adjustment
|
(138
|
)
|
|
(136
|
)
|
||
Other, net
|
(1
|
)
|
|
4
|
|
||
Total accumulated other comprehensive loss
|
$
|
(5,699
|
)
|
|
$
|
(4,718
|
)
|
|
|
|
|
|
|
|
|
|
|
Shares Repurchased
(in millions) |
|||||||||
Repurchase Program
Authorization Date |
|
Amount
Authorized (in millions) |
|
Total
Shares Retired (in millions) |
|
Average
Price Per Share (1) |
|
Date Completed
|
|
Three Months Ended March 31
|
|||||||||
|
2018
|
|
2017
|
||||||||||||||||
September 16, 2015
|
|
$
|
4,000
|
|
|
7.4
|
|
|
$
|
222.93
|
|
|
|
|
—
|
|
|
0.9
|
|
(1)
|
Includes commissions paid.
|
|
Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Federal and foreign income tax expense
|
$
|
132
|
|
|
$
|
138
|
|
Effective income tax rate
|
15.2
|
%
|
|
17.5
|
%
|
|
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
$ in millions
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
||||||||||||
Financial Assets (Liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Marketable securities
|
|
$
|
347
|
|
|
$
|
1
|
|
|
$
|
348
|
|
|
$
|
352
|
|
|
$
|
1
|
|
|
$
|
353
|
|
Derivatives
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$ in millions
|
|
Range of Reasonably Possible Future Costs
(1)
|
|
Accrued Costs
(2)
|
|
Deferred Costs
(3)
|
||||
March 31, 2018
|
|
$410 - $789
|
|
$
|
416
|
|
|
$
|
211
|
|
December 31, 2017
|
|
405 - 792
|
|
410
|
|
|
207
|
|
(1)
|
Estimated remediation costs are not discounted to present value. The range of reasonably possible future costs does not take into consideration amounts expected to be recoverable through overhead charges on U.S. Government contracts.
|
|
Three Months Ended March 31
|
||||||||||||||
|
Pension
Benefits |
|
Medical and
Life Benefits |
||||||||||||
$ in millions
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
99
|
|
|
$
|
97
|
|
|
$
|
5
|
|
|
$
|
5
|
|
Interest cost
|
290
|
|
|
313
|
|
|
19
|
|
|
21
|
|
||||
Expected return on plan assets
|
(529
|
)
|
|
(471
|
)
|
|
(25
|
)
|
|
(22
|
)
|
||||
Amortization of:
|
|
|
|
|
|
|
|
||||||||
Prior service credit
|
(15
|
)
|
|
(15
|
)
|
|
(5
|
)
|
|
(5
|
)
|
||||
Net loss from previous years
|
134
|
|
|
191
|
|
|
—
|
|
|
3
|
|
||||
Net periodic benefit cost
|
$
|
(21
|
)
|
|
$
|
115
|
|
|
$
|
(6
|
)
|
|
$
|
2
|
|
|
Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Defined benefit pension plans
|
$
|
22
|
|
|
$
|
23
|
|
Medical and life benefit plans
|
11
|
|
|
11
|
|
||
Defined contribution plans
|
104
|
|
|
99
|
|
|
|
Three Months Ended March 31
|
|||||
in millions
|
|
2018
|
2017
|
||||
RSRs granted
|
|
0.1
|
|
0.1
|
|
||
RPSRs granted
|
|
0.2
|
|
0.3
|
|
||
Grant date aggregate fair value
|
|
$
|
87
|
|
$
|
86
|
|
|
|
Three Months Ended March 31
|
|||||
$ in millions
|
|
2018
|
2017
|
||||
Minimum aggregate payout amount
|
|
$
|
35
|
|
$
|
35
|
|
Maximum aggregate payout amount
|
|
196
|
|
198
|
|
|
Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Sales
|
|
|
|
||||
Aerospace Systems
|
$
|
3,280
|
|
|
$
|
2,984
|
|
Mission Systems
|
2,883
|
|
|
2,800
|
|
||
Technology Services
|
1,144
|
|
|
1,190
|
|
||
Intersegment eliminations
|
(572
|
)
|
|
(564
|
)
|
||
Total sales
|
6,735
|
|
|
6,410
|
|
||
Operating income
|
|
|
|
||||
Aerospace Systems
|
341
|
|
|
323
|
|
||
Mission Systems
|
371
|
|
|
359
|
|
||
Technology Services
|
122
|
|
|
129
|
|
||
Intersegment eliminations
|
(72
|
)
|
|
(70
|
)
|
||
Total segment operating income
|
762
|
|
|
741
|
|
||
Net FAS (service)/CAS pension adjustment
|
127
|
|
|
154
|
|
||
Unallocated corporate expenses
|
(34
|
)
|
|
(32
|
)
|
||
Other
|
(1
|
)
|
|
(1
|
)
|
||
Total operating income
|
$
|
854
|
|
|
$
|
862
|
|
Sales by Customer Type
|
Three Months Ended March 31
|
||||||||||
|
2018
|
|
2017
|
||||||||
$ in millions
|
$
|
%
(3)
|
|
$
|
%
(3)
|
||||||
Aerospace Systems
|
|
|
|
|
|
||||||
U.S. Government
(1)
|
$
|
2,908
|
|
89
|
%
|
|
$
|
2,553
|
|
86
|
%
|
International
(2)
|
271
|
|
8
|
%
|
|
309
|
|
10
|
%
|
||
Other customers
|
42
|
|
1
|
%
|
|
38
|
|
1
|
%
|
||
Intersegment sales
|
59
|
|
2
|
%
|
|
84
|
|
3
|
%
|
||
Aerospace Systems sales
|
3,280
|
|
100
|
%
|
|
2,984
|
|
100
|
%
|
||
Mission Systems
|
|
|
|
|
|
||||||
U.S. Government
(1)
|
2,190
|
|
76
|
%
|
|
2,186
|
|
78
|
%
|
||
International
(2)
|
379
|
|
13
|
%
|
|
354
|
|
13
|
%
|
||
Other customers
|
30
|
|
1
|
%
|
|
21
|
|
1
|
%
|
||
Intersegment sales
|
284
|
|
10
|
%
|
|
239
|
|
8
|
%
|
||
Mission Systems sales
|
2,883
|
|
100
|
%
|
|
2,800
|
|
100
|
%
|
||
Technology Services
|
|
|
|
|
|
||||||
U.S. Government
(1)
|
602
|
|
53
|
%
|
|
636
|
|
53
|
%
|
||
International
(2)
|
220
|
|
19
|
%
|
|
209
|
|
18
|
%
|
||
Other customers
|
93
|
|
8
|
%
|
|
104
|
|
9
|
%
|
||
Intersegment sales
|
229
|
|
20
|
%
|
|
241
|
|
20
|
%
|
||
Technology Services sales
|
1,144
|
|
100
|
%
|
|
1,190
|
|
100
|
%
|
||
Total
|
|
|
|
|
|
||||||
U.S. Government
(1)
|
5,700
|
|
85
|
%
|
|
5,375
|
|
84
|
%
|
||
International
(2)
|
870
|
|
13
|
%
|
|
872
|
|
14
|
%
|
||
Other customers
|
165
|
|
2
|
%
|
|
163
|
|
2
|
%
|
||
Total sales
|
$
|
6,735
|
|
100
|
%
|
|
$
|
6,410
|
|
100
|
%
|
(1)
|
Sales to the
U.S.
Government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. Government. Each of the company's segments derives substantial revenue from the U.S. Government.
|
Sales by Contract Type
|
Three Months Ended March 31
|
||||||||||
|
2018
|
|
2017
|
||||||||
$ in millions
|
$
|
%
(1)
|
|
$
|
%
(1)
|
||||||
Aerospace Systems
|
|
|
|
|
|
|
|
|
|
||
Cost-type
|
$
|
1,902
|
|
59
|
%
|
|
$
|
1,827
|
|
63
|
%
|
Fixed-price
|
1,319
|
|
41
|
%
|
|
1,073
|
|
37
|
%
|
||
Intersegment sales
|
59
|
|
|
|
84
|
|
|
||||
Aerospace Systems sales
|
3,280
|
|
|
|
2,984
|
|
|
||||
Mission Systems
|
|
|
|
|
|
||||||
Cost-type
|
1,279
|
|
49
|
%
|
|
1,316
|
|
51
|
%
|
||
Fixed-price
|
1,320
|
|
51
|
%
|
|
1,245
|
|
49
|
%
|
||
Intersegment sales
|
284
|
|
|
|
239
|
|
|
||||
Mission Systems sales
|
2,883
|
|
|
|
2,800
|
|
|
||||
Technology Services
|
|
|
|
|
|
|
|
|
|
||
Cost-type
|
437
|
|
48
|
%
|
|
445
|
|
47
|
%
|
||
Fixed-price
|
478
|
|
52
|
%
|
|
504
|
|
53
|
%
|
||
Intersegment sales
|
229
|
|
|
|
241
|
|
|
||||
Technology Services sales
|
1,144
|
|
|
|
1,190
|
|
|
||||
Total
|
|
|
|
|
|
|
|
|
|
||
Cost-type
|
3,618
|
|
54
|
%
|
|
3,588
|
|
56
|
%
|
||
Fixed-price
|
3,117
|
|
46
|
%
|
|
2,822
|
|
44
|
%
|
||
Total sales
|
$
|
6,735
|
|
100
|
%
|
|
$
|
6,410
|
|
100
|
%
|
(1)
|
Percentages calculated based on external customer sales.
|
Sales by Geographic Region
|
Three Months Ended March 31
|
||||||||||
|
2018
|
2017
|
|||||||||
$ in millions
|
$
|
%
(1)
|
|
$
|
%
(1)
|
||||||
Aerospace Systems
|
|
|
|
|
|
||||||
United States
|
$
|
2,950
|
|
92
|
%
|
|
$
|
2,591
|
|
89
|
%
|
Asia/Pacific
|
129
|
|
4
|
%
|
|
188
|
|
7
|
%
|
||
All other (principally Europe and Middle East)
|
142
|
|
4
|
%
|
|
121
|
|
4
|
%
|
||
Intersegment sales
|
59
|
|
|
|
84
|
|
|
||||
Aerospace Systems sales
|
3,280
|
|
|
|
2,984
|
|
|
||||
Mission Systems
|
|
|
|
|
|
|
|
||||
United States
|
2,220
|
|
85
|
%
|
|
2,207
|
|
86
|
%
|
||
Asia/Pacific
|
153
|
|
6
|
%
|
|
154
|
|
6
|
%
|
||
All other (principally Europe and Middle East)
|
226
|
|
9
|
%
|
|
200
|
|
8
|
%
|
||
Intersegment sales
|
284
|
|
|
|
239
|
|
|
||||
Mission Systems sales
|
2,883
|
|
|
|
2,800
|
|
|
||||
Technology Services
|
|
|
|
|
|
|
|
||||
United States
|
695
|
|
76
|
%
|
|
741
|
|
78
|
%
|
||
Asia/Pacific
|
32
|
|
3
|
%
|
|
46
|
|
5
|
%
|
||
All other (principally Europe and Middle East)
|
188
|
|
21
|
%
|
|
162
|
|
17
|
%
|
||
Intersegment sales
|
229
|
|
|
|
241
|
|
|
||||
Technology Services sales
|
1,144
|
|
|
|
1,190
|
|
|
||||
Total
|
|
|
|
|
|
||||||
United States
|
5,865
|
|
87
|
%
|
|
5,539
|
|
86
|
%
|
||
Asia/Pacific
|
314
|
|
5
|
%
|
|
388
|
|
6
|
%
|
||
All other (principally Europe and Middle East)
|
556
|
|
8
|
%
|
|
483
|
|
8
|
%
|
||
Total sales
|
$
|
6,735
|
|
100
|
%
|
|
$
|
6,410
|
|
100
|
%
|
(1)
|
Percentages calculated based on external customer sales.
|
|
Three Months Ended March 31, 2017
|
||||||||||||||
|
As Reported
|
Effect of the Adoption of
|
As Adjusted
|
||||||||||||
$ in millions, except per share amounts
|
|
ASC
Topic 606
|
|
ASU 2017-07
|
|
||||||||||
Sales
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
3,834
|
|
|
$
|
163
|
|
|
$
|
—
|
|
|
$
|
3,997
|
|
Service
|
2,433
|
|
|
(20
|
)
|
|
—
|
|
|
2,413
|
|
||||
Total sales
|
6,267
|
|
|
143
|
|
|
—
|
|
|
6,410
|
|
||||
Operating costs and expenses
|
|
|
|
|
|
|
|
||||||||
Product
|
2,871
|
|
|
121
|
|
|
(9
|
)
|
|
2,983
|
|
||||
Service
|
1,887
|
|
|
(14
|
)
|
|
(6
|
)
|
|
1,867
|
|
||||
General and administrative expenses
|
677
|
|
|
21
|
|
|
—
|
|
|
698
|
|
||||
Operating income
|
832
|
|
|
15
|
|
|
15
|
|
|
862
|
|
||||
Other (expense) income
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
(75
|
)
|
|
—
|
|
|
—
|
|
|
(75
|
)
|
||||
Net FAS (non-service) pension benefit (expense)
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
(18
|
)
|
||||
Other, net
|
16
|
|
|
—
|
|
|
3
|
|
|
19
|
|
||||
Earnings before income taxes
|
773
|
|
|
15
|
|
|
—
|
|
|
788
|
|
||||
Federal and foreign income tax expense
|
133
|
|
|
5
|
|
|
—
|
|
|
138
|
|
||||
Net earnings
|
$
|
640
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
||||||||
Basic earnings per share
|
$
|
3.66
|
|
|
$
|
0.06
|
|
|
$
|
—
|
|
|
$
|
3.72
|
|
Weighted-average common shares outstanding, in millions
|
174.8
|
|
|
—
|
|
|
—
|
|
|
174.8
|
|
||||
Diluted earnings per share
|
$
|
3.63
|
|
|
$
|
0.06
|
|
|
$
|
—
|
|
|
$
|
3.69
|
|
Weighted-average diluted shares outstanding, in millions
|
176.1
|
|
|
—
|
|
|
—
|
|
|
176.1
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net earnings (from above)
|
$
|
640
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
650
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
||||||||
Change in unamortized benefit plan costs, net of tax
|
99
|
|
|
—
|
|
|
—
|
|
|
99
|
|
||||
Change in cumulative translation adjustment
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
||||
Other, net
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||
Other comprehensive income, net of tax
|
105
|
|
|
—
|
|
|
—
|
|
|
105
|
|
||||
Comprehensive income
|
$
|
745
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
755
|
|
|
December 31, 2017
|
||||||||||||||
|
As Reported
|
Effect of the Adoption of
|
As Adjusted
|
||||||||||||
$ in millions
|
|
ASC
Topic 606
|
|
ASU 2017-07
|
|
||||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
$
|
11,225
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,225
|
|
Accounts receivable, net
|
829
|
|
|
225
|
|
|
—
|
|
|
1,054
|
|
||||
Unbilled receivables, net
|
3,147
|
|
|
318
|
|
|
—
|
|
|
3,465
|
|
||||
Inventoried costs, net
|
780
|
|
|
(382
|
)
|
|
—
|
|
|
398
|
|
||||
Prepaid expenses and other current assets
|
368
|
|
|
77
|
|
|
—
|
|
|
445
|
|
||||
Total current assets
|
16,349
|
|
|
238
|
|
|
—
|
|
|
16,587
|
|
||||
Property, plant and equipment, net of accumulated depreciation of $5,066 for 2017
|
4,225
|
|
|
—
|
|
|
—
|
|
|
4,225
|
|
||||
Goodwill
|
12,455
|
|
|
—
|
|
|
—
|
|
|
12,455
|
|
||||
Deferred tax assets
|
475
|
|
|
(28
|
)
|
|
—
|
|
|
447
|
|
||||
Other non-current assets
|
1,413
|
|
|
1
|
|
|
—
|
|
|
1,414
|
|
||||
Total assets
|
$
|
34,917
|
|
|
$
|
211
|
|
|
$
|
—
|
|
|
$
|
35,128
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities
|
|
|
|
|
|
|
|
||||||||
Trade accounts payable
|
$
|
1,661
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,661
|
|
Accrued employee compensation
|
1,382
|
|
|
—
|
|
|
—
|
|
|
1,382
|
|
||||
Advance payments and amounts in excess of costs incurred
|
1,617
|
|
|
144
|
|
|
—
|
|
|
1,761
|
|
||||
Other current liabilities
|
2,305
|
|
|
(17
|
)
|
|
—
|
|
|
2,288
|
|
||||
Total current liabilities
|
6,965
|
|
|
127
|
|
|
—
|
|
|
7,092
|
|
||||
Long-term debt, net of current portion of $867 for 2017
|
14,399
|
|
|
—
|
|
|
—
|
|
|
14,399
|
|
||||
Pension and other post-retirement benefit plan liabilities
|
5,511
|
|
|
—
|
|
|
—
|
|
|
5,511
|
|
||||
Other non-current liabilities
|
994
|
|
|
—
|
|
|
—
|
|
|
994
|
|
||||
Total liabilities
|
27,869
|
|
|
127
|
|
|
—
|
|
|
27,996
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Shareholders’ equity
|
|
|
|
|
|
|
|
||||||||
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2017—174,085,619
|
174
|
|
|
—
|
|
|
—
|
|
|
174
|
|
||||
Paid-in capital
|
44
|
|
|
—
|
|
|
—
|
|
|
44
|
|
||||
Retained earnings
|
11,548
|
|
|
84
|
|
|
—
|
|
|
11,632
|
|
||||
Accumulated other comprehensive loss
|
(4,718
|
)
|
|
—
|
|
|
—
|
|
|
(4,718
|
)
|
||||
Total shareholders’ equity
|
7,048
|
|
|
84
|
|
|
—
|
|
|
7,132
|
|
||||
Total liabilities and shareholders’ equity
|
$
|
34,917
|
|
|
$
|
211
|
|
|
$
|
—
|
|
|
$
|
35,128
|
|
|
Three Months Ended March 31
|
|
%
|
|||||||
$ in millions, except per share amounts
|
2018
|
|
2017
|
|
Change
|
|||||
Sales
|
$
|
6,735
|
|
|
$
|
6,410
|
|
|
5
|
%
|
Operating costs and expenses
|
5,881
|
|
|
5,548
|
|
|
6
|
%
|
||
Operating costs and expenses as a % of sales
|
87.3
|
%
|
|
86.6
|
%
|
|
|
|||
Operating income
|
854
|
|
|
862
|
|
|
(1
|
)%
|
||
Operating margin rate
|
12.7
|
%
|
|
13.4
|
%
|
|
|
|||
Federal and foreign income tax expense
|
132
|
|
|
138
|
|
|
(4
|
)%
|
||
Effective income tax rate
|
15.2
|
%
|
|
17.5
|
%
|
|
|
|||
Net earnings
|
739
|
|
|
650
|
|
|
14
|
%
|
||
Diluted earnings per share
|
$
|
4.21
|
|
|
$
|
3.69
|
|
|
14
|
%
|
Aerospace Systems
|
|
Mission Systems
|
|
Technology Services
|
Autonomous Systems
|
|
Sensors and Processing
|
|
Global Logistics and Modernization
|
Manned Aircraft
|
|
Cyber and ISR
|
|
Advanced Defense Services
|
Space
|
|
Advanced Capabilities
|
|
System Modernization and Services
|
|
Three Months Ended March 31
|
|
%
|
|||||||
$ in millions
|
2018
|
|
2017
|
|
Change
|
|||||
Segment operating income
|
$
|
762
|
|
|
$
|
741
|
|
|
3
|
%
|
Segment operating margin rate
|
11.3
|
%
|
|
11.6
|
%
|
|
|
|
Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Segment operating income
|
$
|
762
|
|
|
$
|
741
|
|
CAS pension expense
|
226
|
|
|
251
|
|
||
Less: FAS (service) pension expense
|
(99
|
)
|
|
(97
|
)
|
||
Net FAS (service)/CAS pension adjustment
|
127
|
|
|
154
|
|
||
Unallocated corporate expenses
|
(34
|
)
|
|
(32
|
)
|
||
Other
|
(1
|
)
|
|
(1
|
)
|
||
Total operating income
|
$
|
854
|
|
|
$
|
862
|
|
|
Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Favorable EAC adjustments
|
$
|
207
|
|
|
$
|
182
|
|
Unfavorable EAC adjustments
|
(91
|
)
|
|
(41
|
)
|
||
Net EAC adjustments
|
$
|
116
|
|
|
$
|
141
|
|
AEROSPACE SYSTEMS
|
Three Months Ended March 31
|
|
%
|
|||||||
$ in millions
|
2018
|
|
2017
|
|
Change
|
|||||
Sales
|
$
|
3,280
|
|
|
$
|
2,984
|
|
|
10
|
%
|
Operating income
|
341
|
|
|
323
|
|
|
6
|
%
|
||
Operating margin rate
|
10.4
|
%
|
|
10.8
|
%
|
|
|
MISSION SYSTEMS
|
Three Months Ended March 31
|
|
%
|
|||||||
$ in millions
|
2018
|
|
2017
|
|
Change
|
|||||
Sales
|
$
|
2,883
|
|
|
$
|
2,800
|
|
|
3
|
%
|
Operating income
|
371
|
|
|
359
|
|
|
3
|
%
|
||
Operating margin rate
|
12.9
|
%
|
|
12.8
|
%
|
|
|
TECHNOLOGY SERVICES
|
Three Months Ended March 31
|
|
%
|
|||||||
$ in millions
|
2018
|
|
2017
|
|
Change
|
|||||
Sales
|
$
|
1,144
|
|
|
$
|
1,190
|
|
|
(4
|
)%
|
Operating income
|
122
|
|
|
129
|
|
|
(5
|
)%
|
||
Operating margin rate
|
10.7
|
%
|
|
10.8
|
%
|
|
|
|
Three Months Ended March 31
|
|||||||||||
$ in millions
|
2018
|
2017
|
||||||||||
Segment Information:
|
Sales
|
Operating Costs and Expenses
|
Sales
|
Operating Costs and Expenses
|
||||||||
Aerospace Systems
|
|
|
|
|
||||||||
Product
|
$
|
2,751
|
|
$
|
2,465
|
|
$
|
2,480
|
|
$
|
2,204
|
|
Service
|
529
|
|
474
|
|
504
|
|
457
|
|
||||
Mission Systems
|
|
|
|
|
||||||||
Product
|
1,719
|
|
1,476
|
|
1,722
|
|
1,485
|
|
||||
Service
|
1,164
|
|
1,036
|
|
1,078
|
|
956
|
|
||||
Technology Services
|
|
|
|
|
||||||||
Product
|
106
|
|
97
|
|
75
|
|
70
|
|
||||
Service
|
1,038
|
|
925
|
|
1,115
|
|
991
|
|
||||
Segment Totals
|
|
|
|
|
||||||||
Total Product
|
$
|
4,576
|
|
$
|
4,038
|
|
$
|
4,277
|
|
$
|
3,759
|
|
Total Service
|
2,731
|
|
2,435
|
|
2,697
|
|
2,404
|
|
||||
Intersegment eliminations
|
(572
|
)
|
(500
|
)
|
(564
|
)
|
(494
|
)
|
||||
Total segment
(1)
|
$
|
6,735
|
|
$
|
5,973
|
|
$
|
6,410
|
|
$
|
5,669
|
|
(1)
|
A reconciliation of segment operating income to total operating income is included in “Segment Operating Results.”
|
|
Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Net earnings
|
$
|
739
|
|
|
$
|
650
|
|
Non-cash items
(1)
|
86
|
|
|
112
|
|
||
Changes in assets and liabilities:
|
|
|
|
||||
Trade working capital
|
(1,008
|
)
|
|
(1,267
|
)
|
||
Retiree benefits
|
(56
|
)
|
|
86
|
|
||
Other, net
|
2
|
|
|
(20
|
)
|
||
Net cash used in operating activities
|
$
|
(237
|
)
|
|
$
|
(439
|
)
|
(1)
|
Includes depreciation and amortization, stock based compensation expense and deferred income taxes.
|
|
Three Months Ended March 31
|
||||||
$ in millions
|
2018
|
|
2017
|
||||
Net cash used in operating activities
|
$
|
(237
|
)
|
|
$
|
(439
|
)
|
Less: capital expenditures
|
(305
|
)
|
|
(216
|
)
|
||
Free cash flow
|
$
|
(542
|
)
|
|
$
|
(655
|
)
|
•
|
our dependence on the U.S. Government for a substantial portion of our business
|
•
|
significant delays or reductions in appropriations for our programs and U.S. Government funding more broadly
|
•
|
investigations, claims, disputes, enforcement actions and/or litigation
|
•
|
the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs
|
•
|
our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, laws and regulations
|
•
|
the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation, our ability to do business, and our financial position, results of operations and/or cash flows
|
•
|
cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners
|
•
|
the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials and components
|
•
|
changes in procurement and other laws, regulations and practices applicable to our industry, findings by the U.S. Government as to our compliance with such laws and regulations, and changes in our customers’ business practices globally
|
•
|
increased competition within our markets and bid protests
|
•
|
the ability to maintain a qualified workforce
|
•
|
our ability to meet performance obligations under our contracts, including obligations that are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control
|
•
|
environmental matters, including unforeseen environmental costs and government and third party claims
|
•
|
natural and/or environmental disasters
|
•
|
the adequacy and availability of our insurance coverage, customer indemnifications or other liability protections
|
•
|
products and services we provide related to hazardous and high risk operations, which subject us to various environmental, regulatory, financial, reputational and other risks
|
•
|
the future investment performance of plan assets, changes in actuarial assumptions associated with our pension and other post-retirement benefit plans and legislative or other regulatory actions impacting our pension, post-retirement and health and welfare plans
|
•
|
the satisfaction of conditions (including regulatory approvals) to and successful consummation of the Orbital ATK Acquisition; our ability successfully to integrate the Orbital ATK business and realize fully the anticipated benefits of the acquisition, without adverse consequences
|
•
|
our ability to exploit or protect intellectual property rights
|
•
|
our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers
|
•
|
changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets
|
•
|
unanticipated changes in our tax provisions or exposure to additional tax liabilities
|
2.1
|
|
|
|
2.2
|
|
|
|
2.3
|
|
|
|
*+10.1
|
|
|
|
*+10.2
|
|
|
|
*+10.3
|
|
|
|
*12(a)
|
|
|
|
*15
|
|
|
|
*31.1
|
|
|
|
*31.2
|
|
|
|
**32.1
|
|
|
|
**32.2
|
|
|
|
*101
|
Northrop Grumman Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings and Comprehensive Income, (ii) Condensed Consolidated Statements of Financial Position, (iii) Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity, and (v) Notes to Condensed Consolidated Financial Statements
|
+
|
Management contract or compensatory plan or arrangement
|
|
|
*
|
Filed with this report
|
|
|
**
|
Furnished with this report
|
NORTHROP GRUMMAN CORPORATION
(Registrant)
|
||
|
|
|
By:
|
|
/s/ Michael A. Hardesty
|
|
|
Michael A. Hardesty
Corporate Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
|
1.
|
Vesting; Issuance of Shares
.
|
2.
|
Early Termination of Award; Termination of Employment
.
|
3.
|
Non-Transferability and Other Restrictions
.
|
5.
|
Compliance with Laws; No Stockholder Rights Prior to Issuance
.
|
6.
|
Adjustments; Change in Control
.
|
7.
|
Tax Matters
.
|
9.
|
Committee Authority
.
|
10.
|
Plan; Amendment
.
|
11.
|
Required Holding Period
.
|
12.
|
Definitions
.
|
(i)
|
The Grantee’s conviction for committing an act of fraud, embezzlement, theft, or other act constituting a felony (other than traffic related offenses, as a result of vicarious liability, or as a result of good faith actions as an officer of the Company); or
|
(ii)
|
Willful misconduct by the Grantee that causes financial or reputational harm to the Company. However, no act, or failure to act, on the Grantee’s part shall be considered “willful”
|
(ii)
|
a termination of employment by the Company or a subsidiary as part of a reduction in force and, at the time of such termination, the Grantee has attained age 53 with at least 10 years of service.
|
(iii)
|
a termination of employment by the Company or a subsidiary as part of a reduction in force and, at the time of such termination, the sum of the Grantee’s age and years of service is at least 75.
|
(i)
|
A material and substantial reduction in the nature or status of the Grantee’s authorities or responsibilities (when such authorities and/or responsibilities are viewed in the aggregate) from their level in effect on the day immediately prior to the start of the Protected Period, other than (A) an inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by the Grantee, and/or (B) changes in the nature or status of the Grantee’s authorities or responsibilities that, in the aggregate, would generally be viewed by a nationally-recognized executive placement firm as resulting in the Grantee having not materially and substantially fewer authorities and responsibilities (taking into consideration the Company’s industry) when compared to the authorities and responsibilities applicable to the position held by the Grantee immediately prior to the start of the Protected Period. The Company may retain a nationally-recognized executive placement firm for purposes of making the determination required by the preceding sentence and the written opinion of the firm thus selected shall be conclusive as to this issue.
|
(ii)
|
A material reduction by the Company in the Grantee’s annualized rate of base salary as in effect at the start of the Protected Period, or as
|
(iii)
|
A material reduction in the aggregate value of the Grantee’s level of participation in any of the Company’s short and/or long-term incentive compensation plans (excluding stock-based incentive compensation plans), employee benefit or retirement plans, or policies, practices, or arrangements in which the Grantee participates immediately prior to the start of the Protected Period; provided, however, that a reduction in the aggregate value shall not be deemed to be “Good Reason” if the reduced value remains substantially consistent with the average level of other employees who have positions commensurate with the position held by the Grantee immediately prior to the start of the Protected Period.
|
(iv)
|
A material reduction in the Grantee’s aggregate level of participation in the Company’s stock-based incentive compensation plans from the level in effect immediately prior to the start of the Protected Period; provided, however, that a reduction in the aggregate level of participation shall not be deemed to be “Good Reason” if the reduced level of participation remains substantially consistent with the average level of participation of other employees who have positions commensurate with the position held by the Grantee immediately prior to the start of the Protected Period.
|
(v)
|
The Grantee is informed by the Company that his or her principal place of employment for the Company will be relocated to a location that is greater than fifty (50) miles away from the Grantee’s principal place of employment for the Company at the start of the corresponding Protected Period; provided that, if the Company communicates an intended effective date for such relocation, in no event shall Good Reason exist pursuant to this clause (v) more than ninety (90) days before such intended effective date.
|
(i)
|
If the Change in Control is triggered by a tender offer for shares of the Company’s stock or by the offeror’s acquisition of shares pursuant to such a tender offer, the Protected Period shall commence on the date of the initial tender offer and shall continue through and including the date of the Change in Control; provided that in no case will the Protected Period commence earlier than the date that is six (6) months prior to the Change in Control.
|
(ii)
|
If the Change in Control is triggered by a merger, consolidation, or reorganization of the Company with or involving any other corporation, the Protected Period shall commence on the date that serious and substantial discussions first take
|
(iii)
|
In the case of any Change in Control not described in clause (i) or (ii) above, the Protected Period shall commence on the date that is six (6) months prior to the Change in Control and shall continue through and including the date of the Change in Control.
|
1.
|
Vesting; Payment of RPSRs
.
|
2.
|
Early Termination of Award; Termination of Employment
.
|
5.
|
Compliance with Laws; No Stockholder Rights Prior to Issuance
.
|
7.
|
Tax Matters
.
|
9.
|
Committee Authority
.
|
10.
|
Plan; Amendment
.
|
11.
|
Required Holding Period
.
|
12.
|
Definitions
.
|
(i)
|
The Grantee’s conviction for committing an act of fraud, embezzlement, theft, or other act constituting a felony (other than traffic related offenses, as a result of vicarious liability, or as a result of good faith actions as an officer of the Company); or
|
(ii)
|
Willful misconduct by the Grantee that causes financial or reputational harm to the Company. However, no act, or failure to act, on the Grantee’s part shall be considered “willful” unless done, or omitted to be done, by the Grantee not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company.
|
(i)
|
A material and substantial reduction in the nature or status of the Grantee’s authorities or responsibilities (when such authorities and/or responsibilities are viewed in the aggregate) from their level in effect on the day immediately prior to the start of the Protected Period, other than (A) an inadvertent act that is remedied by the Company promptly after receipt of notice
|
(ii)
|
A material reduction by the Company in the Grantee’s annualized rate of base salary as in effect on the first to occur of the start of the Performance Period or the start of the Protected Period, or as the same shall be increased from time to time.
|
(iii)
|
A material reduction in the aggregate value of the Grantee’s level of participation in any of the Company’s short and/or long-term incentive compensation plans (excluding stock-based incentive compensation plans), employee benefit or retirement plans, or policies, practices, or arrangements in which the Grantee participates immediately prior to the start of the Protected Period provided; however, that a reduction in the aggregate value shall not be deemed to be “Good Reason” if the reduced value remains substantially consistent with the average level of
|
(iv)
|
A material reduction in the Grantee’s aggregate level of participation in the Company’s stock-based incentive compensation plans from the level in effect immediately prior to the start of the Protected Period; provided, however, that a reduction in the aggregate level of participation shall not be deemed to be “Good Reason” if the reduced level of participation remains substantially consistent with the average level of participation of other employees who have positions commensurate with the position held by the Grantee immediately prior to the start of the Protected Period.
|
(v)
|
The Grantee is informed by the Company that his or her principal place of employment for the Company will be relocated to a location that is greater than fifty (50) miles away from the Grantee’s principal place of employment for the Company at the start of the corresponding Protected Period; provided that, if the Company communicates an intended effective date for such relocation, in no event shall Good Reason exist pursuant to this clause (v) more than ninety (90) days before such intended effective date.
|
(i)
|
If the Change in Control is triggered by a tender offer for shares of the Company’s stock or by the offeror’s acquisition of shares pursuant to such a tender offer, the Protected Period shall commence on the date of the initial tender offer and shall continue through and including the date of the Change in Control; provided that in no case will the Protected Period commence earlier than the date that is six (6) months prior to the Change in Control.
|
(ii)
|
If the Change in Control is triggered by a merger, consolidation, or reorganization of the Company with or involving any other corporation, the Protected Period shall commence on the date that serious and substantial discussions first take place to effect the merger, consolidation, or reorganization and shall continue through and including the date of the Change in Control; provided that in no case will the Protected Period commence earlier than the date that is six (6) months prior to the Change in Control.
|
(iii)
|
In the case of any Change in Control not described in clause (i) or (ii) above, the Protected Period shall commence on the date that is six (6) months prior to the Change in Control and shall continue through and include the date of the Change in Control.
|
(a)
|
“Committee”
means the Compensation Committee of the Board of Directors of the Company or any successor to the Committee.
|
(b)
|
“Code”
means the Internal Revenue Code of 1986, as amended.
|
(c)
|
“Company”
means Northrop Grumman Corporation.
|
(d)
|
“CPC”
means the Corporate Policy Council.
|
(e)
|
“Disability”
means any disability of an Officer recognized as a disability for purposes of the Company’s long-term disability plan, or similar plan later adopted by the Company in place of such plan.
|
(f)
|
“Key Employee”
means an employee treated as a “specified employee” as of his Separation from Service under Code section 409A(a)(2)(B)(i) of the Company or its affiliate (i.e., a key employee (as defined in Code section 416(i) without regard to paragraph (5) thereof)) if the Company’s stock is publicly traded on an established securities market or otherwise. The Company shall determine in accordance with a uniform Company policy which Officers are Key Employees as of each December 31 in accordance with IRS regulations or other guidance under Code section 409A, provided that in determining the compensation of individuals for this purpose, the definition of compensation in Treas. Reg. § 1.415(c)-2(d)(3) shall be used. Such determination shall be effective for the twelve (12) month period commencing on April 1 of the following year.
|
(g)
|
“Officer”
means an elected or appointed officer of Northrop Grumman Corporation, other than the Company’s Chief Executive Officer, who resides and works in the United States.
|
(h)
|
“Plan”
means this Severance Plan for Elected and Appointed Officers of Northrop Grumman Corporation, as it may be amended from time to time.
|
(i)
|
“Qualifying Termination”
means any one of the following (i) an Officer’s involuntary termination of employment with the Company, other than Termination for Cause or mandatory retirement, or (ii) an Officer’s election to terminate employment with the Company in lieu of accepting a downgrade to a non-Officer position or status. “Qualifying Termination” does not include any change in the Officer’s employment status due to any transfer within the Company or to an affiliate, or to a purchaser of assets or a portion of the business of the Company or an affiliate in connection with the purchase, Disability, voluntary termination or normal retirement.
|
(j)
|
“Release”
means the Separation Agreement and General Release prepared by the Company at the time of the Officer’s termination of employment, which may include such terms as the Company deems appropriate, including certain post-employment restrictions as a condition of receiving benefits under the Plan.
|
(k)
|
“Separation from Service”
or
“Separate from Service”
means a “separation from service” within the meaning of Code section 409A.
|
(l)
|
“Termination for Cause”
means an Officer’s termination of employment with the Company because of:
|
(i)
|
The continued failure by the Officer to devote reasonable time and effort to the performance of his duties (other than a failure resulting from the Officer’s incapacity due to physical or mental illness) after written demand for improved performance has been delivered to the Officer by the Company which specifically identifies how the Officer has not devoted reasonable time and effort to the performance of his duties;
|
(ii)
|
The willful engaging by Officer in misconduct which is substantially injurious to the Company, monetarily or otherwise; or
|
(iii)
|
The Officer’s conviction for committing an act of fraud, embezzlement, theft, or other act constituting a felony (other than traffic related offenses or as a result of vicarious liability).
|
(i)
|
Bad judgment or negligence on the part of the Officer other than habitual negligence; or
|
(ii)
|
An act or omission believed by the Officer in good faith to have been in or not opposed to the best interests of the Company and reasonably believed by the Officer to be lawful.
|
(a)
|
Benefits under the Plan are subject to the Company’s sole discretion and approval.
|
(b)
|
To be considered to receive benefits under the Plan an Officer must meet the following conditions:
|
(i)
|
The Officer must experience a Qualifying Termination that results in termination of employment. If, before termination of employment occurs due to the Qualifying Termination event, the Officer voluntarily quits, retires, or experiences a Termination for Cause, the Officer will not receive benefits under this Plan.
|
(ii)
|
The Officer must sign the Release.
|
(a)
|
Lump-sum Cash Severance Payment
. The designated Appendix describes the lump sum severance benefit available to the Officer.
|
(b)
|
Extension of Medical and Dental Benefits
. The Company will continue to pay its portion of the Officer’s medical and dental benefits for the period of time following the Officer’s termination date that is specified in the designated Appendix, provided that for the balance of the month that
|
(i)
|
Officer’s eligibility for benefits in one year will not affect Officer’s eligibility for benefits in any other year;
|
(ii)
|
Any reimbursement of eligible expenses will be made on or before the last day of the year following the year in which the expense was incurred; and
|
(iii)
|
Officer’s right to benefits is not subject to liquidation or exchange for another benefit.
|
(c)
|
Company Performance Related Payment
. The Officer will be eligible for a severance payment equal to a pro-rata portion of the bonus he or she would have received under the Company annual incentive plan in which he or she was a participant for the year in which the Qualifying Termination occurred, in addition to the lump-sum cash severance payment described in section 4(a). For this purpose, the pro-rated bonus (if any) will be based on the applicable annual incentive plan payout formula, with any applicable individual performance factor set at 1.00, prorated from the beginning of the performance period (January 1st) to the Officer’s date of termination. The severance payment contemplated by this Section 4(c) will be paid when the annual bonuses are paid to active employees between February 15 and March 15 of the year following termination. Notwithstanding anything to the contrary in this section 4(c), if the Officer’s bonus opportunity for the fiscal year in which his or her termination occurs is covered by the Company’s Incentive Compensation Plan (or similar successor bonus program designed to comply with the performance-based compensation exception under Section 162(m) of the Code), then the Officer’s severance payment pursuant to this section 4(c) shall not exceed the maximum bonus the Officer would have been entitled to receive under the Company’s Incentive Compensation Plan for that fiscal year, assuming the Officer had been employed through the date bonuses are paid under such plan for that year, and otherwise calculated under the terms of such plan based on actual performance for that fiscal year (but without giving effect to any discretion of the plan administrator to reduce the bonus amount from the maximum otherwise determined in accordance with such plan).
|
(d)
|
Other Fringe Benefits
. All reimbursements will be within the limits established in the Executive Perquisite Program. These perquisites will cease as of the date of termination except for the following:
|
(i)
|
Financial Planning
. If an Officer is eligible for financial planning reimbursement at the time of termination, the Officer will be reimbursed for any financial planning fees as specified in the designated Appendix. For these purposes, “financial planning reimbursement” includes any income tax preparation fee reimbursement the Officer may be entitled to under the financial planning reimbursement terms and conditions applicable to the Officer at the time of termination. The financial planning (including income tax preparation fee) reimbursements contemplated by the Appendices are subject to any other applicable limitations that may apply under the financial planning reimbursement terms and conditions applicable to the Officer at the time of termination (for example, and without limitation, annual caps on amounts that may be used in connection with income tax preparation). All such reimbursements pursuant to this section 4(d)(i) shall be administered consistent with the following additional requirements as set forth in Treas. Reg. § 1.409A-3(i)(1)(iv): (1) Officer’s eligibility for benefits in one year will not affect Officer’s eligibility for benefits in any other year; (2) any reimbursement of eligible expenses will be made on or before the last day of the year following the year in which the expense was incurred; and (3) Officer’s right to benefits is not subject to liquidation or exchange for another benefit. In addition, no reimbursements shall be made to an Officer who is a Key Employee for six months following the Officer’s Separation from Service.
|
(ii)
|
Outplacement Service
. The Officer will be reimbursed for the cost of reasonable outplacement services provided by the Company’s outplacement service provider for services provided within one year after the Officer’s date of termination; provided, however, that the total reimbursement shall be limited to an amount equal to fifteen percent (15%) of the Officer’s base salary as of the date of termination. All services will be subject
|
(e)
|
Time and Form of Payment
. The severance benefits under section 4(a) will be paid to the eligible Officer in a lump sum as soon as practicable following the Officer’s Separation from Service, but in no event beyond thirty (30) days from such date, provided the Officer signs the Release within twenty one (21) days following the Officer’s Separation from Service. Notwithstanding the foregoing, if the Officer is a Key Employee, the lump sum payment shall be made on or within thirty (30) days after the first day of the seventh month following the Officer’s Separation from Service (or, if earlier, the first day of the month after the Officer’s death), provided the Officer signs the Release within twenty-one (21) days following the Officer’s Separation from Service. This amount will be paid after all regular taxes and withholdings have been deducted. No payment made pursuant to the Plan is eligible compensation under any of the Company’s benefit plans, including without limitation, pension, savings, or deferred compensation plans.
|
$ in millions
|
Three Months Ended March 31
|
|
Year Ended December 31
|
|||||||||||||||||||
Earnings:
|
2018
|
2017
|
|
2017
|
2016
|
2015
(1)
|
2014
(1)
|
2013
(1)
|
||||||||||||||
Earnings before income taxes
|
$
|
871
|
|
$
|
788
|
|
|
$
|
2,996
|
|
$
|
2,855
|
|
$
|
2,790
|
|
$
|
2,937
|
|
$
|
2,863
|
|
Fixed Charges:
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest expense, including amortization of debt premium
|
143
|
|
75
|
|
|
360
|
|
301
|
|
301
|
|
282
|
|
257
|
|
|||||||
Portion of rental expenses on operating leases deemed to be representative of the interest factor
|
31
|
|
30
|
|
|
100
|
|
99
|
|
101
|
|
101
|
|
99
|
|
|||||||
Earnings before income taxes and fixed charges
|
$
|
1,045
|
|
$
|
893
|
|
|
$
|
3,456
|
|
$
|
3,255
|
|
$
|
3,192
|
|
$
|
3,320
|
|
$
|
3,219
|
|
Fixed Charges:
|
$
|
174
|
|
$
|
105
|
|
|
$
|
460
|
|
$
|
400
|
|
$
|
402
|
|
$
|
383
|
|
$
|
356
|
|
Ratio of earnings to fixed charges
|
6.0
|
|
8.5
|
|
|
7.5
|
|
8.1
|
|
7.9
|
|
8.7
|
|
9.0
|
|
1.
|
I have reviewed this report on Form
10-Q
of Northrop Grumman Corporation (“company”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
|
4.
|
The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
|
5.
|
The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
|
/s/ Wesley G. Bush
|
Wesley G. Bush
|
Chairman and Chief Executive Officer
|
1.
|
I have reviewed this report on Form
10-Q
of Northrop Grumman Corporation (“company”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
|
4.
|
The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
|
5.
|
The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
|
/s/ Kenneth L. Bedingfield
|
Kenneth L. Bedingfield
|
Corporate Vice President and Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.
|
/s/ Wesley G. Bush
|
Wesley G. Bush
|
Chairman and Chief Executive Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.
|
/s/ Kenneth L. Bedingfield
|
Kenneth L. Bedingfield
|
Corporate Vice President and Chief Financial Officer
|