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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1) Amount Previously Paid:
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(4) Date Filed:
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Wes Bush
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Donald E. Felsinger
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Chairman
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Lead Independent Director
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Notice of 2019 Annual
Meeting of Shareholders
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1.
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The election of the 13 nominees named in the accompanying Proxy Statement;
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2.
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A proposal to approve, on an advisory basis, the compensation of our named executive officers;
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3.
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A proposal to ratify the appointment of Deloitte & Touche LLP as our independent auditor for the year ending
December 31, 2019
;
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4.
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A shareholder proposal to provide for a report on management systems and processes for implementing the Company's human rights policy;
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5.
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A shareholder proposal to provide for an independent chair; and
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6.
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Any other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
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By order of the Board of Directors,
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Jennifer C. McGarey
Corporate Vice President and Secretary
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Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on May 15, 2019: The Proxy Statement for the 2019 Annual Meeting of Shareholders and the Annual Report for the year ended December 31, 2018 are available at:
www.edocumentview.com/noc
.
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TABLE OF CONTENTS
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PROXY STATEMENT SUMMARY
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2019 Nominees for Director
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Overview
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Director Election Process
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Board Composition and
Director
Nominations
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Director Orientation and Continuing Education
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Board Membership
and External Relationships
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Effect of Failure to Receive the Required Vote or Obtain and Retain Security Clearance
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Board and Committee Self-Evaluation
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Succession Planning
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Corporate Responsibility
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Stock Ownership Requirements and Anti-Hedging and Pledging Policy
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2018 Director Compensation
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Related Person Transactions
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Indemnification Agreements
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Stock Ownership of Certain Beneficial Owners
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Stock Ownership of Officers and Directors
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PROPOSAL TWO: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
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TABLE OF CONTENTS
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Executive Summary
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Key Principles
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Key Components of Our Programs
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COMPENSATION COMMITTEE REPORT
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COMPENSATION TABLES
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Summary Compensation Table
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Grants of Plan-Based Awards Table
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Outstanding Equity Awards Table
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Stock Vested Table
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Pension Benefits
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Nonqualified Deferred Compensation Table
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CEO PAY RATIO
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TERMINATION PAYMENTS AND BENEFITS
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Termination Payment Table
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PROPOSAL THREE: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
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Audit Fees and All Other Fees
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Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
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PROPOSAL FOUR: SHAREHOLDER PROPOSAL
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PROPOSAL FIVE: SHAREHOLDER PROPOSAL
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Shareholder Proposals for the 2020 Annual Meeting
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Shareholder
Nominations for Director Election at the 2020 Annual Meeting
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Incorporation by Reference
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Annual Report
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APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES
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PROXY STATEMENT SUMMARY
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2018 Performance Highlights (page 38)
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40% 3-year Total Shareholder Return (2016-2018)
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16%
Sales
increase
to $30.1 billion
Total
backlog
of $53.5
billion
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$821
million
in dividends
paid
20% total
increase
in quarterly
dividend per share
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$1.3
billion
in
share
repurchases
$1 billion
accelerated
share
repurchase
commenced
in Oct
.
2018
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Capital
spending
of $1.2 billion
Internal
R&D
spending
of
$764 million
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PROXY STATEMENT SUMMARY
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2018 Executive Compensation Highlights (page 37)
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70%
of Annual LTIP Equity Grant
Performance-Based
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Stock Ownership
Guidelines for All Officers:
CEO 7x
Other NEOs 3x
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3-Year Mandatory
Holding Period
for 50% of Vested Shares
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Recoupment Policy
on Incentive Payouts
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No
Individual
Change in Control
Agreements
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Board Nominees (pages 6-12)
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Name
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Age (1)
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Director
since
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Professional Background
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Committee Memberships
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Other Public
Company Boards
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Audit
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Comp
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Gov
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Policy
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Wesley G. Bush
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57
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09/2009
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Chairman, Northrop Grumman Corporation
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—
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—
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—
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—
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1
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Marianne C. Brown
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60
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03/2015
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Co-Chief Operating Officer, Global Financial Solutions, Fidelity National Information Services, Inc.
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—
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Donald E. Felsinger
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71
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02/2007
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Lead Independent Director, Northrop Grumman Corporation; Former Chairman and CEO, Sempra Energy
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2
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Ann M. Fudge
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67
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03/2016
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Former Chairman and Chief Executive Officer, Young & Rubicam Brands
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1
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Bruce S. Gordon
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73
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10/2008
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Former President, Retail Markets Group, Verizon Communications Inc.; Former President and CEO, NAACP
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—
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William H. Hernandez
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70
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09/2013
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Former Senior Vice President and CFO, PPG Industries, Inc.
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2
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Madeleine A. Kleiner
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67
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10/2008
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Former Executive Vice President and General Counsel, Hilton Hotels Corporation
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1
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Karl J. Krapek
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70
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09/2008
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Former President and COO, United Technologies Corporation
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2
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Gary Roughead
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67
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02/2012
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Retired Admiral, United States Navy and Former Chief of Naval Operations
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—
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Thomas M. Schoewe
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66
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08/2011
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Former Executive Vice President and CFO, Wal-Mart Stores, Inc.
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2
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James S. Turley
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63
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02/2015
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Former Chairman and Chief Executive Officer, Ernst & Young
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3
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Kathy J. Warden
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47
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07/2018
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Chief Executive Officer and President, Northrop Grumman Corporation
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—
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—
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—
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—
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—
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Mark A. Welsh III
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65
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12/2016
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Dean of the Bush School of Government and Public Service, Texas A&M University; Retired General, United States Air Force and Former Chief of Staff, United States Air Force
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—
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(1)
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Age as of
March 29, 2019
.
=
Chair
=
Member
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PROXY STATEMENT SUMMARY
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Board Nominee Highlights
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PROXY STATEMENT SUMMARY
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Governance Highlights (pages 14-24)
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Board Structure and Governance
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✓
|
The Board is approximately
85% independent
.
|
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✓
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Each of the Audit, Compensation, Governance and Policy
Committees is comprised entirely of independent directors
.
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✓
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Our policy
limits the number of boards
on which our directors serve (no more than three other public company boards without special approval) to
avoid overboarding
.
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✓
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The independent directors
regularly hold both executive sessions
led by our Chairperson
and independent sessions
led by our Lead Independent Director.
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✓
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Our
Lead Independent Director
,
appointed annually by the independent directors, is empowered
with a robust set of responsibilities
and provides additional independent oversight of senior management and Board leadership.
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✓
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All directors are
elected annually
based on a
majority voting standard
in uncontested elections, with a
director resignation policy
if a director fails to receive a majority of votes cast "for" his or her election.
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✓
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The Board nominees reflect a balanced mix of directors with deep Company and industry knowledge, and fresh and diverse perspectives, with an
average director tenure of 6.5 years
.
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✓
|
The Board and each Committee annually conduct a
thorough self-assessment process focused on Board or Committee performance, respectively
.
In addition,
each director completes an
individual director evaluation
for each of the other directors and receives feedback on his or her own performance.
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✓
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We have a
director retirement policy
for directors who reach the age of 75 and are
committed to Board refreshment
, with the addition of
five new directors to the Board in the last five years
.
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✓
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Three of our directors - Marianne Brown, Ann Fudge and Madeleine Kleiner - have been honored by Women's Inc. as three of the most influential corporate directors of 2018.
|
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✓
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One of our directors - William Hernandez - has been recognized by a local chapter of the NACD with a leadership in corporate governance award in 2018.
|
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Shareholder Rights
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✓
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The Board
has adopted a
robust proxy access bylaw provision
,
allowing eligible shareholders to include their own director nominees in the Company's proxy materials.
|
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✓
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Shareholders holding at least 25% of our common stock
have the
right to call a special meeting
.
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✓
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Shareholders holding at least 25% of our common stock have the right to take
action by written consent
.
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Corporate Responsibility and Sustainability
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✓
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We have a
strong ethics program
with standards of business conduct that help guide and promote good governance, responsible business practices and the highest standards of integrity throughout the Company.
|
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✓
|
We have
robust programs to fulfill our commitment to diversity and inclusion
throughout the Company.
|
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✓
|
We publish an
annual corporate responsibility report
highlighting aspects of our social, environmental and governance performance and
engage an independent external review panel
to provide feedback and advice on our report.
|
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✓
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We
integrate environmental sustainability
into our organizational culture, minimizing our environmental footprint and driving affordability. Our executive officers are accountable for achieving environmental sustainability goals, which are
one of our six non-financial corporate performance metrics
.
|
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✓
|
We disclose our
political contributions policy and various trade association memberships on our website
.
|
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✓
|
We have a robust
recoupment policy
which provides the Board of Directors with the ability to recoup the incentive compensation of elected officers under certain circumstances.
|
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Stock Ownership
|
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✓
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We have stock ownership guidelines of
7x base salary for the CEO
and
3x base salary for other named executive officers,
as well as
stock holding requirements of three years
from the vesting date.
|
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✓
|
We have stock ownership guidelines of
5x the annual cash retainer for our non-employee directors
.
|
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✓
|
We
prohibit hedging and pledging
of our common stock by directors and executive officers.
|
PROXY STATEMENT SUMMARY
|
Shareholder Engagement
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Annual Shareholders' Meeting
|
Time:
May 15, 2019, 8:00 a.m., Eastern Daylight Time
|
Record Date:
You can vote if you were a shareholder of record at the close of business on March 19, 2019.
|
Place:
Northrop Grumman Corporation
2980 Fairview Park Drive
Falls Church, Virginia 22042
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Admission:
You will need proof of stock ownership and a form of photo identification.
All recording devices are prohibited in the meeting
.
|
Voting Matters and Board Recommendations
|
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Board Vote Recommendation
|
Page Reference
|
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Proposal One: Election of Directors
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FOR
each Director Nominee
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6
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Proposal Two: Advisory Vote on Compensation of Named Executive Officers
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FOR
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34
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Proposal Three: Ratification of Appointment of Independent Auditor
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FOR
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69
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Proposal Four: Shareholder Proposal
to Provide for
a Report on Management Systems and Processes for Implementing the Company's Human Rights Policy
|
AGAINST
|
72
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Proposal Five: Shareholder Proposal to Provide for an Independent Chair
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AGAINST
|
75
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PROPOSAL ONE: ELECTION OF DIRECTORS
|
2019 Nominees for Director
|
WESLEY G. BUSH, 57
|
||
|
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Chairman, Northrop Grumman Corporation.
Director since September 2009
|
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Mr. Wesley G. Bush served as Chief Executive Officer of the Company from January 2010 through December 31, 2018. He was elected to the Board of Directors in 2009 and elected Chairman of the Board of Directors in July 2011, and continues in his role as Chairman. Mr. Bush served as Chief Executive Officer and President of the Company from January 2010 through December 31, 2017, as President and Chief Operating Officer of the Company from March 2007 through December 2009, as President and Chief Financial Officer from May 2006 through March 2007, and as Corporate Vice President and Chief Financial Officer from March 2005 to May 2006. Following the acquisition of TRW Inc. (TRW) by the Company, he was named Corporate Vice President and President of the Space Technology sector. Mr. Bush joined TRW in 1987 and during his career with that company held various leadership positions, including President and CEO of TRW Aeronautical Systems. He is a member of the Board of Directors of General Motors Corporation and also served as a director of Norfolk Southern Corporation during the last five years. He also serves on the boards of several non-profit organizations, including Conservation International and INOVA Health System.
|
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Attributes, Skills and Qualifications
|
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•
Significant business experience with over 35 years in the aerospace and defense industry
|
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•
Prior leadership positions within Northrop Grumman (including as Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer and Sector President)
|
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●
Extensive international business experience
|
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●
Extensive leadership roles in community service
|
PROPOSAL ONE: ELECTION OF DIRECTORS
|
MARIANNE C. BROWN, 60
|
||
|
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Co-Chief Operating Officer, Global Financial Solutions, Fidelity National Information Services, Inc., a financial services technology solutions provider.
Director since March 2015
Member of the Compensation Committee and Policy Committee
|
|
|
|
Ms. Marianne C. Brown has served as Co-Chief Operating Officer, Global Financial Solutions, of Fidelity National Information Services, Inc. since January 2018. Prior to that, Ms. Brown served as Chief Operating Officer, Institutional and Wholesale Business of Fidelity National Information Services since December 2015, when it acquired SunGard Financial Systems. Ms. Brown was Chief Operating Officer of SunGard Financial Systems, a software and IT services provider, from February 2014 to November 2015. Prior to that, Ms. Brown was the CEO and president of Omgeo, a global financial services technology company, from March 2006 to February 2014. Before joining Omgeo, she was the CEO of the Securities Industry Automation Corporation. Ms. Brown began her career at Automatic Data Processing (ADP) and progressed through a series of positions of increasing responsibility culminating in her role as general manager of ADP’s Brokerage Processing Services business, which was subsequently spun off to become Broadridge Financial Solutions.
|
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Attributes, Skills and Qualifications
|
||
●
Substantial business experience as Chief Operating Officer and as a former Chief Executive Officer
|
||
●
Significant experience in IT goods and services and business management
|
||
●
Community and philanthropic leader
|
DONALD E. FELSINGER, 71
|
||
|
|
Lead Independent Director of the Board of Directors, Northrop Grumman Corporation.
Former Chairman and Chief Executive Officer, Sempra Energy, an energy services holding company.
Director since February 2007
Member of the Compensation Committee and Governance Committee
|
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Mr. Donald E. Felsinger is the former Chairman and Chief Executive Officer of Sempra Energy. From July 2011 through his retirement in November 2012, he served as Executive Chairman of the Board of Directors of Sempra Energy, and from February 2006 through June 2011, he was Sempra's Chairman and CEO. Prior to that, Mr. Felsinger was President and Chief Operating Officer of Sempra Energy from January 2005 to February 2006 and a member of the Board of Directors. From 1998 through 2004, he was Group President and Chief Executive Officer of Sempra Global. Prior to the merger that formed Sempra Energy, he served as President and Chief Operating Officer of Enova Corporation, the parent company of San Diego Gas & Electric (SDG&E). Prior positions included President and Chief Executive Officer of SDG&E, Executive Vice President of Enova Corporation and Executive Vice President of SDG&E. Mr. Felsinger serves on the Boards of Directors of Archer-Daniels-Midland (Lead Independent Director) and Gannett Co., Inc.
|
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Attributes, Skills and Qualifications
|
||
●
Extensive business experience as Chief Executive Officer, a board member and Chairman of other Fortune 500 companies in regulated industries
|
||
●
Significant experience in corporate governance and strategy, and as Lead Independent Director of a Fortune 250 company
|
||
●
In-depth knowledge of executive compensation and benefits
|
PROPOSAL ONE: ELECTION OF DIRECTORS
|
ANN M. FUDGE, 67
|
||
|
|
Former Chairman and Chief Executive Officer, Young & Rubicam Brands, a marketing communications company.
Director since March 2016
Member of the Audit Committee and Governance Committee
|
|
|
|
Ms. Ann M. Fudge served as Chairman and Chief Executive Officer of Young & Rubicam Brands at WPP Group PLC from May 2003 to December 2006. Prior to that, she served in various leadership positions at Kraft Foods from 1986 to 2001, including President of Beverages, Desserts and Post Divisions, and President of Maxwell House Coffee and Kraft General Foods. From 1977 to 1986, Ms. Fudge held a variety of marketing positions at General Mills. She is a director of Novartis AG, and served as a director of General Electric Company, Infosys Limited and Unilever N.V. during the last five years. Ms. Fudge is the Chair of the Board of Trustees of WGBH Public Media and a trustee of the Brookings Institution. She also serves on the Advisory Board of the Smithsonian Institution's National Museum of African American History and Culture, and as Chair of the U.S. Programs Advisory Panel of the Gates Foundation.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive business experience as former Chief Executive Officer and former president of leading consumer products business units
|
||
●
Substantial international experience through service as an executive and director of a large multinational company and a director of other large multinational companies
|
||
●
Significant public company board experience
|
||
●
Experience with talent development and acquisition
|
BRUCE S. GORDON, 73
|
||
|
|
Former President, Retail Markets Group, Verizon Communications Inc., a telecommunications company, and Former President & CEO, NAACP.
Director since October 2008
Member of the Compensation Committee and Policy Committee
|
|
|
|
Mr. Bruce S. Gordon served as President and Chief Executive Officer of the National Association for the Advancement of Colored People from June 2005 to March 2007. In 2003, Mr. Gordon retired from Verizon Communications Inc., where he had served as President, Retail Markets Group since 2000. Prior to that, Mr. Gordon served as Group President of the Enterprise Business Unit, President of Consumer Services, Vice President of Marketing and Sales and Vice President of Sales for Bell Atlantic Corporation (Verizon's predecessor). He is a member of the board of directors of the Newport Festival Foundation and a member of the Executive Leadership Council. Mr. Gordon served as a director of CBS Corporation and as the Non-Executive Chair of The ADT Corporation during the last five years. He currently serves as a diversity consultant to several Fortune 500 companies.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive leadership and business skills acquired from his experience with corporate and non-profit enterprises
|
||
●
National leader on issues of diversity and inclusion
|
||
●
Significant board experience, including as non-executive chair
|
PROPOSAL ONE: ELECTION OF DIRECTORS
|
WILLIAM H. HERNANDEZ, 70
|
||
|
|
Former Senior Vice President and Chief Financial Officer, PPG Industries, Inc., a manufacturer of chemical and industrial products.
Director since September 2013
Member of the Audit Committee (Chair) and Governance Committee
|
|
|
|
Mr. William H. Hernandez served as Senior Vice President, Finance, and Chief Financial Officer of PPG Industries, Inc. (PPG), from 1995 until his retirement in 2009. Prior to that, he was PPG's corporate controller from 1990 to 1994. Mr. Hernandez previously held a number of positions with Borg-Warner Corporation and Ford Motor Company. Mr. Hernandez is a certified management accountant and has taught finance and management courses at Marietta College. He is a member of the Boards of Directors of Albemarle Corporation and USG Corporation and served as director of Black Box Corporation during the last five years.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive experience and expertise in areas of finance, accounting and business management acquired as Chief Financial Officer of PPG Industries
|
||
●
Significant experience in areas of risk management
|
||
●
Audit committee financial expert
|
MADELEINE A. KLEINER, 67
|
||
|
|
Former Executive Vice President and General Counsel, Hilton Hotels Corporation, a hotel and resort company.
Director since October 2008
Member of the Audit Committee and Governance Committee (Chair)
|
|
|
|
Ms. Madeleine A. Kleiner served as Executive Vice President, General Counsel and Corporate Secretary for Hilton Hotels Corporation from January 2001 until February 2008. From 1999 through 2001, she served as a director of a number of Merrill Lynch mutual funds operating under the Hotchkis and Wiley name. Ms. Kleiner served as Senior Executive Vice President, Chief Administrative Officer and General Counsel of H.F. Ahmanson & Company and its subsidiary, Home Savings of America, until the company was acquired in 1998, and prior to that was a partner at the law firm of Gibson, Dunn and Crutcher where she advised corporations and their boards primarily in the areas of mergers and acquisitions, corporate governance and securities transactions and compliance. Ms. Kleiner currently serves on the Board of Directors of Jack in the Box Inc.
|
||
Attributes, Skills and Qualifications
|
||
●
Expertise in corporate governance, Sarbanes-Oxley controls, risk management, securities transactions and mergers and acquisitions
|
||
●
Significant experience from past roles as general counsel for two public companies, outside counsel to numerous public companies and through service on another public company board
|
||
●
Audit committee financial expert
|
PROPOSAL ONE: ELECTION OF DIRECTORS
|
KARL J. KRAPEK, 70
|
||
|
|
Former President and Chief Operating Officer, United Technologies Corporation, an aerospace and building systems company.
Director since September 2008
Member of the Compensation Committee and Governance Committee
|
|
|
|
Mr. Karl J. Krapek served as President and Chief Operating Officer of United Technologies Corporation from 1999 until his retirement in January 2002. At United Technologies Corporation, he served for 20 years in various leadership positions, including Executive Vice President and director in 1997, President and Chief Executive Officer of Pratt & Whitney in 1992, Chairman, President and Chief Executive Officer of Carrier Corporation in 1990 and President of Otis Elevator Company in 1989. Prior to joining United Technologies Corporation, he was Manager of Car Assembly Operations for the Pontiac Motor Car Division of General Motors Corporation. In 2002, Mr. Krapek became a co-founder of The Keystone Companies, which develops residential and commercial real estate. He serves on the Board of Directors of Trinity Health of New England. Mr. Krapek is a member of the the Boards of Directors of Prudential Financial, Inc. and Pensare Acquisition Corp.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive industry experience and leadership skills
|
||
●
Deep operational experience in aerospace and defense, domestic and international business operations and technology and lean manufacturing
|
||
●
Significant public company board experience, including serving as Lead Independent Director
|
GARY ROUGHEAD, 67
|
||
|
|
Admiral, United States Navy (Ret.) and Former Chief of Naval Operations.
Director since February 2012
Member of the Compensation Committee and Policy Committee (Chair)
|
|
|
|
Admiral Gary Roughead retired from his position as the 29th Chief of Naval Operations in September 2011, after serving in that position for four years. The Chief of Naval Operations is the senior military position in the United States Navy. As Chief of Naval Operations, Admiral Roughead stabilized and accelerated ship and aircraft procurement plans and the Navy's capability and capacity in ballistic missile defense and unmanned air and underwater systems. He restructured the Navy to address the challenges and opportunities in cyber operations. Prior to becoming the Chief of Naval Operations, he held six operational commands (including commanding both the Atlantic and Pacific Fleets). Admiral Roughead is a Robert and Marion Oster Distinguished Military Fellow at the Hoover Institution. He is a director of Maersk Line, Limited. He also serves as a trustee of the Dodge and Cox Funds. Admiral Roughead serves as a trustee of Johns Hopkins University and serves on the Board of Managers of the Johns Hopkins University Applied Physics Lab. He is a director of the Center for a New American Security.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive career as a senior military officer with the United States Navy, including numerous operational commands, as well as leadership positions, most recently as the 29th Chief of Naval Operations
|
||
●
Significant expertise in national security, information warfare, cyber operations and global security issues
|
||
●
Broad experience in leadership and matters of global relations, particularly in the Pacific region, Europe and the Middle East
|
||
●
Experience with talent development and management
|
PROPOSAL ONE: ELECTION OF DIRECTORS
|
THOMAS M. SCHOEWE, 66
|
||
|
|
Former Executive Vice President and Chief Financial Officer, Wal-Mart Stores, Inc., an operator of retail stores.
Director since August 2011
Member of the Compensation Committee (Chair) and Policy Committee
|
|
|
|
Mr. Thomas M. Schoewe was Executive Vice President and Chief Financial Officer of Wal-Mart Stores Inc. from 2000 to 2011. Prior to his employment with Wal-Mart, he held several roles at the Black and Decker Corporation, including Senior Vice President and Chief Financial Officer from 1996 to 1999, Vice President and Chief Financial Officer from 1993 to 1999, Vice President of Finance from 1989 to 1993 and Vice President of Business Planning and Analysis from 1986 to 1989. Before joining Black and Decker, Mr. Schoewe worked for Beatrice Companies, where he was Chief Financial Officer and Controller of one of its subsidiaries, Beatrice Consumer Durables Inc. Mr. Schoewe serves on the Boards of Directors of General Motors Corporation and KKR & Co. Inc. Mr. Schoewe also serves on the board of the Ladies Professional Golf Association.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive financial experience acquired through positions held as the Chief Financial Officer of large public companies, as well as expertise in Sarbanes-Oxley controls, risk management and mergers and acquisitions
|
||
●
Significant international experience through his service as an executive of large public companies with substantial international operations
|
||
●
Experience at Wal-Mart and Black and Decker on large-scale transformational enterprise information technology implementations
|
||
●
Extensive experience as a member of the audit and risk committees of other public companies
|
JAMES S. TURLEY, 63
|
||
|
|
Former Chairman and Chief Executive Officer, Ernst & Young, a professional services organization.
Director since February 2015
Member of the Audit Committee and Governance Committee
|
|
|
|
Mr. James S. Turley served as Chairman and Chief Executive Officer of Ernst & Young from 2001 until his retirement in 2013. Mr. Turley joined Ernst & Young in 1977 and held various positions there until being named regional managing partner for the Upper Midwest in 1994, and for New York in 1998. He was named Deputy Chairman in 2000. He currently serves on the Boards of Directors of Citigroup, Emerson Electric Company and Intrexon Corporation. He also serves on the Board of Directors of the Boy Scouts of America. Mr. Turley is a board member of Kohler Co. and serves as Non-Executive Chair of Sita Capital Partners LLP.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive experience and expertise in areas of finance, accounting and business management acquired over 36-year career at Ernst & Young, including serving as Chairman and Chief Executive Officer of Ernst & Young
|
||
●
Significant experience in areas of risk management
|
||
●
Extensive experience as a member of the audit committee of other public companies
|
||
●
Audit committee financial expert
|
PROPOSAL ONE: ELECTION OF DIRECTORS
|
KATHY J. WARDEN, 47
|
||
|
|
Chief Executive Officer and President, Northrop Grumman Corporation.
Director since July 2018
|
|
|
|
Ms. Kathy J. Warden has served as Chief Executive Officer and President of the Company since January 2019. She was elected to the Board of Directors in July 2018. Ms. Warden served as President and Chief Operating Officer of the Company from January 2018 through December 2018, as Corporate Vice President and President of the Company's Mission Systems Sector from 2016 through 2017, as Corporate Vice President and President of the Company's former Information Systems Sector from 2013 to 2015, and as Vice President of the Company's Cyber Intelligence Division from 2011 to 2012. Prior to joining the Company in 2008, Ms. Warden held leadership roles at General Dynamics and Veridian Corporation. Earlier, she was a principal in a venture internet firm and also spent nearly a decade with General Electric Company working in commercial industries. She is the Chair of the Board of Directors of the Federal Reserve Bank of Richmond and a member of the Board of Visitors of James Madison University.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive experience in operational leadership, strategy, performance and business development in government and commercial markets, including cyber expertise
|
||
●
Prior leadership positions within Northrop Grumman (including as President, Chief Operating Officer and President of two business sectors)
|
||
●
Significant aerospace and defense industry experience
|
MARK A. WELSH III, 65
|
||
|
|
Dean of the Bush School of Government and Public Service, Texas A&M University; General, United States Air Force (Ret.); Former Chief of Staff, United States Air Force.
Director since December 2016
Member of the Audit Committee and Policy Committee
|
|
|
|
General Mark A. Welsh III has been the Dean of the Bush School of Government and Public Service at Texas A&M University since August 2016. Prior to his current position, General Welsh served as Chief of Staff of the United States Air Force, the senior uniformed Air Force officer responsible for the organization, training and equipping of active-duty, Guard, Reserve and civilian forces serving in the United States and overseas. During his long career, General Welsh also served as a member of the Joint Chiefs of Staff, Commander of the United States Air Forces in Europe and Commander of NATO's Air Command, Associate Director for Military Affairs at the Central Intelligence Agency and Commandant of the United States Air Force Academy. General Welsh is a member of the Board of Managers of Peak NanoSystems, LLC. He is also a director of the Air Force Association.
|
||
Attributes, Skills and Qualifications
|
||
●
Extensive career as a senior military officer and member of the Joint Chiefs of Staff, having held leadership positions at the highest levels of the United States Air Force
|
||
●
Extensive experience and in-depth knowledge of issues related to global security and the intelligence community
|
||
●
Broad leadership experience and international experience, particularly in Europe
|
||
●
Experience with talent development and management
|
PROPOSAL ONE: ELECTION OF DIRECTORS
|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE 13 NOMINEES FOR DIRECTOR LISTED ABOVE.
|
CORPORATE GOVERNANCE
|
Overview
|
We are committed to maintaining high standards of corporate governance, aligned with our focus on sustainable performance and profitable growth, and our core values of ethics and compliance. With strong oversight from the Board, our corporate governance regime is intended to promote the long-term success of our Company to benefit our shareholders, customers and employees.
Our Company has adopted
Principles of Corporate Governance
and
Standards of Business Conduct
to
help guide and promote our good corporate governance and responsible business practices.
|
•
|
require high ethical standards in all aspects of our business;
|
•
|
require strict adherence to all applicable laws and regulations;
|
•
|
reflect our commitment to maintaining a culture that values and promotes diversity and inclusion;
|
•
|
reinforce our commitment to being a responsible corporate citizen;
|
•
|
reflect our commitment to our work environment and the global communities where we live, work and serve;
|
•
|
require the consistent production of quality results; and
|
•
|
call upon all employees to raise any questions or issues of concern (including on an anonymous basis).
|
Role of the Board
|
•
|
oversee our long-term business strategies, operations and performance;
|
•
|
execute robust succession planning; select the Chief Executive Officer and elect officers of the Company;
|
•
|
oversee our major risks and risk management activities; including with regard to cyber and other security risks;
|
•
|
oversee senior executive succession planning and our human capital strategy;
|
•
|
ensure effective corporate governance practices;
|
•
|
elect directors to fill vacant positions between Annual Meetings;
|
•
|
review and approve executive compensation;
|
•
|
review and approve significant corporate actions;
|
•
|
oversee and evaluate management and Board performance;
|
•
|
oversee our ethics and compliance programs;
|
•
|
oversee our diversity and inclusion programs; and
|
•
|
provide advice to management.
|
CORPORATE GOVERNANCE
|
•
|
The Audit Committee focuses on risks that could impact our financial performance. The Audit Committee periodically receives a report from the Chief Financial Officer and members of the Finance Department addressing our financial risk management processes, systems and internal controls, the nature of the material financial risks the Company faces and how the Company responds to and mitigates these risks. The Audit Committee periodically receives a report from our General Counsel on legal and other compliance risks and how the Company is addressing and mitigating those risks. The Audit Committee receives an annual report from our Chief Compliance Officer on the Company's compliance program overall. The Audit Committee also receives quarterly reports from the Vice President, Global Corporate Responsibility on trends in ethics reporting.
|
•
|
The Compensation Committee reviews at least annually a risk assessment of the Company's compensation programs and, together with its independent compensation consultant, evaluates the mix of at-risk compensation linked to stock appreciation.
|
•
|
The Policy Committee assists the Board in identifying and evaluating global security, political, public relations, environmental sustainability and budgetary issues and trends that could impact the Company's business. The Policy Committee periodically receives a report from the Vice President, Global Corporate Responsibility on the Company’s ethics and corporate responsibility programs.
|
•
|
The Governance Committee regularly reviews the Company's policies and practices on issues of corporate governance, and considers issues of succession and composition of the Board, recommending proposed changes to the full Board for approval.
|
Board Leadership Structure
|
CORPORATE GOVERNANCE
|
•
|
preside at meetings of the Board at which the Chairperson is not present, including executive sessions of the independent directors, and advise the Chairperson and CEO on decisions reached and suggestions made;
|
•
|
advise the Chairperson on and approve meeting agendas and information sent to the Board;
|
•
|
advise the Chairperson on and approve the schedule of Board meetings, assuring there is sufficient time for discussion of all agenda items;
|
•
|
provide the Chairperson with input as to the preparation of Board and committee meeting agendas, taking into account the requests of the other Board and committee members;
|
•
|
interview, along with the Chairperson and the Chairperson of the Governance Committee, Board candidates and make recommendations to the Governance Committee and the Board;
|
•
|
call meetings of the independent directors;
|
•
|
support and facilitate engagement between the Chairperson and the independent directors; and
|
•
|
if requested by major shareholders, ensure that he or she is available for consultation and direct communication.
|
Committees of the Board of Directors
|
CORPORATE GOVERNANCE
|
Audit Committee
|
|
Roles and Responsibilities
|
Committee Members
|
Assist the Board in overseeing (1) the integrity of the Company's financial statements and the Company's accounting and financial reporting processes; (2) the Company's overall compliance with legal and regulatory requirements; (3) financial risk assessment and management; (4) the qualifications, performance and independence of the Company's independent auditor; (5) the performance of the Company's internal audit function; and (6) the Company's system of disclosure controls and procedures and internal control over financial reporting, by:
|
William H. Hernandez (chair)
Ann M. Fudge
Madeleine A. Kleiner
James S. Turley
Mark A. Welsh III
Number of meetings in 2018:
10
Independence, Financial Literacy and Audit Committee Financial Experts
All members are independent and financially literate
Ms. Kleiner and Messrs. Hernandez and Turley each qualifies as an Audit Committee Financial Expert
|
●
appointing, retaining, overseeing, evaluating and terminating, if necessary, the independent auditor
|
|
●
reviewing and pre-approving audit and permitted non-audit services and related fees for the independent auditor
|
|
●
reviewing and discussing the Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q
|
|
●
reviewing and discussing management's assessment of, and report on, the effectiveness of the Company's internal control over financial reporting at least annually and the independent auditor's related report
|
|
●
reviewing and discussing with the independent auditor the Company's critical accounting policies, and material written communications with management
|
|
●
reviewing with the General Counsel, at least annually, the status of significant pending litigation and various other significant legal, compliance or regulatory matters
|
|
●
reviewing with the Chief Compliance Officer, at least annually, the Company's compliance program
|
|
●
discussing guidelines and policies regarding risk assessment and risk management
|
|
●
reviewing any significant issues raised by the internal audit function and, as appropriate, management's actions for remediation
|
|
●
establishing and periodically reviewing and discussing with management the Company's procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters
|
Compensation Committee
|
|
Roles and Responsibilities
|
Committee Members
|
Assist the Board in overseeing the Company's compensation policies and practices by:
|
Thomas M. Schoewe (chair)
Marianne C. Brown
Donald E. Felsinger
Bruce S. Gordon
Karl J. Krapek
Gary Roughead
Number of meetings in 2018:
7
Independence
All members are independent
|
●
approving the compensation for elected officers (other than the Chief Executive Officer, whose compensation is recommended by the Committee and approved by all the independent directors)
|
|
●
establishing stock ownership guidelines and reviewing ownership levels on an annual basis
|
|
●
administering incentive and equity compensation plans and approving payments or grants under these plans for elected officers (other than the Chief Executive Officer)
|
|
●
recommending for approval compensation for the non-employee directors, after consultation with the independent compensation consultant
|
|
●
producing an annual report on executive compensation for inclusion in the proxy statement
|
|
●
providing support to the Board in carrying out its overall responsibilities related to executive compensation
|
CORPORATE GOVERNANCE
|
Governance Committee
|
|
Roles and Responsibilities
|
Committee Members
|
Assist the Board in overseeing the Company's corporate governance practices by:
|
Madeleine A. Kleiner (chair)
Donald E. Felsinger
Ann M. Fudge
William H. Hernandez
Karl J. Krapek
James S. Turley
Number of meetings in 2018:
5
Independence
All members are independent
|
●
regularly reviewing the Company's corporate governance policies and practices, including the Principles of Corporate Governance and the Company's Bylaws
|
|
●
regularly reviewing and considering corporate governance developments, emerging trends and best practices and recommending changes to the Board
|
|
●
reviewing and making recommendations with respect to shareholder proposals and the results of shareholder proposals, if any, voted on at a shareholders meeting
|
|
●
regularly reviewing and making recommendations to the Board regarding the composition and size of the Board and the criteria for Board membership, which should include, among other things, diversity, experience and integrity
|
|
●
providing effective board succession planning, identifying and recommending to the Board qualified potential candidates to serve on the Board and its committees and, if applicable, meeting with proxy access nominees nominated through the Company's proxy access bylaw provision
|
|
●
reviewing and determining whether a director's service on another board or elsewhere is likely to interfere with the director's duties and responsibilities as a member of the Board
|
|
●
reviewing and recommending board, director and committee evaluation processes and coordinating the process for the Board to evaluate its performance
|
Policy Committee
|
|
Roles and Responsibilities
|
Committee Members
|
Assist the Board in overseeing policy, government relations and corporate responsibility by:
|
Gary Roughead (chair)
Marianne C. Brown
Bruce S. Gordon
Thomas M. Schoewe
Mark A. Welsh III
Number of meetings in 2018:
4
Independence
All members are independent
|
●
identifying and evaluating global security, political, budgetary and other issues and trends that could impact the Company's business activities and performance
|
|
●
reviewing and providing oversight over the Company's ethics and corporate responsibility policies and programs
|
|
●
reviewing the Company's public relations branding strategy
|
|
●
reviewing and monitoring the Company's government relations strategy and political action committee
|
|
●
reviewing the Company's community relations activities
|
|
●
reviewing and providing oversight of the Company's environmental sustainability program
|
CORPORATE GOVERNANCE
|
Board Meetings and Executive Sessions
|
Meeting Attendance
|
Director Independence
|
•
|
has within the prior three years been a director, executive officer or trustee of a charitable organization that received annual contributions from the Company exceeding the greater of $1 million or 2% of the charitable organization's annual gross revenues, where the gifts were not normal matching charitable gifts, did not go through normal corporate charitable donation approval processes or were made "on behalf of" a director;
|
•
|
has, or has an immediate family member who has, within the prior three years been employed by, a partner in or otherwise affiliated with any law firm or investment bank in which the director's or the immediate family member's compensation was contingent on the services performed for the Company or in which the director or the immediate family member personally performed services for the Company and the annual fees paid by the Company during the preceding fiscal year exceeded the greater of $1 million or 2% of the gross annual revenues of such firm; or
|
•
|
has, or has an immediate family member who has, within the prior three years owned, either directly or indirectly as a partner, shareholder or officer of another company, more than 5% of the equity of an organization that has a material business relationship with (including significant purchasers of goods or services), or more than 5% ownership in, the Company.
|
CORPORATE GOVERNANCE
|
•
|
Mr. Felsinger's service as a member of the Board of Directors of Archer-Daniels-Midland;
|
•
|
Mr. Gordon's service as a member of the Board of Directors of CBS Corporation;
|
•
|
Mr. Hernandez's service as a member of the Board of Directors of Albemarle Corporation;
|
•
|
Admiral Roughead's service as a member of the Board of Directors of the Center for a New American Security, a trustee of Johns Hopkins University and a member of the Board of Managers of Johns Hopkins University Applied Physics Lab;
|
•
|
Mr. Schoewe's service as a member of the Board of Directors of General Motors; and
|
•
|
Mr. Turley's service as a member of the Board of Directors of Citigroup and Emerson Electric.
|
Director Election Process
|
Board Composition and Director Nominations
|
CORPORATE GOVERNANCE
|
Director Qualifications
|
•
|
the personal integrity and the professional reputation of the individual;
|
•
|
the education, professional background and particular skills and experience most beneficial to service on our Board;
|
•
|
how the nominee brings diversity, experience and skills valuable to the Company and Board at the time; and
|
•
|
whether a director candidate is willing to submit to and obtain a background check necessary for obtaining and retaining a top secret security clearance.
|
Director Orientation and Continuing Education
|
CORPORATE GOVERNANCE
|
Board Membership and External Relationships
|
Effect of Failure to Receive the Required Vote or Obtain and Retain Security Clearance
|
Board and Committee Self-Evaluation
|
•
|
the Board's effectiveness in evaluating and monitoring the Company's business plan, long-term strategy and risks;
|
•
|
whether strategic and critical issues are being addressed by the Board in a timely manner;
|
•
|
whether the Board’s expectations and concerns are openly communicated to and discussed with the Chief Executive Officer;
|
•
|
whether there is adequate contact between the Board and members of senior management;
|
•
|
whether the directors collectively operate effectively as a Board;
|
•
|
whether the individual directors have the appropriate mix of attributes and skills to fulfill their duties as directors of the Company;
|
CORPORATE GOVERNANCE
|
•
|
whether there are adequate opportunities to raise questions and comments on issues, both inside and outside of Board meetings;
|
•
|
whether the Board has focused adequately on succession planning; and
|
•
|
whether the Board is adequately responsive to shareholder communication.
|
•
|
understanding of the Company’s overall business and risk profile and its significant financial opportunities and plans;
|
•
|
engagement during meetings and other Board functions;
|
•
|
analysis of benefits and risks of courses of action considered by the Board; and
|
•
|
appropriate respect for the views of other Board members.
|
Succession Planning
|
•
|
to evaluate the Chief Executive Officer annually based on a specific set of performance objectives;
|
•
|
to work with the Chief Executive Officer to support and ensure the development of potential succession candidates for the Chief Executive Officer and other leadership positions;
|
•
|
to discuss with the Chief Executive Officer annually an assessment of persons considered potential successors to various senior management positions; and
|
•
|
robustly to consider, plan for and ensure successful transitions of leadership.
|
Departure and Election of Directors
|
CORPORATE GOVERNANCE
|
Communications with the Board of Directors
|
Corporate Responsibility
|
•
|
a leadership score of A- in CDP’s 2018 climate change program for the seventh consecutive year;
|
•
|
the Catalyst award for our “Build the Best Culture, Leverage the Power of Women” campaign which drove significant increases in the percentage of women in our executive ranks;
|
•
|
an A rating from MSCI for environmental, social and governance management and performance;
|
•
|
Dow Jones Sustainability North America Index for the third consecutive year; and
|
•
|
one of DiversityInc's Top 50 Companies for Diversity for the ninth year in a row.
|
COMPENSATION OF DIRECTORS
|
Compensation Element
|
|
Amount ($)
(1/1/18 - 5/15/18)
|
|
Amount ($)
(5/16/18 - 12/31/18)
|
|
|
Annual Cash Retainer
|
|
122,500
|
|
127,500
|
|
|
Lead Independent Director Retainer
|
|
35,000
|
|
35,000
|
|
|
Audit Committee Retainer
|
|
10,000
|
|
10,000
|
|
|
Audit Committee Chair Retainer
|
|
20,000
|
|
20,000
|
|
|
Compensation Committee Chair Retainer
|
|
20,000
|
|
20,000
|
|
|
Governance Committee Chair Retainer
|
|
15,000
|
|
20,000
|
|
|
Policy Committee Chair Retainer
|
|
7,500
|
|
20,000
|
|
|
Annual Equity Grant (1)
|
|
150,000
|
|
155,000
|
|
|
|
|
|
|
|
||
(1) The annual equity grant is deferred into a stock unit account pursuant to the 2011 Long-Term Incentive Stock Plan (2011 Plan) as described below. The Northrop Grumman Equity Grant Program for Non-Employee Directors (Director Program) sets forth the terms and conditions of the equity awards granted to non-employee directors under the 2011 Plan.
|
|
Stock Ownership Requirements and Anti-Hedging and Pledging Policy
|
COMPENSATION OF DIRECTORS
|
2018 Director Compensation
|
Name
|
|
Fees Earned or Paid in Cash (1)
($)
|
|
Stock
Awards (2)
($)
|
|
All Other
Compensation (3)
($)
|
|
Total
($)
|
|
Marianne C. Brown
|
|
129,400
|
|
155,000
|
|
18,825
|
|
303,225
|
|
Victor H. Fazio (4)
|
|
50,350
|
|
—
|
|
4,621
|
|
54,971
|
|
Donald E. Felsinger
|
|
160,600
|
|
155,000
|
|
36,576
|
|
352,176
|
|
Ann M. Fudge
|
|
135,600
|
|
155,000
|
|
29,379
|
|
319,979
|
|
Bruce S. Gordon
|
|
128,450
|
|
155,000
|
|
39,875
|
|
323,325
|
|
William H. Hernandez
|
|
155,600
|
|
155,000
|
|
10,799
|
|
321,399
|
|
Madeleine A. Kleiner
|
|
153,700
|
|
155,000
|
|
19,475
|
|
328,175
|
|
Karl J. Krapek
|
|
133,200
|
|
155,000
|
|
22,356
|
|
310,556
|
|
Gary Roughead
|
|
138,000
|
|
155,000
|
|
2,279
|
|
295,279
|
|
Thomas M. Schoewe
|
|
138,000
|
|
155,000
|
|
2,994
|
|
295,994
|
|
James S. Turley
|
|
135,600
|
|
155,000
|
|
16,871
|
|
307,471
|
|
Mark A. Welsh III
|
|
135,600
|
|
155,000
|
|
79
|
|
290,679
|
(1)
|
Amounts reflect the annual cash retainer paid to each director, including any applicable annual committee and committee chair retainers and any applicable Lead Independent Director or Chairperson retainer. As described above, a director may elect to defer all or a portion of his or her annual cash retainer into a deferred stock unit account. Amounts deferred as Elective Stock Units or deferred into alternative investment options are reflected in this column.
|
(2)
|
Amounts represent the target value of Automatic Stock Units awarded to each of our non-employee directors in
2018
under the 2011 Plan pursuant to the Amended Director Program. The amount reported for each director reflects the aggregate fair value of the Automatic Stock Units on the grant date, as determined under
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718
, Stock Compensation, excluding any assumed forfeitures. The grant date fair value assumes the value of dividend equivalents accrued directly on the awarded units. The aggregate number of Automatic Stock Units and Elective Stock Units held by each director as of
December 31, 2018
is provided in the Deferred Stock Units table below.
|
(3)
|
Amounts reflect (i) the estimated dollar value of additional stock units credited to each non-employee director as a result of dividend equivalents earned, directly or indirectly, on reinvested dividend equivalents as such amounts are not assumed in the grant date fair value of the Automatic Stock Units shown in the "Stock Awards" column, and (ii) matching contributions made through our Matching Gifts Program for Education discussed above as follows: Ms. Fudge, $10,000; Mr. Gordon, $10,000; Mr. Hernandez, $10,000; Ms. Kleiner, $
10,000
; and Mr. Krapek, $
10,000
. Amounts shown also include perquisites and other personal benefits provided to certain of the directors in 2018, including airfare for spouses and certain activities in conjunction with a Company board meeting.
|
(4)
|
Mr. Fazio did not stand for reelection at the 2018 Annual Meeting.
|
COMPENSATION OF DIRECTORS
|
Name
|
|
Automatic Stock
Units
|
|
Elective Stock
Units
|
|
Total
|
|
Marianne C. Brown
|
|
2,774
|
|
1,571
|
|
4,345
|
|
Victor H. Fazio (1)
|
|
—
|
|
—
|
|
—
|
|
Donald E. Felsinger
|
|
20,470
|
|
14,890
|
|
35,360
|
|
Ann M. Fudge
|
|
1,820
|
|
483
|
|
2,303
|
|
Bruce S. Gordon
|
|
17,067
|
|
—
|
|
17,067
|
|
William H. Hernandez
|
|
4,400
|
|
—
|
|
4,400
|
|
Madeleine A. Kleiner
|
|
16,065
|
|
—
|
|
16,065
|
|
Karl J. Krapek
|
|
17,110
|
|
5,291
|
|
22,401
|
|
Gary Roughead
|
|
7,642
|
|
—
|
|
7,642
|
|
Thomas M. Schoewe
|
|
8,857
|
|
—
|
|
8,857
|
|
James S. Turley
|
|
2,843
|
|
—
|
|
2,843
|
|
Mark A. Welsh III
|
|
1,391
|
|
—
|
|
1,391
|
|
|
|
|
|
|
|
|
|
(1) Mr. Fazio did not stand for reelection at the 2018 Annual Meeting. All stock units were paid out to Mr. Fazio in the form of common stock after his retirement from the Board in May 2018.
|
TRANSACTIONS WITH RELATED PERSONS AND CONTROL PERSONS
|
Related Person Transactions
|
•
|
any of our directors or executive officers;
|
•
|
any person who is known to be the beneficial owner of more than 5% of our common stock;
|
•
|
an immediate family member of any such persons; or
|
•
|
any firm, corporation, or other entity controlled by any such persons.
|
Compensation Committee Interlocks and Insider Participation
|
TRANSACTIONS WITH RELATED PERSONS AND CONTROL PERSONS
|
Indemnification Agreements
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
|
VOTING SECURITIES AND PRINCIPAL HOLDERS
|
Stock Ownership of Certain Beneficial Owners
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership of
Common Stock
|
|
Percent
of Class
|
||
State Street Corporation
One Lincoln Street, Boston, MA 02111 |
|
17,679,908
|
(1)
|
|
10.2%
|
|
The Vanguard Group
100 Vanguard Blvd., Malvern, PA 19355 |
|
13,976,016
|
(2)
|
|
8.0%
|
|
BlackRock, Inc.
55 East 52nd Street, New York, NY 10055
|
|
11,613,939
|
(3)
|
|
6.7%
|
|
T. Rowe Price Associates, Inc.
100 E. Pratt Street, Baltimore, MD 21202 |
|
11,458,250
|
(4)
|
|
6.6%
|
|
Capital International Investors
11100 Santa Monica Boulevard, 16th Floor,
Los Angeles, CA 90025
|
|
10,452,149
|
(5)
|
|
6.0%
|
(1)
|
This information was provided by State Street Corporation (State Street) in a Schedule 13G filed with the SEC on February 13, 2019. According to State Street, as of
December 31, 2018
, State Street had shared voting power over 17,171,242 shares and shared dispositive power over 17,678,111 shares. This total includes 11,130,319 shares held as of December 31, 2018 in the Defined Contribution Plans Master Trust for the Northrop Grumman Savings Plan and the Northrop Grumman Financial Security and Savings Program, for which State Street Bank and Trust Company acts as trustee and State Street Global Advisors Trust Company acts as investment manager.
|
(2)
|
This information was provided by The Vanguard Group (Vanguard) in a Schedule 13G/A filed with the SEC on February 11, 2019. According to Vanguard, as of
December 31, 2018
, Vanguard had sole voting power over 204,053 shares, shared voting power over 19,712 shares, sole dispositive power over 13,752,660 shares and shared dispositive power over 223,356 shares.
|
(3)
|
This information was provided by BlackRock, Inc. (BlackRock) in a Schedule 13G/A filed with the SEC on February 6, 2019. According to BlackRock, as of
December 31, 2018
, BlackRock had sole voting power over 10,581,017 shares and sole dispositive power over 11,613,939 shares.
|
(4)
|
This information was provided by T. Rowe Price Associates, Inc. (T. Rowe Price) in a Schedule 13G filed with the SEC on February 14, 2019. According to T. Rowe Price, as of
December 31, 2018
, T. Rowe Price had sole voting power over 4,534,110 shares and sole dispositive power over 11,449,975 shares.
|
(5)
|
This information was provided by Capital International Investors (Capital International), a division of Capital Research and Management Company, in a Schedule 13G filed with the SEC on February 14, 2019. According to Capital International, as of
December 31, 2018
, Capital International had sole voting power over 10,347,176 shares and sole dispositive power over 10,452,149 shares.
|
VOTING SECURITIES AND PRINCIPAL HOLDERS
|
Stock Ownership of Officers and Directors
|
|
|
Shares of Common Stock
Beneficially Owned
|
|
|
Share
Equivalents (1)
|
|
Total
|
|
Non-Employee Directors
|
|
|
|
|
|
|
|
|
Marianne C. Brown
|
|
—
|
|
|
4,364
|
|
4,364
|
|
Donald E. Felsinger
|
|
—
|
|
|
35,508
|
|
35,508
|
|
Ann M. Fudge
|
|
93
|
|
|
2,312
|
|
2,405
|
|
Bruce S. Gordon
|
|
—
|
|
|
17,138
|
|
17,138
|
|
William H. Hernandez
|
|
1,000
|
|
|
4,418
|
|
5,418
|
|
Madeleine A. Kleiner
|
|
971
|
|
|
16,132
|
|
17,103
|
|
Karl J. Krapek
|
|
4,856
|
|
|
21,614
|
|
26,470
|
|
Gary Roughead
|
|
—
|
|
|
7,674
|
|
7,674
|
|
Thomas M. Schoewe
|
|
3,160
|
|
|
8,894
|
|
12,054
|
|
James S. Turley
|
|
—
|
|
|
2,855
|
|
2,855
|
|
Mark A. Welsh III
|
|
—
|
|
|
1,397
|
|
1,397
|
|
Named Executive Officers
|
|
|
|
|
|
|
|
|
Wesley G. Bush (2)
|
|
296,286
|
(3)
|
|
5,661
|
|
301,947
|
|
Kathy J. Warden (4)
|
|
99,732
|
|
|
—
|
|
99,732
|
|
Kenneth L. Bedingfield
|
|
40,005
|
|
|
—
|
|
40,005
|
|
Mark A. Caylor
|
|
15,879
|
|
|
35
|
|
15,914
|
|
Blake L. Larson
|
|
3,596
|
|
|
—
|
|
3,596
|
|
Other Executive Officers
|
|
159,537
|
|
|
15,788
|
|
175,325
|
|
All Directors and Executive Officers as a Group (27 persons)
|
|
625,115
|
|
|
143,790
|
|
768,905
|
(5)
|
(1)
|
Share equivalents for directors represent non-voting deferred stock units acquired under the 2011 Plan, some of which are paid out in shares of common stock at the conclusion of a director-specified deferral period, and others are paid out upon termination of the director's service on the Board. Certain of the NEOs hold share equivalents with pass-through voting rights in the Northrop Grumman Savings Plan or the Northrop Grumman Financial Security and Savings Program.
|
(2)
|
On January 1, 2019, Wesley G. Bush was succeeded as Chief Executive Officer by Kathy J. Warden. Mr. Bush will remain an employee of the Company and continue to serve as Chairman of the Board until his retirement on July 31, 2019.
|
(3)
|
Includes 207,161 shares held in the W.G. and N.F. Bush Family Trust, 20,036 shares held in the Bush Trust Number 4 Trust, and 19,089 shares held in the Wesley G. Bush Revocable Trust, each of which Mr. Bush and his wife serve as trustees.
|
(4)
|
Ms. Warden also serves on the Company's Board of Directors.
|
(5)
|
Total represents 0.45% of the outstanding common stock as of
March 19, 2019
.
|
EQUITY COMPENSATION PLAN INFORMATION
|
Plan category
|
|
Number of shares of
common stock to be
issued upon exercise
of outstanding options and
payout of outstanding
awards (1)
(#)
|
|
Weighted-average
exercise price of
outstanding options (2)
($)
|
|
Number of shares of
common stock remaining available for future issuance under equity compensation plans (excluding shares reflected in the first column) (3)
(#)
|
|
Equity compensation plans approved by shareholders
|
|
1,723,560
|
|
N/A
|
|
5,927,560
|
|
Equity compensation plans not approved by shareholders
|
|
N/A
|
|
N/A
|
|
N/A
|
|
Total
|
|
1,723,560
|
|
N/A
|
|
5,927,560
|
(4)
|
(1)
|
This number includes 796,354 shares that were subject to outstanding stock awards granted under the 2011 Plan, 463,648 awards earned at year end but pending distribution subject to final performance adjustments, 122,674 shares subject to outstanding stock unit credited under the 2011 Plan and 1993 Directors Plan, and additional performance shares of 340,884, which reflect the number of shares deliverable under payment of outstanding restricted performance stock rights, assuming maximum performance criteria have been achieved.
|
(2)
|
There were no options outstanding as of December 31, 2018.
|
(3)
|
Of the aggregate number of shares that remained available for future issuance, 5,927,560 were available under the 2011 Plan as of December 31, 2018. No new awards may be granted under the 1993 Directors Plan.
|
(4)
|
After giving effect to our February 2019 awards, the number of shares of common stock remaining available for future issuance would be 5,412,262 (assuming maximum payout of such awards).
|
PROPOSAL TWO: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
|
•
|
Double-trigger provisions for change in control situations, and no excise tax gross-ups for payments upon termination after a change in control;
|
•
|
A recoupment policy applicable to cash and equity incentive compensation payments;
|
•
|
Stock ownership guidelines of 7x base salary for the CEO and 3x base salary for other NEOs, and stock holding requirements of three years from the vesting date for equity awards; and
|
•
|
Prohibitions on hedging or pledging of Company stock.
|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL TWO.
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Compensation Discussion and Analysis
|
COMPENSATION DISCUSSION AND ANALYSIS
|
CEO Transition
|
New Sector Leadership
|
COMPENSATION DISCUSSION AND ANALYSIS | E
XECUTIVE
S
UMMARY
|
Summary of Our Executive Compensation Programs
|
|
|
Compensation Element
|
|
Purpose
|
|
Key Characteristics
|
|
|
|
|
|
|
|
Fixed Component
|
|
Base Salary
|
|
Compensate fairly and competitively
|
|
Determined by level of responsibility, competitive market pay assessment and individual performance
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan (LTIP) RSRs
|
|
Link the interests of our executive officers to shareholders and retain executive talent
|
|
30% of annual LTIP grant
Three-year cliff vesting
|
|
|
|
|
|
|
|
|
Performance-based Component
|
|
Annual Incentive Plan (AIP)
|
|
Motivate and reward achievement of annual business objectives
|
|
Financial Metrics
1/3 Pension-adjusted Operating Margin (OM) Rate*
1/3 Pension-adjusted Cash Flow from Operations*
1/3 Pension-adjusted Net Income* Growth
Subject to downward adjustment for failure to achieve non-financial objectives
|
|
|
|
|
|
|
|
|
LTIP RPSRs
|
|
Link the interests of our executive officers to shareholders, motivate and reward achievement of long-term strategic goals and retain executive talent
|
|
70% of annual LTIP grant
Three-year performance period
Actual shares earned are weighted 50% to relative TSR and 50% to Cumulative Free Cash Flow* (Cumulative FCF*)
|
|
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
|
Our Compensation Pay Practices (pages 40 - 51)
|
Best Practices
|
||||
|
|
|
|
|
•
Pay for Performance
•
Above Target and Maximum Annual Incentive Payouts Only When We Outperform Our Peer Benchmarks
•
Long-Term Incentives Focused on Performance
•
Cap on Annual Bonuses and Performance-Based Long-Term Incentive Share Payouts
•
Compensation Elements Benchmarked at Market Median
|
|
•
Annual Peer Group Review
•
Independent Consultant Reports Directly to Compensation Committee
•
Double Trigger Provisions for Change in Control
•
No Individual Change in Control Agreements
•
No Excise Tax Gross-ups for Payments Received Upon Termination After a Change in Control
|
|
•
No Hedging or Pledging of Company Stock
•
Dividends Paid Upon Vesting
•
Recoupment Policy on Incentive Compensation Payments
•
Stock Ownership Guidelines and Stock Holding Requirements
•
Regular Risk Assessments Performed
•
No Employment Contracts for CEO or other NEOs
|
COMPENSATION DISCUSSION AND ANALYSIS | E
XECUTIVE
S
UMMARY
|
2018 Performance Highlights
|
Earnings Per Share
|
Total Shareholder Return
(1)
(3-Year Average)
|
COMPENSATION DISCUSSION AND ANALYSIS | E
XECUTIVE
S
UMMARY
|
Compensation Mix and Incentive Metrics
|
•
|
Pension-adjusted OM Rate*
:
11.4%
|
•
|
Pension-adjusted Cash Flow from Operations*
:
$3.2B
|
•
|
Pension-adjusted Net Income* Growth
:
$2.4B
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
P
RINCIPLES
|
Compensation Philosophy and Objectives
|
Pay for Performance
|
•
Our incentive plans are based on peer and market benchmarked performance metrics.
|
|
Leadership Retention and Succession
|
•
Compensation is designed to be competitive within our industry and retain top talent.
|
•
Programs are designed to motivate and reward NEOs for delivering operational and strategic performance over time.
|
|
Sustainable Performance
|
•
Our AIP includes both financial and non-financial metrics to ensure we are building a strong foundation for long-term sustainable performance and shareholder value creation.
|
|
Alignment with Shareholder Interests
|
•
Our compensation structure places an appropriate amount of compensation at risk based on annual and long-term results.
|
•
At-risk compensation is based on financial and non-financial performance measures and relative TSR.
|
•
A significant portion of compensation is delivered in equity, the vesting and value of which provides alignment with shareholder returns.
|
•
Stock ownership guidelines, holding requirements for equity awards and our recoupment policy further align executive and shareholder interests.
|
|
Benchmarking
|
•
Compensation program provisions and financial objectives are evaluated on an annual basis and modified in accordance with industry and business conditions.
|
•
We seek to outperform our peers (a group of top global defense companies identified as the Performance Peer Group on page 42).
|
•
We use a Target Industry Peer Group (identified on page 43) for broader market executive compensation analyses that includes companies based on a peer-of-peers analysis.
|
|
Compensation Risk Management
|
•
The Compensation Committee, together with its independent compensation consultant, conducts an annual assessment of the compensation programs to determine if there are potential material risks to the Company.
|
•
Both the Compensation Committee and its independent compensation consultant evaluate the mix of at-risk compensation linked to stock appreciation.
|
•
The assessment is to confirm there is an appropriate balance in the executive compensation programs, practices and policies.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
P
RINCIPLES
|
How We Make Compensation Decisions
|
•
|
receives advice from an independent compensation consultant who reports directly to the Compensation Committee and is discussed further below;
|
•
|
reviews market data and other input from its independent compensation consultant;
|
•
|
reviews and approves incentive goals and objectives (CEO goals and objectives are reviewed and approved by the independent directors);
|
•
|
evaluates and approves executive benefit and perquisite programs; and
|
•
|
evaluates the competitiveness of each elected officer's total compensation package.
|
•
|
reviewing and advising the Compensation Committee on our total compensation philosophy, peer groups and target competitive positioning;
|
•
|
identifying market trends and practices and advising the Compensation Committee on program design implications;
|
•
|
providing proactive advice to the Compensation Committee on best practices for Board governance of executive compensation, compensation-related risk management, and any areas for program design to most appropriately support the Company's business strategy and organizational values; and
|
•
|
serving as a resource to the Compensation Committee Chairperson on setting agenda items for Compensation Committee meetings and undertaking special projects.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
P
RINCIPLES
|
Use of Competitive Data
|
2018 PERFORMANCE PEER GROUP
|
||
BAE Systems
|
Harris Corporation
|
Lockheed Martin Corporation
|
The Boeing Company
|
L3 Technologies, Inc.
|
Raytheon Company
|
Booz Allen Hamilton Holding Corporation
|
Leidos Holdings, Inc.
|
Thales Group
|
General Dynamics Corporation
|
Leonardo
|
|
2016 PERFORMANCE PEER GROUP
|
||
BAE Systems
|
Harris Corporation
|
Lockheed Martin Corporation
|
The Boeing Company
|
L3 Technologies, Inc.
|
Raytheon Company
|
Booz Allen Hamilton Holding Corporation
|
Leidos Holdings, Inc.
|
Thales Group
|
General Dynamics Corporation
|
Leonardo
|
|
•
|
the company was identified as a peer by at least two aerospace and defense peers or proxy advisory services;
|
•
|
the company participated in the annual Aon Hewitt executive compensation study; and
|
•
|
revenues, total employees and market capitalization of the company were broadly similar to those of the Company.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
P
RINCIPLES
|
2018 TARGET INDUSTRY PEER GROUP
|
|
3M Company
|
Johnson Controls International
|
The Boeing Company
(1)
|
L3 Technologies, Inc.
(1)
|
Caterpillar, Inc.
|
Lockheed Martin Corporation
(1)
|
Eaton Corporation
|
Raytheon Company
(1)
|
Emerson Electric Company
|
Rockwell Collins, Inc.
|
General Dynamics Corporation
(1)
|
Textron, Inc.
|
Honeywell International, Inc.
(1)
|
United Technologies Corporation
|
(1)
Included in the subset of six direct peers also used for compensation benchmarking
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
Annual Incentive Compensation
|
Base Salary
|
X
|
Target Payout %
|
=
|
Target Bonus
|
|
|
|
|
|
Target Bonus
|
X
|
CPF
|
=
|
Final Bonus Award
|
(1)
The final bonus award for Mr. Larson was determined utilizing previously established 2018 annual incentive performance goals under the legacy Orbital ATK Executive Officer Incentive Plan (EOIP), discussed in greater detail on page 46.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
•
|
Pension-adjusted OM Rate*
:
establishes high program performance expectations for the Company and is calculated as OM rate (operating margin divided by sales) before net FAS (service)/CAS pension adjustment (the difference between pension expense charged to contracts and included as cost in segment operating income* in accordance with U.S. Government Cost Accounting Standards (CAS) and the service component of pension expense determined in accordance with GAAP (FAS)).
|
•
|
Pension-adjusted Cash Flow from Operations*
:
recognizes the importance of converting net income into cash. The metric is calculated as cash provided by operating activities before the after-tax impact of discretionary pension contributions*.
Pension-adjusted Cash Flow from Operations*
enables management to make capital investment decisions that support long-term profitable growth without impacting performance-based incentive compensation.
|
•
|
Pension-adjusted Net Income* Growth
:
incentivizes management to achieve relative long-term profitable growth greater than a projected industry growth rate.
Pension-adjusted Net Income* Growth
is calculated as net income before the after-tax impact of the total net FAS/CAS pension adjustment.
|
•
|
Customer Satisfaction
:
measured in terms of customer feedback, including customer-generated performance scores, award fees and verbal and written feedback.
|
•
|
Diversity:
measured in terms of improving representation of females and people of color in all management level positions with respect to internal and external benchmarks.
|
•
|
Engagement & Inclusion
:
measured based on performance at or above the global high performing norm for engagement and inclusion indices and an accountability metric (as reported in a company-wide employee survey).
|
•
|
Environmental Sustainability
:
measured in terms of reductions in absolute greenhouse gas emissions and potable water use consumption, and improvement in solid waste diversion (i.e., waste diverted from landfill disposal).
|
•
|
Quality:
measured using program-specific objectives, including defect rates, process quality, supplier quality, planning quality or other appropriate criteria for program type and phase.
|
•
|
Safety
:
measured by total case rate, defined as the number of Occupational Safety & Health Administration recordable injuries as well as by lost work day rate associated with those injuries.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
Metric/Goal
|
Weighting
|
Performance to Achieve Target Payout
|
2018 Performance
|
2018 Financial Score
|
Pension-adjusted OM Rate*
|
1/3
|
9.9%
|
11.4%
|
67%
|
Pension-adjusted Cash Flow from Operations*
|
1/3
|
$3.4B
|
$3.2B
|
32%
|
Pension-adjusted Net Income* Growth
|
1/3
|
$1.9B
|
$2.4B
|
67%
|
|
|
|
|
166%
|
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
|
Name
|
|
Target Payout
% of Salary |
|
Payout Range
% of Salary |
|
Actual Payout
% of Salary |
|
Actual Payout
(1)
|
Wesley G. Bush
|
|
180%
|
|
0% - 360%
|
|
288%
|
|
$4,562,000
|
Kathy J. Warden
|
|
120%
|
|
0% - 240%
|
|
192%
|
|
$1,920,000
|
Kenneth L. Bedingfield
|
|
100%
|
|
0% - 200%
|
|
160%
|
|
$1,304,000
|
Mark A. Caylor
|
|
100%
|
|
0% - 200%
|
|
160%
|
|
$1,328,000
|
Blake E. Larson
(2)
|
|
96%
|
|
0% - 192%
|
|
153%
|
|
$1,127,000
|
(1)
The potential range of bonus payouts based on 2018 performance is disclosed in the Grants of Plan-Based Awards Table. Actual bonus payouts for 2018 performance are disclosed above and in the Summary Compensation Table.
|
||||||||
(2)
Mr. Larson was elected President, Innovation Systems, effective as of the Merger Date. The actual payout utilizes full-year metrics defined under the EOIP, but reflects the higher target adjusted for the time he served as an elected officer of Northrop Grumman.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
Long-Term Incentive Compensation
|
|
Performance Required to Score
|
|
|
|||
Metric/Goal
|
Weighting
|
0%
|
100%
|
150%
|
2018 Actual Performance
|
2018 Score
|
Relative TSR - 2016 Performance Peer Group
|
35%
|
25th
|
50th
|
80th
|
45th
|
29%
|
Relative TSR - S&P Industrials
|
35%
|
25th
|
50th
|
80th
|
64th
|
43%
|
Cumulative FCF*
|
30%
|
$4.8B
|
$5.5B
|
$6.2B
|
$6.1B
|
43%
|
RPSR Performance Factor
|
|
|
|
|
|
115%
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
Other Benefits
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
•
|
involuntary termination, other than for cause or mandatory retirement; or
|
•
|
election to terminate in lieu of accepting a downgrade to a non-officer position (i.e., good reason).
|
Policies and Procedures
|
Position
|
Stock Value as a Multiple of Base Salary
|
Chairman and Chief Executive Officer
|
7x base salary
|
Other NEOs
|
3x base salary
|
•
|
Company stock owned outright;
|
•
|
unvested RSRs; and
|
•
|
the value of shares held in the Northrop Grumman Savings Plan or Northrop Grumman Financial Security and Savings Program.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
•
|
the Board has discretion to recoup incentive compensation paid to an elected officer in the event of a restatement or if an elected officer engages in illegal conduct that causes significant financial or reputational harm to the Company;
|
•
|
the Board has discretion to recoup incentive compensation paid to the elected officer in the event the elected officer fails to report such misconduct of another, or is grossly negligent in fulfilling his or her supervisory responsibilities to prevent such misconduct; and
|
•
|
the CEO has discretion to recoup under similar circumstances incentive compensation provided to non-elected officers or other employees.
|
•
|
there is appropriate balance to mitigate compensation-related risk in the executive compensation program's design between fixed and variable pay, cash and stock components, short- and long-term measures, financial and non-financial measures, and formulaic and discretionary decisions;
|
•
|
there are appropriate policies in place to mitigate compensation-related risk, including the Compensation Committee's and its advisor's independence, transparent disclosure, officer stock ownership guidelines and holding period requirements, and hedging and recoupment policies; and
|
•
|
there are no incentive or commission arrangements below the executive level that potentially encourage excessive risk-taking behavior.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
COMPENSATION COMMITTEE REPORT
|
COMPENSATION TABLES | S
UMMARY
C
OMPENSATION
T
ABLE
|
Name & Principal Position
|
Year
|
|
Salary (1)
($) |
|
Stock
Awards (2) ($) |
|
Non-Equity Incentive Plan Compensation (3)
($) |
|
Change in Pension Value and Non-Qualified Deferred Compensation Earnings (4)
($) |
|
All Other Compensation (5)
($) |
|
Total
($) |
Wesley G. Bush
|
2018
|
|
1,578,039
|
|
16,924,462
|
|
4,562,000
|
|
—
|
|
1,120,758
|
|
24,185,259
|
Chairman and Chief Executive Officer
|
2017
|
|
1,548,577
|
|
9,999,969
|
|
3,662,000
|
|
2,733,390
|
|
925,121
|
|
18,869,057
|
2016
|
|
1,530,000
|
|
10,000,072
|
|
4,406,400
|
|
3,036,744
|
|
868,625
|
|
19,841,841
|
|
Kathy J. Warden
|
2018
|
|
963,462
|
|
9,999,869
|
|
1,920,000
|
|
—
|
|
458,976
|
|
13,342,307
|
President and
Chief Operating Officer |
2017
|
|
807,116
|
|
3,499,993
|
|
1,061,000
|
|
388,015
|
|
206,548
|
|
5,962,672
|
2016
|
|
772,500
|
|
3,499,856
|
|
1,272,000
|
|
200,220
|
|
165,596
|
|
5,910,172
|
|
Kenneth L. Bedingfield
|
2018
|
|
811,154
|
|
3,500,008
|
|
1,304,000
|
|
—
|
|
302,268
|
|
5,917,430
|
Corporate Vice President and
Chief Financial Officer |
2017
|
|
790,192
|
|
3,250,106
|
|
1,041,000
|
|
—
|
|
351,426
|
|
5,432,724
|
2016
|
|
756,539
|
|
2,999,980
|
|
1,232,000
|
|
—
|
|
314,724
|
|
5,303,243
|
|
Mark A. Caylor (6)
|
2018
|
|
790,577
|
|
3,900,096
|
|
1,328,000
|
|
—
|
|
127,017
|
|
6,145,690
|
Corporate Vice President and President, Mission Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blake E. Larson (6)
|
2018
|
|
426,216
|
|
6,499,923
|
|
1,127,000
|
|
5,297
|
|
35,717
|
|
8,094,153
|
Corporate Vice President and President, Innovation Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amounts deferred under qualified savings and nonqualified deferred compensation plans. Amounts shown for
Mr. Larson
include salary earned since
the Merger Date
and payments for vacation days sold under the Orbital ATK vacation buy/sell benefit program ($7,489).
|
(2)
|
Represents the grant date aggregate fair value of RPSRs and RSRs granted during the periods presented. The 2018 value shown for Mr. Bush includes the value of his annual grant issued in February 2018 of $10,000,294 and the incremental amount that must be recognized in accordance with accounting standards for the modification to the 2017 and 2018 long-term incentive grants. The modification recognized Mr. Bush’s significant business contributions and continuing role with the Company as Chairman as well as the extension of the post-employment covenants. The fair value of awards was computed in accordance with
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718
. Assumptions used in the calculation of these amounts are disclosed in Note 14 of the Company's
2018
Form 10-K. The maximum grant date fair values of the
2018
RPSRs are as follows, noting the grants assume a
150%
maximum payout:
|
Name
|
Maximum Grant Date Fair Value
($) |
Mr. Bush
(a)
|
14,487,375
|
Ms. Warden
|
10,499,979
|
Mr. Bedingfield
|
3,675,207
|
Mr. Caylor
|
3,675,207
|
Mr. Larson
|
3,150,074
|
(3)
|
These amounts were paid based on the CPF and the NEO’s target bonus, with the exception of Mr. Larson whose payout was based on EOIP performance metrics and prorated target bonus. Includes amounts deferred under the qualified savings and nonqualified deferred compensation plans.
|
(4)
|
These amounts relate solely to the increased present value of the NEO's pension plan benefits using mandatory SEC assumptions (see the descriptions of these plans under the Pension Benefits table on page
58
). The amount accrued in each year differs from the amount accrued in prior years due to an increase in age, service and pay (salary and bonus).The change in pension value is also highly sensitive to changes in the interest rate used to determine the present value of the payments to be made over the life of the executive.
|
COMPENSATION TABLES | S
UMMARY
C
OMPENSATION
T
ABLE
|
(5)
|
Amounts include, as applicable, (a) the value of perquisites and personal benefits, (b) basic life insurance premiums, (c) matching contributions through the Northrop Grumman Foundation made to eligible educational institutions and to non-profit organizations under a Company program, and (d) Company contributions to defined contribution and deferred compensation plans. Where the value of the items reported in a particular category for an NEO exceeded $10,000 in
2018
(other than perquisites and personal benefits, which are subject to different thresholds as described below), those items are identified and quantified below.
|
Name
|
Company Contributions
($)
|
Mr. Bush
|
419,203
|
Ms. Warden
|
161,957
|
Mr. Bedingfield
|
222,259
|
Mr. Caylor
|
75,383
|
Mr. Larson
(a)
|
16,749
|
(6)
|
Mr. Caylor
and
Mr. Larson
were not NEOs for 2017 and 2016; therefore, data for these years is not reflected.
|
COMPENSATION TABLES | G
RANTS OF
P
LAN-
B
ASED
A
WARDS
T
ABLE
|
|
|
|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (1) |
|
Estimated Future Payouts
Under Equity Incentive Plan Awards (2) |
All Other
Stock Awards: Number of Shares of Stock or Units (3) (#) |
Grant
Date Fair Value of Stock Awards (4) ($) |
||||
Name
|
Grant Type
|
Grant Date
|
Threshold
($) |
Target
($) |
Maximum
($) |
|
Threshold
(#) |
Target
(#) |
Maximum
(#) |
||
Wesley G. Bush
|
Incentive Plan
|
|
—
|
2,851,200
|
5,702,400
|
|
|
|
|
|
|
RPSR
|
2/13/2018
|
|
|
|
|
—
|
19,888
|
29,832
|
|
7,000,145
|
|
RSR
|
2/13/2018
|
|
|
|
|
|
|
|
9,033
|
3,000,149
|
|
RPSR (5)
|
9/19/2018
|
|
|
|
|
—
|
13,681
|
20,522
|
|
4,807,271
|
|
RSR (5)
|
9/19/2018
|
|
|
|
|
|
|
|
6,976
|
2,116,897
|
|
Kathy J. Warden
|
Incentive Plan
|
|
—
|
1,200,000
|
2,400,000
|
|
|
|
|
|
|
RPSR
|
2/13/2018
|
|
|
|
|
—
|
9,944
|
14,916
|
|
3,500,072
|
|
RSR
|
2/13/2018
|
|
|
|
|
|
|
|
4,516
|
1,499,909
|
|
RPSR
|
9/19/2018
|
|
|
|
|
—
|
13,016
|
19,524
|
|
3,499,914
|
|
RSR
|
9/19/2018
|
|
|
|
|
|
|
|
4,943
|
1,499,974
|
|
Kenneth L. Bedingfield
|
Incentive Plan
|
|
—
|
815,000
|
1,630,000
|
|
|
|
|
|
|
RPSR
|
2/13/2018
|
|
|
|
|
—
|
6,961
|
10,442
|
|
2,450,138
|
|
RSR
|
2/13/2018
|
|
|
|
|
|
|
|
3,161
|
1,049,870
|
|
Mark A. Caylor
|
Incentive Plan
|
|
—
|
830,000
|
1,660,000
|
|
|
|
|
|
|
RPSR
|
2/13/2018
|
|
|
|
|
—
|
6,961
|
10,442
|
|
2,450,138
|
|
RSR
|
2/13/2018
|
|
|
|
|
|
|
|
3,161
|
1,049,870
|
|
RSR (6)
|
12/4/2018
|
|
|
|
|
|
|
|
1,655
|
400,088
|
|
Blake E. Larson
|
Incentive Plan
|
|
—
|
704,423
|
1,408,846
|
|
|
|
|
|
|
RPSR
|
6/13/2018
|
|
|
|
|
—
|
6,642
|
9,963
|
|
2,100,049
|
|
RSR
|
6/13/2018
|
|
|
|
|
|
|
|
2,831
|
899,938
|
|
RSR (7)
|
6/13/2018
|
|
|
|
|
|
|
|
11,010
|
3,499,936
|
(1)
|
Represents the potential range of payouts under the Company's AIP, except for Mr. Larson whose range reflects the potential payout under the EOIP. Actual payouts are shown in the Summary Compensation Table column entitled "Non-Equity Incentive Plan Compensation" on page
53
.
|
(2)
|
These amounts relate to RPSRs granted in
2018
under the
2011 Plan
. For additional details on our RPSRs, refer to "Key Components of Our Programs - Long-Term Incentive Compensation" on page
47
.
|
(3)
|
These amounts relate to RSRs granted in
2018
under the
2011 Plan
. For additional details on our RSRs, refer to "Key Components of Our Programs - Long-Term Incentive Compensation" on page
47
.
|
(4)
|
The fair value of awards was computed in accordance with FASB ASC Topic 718.
|
(5)
|
These amounts relate to the modification of RPSRs and RSRs that were granted in 2017 and 2018 to provide for vesting following retirement, subject to compliance with post-employment covenants and other requirements. In accordance with SEC rules, these are reported in the table as new grants of the awards. The grant date fair value reported reflects the incremental fair value of the modified award as of the modification date.
|
(6)
|
In recognition of
Mr. Caylor
's increased responsibilities as Corporate Vice President and President, Mission Systems,
Mr. Caylor
was granted a one-time RSR award, which will vest three years from the date of grant.
Mr. Caylor
must remain employed through the vesting period to earn the award, although full vesting will result if his employment terminates earlier due to death, disability or a change in control qualifying termination.
|
(7)
|
In recognition of the value forfeited by waiving any rights to further compensation and benefits under the legacy Orbital ATK Income Security Plans and the Merger Agreement retention grant,
Mr. Larson
was granted a sign-on RSR award in June
2018
. Half of the RSR award vested on December 31, 2018 and the other half will vest on December 31, 2019.
Mr. Larson
must remain employed through the vesting period to earn the award, although full vesting will result if his employment terminates earlier due to death, disability, involuntary termination other than for cause or a change in control qualifying termination.
|
COMPENSATION TABLES | OUTSTANDING EQUITY AWARDS TABLE
|
Name
|
Grant Date
|
Number of Shares or Units of Stock that Have Not Vested (1)
(#) |
|
Market Value of Shares or Units of Stock that Have Not Vested (2)
($) |
|
Equity Incentive Plan Awards: Number of Unearned
Shares, Units or Other Rights that Have Not Vested (3) (#) |
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested (2)
($) |
Wesley G. Bush
|
2/13/2018
|
9,033
|
|
2,212,182
|
|
19,888
|
|
4,870,571
|
2/17/2017
|
12,756
|
|
3,123,944
|
|
30,504
|
|
7,470,430
|
|
2/17/2016
|
16,478
|
|
4,035,462
|
|
36,316
|
|
8,893,788
|
|
Kathy J. Warden
|
9/19/2018
|
4,943
|
|
1,210,541
|
|
13,016
|
|
3,187,618
|
2/13/2018
|
4,516
|
|
1,105,968
|
|
9,944
|
|
2,435,286
|
|
2/17/2017
|
4,465
|
|
1,093,479
|
|
10,676
|
|
2,614,552
|
|
2/17/2016
|
5,767
|
|
1,412,338
|
|
12,710
|
|
3,112,679
|
|
Kenneth L. Bedingfield
|
2/13/2018
|
3,161
|
|
774,129
|
|
6,961
|
|
1,704,749
|
2/17/2017
|
4,146
|
|
1,015,355
|
|
9,914
|
|
2,427,939
|
|
2/17/2016
|
4,943
|
|
1,210,541
|
|
10,895
|
|
2,668,186
|
|
Mark A. Caylor
|
12/4/2018
|
1,655
|
|
405,310
|
|
—
|
|
—
|
2/13/2018
|
3,161
|
|
774,129
|
|
6,961
|
|
1,704,749
|
|
2/17/2017
|
3,189
|
|
780,986
|
|
7,626
|
|
1,867,607
|
|
2/17/2016
|
4,120
|
|
1,008,988
|
|
9,079
|
|
2,223,447
|
|
Blake E. Larson
|
6/13/2018
|
8,336
|
|
2,041,486
|
|
6,642
|
|
1,626,626
|
(1)
|
Outstanding RSRs generally vest three years from date of grant.
Mr. Larson
's
June 13, 2018
RSR grants are comprised of an annual grant (2,831 shares) and a sign-on grant (11,010 shares). Half of Mr. Larson's 2018 sign-on grant vested on December 31, 2018 and the other half will vest on December 31, 2019.
|
(2)
|
The value listed is based on the closing price of the Company's stock of
$244.90
on
December 31, 2018
,
the last trading day of the year
.
|
(3)
|
Outstanding RPSRs granted in
2018
,
2017
and
2016
generally vest based on performance for the three-year performance period ending on December 31,
2020
,
2019
and
2018
, respectively. All RPSR grants are subject to the Compensation Committee's approval of the performance-based earnout percentage applicable to the grant following the end of the performance period. Amounts presented assume target level performance. The
2016
RPSRs were distributed in February
2019
upon the Compensation Committee's approval. The actual number of shares distributed to the NEOs in February
2019
as a result of the vesting RPSRs was as follows:
|
Name
|
Actual Shares Distributed
(#) |
Mr. Bush
|
41,763
|
Ms. Warden
|
14,617
|
Mr. Bedingfield
|
12,529
|
Mr. Caylor
|
10,441
|
COMPENSATION TABLES | S
TOCK
V
ESTED
T
ABLE
|
|
|
Stock Awards (1) (2)
|
||
Name
|
|
Number of Shares Acquired on Vesting
(#) |
|
Value Realized on Vesting
($) |
Wesley G. Bush
|
|
78,466
|
|
27,059,129
|
Kathy J. Warden
|
|
24,893
|
|
8,588,938
|
Kenneth L. Bedingfield
|
|
23,338
|
|
8,052,238
|
Mark A. Caylor
|
|
13,614
|
|
4,697,123
|
Blake E. Larson
|
|
5,505
|
|
1,348,175
|
(1)
|
Number of shares and amounts reflected in the table are reported on an aggregate basis and do not reflect shares sold or withheld to pay withholding taxes.
|
(2)
|
Consists of RPSRs granted in 2015 and RSRs granted in
2015
and 2018. The
2015
RPSRs vested based on the three-year performance period which ended on December 31,
2017
and were distributed in February
2018
. The
2015
RSRs vested three years from the date of grant. Half of
Mr. Larson
's 2018 sign-on RSR grant vested on December 31, 2018 and was distributed in January 2019.
|
COMPENSATION TABLES | P
ENSION
B
ENEFITS
|
2018 Pension Benefits
|
Name (1)
|
Plan Name
|
Number of Years Credited Service (2)
(#) |
Present Value of
Accumulated Benefit (3) ($) |
Payments
During Last Fiscal Year ($) |
Wesley G. Bush
|
Pension Plan
|
16.00
|
808,518
|
—
|
S&MS Pension Plan
|
15.67
|
701,314
|
—
|
|
ERISA 2
|
16.00
|
14,662,902
|
—
|
|
SRIP
|
15.67
|
13,314,297
|
—
|
|
OSERP
|
27.67
|
7,152,879
|
—
|
|
Kathy J. Warden
|
OSERP II
|
10.33
|
1,428,136
|
—
|
Mark A. Caylor
|
S&MS Pension Plan
|
16.50
|
537,181
|
—
|
SRIP
|
16.50
|
1,102,868
|
—
|
|
OSERP
|
12.50
|
896,172
|
—
|
|
Blake E. Larson
|
OATK P&R Plan
|
37.50
|
691,978
|
—
|
OATK DB SERP
|
37.50
|
2,831,663
|
—
|
(1)
|
Mr. Bedingfield was hired after the Company's defined benefit pension plans were closed to new entrants, and as a result he does not participate in any defined benefit pension plans.
|
(2)
|
Credited service under OSERP for
Mr. Bush
and
Mr. Caylor
is less than actual service because credited service under this plan stopped as of December 31, 2014. In addition,
Mr. Bush
's credited service under his other plans is less because of his transfers among those plans due to Company acquisitions. Each NEO's actual service is as follows:
Mr. Bush
:
31.67
;
Ms. Warden
:
10.33
;
Mr. Caylor
:
16.5
;
Mr. Larson
:
37.5
.
|
(3)
|
Amounts are calculated using the following assumptions:
|
•
|
The NEO retires on the earliest date he/she could receive an unreduced benefit under each plan;
|
•
|
The form of payment is a single life annuity except for
Mr. Larson
whose OATK DB SERP benefit is paid as a lump sum; and
|
•
|
The discount rate is 4.30% for the Pension Plan, 4.33% for the S&MS Pension Plan and 4.31% for all other plans. The mortality tables are the RP-2014 annuitant mortality tables adjusted for actual experience and projected generationally with an adjusted version of Scale MP-2018 for the OATK P&R Plan and RP-2006 annuitant mortality tables projected generationally with an adjusted version of Scale MP-2018 for all other plans except the OATK DB SERP which uses no mortality. These are the same assumptions used for the valuation of benefits in the Company's financial statements.
|
COMPENSATION TABLES | P
ENSION
B
ENEFITS
|
Pension Plans and Descriptions
|
•
|
ERISA 2
is the ERISA Supplemental Program 2. This plan makes participants whole for benefits they lose under the Pension Plan due to certain Internal Revenue Code limits.
|
•
|
OATK DB SERP
is the Orbital ATK Defined Benefit Supplemental Executive Retirement Plan. This plan provides a supplement pension benefit for certain heritage Orbital ATK executives. In addition, the plan makes participants whole for benefits they lose under the Orbital ATK P&R Plan due to certain Internal Revenue Code limits.
|
•
|
OATK P&R Plan
is the Orbital ATK Pension and Retirement Plan. This is a tax qualified pension plan covering a broad base of heritage Orbital ATK employees.
|
•
|
OSERP
is the
Officers Supplemental Executive Retirement Program
. This plan provides a supplemental pension benefit for certain Company officers.
|
•
|
OSERP II
is the
Officers Supplemental Executive Retirement Program
II. This plan provides a pension benefit for certain Company officers.
|
•
|
Pension Plan
is the Northrop Grumman Pension Plan. This is a tax qualified pension plan covering a broad base of Company employees.
|
•
|
S&MS Pension Plan
is the Northrop Grumman Space & Mission Systems Salaried Pension Plan (former TRW plan). This is a tax qualified pension plan covering a broad base of Company employees.
|
•
|
SRIP
is the Northrop Grumman Supplementary Retirement Income Plan (former TRW plan). This plan makes participants whole for benefits they lose under the S&MS Pension Plan due to certain Internal Revenue Code limits.
|
Pension Plan, S&MS Pension Plan and OATK P&R Plan (Tax Qualified Plans)
|
•
|
Mr. Bush
receives a benefit under a Heritage Formula and a Cash Balance Formula in the Northrop Grumman Retirement Plan, a subplan of the Pension Plan (NGR Subplan). He receives a separate benefit under a Heritage Formula in the S&MS Pension Plan due to his TRW-related service. He ceased to be eligible for future service growth under this plan and the SRIP when he began participating in the NGR Subplan.
|
COMPENSATION TABLES | P
ENSION
B
ENEFITS
|
•
|
Mr. Caylor
receives a benefit under a Heritage Formula and a Cash Balance Formula in the S&MS Pension Plan.
|
•
|
Mr. Larson
does not have a Heritage Formula benefit. He receives benefits from two distinct Cash Balance Formulas: the Old Cash Balance Formula which includes pay-based credits from April 1, 1992 through June 30, 2013 and the New Cash Balance Formula from July 1, 2013. The value of his benefit accrued prior to April 1, 1992 was converted to an opening balance in the Old Cash Balance Formula.
|
Heritage Formulas
|
Feature
|
|
NGR Subplan
|
|
S&MS Pension Plan
|
Benefit Formula
|
|
Final Average Pay x 1.6667% times Pre-July 1, 2003 service
|
|
(Final Average Pay x 1.5% minus Covered Compensation x 0.4%) times Pre- January 1, 2005 service
|
Final Average Pay (1)
|
|
Average of highest 3 years of Eligible Pay
|
|
Average of the highest 5
consecutive years of Eligible Pay; Covered Compensation is specified by the IRS
|
Eligible Pay (limited by Internal Revenue Code section 401(a)(17))
|
|
Salary plus bonus
|
|
Salary plus bonus
|
Normal Retirement
|
|
Age 65
|
|
Age 65
|
Early Retirement
|
|
Age 55 with 10 years of service
|
|
Age 55 with 10 years of service
|
Early Retirement Reduction (for retirements occurring between Early Retirement and Normal Retirement)
|
|
Benefits are reduced for commencement prior to the earlier of age 65 and 85 points (age + service)
|
|
Benefits are reduced for
commencement prior to age 60 (age 62 for participants hired after 1999)
|
Cash Balance Formulas
|
•
|
Pay credits are a percentage of pay that vary based on an employee's "points" (age plus service) and are credited monthly. The range of percentages applicable to the NEOs on December 31,
2018
was 5.5% – 9.0%.
|
•
|
Interest is credited at the 30-year U.S. Treasury bond rate. The December 31,
2018
interest credit rate was 3.04%.
|
•
|
Eligible pay is salary plus bonus, as limited by Internal Revenue Code section 401(a)(17).
|
•
|
Eligibility for early retirement occurs at age 55 with 10 years of service. Benefits may be reduced if commenced prior to Normal Retirement Age (65).
|
•
|
Pay credits are a percentage of pay that vary based on an employee's service. Due to
Mr. Larson
's service of more than 25 years at June 30, 2013, he was receiving 8.5% of pensionable earnings and an additional 5.5% of earnings in excess of the Social Security Wage Base at that time.
|
•
|
Interest is credited at one-twelfth of the average of the one-year Treasury Constant Maturities during the 12 months ending September 30 of the prior calendar year. The minimum annual interest crediting rate is 3.06%. After June 30, 2013, interest credits continue to apply to this benefit. The post-2018 interest credit rate is assumed to be 3.50% (this is consistent with the valuation of the Old Cash Balance benefit in the Company's financial statements).
|
•
|
Eligible pay is salary plus bonus, as limited by Internal Revenue Code section 401(a)(17).
|
•
|
Eligibility for early retirement occurs at age 55 with five years of service. Benefits may be reduced if commenced prior to Normal Retirement Age (65).
|
COMPENSATION TABLES | P
ENSION
B
ENEFITS
|
•
|
Pay credits are a percentage of pay that vary based on an employee's age plus service and are credited annually at the end of each calendar year or earlier termination. The percentage applicable to
Mr. Larson
as of December 31, 2018 is 4.0%.
|
•
|
Interest is credited at the end of each year at 4.0%. Interest is prorated for commencements during the calendar year.
|
•
|
Eligible pay is salary plus bonus, as limited by Internal Revenue Code section 401(a)(17).
|
•
|
After termination of employment, a participant's New Cash Balance benefit may be distributed immediately, regardless of age, in a variety of actuarially equivalent monthly annuities or as a lump sum.
|
ERISA 2, SRIP and OATK DB SERP (Nonqualified Restoration Plans)
|
OSERP, OSERP II and OATK DB SERP (Nonqualified Supplemental Executive Retirement Plans)
|
Feature
|
OSERP and OSERP II (1)
|
OATK DB SERP (2)
|
Benefit Formula
|
Final Average Pay times 2% for each year of service up to 10 years, 1.5% for each subsequent year up to 20 years, and 1% for each additional year over 20 and less than 45
|
Service times the sum of 11% of Final Average Pay in excess of one-half of the Social Security Wage Base and 5.5% of one-half of the Social Security Wage Base; interest at 4% per annum is applied from July 1, 2013 through commencement
|
Final Average Pay
|
Average of highest 3 years of Eligible Pay
|
Average of highest 60 months of Eligible Pay; both Final Average Pay and the Social Security Wage Base were frozen at June 30, 2013
|
Eligible Pay
|
Salary and bonus (including amounts above Internal Revenue Code limits and amounts deferred)
|
Salary and bonus (including amounts above Internal Revenue Code limits and amounts deferred)
|
Normal Retirement
|
Age 65
|
Age 65
|
Early Retirement
|
Age 55 with 10 years of service
|
Age 55
|
Early Retirement Reduction
|
Benefits are reduced for commencement prior to the earlier of age 65 or 85 points (age + service)
|
N/A
|
Reductions From Other Plans
|
Reduced by any other Company pension benefits
|
Reduced by Old Cash Balance benefit from the OATK P&R Plan
|
(1)
|
Ms. Warden
participates in OSERP II, which mirrors the benefits provided under the Cash Balance Formula, ERISA 2 and OSERP provisions described above.
|
(2)
|
Mr. Larson
participates in the OATK DB SERP which provides the greater of the Final Average Pay benefit noted above and the Old Cash Balance benefit based on Eligible Pay in excess of the Internal Revenue Code section 401(a)(17) limits. In addition, the OATK DB SERP pays a benefit equal the New Cash Balance formula based on Eligible Pay in excess of the Internal Revenue Code section 401(a)(17) limits.
|
COMPENSATION TABLES | P
ENSION
B
ENEFITS
|
Information on Executives Eligible for Early Retirement
|
•
|
If
Mr. Bush
had retired on December 31,
2018
, he would have been eligible to receive an estimated total annual pension benefit of $2,466,855 (commencing January 1,
2019
) plus a supplemental benefit payable from retirement to age 62 of $5,687.
|
•
|
If
Mr. Larson
had retired on December 31,
2018
, he would have been eligible to receive an estimated annual pension from the OATK P&R Plan of $51,064 (commencing January 1,
2019
) and a lump sum from the OATK SERP of $2,865,214.
|
COMPENSATION TABLES | N
ONQUALIFIED
D
EFERRED
C
OMPENSATION
T
ABLE
|
Name
|
Plan Name
|
Executive
Contributions
in Last FY (1)
($)
|
Registrant
Contributions
in Last FY (2)
($)
|
Aggregate
Earnings
in Last FY (3)
($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance at
Last FYE (4)
($)
|
Wesley G. Bush
|
Deferred Compensation
|
—
|
—
|
(185,883)
|
—
|
2,930,900
|
Savings Excess
|
397,203
|
198,601
|
92,290
|
—
|
11,244,464
|
|
ORAC
|
—
|
209,601
|
19,591
|
—
|
955,413
|
|
Kathy J. Warden
|
Savings Excess
|
139,957
|
69,979
|
(101,974)
|
—
|
1,380,453
|
ORAC
|
—
|
80,978
|
(28,265)
|
—
|
314,359
|
|
Kenneth L. Bedingfield
|
Savings Excess
|
236,573
|
126,172
|
(66,625)
|
—
|
1,285,188
|
ORAC
|
—
|
74,086
|
(20,322)
|
—
|
389,414
|
|
Mark A. Caylor
|
Savings Excess
|
—
|
—
|
(7,544)
|
—
|
141,797
|
ORAC
|
—
|
64,383
|
(12,171)
|
—
|
234,090
|
|
Blake E. Larson (5)
|
OATK NQ Def Comp
|
—
|
—
|
(32,846)
|
—
|
876,135
|
OATK DC SERP
|
—
|
—
|
(12,372)
|
—
|
182,415
|
|
ORAC
|
—
|
16,749
|
(1,493)
|
—
|
15,256
|
(1)
|
NEO contributions in this column are also included in the
2018
Summary Compensation Table on page
53
, under the columns entitled "Salary" and "Non-Equity Incentive Plan Compensation."
|
(2)
|
Company contributions in this column are included in the
2018
Summary Compensation Table, under the column entitled "All Other Compensation."
|
(3)
|
Aggregate earnings in the last fiscal year are not included in the
2018
Summary Compensation Table because they are not above market or preferential.
|
(4)
|
NEO and Company contributions in this column may include balances for merged plans. Employee contributions by
Mr. Bush
,
Ms. Warden
and
Mr. Bedingfield
for the years ended December 31,
2018
,
2017
and
2016
,
collectively, previously reported as compensation in the Summary Compensation tables, were as follows:
|
Name
|
Employee Contributions
($) |
Wesley G. Bush
|
1,217,585
|
Kathy J. Warden
|
390,406
|
Kenneth L. Bedingfield
|
483,271
|
(5)
|
Amounts for
Mr. Larson
represent activity since the Merger Date.
|
Deferred Compensation Plans and Descriptions
|
•
|
Deferred Compensation Plan
is the Northrop Grumman Deferred Compensation Plan. In 2010, this plan was closed to new hires and existing participants ceased to be able to make contributions. Before 2011, eligible executives were allowed to defer a portion of their salary and bonus. No Company contributions were made to the plan.
|
•
|
OATK DC SERP
is the Orbital ATK Nonqualified Defined Contribution Supplemental Executive Retirement Plan. This plan provides contribution credits on behalf of certain heritage Orbital ATK executives, including
Mr. Larson
.
Mr. Larson
is eligible for an annual match allocation of 4.5% of compensation in excess of the IRS compensation limit, assuming he has made the maximum allowable before-tax or Roth 401(k) contributions to the 401(k) Plan for the calendar year.
|
•
|
OATK NQ Def Comp
is the Orbital ATK Deferred Compensation Plan. The plan allows eligible employees, including
Mr. Larson
, to defer up to 70% of salary and 100% of cash or equity incentive compensation. The Company may credit to participants' accounts under the plan certain additional amounts relating to matching contributions foregone under the 401(k) Plan due to compensation limits in that plan. The Company may also make additional discretionary contributions to participants' accounts.
|
COMPENSATION TABLES | N
ONQUALIFIED
D
EFERRED
C
OMPENSATION
T
ABLE
|
•
|
Officers Retirement Account Contribution Plan
(ORAC)
is the Northrop Grumman Officers Retirement Account Contribution Plan. This plan allows eligible executives, including NEOs, to receive a Company contribution of 4% of base salary and bonus.
|
•
|
Savings Excess Plan
(SEP)
is the Northrop Grumman Savings Excess Plan.
This plan allows eligible employees, including the NEOs, to (i) defer up to 50% of their salary and bonus beyond the compensation limits of the tax qualified plans and receive a Company matching contribution of up to 4% on a maximum of 8% of pay and (ii) receive RAC contributions beyond the compensation limits in the qualified plans.
|
CEO PAY RATIO
|
2018 CEO Pay Ratio
|
TERMINATION PAYMENTS AND BENEFITS
|
Terms of Equity Awards
|
Possible Accelerated Equity Vesting Due to Change in Control
|
|
RSRs
|
RPSRs
|
|
Name
|
Acceleration
of Vesting ($) |
Acceleration
of Vesting ($) |
Total
($) |
Wesley G. Bush
|
9,371,588
|
12,341,001
|
21,712,589
|
Kathy J. Warden
|
4,822,326
|
8,237,456
|
13,059,782
|
Kenneth L. Bedingfield
|
3,000,025
|
4,132,688
|
7,132,713
|
Mark A. Caylor
|
2,969,413
|
3,572,356
|
6,541,769
|
Blake E. Larson
|
2,041,486
|
1,626,626
|
3,668,112
|
TERMINATION PAYMENTS AND BENEFITS
|
Termination Payments and Benefits
|
•
|
the Severance Plan;
|
•
|
the
2011 Plan
and the terms and conditions of equity awards made pursuant to the plan; and
|
•
|
the SORMP (Retiree Medical).
|
TERMINATION PAYMENTS AND BENEFITS | T
ERMINATION
P
AYMENT
T
ABLE
|
Name
|
Executive Benefits
|
Voluntary
Termination ($) |
Involuntary Termination
Not For Cause (1) ($) |
Post-CIC
Involuntary or Good Reason Termination (2) ($) |
Death or
Disability ($) |
Wesley G. Bush
|
Long-term Incentives (3)
|
13,056,844
|
13,056,844
|
21,712,589
|
15,973,847
|
Retiree Medical (4)
|
1,350,800
|
1,350,800
|
1,350,800
|
1,350,800
|
|
Kathy J. Warden
|
Long-term Incentives (3)
|
—
|
—
|
13,059,782
|
8,437,540
|
Severance Benefits (5)
|
|
|
|
|
|
Cash Severance
|
—
|
3,300,000
|
—
|
—
|
|
Medical/Dental Continuation
|
—
|
8,635
|
—
|
—
|
|
Financial Planning/Income Tax
|
—
|
18,500
|
—
|
—
|
|
Outplacement Services
|
—
|
150,000
|
—
|
—
|
|
Kenneth L. Bedingfield
|
Long-term Incentives (3)
|
—
|
—
|
7,132,713
|
5,186,247
|
Severance Benefits (5)
|
|
|
|
|
|
Cash Severance
|
—
|
2,445,000
|
—
|
—
|
|
Medical/Dental Continuation
|
—
|
8,635
|
—
|
—
|
|
Financial Planning/Income Tax
|
—
|
18,500
|
—
|
—
|
|
Outplacement Services
|
—
|
122,250
|
—
|
—
|
|
Mark A. Caylor
|
Long-term Incentives (3)
|
—
|
—
|
6,541,769
|
4,782,162
|
Severance Benefits (5)
|
|
|
|
|
|
Cash Severance
|
—
|
2,490,000
|
—
|
—
|
|
Medical/Dental Continuation
|
—
|
11,689
|
—
|
—
|
|
Financial Planning/Income Tax
|
—
|
18,500
|
—
|
—
|
|
Outplacement Services
|
—
|
124,500
|
—
|
—
|
|
Blake E. Larson
|
Long-term Incentives (3)
|
669,067
|
2,017,241
|
3,668,112
|
2,582,960
|
Severance Benefits (5)
|
|
|
|
|
|
Cash Severance
|
—
|
2,227,500
|
—
|
—
|
|
Medical/Dental Continuation
|
—
|
6,355
|
—
|
—
|
|
Financial Planning/Income Tax
|
—
|
18,500
|
—
|
—
|
|
Outplacement Services
|
—
|
111,375
|
—
|
—
|
(1)
|
Similar treatment provided for certain "good reason" terminations, as described in "Key Components of Our Programs - Severance Benefits" found on page
49
; however, there would be no termination payment in the event of an involuntary termination for cause.
|
(2)
|
The amounts assume full acceleration, which, as discussed above, may not occur to the extent that it would result in an excise tax that decreases the after-tax value of the awards to an NEO.
|
(3)
|
Long-term Incentives include grants of RPSRs and RSRs. Results in a benefit under Voluntary Termination only if eligible for retirement treatment under the terms and conditions of the grants.
|
(4)
|
Represents SORMP benefits outlined in "Key Components of Our Programs - Retiree Medical Arrangement."
Mr. Bush
is the only NEO eligible for benefits under this plan due to his date of hire and years of service as an executive. Retiree medical values for
Mr. Bush
reflect cost associated with disability. If termination results from death, the retiree medical insurance expense would be less than the disability amount indicated.
|
(5)
|
Represents the following benefits under the Severance Plan, assuming a termination date of December 31,
2018
: (i) cash severance equivalent to one and a half times the sum of the annual base salary and target annual bonus, (ii) continued medical/dental coverage for the severance period, (iii) financial planning/income tax preparation fees for the year following termination and (iv) outplacement services up to 15% of salary.
|
PROPOSAL THREE: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
|
Audit Fees and All Other Fees
|
|
|
2018
|
|
2017
|
Audit Fees (1)
|
$
|
18,706,500
|
$
|
15,110,000
|
Audit-Related Fees (2)
|
|
500,000
|
|
803,000
|
Tax-Related Fees (3)
|
|
507,000
|
|
637,000
|
All Other Fees
|
|
—
|
|
—
|
Total Fees
|
$
|
19,713,500
|
$
|
16,550,000
|
(1)
|
Audit fees for
2018
and
2017
reflect fees of $15,400,000 and $12,900,000, respectively, for the consolidated financial statement audits and include the audit of internal controls pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees for
2018
and
2017
also include $1,834,000 and $1,544,000, respectively, for foreign statutory audits. Fees for foreign statutory audits are reported in the year in which the audits are performed. For example, foreign statutory audit fees reported in
2018
relate to audits of the Company's foreign entities for the fiscal year ended
2017
. The remaining
2018
audit fees primarily relate to audit services associated with the Company's acquisition of Orbital ATK, services associated with the Company's adoption of Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers (Topic 606)
, and adoption of ASU 2016-02,
Leases (Topic 842)
, and services associated with the pension accounting method change and Preferability Letter.
|
(2)
|
Audit-related fees reflect fees for services that are reasonably related to the performance of the audit or review of the Company's financial statements, including fees related to independent assessment of controls concerning outsourcing activities. Audit-related fees exclude fees that totaled $1,377,000 and $1,423,000 for
2018
and
2017
, respectively, related to benefit plan audits which are paid for by the plans.
|
(3)
|
Tax-related fees during
2018
and
2017
reflect fees of $507,000 and $637,000, respectively, for services concerning foreign income tax compliance, foreign Value Added Tax compliance and other tax matters.
|
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
|
PROPOSAL THREE: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL THREE.
|
AUDIT COMMITTEE REPORT
|
PROPOSAL FOUR: SHAREHOLDER PROPOSAL
|
Proposal Four: Shareholder Proposal Regarding Human Rights Policy
|
•
|
The company’s human rights due diligence process and indicators used to assess effectiveness;
|
•
|
The role of the Board in oversight of human rights risks; and
|
•
|
Systems to embed respect for human rights into business decision-making processes for its operations, contracts, and supply chain.
|
Board of Directors' Statement in Opposition to Proposal Four
|
PROPOSAL FOUR: SHAREHOLDER PROPOSAL
|
•
|
The Company treats employees, suppliers, customers and competitors with dignity and respect. The Company does not tolerate any discrimination in employment based on an individual’s protected status. Northrop Grumman does not tolerate the use of child labor, forced labor, bonded labor, or human trafficking.
|
•
|
Northrop Grumman is committed to the highest standards of ethical and business conduct as it relates to the procurement of goods and services. The Company expects suppliers to conduct themselves in a manner consistent with the values set forth in our Standards of Business Conduct.
|
•
|
Employees who believe there may have been a violation of this policy should report it through established channels, including to their supervisor, Business Conduct Officer, the Law Department or Human Resources, or the OpenLine.
|
•
|
Northrop Grumman will periodically review this policy to determine whether revisions are appropriate.
|
•
|
The Company’s commitment to a culture that values and fosters diversity and inclusion.
|
•
|
The Company will not tolerate discrimination on the basis of race or ethnicity, color, national origin, ancestry, sex, gender, identity or expression, sexual orientation, marital or parental status, pregnancy or childbirth or related conditions, religion, creed, age, disability, genetic information, veteran status or any other protected status.
|
•
|
Reasonable accommodations for qualified persons based on disabilities, religious beliefs and pregnancy/childbirth.
|
•
|
A workplace where everyone is treated with dignity and respect.
|
•
|
Protecting the privacy of others, including the protection of personal information of our employees, contractors, customers and suppliers.
|
•
|
Supporting and enhancing the communities in which our employees live and work, including maintaining outreach programs and partnering with local organizations. The Company does not provide funding or support to organizations that improperly discriminate against others or take positions or actions contrary to our Company values.
|
•
|
Our policies, practices and procedures reflect a strong commitment to human rights as set forth in the Universal Declaration of Human Rights. The Company does not condone the use of child or forced labor, indentured servitude, human trafficking or other violations of human rights. The Company expects its partners and suppliers to share this commitment and adopt and enforce principles similar to those in our Human Rights Policy.
|
•
|
Catalyst Award for Northrop Grumman’s “Building the Best Culture, Leveraging the Power of Women” Initiative;
|
•
|
Among Top 50 Companies for Diversity, No. 1 for Veterans and No. 2 for Diversity Councils and People with Disabilities as recognized by DiversityInc;
|
PROPOSAL FOUR: SHAREHOLDER PROPOSAL
|
•
|
Among the Best Place to Work for People with Disabilities Employer of the Year: Inspire Award from the Disability Equality Index;
|
•
|
Among the Best for Vets Employers by Military Times;
|
•
|
Among Best Places to Work for LGBT Equality by the Human Rights Campaign;
|
•
|
Among the “Best of the Best” for Top Veteran-Friendly Companies and Top Supplier Diversity Programs by U.S. Veterans Magazine; and
|
•
|
Among the 100 Best Corporate Citizens by Corporate Responsibility Magazine.
|
•
|
Environmental, Social and Governance Performance Data
|
•
|
Anti-Human Trafficking and Slavery Statement
|
•
|
Anti-Corruption Compliance
|
•
|
Conflicts Minerals Statement
|
•
|
Environmental Sustainability
|
•
|
Environmental Recognition
|
•
|
Global Supplier Diversity Program
|
•
|
Supplier Standards of Business Conduct
|
•
|
Operation IMPACT
|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" PROPOSAL FOUR.
|
PROPOSAL FIVE: SHAREHOLDER PROPOSAL
|
Proposal Five: Shareholder Proposal Regarding Independent Board Chairman
|
Board of Directors' Statement in Opposition to Proposal Five
|
•
|
the role of the Board and the responsibilities of the Lead Independent Director and the Chair;
|
•
|
the experience of the management team;
|
•
|
the particular challenges facing the Company, both at the time and in the near future;
|
•
|
the evolving environment in which we operate and the requirements on management and the Board;
|
PROPOSAL FIVE: SHAREHOLDER PROPOSAL
|
•
|
the importance of presenting one leadership “face” to our customers; and
|
•
|
the importance of promoting a clear, unified strategic vision for the Company, assuring that strategies adopted by the Board are well-positioned for execution by management.
|
•
|
approve meeting agendas and information sent to the Board;
|
•
|
approve the schedule of Board meetings;
|
•
|
call and chair meetings of the independent directors (a regular occurrence at our in-person meetings);
|
•
|
interview Board candidates (along with the Chair and the Chair of the Governance Committee) and help ensure a robust succession plan for Board committees and Board composition;
|
•
|
preside at all meetings of the Board at which the Chair is not present, including executive sessions of the independent directors;
|
•
|
serve as a liaison between the Chair and the independent directors; and
|
•
|
meet with major shareholders, as requested. Any shareholder is able to communicate directly with the Lead Independent Director as described on page 24 of this Proxy Statement and on the Company’s website.
|
•
|
serves as a significant advisor to the Chair, providing guidance and direction to the Chair on a range of significant matters, including strategy, CEO succession, Board succession, shareholder communications and the content/nature of Board meetings;
|
•
|
has discussions on a regular basis with the Chair between Board meetings;
|
•
|
supports and facilitates engagement between the CEO/senior management and independent directors; and
|
•
|
chairs an executive session of independent directors at Board meetings.
|
PROPOSAL FIVE: SHAREHOLDER PROPOSAL
|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" PROPOSAL FIVE.
|
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
|
Proposal
|
|
Board Recommendation
|
|
Vote Required
|
|
Abstentions
|
|
Broker Non-Votes
|
|
Unmarked Proxy Cards
|
Election of Directors
(Proposal One)
|
|
FOR
|
|
Majority of votes cast
|
|
No effect
|
|
No effect
|
|
Voted "FOR"
|
Advisory Vote on Compensation of Named Executive Officers
(Proposal Two)
|
|
FOR
|
|
Majority of votes cast
|
|
No effect
|
|
No effect
|
|
Voted "FOR"
|
Ratification of Appointment of Independent Auditor
(Proposal Three)
|
|
FOR
|
|
Majority of votes cast
|
|
No effect
|
|
No effect
|
|
Voted "FOR"
|
Shareholder Proposal to Provide for a Report on Management Systems and Processes for Implementing the Company's Human Rights Policy
(Proposal Four)
|
|
AGAINST
|
|
Majority of votes cast
|
|
No effect
|
|
No effect
|
|
Voted "AGAINST"
|
Shareholder Proposal to Provide for an Independent Chair
(Proposal Five)
|
|
AGAINST
|
|
Majority of votes cast
|
|
No effect
|
|
No effect
|
|
Voted "AGAINST"
|
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
|
|
By Internet
|
Registered shareholders and plan participants may vote on the internet, as well as view the documents, by logging on to
www.envisionreports.com/noc
and following the instructions given.
|
|||
|
|
|
|||
|
By Telephone
|
Registered shareholders and plan participants may grant a proxy by calling 800-652-VOTE (800-652-8683) (toll-free) with a touch-tone telephone and following the recorded instructions.
|
|||
|
|
|
|||
|
By QR Code
|
Registered shareholders and plan participants may vote by scanning the QR code on their proxy card or notice with their mobile device.
|
|||
|
|
|
|||
|
By Mail
|
Registered shareholders and plan participants must request a paper copy of the proxy materials to receive a proxy card and may vote by marking the voting instructions on the proxy card and following the instructions given for mailing. A paper copy of the proxy materials may be obtained by logging on to
www.envisionreports.com/noc
and following the instructions given.
|
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
|
MISCELLANEOUS
|
Voting on Other Matters
|
Shareholder Proposals for the 2020 Annual Meeting
|
•
|
not later than November 30, 2019, if the proposal is submitted for inclusion in the Company's proxy materials for that meeting pursuant to Rule 14a-8 under the Exchange Act; and
|
•
|
not earlier than November 30, 2019 and not later than December 30, 2019, if the proposal is submitted pursuant to the Bylaws, but not pursuant to Rule 14a-8, in which case we are not required to include the proposal in our proxy materials. If the
2020
Annual Meeting is convened more than 30 days prior to or delayed by more than 30 days after the one-year anniversary of the Annual Meeting, our Bylaws provide different notice requirements.
|
Shareholder Nominations for Director Election at the 2020 Annual Meeting
|
•
|
not earlier than October 31, 2019 and not later than November 30, 2019, if the nomination is submitted for inclusion in the Company's proxy materials for that meeting pursuant to the Company's proxy access provision, as set forth in our Bylaws, which nomination and supporting materials must comply with the requirements in our Bylaws; and
|
•
|
not earlier than November 30, 2019 and not later than December 30, 2019, if the nomination is submitted pursuant to the Bylaws, but not pursuant to our proxy access provision, in which case we are not required to include the nomination in our proxy materials. If the
2020
Annual Meeting is convened more than 30 days prior to or delayed by more than 30 days after the one-year anniversary of the Annual Meeting, our Bylaws provide different notice requirements.
|
Householding Information
|
MISCELLANEOUS
|
Cost of Soliciting Proxies
|
Available Information
|
•
|
Bylaws;
|
•
|
Principles of Corporate Governance;
|
•
|
Standards of Business Conduct;
|
•
|
Policy and Procedure Regarding Company Transactions with Related Persons; and
|
•
|
Board Committee Charters.
|
Incorporation by Reference
|
Annual Report
|
|
Jennifer C. McGarey
|
Corporate Vice President and Secretary
|
APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES
|
APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES
|
APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES
|
|
|
Total Year
|
||||||||
($M, except per share amount)
|
|
2018
|
2017
|
2016
|
||||||
Net cash provided by operating activities
|
|
$
|
3,827
|
|
$
|
2,613
|
|
$
|
2,813
|
|
After-tax discretionary pension contributions impact
|
|
186
|
|
325
|
|
—
|
|
|||
Cash provided by operating activities before after-tax discretionary pension contributions
|
|
$
|
4,013
|
|
$
|
2,938
|
|
$
|
2,813
|
|
|
|
|
|
|
||||||
Net cash provided by operating activities
|
|
$
|
3,827
|
|
$
|
2,613
|
|
$
|
2,813
|
|
Less: capital expenditures
|
|
(1,249
|
)
|
(928
|
)
|
(920
|
)
|
|||
Free cash flow
|
|
$
|
2,578
|
|
$
|
1,685
|
|
$
|
1,893
|
|
After-tax total pension contributions impact
|
|
246
|
|
376
|
|
46
|
|
|||
After-tax Orbital ATK transaction-related expenses
|
|
36
|
|
—
|
|
—
|
|
|||
Impacts related to the addition of Innovation Systems
|
|
(721
|
)
|
—
|
|
—
|
|
|||
Free cash flow before after-tax total pension contributions
|
|
2,139
|
|
2,061
|
|
1,939
|
|
|||
Cumulative free cash flow
|
|
$
|
6,139
|
|
|
|
||||
|
|
|
|
|
||||||
Sales
|
|
30,095
|
|
26,004
|
|
24,706
|
|
|||
Operating income
|
|
$
|
3,780
|
|
$
|
3,218
|
|
$
|
3,277
|
|
Operating margin rate
|
|
12.6
|
%
|
12.4
|
%
|
13.3
|
%
|
|||
Reconciliation to segment operating income
|
|
|
|
|
||||||
Net FAS (service)/CAS pension adjustment
|
|
(613
|
)
|
(638
|
)
|
(457
|
)
|
|||
Unallocated corporate expenses
|
|
277
|
|
319
|
|
39
|
|
|||
Other
|
|
3
|
|
4
|
|
5
|
|
|||
Segment operating income
|
|
$
|
3,447
|
|
$
|
2,903
|
|
$
|
2,864
|
|
Segment operating margin rate
|
|
11.5
|
%
|
11.2
|
%
|
11.6
|
%
|
|||
|
|
|
|
|
||||||
Net earnings
|
|
$
|
3,229
|
|
$
|
2,869
|
|
$
|
2,043
|
|
MTM expense (benefit)
|
|
655
|
|
(536
|
)
|
950
|
|
|||
MTM-related deferred state tax (benefit) expense
|
|
(29
|
)
|
24
|
|
(43
|
)
|
|||
Federal tax (benefit) expense of items above
|
|
(131
|
)
|
108
|
|
(317
|
)
|
|||
After-tax MTM adjustment
|
|
495
|
|
(404
|
)
|
590
|
|
|||
MTM-adjusted net earnings
|
|
$
|
3,724
|
|
$
|
2,465
|
|
$
|
2,633
|
|
|
|
|
|
|
||||||
Diluted EPS
|
|
$
|
18.49
|
|
$
|
16.34
|
|
$
|
11.32
|
|
MTM expense (benefit) per share
|
|
3.76
|
|
(3.06
|
)
|
5.27
|
|
|||
MTM-related deferred state tax (benefit) expense per share
|
|
(0.17
|
)
|
0.14
|
|
(0.24
|
)
|
|||
Federal tax (benefit) expense of items above per share
|
|
(0.75
|
)
|
0.62
|
|
(1.76
|
)
|
|||
After-tax MTM adjustment per share
|
|
2.84
|
|
(2.30
|
)
|
3.27
|
|
|||
MTM-adjusted diluted EPS
|
|
$
|
21.33
|
|
$
|
14.04
|
|
$
|
14.59
|
|
APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES
|
|
|
Total Year
|
||||||
($M)
|
|
2018
|
||||||
Cash provided by operating activities before after-tax discretionary pension contributions
|
|
$
|
4,013
|
|
||||
Impacts related to the addition of Innovation Systems
|
|
(862
|
)
|
|||||
After-tax Orbital ATK transaction-related expenses
|
|
36
|
|
|||||
Pension-adjusted cash flow from operations
|
|
$
|
3,187
|
|
||||
|
|
|
|
|||||
Total sales
|
|
$
|
30,095
|
|
||||
Less: Innovation Systems sales
|
|
(3,149
|
)
|
|||||
Sales excluding Innovation Systems
|
|
$
|
26,946
|
|
||||
|
||||||||
Operating income
|
|
$
|
3,780
|
|
||||
Net FAS (service)/CAS pension adjustment
|
|
(613
|
)
|
|||||
Innovation Systems operating income
|
|
(342
|
)
|
|||||
Innovation Systems intangible asset amortization and PP&E step-up depreciation
|
|
208
|
|
|||||
Orbital ATK transaction-related expenses
|
|
45
|
|
|||||
Other
|
|
(6
|
)
|
|||||
Pension-adjusted operating income
|
|
$
|
3,072
|
|
||||
Pension-adjusted operating margin rate
|
|
11.4
|
%
|
|||||
|
||||||||
Net earnings
|
|
$
|
3,229
|
|
||||
Net FAS (service)/CAS pension adjustment
|
|
(613
|
)
|
|||||
Net FAS (non-service) pension benefit
|
|
(1,049
|
)
|
|||||
Tax effect of net pension adjustment
|
|
349
|
|
|||||
After-tax net pension adjustment
|
|
(1,313
|
)
|
|||||
MTM pension expense
(1)
|
|
699
|
|
|||||
Innovation Systems operating income
|
|
(342
|
)
|
|||||
Innovation Systems intangible asset amortization and PP&E step-up depreciation
|
|
208
|
|
|||||
Orbital ATK transaction-related expenses
|
|
45
|
|
|||||
Other
|
|
(6
|
)
|
|||||
Tax effect of items above
|
|
(127
|
)
|
|||||
Pension-adjusted net income
|
|
$
|
2,393
|
|
||||
(1)
Represents the MTM expense related to the Company's pension plans only. During 2018, the Company recorded a total MTM expense of $655 million, of which $699 million related to pension and ($44) million related to OPB.
|
1. Election of Directors:
|
|||||
|
For Against Abstain
|
|
For Against Abstain
|
|
For Against Abstain
|
01 - Wesley G. Bush
|
□
____
□
____
□
|
06 - William H. Hernandez
|
□
____
□
____
□
|
10 - Thomas M. Schoewe
|
□
____
□
____
□
|
02 - Marianne C. Brown
|
□
____
□
____
□
|
07 - Madeleine A. Kleiner
|
□
____
□
____
□
|
11 - James S. Turley
|
□
____
□
____
□
|
03 - Donald E. Felsinger
|
□
____
□
____
□
|
08 - Karl J. Krapek
|
□
____
□
____
□
|
12 - Kathy J. Warden
|
□
____
□
____
□
|
04 - Ann M. Fudge
|
□
____
□
____
□
|
09 - Gary Roughead
|
□
____
□
____
□
|
13 - Mark A. Welsh III
|
□
____
□
____
□
|
05 - Bruce S. Gordon
|
□
____
□
____
□
|
|
|
|
|
|
|
|
|
|
For Against Abstain
|
2. Proposal to approve, on an advisory basis, the compensation of the Company's Named Executive Officers.
|
□
____
□
____
□
|
||||
|
|
|
|
|
For Against Abstain
|
3. Proposal to ratify the appointment of Deloitte & Touche LLP as the Company's Independent Auditor for fiscal year ending December 31, 2019.
|
|
□
____
□
____
□
|
|||
|
|
|
|
|
|
The Board of Directors recommends a vote
AGAINST
Proposals 4 and 5.
|
For Against Abstain
|
||||
4. Shareholder proposal to provide for a report on management systems and processes for implementing the Company's human rights policy.
|
|
□
____
□
____
□
|
|||
|
|
|
|
|
For Against Abstain
|
5. Shareholder proposal to provide for an independent chair.
|
|
□
____
□
____
□
|
Date (mm/dd/yyyy) - Please print date below.
|
|
Signature 1 - Please keep signature within the box.
|
|
Signature 2 - Please keep signature within the box.
|
|
|
|
|
|
|
1. Election of Directors:
|
|||||
|
For Against Abstain
|
|
For Against Abstain
|
|
For Against Abstain
|
01 - Wesley G. Bush
|
□
____
□
____
□
|
06 - William H. Hernandez
|
□
____
□
____
□
|
10 - Thomas M. Schoewe
|
□
____
□
____
□
|
02 - Marianne C. Brown
|
□
____
□
____
□
|
07 - Madeleine A. Kleiner
|
□
____
□
____
□
|
11 - James S. Turley
|
□
____
□
____
□
|
03 - Donald E. Felsinger
|
□
____
□
____
□
|
08 - Karl J. Krapek
|
□
____
□
____
□
|
12 - Kathy J. Warden
|
□
____
□
____
□
|
04 - Ann M. Fudge
|
□
____
□
____
□
|
09 - Gary Roughead
|
□
____
□
____
□
|
13 - Mark A. Welsh III
|
□
____
□
____
□
|
05 - Bruce S. Gordon
|
□
____
□
____
□
|
|
|
|
|
|
|
|
|
|
For Against Abstain
|
2. Proposal to approve, on an advisory basis, the compensation of the Company's Named Executive Officers.
|
□
____
□
____
□
|
||||
|
|
|
|
|
For Against Abstain
|
3. Proposal to ratify the appointment of Deloitte & Touche LLP as the Company's Independent Auditor for fiscal year ending December 31, 2019.
|
|
□
____
□
____
□
|
|||
|
|
|
|
|
|
The Board of Directors recommends a vote
AGAINST
Proposals 4 and 5.
|
For Against Abstain
|
||||
4. Shareholder proposal to provide for a report on management systems and processes for implementing the Company's human rights policy.
|
|
□
____
□
____
□
|
|||
|
|
|
|
|
For Against Abstain
|
5. Shareholder proposal to provide for an independent chair.
|
|
□
____
□
____
□
|
Date (mm/dd/yyyy) - Please print date below.
|
|
Signature 1 - Please keep signature within the box.
|
|
Signature 2 - Please keep signature within the box.
|
|
|
|
|
|
1.
|
Election of the following 13 nominees as Directors:
|
2.
|
Proposal to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers.
|
3.
|
Proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year ending December 31, 2019.
|
4.
|
Shareholder proposal to provide for a report on management systems and processes for implementing the Company’s human rights policy.
|
5.
|
Shareholder proposal to provide for an independent chair.
|
|
CORPORATE COMMUNICATIONS
|
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
---|
DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
---|---|---|---|
Thomas M. Schoewe Former Executive Vice President and Chief Financial Officer, Wal-Mart Stores, Inc. Age: 71 Director since: August 2011 Committee membership: Audit and Risk Committee (Chair), Nominating and Corporate Governance Committee | |||
Mary A. Winston President and Founder of WinsCo Enterprises, Inc. Age: 62 Director since: March 2023 Committee membership: Compensation and Human Capital Committee, Policy Committee | |||
Ms. Kimberly A. Ross served as Chief Financial Officer of WeWork from March through October 2020. She served as Senior Vice President and Chief Financial Officer of Baker Hughes Company from 2014 to 2017. Ms. Ross was Executive Vice President and Chief Financial Officer of Avon Products, Inc. from 2011 to 2014. Prior to that, she served as the Executive Vice President and Chief Financial Officer of Royal Ahold N.V. from 2007 to 2011 and previously held a variety of senior management positions at Royal Ahold. EXPERIENCE AND SKILLS • Extensive experience through service as the Chief Financial Officer of large public companies, including expertise in financial reporting, internal auditing processes and managing corporate finance for global companies • Significant international business experience through her service as an executive of large public companies with extensive international operations • Substantial senior leadership skills • Audit committee financial expert OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS • Member of the Board of Directors of The Cigna Group • Member of the Board of Directors of KKR & Co. Inc. • Member of the Board of Directors of Nestlé S.A. (to April 2024) FORMER PUBLIC COMPANY DIRECTORSHIPS WITHIN THE LAST FIVE YEARS • Member of the Board of Directors of Chubb Limited • Member of the Board of Directors of KKR Acquisition Holdings I Corp. • Member of the Board of Directors of PQ Group Holdings Inc. | |||
Ms. Kathy J. Warden has served as Chair since August 2019 and as Chief Executive Officer and President of the Company since January 2019. She has served on the Board of Directors since July 2018. Prior to becoming CEO and President, Ms. Warden served as President and Chief Operating Officer of the Company from January 2018 through December 2018, as Corporate Vice President and President of the Company’s Mission Systems Sector from 2016 through 2017, as Corporate Vice President and President of the Company’s former Information Systems Sector from 2013 to 2015, and as Vice President of the Company’s Cyber Intelligence Division from 2011 to 2012. Prior to joining the Company in 2008, Ms. Warden held leadership roles at General Dynamics and Veridian Corporation. Earlier, she was a principal in a venture internet firm and also spent nearly a decade with General Electric Company working in commercial industries. EXPERIENCE AND SKILLS • Extensive experience in operational leadership, strategy, performance and business development in government and commercial markets, including cyber expertise • Prior leadership positions within Northrop Grumman (including as President, Chief Operating Officer and President of two business sectors) • Significant aerospace and defense industry experience OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS • Member of the Board of Directors of Merck & Co., Inc. SELECTED DIRECTORSHIPS AND MEMBERSHIPS • Member and former Chair of the Aerospace Industries Association • Member of the Board of Directors of Catalyst • Former Chair of the Board of Directors of the Federal Reserve Bank of Richmond • Former member of the Board of Visitors of James Madison University | |||
Mr. James S. Turley served as Chairman and Chief Executive Officer of Ernst & Young from 2001 until his retirement in 2013. Mr. Turley joined Ernst & Young in 1977 and held various positions there. He was named Deputy Chairman in 2000. EXPERIENCE AND SKILLS • Extensive experience and expertise in areas of finance, accounting and business management acquired over 36-year career at Ernst & Young, including serving as Chairman and Chief Executive Officer of Ernst & Young • Significant experience in areas of risk management • Extensive experience as a member of the audit committee of other public companies • Audit committee financial expert OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS • Member of the Board of Directors of Citigroup • Independent Chair of the Board of Directors of Emerson Electric Company • Member of the Board of Directors of Precigen, Inc. SELECTED DIRECTORSHIPS AND MEMBERSHIPS • Member of the Board of Directors of the Boy Scouts of America • Member of the Board of Directors of Kohler Co. • Member of the Board of Directors of St. Louis Trust & Family Office | |||
Admiral Gary Roughead retired from his position as the 29th Chief of Naval Operations in September 2011, after serving in that position for four years. The Chief of Naval Operations is the senior military position in the United States Navy. As Chief of Naval Operations, Admiral Roughead stabilized and accelerated ship and aircraft procurement plans and the Navy’s capability and capacity in ballistic missile defense and unmanned air and underwater systems. He restructured the Navy to address the challenges and opportunities in cyber operations. Prior to becoming the Chief of Naval Operations, he held six operational commands (including commanding both the Atlantic and Pacific Fleets). Admiral Roughead is a Robert and Marion Oster Distinguished Military Fellow at the Hoover Institution. EXPERIENCE AND SKILLS • Extensive career as a senior military officer with the United States Navy, including numerous operational commands, as well as leadership positions, most recently as the 29th Chief of Naval Operations • Significant expertise in national security, information warfare, cyber operations and global security issues • Broad experience in leadership and matters of global relations, particularly in the Pacific region, Europe and the Middle East • Experience with talent development and management SELECTED DIRECTORSHIPS AND MEMBERSHIPS • Member of the Board of Directors of Maersk Line, Limited • Trustee of the Dodge and Cox Funds • Trustee of Johns Hopkins University • Member of the Board of Managers of the Johns Hopkins University Applied Physics Laboratory • Former Chairman of the Board of Directors of Fincantieri Marinette Marine Corporation | |||
Ann M. Fudge Former Chairman and Chief Executive Officer, Young & Rubicam Brands |
Name & Principal Position
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Year |
Salary
($)
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Bonus
($)
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Stock
Awards
($)
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Non-Equity Incentive Plan Compensation
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Change in Pension Value and Non-Qualified Deferred Compensation Earnings
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All Other Compensation
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Kathy J. Warden
Chair, Chief Executive Officer and President |
2023 | 1,730,769 | — | 16,000,440 | 5,082,875 | 1,205,310 | 718,099 | 24,737,493 | ||||||||||||||||||
2022 | 1,640,388 | — | 14,250,021 | 3,979,800 | — | 801,863 | 20,672,072 | |||||||||||||||||||
2021 | 1,589,439 | — | 13,500,119 | 3,744,000 | 371,464 | 671,745 | 19,876,767 | |||||||||||||||||||
David F. Keffer
Corporate Vice President and Chief Financial Officer
|
2023 | 849,039 | — | 3,399,870 | 1,409,468 | — | 228,011 | 5,886,388 | ||||||||||||||||||
2022 | 819,387 | — | 3,200,346 | 1,104,160 | — | 211,043 | 5,334,936 | |||||||||||||||||||
2021 | 790,392 | — | 3,000,038 | 1,040,000 | — | 195,335 | 5,025,765 | |||||||||||||||||||
Mark A. Caylor
Corporate Vice President and President, Mission Systems |
2023 | 855,005 | — | 3,200,380 | 1,342,358 | 662,262 | 130,593 | 6,190,598 | ||||||||||||||||||
2022 | 855,005 | — | 2,999,816 | 1,145,706 | — | 128,645 | 5,129,172 | |||||||||||||||||||
2021 | 855,002 | — | 3,000,038 | 1,112,000 | 206,044 | 138,474 | 5,311,558 | |||||||||||||||||||
Thomas H. Jones
Corporate Vice President and President, Aeronautics Systems
|
2023 | 785,192 | — | 3,200,380 | 1,240,300 | — | 270,042 | 5,495,914 | ||||||||||||||||||
2022 | 762,117 | — | 2,999,816 | 1,025,100 | — | 282,197 | 5,069,230 | |||||||||||||||||||
Roshan S. Roeder
Corporate Vice President and President, Defense Systems |
2023 | 750,000 | — | 3,149,450 | 1,177,500 | 238,461 | 116,021 | 5,431,432 |
Customers
Customer name | Ticker |
---|---|
Aerojet Rocketdyne Holdings, Inc. | AJRD |
General Dynamics Corporation | GD |
ITT Inc. | ITT |
Lockheed Martin Corporation | LMT |
Raytheon Technologies Corporation | RTX |
Price
Yield
Owner | Position | Direct Shares | Indirect Shares |
---|---|---|---|
CHESTON SHEILA C. | Corp. VP & General Counsel | 27,058 | 0 |
Caylor Mark A | Director | 16,432 | 38 |
Caylor Mark A | CVP & Pres, Mission Systems | 12,900 | 38 |
Addison Ann M | Corp VP & Chief HR Officer | 12,108 | 251 |
Brown Marianne Catherine | Director | 9,145 | 0 |
Keffer David F | CVP & Chief Financial Officer | 8,916 | 0 |
Perry David T | CVP Chief Global Bus Off | 8,717 | 555 |
Jones Thomas H | Director | 4,634 | 0 |
WELSH MARK A III | Director | 4,155 | 0 |
Ryan Lucy C | Corp VP, Communications | 4,144 | 0 |
Hardesty Michael A | Corp VP, Controller & CAO | 3,042 | 0 |
ABNEY DAVID P | Director | 2,078 | 0 |
Robinson Graham | Director | 1,932 | 0 |
Bromberg Matthew Fox | CVP, Global Operations | 1,585 | 0 |
ROEDER ROSHAN S | CVP & Pres. Defense Systems | 913 | 3 |
ROEDER ROSHAN S | Director | 666 | 3 |
Davies Benjamin R. | Director | 537 | 0 |
Ross Kimberly A. | Director | 461 | 0 |
WINSTON MARY A | Director | 69 | 9 |