Income Tax Accounting Policy
Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Analyst Adjustments: Removal of Deferred Taxes
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Provisions for federal and foreign income taxes are calculated on reported earnings before income taxes based on current tax law and include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently payable because certain items of income and expense are recognized in different periods for financial reporting purposes than for income tax purposes. Northrop Grumman recognizes federal and foreign interest accrued related to unrecognized tax benefits in income tax expense. Federal tax penalties are recognized as a component of income tax expense.

In accordance with the regulations that govern cost accounting requirements for government contracts, current state and local income and franchise taxes are generally considered allowable and allocable costs and, consistent with industry practice, are recorded in operating costs and expenses. Northrop Grumman recognizes changes in deferred state taxes and unrecognized state tax benefits in unallocated corporate expenses.

Uncertain tax positions reflect Northrop Grumman’s expected treatment of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim, which have not been reflected in measuring income tax expense for financial reporting purposes. Until these positions are sustained by the taxing authorities or the statute of limitations concerning such issues lapses, Northrop Grumman does not generally recognize the tax benefits resulting from such positions and reports the tax effects as a liability for uncertain tax positions in its consolidated statements of financial position.

Source: 10-K (filing date: 2019-01-31).

Northrop Grumman Corp., income tax expense (benefit), continuing operations

US$ in millions

	12 months ended	Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Federal income tax expense
	Foreign income tax expense
	Current
	Federal income tax expense
	Foreign income tax expense
	Deferred
	Federal and foreign income tax expense

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

Item	Description	The company
Current	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	Northrop Grumman Corp.’s current declined from 2016 to 2017 and from 2017 to 2018.
Deferred	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	Northrop Grumman Corp.’s deferred increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Federal and foreign income tax expense	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Northrop Grumman Corp.’s federal and foreign income tax expense increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Northrop Grumman Corp., effective income tax rate (EITR) reconciliation

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Statutory federal income tax rate
	Effective tax rate

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

Item	Description	The company
Effective tax rate	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Northrop Grumman Corp.’s effective tax rate increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Northrop Grumman Corp., components of deferred tax assets and liabilities

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Retiree benefits
	Accrued employee compensation
	Provisions for accrued liabilities
	Inventory
	Stock-based compensation
	Tax credits
	Other
	Gross deferred tax assets
	Valuation allowance
	Net deferred tax assets
	Goodwill
	Purchased intangibles
	Property, plant and equipment, net
	Contract accounting differences
	Other
	Deferred tax liabilities
	Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

Item	Description	The company
Gross deferred tax assets	Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Northrop Grumman Corp.’s gross deferred tax assets declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Net deferred tax assets	Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Northrop Grumman Corp.’s net deferred tax assets declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Net deferred tax assets (liabilities)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	Northrop Grumman Corp.’s net deferred tax assets (liabilities) declined from 2016 to 2017 and from 2017 to 2018.

Northrop Grumman Corp., deferred tax assets and liabilities, classification

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current deferred tax assets
	Non-current deferred tax assets
	Non-current deferred tax liabilities

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

Item	Description	The company
Non-current deferred tax assets	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent.	Northrop Grumman Corp.’s non-current deferred tax assets declined from 2016 to 2017 and from 2017 to 2018.
Non-current deferred tax liabilities	Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent.

Northrop Grumman Corp., adjustments to financial data

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Current Assets
	Current assets (as reported)
	Less: Current deferred tax assets, net
	Current assets (adjusted)
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Current deferred tax assets, net
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Shareholders’ Equity
	Shareholders’ equity (as reported)
	Less: Net deferred tax assets (liabilities)
	Shareholders’ equity (adjusted)
	Adjustment to Net Earnings
	Net earnings (as reported)
	Add: Deferred income tax expense (benefit)
	Net earnings (adjusted)

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

Northrop Grumman Corp., Financial Data: Reported vs. Adjusted

Northrop Grumman Corp., adjusted ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current Ratio
	Reported current ratio
	Adjusted current ratio
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Northrop Grumman Corp.’s adjusted current ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Northrop Grumman Corp.’s adjusted net profit margin improved from 2016 to 2017 and from 2017 to 2018.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Northrop Grumman Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Northrop Grumman Corp.’s adjusted financial leverage declined from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Northrop Grumman Corp.’s adjusted ROE deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Northrop Grumman Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Northrop Grumman Corp., Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Current assets
	Current liabilities
	Ratio
	Current ratio¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted current assets
	Current liabilities
	Ratio
	Adjusted current ratio²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

2018 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Northrop Grumman Corp.’s adjusted current ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings
	Sales
	Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net earnings
	Sales
	Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

2018 Calculations

¹ Net profit margin = 100 × Net earnings ÷ Sales
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net earnings ÷ Sales
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Northrop Grumman Corp.’s adjusted net profit margin improved from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Sales
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Sales
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

2018 Calculations

¹ Total asset turnover = Sales ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Northrop Grumman Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Shareholders’ equity
	Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted shareholders’ equity
	Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

2018 Calculations

¹ Financial leverage = Total assets ÷ Shareholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Northrop Grumman Corp.’s adjusted financial leverage declined from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings
	Shareholders’ equity
	Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net earnings
	Adjusted shareholders’ equity
	Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

2018 Calculations

¹ ROE = 100 × Net earnings ÷ Shareholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted shareholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Northrop Grumman Corp.’s adjusted ROE deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings
	Total assets
	Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net earnings
	Adjusted total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).

2018 Calculations

¹ ROA = 100 × Net earnings ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Northrop Grumman Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

	Northrop Grumman Corp.	Other companies (not purchased previously)
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Northrop Grumman Corp. (NOC)

Analysis of Income Taxes

Income Tax Accounting Policy

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Analyst Adjustments: Removal of Deferred Taxes

Northrop Grumman Corp., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Northrop Grumman Corp., Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)