2022
Annual Report
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About Us
Northrop Grumman is a leading global aerospace and defense technology company. Our pioneering solutions
equip our customers with the capabilities they need to connect and protect the world, and push the boundaries of
human exploration across the universe. Driven by a shared purpose to solve our customers’ toughest problems, our
more than 95,000 employees define possible every day.
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20 21 22
Sales
($ in billions)
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20 21 22
Organic Sales*
($ in billions)
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20 21 22
Backlog
($ in billions)
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20 21 22
Segment Operating
Margin Rate*
20 21 22
Cash Dividends
Declared
(per Common share)
20 21 22
Transaction-Adjusted
EPS*
*Non-GAAP financial metric. For more information, including a definition, reconciliation to the most directly comparable GAAP measure and why we
believe this measure may be useful to investors, please refer to “Use of Non-GAAP Financial Measures” at the back of this Annual Report.
NORTHROP GRUMMAN 2022 ANNUAL REPORT
Dear Shareholders,
At Northrop Grumman, we connect and protect the world while pushing the
boundaries of human exploration. Cutting-edge technologies imagined and built by
our more than 95,000 employees enable us to deliver innovative solutions to address
our customers’ most urgent and complex problems.
In 2022, our business strategy generated value for our customers, communities and
shareholders. We saw the incredible first images from the James Webb Space Telescope,
launched the United States’ return to the moon with the Artemis program, and unveiled the
remarkable B-21 Raider alongside countless other extraordinary milestones.
Key program wins, and an expanded product portfolio aligned with our customers’
top priorities, strengthened our position as global technology leaders. We welcomed
thousands of new employees to our team, and made investments to support long-term
growth, while also driving cost efficiencies throughout the business. The profitable
growth of our business enabled a capital deployment strategy that fuels innovation and builds capacity, while also
prioritizing shareholder returns.
An evolving security environment underscores the continued need for breakthrough capabilities. Our strong
backlog and advanced portfolio of products give us confidence in our position and ability to help create a more
secure world.
2022 Performance
Leading-edge technology solutions, coupled with exciting new program wins drove another year of strong
performance in 2022.
Strong demand for our capabilities and a laser focus on program performance drove exceptional results. We
ended the year with sales growth of 3% and total sales of $36.6 billion. Additionally, we captured $39.3 billion in
awards in 2022, ending the year with a book to bill ratio of 1.07 and $79 billion in backlog.
Balancing our approach to capital deployment enabled continued investment in key areas of our business while
simultaneously returning cash to stakeholders, including $2.6 billion returned via dividends and share repurchases.
Thoughtful investments in our people, advanced technologies and capabilities remain key to our success, with $2.6
billion in spending on research and development and capital expenditures.
Positioning for the Future
Alignment with our customers’ highest priority areas continues to be a point of strength and differentiation for
Northrop Grumman. The pioneering solutions we deliver have grown our business, generated strong cash flows
and delivered value to our shareholders.
The threat environment continues to evolve and, as we saw in 2022, remains highly complex. Our portfolio and
capabilities meet our customers’ current and future needs – from exquisite, one-of-a-kind technologies to high-
volume products alike. Further, they are key to sustainably and profitably growing our business while upholding our
high quality standards, driving cost efficiencies and operating with excellence.
NORTHROP GRUMMAN 2022 ANNUAL REPORT
Our world-class capabilities are built on a mission-driven culture championing integrity and ethics. In 2022, we
set bold next-generation sustainability goals, including transitioning to Net Zero in our operations by 2035. We
also appointed a new Chief Diversity Officer to ensure our storied legacy of diversity, equity and inclusion (DE&I)
continues to grow. The diverse, innovative and unique perspectives of our people enable all of our teams to thrive.
Our inclusive culture evokes our team’s best thinking as they craft solutions that solve some of the world’s most
complex problems.
Our commitment to environmental, social and governance (ESG) activities garnered widespread recognition in
2022, including:
• Named a Top 50 company for Diversity by DiversityInc
• Received a 100% Score from Human Rights Campaign for “Best Places to Work for LGBTQ+ Equality”
• Named a Best Place to Work for disability inclusion by Disability:IN for the eighth consecutive year
•
Included in the Dow Jones Sustainability Index for North America for the seventh consecutive year
• Named one of America’s Most Just Companies by JUST Capital for our work fostering a more equitable business
environment
We also see the rapidly expanding technological landscape ahead; opportunities that call upon our company to
build the capabilities and workforce needed to deliver future solutions in line with our high expectations. Significant
investments in our teams and communities help build valuable job skills and support STEM education programs to
ensure a robust pipeline of STEM talent for years to come.
I’m deeply proud of our team’s accomplishments and confident that Northrop Grumman has the talent, capabilities
and portfolio to deliver innovative and affordable solutions with speed. No matter the challenges we face, our
mission to create a more connected and protected world for our communities, customers and shareholders
remains strong.
Sincerely,
Kathy Warden
Chair, Chief Executive Officer and President
NORTHROP GRUMMAN 2022 ANNUAL REPORT Elected Officers (As of March 1, 2023)
Kathy J. Warden
Chair, Chief Executive Officer
and President
Todd B. Ernst
Corporate Vice President and Treasurer,
Vice President Investor Relations
Jennifer C. McGarey
Corporate Vice President and Secretary
Ann M. Addison
Corporate Vice President and Chief
Human Resources Officer
Michael A. Hardesty
Corporate Vice President, Controller and
Chief Accounting Officer
Matthew F. Bromberg
Corporate Vice President,
Global Operations
Thomas H. Jones
Corporate Vice President and President,
Aeronautics Systems
Mark A. Caylor
Corporate Vice President and President,
Mission Systems
Lesley A. Kalan
Corporate Vice President and Chief Strategy
and Development Officer
Sheila C. Cheston
Corporate Vice President and General
Counsel
David F. Keffer
Corporate Vice President and
Chief Financial Officer
Stephen F. O’Bryan
Corporate Vice President and Global
Business Development Officer
David T. Perry
Corporate Vice President and Chief
Global Business Officer
Roshan S. Roeder
Corporate Vice President and President,
Defense Systems
Lucy C. Ryan
Corporate Vice President,
Communications
Thomas L. Wilson
Corporate Vice President and President,
Space Systems
Board of Directors (As of March 1, 2023)
Kathy J. Warden
Chair, Chief Executive Officer and President,
Northrop Grumman Corporation
David P. Abney 2† 3
Former Executive Chairman and Chief
Executive Officer, United Parcel Service
(a package delivery and supply chain
management company)
Marianne C. Brown 1 3†
Former Chief Operating Officer, Global
Financial Solutions, Fidelity National
Information Services, Inc. (financial services
technology solutions provider)
Donald E. Felsinger 2 3
Former Chairman and Chief Executive
Officer, Sempra Energy (energy services
company)
Madeleine A. Kleiner 2 3
Lead Independent Director, Northrop
Grumman Corporation; Former Executive
Vice President and General Counsel,
Hilton Hotels Corporation (hotel and resort
company)
Karl J. Krapek 2 3
Former President and Chief Operating
Officer, United Technologies Corporation
(aerospace and building systems company)
Arvind Krishna 2 4
Chairman and Chief Executive Officer,
International Business Machines Corporation
(an information technology company)
Thomas M. Schoewe 1† 4
Former Executive Vice President and
Chief Financial Officer, Wal-Mart Stores,
Inc. (operator of retail stores)
James S. Turley 1 3
Former Chairman and Chief Executive
Officer, Ernst & Young (a professional
services organization)
Mark A. Welsh 1 4
Dean, Bush School of Government and
Public Service, Texas A&M University;
General, United States Air Force (Ret.)
and Former Chief of Staff, United States
Air Force
Graham N. Robinson 1 4
Senior Vice President, Stanley Black &
Decker, and President, STANLEY Industrial
(manufacturer of tools and hardware)
1 Member of Audit and Risk Committee
2 Member of Compensation Committee
3 Member of Governance Committee
4 Member of Policy Committee
† Committee Chair
Ann M. Fudge 1 4
Former Chairman and Chief Executive
Officer, Young & Rubicam Brands (marketing
communications company)
Gary Roughead 2 4†
Admiral, United States Navy (Ret.) and
Former Chief of Naval Operations
NORTHROP GRUMMAN 2022 ANNUAL REPORT
NORTHROP GRUMMAN 2022 ANNUAL REPORT UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-16411
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2980 Fairview Park Drive
Falls Church, Virginia
(Address of principal executive offices)
80-0640649
(I.R.S. Employer
Identification Number)
22042
(Zip code)
Securities registered pursuant to section 12(b) of the Act:
(703) 280-2900
(Registrant’s telephone number, including area code)
Title of each class
Common Stock
Trading Symbol(s)
NOC
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ☒
Non-accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
Accelerated Filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐
No ☒
As of June 30, 2022, the aggregate market value of the common stock (based upon the closing price of the stock on the New York Stock Exchange) of the
registrant held by non-affiliates was approximately $74.0 billion.
As of January 23, 2023, 153,053,371 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Northrop Grumman Corporation’s Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for
the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
NORTHROP GRUMMAN CORPORATION
TABLE OF CONTENTS
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
[Reserved]
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Consolidated Operating Results
Segment Operating Results
Product and Service Analysis
Backlog
Liquidity and Capital Resources
Critical Accounting Policies, Estimates and Judgments
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings and Comprehensive Income
Consolidated Statements of Financial Position
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
2. Dispositions
3. Earnings Per Share, Share Repurchases and Dividends on Common Stock
4. Accounts Receivable, Net
5. Unbilled Receivables, Net
6. Inventoried Costs, Net
7. Income Taxes
8. Goodwill and Other Purchased Intangible Assets
9. Fair Value of Financial Instruments
10. Debt
11. Investigations, Claims and Litigation
12. Commitments and Contingencies
13. Retirement Benefits
14. Stock Compensation Plans and Other Compensation Arrangements
15. Leases
16. Segment Information
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
92
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 15. Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
PART IV
ii
NORTHROP GRUMMAN CORPORATION
Item 1. Business
HISTORY AND ORGANIZATION
PART I
History
Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”)
is a leading global aerospace and defense technology company. We deliver a broad range of products, services and
solutions to U.S. and international customers, and principally to the U.S. Department of Defense (DoD) and
intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip
our customers with capabilities they need to connect, protect and advance humanity.
The company is a leading provider of space systems, advanced aircraft, missile defense, advanced weapons and
long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and
breakthrough technologies, such as artificial intelligence, advanced computing and cyber. We are focused on
competing and winning programs that enable continued growth, performing on our commitments and affordably
delivering capability our customers need. With the investments we've made in advanced technologies, combined
with our talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet
our customers' needs today and in the future. For a discussion of risks associated with our operations, see “Risk
Factors.”
The company originally was formed in 1939 in Hawthorne, California as Northrop Aircraft Incorporated and was
reincorporated in Delaware in 1985, as Northrop Corporation. Northrop Corporation was a principal developer of
flying wing technology, including the B-2 Spirit bomber. We developed into one of the largest defense companies in
the world through a series of acquisitions, as well as organic growth, including the following:
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1994 - Acquired Grumman Corporation, a premier military aircraft systems integrator. The combined
company was renamed Northrop Grumman Corporation;
1996 - Acquired the defense and electronics businesses of Westinghouse Electric Corporation, developer of
sophisticated radar and other electronics systems;
2001 - Acquired Litton Industries, Inc., a global electronics and information technology company and full
service shipbuilder;
2001 - Acquired Newport News Shipbuilding Inc., designer and builder of nuclear-powered aircraft carriers
and submarines;
2002 - Acquired TRW Inc., developer of military and civil space systems and payloads, and integrator of
complex, mission-enabling systems and services;
2011 - Completed the spin-off of Huntington Ingalls Industries, Inc., operator of our former shipbuilding
business, comprised largely of a part of Litton Industries and Newport News Shipbuilding;
2018 - Acquired Orbital ATK, Inc. (OATK), developer and producer of satellites and other space systems,
launch vehicles and missile products; and
2021 - Completed the sale of our IT and mission support services business (the “IT services divestiture”) to
Veritas Capital.
Organization
From time to time, we acquire or dispose of businesses and realign contracts, programs or businesses among and
within our operating segments. Internal realignments are typically designed to leverage existing capabilities more
fully and to enhance efficient development and delivery of products and services. At December 31, 2022, the
company was aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems,
Defense Systems, Mission Systems and Space Systems.
AERONAUTICS SYSTEMS
Aeronautics Systems is a leader in the design, development, production, integration, sustainment and modernization
of advanced aircraft systems for the U.S. Air Force, the U.S. Navy, other U.S. government agencies, and
international customers. These aircraft systems support four mission areas: strike; air dominance; battle management
-1-
NORTHROP GRUMMAN CORPORATION
and control; and intelligence, surveillance and reconnaissance (ISR). Aeronautics Systems is reported in two
business areas: Autonomous Systems and Manned Aircraft.
Autonomous Systems – provides unmanned autonomous aircraft systems, including high-altitude long-endurance
(HALE) strategic ISR systems and vertical take-off and landing (VTOL) tactical ISR systems. Key programs
include:
• MQ-4C Triton, which provides wide area strategic ISR over vast ocean and coastal regions for maritime
domain awareness to the U.S. Navy and Australia;
•
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RQ-4 Global Hawk, which provides high resolution imagery of land masses for theater awareness and
strategic ISR to the U.S. Air Force, Japan, and the Republic of Korea;
North Atlantic Treaty Organization (NATO) Alliance Ground Surveillance (AGS), a Global Hawk variant,
for strategic ISR missions conducted in multinational theater operations; and
• MQ-8B and MQ-8C Fire Scout, ship-based, VTOL tactical ISR systems that provide situational awareness
and precision targeting for the U.S. Navy.
Manned Aircraft – provides strategic long-range strike aircraft, tactical fighter and air dominance aircraft, and
airborne battle management and command and control systems. Key programs include:
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Development and production of the U.S. Air Force B-21 Raider long-range strike bomber, as well as
modernization and sustainment services for the B-2 Spirit bomber;
Fuselage production for the F/A-18 Super Hornet and the F-35 Lighting II Joint Strike Fighter for use by
U.S. and international forces;
E-2D Advanced Hawkeye battle management aircraft production for the U.S. Navy, Japan, and France; and
E-8C Joint Surveillance Target Attack Radar System (JSTARS) aircraft sustainment and modernization for
the U.S. Air Force.
DEFENSE SYSTEMS
Defense Systems is a leader in the design, development, production, integration, sustainment and modernization of
weapon and mission systems for U.S. military and civilian agency customers, and a broad range of international
customers. Major products and services include integrated battle management systems, weapons systems and aircraft
and mission systems sustainment and modernization. The sector is reported in two business areas: Battle
Management & Missile Systems, and Mission Readiness.
Battle Management & Missile Systems – designs, develops and integrates all-domain command and control (C2) and
weapons systems, including munitions and missiles. The business provides integration and interoperability of net-
enabled battle management, sensors, targeting and surveillance systems – a backbone architecture for Joint All-
Domain Command and Control (JADC2) capable of integrating sensors and shooters, as well as air and missile
defense C2 systems. It also develops and produces precision strike weapons; advanced propulsion, including high
speed air-breathing and hypersonic systems; and high-performance gun systems and precision munitions.
Competencies include system and software development; integration of weapon systems; tactical missile and
component development and production; and production of advanced fuzes, munitions and defense electronics. Key
programs include:
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Integrated Air and Missile Defense Battle Command System (IBCS) for the U.S. Army and Poland, which
is a system that integrates sensors and effectors to deliver among the most advanced C2 systems for joint
and coalition forces;
U.S. Navy’s Advanced Anti-Radiation Guided Missile (AARGM), a medium-range, air-to-surface missile,
and its extended range variant, AARGM-ER;
Guided Multiple Launch Rocket System (GMLRS) propulsion and warhead subsystems for a surface-to-
surface system used to defeat targets using indirect precision fires up to 70-plus kilometers;
Precision Guidance Kit (PGK), replaces conventional fuzes for artillery and mortar munitions and
transforms them into Global Positioning System enabled precision guided weapons;
Hypersonic Attack Cruise Missile (HACM) air-breathing, scramjet propulsion subsystem for the
hypersonic air-launched cruise missile to travel at speeds of Mach 5 or greater; and
-2-
NORTHROP GRUMMAN CORPORATION
•
Forward Area Air Defense Command and Control (FAAD C2), the Army’s long-standing program of
record for short range air defense and Counter Rocket, Artillery and Mortar (C-RAM), as well as the
interim C2 for Counter Unmanned Aircraft Systems (C-UAS).
Mission Readiness – provides full life cycle service and support for software, weapons systems and aircraft, and
logistics support, sustainment, operations and modernization for air, sea and ground systems. It also supports critical
warfighter training for complex missions in a realistic virtual environment. Competencies include aircraft,
electronics and embedded software sustainment; digital engineering and extended reality training for platform
logistics; and maintenance. Key programs include:
•
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Global system sustainment and operations support for the F-35, B-2, P-3 Orion, E-6B Mercury, KC-30A
multi-role tanker, C-27J transport, Global Hawk and Triton programs;
Special Electronics Mission Aircraft (SEMA) intelligence, surveillance and reconnaissance support;
AAQ-24 sensor sustainment and repair for U.S. military customers; and
APN-241 radar sustainment, repair and production for U.S. military and foreign military sales (FMS)
customers.
MISSION SYSTEMS
Mission Systems is a leader in advanced mission solutions and multifunction systems, primarily for the U.S. defense
and intelligence community, and international customers. Major products and services include cyber; command,
control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR) systems; radar,
electro-optical/infrared (EO/IR) and acoustic sensors; electronic warfare systems; advanced communications and
network systems; cyber solutions; intelligence processing systems; navigation; and maritime power, propulsion and
payload launch systems. The sector is reported in four business areas: Airborne Multifunction Sensors; Maritime/
Land Systems & Sensors; Navigation, Targeting & Survivability; and Networked Information Solutions.
Airborne Multifunction Sensors – delivers products, systems and services that support airborne platforms with multi-
function radio frequency (RF) and EO/IR systems; radar, electronic warfare and situational awareness mission
systems; and high altitude ISR sensors. Competencies include fire control, surveillance and early warning and
control radar systems; electronic attack and electronic support systems; and multi-sensor processing. Key
unrestricted programs include:
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Airborne Early Warning & Control (AEW&C). The center piece of the E-7 AEW&C aircraft is the Multi-
role Electronically Scanned Array (MESA) radar which enables 360 degree long range advanced air
moving target indicator (AMTI) capabilities for Battle Management, Command and Control, and Maritime
Surveillance;
F-35 fire control radar and Distributed Aperture System (DAS), which provides 360 degree field of view
tracking, identifying, missile warning and night vision capabilities;
LONGBOW Fire Control Radar (FCR), which provides fire control radar capabilities for the global AH-64
helicopter fleet; and
Scalable Agile Beam Radar (SABR), an active electronically scanned array fire control radar system for
F-16 aircraft.
Maritime/Land Systems & Sensors – delivers products, systems and services that enable maritime and ground
platform mission capabilities via sensors, targeting and surveillance systems; electronic warfare systems; mission
module integration; power, propulsion and control systems; and missile launchers. Competencies include ground
and maritime radar systems; nuclear ship propulsion and power generation systems; shipboard missile and
encapsulated payload launch systems; integrated bridge systems; unmanned maritime vehicles; high-resolution
undersea sensors; deep-sea packaging; and mission integration. Key unrestricted programs include:
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Surface Electronic Warfare Improvement Program (SEWIP) Block III, which protects surface ships from
anti-ship missiles, provides early detection, signal analysis and threat warning;
Ground/Air Task Oriented Radar (G/ATOR), a mobile multi-mode active electronically scanned array;
Littoral Combat Ship Mission Module Integration, which provides engineering design, support and
production of mission modules for U.S. Navy littoral combat ships; and
-3-
NORTHROP GRUMMAN CORPORATION
•
DDG Modernization, which is comprised of several subsystems to support modernization of Arleigh
Burke-class guided missile destroyers including Integrated Bridge and Navigation Systems (IBNS) and ship
control systems.
Navigation, Targeting & Survivability – delivers products, systems and services that support aircraft platforms with
targeting, self-protection and situational awareness mission systems; and provides embedded navigation and
positioning sensors for a range of platforms including ships, aircraft, spacecraft and weapons. Competencies include
EO/IR and RF self-protection; targeting and surveillance systems; digitized cockpits; and inertial navigation
systems. Key unrestricted programs include:
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LITENING Advanced Targeting Pod, an electro-optical infrared sensor system for targeting and
surveillance that enables aircrews to detect, acquire, identify and track targets at long ranges;
Large Aircraft and Common Infrared Countermeasures (LAIRCM, DoN LAIRCM, CIRCM) systems,
which protect large aircraft as well as rotary wing and medium fixed wing aircraft from infrared missiles
using advanced laser technology;
APR-39 DV(2) and EV(2) Radar Warning Receiver programs, which produce a digital radar warning
receiver for the U.S. Army, Navy and Marines;
AC/MC 130J Radio Frequency Countermeasures system, which provides superior situational awareness
and better enables aircraft survivability in operationally relevant environments;
Embedded Global Positioning System (GPS) / Inertial Navigation Systems-Modernization (EGI-M)
program, which provides state-of-the-art airborne navigation capabilities with an open architecture that
enables rapid responses to future threats; and
UH-60V Black Hawk integrated mission equipment package, which modernizes the U.S. Army’s Black
Hawk helicopters with a glass cockpit, including an integrated computational system, visual display system
and control display units, extending the life and mission capabilities of the UH-60 platform.
Networked Information Solutions – delivers products, systems and services in the areas of advanced communications
and network systems, full spectrum cyber solutions, secure processing, transformational computing, advanced
technology development, and Signals Intelligence (SIGINT) mission systems. Competencies include software
defined radios and network gateways, communications and counter-communications systems; cyber mission
management; large scale cyber solutions for national security applications; cyber survivability; ground software
systems; and SIGINT sensors and processing. Key unrestricted programs include:
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F-35 Communications, Navigation and Identification (CNI) integrated avionics system, which provides
secure communications and interoperability capabilities;
Battlefield Airborne Communications Node (BACN), one of the first airborne gateway systems that allows
platforms to communicate and securely share data;
Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW), a software-
programmable jammer that provides protection from improvised explosive devices (IEDs);
Exploitation and cyber programs, which provide cyber and intelligence domain support through unique
intelligence and cyber capabilities; and
Airborne Signals Intelligence Payload (ASIP), which delivers key signals intelligence capabilities to the
warfighter by detecting, identifying, and locating radar and other types of electronic and modern
communication signals.
SPACE SYSTEMS
Space Systems is a leader in delivering end-to-end mission solutions through the design, development, integration,
production and operation of space, missile defense, launch and strategic missile systems for national security, civil
government, commercial and international customers. Major products include satellites and payloads; ground
systems; missile defense systems and interceptors; launch vehicles and related propulsion systems; and strategic
missiles. The sector is reported in two business areas: Space and Launch & Strategic Missiles.
Space – designs, develops, manufactures and integrates spacecraft systems, subsystems, sensors, payloads and
ground systems to deliver mission capability to national security, science and environmental, communications, on-
orbit servicing, and human-rated space systems for earth orbit and deep-space exploration missions. Much of this
business is performed through restricted programs. Key unrestricted programs include:
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NORTHROP GRUMMAN CORPORATION
•
•
•
•
•
•
Cygnus spacecraft, used in the execution of our CRS contracts with NASA;
Habitation and Logistics Outpost (HALO) module in support of NASA’s Gateway;
Evolved Strategic SATCOM (ESS) and Protected Tactical SATCOM (PTS) satellites and payloads
providing survivable, protected communications to U.S. forces;
Next-Generation Overhead Persistent Infrared (Next Gen OPIR) program satellites and payloads providing
data for missile defense;
Space Development Agency Tracking and Transport layers providing missile warning/tracking and
resilient, low-latency, high-volume data transport communication systems; and
James Webb Space Telescope (JWST) operations and sustainment contract.
Launch & Strategic Missiles – designs, develops, manufactures and integrates small- and medium-class space launch
vehicles to place satellites into earth orbit; suborbital launch vehicles that place payloads into a variety of high-
altitude trajectories; large strategic missile systems; and missile defense systems. Competencies include large
strategic missile design, integration, production and sustainment, as well as the production of medium- and large-
class rocket propulsion systems for human and cargo launch vehicles, hypersonic boosters and missile defense
interceptors. Key programs include:
•
Ground Based Strategic Deterrent (GBSD) Engineering & Manufacturing Development (EMD) program;
• Missile defense systems, interceptors, targets, mission processing and boosters for the Missile Defense
Agency's (MDA) Next-Generation Interceptor (NGI), Ground-based Midcourse Defense Weapon Systems
(GWS);
•
•
•
Development and production of solid rocket motors for NASA’s Space Launch System (SLS) heavy lift
vehicle;
Antares rocket, used in the execution of our Commercial Resupply Services (CRS) contracts with the
National Aeronautics and Space Administration (NASA);
63-inch diameter Graphite Epoxy Motor (GEM 63) and the extended length variation (GEM 63XL) solid
rocket boosters used to provide lift capability for the ATLAS V and Vulcan launch vehicles;
• Medium-class solid rocket motors for the U.S. Navy's Trident II Fleet Ballistic Missile program; and
•
Intercontinental Ballistic Missile (ICBM) Ground Subsystem Support Contract (GSSC).
CUSTOMER CONCENTRATION
Our largest customer is the U.S. government. Sales to the U.S. government accounted for 86 percent, 85 percent and
84 percent of sales during the years ended December 31, 2022, 2021 and 2020, respectively. For further information
on sales by customer type, contract type and geographic region, see Note 16 to the consolidated financial statements.
See “Risk Factors” for further discussion regarding risks related to customer concentration.
COMPETITIVE CONDITIONS
We compete with many companies in the defense, intelligence and federal civil markets. The Boeing Company,
General Dynamics, L3Harris Technologies, Lockheed Martin, and Raytheon Technologies are some of our primary
competitors. Key characteristics of our industry include long operating cycles and intense competition, which is
evident through the number of competitors bidding on program opportunities and the number of bid protests
(competitor protests of U.S. government procurement awards).
It is common in the defense industry for work on major programs to be shared among a number of companies. A
company competing to be a prime contractor may, upon ultimate award of the contract to another competitor, serve
as a subcontractor to the ultimate prime contracting company. It is not unusual to compete for a contract award with
a peer company and, simultaneously, perform as a supplier to or a customer of that same competitor on other
contracts, or vice versa.
SEASONALITY
No material portion of our business is considered to be seasonal.
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BACKLOG
At December 31, 2022, total backlog, which is equivalent to the company’s remaining performance obligations, was
$78.7 billion as compared with $76.0 billion at December 31, 2021. For further information, see “Backlog” in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) and Note 1 to
the consolidated financial statements.
INTELLECTUAL PROPERTY
We routinely apply for and own a number of U.S. and foreign patents related to the technologies we develop. We
also develop and protect intellectual property as trade secrets. In addition to owning a large portfolio of proprietary
intellectual property, we license some intellectual property rights to third parties and we license or otherwise obtain
access to intellectual property from third parties. The U.S. government typically holds licenses to patents developed
in the performance of U.S. government contracts and may use or authorize others to use the inventions covered by
these patents for certain purposes. See “Risk Factors” for further discussion regarding risks related to intellectual
property.
RAW MATERIALS
We have experienced challenges with access to certain raw materials due to macroeconomic factors and several
global events such as microelectronics shortages, COVID-19 and geopolitical conflicts. In some cases, these
challenges have significantly increased the cost and/or lead time required to obtain certain raw materials.
Nonetheless, these challenges have not to date materially impacted our ability to perform on our contracts. See “Risk
Factors” for further discussion regarding risks related to raw materials.
HUMAN CAPITAL
Fostering a culture that offers employees opportunities to live our values, deliver for our customers, and act
responsibly and sustainably is central to our diverse and talented workforce. Our culture and values enable us to
continue attracting qualified talent, particularly those with security clearances and requisite skills in multiple areas,
including science, technology, engineering and math. During 2022, despite facing a tight labor market, this focus on
our culture and workforce was a factor in our ability to hire approximately 16,000 new employees, and as of
December 31, 2022, we have approximately 95,000 employees.
Additional information regarding our human capital strategy is available in our Environmental, Social, and
Governance (ESG) Report and Proxy Statement, which can be found on our company website. Information on our
website, including our ESG Report (formerly our Sustainability Report), is not incorporated by reference into this
Annual Report.
Our Values and Culture
Our values reflect our priorities and form the bedrock of our culture:
• We do the right thing – we earn trust, act with ethics, integrity and transparency, treat everyone with
respect, value diversity and foster safe and inclusive environments.
• We do what we promise – we own the delivery of results, focused on quality.
• We commit to shared success – we work together to focus on the mission and take accountability for the
sustainable success of our people, customers, shareholders, suppliers and communities.
• We pioneer – with fierce curiosity, dedication and innovation, we seek to solve the world’s most
challenging problems.
We believe our culture and values are vital to the ongoing success of the company, including our ability to attract
and retain a talented and diverse workforce. Our values are also integral to our commitment to long-term
sustainability, with robust ESG practices across our company. The company has a Standards of Business Conduct
program. Our employees are empowered to raise concerns without fear of reprisal. In addition to full-time ethics
professionals, we also have over 140 business conduct advisors who promote values and an ethical culture within the
company.
Our annual engagement survey gives employees a voice and a mechanism to provide feedback on our culture. This
survey is managed by a third-party vendor to encourage employee candor on key engagement drivers, including
company leadership, culture, inclusion and career development. In 2022, 79 percent of employees responded to the
survey, an indication that our employees believe their feedback matters, and we were named a “High Performing
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NORTHROP GRUMMAN CORPORATION
Company” by the third party vendor based on our survey results. Our leaders review the survey responses and work
collaboratively with their teams to take meaningful actions based on survey results.
Diversity, Equity and Inclusion
Diversity, equity and inclusion (DE&I) is vital to our culture and our company’s success. Our ability to leverage the
power of our diverse workforce enhances employee engagement and enables us to innovate, perform and deliver on
quality, which results in value for our shareholders, customers, and employees. Diversity is one of the company’s
non-financial ESG performance metrics and is reviewed by the Board of Directors. Across our U.S. employee
population, as of December 31, 2022, 25 percent are female, 37 percent are people of color, 18 percent are veterans
and 8 percent are persons with disabilities. At the vice president level, 34 percent are female and 19 percent are
people of color.
Talent Management
Northrop Grumman’s talent strategy is designed to maximize the full potential of our people and our business. We
are focused on providing an end-to-end experience from pre-hire to retirement. This includes creating inclusive,
employee-centric experiences, cultivating leadership, offering multiple development pathways and expanding the
talent pipeline into and through the company.
We hold regular talent review discussions to ensure line of sight to talent at various levels of the organization.
Succession plans are refreshed and reviewed to ensure a robust, diverse pipeline of talent and business continuity
with a tight linkage to development.
We focus on accelerating learning and development of our leaders by providing a combination of experiences and
education. Our Leading for Impact Program offers developmental paths for new and experienced managers seeking
to refresh or build their leadership capabilities. Nearly 3,000 leaders have honed their skills leveraging various
learning modalities, including virtual and in-person instructor-led, web-based training and micro-courses to support
our managers.
Our employee development programs are designed to strengthen employee skills that align to our current and future
business needs, encourage knowledge sharing and support career progression and growth. We utilize My Learning
Experience, a machine learning enabled content aggregator designed to create a unique and personalized learning
experience for each employee. We offer our employees online career-specific tools and resources and we also
support development opportunities through educational institutions with our Education Assistance Program. Our
early-in-career rotation program, Pathways, develops talent pipelines with both depth of skills and breadth of
experiences that are critical to the company’s future talent needs. Our technical cohort programs are uniquely
designed to cultivate technical, domain expertise and collaborative thought leadership for early through advanced
career levels.
As our company continues to grow, we rely on an integrated talent acquisition approach. The company strategically
attracts, identifies, and onboards candidates in support of business needs and priorities. In order to accomplish our
goals, we seek talent with unique perspectives, skills and experiences; maintain strategic relationships with colleges;
offer a robust employee referral program; and partner with numerous diversity organizations, military organizations
and trusted external partners, with a commitment to growing and supporting a diverse talent pipeline. Amidst the
evolving and, at times, challenging hiring environment, we apply agile recruiting methods as we work to adapt to the
changing labor marketplace and to ensure employees and candidates have an exceptional experience.
Employee Health and Safety
People are our most valuable resource, and we work diligently to protect the health, safety and well-being of our
employees, customers, visitors and others at our facilities. During 2022, we have taken, and continue to take, robust
actions in response to the COVID-19 pandemic to help protect the health, safety and well-being of our employees
and others. See “COVID-19” in MD&A for further discussion.
Health and safety are a core focus in everything we do. Risk and hazard identification, abatement and prevention are
key components of Northrop Grumman’s safety program. Everyone has a responsibility to identify workplace
hazards and we empower employees to report these hazards without fear of repercussion. We evaluate the
effectiveness of our health and safety programs externally, through benchmarking with industry peers and the U.S.
Bureau of Labor Statistics. Internally, we determine program effectiveness by conducting trend analyses of our past
performance.
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Collective Agreements
Approximately 4,000 employees are covered by 15 collective agreements in the U.S., of which we negotiated four
renewals in 2022 and expect to negotiate one renewal in 2023.
See “Risk Factors” for further discussion regarding risks related to our workforce and employee relations.
REGULATORY MATTERS
Government Contract Security Restrictions
We are prohibited by the U.S. government from publicly discussing the details of certain classified programs. These
programs are generally referred to as “restricted” in this Annual Report. The consolidated financial statements and
financial information in this Annual Report reflect the operating results of our entire company, including restricted
programs.
Contracts
We generate the majority of our business from long-term contracts with the U.S. government for development,
production and support activities. Unless otherwise specified in a contract, allowable and allocable costs are billed to
contracts with the U.S. government pursuant to the Federal Acquisition Regulation (FAR) and U.S. government
Cost Accounting Standards (CAS), which are regulations that govern cost accounting requirements for government
contracts. Examples of costs incurred by us and not billed to the U.S. government in accordance with applicable
FAR and CAS requirements include, but are not limited to, unallowable employee compensation, charitable
donations, interest expense, advertising, and certain legal and travel costs.
We monitor our contracts on a regular basis for compliance with our policies and procedures and applicable
government laws and regulations. In addition, costs incurred and allocated to contracts with the U.S. government are
routinely audited by the Defense Contract Audit Agency (DCAA).
Our long-term contracts typically fall into one of two contract types:
Cost-type contracts – Cost-type contracts include cost plus fixed fee, cost plus award fee and cost plus incentive fee
contracts. Cost-type contracts generally provide for reimbursement of a contractor’s allowable costs incurred plus
fee. As a result, cost-type contracts have less financial risk associated with unanticipated cost growth but generally
provide lower profit margins than fixed-price contracts. Cost-type contracts typically require that the contractor use
its best efforts to accomplish the scope of the work within some specified time and stated dollar limitation. Fees on
cost-type contracts can be fixed in terms of dollar value or can be variable due to award and incentive fees, which
are generally based on performance criteria such as cost, schedule, quality and/or technical performance. Award fees
are determined and earned based on customer evaluation of the company’s performance against contractual criteria.
Incentive fees are generally based on cost or schedule and provide for an initially negotiated fee to be adjusted later,
based on the relationship of total allowable costs to total target costs or as schedule milestones are met. Award and
incentive fees are included in total estimated sales to the extent it is probable that a significant reversal in the amount
of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is
subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be
entitled.
Fixed-price contracts – Firm fixed-price contracts include a specified scope of work for a price that is a pre-
determined, negotiated amount and not typically subject to adjustment regardless of costs incurred by the contractor,
absent changes by the customer. As a result, fixed-price contracts typically have more financial risk associated with
unanticipated cost growth, but provide the opportunity for higher profit margins. Certain fixed-price incentive fee
contracts provide for reimbursement of the contractor’s allowable costs plus a fee up to a cost ceiling amount,
typically through a cost-sharing ratio that affects profitability. These contracts effectively become firm fixed-price
contracts once the cost-share ceiling is reached. Time-and-materials contracts are considered fixed-price contracts as
they specify a fixed hourly rate for each labor hour charged.
Profit margins on our contracts may vary materially depending on, among other things, the contract type, contract
phase (e.g., development, low-rate production or mature production), negotiated fee arrangements, achievement of
performance objectives, unexpected macroeconomic factors or other circumstances, and cost, schedule and technical
performance.
See Note 1 to the consolidated financial statements and “Risk Factors” for further information regarding our
contracts and Note 16 to the consolidated financial statements for sales by contract type.
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NORTHROP GRUMMAN CORPORATION
The following table summarizes sales for the year ended December 31, 2022, recognized by contract type and
customer category:
$ in millions
Cost-type contracts
Fixed-price contracts
Total sales
U.S.
Government(1)
18,110
$
13,213
31,323
$
International(2)
594
$
4,254
4,848
$
$
$
Other
Customers
7
424
431
$
$
Percentage
of Total
Sales
51 %
49 %
100 %
Total
18,711
17,891
36,602
(1) Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we
are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial
revenue from the U.S. government.
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a
subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted
through the U.S. government.
Environmental
Our operations are subject to and affected by federal, state, local and foreign laws, regulations and enforcement
actions relating to protection of the environment. We have incurred and expect to continue to incur capital and
operating costs to comply with applicable environmental laws and regulations and to achieve our environmental
sustainability commitments. See “Risk Factors” and Notes 1 and 12 to the consolidated financial statements for
further information regarding environmental matters.
In 2022, we announced our next generation environmental sustainability goals. These goals focus on Northrop
Grumman’s facilities in addition to supply chain partners and customers:
•
•
•
•
•
•
Net zero greenhouse gas emissions in operations by 2035;
Source 50 percent of total electricity from renewable sources by 2030;
Strengthen leadership in operational footprint reduction through setting and achieving pioneering targets in
environmental stewardship by 2025, including potable water use and solid waste to landfill;
In collaboration with key customers, work to develop a pioneering product stewardship program focused on
material efficiency, product design and life cycle assessment;
Update the company’s "Standards of Business Conduct for Suppliers and Other Trading Partners" to
incorporate industry-leading sustainability practices by 2023;
Expand Technology for Conservation initiatives in proximity to Northrop Grumman's U.S. locations by
2030, in collaboration with external partners.
Additional information regarding our environmental sustainability goals is available in our ESG Report, which can
be found on our company website.
EXECUTIVE OFFICERS
See “Directors, Executive Officers and Corporate Governance” for information about our executive officers.
AVAILABLE INFORMATION
Our principal executive offices are located at 2980 Fairview Park Drive, Falls Church, Virginia 22042. Our
telephone number is (703) 280-2900 and our home page is www.northropgrumman.com.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statement
for the annual shareholders’ meeting, as well as any amendments to those reports, are available free of charge
through our website as soon as reasonably practicable after we file them with the U.S. Securities and Exchange
Commission (SEC). You can learn more about us by reviewing our SEC filings on the investor relations page of our
website.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information
about SEC registrants, including Northrop Grumman Corporation.
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NORTHROP GRUMMAN CORPORATION
References to our website and the SEC’s website in this report are provided as a convenience and do not constitute,
and should not be viewed as, incorporation by reference of the information contained on, or available through, such
websites. Such information should not be considered a part of this report, unless otherwise expressly incorporated by
reference in this report.
Item 1A. Risk Factors
Our consolidated financial position, results of operations and cash flows are subject to various risks, many of which
are not exclusively within our control, that may cause actual performance to differ materially from historical or
projected future performance. We encourage you to consider carefully the risk factors described below in evaluating
the information contained in this report as the outcome of one or more of these risks could have a material adverse
effect on our financial position, results of operations and/or cash flows.
Industry and Economic Risks
▪ We depend heavily on a single customer, the U.S. government, for a substantial portion of our business. Changes
in this customer’s priorities and spending could have a material adverse effect on our financial position, results
of operations and/or cash flows.
Our primary customer is the U.S. government, from which we derived 86 percent of our sales in 2022; we have a
number of large programs with the U.S. Department of the Air Force, in particular. The U.S. government has the
ability to delay, modify or cancel ongoing competitions, procurements and programs, as well as to change its future
acquisition strategy. We cannot predict the impact on existing, follow-on, replacement or future programs from
potential changes in the threat environment, defense spending levels, government priorities, political leadership,
procurement practices and strategy, inflation and other macroeconomic trends, military strategy; or broader changes
in social, economic or political demands and priorities.
The U.S. government has the ability to terminate contracts, in whole or in part, for its convenience or for default
based on performance. In the event of termination for convenience, contractors are generally protected by provisions
covering reimbursement for costs incurred and profit on those costs up to the amount authorized under the contract,
but not the anticipated profit that would have been earned. In the event of termination due to default, contractors
may be required to pay for re-procurement costs in excess of the original contract price, net of the value of work
accepted from the original contract, as well as other damages. Termination due to our default (or that of a teammate)
could have a material adverse effect on our reputation, our ability to compete for other contracts and our financial
position, results of operations and/or cash flows.
The U.S. government also has the ability to stop work under a contract for a limited period of time for its
convenience. The U.S. government has invoked and could invoke this ability across a limited or broad number of
contracts. In the event of a stop work order, contractors are typically protected by provisions covering
reimbursement for costs incurred to date and for costs associated with the temporary stoppage of work plus a
reasonable fee. However, such temporary stoppages often introduce inefficiencies and result in financial and other
damages for which contractors may not be able to negotiate full recovery. In some cases, they have also ultimately
resulted and could result in termination of a contract for convenience or reduced future orders.
A significant shift in government priorities, programs or strategies could have a material adverse effect on our
financial position, results of operations and/or cash flows.
▪
Significant delays or reductions in appropriations for our programs and U.S. government funding more broadly,
including a prolonged continuing resolution or breach of the debt ceiling, can negatively impact our business and
programs and could have a material adverse effect on our financial position, results of operations and/or cash
flows.
U.S. government programs are subject to annual congressional budget authorization and appropriation processes.
For many programs, Congress appropriates funds annually even though the program performance period may extend
over several years. Programs are often partially funded initially, with additional funds committed only as Congress
makes further appropriations. When we or our subcontractors incur costs in excess of funds obligated on a contract,
we are generally at risk for reimbursement unless and until additional funds are obligated to the contract. We cannot
predict what funding will ultimately be approved for individual programs. In addition, pressures on, as well as laws
and plans relating to the federal budget, potential changes in priorities and defense spending, the timing and
substance of the appropriations process, use of continuing resolutions (with restrictions, e.g., on new starts) and the
federal debt limit (including a breach), have adversely affected and could adversely affect the amount and timing of
funding for individual programs and delay purchasing or payments by our customers. In the event government
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NORTHROP GRUMMAN CORPORATION
funding for our significant programs is reduced, delayed or unavailable, or orders are reduced, our contracts or
subcontracts, or competitions for such programs have at times been, and in the future may be, terminated or
changed.
The U.S. continues to face an uncertain and changing political environment, along with substantial fiscal and
economic challenges, which affect funding. The budget and macroeconomic environment, political instability, and
uncertainty surrounding the appropriations processes and the debt ceiling, remain significant short and long-term
risks. See “Overview” in MD&A. Considerable uncertainty exists regarding how future budget and program
decisions will unfold. If annual appropriations bills are not timely enacted, the U.S. government may continue to
operate under a continuing resolution, restricting new contract or program starts, presenting resource allocation
challenges and placing limitations on budgets, and we may face a prolonged government shutdown that could lead to
program cancellations, disruptions and/or stop work orders and could limit the U.S. government’s ability to progress
programs and make timely payments. A prolonged shutdown could limit our ability to perform on our contracts and
successfully compete for new work. If the statutory debt limit is not increased adequately, we could be obligated to
work without receiving timely payments. A prolonged breach could have far-reaching adverse consequences. If
current macroeconomic pressures (especially from inflation and labor and supply chain challenges) are prolonged or
worsen, and increased costs continue, then existing or anticipated appropriated and contracted funds may not be
sufficient to cover costs incurred on existing or future programs. The National Defense Authorization Act for FY
2023 grants DoD discretionary authority under limited circumstances to provide extraordinary relief to contractors to
address certain inflationary impacts under the current macroeconomic environment for FY 2023. This or other relief
may not be available or adequate to address the significant impacts of the broader macroeconomic environment.
Future funding for certain programs in which we participate may be reduced, delayed or cancelled. Budget cuts
globally could adversely affect the viability of our subcontractors and suppliers. While we believe that our business
is well-positioned in areas for future defense spending, changing priorities, budget pressures, defense spending cuts,
challenges in the appropriations process, the possibility of a year-long continuing resolution and breach of the debt
ceiling, ongoing fiscal debates and the global economic environment increase uncertainties and risk.
Significant delays or reductions in appropriations for our current and future programs; long-term funding under a
continuing resolution; an extended debt ceiling breach or government shutdown; and/or future budget and program
decisions, among other items, may negatively impact our business and programs and could have a material adverse
effect on our financial position, results of operations and/or cash flows.
▪ We use estimates when accounting for contracts. Contract cost growth or changes in estimated contract revenues
and costs can affect our profitability and our overall financial position.
Contract accounting requires judgment, including in assessing risks, estimating contract revenues and costs, and
predicting future performance. Given the size and nature of our many contracts, estimating total revenues and costs
at completion is complex and subject to many variables. When there is sufficient information to assess expected
future performance, we consider performance related incentives, awards and penalties in estimating revenue and
profit rates. Suppliers’ expected performance, and the availability and costs of labor, materials and components, are
also considered.
Our operating income can be adversely affected when estimated contract costs increase, especially without
comparable increases in revenue. There are many reasons estimated contract costs can increase. They include:
macroeconomic trends (including inflation, labor shortages and supply chain challenges); delays or limitations in
customer funding; design or other development challenges; production challenges (including from technical or
quality issues and other performance concerns); inability to realize learning curves or other cost savings; changes in
laws or regulations; actions necessary for long-term customer satisfaction; global pandemics, such as COVID-19;
and natural disasters or environmental matters. For example, as discussed in greater detail in Note 12 to the
consolidated financial statements, our latest estimated cost to complete the low-rate initial production (LRIP) phase
of the B-21 program reflects updated estimates for adverse impacts from these macroeconomic factors, as well as
potential opportunities to address them.
We aim to mitigate this risk through contract terms, and we have filed and may file requests for equitable adjustment
or claims to seek recovery in whole or in part for our increased costs. We have also sought, and will seek, other
avenues, as appropriate, to compensate the company for certain unexpected cost increases. However, our contracts
may not enable full recovery, and/or the government may disagree with our requests and may not have funding to
cover them.
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Our risk varies with the type of contract. Fixed-price contracts inherently tend to have more financial risk than cost-
type contracts, including as a result of inflationary pressures, labor rates and shortages, and supplier challenges. In
2022, approximately half of our sales were derived from fixed-price contracts. We have more often entered into
fixed-price contracts where costs can be more reasonably estimated based on actual experience, such as for mature
production programs. However, our customers may also seek fixed-price contracts for development programs,
combined development and production programs, or low-rate initial production programs, where the risks are
greater. In addition, our contracts contain provisions relating to cost controls and audit rights. If we do not achieve
our estimates or meet terms in our contracts, our profitability has at times been and may be reduced, and we have
incurred and may incur losses.
Certain of our fixed-price contracts include or may include fixed-price development work. This work is inherently
more uncertain, and, as a result, there is typically more variability in estimates of the costs to complete the
development stage. As work progresses into production, the risks associated with estimating total costs are typically
reduced. While management uses its best judgment to estimate costs associated with fixed-price contracts, future
events could result in significant adjustments.
Under cost-type contracts, allowable costs are generally subject to reimbursement plus a fee. We often enter into
cost-type contracts for development programs with complex design and technical challenges. These cost-type
programs typically have award or incentive fees that are uncertain and may be earned over extended periods or
towards the end of the contract. In these cases, the financial risks are typically in recognizing profit, which
ultimately may not be earned, or program cancellation if cost, schedule, or technical performance issues arise. We
also face additional financial risk when solicitations require us to bid on cost-type development work and fixed-price
production lots and/or options in one submission, or cost-type development work requiring us to provide certain
items at our expense or with little or no fee. Ongoing macroeconomic challenges increase these risks.
Because of the significance of management’s judgments and the estimation processes, and the difficulties inherent in
estimating future costs, particularly in a challenging macroeconomic environment, it is possible that we could see
materially different results. Changes in underlying assumptions, circumstances or estimates, and the failure to
prevail on claims could have a material adverse effect on the profitability of one or more of our contracts and on our
overall financial position, results of operations and/or cash flows. See “Critical Accounting Policies, Estimates and
Judgments” in MD&A and Note 12 to the consolidated financial statements.
▪
The global macroeconomic environment could negatively impact our business and our financial position, results
of operations and/or cash flows could be materially adversely affected.
Our business, financial position, results of operations and/or cash flows have been and may continue to be adversely
impacted by the global macroeconomic environment. The global macroeconomic environment has experienced, and
continues to experience, extraordinary challenges, including high rates of inflation; widespread disruptions in supply
chains; workforce challenges, including labor shortages; and market volatility. These challenges have, among other
things, led to increased costs, labor and supply shortages, and delays and disruption in performance, as well as
competing demands for scarce resources. Those challenges have adversely impacted our customers, our industry,
our company, our suppliers and others with whom we do business. While some aspects of the macroeconomic
environment appear to be improving, and we have been able to mitigate some of the challenges (especially with
respect to labor shortages), other challenges persist. We cannot predict the future trajectory of this risk, including
how the macroeconomic environment will evolve or how it will continue to impact us.
We (including our suppliers and other partners) have and may continue to experience inflationary pressures, supply
chain disruption and labor and material cost increases at a rate higher than anticipated. Given the nature of our
business and our contracts (many of which are fixed price and of long duration), we may be unable to recover some
of these increased costs or to offset such costs with greater than expected efficiencies. Our government customers
are likely to continue to face competing priorities and increased demands for their limited resources. We cannot
predict how long these challenges will persist or how they will change over time. We continue to work proactively
to mitigate these challenges. However, if we are unable to do so successfully, our financial position, results of
operations and/or cash flows could be materially adversely affected.
▪
Competition within our markets and bid protests may affect our ability to win new contracts and result in reduced
revenues and market share.
We operate in highly competitive markets and our competitors may have more financial capacity or more extensive
or specialized engineering, manufacturing, or marketing capabilities. They may be willing to accept more risk or
lower profitability in competing for contracts. We have seen, and anticipate we will continue to see, increased
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competition in some of our core markets, especially as a result of our customers’ budget pressures, their focus on
affordability and competition, and our own success in winning business. We are facing increasing competition in the
U.S. and outside the U.S. from U.S., foreign and multinational firms, including new entrants. We are also facing
increasing competition for, and more limited access to various critical products, services and other supplies. In some
instances, foreign companies may receive loans, subsidies and other assistance from their governments that may not
be available to U.S. companies and foreign companies may be subject to fewer restrictions on technology transfer.
Some customers, including the DoD, are turning to commercial contractors, rather than traditional defense
contractors, for some products and services, and continue to utilize small business contractors or determine to source
work internally. In addition, our success in competing and remaining cost-competitive depends, in part, on our
ability successfully to effect our digital transformation strategy and to adopt and integrate new digital manufacturing
and operating technologies into our products and services.
Bid protests can result in contract modifications or the award decision being reversed and loss of the contract award.
Even where a bid protest does not result in such a loss, it can delay execution and earnings.
If we are unable to continue to compete successfully against our current or future competitors, or prevail in protests,
or to prevail against other attempts to interfere with our ability to obtain and retain awards, we may experience
declines in future revenues and market share, which could have a material adverse effect on our financial position,
results of operations and/or cash flows.
Legal and Regulatory Risks
▪ We are subject to various investigations, claims, disputes, enforcement actions, litigation, and other legal
proceedings that could ultimately be resolved against us.
The size, nature and complexity of our business make us particularly susceptible to investigations, claims, disputes,
enforcement actions, prosecutions, litigation and other legal proceedings (collectively “legal proceedings”),
particularly those involving governments, which have at times been, and may continue to be, increasingly
aggressive. We are and may become subject to legal proceedings globally (including criminal, civil and
administrative) and across a broad array of matters, including, but not limited to, government contracts, cost
accounting, financial accounting or reporting, commercial transactions, false statements or claims, pension
accounting, antitrust, compliance with government orders, mischarging, security (cyber and physical), performance,
fraud, procurement integrity, securities laws and requirements, products liability, warranties, hazardous materials,
personal injury claims, environmental (including remediation and toxic torts), shareholder derivative actions, M&A,
intellectual property, tax, corporate law, employees, export/import, anti-corruption, debt and equity, labor, health
and safety, the COVID-19 pandemic and the company’s response to it, accidents, launch failures, employee benefits
and plans, including pension plans and plan administration, improper payments, and privacy, as well as matters
relating to the Orbital ATK Federal Trade Commission (FTC) decision and order. These matters can divert
resources; result in administrative, civil or criminal fines, penalties or other sanctions (including judgments,
convictions, consent or other voluntary decrees or agreements), compensatory, treble or other damages, non-
monetary relief, or other liabilities; and otherwise harm our business and our ability to obtain and retain awards.
Certain allegations may lead to suspension or debarment from government contracts or suspension of export/import
privileges for the company or one or more of its components. Suspension or debarment or criminal resolutions in
particular could have a material adverse effect on the company because of our reliance on government contracts and
export authorizations. An investigation, claim, dispute, enforcement action or litigation, even if pending or not
ultimately substantiated or if fully indemnified or insured, can negatively impact our reputation among our
customers and the public, and make it substantially more difficult for us to compete effectively for business, obtain
and retain awards, ensure adequate funding for our programs or obtain adequate insurance in the future.
Investigations, claims, disputes, enforcement actions, litigation or other legal proceedings could have a material
adverse effect on our financial position, results of operations and/or cash flows. See Note 11 to the consolidated
financial statements for information regarding investigations, claims and litigation.
▪
The improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in
which we participate can impact our reputation, our ability to do business and our financial position, results of
operations and/or cash flows.
We have implemented policies, training and other compliance controls, and have negotiated terms designed to
prevent misconduct by employees, agents or others working with us or on our behalf that would violate the
applicable laws of the jurisdictions in which we operate, including laws governing improper payments to
government officials, the protection of export controlled or classified information, false claims, procurement
integrity, cost accounting and billing, competition, information security and data privacy, intellectual property and
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contract terms. However, we cannot ensure that we will prevent all such misconduct committed by our employees,
agents, suppliers, partners or others working with us or on our behalf. We have in the past experienced and may in
the future experience such misconduct, despite a vigorous compliance program, our values and strong culture. This
risk of improper conduct may increase as we continue to expand globally, with greater opportunities and demands to
do more business with local and new partners, and in new environments. At the same time, law enforcement
agencies are continuing to focus collaboratively on combating global corruption and other misconduct. In the
ordinary course we form and are members of joint ventures (with that term used throughout to refer to joint efforts
or business arrangements of any type). Notwithstanding our robust processes, we are unable to prevent any and all
misconduct or violations of applicable laws by these joint ventures (including their officers, directors and
employees) or our partners. Improper actions by our employees or those with whom or through whom we do
business subjects us to risk of administrative, civil or criminal investigations and enforcement actions; monetary and
non-monetary penalties; liabilities; and the loss of privileges and other sanctions, including suspension and
debarment, which could negatively impact our reputation and ability to conduct business and could have a material
adverse effect on our financial position, results of operations and/or cash flows.
▪
As a U.S. government contractor, we and our partners are subject to various procurement and other laws,
regulations and contract terms applicable to our industry, as well as those more broadly applicable to industry,
and we could be adversely affected by changes in such laws, regulations or terms, or any negative findings by the
U.S. government as to our compliance with them. We also may be adversely affected by changes in our
customers’ business practices globally.
U.S. government contractors (including their subcontractors and others with whom they do business) must comply
with various specific procurement laws, regulations, rules and other legal requirements, as well as ones more
broadly applicable. These various legal requirements, although sometimes customary in government contracting,
increase costs and risks. They have been and are evolving at a significant pace. The costs are not always fully
recoverable. New laws or other requirements, or changes to existing ones (including, for example, related to cyber,
information protection, cost accounting, climate, environment, COVID-19, securities, competition, compensation
costs, taxes, counterfeit parts, pensions, and use of certain non-US equipment) or changes in how government
agencies interpret existing ones, can significantly increase our costs and risks and reduce our profitability.
We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and
its agencies, such as the DCAA, Defense Contract Management Agency (DCMA) and the DoD Inspector General.
These agencies review performance under our contracts, our cost structure and accounting, and our compliance, and
the adequacy of our systems in meeting government requirements. Costs ultimately found to be unallowable or
improperly allocated may not be reimbursed or may be refunded. When an audit uncovers improper or illegal
activities, we are subject to possible civil and criminal penalties, sanctions, or suspension or debarment. Whether or
not illegal activities are alleged, the U.S. government has the ability to decrease or withhold certain payments when
it deems systems to be inadequate, with significant financial impact, regardless of the ultimate outcome. In addition,
we risk serious reputational harm in situations involving allegations of impropriety made against us or our business
partners.
Our industry has experienced, and we expect it will continue to experience, significant changes to business practices
globally, in part as a result of changes in the global security and threat environment and an increased focus on
affordability, efficiencies, business systems, recovery of costs and a reprioritization of available defense funds. We
have experienced and may continue to experience an increased number of audits and challenges to our claims and
our business systems for current and past years, as well as longer periods to close audits, broader requests for
information and an increased risk of withholdings of payments. For example, the thresholds for certain allowable
costs have been reduced; and the allowability of other costs and how the company treated them, including certain
costs related to pensions, and certain assumptions used by the company to determine pension expense, are being
challenged and investigated, all with risks and costs to the company. The U.S. government is also pursuing
alternatives to shift additional responsibility and performance risks to the contractor. The U.S. government has been
pursuing and may continue to pursue policies that could negatively impact our profitability. Changes in procurement
practices, including those favoring incentive-based fee arrangements; fixed price development or long-term
production programs; different award criteria; non-traditional contract provisions; and contract negotiation offers
that indicate what our costs should be, have affected and may in the future affect our profitability and predictability.
We (again, including our subcontractors and others with whom we do business) also are subject to, and expected to
perform in compliance with, a vast array of federal, state and local laws, regulations, contract terms and
requirements related to our industry, our products and the businesses we operate, as well as those more broadly
applicable to industry, such as securities laws and regulations. These laws and regulations include, but are not
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limited to, the Truthful Cost or Pricing Data Act, False Claims Act, Procurement Integrity Act, CAS, FAR/DFAR,
export controls and international sanctions, FCPA (and similar anti-corruption provisions) and SEC rules and
regulations, as well as those related to pandemics. These requirements, whether specific to our industry or broadly
applicable, may limit our ability to achieve our goals. If we are found to have violated any such requirements, or are
found not to have acted responsibly, we may be subject to a wide array of actions, including contract modifications
or termination; payment withholds; the loss of export/import privileges; administrative, civil or criminal judgments
or penalties (including convictions, agreements, fines, damages and non-monetary relief); or suspension or
debarment.
If we or those with whom we do business do not comply with the laws, regulations, rules, contract terms and
processes to which we are subject or if customer business practices or requirements change significantly, including
with respect to allowable costs, it could affect our ability to compete and have a material adverse effect on our
financial position, results of operations and/or cash flows.
▪
Environmental matters, including unforeseen costs associated with compliance and remediation efforts, and
government and third party claims, could have a material adverse effect on our reputation and our financial
position, results of operations and/or cash flows.
Our operations are subject to and affected by a variety of federal, state, local and foreign environmental laws and
regulations, including as they may be expanded, otherwise changed or enforced differently over time. Compliance
with these existing and evolving environmental laws and regulations requires, and is expected to continue to require,
significant operating and capital costs. We may be subject to substantial administrative, civil or criminal fines,
penalties or other sanctions (including suspension and debarment) for violations. If we are found to be in violation of
the Federal Clean Air Act or the Clean Water Act, the facility or facilities involved in the violation could be placed
by the Environmental Protection Agency on a list of facilities that generally cannot be used in performing on U.S.
government contracts until the violation is corrected.
We incur, and expect to continue to incur, substantial remediation costs related to the cleanup of pollutants
previously released into the environment. Stricter or different remediation standards or enforcement of existing laws
and regulations; new requirements, including regulation of new substances; discovery of previously unknown or
more extensive contamination or new contaminants; imposition of fines, penalties, or damages (including natural
resource damages); a determination that certain remediation or other costs are unallowable; rulings on allocation or
insurance coverage; and/or the insolvency, inability or unwillingness of other parties to pay their share, could require
us to incur material additional costs in excess of those anticipated.
We are and may become a party to various legal proceedings and disputes involving government and private parties
(including individual and class actions) relating to alleged impacts from pollutants released into the environment,
including bodily injury and property damage. These matters could result in material compensatory or other damages,
remediation costs, penalties, and non-monetary relief, and adverse determinations on allowability or insurance
coverage.
The company is engaged in remediation activities relating to environmental conditions allegedly resulting from
historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. We have
incurred, and expect to continue to incur, as included in Note 12, substantial remediation costs related to the legacy
Bethpage environmental conditions. It is also possible that applicable remediation standards and other requirements
to which we are subject may continue to change, and our costs may increase materially. In 2022, the company
entered into a consent decree with the State of New York and reached agreements with the Department of Defense
and Bethpage and South Farmingdale Water Districts to resolve claims involving these parties. In addition, we are a
party to, and may become a party to, various legal proceedings with individual and class action plaintiffs alleging
personal injury and property damage, as well as with insurance carriers and other parties.
Government and private parties also seek to hold us responsible for liabilities or obligations related to former
operations that have been divested or spun-off and/or for which we believe other parties have agreed to be
responsible and/or to indemnify us. These rights may not be sufficient to protect us.
The impact of these factors is difficult to predict, but one or more of them could harm our reputation and business
and have a material adverse effect on our financial position, results of operations and/or cash flows.
▪
Unanticipated changes in our tax provisions or exposure to additional tax liabilities could affect our profitability
and cash flow.
We are subject to income and other taxes in the U.S. and foreign jurisdictions. Changes in applicable tax laws and
regulations, or their interpretation and application, including the possibility of retroactive effect, have affected and
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could affect our tax expense. In addition, the final determination of any tax audits or related litigation, in particular
with regard to our positions on research credits and timing of revenue recognition under IRC Section 451(b), could
be materially different from our historical income tax provisions and accruals.
As a result of our acquisition of OATK in 2018, we may be subject to future tax audits and legal challenges
involving OATK (including its subsidiaries and their successors) or the spinoff of its then subsidiary Vista Outdoor,
and we may be unable to obtain indemnification or we may be required to indemnify Vista.
Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and
regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements,
could have a material adverse effect on our financial position, results of operations and/or cash flows.
Business and Operational Risks
▪ We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material
adverse effects on our business, financial position, results of operations and/or cash flows.
We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious
diseases, including COVID-19. Since first reported in late 2019, the COVID-19 pandemic has dramatically impacted
the global health and economic environment, including millions of confirmed cases and deaths, business slowdowns
or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements,
regulatory challenges, inflationary pressures and market volatility. As discussed in our prior and current Form 10-K
and 10-Q filings, our operations have been and we expect will continue to be impacted by the COVID-19 pandemic
and its related economic challenges. However, the company has worked hard to address and mitigate adverse
impacts from COVID-19, and we do not currently anticipate significant additional direct impacts from the pandemic
itself on our operations. Nonetheless, we cannot predict the future course of events.
If, for example, the COVID-19 pandemic worsens, due to spread, new or additional variants, or if a new health
epidemic or outbreak were to occur, we likely would experience broad and varied impacts, including potentially to
our workforce and supply chain, with inflationary pressures and increased costs (which may or may not be fully
recoverable or insured), schedule or production delays, market volatility and other financial impacts. If any or all of
these items were to occur, we could experience adverse impacts on our overall performance, operations and financial
results. Given the tremendous uncertainties and variables, we cannot at this time predict the impact of the global
COVID-19 pandemic, or any future health epidemics, pandemics or similar outbreaks, but any one could have a
material adverse effect on our business, financial position, results of operations and/or cash flows.
▪
Our business could be negatively impacted by cyber and other security threats or disruptions.
As a defense contractor, we face significant cyber and other security threats. They include, among other things,
attempts to gain unauthorized access to sensitive information or otherwise compromise the integrity, confidentiality
and/or availability of our systems, hardware and networks, and the information on them; insider threats;
ransomware; threats to the safety of our directors, officers and employees; threats to our facilities, infrastructure,
products (we produce and use), and subcontractors or other suppliers (referred to inclusively as suppliers); and
threats from terrorist acts, espionage, civil unrest and other acts of aggression. We are also subject to increasing
government, customer and other cyber and security requirements, including disclosure obligations.
We have robust measures in place to address and mitigate cyber-related risks. However, we have experienced cyber
attacks and expect we will continue to experience additional attacks in the future, including from nation states and
criminal actors. We continue to invest in the cybersecurity and resiliency of our networks and products and to
enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and
the information they contain. These include timely detection of incidents through monitoring, training, incident
response capabilities, and mitigating cyber and security risks to our data, systems, products and services. We also
partner with the government and others in our industry to help protect national security. However, given the
complex and evolving nature of cyber and other security threats, including threats from targeting by more advanced
and persistent adversaries, including nation states, these efforts may not be fully effective, particularly against
previously unknown vulnerabilities that could go undetected for an extended period.
Our customers and partners (including our suppliers and joint ventures) to whom we entrust confidential data, and
on whom we rely to provide products and services, face similar threats and growing requirements, including ones for
which others may seek to hold us responsible. We depend on our customers, suppliers, and other business partners to
implement adequate controls and safeguards to protect against and report cyber incidents. If they fail to deter, detect
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or report cyber incidents in a timely manner, we may suffer financial and other harm, including to our information,
operations, performance, employees and reputation.
Although we implement various measures and controls to monitor and mitigate risks associated with these threats
and to increase the cyber resiliency of our infrastructure and products, there can be no assurance that these processes
will be sufficient. Successful attacks could lead to losses or misuse of sensitive information or capabilities; theft or
corruption of data; harm to personnel, infrastructure or products; financial costs and liabilities; protracted disruptions
in our operations and performance; and the misuse of our products, as well as damage to our reputation as a provider
of cyber-related or cyber-protected goods and services. We have not always been able to and may in the future not
always be able to obtain adequate insurance to cover our losses.
Cyber threats, both on premises and in the cloud, are evolving and include, but are not limited to: malicious
software, destructive malware, ransomware, attempts to gain unauthorized access to systems or data, disruption to
operations, critical systems or denial of service attacks; unauthorized release of confidential, personal or other
protected information (ours or that of our employees, customers or partners); corruption of data, networks or
systems; harm to individuals; and loss of assets. We have been and could be impacted by cyber threats or other
disruptions or vulnerabilities found in products or services we use or in our internal, partners’ or customers’ systems
that are used in connection with our business. Some of these threats are zero-day attacks associated with previously
unknown vulnerabilities in third party software or products we utilize in our business. Cyber events, if not prevented
or effectively mitigated, have caused and could cause harm and require remedial actions. They could also damage
our reputation, disrupt performance, impact our ability to obtain future insurance coverage, and lead to loss of
business, regulatory actions, liabilities or other financial losses, for which we do not have adequate sources of
recovery.
We also face threats to our physical security, including to our facilities and the safety and well-being of our people.
These threats could involve terrorism, insider threats, workplace violence, civil unrest, natural disasters, damaging
weather, or fires, which could adversely affect our company. Our customers and suppliers face similar risks that, if
realized, could also adversely impact our operations. Such acts could cause delays, manufacturing downtime, or
other impacts that could detrimentally impact our ability to perform our operations. We could also incur
unanticipated costs to remediate impacts and lost business.
We provide systems, products and services to various customers who also face cyber threats. Our systems, products
and services may not be able to detect or deter threats, or effectively to mitigate resulting losses. These losses could
adversely affect our customers and our company.
We also face increasing and evolving disclosure obligations related to cyber and other security events. Despite
rigorous processes, we risk failing to meet all of our existing or future disclosure obligations and/or having our
disclosures misinterpreted.
The occurrence and impact of these various risks are difficult to predict, but one or more of them could have a
material adverse effect on our financial position, results of operations and/or cash flows.
▪
Our ability to win new competitions and meet the needs of our customers depends, in part, on our ability to
maintain a qualified workforce.
Our operating results and growth opportunities are heavily dependent upon our ability to attract and retain sufficient
qualified and diverse personnel who are or can reasonably be cleared (and obtain program access), who have the
requisite skills in multiple areas, including science, technology, engineering and math, and who share our values and
are able to operate effectively consistent with our culture. Outside the U.S., it is increasingly important that we are
also able to attract and retain personnel with relevant local qualifications and experience. We continue to face
increased competition for talent, both with traditional defense companies and commercial companies, globally, and
with increasing wage rates. In addition, during the COVID-19 pandemic, we have faced labor shortages, as a result
of both absenteeism among our workforce and a tight labor market more broadly, among other factors. While we
continue to have labor challenges, they seem to be lessening, as we are realizing benefits from extensive hiring and
retention programs. Of course the risk of insufficient personnel may again increase, either broadly or with respect to
select critical staffing requirements. If necessary qualified personnel are more scarce or more difficult to attract or
retain under reasonable terms, or if we experience a high level of attrition, generally or in particular areas, or if such
personnel are increasingly unable to obtain security clearances or program access on a timely basis or are unable to
be timely and effectively trained, we would expect higher labor-related costs and we could face challenges
performing on various of our programs and meeting financial expectations. In addition, the macroeconomic
environment, including continued challenges in the global labor market, may further affect our ability to hire,
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develop and retain the necessary talented and diverse workforce, and to maintain performance levels and our
corporate culture. These challenges may be further compounded by a significant element of remote work. There is
also the risk that we are unable to achieve our diversity, equity and inclusion objectives or, more broadly, to meet
sustainability goals increasingly required by our shareholders, employees, the government and other stakeholders.
Certain of our employees are covered by collective agreements. We generally have been able to renegotiate renewals
to expiring agreements without significant disruption of operating activities. However, the environment appears to
be shifting, and if, for example, we experience difficulties with renewals and renegotiations of existing collective
agreements, or if our employees pursue new collective representation, we could incur additional expenses and may
be subject to work stoppages or other labor-related disruptions. Any such expenses or delays could adversely affect
our performance and results.
If we are unable to attract and retain a qualified workforce, we may be unable to maintain our competitive position
or achieve our results, and it could have a material adverse effect on our financial position, results of operations and/
or cash flows.
•
Our earnings and profitability depend, in part, on subcontractor and supplier performance and financial viability
as well as raw material and component availability and pricing.
We rely on other companies to provide raw materials, chemicals and components and subsystems for our products,
produce hardware elements and sub-assemblies, provide software and intellectual property, provide information
about the parts they supply to us, and perform some of the services we need for our operations or provide to our
customers, and to do so in compliance with all applicable laws, regulations and contract terms, while maintaining
strong values and cultures. Disruptions or performance problems with our subcontractors or other suppliers (referred
to inclusively as suppliers), unanticipated cost growth for the products and services they provide, failure to meet
regulatory or contractual requirements, unethical behavior, or a misalignment between our contractual obligations to
our customers and our agreement with our suppliers, have had and may continue to have various adverse impacts on
the company, including on our ability to meet our commitments to customers and financial expectations. This risk of
delays and disruptions in the supply chain, and supply chain challenges more broadly, has been and continues to be
significantly heightened globally, in the current macroeconomic environment.
Our ability to perform our obligations on time is adversely affected if one or more of our suppliers is unable to
provide the agreed-upon products, materials or information, or perform the agreed-upon services in a timely,
compliant and cost-effective manner. Changes in political or economic conditions, including changes in demand,
changes in the macroeconomic environment (including inflation and labor and supply chain challenges), changes in
defense budgets and/or priorities, changes in export/import restrictions, evolving requirements, or changes in access
to critical technology and materials (including metals and components), among others, have adversely affected and
could in the future adversely affect the financial stability of our suppliers and/or their ability to perform effectively.
The inability of our suppliers to perform effectively has required and may require us to provide them additional
support and/or to transition to alternate suppliers, if available, with additional costs and delays. We expect we will
need to continue to provide additional resources to support certain of our suppliers in performing under our
contracts. In addition, if we are unable to do that, we may face additional losses and liabilities under our current
contracts and adversely impact the prospects for certain new ones.
In connection with our U.S. government contracts, we are required to procure certain materials, components and
parts from supply sources approved by the customer. For example, we require assured access to certain
microelectronics. Our ability to produce and/or deliver products will be significantly impacted if the
microelectronics manufacturing supply chain is cut off or significantly delayed. We and our suppliers are also facing
increased regulatory requirements globally. We may be held responsible not only for our compliance, but that of our
suppliers. For some components, there has been or may be only one supplier, or one domestic supplier. If that
supplier cannot meet our needs, we may be unable to find a suitable alternative and to meet our obligations.
Our procurement practices are intended to reduce the risk we procure counterfeit, unauthorized or otherwise non-
compliant parts or materials. We rely on our suppliers also to comply with applicable laws and contract terms, to
ensure the quality of their components and effectively to mitigate the risk of cyber and security threats or other
disruptions to their performance.
If our suppliers are not financially viable, incur increased costs of delays, fail to comply with legal requirements, or
otherwise fail to address these risks and meet their obligations to us, it could have a material adverse effect on our
financial position, results of operations and/or cash flows.
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•
Risks associated with environmental, social and governance matters (ESG), including especially climate change
and other environmental impacts, and increased focus and evolving views of our customers, shareholders and
other stakeholders on these issues, could negatively affect our business and operations.
Environmental, social and governance matters significantly impact our business and operations and present evolving
risks and challenges. Environmental impacts, including climate change specifically, create short and long-term
financial risks to our business globally. We have significant operations located in regions that have been, and may in
the future be, exposed to significant weather events and other natural disasters. Climate related changes can impact
natural disasters, including weather patterns, with the increased frequency and severity of significant weather events
(e.g., flooding, hurricanes and tropical storms), natural hazards (e.g., increased wildfire risk), rising mean
temperature and sea levels, and long-term changes in precipitation patterns (e.g., drought, desertification, and/or
poor water quality).
Increased worldwide focus on climate change has led to legislative and regulatory efforts to combat both potential
causes and adverse impacts of climate change, including regulation of greenhouse gas emissions. New or more
stringent laws and regulations related to greenhouse gas emissions and other climate change related concerns have
affected and will likely continue to affect us, our suppliers and our customers. Some of our facilities are, for
example, engaged in manufacturing processes that produce greenhouse gas emissions, including carbon dioxide, or
rely on products from others that do so. We are working to identify opportunities to utilize alternatives to fossil-
based energy sources, to decrease our greenhouse gas emissions, to reduce our consumption of water and generation
of waste, and to ensure our compliance with environmental regulations where we operate, enhancing our record of
environmental sustainability. However, new and evolving laws, regulations and rule makings globally are expected
to impose different and more restrictive standards, and require greater disclosures. They could also require capital
investments, including to transition to low emission technologies, could adversely impact our ongoing operations,
and could require changes on a more accelerated time frame. In the U.S., both the SEC and DoD are actively
engaged in climate-related rule-makings. Our suppliers are expected to face similar challenges and incur additional
compliance costs that may be passed on to us. These direct and indirect costs may adversely impact our results of
operations and financial condition. And non-compliance with legislative and regulatory requirements could also
negatively impact our reputation and ability to do business.
In 2022, the SEC and FAR council issued proposed rule-makings on climate change. The new proposed rules,
depending on how they are finally adopted, as well as other changes the government might implement, could impose
significant new burdens on the company and our suppliers, with significant costs and operational impacts, and
adversely impact our ability to win business and operate successfully.
Changes in our customers’ requirements, priorities, and ways of doing business are also likely to have an impact on
our business, operations, and financial success. These changes create opportunities and risks. If, for example, our
customers develop requirements and adopt policies that place further emphasis on social and environmental
objectives, and we are unable to meet those evolving demands, we will be less successful in selling our products,
winning new business, and growing our revenues.
The company is building on its strong environmental record, with a particular focus on the reduction of greenhouse
gas emissions from our operations, and has set a goal to achieve net zero greenhouse gas emissions in our operations
by 2035. The company is committed to working to achieve its climate change related objectives. However, the costs
of doing so may be greater than expected, and there can be no assurance the company will achieve its objectives, or
meet the evolving sustainability expectations and standards of our investors and other external stakeholders. Any
failure to achieve our goals, a perception that we are not responsible stewards, or failure effectively to respond to
new or evolving legal and regulatory requirements or other sustainability concerns could adversely affect our
business, reputation or financial position.
The company also has a strong record and is deeply committed to maintaining robust social and governance
practices consistent with our values. As with environmental sustainability matters, shareholders and other
stakeholders are increasingly interested in these social and governance practices, including, for example, with
respect to values, risk management oversight, responsible business practices, and diversity, equity and inclusion.
Shareholders and others have increasingly looked to a company’s ESG practices, disclosures and performance when
making investment or other financial decisions. Customers, regulators and oversight agencies have been increasing
requirements and enforcement activities. And employees increasingly look to ESG practices in considering where to
work. We believe our ESG practices, disclosures and performance are strong and growing. However, if they do not
meet the evolving expectations of our stakeholders, we can expect to experience adverse impacts on our reputation
and our ability to win programs, to employ and retain talent, to remain in compliance, and to continue to enjoy
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NORTHROP GRUMMAN CORPORATION
access to capital. A failure to meet expectations may materially negatively affect our results of operations, ability to
manage our liquidity, or implement our strategies.
The effects and costs of environmental, social and governance concerns or any failure to meet related requirements
or expectations could have a material adverse effect on our financial position, results of operations and/or cash
flows.
▪
Our international business exposes us to additional risks, including risks related to geopolitical and economic
factors, laws and regulations.
Sales to customers outside the U.S. are an important component of our strategy. Our international business
(including our participation in joint ventures, requirements for local content, and our global supply chain) is subject
to numerous political and economic factors, legal requirements, cross-cultural considerations and other risks
associated with doing business globally. These risks differ in some respects from those associated with our U.S.
business and our exposure to such risks is expected to increase if and as our international business continues to
grow.
Our international business is generally subject to both U.S. and foreign laws, regulations and practices, including,
without limitation, ones relating to export/import controls, sanctions, technology transfers, government contracts and
procurement, local participation, data privacy and protection, exchange rates and controls, the FCPA and other anti-
corruption laws, anti-boycott provisions, securities laws, labor and employment, works councils and other labor
groups, taxes, environment, security restrictions and intellectual property. Failure by us, our employees, partners or
others with whom we work to comply with applicable laws and regulations could result in administrative, civil,
commercial or criminal liabilities, including suspension or debarment from government contracts or suspension of
export/import privileges. Failure to comply with local practices can adversely impact our ability to win and perform
business. Our customers outside of the U.S. also often have the ability to terminate contracts for convenience as well
as for default based on performance. Suspension or debarment, or termination of a contract due to default could have
a material adverse effect on our reputation, our ability to compete for other contracts and our financial position,
results of operations and/or cash flows.
New regulations and requirements, or changes to existing ones in countries in which we operate can significantly
increase our costs and risks of doing business internationally. Despite robust processes, we also face risks related to
the unintended or unauthorized use of our products and resources.
Changes in laws, political leadership and environment, and/or security risks may dramatically affect our ability to
conduct or continue to conduct profitable business in international markets. Our international business is impacted
by changes in U.S. and non-U.S. national policies and priorities, and geopolitical relationships, any of which may be
influenced by changes in the threat environment, political leadership, geopolitical and economic uncertainties, world
events, government budgets, inflationary pressures and economic and political factors more generally. The U.S. and
its allies continue to face a global security environment of heightened tensions and instability, threats from state and
non-state actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, and
diverse regional security concerns. Any of these factors may impact demand for our products and services, funding
for programs, our ability to perform, our supply chain, export authorizations, purchasing decisions or customer
payments. Global macroeconomic conditions, as well as fluctuations in foreign currency exchange rates and credit
are also likely to further impact our business.
Our contracts with non-U.S. customers in some cases include terms and reflect legal requirements that create
additional risks. They may include requirements to hire, invest, manufacture or purchase locally, or specific
financial obligations, including offset obligations, and they may provide for significant penalties if we fail to meet
such requirements. They may also require us to enter into letters of credit, performance bonds, bank guarantees or
other financial arrangements. If we are dependent on in-country suppliers, we face risks related to their failure to
perform in accordance with legal requirements, particularly where we rely on a sole source supplier. Our ability to
sell products globally could be adversely affected if we are unable to design our products on a cost effective basis or
to obtain and retain all necessary export authorizations, which the U.S. government can deny, change or revoke. Our
business outside of the U.S. also depends on our ability to attract and retain sufficient qualified personnel with the
skills and/or security clearances in the markets in which we do business. We may need to partner successfully with
non-U.S. companies, including through joint ventures, teaming agreements, co-production or other arrangements.
This risk includes the ability to identify and negotiate appropriate arrangements with qualified and acceptable local
partners, potential exposure for their actions, and the ability effectively to terminate these arrangements. This risk is
complicated further when we partner with government-affiliated entities.
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NORTHROP GRUMMAN CORPORATION
The products and services we provide, including those provided by suppliers and joint ventures, are sometimes in
countries with unstable governments, economic or fiscal challenges, military or political conflicts, different business
practices and/or developing legal systems. This may increase the risk to our employees, suppliers or other third
parties, including for their safety, and increase our risk to a wide range of financial consequences and other
liabilities, as well as loss of property or damage to our products.
The occurrence and impact of these factors is difficult to predict, but one or more of them could have a material
adverse effect on our financial position, results of operations and/or cash flows.
▪ Many of our contracts contain performance obligations that require innovative design capabilities, are
technologically complex, require state-of-the-art manufacturing expertise or are dependent upon factors not
wholly within our control. Failure to meet our contractual obligations could adversely affect our profitability,
reputation and future prospects.
We design, develop and manufacture technologically advanced and innovative products and services, which are
applied by our customers in a variety of environments, including highly demanding operating conditions, to
accomplish challenging missions. Problems and delays in the successful development and delivery of our solutions,
including as a result of issues with our design, technology or operations, digital transformation, inability to achieve
learning curve assumptions, artificial intelligence, manufacturing materials or components, or subcontractor (or
other supplier) performance can prevent us from meeting requirements and create significant risk and liabilities.
Similarly, failures to perform on schedule or otherwise to fulfill our contractual obligations can negatively impact
our financial position, reputation and ability to win future business.
In addition, our products cannot be tested and proven in all situations and are otherwise subject to unforeseen
problems that can negatively affect revenue, schedule and profitability, and result in loss of life or property. They
include loss on launch or flight of spacecraft, loss of aviation platforms, premature failure of products that cannot be
accessed for repair or replacement, unintended explosions, problems with design, quality and workmanship, country
of origin of procured materials, inadequate supplier components and degradation of product performance. Factors
that may affect revenue and profitability also include: inaccurate cost estimates, design issues, human factors,
unforeseen costs and expenses, diversion of management focus, loss of follow-on work, replacement obligations,
and repayment to the government customer of certain contract cost and fee payments previously received.
Certain contracts, primarily involving space satellite systems, contain provisions that entitle the customer to recover
fees in the event of failure of the system upon launch or subsequent deployment for less than a specified period of
time. Under such terms, we are generally required to forfeit fees previously recognized and/or collected.
If we are unable to meet our obligations, including due to issues regarding the design, development or manufacture
of our products or services, or we experience launch, platform or satellite system failures, it could have a material
adverse effect on our reputation, our ability to compete for other contracts and our financial position, results of
operations and/or cash flows.
▪
Our business is subject to disruption caused by natural disasters that could adversely affect our profitability and
our overall financial position.
We have significant operations, including centers of excellence, located in regions that have been, and may in the
future be, exposed to hurricanes, earthquakes, water levels, wildfires, windstorms, and other natural disasters. For
example, in recent years, our facilities in Lake Charles, LA, and Melbourne, FL, were damaged by hurricanes, which
temporarily interrupted site operations and had significant adverse impacts on our employees, their families and the
local communities, as well as our costs and performance. We expect our facilities, operations, employees and
communities in the future, particularly at facilities in coastal areas and areas prone to extreme weather events and
water scarcity to continue to be at risk for future natural disasters or other weather events (which may be exacerbated
by climate change). Our subcontractors and other suppliers have also been, and may in the future be, subject to
natural disasters that could cause disruption and affect their ability to deliver or perform. Disruptions also impact the
availability and cost of materials needed for manufacturing and could increase insurance and other operating costs,
or result in a lack of available coverage. Although we take steps to mitigate these risks, including considering them
in determining where to put new businesses, the damage and disruption resulting from natural disasters, which may
increase, as well as delays in recovery, may be significant.
If insurance or other sources are unavailable or insufficient to recover all costs or if we experience a significant
disruption to our business due to a natural disaster, it could have a material adverse effect on our financial position,
results of operations and/or cash flows.
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NORTHROP GRUMMAN CORPORATION
▪ We provide products and services, including related to hazardous and high risk operations, which subjects us to
various environmental, regulatory, financial, reputational and other risks.
We provide products and services related to hazardous and high risk operations. Among other such operations, our
products and services are used in nuclear-related activities (including nuclear-powered platforms) and used in
support of nuclear-related operations of third parties. In addition, certain of our products are provided with space and
missile launches. We use and provide energetic materials, including in propulsion systems, which include products
that involve highly explosive or flammable elements. We develop missile systems, and counter systems, including
strategic deterrents, as well as subsystems and components. These and other activities subject us to various
extraordinary risks, including (1) potential liabilities relating to nuclear or non-nuclear launch-related incidents,
unintended initiation of energetic materials and explosions, including risk of personal injury, property damage and
environmental harm; (2) harmful effects on the environment and human health that may result from nuclear-related
activities, operations or incidents; the storage, handling and disposal of radioactive materials; and the development,
testing and use of energetics, including in propulsion systems, and unintended explosions or releases and (3) to
failed launches. We may be subject to reputational harm and potential liabilities arising out of such incidents or
hazardous operations, whether or not the cause was within our control, and insurance may not be reasonably
available. Under some circumstances, the U.S. government and prime contractors may provide for certain
indemnification and other protection, including pursuant to, or in connection with, Public Law 85-804, 10 U.S.C.
2354, the Price-Anderson Nuclear Industries Indemnity Act, the NASA Space Act, the Commercial Space Launch
Act and the Terrorism Risk Insurance Reauthorization Act, for certain risks, but those protections may not be
available or adequate.
Certain of our products, such as medium and large caliber ammunition and propulsion systems, involve the use,
manufacture and/or handling of a variety of explosive and flammable materials. These activities have resulted and
may result in incidents that cause workplace injuries and fatalities, the temporary shut down or other disruption of
manufacturing, production delays, environmental harm and expense, fines and liabilities to third parties. We have
safety and loss prevention programs, which provide for pre-construction reviews, along with safety audits of
operations involving explosive materials, to attempt to mitigate some such incidents, as well as potentially insurance
coverage and indemnification, but they may not be successful.
In addition, our customers may use or misuse our products and services in ways that can be unusually hazardous or
risky, or in ways that are not intended, which may create potential liabilities for our company, as well as reputational
harm.
If any of these risks were to materialize (e.g. if there was a nuclear incident, or an incident related to launch
activities or the use of energetics or propulsion systems), and if insurance coverage or indemnification or other
protection was not fully available, it could adversely affect our reputation and have a material adverse effect on our
financial position, results of operations and/or cash flows.
▪ We may be unable fully to exploit or adequately to protect intellectual property rights, which could materially
affect our ability to compete, our reputation and our financial position, results of operations and/or cash flows.
To perform on our contracts and to win new business, we depend on our ability to develop, protect and exploit our
intellectual property and also to access the intellectual property of others under reasonable terms. Increasing
demands from our customers to access and obtain rights in our intellectual property, and positions taken by our
suppliers and competitors challenge our ability to exploit, protect and access intellectual property.
We own many forms of intellectual property, including U.S. and foreign patents, trademarks, copyrights and trade
secrets and we license or otherwise obtain access to various intellectual property rights of third parties. The U.S.
government and certain foreign governments hold licenses or other rights to certain intellectual property that we
develop in performance of government contracts, and at times seek to use or authorize others to use such intellectual
property, including in competition with us and including where we do not believe they are entitled to do so.
Governments continue to increase efforts to assert or obtain more extensive rights in intellectual property, which
could reduce our ability to develop, protect and exploit certain of our intellectual property rights and to compete.
Governments also decline at times to make intellectual property of others available to us under acceptable terms.
We rely significantly upon proprietary technology, information, processes and know-how. We typically seek to
protect this information, including by entering into intellectual property agreements with our employees and other
parties such as consultants, teammates and subcontractors. These agreements and other measures may not provide
adequate protection for our trade secrets and other proprietary information. In the event of an infringement of such
intellectual property rights, a breach of a confidentiality agreement, a misuse or theft of our intellectual property or
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NORTHROP GRUMMAN CORPORATION
divulgence of proprietary information, we may not have adequate legal remedies. In addition, our trade secrets or
other proprietary information may otherwise become known or be independently developed by competitors.
In some instances, our ability to win or perform contracts requires us to use third party intellectual property. This
may require the government or our customer to provide rights to such third party intellectual property, or that we are
able to negotiate directly with third parties to obtain necessary rights on reasonable terms. That may not be
practicable.
Our intellectual property is subject to challenge, invalidation, misappropriation or circumvention by third parties.
Our access to and use of intellectual property licensed or otherwise obtained from third parties is also subject to
challenges. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be
costly and could divert management’s attention. Moreover, the laws concerning intellectual property rights vary
among countries and the protection provided to our intellectual property by foreign laws and courts may not be
favorable.
If we are unable adequately to exploit our intellectual property rights, to protect our intellectual property rights, to
obtain rights to intellectual property of others, it could have a material adverse effect on our reputation, ability to
compete for and perform on contracts, financial position, results of operations and/or cash flows.
▪
Our future success depends, in part, on our ability to develop new products and new technologies, progress and
benefit from digital transformation and maintain technologies, facilities and equipment to win new competitions
and meet the needs of our customers.
Many of the markets in which we operate are characterized by rapidly changing technologies. The product, program
and service needs of our customers evolve regularly. Our success depends upon our ability to develop
technologically advanced, innovative and cost-effective products and services and market these products and
services to our customers globally. Our ability to develop innovative and technologically advanced products depends
on the talent of our workforce, continued funding for, and investment in, research and development projects,
continued access to assured suppliers of important technologies and components and our ability to provide the
people, technologies, facilities, equipment and financial capacity needed to develop and deliver those products and
services with maximum efficiency.
To perform on our contracts and to win new business, we also depend increasingly on our ability to progress
successfully on our digital transformation. It is increasingly necessary to meet evolving customer requirements, to
differentiate our offerings, and to achieve efficiencies that we and our suppliers/partners successfully develop digital
based solutions and transform our operations. While we are committing significant resources to these efforts, and are
making good progress, our company and our suppliers/partners face various substantial challenges and we may not
be fully successful with digital transformation.
Our customers increasingly require us to be agile and efficient, digitally enabled and able to harness integrated
digital technologies and capabilities to deliver solutions with agility and affordability. If we are unable to continue to
develop new products and technologies in a timely fashion, and progress successfully to effect digital solutions and
transformation, or if we fail to achieve market acceptance more rapidly than our competitors, we may be unable to
maintain our competitive position and our future success could be materially adversely affected. If we fail to
maintain our competitive position, we could lose a significant amount of future business to our competitors, which
also could have a material adverse effect on our ability to generate favorable financial results and maintain market
share and on our financial position, results of operations and/or cash flows.
General and Other Risk Factors
▪
Our insurance coverage, customer indemnifications or other liability protections may be unavailable or
inadequate to cover all of our significant risks, which could adversely affect our profitability and overall financial
position.
We endeavor to obtain insurance from financially solid, responsible, highly rated counterparties in established
markets to cover significant risks and liabilities (including, for example, natural disasters, space launches and on-
orbit operations, cyber security, hazardous operations, energetics and products liability). Not every risk or liability
can be insured, and insurance coverage is not always reasonably available. The policy limits and terms of coverage
reasonably obtainable may not be sufficient to cover actual losses or liabilities. Even if insurance coverage is
available, we are not always able to obtain it at a price or on terms acceptable to us or without increasing exclusions.
Disputes with insurance carriers over the availability of coverage, and the insolvency of one or more of our insurers
has affected and may continue to affect the availability or timing of recovery, as well as our ability to obtain
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NORTHROP GRUMMAN CORPORATION
insurance coverage at reasonable rates in the future. In some circumstances we may be entitled to certain legal
protections or indemnifications from our customers through contractual provisions, laws or otherwise. However,
these protections are not always available, are difficult to negotiate and obtain, are typically subject to certain terms
or limitations, including the availability of funds, and may not be sufficient to cover our losses or liabilities. If
insurance coverage, customer indemnifications and/or other legal protections are not available or are not sufficient to
cover risks or losses, it could have a material adverse effect on our financial position, results of operations and/or
cash flows.
▪
Pension and other postretirement benefit (OPB) obligations and related expenses and funding requirements may
fluctuate significantly depending upon investment performance of plan assets, changes in actuarial assumptions,
and legislative or other regulatory actions.
The company’s pension and OPB obligations and related expenses are dependent upon the investment performance
of plan assets and various assumptions, including discount rates, mortality and the estimated long-term rates of
return on plan assets. Changes in assumptions associated with our pension and OPB plans, investment performance
of plan assets, and gains or losses associated with changes in valuation of marketable securities related to our non-
qualified plans and other non-operating assets could have a material adverse effect on our financial position, results
of operations and/or cash flows.
Funding requirements for our pension plans, including Pension Benefit Guaranty Corporation premiums, are subject
to legislative and other government regulatory actions. In accordance with government regulations, pension plan
cost recoveries under our U.S. government contracts may occur in different periods from when they are recognized
for financial statement purposes or when pension funding is made. These timing differences, as well as government
challenges to pension and OPB cost recovery, could have a material adverse effect on our financial position, results
of operations and/or cash flows.
▪
Business investments and/or recorded goodwill and other long-lived assets may become impaired, resulting in
substantial losses and write-downs that would reduce our operating income.
Goodwill accounts for approximately 40 percent of our total assets as of December 31, 2022. Although we currently
have excess fair value of our reporting units over their respective carrying values, changes in business conditions or
in the market-based inputs used in our goodwill impairment test, could result in significant write-offs of goodwill or
other long-lived assets, which could have a material adverse effect on our financial condition and/or results of
operations.
Item 1B. Unresolved Staff Comments
None.
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Annual Report on Form 10-K and the information we are incorporating by reference contain statements that
constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Words such as “will,” “expect,” “anticipate,” “intend,” “may,” “could,” “should,” “plan,” “project,” “forecast,”
“believe,” “estimate,” “guidance,” “outlook,” “trends,” “goals” and similar expressions generally identify these
forward-looking statements. Forward-looking statements include, among other things, statements relating to our
future financial condition, results of operations and/or cash flows. Forward-looking statements are based upon
assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may
change over time. These statements are not guarantees of future performance and inherently involve a wide range of
risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially
from those expressed or implied in these forward-looking statements include, but are not limited to, those identified
under “Risk Factors” and other important factors disclosed in this report and from time to time in our other filings
with the SEC. These risks and uncertainties are amplified by the global macroeconomic, health, security and
political environments, including inflationary pressures, labor and supply chain challenges and the COVID-19
pandemic, which have caused and will continue to cause significant challenges, instability and uncertainty. They
include:
Industry and Economic Risks
•
our dependence on the U.S. government for a substantial portion of our business
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NORTHROP GRUMMAN CORPORATION
•
•
•
•
•
significant delays or reductions in appropriations and/or for our programs, and U.S. government funding and
program support more broadly, including as a result of a prolonged continuing resolution and/or government
shutdown, and/or related to hostilities and other global events
significant delays or reductions in payments as a result of or related to a breach of the debt ceiling
the use of estimates when accounting for our contracts and the effect of contract cost growth and our efforts to
recover or offset such costs and/or changes in estimated contract costs and revenues, including as a result of
inflationary pressures, labor shortages, supply chain challenges and/or other macroeconomic factors, and risks
related to management’s judgments and assumptions in estimating and/or projecting contract revenue and
performance which may be inaccurate
continued pressures from macroeconomic trends, including inflation, supply chain delays and disruptions, and
labor challenges, including on costs, schedules, performance and ability to meet expectations
increased competition within our markets and bid protests
Legal and Regulatory Risks
•
•
•
•
•
investigations, claims, disputes, enforcement actions, litigation (including criminal, civil and administrative)
and/or other legal proceedings
the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in
which we participate, including the impact on our reputation and our ability to do business
changes in procurement and other laws, SEC, DoD and other rules and regulations, contract terms and practices
applicable to our industry, findings by the U.S. government as to our compliance with such requirements, more
aggressive enforcement of such requirements and changes in our customers’ business practices globally
environmental matters, including unforeseen environmental costs and government and third party claims
unanticipated changes in our tax provisions or exposure to additional tax liabilities
Business and Operational Risks
•
•
•
•
•
•
•
•
•
•
•
impacts related to health epidemics, pandemics, including the COVID-19 pandemic, such as labor, supply chain
or financial, schedule or cost impacts (without corresponding recovery), among other impacts
cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners,
and changes in related regulations
our ability to attract and retain a qualified, talented and diverse workforce with the necessary security clearances
to meet our performance obligations
the performance and viability of our subcontractors and suppliers and the availability and pricing of raw
materials and components, particularly with inflationary pressures, increased costs, shortages in labor and
financial resources, supply chain disruptions, and extended material lead times
environmental, social and governance matters, including especially climate change, their impacts on our
company, our operations and our stakeholders (employees, suppliers, customers, shareholders and regulators),
and changes in laws, regulations and priorities related to these issues
our exposure to additional risks as a result of our international business, including risks related to global
security, geopolitical and economic factors, misconduct, suppliers, laws and regulations
our ability to meet performance obligations under our contracts, including obligations that require innovative
design capabilities, are technologically complex, require certain manufacturing expertise or are dependent on
factors not wholly within our control
natural disasters
products and services we provide related to hazardous and high risk operations, including the production and
use of such products, which subject us to various environmental, regulatory, financial, reputational and other
risks
our ability appropriately to exploit and/or protect intellectual property rights
our ability to develop new products and technologies, progress digital transformation, and maintain
technologies, facilities, and equipment to win new competitions and meet the needs of our customers
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NORTHROP GRUMMAN CORPORATION
General and Other Risk Factors
•
•
•
the adequacy and availability of, and ability to obtain, insurance coverage, customer indemnifications or other
liability protections
the future investment performance of plan assets, gains or losses associated with changes in valuation of
marketable securities related to our non-qualified benefit plans, changes in actuarial assumptions associated
with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our
pension and postretirement benefit obligations
changes in business conditions that could impact business investments and/or recorded goodwill or the value of
other long-lived assets, and other potential future liabilities
We urge you to consider the limitations on, and risks associated with, forward-looking statements and not unduly
rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this
report is first filed or, in the case of any document incorporated by reference, the date of that document. We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by applicable law.
Item 2. Properties
At December 31, 2022, we had approximately 52 million square feet of floor space at 473 separate locations,
primarily in the U.S., for manufacturing, warehousing, research and testing, administration and various other uses.
We leased to third parties approximately 255,000 square feet of our owned and leased facilities. The company’s
major operations are at the following locations:
Aeronautics Systems
El Segundo, Mojave, Palmdale, Redondo Beach and San Diego, CA; Melbourne and St. Augustine, FL; Iuka and
Moss Point, MS; Beavercreek, OH; Oklahoma City, OK; and Clearfield, UT.
Defense Systems
Huntsville, AL; Mesa and Sierra Vista, AZ; Los Angeles, CA; Warner Robins, GA; Lake Charles, LA; Elkton, MD;
Elk River and Plymouth, MN; Dulles, McLean and Radford, VA; and Keyser, WV. Locations outside the U.S.
include Australia.
Mission Systems
McClellan, San Diego, Sunnyvale and Woodland Hills, CA; Apopka, FL; Rolling Meadows, IL; Annapolis,
Annapolis Junction, Elkridge, Halethorpe, Linthicum and Sykesville, MD; Bethpage and Williamsville, NY;
Cincinnati, OH; Salt Lake City, UT; and Chantilly, Charlottesville and Fairfax, VA. Locations outside the U.S.
include France, Germany, Italy and the United Kingdom.
Space Systems
Huntsville, AL; Chandler and Gilbert, AZ; Azusa, Carson, Los Angeles, Manhattan Beach, Oxnard, Redondo Beach
and San Diego, CA; Aurora and Colorado Springs, CO; Beltsville, MD; Devens, MA; Brigham City, Clearfield,
Magna, Ogden, Roy and Tremonton, UT; and Dulles and Sterling, VA.
Corporate
Falls Church, VA
The following is a summary of our floor space at December 31, 2022:
Square feet (in thousands)
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Corporate
Total
Owned
Leased
3,170
1,367
7,995
9,350
372
22,254
6,427
3,397
4,331
8,659
305
23,119
U.S. Government
Owned/Leased
3,302
2,285
—
548
—
6,135
Total
12,899
7,049
12,326
18,557
677
51,508
We maintain our properties in good operating condition and believe the productive capacity of our properties is
adequate to meet current contractual requirements and those for the foreseeable future.
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NORTHROP GRUMMAN CORPORATION
Item 3. Legal Proceedings
We have provided information about certain legal proceedings in which we are involved in Notes 11 and 12 to the
consolidated financial statements.
We are a party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal
proceedings, including government investigations and claims, that arise in the ordinary course of our business. These
types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms
include judgments or convictions and consent or other voluntary decrees or agreements); compensatory, treble or
other damages; non-monetary relief or actions; or other liabilities. Government regulations provide that certain
allegations against a contractor may lead to suspension or debarment from future government contracts or
suspension of export privileges for the company or one or more of its components. The nature of legal proceedings
is such that we cannot assure the outcome of any particular matter. For additional information on pending matters,
please see Notes 11 and 12 to the consolidated financial statements, and for further information on the risks we face
from existing and future investigations, lawsuits, arbitration, claims, enforcement actions and other legal
proceedings, please see “Risk Factors.”
Consistent with SEC Regulation S-K Item 103, we have elected to disclose those environmental proceedings with a
governmental entity as a party where the company reasonably believes such proceeding would result in monetary
sanctions, exclusive of interest and costs, of $1.0 million or more.
Item 4. Mine Safety Disclosures
No information is required in response to this item.
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NORTHROP GRUMMAN CORPORATION
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
PART II
COMMON STOCK
We have 800,000,000 shares authorized at a $1 par value per share, of which 153,157,924 shares and 156,284,423
shares were issued and outstanding as of December 31, 2022 and 2021, respectively.
PREFERRED STOCK
We have 10,000,000 shares authorized at a $1 par value per share, of which no shares were issued and outstanding
as of December 31, 2022 and 2021.
MARKET INFORMATION
Our common stock is listed on the New York Stock Exchange and trades under the symbol NOC.
HOLDERS
As of January 23, 2023, there were 19,192 common shareholders of record.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The table below summarizes our repurchases of common stock during the three months ended December 31, 2022:
Total
Number
of Shares
Purchased
235,900
485,309
215,725
Average
Price
Paid per
Share(1)
$ 503.31
519.87
532.61
936,934
$ 518.63
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
under the
Plans or Programs
($ in millions)
235,900
485,309
215,725
936,934
$
$
3,000
2,748
2,633
2,633
Period
October 1, 2022 - October 28, 2022
October 29, 2022 - November 25, 2022
November 26, 2022 - December 31, 2022
Total
(1) Includes commissions paid.
Share repurchases take place from time to time, subject to market and regulatory conditions and management’s
discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon
repurchase and, in the periods presented, has not made any purchases of common stock other than in connection
with these publicly announced repurchase programs.
See Note 3 to the consolidated financial statements for further information on our share repurchase programs.
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NORTHROP GRUMMAN CORPORATION
STOCK PERFORMANCE GRAPH
Comparison of Cumulative Five Year Total Return
Among Northrop Grumman, the Standard & Poor’s (S&P) 500 Index and the S&P Aerospace & Defense (A&D)
Index
$400
$350
$300
$250
$200
$150
$100
$50
$0
2017
2018
2019
2020
2021
2022
Period Ending
Northrop Grumman
S&P 500 Index
S&P A&D Index
• Assumes $100 invested at the close of business on December 31, 2017, in Northrop Grumman Corporation
common stock, the S&P 500 Index and the S&P A&D Index.
• The cumulative total return assumes reinvestment of dividends.
• The S&P A&D Index is comprised of The Boeing Company, General Dynamics Corporation, Howmet
Aerospace Inc., Huntington Ingalls Industries Inc., L3Harris Technologies, Inc., Lockheed Martin
Corporation, Northrop Grumman Corporation, Raytheon Technologies Corporation, Textron, Inc., and
TransDigm Group Incorporated.
• The total return is weighted according to market capitalization of each company at the beginning of each year.
• This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by reference into
any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.
Item 6. [Reserved]
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NORTHROP GRUMMAN CORPORATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following discussion should be read along with the financial statements included in this Form 10-K, as well as
Part II, “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of our
Form 10-K for the year ended December 31, 2021 (“2021 Annual Report on Form 10-K”).
Global Security Environment
The U.S. and its allies continue to face a global security environment of heightened tensions and instability, threats
from state and non-state actors, including in particular major global powers, as well as terrorist organizations,
increasing nuclear tensions, diverse regional security concerns and political instability. The market for defense
products, services and solutions globally is driven by these complex and evolving security challenges, considered in
the broader context of political and socioeconomic circumstances and priorities. Our operations and financial
performance, as well as demand for our products and services, are impacted by global events, including violence and
unrest. The same is true for our suppliers and other business partners.
The conflict in Ukraine has increased global tensions and instability, highlighted threats and increased global
demand, as well as further disrupted global supply chains and added costs. We have experienced a modest increase
in demand for certain of our goods and services directly and indirectly related to the conflict in the Ukraine. We also
have experienced a slight disruption to some of our programs and supply chain, including unanticipated cost growth,
as a result of the conflict in Ukraine and economic sanctions. However, we do not have sizable business dealings in
Russia or Ukraine, and do not anticipate significant adverse impacts from the ongoing conflict.
More broadly, the conflict in Ukraine and threats elsewhere have heightened tensions and highlighted security
requirements globally, especially in Europe and the Pacific region, as well as the U.S. We have started to see, and
expect to continue to see, increased demand for defense products and services from allies and partner nations,
particularly in those areas. We are actively exploring both opportunities and risks.
For further information on the global security environment, including the risks related thereto, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” “Liquidity and Capital Resources,”
“Quantitative and Qualitative Disclosures About Market Risks” and “Risk Factors.”
Global Health and Economic Environment
COVID-19
Since at least March 2020, when it was first characterized as a global pandemic, COVID-19 has dramatically
impacted and continues to impact the global health and economic environments, including millions of confirmed
cases and deaths, business slowdowns or shutdowns, labor shortfalls, supply chain challenges, regulatory challenges,
inflationary pressures and market volatility. We discussed in some detail in our Annual Reports on Form 10-K for
the fiscal years ended December 31, 2020 and 2021, and subsequent SEC filings, the pandemic, its impacts and
risks, and actions taken up to the time of each filing. In this Form 10-K, we provide a further update.
In 2022, the pandemic continued to have significant adverse impacts on the global health and macroeconomic
environments, particularly with the spread of new variants and other viruses and illnesses, ongoing disruption of the
labor force and supply chains, continued inflation, and market volatility and uncertainties. We expect such adverse
impacts to continue. However, with extraordinary efforts by our employees, our governments and customers, our
partners and our company, direct COVID-19-related impacts on our business generally declined in 2022. While we
cannot predict the future course of the pandemic or its consequences, we are not currently assuming significant
additional direct COVID-19 related impacts on our business.
The company continues to work to monitor and address the pandemic, including its impact on our company, our
employees, our customers, our suppliers and our communities. Our goals have been, and continue to be, to keep our
employees safe, to lessen the potential adverse impacts, both health and economic, and to continue to position the
company for long-term success. Like the communities in which we operate, our actions have varied, and will
continue to vary, depending on the spread of COVID-19 and other illnesses, applicable government requirements,
and the needs of our stakeholders.
Global Economic Environment
In part as a result of the COVID-19 pandemic, the global economic environment has experienced, and continues to
experience, extraordinary challenges, including high rates of inflation and inflationary pressures; widespread delays
and disruptions in supply chains; workforce challenges, including labor shortages (especially in critical skill areas);
and market volatility. These macroeconomic factors have contributed, and we expect will continue to contribute, to
increased costs, delays and other performance challenges, as well as increased competing demands for limited
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NORTHROP GRUMMAN CORPORATION
resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our
customers. For example, as discussed in greater detail in Note 12 to the consolidated financial statements, our latest
estimated cost to complete the low-rate initial production (LRIP) phase of the B-21 program reflects updated
estimates for adverse impacts from these macroeconomic factors, as well as potential opportunities to address them.
We continue to work hard to mitigate some of the challenges caused by the current macroeconomic environment on
our business, including by taking steps to support our suppliers and small businesses and enhancing our workforce
through extensive hiring, development and retention efforts. However, the broader macroeconomic environment,
including inflationary pressures and supply chain challenges, continued adversely to affect the company’s results for
the year ended December 31, 2022. We cannot clearly predict how long these macroeconomic challenges will
continue, or how they will change over time, or what additional resources will be available, but we expect to see this
challenging macroeconomic environment continue adversely to impact the global economy, our customers, our
industry and our company in 2023.
In addition, increased interest rates, raising the cost of borrowing for governments, could further impact government
spending priorities (in the U.S. and allied countries, in particular), including their demand for defense products.
Economic tensions and changes in international trade policies, including higher tariffs on imported goods and
materials and renegotiation of free trade agreements, could also further impact the global market for defense
products, services and solutions.
U.S. Political, Budget and Regulatory Environment
On March 15, 2022, the President signed into law the Consolidated Appropriations Act for FY 2022, which provided
full-year funding for federal agencies, including $782 billion for national defense. This represented an
approximately $42 billion or 6 percent increase above the budget for FY 2021, approximately $30 billion more than
the Administration had initially requested. The Pentagon’s portion of the overall national defense budget for FY
2022 was $743 billion.
On March 28, 2022, the President proposed his budget for FY 2023, which included $813 billion for national
defense programs, approximately $31 billion or 4 percent higher than what was appropriated in FY 2022. The
Pentagon’s portion of the overall requested national defense budget was $773 billion.
On December 23, 2022, the President signed the National Defense Authorization Act (NDAA) for FY 2023, which
supports approximately $858 billion in FY 2023 funding for national defense, $817 billion of which is for the DoD.
In addition, the FY 2023 NDAA grants DoD discretionary authority under limited circumstances to provide
extraordinary relief to contractors to address certain inflationary impacts. Although discussions have occurred, DoD
has not yet issued written guidance for how it intends to exercise this authority.
On December 29, 2022, the President signed an Omnibus appropriations act for FY 2023 that provided $858 billion
for national defense programs, approximately $45 billion more than the Administration initially requested for FY
2023 and approximately $76 billion or 10 percent higher than what was appropriated in FY 2022. The Pentagon’s
portion of the overall national defense budget for FY 2023 is $817 billion. It includes up to $1 billion for
extraordinary relief in FY 2023.
In addition to the U.S. national security spending detailed above, the U.S. has pledged over $100 billion in security
assistance to address the ongoing conflict in Ukraine across FY 2022 and FY 2023, including approximately $50
billion in DoD spending. Assistance includes transfers of weapons systems from U.S. inventories, orders for
production of additional weapons systems, both to backfill U.S. stockpiles and for Ukraine directly, and assistance
from U.S. capabilities.
It is difficult to predict the specific course of future defense budgets. Current and future requirements related to the
conflict in Ukraine, threats in the Pacific regions and other security priorities, as well as global inflation, the national
debt, the costs of the pandemic and other domestic priorities, among other things, in the U.S. and globally, will
continue to impact our customers’ budgets and priorities, and our industry. Current tensions within Congress and the
wider U.S. political environment may also impact defense budgets and government spending more broadly.
We believe the current global security environment highlights the significant national security threats to our nation
and our allies, and the need for strong deterrence and a robust defense capability. We believe that our capabilities,
particularly in space, C4ISR, missile defense, battle management, advanced weapons, survivable aircraft and
mission systems should help our customers in the U.S. and globally defend against current and future threats and, as
a result, continue to allow for long-term profitable business growth.
The Bipartisan Budget Act of 2019 suspended the debt ceiling through July 31, 2021. In October 2021, the statutory
debt limit was increased by $480 billion and, in December 2021, it was further increased by $2.5 trillion, which is
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NORTHROP GRUMMAN CORPORATION
currently expected to allow the Treasury Department to finance the government into 2023. In January 2023, the debt
ceiling was reached and the Treasury Department began taking “extraordinary measures” to finance the government
and avoid a breach of the debt ceiling. We expect statutory action will be needed in 2023 to increase or suspend the
debt ceiling.
During the third quarter of 2022, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022,
which includes an advanced manufacturing investment tax credit, among other provisions, and the Inflation
Reduction Act of 2022, which includes implementation of a new alternative minimum tax and a one percent excise
tax on share repurchases, among other provisions, were signed into law. We expect the excise tax on share
repurchases to impact us beginning in 2023; however, we do not expect this tax or any other provision of this
legislation to have a material impact on our results of operations or cash flows.
More broadly, we have seen, and expect to continue to see, an accelerated pace of new rulemakings, new and
expanded uses of existing authorities, changing legal rulings and landscapes, and aggressive enforcement actions.
These changes and the accelerated pace of change, not only impose additional obligations and risk, but also create
further uncertainty regarding our operating environment.
The political environment, federal budget, debt ceiling and regulatory environment are expected to continue to be
the subject of considerable debate, especially in light of the ongoing conflict in Ukraine, the inflationary
environment and political tensions. The results of those debates could have material impacts on defense spending
broadly and the company’s programs in particular. We anticipate that the broader macroeconomic environment, with
ongoing inflationary pressures, labor challenges, and supply chain disruption, among other considerations, will
continue to play a significant role in the outcome of these debates and, in turn, on our industry and company.
For further information on the risks we face from the current political and economic environment, see “Risk
Factors.”
Disposition of IT and Mission Support Services Business
Effective January 30, 2021 (the “Divestiture date”), we completed the sale of our IT and mission support services
business (the “IT services divestiture”) for $3.4 billion in cash and recorded a pre-tax gain of $2.0 billion. The IT
and mission support services business was comprised of the majority of the former IS&S division of Defense
Systems (excluding the Vinnell Arabia business); select cyber, intelligence and missions support programs, which
were part of the former CIMS division of Mission Systems; and the former Space Technical Services business unit
of Space Systems. Operating results include sales and operating income for the IT and mission support services
business prior to the Divestiture date; therefore, no sales and operating income were recognized for this business
during the year ended December 31, 2022.
The company recorded pre-tax profit of the IT and mission support services business of $20 million and
$247 million for the years ended December 31, 2021 and 2020, respectively.
Operating Performance Assessment and Reporting
We manage and assess our business based on our performance on contracts and programs (typically larger contracts
or two or more closely-related contracts). We recognize sales from our portfolio of long-term contracts as control is
transferred to the customer, primarily over time on a cost-to-cost basis (cost incurred relative to costs estimated at
completion). As a result, sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts.
Due to the applicable FAR and CAS requirements that govern our U.S. government business, most types of costs are
allocable to U.S. government contracts. As such, we do not focus on individual cost groupings (such as
manufacturing, engineering and design labor, subcontractor, material, overhead and general and administrative
(G&A) costs), as much as we do on total contract cost, which is the key driver of our sales and operating income.
In evaluating our operating performance, we primarily focus on changes in sales and operating margin rates. Where
applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or
changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach
and the nature of our operations, the discussion of results of operations below first focuses on our four segments
before distinguishing between products and services. Changes in sales are generally described in terms of volume,
while changes in operating margin rates are generally described in terms of performance and/or contract mix. For
purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/
service activity levels and performance generally refers to non-volume-related changes in profitability, which are
typically described in terms of changes in net EAC adjustments. Contract mix generally refers to changes in the ratio
of contract type and/or life cycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).
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NORTHROP GRUMMAN CORPORATION
CONSOLIDATED OPERATING RESULTS
For purposes of the operating results discussion below, we assess our performance using certain financial measures
that are not calculated in accordance with accounting principles generally accepted in the United States of America
(“GAAP” or “FAS”). Organic sales is defined as total sales excluding sales attributable to the company's IT services
divestiture. This measure may be useful to investors and other users of our financial statements as a supplemental
measure in evaluating the company’s underlying sales growth as well as in providing an understanding of our
ongoing business and future sales trends by presenting the company’s sales before the impact of divestiture activity.
Transaction-adjusted net earnings and transaction-adjusted earnings per share (transaction-adjusted EPS) exclude
impacts related to the IT services divestiture, including the gain on sale of the business, associated federal and state
income tax expenses, transaction costs, and the make-whole premium for early debt redemption. They also exclude
the impact of mark-to-market pension and OPB (“MTM”) benefit/(expense) and related tax impacts, which are
generally only recognized during the fourth quarter. These non-GAAP measures may be useful to investors and
other users of our financial statements as supplemental measures in evaluating the company’s underlying financial
performance by presenting the company’s operating results before the non-operational impact of divestiture activity
and pension and OPB actuarial gains and losses. These measures are also consistent with how management views
the underlying performance of the business as the impact of the IT services divestiture and MTM accounting are not
considered in management’s assessment of the company’s operating performance or in its determination of incentive
compensation awards.
We reconcile these non-GAAP financial measures to their most directly comparable GAAP financial measures
below. These non-GAAP measures may not be defined and calculated by other companies in the same manner and
should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.
Selected financial highlights are presented in the table below:
$ in millions, except per share amounts
2022
2021
2020
2022
2021
Year Ended December 31
% Change in
Sales
Operating costs and expenses
$ 36,602
$ 35,667
$ 36,799
33,001
31,996
32,734
3 %
3 %
Operating costs and expenses as a % of sales
90.2 %
89.7 %
89.0 %
Gain on sale of business
Operating income
Operating margin rate
—
3,601
1,980
5,651
—
4,065
NM
(36)%
9.8 %
15.8 %
11.0 %
(3)%
(2)%
NM
39 %
Mark-to-market pension and OPB benefit (expense)
Federal and foreign income tax expense
Effective income tax rate
Net earnings
Diluted earnings per share
1,232
940
16.1 %
4,896
2,355
1,933
21.6 %
7,005
(1,034)
(48)% (328)%
539
(51)% 259 %
14.5 %
3,189
(30)% 120 %
$ 31.47
$ 43.54
$ 19.03
(28)% 129 %
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NORTHROP GRUMMAN CORPORATION
Sales
The tables below reconcile sales to organic sales:
(6)%
(2)%
3 %
16 %
3 %
Year Ended December 31
2022
IT
services
sales
Sales
Organic
sales
Sales
2021
IT
services
sales
Organic
sales
Organic
sales %
change
$ 10,531 $
— $
10,531
$ 11,259 $
— $ 11,259
5,579
10,396
12,275
—
—
—
5,579
10,396
12,275
5,776
10,134
10,608
(106)
(42)
(16)
5,670
10,092
10,592
$ in millions
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Intersegment eliminations
Total
(2,179)
$ 36,602 $
—
— $
(2,179)
36,602
(2,110)
$ 35,667 $
2
(2,108)
(162) $ 35,505
$ in millions
Sales
Year Ended December 31
2021
IT
services
sales
Organic
sales
Sales
2020
IT
services
sales
Organic
sales
Organic
sales %
change
Aeronautics Systems
$ 11,259 $
— $
11,259
$ 12,169 $
— $ 12,169
Defense Systems
Mission Systems
Space Systems
5,776
10,134
10,608
Intersegment eliminations
(2,110)
(106)
(42)
(16)
2
5,670
10,092
10,592
7,543
10,080
8,744
(1,637)
(527)
(182)
5,906
9,553
8,562
(2,108)
(1,737)
17
(1,720)
(7)%
(4)%
6 %
24 %
Total
$ 35,667 $
(162) $
35,505
$ 36,799 $
(2,329) $ 34,470
3 %
2022 sales increased $935 million and 2022 organic sales increased $1.1 billion, or 3 percent, due to higher sales at
Space Systems and Mission Systems, partially offset by lower sales at Aeronautics Systems and Defense Systems.
2022 sales reflect strong demand, the timing of material receipts and improving trends in labor availability during
the second half of the year.
See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for
product and service detail. See Note 16 to the consolidated financial statements for information regarding the
company’s sales by customer type, contract type and geographic region for each of our segments.
Operating Income and Margin Rate
2022 operating income decreased $2.1 billion, or 36 percent, primarily due to a $2.0 billion pre-tax gain on sale and
$192 million of unallocated corporate expenses recognized in the prior year associated with the IT services
divestiture. Operating income also decreased due to a $330 million reduction in the FAS/CAS operating adjustment,
which more than offset higher segment operating income and lower non-divestiture-related unallocated corporate
expense. 2022 operating margin rate declined to 9.8 percent from 15.8 percent reflecting the items above.
2022 G&A costs as a percentage of sales increased to 10.6 percent from 10.1 percent, primarily due to an increase in
investments for future business opportunities.
For further information regarding product and service operating costs and expenses, see “Product and Service
Analysis” below.
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NORTHROP GRUMMAN CORPORATION
Mark-to-Market Pension and OPB Benefit/Expense
The primary components of pre-tax MTM benefit (expense) are presented in the table below:
$ in millions
Actuarial gains (losses) on projected benefit obligation
Actuarial (losses) gains on plan assets
MTM benefit (expense)
Year Ended December 31
2022
2021
2020
$
$
9,662
(8,430)
1,232
$
$
1,163
1,192
2,355
$
$
(3,570)
2,536
(1,034)
2022 MTM benefit (expense) of $1.2 billion was primarily driven by a 256 basis point increase in the discount rate
from year end 2021, partially offset by losses of 15.4 percent on plan assets compared to our 7.5 percent asset return
assumption.
Federal and Foreign Income Taxes
The 2022 effective tax rate (ETR) decreased to 16.1 percent from 21.6 percent primarily due to an $86 million
benefit resulting from the resolution of the IRS examination of certain legacy OATK tax returns, as well as
additional federal income taxes in the prior year resulting from the IT services divestiture. The company’s 2022
MTM benefit increased the 2022 ETR by 1.2 percentage points; however, the 2021 MTM benefit did not
significantly impact the 2021 ETR. See Note 7 to the consolidated financial statements for additional information.
Net Earnings
The table below reconciles net earnings to transaction-adjusted net earnings:
$ in millions
Net earnings
MTM (benefit) expense
MTM-related deferred state tax expense (benefit)(1)
Federal tax expense (benefit) of items above(2)
MTM adjustment, net of tax
Gain on sale of business
State tax impact(3)
Transaction costs
Make-whole premium
Federal tax impact of items above(4)
Transaction adjustment, net of tax
Transaction-adjusted net earnings
Year Ended December 31
2020
2021
2022
$ 3,189
$ 7,005
$ 4,896
1,034
(2,355)
(1,232)
(54)
124
65
(206)
469
245
774
(1,762)
(922)
—
— (1,980)
—
160
—
—
32
—
—
54
—
—
614
—
—
— (1,120)
$ 3,963
$ 4,123
$ 3,974
% Change in
2021
2022
(30)% 120 %
(48)% (328)%
(48)% (330)%
(48)% (328)%
(48)% (328)%
NM
NM
NM
NM
NM
NM
4 %
NM
NM
NM
NM
NM
NM
(4)%
(1) The deferred state tax impact in each period was calculated using the company’s blended state tax rate of 5.25 percent and is
included in Unallocated corporate expense within operating income.
(2) The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM benefit (expense)
and applying the 21 percent federal statutory rate.
(3) The state tax impact includes $62 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the
divested business.
(4) The federal tax impact was calculated by applying the 21 percent federal statutory rate to the adjustment items and also
includes $250 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.
2022 net earnings decreased $2.1 billion, or 30 percent, principally due to a $1.1 billion decrease associated with the
IT services divestiture, net of tax, and an $840 million decrease in our MTM benefit (expense), net of tax.
Transaction-adjusted net earnings decreased $149 million, or 4 percent, primarily due to a $330 million reduction in
the FAS/CAS operating adjustment and $97 million of lower returns on marketable securities, partially offset by
lower income tax and interest expense and higher segment operating income.
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NORTHROP GRUMMAN CORPORATION
Diluted Earnings Per Share
The table below reconciles diluted earnings per share to transaction-adjusted EPS:
Diluted earnings per share
MTM (benefit) expense per share
MTM-related deferred state tax expense (benefit) per share(1)
Federal tax expense (benefit) of items above per share(2)
MTM adjustment per share, net of tax
Gain on sale of business per share
State tax impact(3) per share
Transaction costs per share
Make-whole premium per share
Federal tax impact of items above(4) per share
Transaction adjustment per share, net of tax
Transaction-adjusted EPS
Year Ended December 31
2020
2021
2022
$ 19.03
$ 43.54
$ 31.47
6.17
(14.64)
(7.92)
(0.32)
0.77
0.42
(1.23)
2.92
1.57
4.62
(10.95)
(5.93)
—
— (12.31)
—
0.99
—
—
0.20
—
—
0.34
—
—
3.82
—
—
(6.96)
—
$ 23.65
$ 25.63
$ 25.54
% Change in
2021
2022
(28)% 129 %
(46)% (337)%
(45)% (341)%
(46)% (337)%
(46)% (337)%
NM
NM
NM
NM
NM
NM
8 %
NM
NM
NM
NM
NM
NM
— %
(1) The deferred state tax impact in each period was calculated using the company’s blended state tax rate of 5.25 percent and is
included in Unallocated corporate expense within operating income.
(2) The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM benefit (expense)
and applying the 21 percent federal statutory rate.
(3) The state tax impact includes $62 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the
divested business.
(4) The federal tax impact was calculated by applying the 21 percent federal statutory rate to the adjustment items and also
includes $250 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.
2022 diluted earnings per share decreased $12.07, or 28 percent, principally due to a $6.96 decrease associated with
the IT services divestiture, net of tax, and a $5.02 decrease in our 2022 MTM benefit, net of tax. Transaction-
adjusted EPS was comparable with the prior year and reflects a 4 percent reduction in transaction-adjusted net
earnings and a 3 percent decrease in weighted-average diluted shares outstanding.
SEGMENT OPERATING RESULTS
Basis of Presentation
The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics
Systems, Defense Systems, Mission Systems and Space Systems. For a more complete description of each
segment’s products and services, see “Business.”
We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities:
Aeronautics Systems
Autonomous Systems
Defense Systems
Battle Management &
Missile Systems
Manned Aircraft
Mission Readiness
Space Systems
Launch & Strategic
Missiles
Space
Mission Systems
Airborne Multifunction
Sensors
Maritime/Land Systems &
Sensors
Navigation, Targeting &
Survivability
Networked Information
Solutions
This section discusses segment sales, operating income and operating margin rate. A reconciliation of segment
operating income to total operating income is provided below.
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NORTHROP GRUMMAN CORPORATION
Segment Operating Income and Margin Rate
Segment operating income, as reconciled in the table below, and segment operating margin rate (segment operating
income divided by sales) are non-GAAP measures that reflect the combined operating income of our four segments
less the operating income associated with intersegment sales. Segment operating income includes pension expense
allocated to our sectors under FAR and CAS and excludes FAS pension service expense and unallocated corporate
items (certain corporate-level expenses, which are not considered allowable or allocable under applicable FAR and
CAS requirements, and costs not considered part of management’s evaluation of segment operating performance).
These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental
measures in evaluating the financial performance and operational trends of our sectors. These measures may not be
defined and calculated by other companies in the same manner and should not be considered in isolation or as
alternatives to operating results presented in accordance with GAAP.
$ in millions
Operating income
Operating margin rate
Reconciliation to segment operating income:
CAS pension expense
FAS pension service expense
FAS/CAS operating adjustment
Gain on sale of business
IT services divestiture – unallowable state taxes
and transaction costs
Intangible asset amortization and PP&E step-up
depreciation
MTM-related deferred state tax expense (benefit)(1)
Other unallocated corporate expense
Unallocated corporate expense (income)
Segment operating income
Segment operating margin rate
Year Ended December 31
2021
$ 5,651
2020
$ 4,065
2022
$ 3,601
% Change in
2022
(36)%
2021
39 %
9.8 %
15.8 %
11.0 %
(167)
367
200
—
(544)
414
(130)
(1,980)
(827)
409
(418)
—
(69)% (34)%
(11)%
1 %
(254)% (69)%
NM
NM
—
192
—
NM
NM
242
65
145
452
$ 4,253
254
124
106
(1,304)
$ 4,217
322
(54)
273
541
$ 4,188
11.6 %
11.8 %
11.4 %
(5)% (21)%
(48)% (330)%
37 % (61)%
(135)% (341)%
1 %
1 %
(1) Represents the deferred state tax benefit associated with MTM benefit (expense), which is recorded in Unallocated corporate
expense consistent with other changes in deferred state taxes.
Segment Operating Income and Margin Rate
2022 segment operating income increased $36 million, or 1 percent, due to higher operating income at Mission
Systems, Space Systems and Aeronautics Systems, partially offset by lower operating income at Defense Systems
due, in part, to the impact of the IT services divestiture. 2021 segment operating income included $20 million from
the IT services business, as well as a benefit of approximately $100 million due to the impact of lower overhead
rates on the company’s fixed price contracts. Segment operating margin rate decreased to 11.6 percent from 11.8
percent principally due to lower net EAC adjustments due, in part, to macroeconomic impacts, including inflationary
pressures and supply chain challenges.
FAS/CAS Operating Adjustment
The decrease in our 2022 FAS/CAS operating adjustment is due to lower CAS pension expense resulting from
favorable plan asset returns in 2021 and changes in certain CAS actuarial assumptions as of December 31, 2021.
Unallocated Corporate Expense (Income)
The change in 2022 unallocated corporate expense (income) is primarily due to the prior year $2.0 billion pre-tax
gain on sale and $192 million of unallowable state taxes and transaction costs associated with the IT services
divestiture.
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NORTHROP GRUMMAN CORPORATION
Net Estimate-At-Completion (EAC) Adjustments - We record changes in estimated contract earnings at completion
(net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a
significant effect on reported sales and operating income and the aggregate amounts are presented in the table below:
$ in millions
Favorable EAC adjustments
Unfavorable EAC adjustments
Net EAC adjustments
Net EAC adjustments by segment are presented in the table below:
$ in millions
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Eliminations
Net EAC adjustments
$
$
$
Year Ended December 31
2022
2021
2020
1,337
(977)
360
$
$
1,242
(715)
527
$
$
1,082
(616)
466
Year Ended December 31
2022
2021
2020
174
111
138
(38)
(25)
$
25
$
113
263
134
(8)
$
360
$
527
$
77
148
216
33
(8)
466
For purposes of the discussion in the remainder of this Segment Operating Results section, references to operating
income and operating margin rate reflect segment operating income and segment operating margin rate, respectively.
AERONAUTICS SYSTEMS
$ in millions
Sales
Operating income
Operating margin rate
Year Ended December 31
2022
$ 10,531
1,116
2021
$ 11,259
1,093
2020
$ 12,169
1,206
% Change in
2022
2021
(6)%
2 %
(7)%
(9)%
10.6 %
9.7 %
9.9 %
Sales
2022 sales decreased $728 million, or 6 percent, due to lower volume in both Manned Aircraft and Autonomous
Systems, including restricted programs, a $180 million decrease on the Global Hawk program, a $159 million
decrease on the E-2 program and a $119 million decrease on the JSTARS program as it nears completion.
Operating Income
2022 operating income increased $23 million, or 2 percent, due to a higher operating margin rate, partially offset by
lower sales. 2022 operating margin rate increased to 10.6 percent from 9.7 percent primarily due to higher net
favorable EAC adjustments and a $38 million gain on a property sale. Higher net favorable EAC adjustments reflect
$133 million of positive adjustments on the engineering, manufacturing and development phase of the B-21
program, partially offset by lower net EAC adjustments associated with other restricted work, as well as $135
million of unfavorable EAC adjustments on F-35 in the prior year. The prior year operating margin rate also reflects
a $21 million benefit associated with favorable overhead rate performance.
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NORTHROP GRUMMAN CORPORATION
DEFENSE SYSTEMS
$ in millions
Sales
Operating income
Operating margin rate
Year Ended December 31
2021
$ 5,776
696
12.0 %
2022
$ 5,579
664
11.9 %
2020
$ 7,543
846
11.2 %
% Change in
2022
2021
(3)%
(5)%
(23)%
(18)%
Sales
2022 sales decreased $197 million, or 3 percent, due, in part, to a $106 million reduction in sales related to the IT
services divestiture. 2022 organic sales decreased $91 million, or 2 percent, principally due to a $154 million
decrease from lower scope on an international training program, completion of a Joint Services support program and
wind-down of the UKAWACS and JSTARS programs, partially offset by a $144 million increase from ramp-up on
the Integrated Air and Missile Defense Battle Command System (IBCS) program, as well as higher volume on the
Special Ammunition and Weapon Systems (SAWS) and NATO Alliance Ground Surveillance In-Service Support
(NATO AGS ISS) programs.
Operating Income
2022 operating income decreased $32 million, or 5 percent, due, in part, to a $14 million reduction in operating
income related to the IT services divestiture, as well as lower sales. Operating margin rate was comparable with the
prior year.
MISSION SYSTEMS
$ in millions
Sales
Operating income
Operating margin rate
Year Ended December 31
2021
$ 10,134
1,579
2020
$ 10,080
1,459
2022
$ 10,396
1,618
% Change in
2022
2021
3 %
2 %
1 %
8 %
15.6 %
15.6 %
14.5 %
Sales
2022 sales increased $262 million, or 3 percent, and includes a $42 million reduction in sales related to the IT
services divestiture. 2022 organic sales increased $304 million, or 3 percent, primarily due to higher restricted sales
in the Networked Information Solutions business area, $107 million of higher volume on airborne radar programs
and a $107 million increase on the Surface Electronic Warfare Improvement Program (SEWIP). These increases
were partially offset by a $231 million decrease on Navigation, Targeting and Survivability programs and a $118
million decrease on the Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW)
program.
Operating Income
2022 operating income increased $39 million, or 2 percent, due to higher sales. Operating margin rate was
comparable with the prior year and reflects a $33 million benefit recognized in connection with a contract-related
legal matter, partially offset by the previously described overhead rate benefit to fixed price contracts in the prior
year.
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NORTHROP GRUMMAN CORPORATION
SPACE SYSTEMS
$ in millions
Sales
Operating income
Operating margin rate
Year Ended December 31
2021
$ 10,608
1,121
2022
$ 12,275
1,158
9.4 %
10.6 %
2020
$ 8,744
893
10.2 %
% Change in
2022
2021
16 %
3 %
21 %
26 %
Sales
2022 sales and organic sales increased $1.7 billion, or 16 percent, due to higher sales in both business areas. Launch
& Strategic Missiles sales increased primarily due to ramp-up on development programs, including a $454 million
increase on the Ground Based Strategic Deterrent (GBSD) program and a $449 million increase on the Next
Generation Interceptor (NGI) program, as well as higher volume on the GEM63 program in support of Amazon’s
Project Kuiper. Sales in the Space business area were driven by a $320 million increase due to ramp-up on the Space
Development Agency (SDA) Tranche 1 Transport and Tracking Layer programs awarded earlier this year, higher
volume on restricted programs and a $134 million increase in sales on the Commercial Resupply Services (CRS)
program, partially offset by a $149 million decrease in sales for the James Webb Space Telescope after its successful
launch in December 2021.
Operating Income
2022 operating income increased $37 million, or 3 percent, due to higher sales, partially offset by a lower operating
margin rate. Operating margin rate decreased to 9.4 percent from 10.6 percent primarily due to lower net EAC
adjustments and a $45 million write-down of commercial inventory, partially offset by a $96 million gain
recognized in connection with a land exchange transaction.
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NORTHROP GRUMMAN CORPORATION
PRODUCT AND SERVICE ANALYSIS
The following table presents product and service sales and operating costs and expenses by segment:
$ in millions
Segment Information:
Aeronautics Systems
Product
Service
Intersegment eliminations
Total Aeronautics Systems
Defense Systems
Product
Service
Intersegment eliminations
Total Defense Systems
Mission Systems
Product
Service
Intersegment eliminations
Total Mission Systems
Space Systems
Product
Service
Intersegment eliminations
Total Space Systems
Segment Totals
Total Product
Total Service
Total Segment(1)
2022
Operating
Costs and
Expenses
Sales
Year Ended December 31
2021
Operating
Costs and
Expenses
Sales
2020
Operating
Costs and
Expenses
Sales
$
$
7,981
2,311
239
10,531
2,717
2,056
806
5,579
7,376
2,005
1,015
10,396
10,448
1,708
119
12,275
7,161
2,042
212
9,415
2,385
1,819
711
4,915
6,291
1,639
848
8,778
9,455
1,557
105
11,117
$
$
9,408
1,662
189
11,259
$
$
8,534
1,462
170
10,166
10,437
1,610
122
12,169
9,435
1,417
111
10,963
2,564
2,423
789
5,776
7,064
2,077
993
10,134
8,832
1,637
139
10,608
2,243
2,137
700
5,080
6,017
1,695
843
8,555
7,898
1,464
125
9,487
3,024
3,791
728
7,543
6,744
2,557
779
10,080
6,810
1,826
108
8,744
2,740
3,305
652
6,697
5,757
2,201
663
8,621
6,084
1,672
95
7,851
$
$
28,522
8,080
36,602
$
$
25,292
7,057
32,349
$
$
27,868
7,799
35,667
$
$
24,692
6,758
31,450
$
$
27,015
9,784
36,799
$
$
24,016
8,595
32,611
(1) A reconciliation of segment operating income to total operating income is included in “Segment Operating Results.”
Product Sales and Costs
2022 product sales increased $654 million, or 2 percent, primarily due to an increase in product sales at Space
Systems, partially offset by a decrease in product sales at Aeronautics Systems. The increase at Space Systems was
driven by ramp-up on development programs including GBSD and NGI, as well as higher volume on the SDA
Tranche 1 Transport Layer and Tranche 1 Tracking Layer programs. The decrease at Aeronautics Systems was
principally due to lower volume on restricted programs, as well as the Global Hawk and E-2 programs.
2022 product costs increased $600 million, or 2 percent, consistent with the higher product sales described above.
Service Sales and Costs
2022 service sales increased $281 million, or 4 percent, primarily due to an increase in service sales at Aeronautics
Systems, principally on restricted programs, partially offset by a decrease in service sales at Defense Systems. The
decrease at Defense Systems was driven by lower scope on an international training program, the impact of the IT
services divestiture, completion of a Joint Services support program and wind-down of the UKAWACS program.
Sales from the divested IT services business, which were largely included in service sales, were $162 million in the
prior year.
2022 service costs increased $299 million, or 4 percent, consistent with the higher service sales described above.
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NORTHROP GRUMMAN CORPORATION
BACKLOG
Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent
to the company’s remaining performance obligations at the end of each period. It comprises both funded backlog
(firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options
and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time the option or
IDIQ task order is exercised or awarded. Backlog is converted into sales as costs are incurred or deliveries are made.
Backlog consisted of the following at December 31, 2022 and 2021:
$ in millions
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Total backlog
2022
Unfunded
$ 10,939
1,634
4,040
29,639
$ 46,252
Total
Backlog
$ 19,397
7,515
13,875
37,956
$ 78,743
2021
Total
Backlog
$ 18,277
6,349
14,306
37,114
$ 76,046
% Change
in 2022
6 %
18 %
(3)%
2 %
4 %
$
Funded
8,458
5,881
9,835
8,317
$ 32,491
2022 net awards totaled $39.3 billion. Significant 2022 new awards include $10.6 billion for restricted programs
(principally at Aeronautics Systems, Mission Systems and Space Systems), $5.3 billion for F-35, $2.1 billion for
GEM63 solid rocket boosters, largely related to Amazon's Project Kuiper, $1.5 billion for the SDA Tranche 1
Transport and Tracking Layer programs, $1.3 billion for Commercial Resupply Services (CRS) missions and $1.3
billion for Ground-based Midcourse Defense (GMD).
LIQUIDITY AND CAPITAL RESOURCES
We are focused on the efficient conversion of operating income into cash to provide for the company’s material cash
requirements, including working capital needs, satisfaction of contractual commitments, funding of our pension and
OPB plans, investment in our business through capital expenditures, and shareholder return through dividend
payments and share repurchases.
As of December 31, 2022, we had cash and cash equivalents of $2.6 billion; $316 million was held outside of the
U.S. by foreign subsidiaries. We expect cash and cash equivalents and cash generated from operating activities,
supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets through our shelf
registration with the SEC, if needed, to be sufficient to provide liquidity to the company in the short-term and long-
term. The company has a five-year senior unsecured credit facility in an aggregate principal amount of $2.5 billion,
and in April 2022, we renewed our one-year $500 million uncommitted credit facility. At December 31, 2022, there
were no borrowings outstanding under these credit facilities.
The company’s principal contractual commitments include purchase obligations, repayments of long-term debt and
related interest, and payments under operating leases. At December 31, 2022, we had $19.0 billion of purchase
obligations, approximately half of which is short-term. Purchase obligations are largely comprised of open purchase
order commitments to suppliers and subcontractors under U.S. government contracts. In most circumstances, our
risk associated with the purchase obligations on our U.S. government contracts is limited to the termination liability
provisions within those contracts. As such, we do not believe they represent a material liquidity risk to the company.
At December 31, 2022, we had capital expenditure commitments of $1.5 billion, which we expect to satisfy with
cash on hand. We also had provisions for uncertain tax positions of $1.7 billion, some or all of which could result in
future cash payments to various taxing authorities. At this time, we are unable to estimate the timing and amount of
any future cash outflows related to these uncertain tax positions.
Refer to the respective notes to the consolidated financial statements for further information about our share
repurchase programs (Note 3), commercial paper, credit facilities and long-term debt (Note 10), standby letters of
credit and guarantees (Note 12), future minimum contributions for the company’s pension and OPB plans (Note 13),
and lease payment obligations (Note 15).
COVID-19 and the CARES Act
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) established a program with provisions
to allow U.S. companies to defer the employer’s portion of social security taxes between March 27, 2020 and
December 31, 2020 and pay such taxes in two installments in 2021 and 2022. Our first installment of deferred social
security taxes of $200 million was paid in the fourth quarter of 2021 and the second installment of $200 million was
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NORTHROP GRUMMAN CORPORATION
paid in the fourth quarter of 2022. Under Section 3610, the CARES Act also authorized the government to reimburse
qualifying contractors for certain costs of providing paid leave to employees as a result of COVID-19. The company
has sought and may continue to seek recovery for certain COVID-19-related costs under Section 3610 of the
CARES Act and through our contract provisions, though it is unclear what funds will be available and how much we
will be able to recover. In addition, the DoD has taken steps to increase the rate for certain progress payments from
80 percent to 90 percent for costs incurred and work performed on relevant contracts; it is unclear how long the 90
percent progress payment rate will remain in place and whether the DoD will take any further steps.
Internal Revenue Code (IRC) Section 174
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to deduct research and
development expenditures in the current year and requires taxpayers to amortize them over five years pursuant to
IRC Section 174. Our 2022 cash from operations were reduced by approximately $900 million for federal tax
payments we made related to Section 174. In the future, Congress may consider legislation that would defer the
amortization requirement to later years, possibly with retroactive effect. In the meantime, we expect to continue to
make additional federal tax payments based on the current Section 174 tax law. The impact of Section 174 on our
cash from operations depends on the amount of research and development expenditures incurred by the company
and whether the IRS issues guidance on the provision which differs from our current interpretation, among other
things.
Cash Flow Measures
In addition to our cash position, we consider various cash flow measures in capital deployment decision-making,
including cash provided by operating activities and adjusted free cash flow, a non-GAAP measure described in more
detail below.
Operating Cash Flow
The table below summarizes key components of cash flow provided by operating activities:
$ in millions
Net earnings
Gain on sale of business
Non-cash items(1)
Pension and OPB contributions
Changes in trade working capital
Other, net
Net cash provided by operating activities
Year Ended December 31
2021
2020
2022
$
$
4,896
—
(1,305)
(136)
(600)
46
2,901
$
$
7,005
(1,980)
(1,510)
(141)
181
12
3,567
$
$
3,189
—
1,799
(887)
227
(23)
4,305
(1) Includes depreciation and amortization, non-cash lease expense, MTM benefit (expense), stock based compensation expense,
deferred income taxes and net periodic pension and OPB income.
2022 cash provided by operating activities decreased $666 million principally due to lower CAS pension recoveries
and changes in trade working capital, including approximately $900 million of federal tax payments related to the
Section 174 tax legislation described above. The prior year included $785 million of tax payments related to the IT
services divestiture.
Adjusted Free Cash Flow
Adjusted free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by
or used in operating activities, less capital expenditures, plus proceeds from the sale of equipment to a customer (not
otherwise included in net cash provided by or used in operating activities) and the after-tax impact of discretionary
pension contributions. Adjusted free cash flow includes proceeds from the sale of equipment to a customer as such
proceeds were generated in a customer sales transaction. It also includes the after-tax impact of discretionary
pension contributions for consistency and comparability of financial performance. This measure may not be defined
and calculated by other companies in the same manner. We use adjusted free cash flow as a key factor in our
planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases. This non-GAAP
measure may be useful to investors and other users of our financial statements as a supplemental measure of our
cash performance, but should not be considered in isolation, as a measure of residual cash flow available for
discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP.
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NORTHROP GRUMMAN CORPORATION
The table below reconciles net cash provided by operating activities to adjusted free cash flow:
$ in millions
Net cash provided by operating activities
Capital expenditures
Proceeds from sale of equipment to a customer
After-tax discretionary pension contributions
Adjusted free cash flow
Year Ended December 31
2020
2021
2022
$ 4,305
$ 3,567
$ 2,901
(1,420)
(1,415)
(1,435)
205
84
155
593
—
—
$ 3,683
$ 2,236
$ 1,621
% Change in
2022
2021
(19)% (17)%
1 % — %
85 % (59)%
NM (100)%
(28)% (39)%
2022 adjusted free cash flow decreased $615 million principally due to lower net cash provided by operating
activities, partially offset by an increase in proceeds from the sale of equipment to a customer.
Investing Cash Flow
2022 net cash used in investing activities was $1.2 billion compared to net cash provided by investing activities of
$2.1 billion in the prior year, principally due to $3.4 billion in cash received from the sale of our IT services business
during the first quarter of 2021.
Financing Cash Flow
2022 net cash used in financing activities decreased $4.4 billion principally due to a $2.2 billion decrease in debt
repayments and a $2.2 billion reduction in share repurchases.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
Our consolidated financial statements are prepared in conformity with GAAP, which requires us to make estimates
and assumptions about future events that affect the amounts reported in our consolidated financial statements. We
employ judgment in making our estimates in consideration of historical experience, currently available information
and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ
from our estimates and assumptions, and any such differences could be material to our consolidated financial
statements. We believe the following accounting policies are critical to the understanding of our consolidated
financial statements and require the use of significant management judgment in their application. For a summary of
our significant accounting policies, see Note 1 to the consolidated financial statements.
Revenue Recognition
Due to the long-term nature of our contracts, we generally recognize revenue over time using the cost-to-cost
method, which requires us to make reasonably dependable estimates regarding the revenue and cost associated with
the design, manufacture and delivery of our products and services.
Contract sales may include estimates of variable consideration, including cost or performance incentives (such as
award and incentive fees), contract claims and requests for equitable adjustment (REAs). Variable consideration is
included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently
resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled.
Our cost estimation process is based on the professional knowledge of our engineering, program management and
financial professionals, and draws on their significant experience and judgment. We prepare EACs for our contracts
and calculate an estimated contract profit based on total estimated contract sales and cost. Since our contracts
typically span a period of several years, estimation of revenue, cost, and progress toward completion requires the use
of judgment. Factors considered in these estimates include our historical performance, the availability, productivity
and cost of labor, the nature and complexity of work to be performed, the effect of change orders, availability and
cost of materials, components and subcontracts, the effect of any delays in performance and the level of indirect cost
allocations.
We also consider the impact of macroeconomic factors on our estimates, in particular on contract EACs that span
several years. For example, during 2022, we included in our EACs management’s best estimate of the impact
inflation has had and may continue to have on our contracts. We also included our current best estimate of the
impact on our EACs of disruptions we have experienced and continue to experience in the supply chain. The
volatility of the recent macroeconomic environment has added complexity to our estimation process and may result
in our year end 2022 contract EACs having more variability in the future than they might otherwise have had if the
estimates had been prepared in a more stable macroeconomic environment.
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NORTHROP GRUMMAN CORPORATION
We generally review and reassess our sales, cost and profit estimates for each significant contract at least annually or
more frequently as determined by the occurrence of events, changes in circumstances and evaluations of contract
performance to reflect the latest reliable information available. The company performs on a broad portfolio of long-
term contracts, including the development of complex and customized military platforms and systems, as well as
advanced electronic equipment and software, that often include technology at the forefront of science. Cost estimates
on fixed-price development contracts and early-stage/low-rate production contracts are inherently more uncertain as
to future events than on mature, full-rate production contracts. As a result, there is typically more variability in those
estimates and greater financial risk associated with unanticipated cost growth on fixed-price development contracts
and early-stage/low-rate production contracts. Changes in estimates occur for a variety of reasons, including changes
in contract scope, the resolution of risk at lower or higher cost than anticipated, unanticipated performance and other
risks affecting contract costs, performance issues with subcontractors or suppliers, changes in indirect cost
allocations, such as overhead and G&A costs, and changes in estimated award and incentive fees. Identified risks
typically include technical, schedule and/or performance risk based on our evaluation of the contract effort.
Similarly, the changes in estimates may include changes in, or resolution of, identified opportunities for operating
margin improvement.
For the impacts of changes in estimates on our consolidated statements of earnings and comprehensive income, see
“Segment Operating Results” and Note 1 to the consolidated financial statements.
Retirement Benefits
Overview – The determination of projected benefit obligations, the fair value of plan assets, and pension and OPB
expense for our retirement benefit plans requires the use of estimates and actuarial assumptions. We perform an
annual review of our actuarial assumptions in consultation with our actuaries. As we determine changes in the
assumptions are warranted, or as a result of plan amendments, future pension and OPB expense and our projected
benefit obligation could increase or decrease. The principal estimates and assumptions that have a significant effect
on our consolidated financial position and annual results of operations are the discount rate, cash balance crediting
rate, expected long-term rate of return on plan assets, estimated fair market value of plan assets, and the mortality
rate of those covered by our pension and OPB plans. The effects of actual results differing from our assumptions and
the effects of changing assumptions (i.e., actuarial gains or losses) are recognized immediately through earnings
upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.
Discount Rate – The discount rate represents the interest rate used to determine the present value of future cash
flows currently expected to be required to settle our pension and OPB obligations. The discount rate is generally
based on the yield of high-quality corporate fixed-income investments. At the end of each year, we determine the
discount rate using a theoretical bond portfolio model of bonds rated AA or better to match the notional cash
outflows related to projected benefit payments for each of our significant benefit plans. Taking into consideration
the factors noted above, our weighted-average composite pension discount rate was 5.54 percent at December 31,
2022 and 2.98 percent at December 31, 2021.
The effects of a hypothetical change in the discount rate may be nonlinear and asymmetrical for future years as the
discount rate changes. Holding all other assumptions constant, an increase or decrease of 25 basis points in the
December 31, 2022 discount rate assumption would have the following estimated effects on 2022 pension and OPB
obligations, which would be reflected in the 2022 MTM expense (benefit), and 2023 expected pension and OPB
expense:
$ in millions
2022 pension and OPB obligation and MTM expense (benefit)
2023 pension and OPB (benefit) expense
25 Basis Point
Decrease in
Rate
25 Basis Point
Increase in
Rate
$
$
817
(20)
(781)
18
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NORTHROP GRUMMAN CORPORATION
Cash Balance Crediting Rate – A portion of the company’s pension obligation and resulting pension expense is
based on a cash balance formula, where participants’ hypothetical account balances are accumulated over time with
pay-based credits and interest. Interest is credited monthly using the current 30-Year Treasury bond rate. The
interest crediting rate is part of the cash balance formula and independent of actual pension investment earnings. The
cash balance crediting rate used for FAS purposes tends to move in concert with the discount rate but has an
offsetting effect on pension benefit obligations and the related MTM expense (benefit). The minimum cash balance
crediting rate allowed under the plan is 2.25 percent. The cash balance crediting rate assumption has been set to its
current level of 3.96 percent as of December 31, 2022, declining to 3.88 percent by 2028. Holding all other
assumptions constant, an increase or decrease of 25 basis points in the December 31, 2022 cash balance crediting
rate assumption would have the following estimated effects on the 2022 pension benefit obligation, which would be
reflected in the 2022 MTM expense (benefit), and 2023 expected pension expense:
$ in millions
2022 pension obligation and MTM expense (benefit)
2023 pension (benefit) expense
25 Basis Point
Decrease in
Rate
25 Basis Point
Increase in
Rate
$
(96) $
(9)
100
9
Expected Long-Term Rate of Return on Plan Assets – The expected long-term rate of return on plan assets (EROA)
assumption reflects the average rate of net earnings we expect on current and future benefit plan investments. EROA
is a long-term assumption, which we review annually and adjust to reflect changes in our long-term view of
expected market returns and/or significant changes in our plan asset investment policy. Due to the inherent
uncertainty of this assumption, we consider multiple data points at the measurement date including the plan’s target
asset allocation, historical asset returns and third party projection models of expected long-term returns for each of
the plans’ strategic asset classes. In addition to the data points themselves, we consider trends in the data points,
including changes from the prior measurement date. The EROA assumptions we use for pension benefits are
consistent with those used for OPB plans; however, we reduce the EROA for OPB plans to allow for the impact of
tax on investment earnings, as certain Voluntary Employee Beneficiary Association trusts are taxable.
During 2022, the Investment Committee of the company’s benefit plans reviewed the plans’ major asset class
allocations and approved an update to increase the target fixed-income asset allocation from 30% to 40%. The
current asset allocation is now approximately 35% fixed-income, 30% public equities, 30% alternatives and 5%
cash. At this time, the Investment Committee is not planning any significant changes to that mix. For further
information on plan asset investments, see Note 13 to the consolidated financial statements.
While historical market returns are not necessarily predictive of future market returns, given our long history of plan
performance supported by the stability in our investment mix, investment managers, and active asset management,
we believe our actual historical performance is a reasonable metric to consider when developing our EROA. Our
average annual rate of return from 1976 to 2022 was approximately 10.7 percent and our 20-year and 30-year rolling
average rates of return were approximately 8.6 percent and 8.8 percent, respectively, each determined on an
arithmetic basis and net of expenses. Our 2022 losses on plan assets, net of expenses, were approximately 15.4
percent.
Consistent with our past practice, we obtained long-term capital market forecasting models from several third parties
and, using our target asset allocation, developed an expected rate of return on plan assets from each model. We
considered not only the specific returns projected by those third party models, but also changes in the models year-
to-year when developing our EROA. Despite the change in our target asset allocation described above, these models
show a year-over-year increase in the expected rate of return on plan assets largely due to recent increases in interest
rates, which more than offset the downward pressure on our EROA caused by the change in asset mix.
For determining 2022 FAS expense, we assumed an expected long-term rate of return on pension plan assets of 7.5
percent and an expected long-term rate of return on OPB plan assets of 7.19 percent. For 2023 FAS expense, we
have assumed an expected long-term rate of return on pension plan assets of 7.5 percent and 7.23 percent on OPB
plans. Holding all other assumptions constant, an increase or decrease of 25 basis points in our December 31, 2022
EROA assumption would have the following estimated effects on 2023 expected pension and OPB expense:
$ in millions
2023 pension and OPB expense (benefit)
25 Basis Point
Decrease
25 Basis Point
Increase
$
73
$
(73)
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NORTHROP GRUMMAN CORPORATION
In addition, holding all other assumptions constant, an increase or decrease of 100 basis points in actual versus
expected return on plan assets would have the following estimated effects on our 2023 MTM expense (benefit):
$ in millions
2023 MTM expense (benefit)
100 Basis Point
Decrease
100 Basis Point
Increase
$
292
$
(292)
Estimated Fair Market Value of Plan Assets – For certain plan assets where the fair market value is not readily
determinable, such as real estate, private equity, hedge funds and opportunistic investments, we develop estimates of
fair value using the best information available. Estimated fair values on these plan assets are based on redemption
values and net asset values (NAV), as well as valuation methodologies that include third party appraisals,
comparable transactions, discounted cash flow valuation models and public market data.
Mortality Rate – Mortality assumptions are used to estimate life expectancies of plan participants. In October 2014,
the Society of Actuaries Retirement Plans Experience Committee (RPEC) issued updated mortality tables and a
mortality improvement scale, which reflected longer life expectancies than previously projected. In October 2019,
the RPEC issued an updated mortality base table (the Private Retirement Plans Mortality table for 2012 (Pri-2012)),
which we adopted after reviewing our own historical mortality experience. In October 2021, the RPEC released a
new projection scale (MP-2021) that included additional underlying data for 2019, which included an increase in life
expectancies relative to the prior year.
The RPEC did not release a MP-2022 projection scale citing complexities in incorporating the substantial number of
“excess deaths” in 2020 into their existing model and uncertainties about future expectations primarily related to
COVID-19. As such, after considering the information released by the RPEC in October 2021 as well as the
company’s recent mortality experience in light of the COVID-19 pandemic, we adopted the full MP-2021 projection
scale while continuing to use the Pri-2012 White Collar table. While the amounts and structure of the PRI-2012 base
mortality table with the MP-2021 projection scale continues to reflect a reasonable estimate of mortality, we
supplemented the table with 50% of the Gradual Wear-Off illustration as outlined in the RPEC’s 2022 Mortality
Improvement Update paper to reflect the future impacts of COVID-19. Accordingly, we updated the mortality
assumptions used in calculating our pension and OPB obligations recognized at December 31, 2022, and the
amounts estimated for our 2023 pension and OPB expense.
For further information regarding our pension and OPB plans, see “Risk Factors” and Notes 1 and 13 to the
consolidated financial statements.
Litigation, Commitments and Contingencies
We are subject to a range of claims, disputes, enforcement actions, investigations, lawsuits, overhead cost claims,
environmental matters, income tax matters and administrative proceedings that arise in the ordinary course of
business. Estimating liabilities and costs associated with these matters requires judgment based upon the
professional knowledge and experience of management. We determine whether to record a reserve and, if so, what
amount based on consideration of the facts and circumstances of each matter as then known to us. Determinations
regarding whether to record a reserve and, if so, of what amount, reflect management’s assessment regarding what is
likely to occur; they do not necessarily reflect what management believes should occur. The ultimate resolution of
any such exposure to us may vary materially from earlier estimates as further facts and circumstances develop or
become known to us.
Environmental Matters – We are subject to environmental laws and regulations in the jurisdictions in which we do
or have done business. Factors that could result in changes to the assessment of probability, range of reasonably
estimated costs and environmental accruals include: modification of planned remedial actions; changes in the
estimated time required to conduct remedial actions; discovery of more or less extensive (or different) contamination
than anticipated; information regarding the potential causes and effects of contamination; results of efforts to involve
other responsible parties; financial capabilities of other responsible parties; changes in laws and regulations, their
interpretation or application; contractual obligations affecting remediation or responsibilities; and improvements in
remediation technology. As we expect to be able to recover a portion of environmental remediation liabilities
through overhead charges on government contracts, such amounts are deferred in prepaid expenses and other current
assets (current portion) and other non-current assets until charged to contracts. We use judgment to evaluate the
recoverability of our environmental remediation costs, assessing, among other things, U.S. government regulations,
our U.S. government contract mix and past practices. Portions of the company’s environmental liabilities we do not
expect to be recoverable have been expensed.
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NORTHROP GRUMMAN CORPORATION
Income Tax Matters – The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future
tax return or claim, requires the use of judgment. We establish reserves for uncertain tax positions when, despite the
belief that our tax positions are supportable, there remains uncertainty in a tax position taken in our filed tax returns
or planned to be taken in a future tax return or claim. The company follows a recognition and measurement
approach, considering the facts, circumstances, and information available at the reporting date. We exercise
judgment in determining the level of evidence necessary and appropriate to support our assessment using all
available information. The technical merits of a given tax position are derived from sources of authority in the tax
law and their applicability to the facts and circumstances of the position. In measuring the tax position, the company
considers the amounts and probabilities of the outcomes that could be realized upon settlement. When it is more
likely than not that a tax position will be sustained, we record the largest amount of tax benefit with a greater than 50
percent likelihood of being realized upon ultimate settlement with a taxing authority. To the extent we prevail in
matters for which reserves have been established or are required to pay amounts in excess of reserves, there could be
a significant impact on our consolidated financial position and annual results of operations.
For further information on litigation, commitments and contingencies, see “Risk Factors” and Note 1, Note 7, Note
11 and Note 12 to the consolidated financial statements.
Goodwill and Long-Lived Assets
Overview – We allocate the purchase price of acquired businesses to the underlying tangible and intangible assets
acquired and liabilities assumed based upon their respective fair values, with the excess recorded as goodwill. Such
fair value assessments require judgments and estimates that can be affected by contract performance and other
factors over time, which may cause final amounts to differ materially from original estimates. Adjustments to the
fair value of purchased assets and liabilities after the initial measurement period are recognized in net earnings.
We recognize purchased intangible assets in connection with our business acquisitions at fair value on the
acquisition date. The most significant purchased intangible assets recognized from our acquisitions are generally
customer-related intangible assets, including customer contracts and commercial customer relationships. We
determine the fair value of those customer-related intangible assets based on estimates and judgments, including the
amount and timing of expected future cash flows, long-term growth rates and discount rates. In some cases, we use
discounted cash flow analyses, which are based on estimates of future sales, earnings and cash flows after
considering such factors as general market conditions, customer budgets, existing firm and future orders, changes in
working capital, long term business plans and recent operating performance.
We record property, plant and equipment (PP&E) for capital assets used in operating our business. Depreciation
expense associated with our PP&E is generally an allowable and allocable cost in accordance with applicable FAR
and CAS requirements. However, depreciation expense associated with PP&E used in our commercial businesses, as
well as the additional depreciation expense related to the step-up in fair value of PP&E acquired through business
combinations, is not allocable to government contracts and is therefore subject to greater recoverability risk than the
PP&E for which depreciation expense is recovered through our U.S. government contracts.
Impairment Testing – We test for impairment of goodwill annually at each of our reporting units, which comprise
our operating segments. The results of our annual goodwill impairment tests as of December 31, 2022 and 2021,
respectively, indicated that the estimated fair value of each reporting unit significantly exceeded its respective
carrying value. There were no impairment charges recorded in the years ended December 31, 2022, 2021 and 2020.
In addition to performing an annual goodwill impairment test, we may perform an interim impairment test if events
occur or circumstances change that suggest goodwill in any of our reporting units may be impaired. Such indicators
may include, but are not limited to, the loss of significant business, significant reductions in federal government
appropriations or other significant adverse changes in industry or market conditions. During 2022, we determined
there were no impairment indicators requiring us to perform an interim goodwill impairment test.
When testing goodwill for impairment, we compare the fair values of each of our reporting units to their respective
carrying values. To determine the fair value of our reporting units, we primarily use the income approach based on
the cash flows we expect the reporting units to generate in the future, consistent with our operating plans. This
income valuation method requires management to project sales, operating expenses, working capital, capital
spending and cash flows for the reporting units over a multi-year period, as well as to determine the weighted-
average cost of capital (WACC) used as a discount rate and terminal value assumptions. The WACC takes into
account the relative weights of each component of our consolidated capital structure (equity and debt) and represents
the expected cost of new capital adjusted as appropriate to consider lower risk profiles associated with longer-term
contracts and barriers to market entry. The terminal value assumptions are applied to the final year of the discounted
cash flow model. We use industry multiples (including relevant control premiums) of operating earnings to
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NORTHROP GRUMMAN CORPORATION
corroborate the fair values of our reporting units determined under the market valuation method of the income
approach.
We test for impairment of our long-lived assets, including PP&E and purchased intangible assets, when events or
changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Our assessment
is based on our projection of the undiscounted future operating cash flows of the related asset group. If such
projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amount, we
recognize a non-cash impairment charge to reduce the carrying amount to fair value. There were no impairment
charges recorded in the years ended December 31, 2022, 2021 and 2020.
Impairment assessment inherently involves management judgments as to assumptions about expected future cash
flows and the impact of market conditions on those assumptions. Due to the many variables inherent in the
estimation of a business’ fair value and the relative size of our recorded goodwill and other purchased intangible
assets, differences in assumptions may have a material effect on the results of our impairment analysis.
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NORTHROP GRUMMAN CORPORATION
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
EQUITY RISK
We are exposed to market risk with respect to our portfolio of marketable securities with a fair value of $332 million
at December 31, 2022. These securities are exposed to market volatilities, changes in price and interest rates.
INTEREST RATE RISK
We are exposed to interest rate risk on variable-rate short-term credit facilities for which there were no borrowings
outstanding at December 31, 2022. At December 31, 2022, we have $12.9 billion of long-term debt, primarily
consisting of fixed-rate debt, with a fair value of approximately $12.1 billion. The terms of our fixed-rate debt
obligations do not generally allow investors to demand payment of these obligations prior to maturity. Therefore, we
do not have significant exposure to interest rate risk for our fixed-rate debt; however, we do have exposure to fair
value risk if we repurchase or exchange long-term debt prior to maturity. Additionally, if we were to refinance our
long-term debt, it may be refinanced at higher interest rates.
FOREIGN CURRENCY RISK
In certain circumstances, we are exposed to foreign currency risk. We enter into foreign currency forward contracts
to manage a portion of the exchange rate risk related to receipts from customers and payments to suppliers
denominated in foreign currencies. We do not hold or issue derivative financial instruments for trading purposes. At
December 31, 2022, foreign currency forward contracts with a notional amount of $221 million were outstanding.
At December 31, 2022, a 10 percent unfavorable foreign exchange rate movement would not have a material impact
on our consolidated financial position, annual results of operations and/or cash flows.
INFLATION RISK
The global macroeconomic environment has experienced, and continues to experience, extraordinary challenges,
including the highest rates of inflation in 40 years. These macroeconomic factors have contributed, and we expect
will continue to contribute, to increased costs, among other concerns. We cannot predict how long these inflationary
pressures will continue, or how they may change over time, but we expect to see continued impacts on the global
economy, our customers, our industry and our company.
Historically, we generally have been able to anticipate such increases in costs when pricing our contracts, and our
bids for longer-term firm fixed-price contracts have typically included assumptions regarding cost escalations in
amounts that have been sufficient to cover most cost increases over the period of performance, including as offset by
operational efficiencies. However, the company, its subcontractors and other suppliers, have experienced, and
continue to experience, increased pressures from recent heightened levels of inflation and the challenges of the
current macroeconomic environment, which we have not been able to fully mitigate. If inflationary pressures
continue to persist, they may continue to have an adverse impact on our consolidated financial position, results of
operations and/or cash flows.
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Northrop Grumman Corporation
Falls Church, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Northrop Grumman Corporation
and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of
earnings and comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States
of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on the
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated January 25, 2023 expressed an unqualified opinion
on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit and risk committee and that (1)
relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any
way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Revenue Recognition - Cost and Revenue Estimates for Development Contracts - Refer to Note 1 to the
financial statements
Critical Audit Matter Description
As more fully described in Note 1 to the financial statements, the Company recognizes substantially all revenue as
control is transferred to the customer on their long-term contracts over time using the cost-to-cost method (cost
incurred relative to total cost estimated at completion). Use of the cost-to-cost-method requires the Company to
make reasonably dependable estimates regarding the revenue and costs associated with the design, manufacture and
delivery of their products or services. The Company estimates profit on these contracts as the difference between
total estimated sales and total estimated costs at completion and recognizes that profit as costs are incurred. Cost
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NORTHROP GRUMMAN CORPORATION
estimates on contracts requiring development work are inherently more uncertain as to future events than production
contracts, and, as a result, there is typically more variability in those estimates. Certain of these contracts are fixed
price in nature, which results in greater financial risk associated with unanticipated cost growth. Alternatively, cost-
type contracts may have award or incentive fees that are subject to uncertainty and may be earned over extended
periods or towards the end of the contract. As a result, the estimation of costs required to complete these contracts
and the expected revenues that will be earned is complex and requires significant judgment.
Given the judgment necessary to make reasonably dependable estimates regarding the revenue and costs associated
with such contracts, auditing these estimates required extensive audit effort due to the complexity of the underlying
programs and a high degree of auditor judgment when performing audit procedures and evaluating the results of
those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures related to the cost and revenue estimates for these development contracts included the
following, among others:
• We tested the effectiveness of controls over the estimates of total costs and revenues on such contracts,
including development costs and any related award or incentive fee estimates for the relevant performance
obligations.
• We selected certain long-term contracts for testing and performed the following procedures:
–
–
–
Evaluated whether the recognition of revenue over time on such contracts was appropriate based
on the terms and conditions of each contract, including whether continuous transfer of control to
the customer occurred as progress was made toward fulfilling the performance obligation.
Tested management’s identification of distinct performance obligations by evaluating whether the
underlying goods and services were highly interdependent and interrelated.
Tested management’s determination of the transaction price, including any award or incentive
fees, based on the consideration expected to be received in accordance with the rights and
obligations established under the contracts and any contractual modifications.
–
Evaluated the estimates of total cost and revenue for the performance obligation by:
▪
▪
▪
▪
Conducting inquiries of relevant program teams regarding any challenges related to the
program.
Comparing costs incurred to date to the costs management estimated to be incurred to
date.
Evaluating management’s ability to achieve the estimates of total cost and revenue by
performing corroborating inquiries with the Company’s program and business
management, and testing management’s process used to develop the estimates based on
their work plans, engineering specifications, program labor, and supplier contracts. This
includes management’s process to identify macroeconomic impacts to programs, which
could include forecasted cost impacts and assumptions on the ability to recover those
costs.
Comparing management’s estimates for the selected contracts to costs and revenues of
similar performance obligations, when applicable.
–
Tested the mathematical accuracy of management’s calculation of revenue recognized during the
period for the performance obligations.
Income Taxes - Uncertain Tax Positions - Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions.
Uncertain tax positions reflect the Company’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
or taxes payable for financial reporting purposes. Until these positions are sustained by the taxing authorities or the
statute of limitations concerning such issues lapses, the Company 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. The Company has recognized increased uncertain tax positions in recent years
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NORTHROP GRUMMAN CORPORATION
principally related to state apportionment, the methods of accounting associated with the timing of revenue
recognition and related costs, and the 2017 Tax Act. Until the matters are resolved, the outcome is inherently
uncertain and the Company discloses a summary of changes in their uncertain tax positions within the notes to their
financial statements.
Auditing the assumptions associated with the Company’s uncertain tax positions involves especially challenging
judgments given the complexity and inherent subjectivity involved in evaluating the potential outcomes of these
matters.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assumptions used in determining uncertain tax positions included the following,
among others:
• We tested the effectiveness of internal controls relating to the identification and completeness of, and
recognition for, uncertain tax positions, including management’s controls over the underlying key
assumptions and inputs used to derive the estimates.
• With the assistance of our income tax specialists, we selected specific uncertain tax positions for testing and
performed the following procedures:
–
Inquired of the Company’s tax department, financial reporting department, and other personnel
directly involved in the development of the estimates.
– Obtained supporting documentation and evaluated how the Company supported the position,
including the assumptions and estimates used for measurement, and how the taxing authorities
have historically challenged the tax position, if applicable.
– Obtained and read opinions provided by external counsel, as applicable, regarding the tax position
taken by the Company.
–
–
Evaluated whether the uncertain tax position met the “more likely than not” recognition threshold.
Evaluated the appropriateness and consistency of the methodologies and assumptions used by
management when developing these estimates.
• We tested the mathematical accuracy of management’s calculations.
/s/
Deloitte & Touche LLP
McLean, Virginia
January 25, 2023
We have served as the Company’s auditor since 1975.
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NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
$ in millions, except per share amounts
Sales
Product
Service
Total sales
Operating costs and expenses
Product
Service
General and administrative expenses
Total operating costs and expenses
Gain on sale of business
Operating income
Other (expense) income
Interest expense
Non-operating FAS pension benefit
Mark-to-market pension and OPB benefit (expense)
Other, net
Earnings before income taxes
Federal and foreign income tax expense
Net earnings
Basic earnings per share
Weighted-average common shares outstanding, in millions
Diluted earnings per share
Weighted-average diluted shares outstanding, in millions
Net earnings (from above)
Other comprehensive loss, net of tax
Change in unamortized prior service credit
Change in cumulative translation adjustment and other, net
Other comprehensive loss, net of tax
Comprehensive income
Year Ended December 31
2021
2022
2020
$ 28,522
8,080
36,602
$ 27,868
7,799
35,667
$ 27,015
9,784
36,799
22,761
6,367
3,873
33,001
—
3,601
(506)
1,505
1,232
4
5,836
940
4,896
31.61
154.9
31.47
155.6
$
$
$
22,309
6,090
3,597
31,996
1,980
5,651
(556)
1,469
2,355
19
8,938
1,933
7,005
43.70
160.3
43.54
160.9
$
$
$
21,559
7,762
3,413
32,734
—
4,065
(593)
1,198
(1,034)
92
3,728
539
3,189
19.08
167.1
19.03
167.6
$
$
$
$
4,896
$
7,005
$
3,189
(1)
(9)
(10)
4,886
(8)
(7)
(15)
6,990
(41)
10
(31)
3,158
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
$ in millions, except par value
Assets
Cash and cash equivalents
Accounts receivable, net
Unbilled receivables, net
Inventoried costs, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net of accumulated depreciation of $7,258 for 2022 and
$6,819 for 2021
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Deferred tax assets
Other non-current assets
Total assets
Liabilities
Trade accounts payable
Accrued employee compensation
Advance payments and billings in excess of costs incurred
Other current liabilities
Total current liabilities
Long-term debt, net of current portion of $1,072 for 2022 and $6 for 2021
Pension and other postretirement benefit plan liabilities
Operating lease liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity
December 31
2022
2021
$
2,577
1,511
5,983
978
1,439
12,488
8,800
1,811
17,516
384
162
2,594
$ 43,755
$
2,587
2,057
3,609
3,334
11,587
11,805
1,188
1,824
132
1,907
28,443
$
3,530
1,467
5,492
811
1,126
12,426
7,894
1,655
17,515
578
200
2,311
$ 42,579
$
2,197
1,993
3,026
2,314
9,530
12,777
3,269
1,590
490
1,997
29,653
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and
outstanding
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding:
2022—153,157,924 and 2021—156,284,423
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
—
—
153
—
15,312
(153)
15,312
$ 43,755
156
—
12,913
(143)
12,926
$ 42,579
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NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ in millions
Operating activities
Net earnings
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization
Mark-to-market pension and OPB (benefit) expense
Stock-based compensation
Deferred income taxes
Gain on sale of business
Net periodic pension and OPB income
Pension and OPB contributions
Changes in assets and liabilities:
Accounts receivable, net
Unbilled receivables, net
Inventoried costs, net
Prepaid expenses and other assets
Accounts payable and other liabilities
Income taxes payable, net
Other, net
Net cash provided by operating activities
Investing activities
Divestiture of IT services business
Capital expenditures
Proceeds from sale of equipment to a customer
Other, net
Net cash (used in) provided by investing activities
Financing activities
Net proceeds from issuance of long-term debt
Payments of long-term debt
Payments to credit facilities
Common stock repurchases
Cash dividends paid
Payments of employee taxes withheld from share-based awards
Other, net
Net cash used in financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Year Ended December 31
2021
2020
2022
$
4,896
$
7,005
$
3,189
1,342
(1,232)
99
(321)
—
(1,193)
(136)
(44)
(646)
(205)
2
572
(279)
46
2,901
—
(1,435)
155
39
(1,241)
—
—
—
(1,504)
(1,052)
(50)
(7)
(2,613)
(953)
3,530
2,577
$
1,239
(2,355)
94
603
(1,980)
(1,091)
(141)
(10)
(414)
(52)
66
376
215
12
3,567
3,400
(1,415)
84
(11)
2,058
—
(2,236)
—
(3,705)
(983)
(34)
(44)
(7,002)
(1,377)
4,907
3,530
$
1,267
1,034
90
210
—
(802)
(887)
(285)
160
18
(147)
719
(238)
(23)
4,305
—
(1,420)
205
4
(1,211)
2,239
(1,027)
(78)
(490)
(953)
(66)
(57)
(432)
2,662
2,245
4,907
$
The accompanying notes are an integral part of these consolidated financial statements.
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NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
$ in millions, except per share amounts
Common stock
Beginning of year
Common stock repurchased
Shares issued for employee stock awards and options
End of year
Paid-in capital
Beginning of year
Common stock repurchased
Stock compensation
Other
End of year
Retained earnings
Beginning of year
Common stock repurchased
Net earnings
Dividends declared
Stock compensation
Other
End of year
Accumulated other comprehensive loss
Beginning of year
Other comprehensive loss, net of tax
End of year
Total shareholders’ equity
Cash dividends declared per share
Year Ended December 31
2021
2022
2020
$
156
(4)
1
153
—
—
—
—
—
12,913
(1,497)
4,896
(1,052)
52
—
15,312
$
167
(11)
—
156
58
(60)
2
—
—
10,482
(3,645)
7,005
(989)
60
—
12,913
$
168
(1)
—
167
—
—
63
(5)
58
8,748
(479)
3,189
(951)
(36)
11
10,482
(143)
(10)
(153)
$ 15,312
6.76
$
(128)
(15)
(143)
$ 12,926
6.16
$
(97)
(31)
(128)
$ 10,579
5.67
$
The accompanying notes are an integral part of these consolidated financial statements.
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NORTHROP GRUMMAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Northrop Grumman Corporation is a leading global aerospace and defense technology company. We deliver a broad
range of products, services and solutions to U.S. and international customers, and principally to the U.S. Department
of Defense and intelligence community. Our broad portfolio is aligned to support national security priorities and our
solutions equip our customers with capabilities they need to connect, protect and advance humanity.
The company is a leading provider of space systems, advanced aircraft, missile defense, advanced weapons and
long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and
breakthrough technologies, such as artificial intelligence, advanced computing and cyber. We are focused on
competing and winning programs that enable continued growth, performing on our commitments and affordably
delivering capability our customers need. With the investments we've made in advanced technologies, combined
with our talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet
our customers' needs today and in the future.
Principles of Consolidation
The consolidated financial statements include the accounts of Northrop Grumman and its subsidiaries and joint
ventures or other investments for which we consolidate the financial results. Intercompany accounts, transactions
and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company
has significant influence, but not control, are accounted for using the equity method.
Basis of Presentation
Effective January 30, 2021 (the “Divestiture date”), we completed the sale of our IT and mission support services
business (the “IT services divestiture”) for $3.4 billion in cash and recorded a pre-tax gain of $2.0 billion. The IT
and mission support services business was comprised of the majority of the former IS&S division of Defense
Systems (excluding the Vinnell Arabia business); select cyber, intelligence and missions support programs, which
were part of the former CIMS division of Mission Systems; and the former Space Technical Services business unit
of Space Systems. Operating results include sales and operating income for the IT and mission support services
business prior to the Divestiture date. See Note 2 for further information regarding the divestiture.
Accounting Estimates
The company’s consolidated financial statements are prepared in conformity with U.S. GAAP. The preparation
thereof requires management to make estimates and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts
of sales and expenses during the reporting period. Estimates have been prepared using the most current and best
available information; however, actual results could differ materially from those estimates.
Revenue Recognition
The majority of our sales are derived from long-term contracts with the U.S. government for the development or
production of goods, the provision of services, or a combination of both. The company classifies sales as product or
service based on the predominant attributes of each performance obligation.
The company recognizes revenue for each separately identifiable performance obligation in a contract representing a
promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the
company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of
our products and services. These contracts generally require significant integration of a group of goods and/or
services to deliver a combined output. In some contracts, the company provides multiple distinct goods or services
to a customer, most commonly when a contract covers multiple phases of the product life cycle (e.g., development,
production, sustainment, etc.). In those cases, the company accounts for the distinct contract deliverables as separate
performance obligations and allocates the transaction price to each performance obligation based on its relative
standalone selling price, which is generally estimated using cost plus a reasonable margin. Warranties are provided
on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not
considered to be separate performance obligations. Assets recognized from the costs to obtain or fulfill a contract are
not material.
The company recognizes revenue as control is transferred to the customer, either over time or at a point in time. In
general, our U.S. government contracts contain termination for convenience and/or other clauses that generally
provide the customer rights to goods produced and/or in-process. Similarly, our non-U.S. government contracts
generally contain contractual termination clauses or entitle the company to payment for work performed to date for
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NORTHROP GRUMMAN CORPORATION
goods and services that do not have an alternative use. For most of our contracts, control is effectively transferred
during the period of performance, so we generally recognize revenue over time using the cost-to-cost method (cost
incurred relative to total cost estimated at completion). The company believes this represents the most appropriate
measurement towards satisfaction of its performance obligations. Revenue for contracts in which the control of
goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon
delivery).
Contracts are often modified for changes in contract specifications or requirements, which may result in scope and/
or price changes. Most of the company’s contract modifications are for goods or services that are not distinct in the
context of the contract and are therefore accounted for as part of the original performance obligation through a
cumulative EAC adjustment.
Contract Estimates
Use of the cost-to-cost method requires us to make reasonably dependable estimates regarding the revenue and cost
associated with the design, manufacture and delivery of our products and services. The company estimates profit on
these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes
that profit as costs are incurred. Significant judgment is used to estimate total sales and cost at completion.
Contract sales may include estimates of variable consideration, including cost or performance incentives (such as
award and incentive fees), contract claims and REAs. Variable consideration is included in total estimated sales to
the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur
when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable
consideration as the most likely amount to which we expect to be entitled.
We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a
cumulative basis. Cumulative EAC adjustments represent the cumulative effect of the changes on current and prior
periods; sales and operating margins in future periods are recognized as if the revised estimates had been used since
contract inception. If it is determined that a loss is expected to result on an individual performance obligation, the
entire amount of the estimable future loss, including an allocation of G&A costs, is charged against income in the
period the loss is identified.
The following table presents the effect of aggregate net EAC adjustments:
$ in millions, except per share data
Revenue
Operating income
Net earnings(1)
Diluted earnings per share(1)
(1) Based on a 21% federal statutory tax rate.
Year Ended December 31
2022
2021
2020
$
$
447
360
284
1.83
$
568
527
416
2.59
504
466
368
2.20
EAC adjustments on a single performance obligation can have a significant effect on the company’s financial
statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial
impact of the adjustments. During the first and fourth quarters of 2022, we recorded favorable EAC adjustments of
$67 million and $66 million, respectively, on the engineering, manufacturing and development (EMD) phase of the
B-21 program at Aeronautics Systems largely related to an increase in the amount of performance incentives we
expect to earn. See Note 12 for a discussion of reasonably possible losses we may incur on the low-rate initial
production (LRIP) phase of B-21. During 2021, we recorded $135 million of unfavorable EAC adjustments on the
F-35 program at Aeronautics Systems due to labor-related production impacts largely driven by COVID-19. No
other such adjustments were significant to the financial statements during the years ended December 31, 2022, 2021
and 2020.
Backlog
Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent
to the company’s remaining performance obligations at the end of each period. It comprises both funded backlog
(firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options
and IDIQ contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded.
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NORTHROP GRUMMAN CORPORATION
Company backlog as of December 31, 2022 was $78.7 billion. Of our December 31, 2022 backlog, we expect to
recognize approximately 40 percent as revenue over the next 12 months and 65 percent as revenue over the next 24
months, with the remainder to be recognized thereafter.
Contract Assets and Liabilities
For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections
results in a net contract asset or liability at the end of each reporting period. Fixed-price contracts are typically billed
to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is
completed, or performance based payments, which are based upon the achievement of specific, measurable events or
accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer
on a monthly or semi-monthly basis.
Contract assets are equivalent to and reflected as Unbilled receivables in the consolidated statements of financial
position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method
exceeds amounts billed to customers. Unbilled receivables are classified as current assets and include amounts that
may be billed and collected beyond one year due to the long-cycle nature of many of our contracts. Accumulated
contract costs in unbilled receivables include costs such as direct production costs, factory and engineering
overhead, production tooling costs, and allowable G&A. Unbilled receivables also include certain estimates of
variable consideration described above. These contract assets are not considered a significant financing component
of the company’s contracts as the payment terms are intended to protect the customer in the event the company does
not perform on its obligations under the contract.
Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in
the consolidated statements of financial position. Certain customers make advance payments prior to the company’s
satisfaction of its obligations on the contract. These amounts are recorded as contract liabilities until such
obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made.
Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs
within a one-year period or are used to ensure the customer meets contractual requirements.
Net contract assets are as follows:
$ in millions
Unbilled receivables, net
Advance payments and amounts in excess of costs incurred
Net contract assets
December 31,
2022
December 31,
2021
$ Change
%
Change
$
$
5,983
(3,609)
2,374
$
$
5,492 $
(3,026)
2,466 $
491
(583)
(92)
9 %
19 %
(4)%
The change in the balances of the company’s contract assets and liabilities primarily results from timing differences
between revenue recognition and customer billings and/or payments. Net contract assets as of December 31, 2022
decreased 4 percent from the prior year, primarily due to decreases in net contracts assets at Aeronautics Systems
and Space Systems, partially offset by an increase in net contract assets at Defense Systems.
The amount of revenue recognized for the years ended December 31, 2022, 2021 and 2020 that was included in the
contract liability balance at the beginning of each year was $2.4 billion, $2.0 billion and $1.6 billion, respectively.
Disaggregation of Revenue
See Note 16 for information regarding the company’s sales by customer type, contract type and geographic region
for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of
our revenue and cash flows are affected by economic factors.
General and Administrative Expenses
In accordance with applicable FAR and CAS requirements, most general management and corporate expenses
incurred at the segment and corporate locations are considered allowable and allocable costs to our U.S. government
contracts. Allowable and allocable G&A costs, including independent research and development (IR&D) and bid
and proposal (B&P) costs, are allocated on a systematic basis to contracts in progress and are included as a
component of total estimated contract costs.
Research and Development
Company-sponsored research and development activities primarily include efforts related to government programs.
Company-sponsored IR&D expenses totaled $1.2 billion, $1.1 billion and $1.1 billion in 2022, 2021 and 2020,
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NORTHROP GRUMMAN CORPORATION
respectively, which represented 3.3 percent, 3.2 percent and 2.9 percent of total sales, respectively. Customer-funded
research and development activities are charged directly to the related contracts.
Income Taxes
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. The company recognizes federal and foreign interest accrued related to unrecognized tax
benefits in income tax expense. Federal tax penalties are also recognized as a component of income tax expense.
In accordance with applicable FAR and CAS requirements, current state and local income and franchise taxes are
generally considered allowable and allocable costs to our U.S. government contracts and, consistent with industry
practice, are recorded in operating costs and expenses. The company generally recognizes changes in deferred state
taxes and unrecognized state tax benefits in unallocated corporate expenses.
Uncertain tax positions reflect the company’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
or taxes payable for financial reporting purposes. Until these positions are sustained by the taxing authorities or the
statute of limitations concerning such issues lapses, the company 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.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash in banks and highly liquid instruments with original maturities of
three months or less, primarily consisting of bank time deposits and investments in institutional money market
funds. Cash in bank accounts often exceeds federally insured limits.
Fair Value of Financial Instruments
The company measures the fair value of its financial instruments using observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal
market assumptions.
These two types of inputs create the following fair value hierarchy:
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments
in markets that are not active; and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 - Significant inputs to the valuation model are unobservable.
The company holds a portfolio of marketable securities to partially fund non-qualified employee benefit plans. A
portion of these securities are held in common/collective trust funds and are measured at fair value using NAV per
share as a practical expedient. Marketable securities accounted for as trading are recorded at fair value on a recurring
basis and are included in Other non-current assets in the consolidated statements of financial position. Changes in
unrealized gains and losses on trading securities are included in Other, net in the consolidated statements of earnings
and comprehensive income. Investments in held-to-maturity instruments with original maturities greater than three
months are recorded at amortized cost.
Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair
value on a recurring basis. Changes in the fair value of derivative financial instruments that are designated as fair
value hedges are recorded in Other, net in the consolidated statements of earnings and comprehensive income, while
changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recorded as a
component of other comprehensive income until settlement. For derivative financial instruments not designated as
hedging instruments, gains or losses resulting from changes in the fair value are reported in Other, net in the
consolidated statements of earnings and comprehensive income.
The company uses derivative financial instruments to manage its exposure to foreign currency exchange risk related
to receipts from customers and payments to suppliers denominated in foreign currencies (i.e., foreign currency
forward contracts). For foreign currency forward contracts, where model-derived valuations are appropriate, the
company utilizes the income approach to determine the fair value using internal models based on observable market
inputs such as forward rates, interest rates, our own credit risk and our counterparties’ credit risks.
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NORTHROP GRUMMAN CORPORATION
The company does not use derivative financial instruments for trading or speculative purposes, nor does it use
leveraged financial instruments. Credit risk related to derivative financial instruments is considered minimal and is
managed through the use of multiple counterparties with high credit standards and periodic settlements of positions,
as well as by entering into master netting agreements with most of our counterparties.
Inventoried Costs
Inventoried costs generally comprise costs associated with unsatisfied performance obligations on contracts
accounted for using point in time revenue recognition, costs incurred in excess of existing contract requirements or
funding that are probable of recovery and other accrued contract costs that are expected to be recoverable when
allocated to specific contracts. Product inventory primarily consists of raw materials and is stated at the lower of cost
or net realizable value, generally using the average cost method.
Inventoried costs include direct production costs, factory and engineering overhead, production tooling costs, and
allowable G&A. G&A included in Inventoried costs, net was $59 million and $44 million as of December 31, 2022
and 2021, respectively. Inventoried costs are classified as current assets and include amounts related to contracts
having production cycles longer than one year due to the long-cycle nature of our business.
Cash Surrender Value of Life Insurance Policies
The company maintains whole life insurance policies on a group of executives, which are recorded at their cash
surrender value as determined by the insurance carrier. The company also has split-dollar life insurance policies on
former officers and executives from acquired businesses, which are recorded at the lesser of their cash surrender
value or premiums paid. These policies are utilized as a partial funding source for deferred compensation and other
non-qualified employee retirement plans. As of December 31, 2022 and 2021, the carrying values associated with
these policies were $367 million and $440 million, respectively, and are recorded in Other non-current assets in the
consolidated statements of financial position.
Property, Plant and Equipment
Property, plant and equipment (PP&E) are depreciated over the estimated useful lives of individual assets. Most
assets are depreciated using declining-balance methods, with the remainder using the straight-line method.
Depreciation expense is generally an allowable and allocable cost in accordance with applicable FAR and CAS
requirements and recorded in the same segment where the related assets are held. However, the additional
depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business
combinations is recorded in unallocated corporate expense within operating income as such depreciation is not
allocable to government contracts and not considered part of management’s evaluation of segment operating
performance. Major classes of property, plant and equipment and their useful lives are as follows:
Useful life in years, $ in millions
Land and land improvements
Buildings and improvements
Machinery and other equipment
Capitalized software costs
Leasehold improvements
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant and equipment, net
(1) Land is not a depreciable asset.
Useful Life
Up to 40(1)
Up to 45
Up to 20
3-5
Lease Term(2)
December 31
2022
2021
$
$
741
3,272
8,774
524
2,747
16,058
(7,258)
8,800
$
$
636
3,019
8,064
481
2,513
14,713
(6,819)
7,894
(2) Leasehold improvements are depreciated over the shorter of the useful life of the asset or lease term.
During the fourth quarter of 2020, the company completed a sale of equipment to a customer on a restricted
Aeronautics Systems program for $444 million. The company previously intended to use the equipment for internal
purposes so we recognized the acquisition costs as capital expenditures and included the equipment in property,
plant and equipment. As we regularly sell this type of equipment to customers in the ordinary course of business, we
recorded the sale as a revenue transaction and included the net book value of the equipment in Operating costs and
expenses. Although we generally classify proceeds from revenue transactions as cash inflows from operating
activities, we recognized the proceeds from this transaction as cash inflows from investing activities, consistent with
our prior recognition of the cost to acquire the equipment as capital expenditures. The company received cash
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NORTHROP GRUMMAN CORPORATION
payments of $155 million, $84 million and $205 million related to the equipment sale during 2022, 2021 and 2020,
respectively, and included it in Proceeds from sale of equipment to a customer in the consolidated statement of cash
flows.
During the year ended December 31, 2022, the company acquired $46 million of internal use software through long-
term financing directly with the supplier. The software was recorded in PP&E as a non-cash investing activity and
the related liability was recorded in long-term debt as a non-cash financing activity. During the years ended
December 31, 2022 and 2021, the company received lease incentives for landlord funded leasehold improvements of
$96 million and $150 million, respectively, related to a Space Systems real estate lease, which were recorded in
PP&E and included in non-cash investing activities.
On December 28, 2022 the company acquired certain leased land in exchange for company-owned land, which had
been used previously for production-related activities at Space Systems. The exchange was accounted for as a
nonmonetary transaction, and the acquired land, valued at approximately $155 million, was recorded in PP&E as a
non-cash investing activity. The transaction resulted in a $96 million gain, which was reflected in operating costs
and expenses in the consolidated statements of earnings and comprehensive income.
Non-cash investing activities also include capital expenditures incurred but not yet paid of $113 million, $91 million
and $72 million as of December 31, 2022, 2021 and 2020, respectively.
Goodwill and Other Purchased Intangible Assets
The company tests goodwill for impairment at least annually as of December 31, or when an indicator of potential
impairment exists. When performing the goodwill impairment test, the company uses a discounted cash flow
approach corroborated by comparative market multiples, where appropriate, to determine the fair value of its
reporting units.
Goodwill and other purchased intangible asset balances are included in the identifiable assets of their assigned
business segment. However, the company includes the amortization of other purchased intangible assets in
unallocated corporate expense within operating income as such amortization is not allocable to government contracts
and not considered part of management’s evaluation of segment operating performance. The company’s customer-
related intangible assets are generally amortized over their respective useful lives based on the pattern in which the
future economic benefits of the intangible assets are expected to be consumed. Other intangible assets are generally
amortized on a straight-line basis over their estimated useful lives.
Leases
The company leases certain buildings, land and equipment. At contract inception, we determine whether a contract is
or contains a lease and whether the lease should be classified as an operating or finance lease. Operating lease
balances are included in Operating lease right-of-use assets, Other current liabilities, and Operating lease liabilities
in our consolidated statements of financial position.
The company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value
of the future minimum lease payments over the lease term at commencement date. We use our incremental
borrowing rate based on the information available at commencement date to determine the present value of future
payments and the appropriate lease classification. Many of our leases include renewal options aligned with our
contract terms. We define the initial lease term to include renewal options determined to be reasonably certain. We
do not recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less; we
recognize lease expense for these leases on a straight-line basis over the lease term. We elected the practical
expedient to not separate lease components from nonlease components and applied that practical expedient to all
material classes of leased assets.
Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays or
rent escalation clauses. For tenant improvement incentives received, if the incentive is determined to be a leasehold
improvement owned by the lessee, the company generally records the incentives as a reduction to the right-of-use
asset, which reduces rent expense over the lease term. For rent holidays and rent escalation clauses during the lease
term, the company records rental expense on a straight-line basis over the term of the lease. For these lease
incentives, the company uses the date of initial possession as the commencement date, which is generally when the
company is given the right of access to the space and begins to make improvements in preparation for intended use.
Finance leases are not material to our consolidated financial statements and the company is not a lessor in any
material arrangements. We do not have any material restrictions or covenants in our lease agreements, sale-
leaseback transactions, land easements or residual value guarantees.
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NORTHROP GRUMMAN CORPORATION
Litigation, Commitments and Contingencies
We accrue for litigation, commitments and contingencies when management, after considering the facts and
circumstances of each matter as then known to management, has determined it is probable a liability will be found to
have been incurred and the amount of the loss can be reasonably estimated. When only a range of amounts is
reasonably estimable and no amount within the range is more likely than another, the low end of the range is
recorded. Legal fees are generally expensed as incurred. Due to the inherent uncertainties surrounding gain
contingencies, we generally do not recognize potential gains until realized.
Environmental Costs
We accrue for environmental liabilities when management determines that, based on the facts and circumstances
known to the company, it is probable the company will incur costs to address environmental impacts and the costs
are reasonably estimable. When only a range of amounts is reasonably estimable and no amount within the range is
more probable than another, we record the low end of the range. The company typically projects environmental
costs for up to 30 years, records environmental liabilities on an undiscounted basis, and excludes asset retirement
obligations and certain legal costs. At sites involving multiple parties, we accrue environmental liabilities based
upon our expected share of liability, taking into account the financial viability of other liable parties.
Retirement Benefits
The company sponsors various defined benefit pension plans and defined contribution retirement plans covering
substantially all of its employees. In most cases, our defined contribution plans provide for a company match of
employee contributions. The company also provides postretirement benefits other than pensions to eligible retirees
and qualifying dependents, consisting principally of health care and life insurance benefits.
The liabilities, unamortized prior service credits and annual income or expense of the company’s defined benefit
pension and OPB plans are determined using methodologies that involve several actuarial assumptions.
Because U.S. government regulations provide for the costs of pension and OPB plans to be charged to our contracts
in accordance with applicable FAR and CAS requirements, we calculate retiree benefit plan costs under both FAS
and CAS methods. While both FAS and CAS recognize a normal service cost component in measuring periodic
pension cost, there are differences in the way the components of annual pension costs are calculated under each
method. Measuring plan obligations under FAS and CAS includes different assumptions and models, such as in
estimating returns on plan assets, calculating interest expense and the periods over which gains/losses related to
pension assets and actuarial changes are recognized. As a result, annual retiree benefit plan expense amounts for
FAS are different from the amounts for CAS in any given reporting period even though the ultimate cost of
providing benefits over the life of the plans is the same under either method. CAS retiree benefit plan costs are
charged to contracts and are included in segment operating income, and the difference between the service cost
component of FAS expense and total CAS expense is recorded in operating income at the consolidated company
level. Not all net periodic pension expense is recognized in net earnings in the year incurred because it is allocated as
production costs and a portion remains in inventory at the end of a reporting period.
Actuarial gains and losses are immediately recognized in net periodic benefit cost for FAS through MTM benefit
(expense) upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant
remeasurement. Prior service credits are recognized as a component of Accumulated other comprehensive loss and
amortized into earnings in future periods.
Stock Compensation
The company’s stock compensation plans are classified as equity plans and compensation expense is generally
recognized over the vesting period of stock awards (typically three years), net of estimated forfeitures. The company
issues stock awards in the form of restricted performance stock rights and restricted stock rights. The fair value of
stock awards and performance stock awards is determined based on the closing market price of the company’s
common stock on the grant date. The fair value of market-based stock awards is determined at the grant date using a
Monte Carlo simulation model. At each reporting date, the number of shares used to calculate compensation expense
and diluted earnings per share is adjusted to reflect the number ultimately expected to vest.
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NORTHROP GRUMMAN CORPORATION
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, are as follows:
$ in millions
Unamortized prior service credit
Cumulative translation adjustment and other, net
Total accumulated other comprehensive loss
December 31
2022
2021
$
$
$
1
(154)
(153) $
2
(145)
(143)
Related Party Transactions
For all periods presented, the company had no material related party transactions.
Accounting Standards Updates
Accounting standards updates adopted and/or issued, but not effective until after December 31, 2022, are not
expected to have a material effect on the company’s consolidated financial position, annual results of operations
and/or cash flows.
2. DISPOSITIONS
Disposition of IT and Mission Support Services Business
Effective January 30, 2021, we completed the IT services divestiture for $3.4 billion in cash and recorded a pre-tax
gain of $2.0 billion. The IT and mission support services business was comprised of the majority of the former IS&S
division of Defense Systems (excluding the Vinnell Arabia business); select cyber, intelligence and missions support
programs, which were part of the former CIMS division of Mission Systems; and the former Space Technical
Services business unit of Space Systems. Operating results include sales and operating income for the IT and
mission support services business prior to the Divestiture date; therefore, no sales and operating income were
recognized for this business during the year ended December 31, 2022.
The company recorded pre-tax profit of the IT and mission support services business of $20 million and
$247 million for the years ended December 31, 2021 and 2020, respectively.
3. EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK
Basic Earnings Per Share
We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of
common stock outstanding during each period.
Diluted Earnings Per Share
Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based
compensation plans. The dilutive effect of these securities totaled 0.7 million, 0.6 million and 0.5 million shares for
the years ended December 31, 2022, 2021 and 2020, respectively.
Share Repurchases
On September 16, 2015, the company’s board of directors authorized a share repurchase program of up to $4.0
billion of the company’s common stock (the “2015 Repurchase Program”). On December 4, 2018, the company’s
board of directors authorized a share repurchase program of up to an additional $3.0 billion in share repurchases of
the company’s common stock (the “2018 Repurchase Program”). Repurchases under the 2015 Repurchase Program
commenced in March 2016 and were completed in March 2020, at which time repurchases under the 2018
Repurchase Program commenced. Repurchases under the 2018 Repurchase Program were completed in October
2021.
On January 25, 2021, the company’s board of directors authorized a new share repurchase program of up to an
additional $3.0 billion in share repurchases of the company’s common stock (the “2021 Repurchase Program”).
Repurchases under the 2021 Repurchase Program commenced in October 2021 upon the completion of the 2018
Repurchase Program. As of December 31, 2022, repurchases under the 2021 Repurchase Program totaled $2.4
billion; $0.6 billion remained under this share repurchase authorization. By its terms, the 2021 Repurchase Program
is set to expire when we have used all authorized funds for repurchases.
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NORTHROP GRUMMAN CORPORATION
On January 24, 2022, the company’s board of directors authorized a new share repurchase program of up to an
additional $2.0 billion in share repurchases of the company’s common stock (the “2022 Repurchase Program”). By
its terms, repurchases under the 2022 Repurchase Program will commence upon completion of the 2021 Repurchase
Program and will expire when we have used all authorized funds for repurchases. As of December 31, 2022, there
have been no repurchases under the 2022 Repurchase Program and the company’s total outstanding share repurchase
authorization was $2.6 billion.
During the first quarter of 2021, the company entered into an accelerated share repurchase (ASR) agreement with
Goldman Sachs & Co. LLC (Goldman Sachs) to repurchase $2.0 billion of the company’s common stock as part of
the 2018 Repurchase Program. Under the agreement, we made a payment of $2.0 billion to Goldman Sachs and
received an initial delivery of 5.9 million shares valued at $1.7 billion that were immediately canceled by the
company. The remaining balance of $300 million was settled on June 1, 2021 with a final delivery of 0.2 million
shares from Goldman Sachs. The final average purchase price was $327.29 per share.
During the fourth quarter of 2021, the company entered into an ASR agreement with Goldman Sachs to repurchase
$500 million of the company’s common stock as part of the 2021 Repurchase Program. Under the agreement, we
made a payment of $500 million to Goldman Sachs and received an initial delivery of 1.2 million shares valued at
$425 million that were immediately canceled by the company. The remaining balance of $75 million was settled on
February 1, 2022 with a final delivery of 0.1 million shares from Goldman Sachs. The final average purchase price
was $374.79 per share.
Share repurchases take place from time to time, subject to market and regulatory conditions and management’s
discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon
repurchase and, in the periods presented, has not made any purchases of common stock other than in connection
with these publicly announced repurchase programs.
The table below summarizes the company’s share repurchases to date under the authorizations described above:
Amount
Authorized
(in millions)
Total
Shares
Retired
(in millions)
Repurchase Program
Authorization Date
September 16, 2015
December 4, 2018
January 25, 2021
January 24, 2022
$
$
$
$
4,000
3,000
3,000
2,000
Average
Price
Per Share(1) Date Completed
$
March 2020
260.33
October 2021
337.18
426.46
—
15.4
8.9
5.5
$
$
— $
Shares Repurchased
(in millions)
Year Ended
December 31
2021
2020
2022
—
—
3.3
—
3.3
—
8.4
2.2
—
10.6
0.9
0.5
—
—
1.4
(1) Includes commissions paid.
Dividends on Common Stock
In May 2022, the company increased the quarterly common stock dividend 10 percent to $1.73 per share from the
previous amount of $1.57 per share.
In May 2021, the company increased the quarterly common stock dividend 8 percent to $1.57 per share from the
previous amount of $1.45 per share.
In May 2020, the company increased the quarterly common stock dividend 10 percent to $1.45 per share from the
previous amount of $1.32 per share.
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net represent amounts billed and due from customers. Substantially all accounts receivable at
December 31, 2022 are expected to be collected in 2023. The company does not believe it has significant exposure
to credit risk as the majority of our accounts receivable are due from the U.S. government either as the ultimate
customer or in connection with foreign military sales.
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NORTHROP GRUMMAN CORPORATION
Accounts receivable, net consisted of the following:
$ in millions
(1)
Due from U.S. government (1)
Due from international and other customers
Accounts receivable, gross
Allowance for expected credit losses
Accounts receivable, net
December 31
2022
2021
$
$
1,215
304
1,519
(8)
1,511
$
$
1,173
328
1,501
(34)
1,467
(1) Includes receivables due from the U.S. government associated with FMS sales. For FMS, we contract with and are paid by the
U.S. government.
5. UNBILLED RECEIVABLES, NET
Unbilled receivables, net represent revenue recognized under the cost-to-cost method that exceeds amounts billed to
customers. Substantially all unbilled receivables at December 31, 2022 are expected to be billed and collected in
2023. Progress and performance-based payments are reflected as an offset to the related unbilled receivable
balances.
Unbilled receivables, net consisted of the following:
$ in millions
Due from U.S. government (1)
Unbilled receivables
Progress and performance-based payments received
Total due from U.S. government
Due from international and other customers
Unbilled receivables
Progress and performance-based payments received
Total due from international and other customers
Unbilled receivables, net of progress and performance-based payments received
Allowance for expected credit losses
Unbilled receivables, net
December 31
2022
2021
$ 23,304
$ 22,140
(17,664)
(17,038)
5,640
5,102
1,822
2,913
(1,460)
(2,503)
362
6,002
(19)
410
5,512
(20)
$
5,983
$
5,492
(1) Includes unbilled receivables due from the U.S. government associated with FMS sales. For FMS, we contract with and are
paid by the U.S. government.
6. INVENTORIED COSTS, NET
Inventoried costs are principally associated with contracts where the U.S. government is the primary customer,
therefore the company does not believe it has significant exposure to recoverability risk related to these amounts.
Inventoried costs associated with our commercial businesses, while less significant in total, are subject to a greater
level of recoverability risk. During the year ended December 31, 2022, the company recorded a $45 million write-
down of commercial business inventory at Space Systems for which its cost exceeded net realizable value.
Inventoried costs, net consisted of the following:
$ in millions
Contracts in process
Product inventory
Inventoried costs, net
December 31
2022
2021
$
$
574
404
978
$
$
478
333
811
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NORTHROP GRUMMAN CORPORATION
7. INCOME TAXES
Federal and foreign income tax expense consisted of the following:
$ in millions
Federal income tax expense:
Current
Deferred
Total federal income tax expense
Foreign income tax expense:
Current
Deferred
Total foreign income tax expense
Total federal and foreign income tax expense
Year Ended December 31
2020
2021
2022
$ 1,289
(353)
936
$ 1,398
518
1,916
3
1
4
940
6
11
17
$ 1,933
$
$
$
246
288
534
3
2
5
539
Earnings before income taxes associated with the company’s foreign operations are not material in the periods
presented.
Income tax expense differs from the amount computed by multiplying earnings before income taxes by the statutory
federal income tax rate due to the following:
$ in millions
Income tax expense at statutory rate
Research credit
Foreign derived intangible income
IT services divestiture nondeductible goodwill
Settlements with taxing authorities
Other, net
Total federal and foreign income taxes
2022
Year Ended December 31
2021
2020
$ 1,226
(177)
(66)
—
(86)
43
940
$
21.0 % $ 1,877
(192)
(3.0)
(50)
(1.1)
250
—
—
(1.5)
48
0.7
16.1 % $ 1,933
21.0 % $
(2.2)
(0.6)
2.8
—
0.6
21.6 % $
783
(206)
(55)
—
—
17
539
21.0 %
(5.5)
(1.5)
—
—
0.5
14.5 %
The year to date 2022 ETR decreased to 16.1 percent from 21.6 percent in 2021 primarily due to an $86 million
benefit resulting from the resolution of the IRS examination of certain legacy OATK tax returns, as well as
additional federal income taxes in the prior year resulting from the IT services divestiture. The company’s 2022
MTM benefit increased the 2022 ETR by 1.2 percentage points; however, the MTM benefit in 2021 did not
significantly impact the 2021 ETR.
The year to date 2021 ETR increased to 21.6 percent from 14.5 percent in 2020 primarily due to the federal income
taxes resulting from the IT services divestiture described above. The company’s 2021 MTM benefit did not
significantly impact the 2021 ETR; however, MTM expense in 2020 reduced the 2020 ETR by 1.3 percentage
points.
Income tax payments, net of refunds received, were $1.5 billion, $1.3 billion and $312 million for the years ended
December 31, 2022, 2021 and 2020, respectively. Taxes receivable, which are included in Prepaid expenses and
other current assets in the consolidated statements of financial position, were $850 million and $571 million as of
December 31, 2022 and 2021, respectively.
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NORTHROP GRUMMAN CORPORATION
Uncertain Tax Positions
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The
Northrop Grumman 2014-2020 federal tax returns and refund claims related to its 2007-2016 federal tax returns are
currently under Internal Revenue Service (IRS) examination. During the second quarter of 2022, the company’s
2014-2016 federal income tax returns and refund claims related to its 2007-2016 federal tax returns reverted back
from IRS Appeals to IRS examination for additional factual review. During the fourth quarter of 2022, the U.S.
Congressional Joint Committee on Taxation approved a resolution of the IRS examination of the legacy OATK
federal tax returns for the years ended March 31, 2014 and 2015, the nine-month transition period ended December
31, 2015 and calendar years 2016-2017, which resulted in a $110 million reduction to our unrecognized tax benefits
and an $86 million reduction to income tax expense.
Tax returns for open tax years related to state and foreign jurisdictions remain subject to examination. As state
income taxes are generally considered allowable and allocable costs, any individual or aggregate state examination
impacts are not expected to have a material impact on our financial results. Amounts currently subject to
examination related to foreign jurisdictions are not material.
The change in unrecognized tax benefits during 2022, 2021 and 2020, excluding interest, is as follows:
$ in millions
Unrecognized tax benefits at beginning of the year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with taxing authorities
Other, net
Net change in unrecognized tax benefits
Unrecognized tax benefits at end of the year
December 31
2021
$ 1,481
355
47
2020
$ 1,223
187
270
2022
$ 1,630
262
6
(124)
(251)
(190)
(110)
(1)
33
$ 1,663
(1)
(1)
149
$ 1,630
(7)
(2)
258
$ 1,481
Our 2022 increase in unrecognized tax benefits was primarily related to our methods of accounting associated with
the timing of revenue recognition and related costs and the 2017 Tax Cuts and Jobs Act, which includes related final
revenue recognition regulations issued in December 2020 under IRC Section 451(b) and procedural guidance issued
in August 2021. As of December 31, 2022, we have approximately $1.7 billion in unrecognized tax benefits,
including $543 million related to our position on IRC Section 451(b). If these matters, including our position on IRC
Section 451(b), are unfavorably resolved, there could be a material impact on our future cash flows. It is reasonably
possible that within the next 12 months our unrecognized tax benefits may increase by approximately $120 million.
Additionally, it is reasonably possible that within the next 12 months, unrecognized tax benefits claimed primarily
related to California state apportionment in the company’s 2007 to 2016 tax years may decline by up to $100 million
through administrative resolution with the California Franchise Tax Board.
Our current unrecognized tax benefits, which are included in Other current liabilities in the consolidated statements
of financial position, were $728 million and $590 million as of December 31, 2022 and 2021, respectively, with the
remainder of our unrecognized tax benefits included within Other non-current liabilities. These liabilities include
$216 million and $175 million of accrued interest and penalties as of December 31, 2022 and 2021, respectively. If
the income tax benefits from these tax positions are ultimately realized, $636 million of federal and foreign tax
benefits would reduce the company’s ETR.
Net interest expense within the company’s federal, foreign and state income tax provisions was not material for all
years presented.
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NORTHROP GRUMMAN CORPORATION
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and tax purposes. Net deferred tax assets and liabilities are classified
as non-current in the consolidated statements of financial position.
The tax effects of temporary differences and carryforwards that gave rise to year-end deferred federal, state and
foreign tax balances, as presented in the consolidated statements of financial position, are as follows:
$ in millions
Deferred Tax Assets
Retiree benefits
Capitalized research and experimental expenditures
Accrued employee compensation
Provisions for accrued liabilities
Inventory
Stock-based compensation
Operating lease liabilities
Tax credits
Other
Gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred Tax Liabilities
Goodwill
Purchased intangibles
Property, plant and equipment, net
Operating lease right-of-use assets
Contract accounting differences
Other
Deferred tax liabilities
Total net deferred tax assets (liabilities)
December 31
2022
2021
$
$
117
1,671
378
65
484
37
556
464
144
3,916
(428)
3,488
534
98
854
545
1,348
79
3,458
30
$
$
804
—
371
156
649
39
493
431
135
3,078
(349)
2,729
533
148
755
444
1,036
103
3,019
(290)
Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods.
The company believes it is more-likely-than-not our net deferred tax assets will be realized.
At December 31, 2022, the company has available tax credits and unused net operating losses of $510 million and
$349 million, respectively, that may be applied against future taxable income. The majority of tax credits and net
operating losses expire in 2023 through 2046, however, some may be carried forward indefinitely. Due to the
uncertainty of the realization of the tax credits and net operating losses, the company has recorded valuation
allowances of $295 million and $32 million, respectively, as of December 31, 2022.
Undistributed Foreign Earnings
As of December 31, 2022, the company has accumulated undistributed earnings generated by our foreign
subsidiaries and most have been taxed in the U.S. We intend to indefinitely reinvest these earnings, as well as future
earnings from our foreign subsidiaries to fund our international operations. In addition, we expect future U.S. cash
generation will be sufficient to meet future U.S. cash needs.
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NORTHROP GRUMMAN CORPORATION
8. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill
Changes in the carrying amounts of goodwill for the years ended December 31, 2021 and 2022, were as follows:
$ in millions
Balance as of December 31, 2020
Other (1)
Balance as of December 31, 2021
Other (1)
Balance as of December 31, 2022
Aeronautics
Systems
Defense
Systems
Mission
Systems
Space
Systems
$
$
$
3,467
—
3,467
—
3,467
$
$
$
3,415
(3)
3,412
1
3,413
$
$
$
5,881
—
5,881
—
5,881
$
$
$
4,755
—
4,755
—
4,755
$
$
$
Total
17,518
(3)
17,515
1
17,516
(1) Other consists primarily of adjustments for foreign currency translation.
At December 31, 2022 and 2021, accumulated goodwill impairment losses totaled $417 million and $153 million at
Aeronautics Systems and Space Systems, respectively.
Other Purchased Intangible Assets
Net customer-related and other intangible assets are as follows:
$ in millions
Gross customer-related and other intangible assets
Less accumulated amortization
Net customer-related and other intangible assets
December 31
2022
2021
$
$
3,364
(2,980)
384
$
$
3,361
(2,783)
578
Amortization expense for 2022, 2021 and 2020, was $197 million, $204 million and $262 million, respectively. As
of December 31, 2022, the expected future amortization of purchased intangibles for each of the next five years is as
follows:
$ in millions
2023
2024
2025
2026
2027
$
80
57
45
42
31
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the financial assets and liabilities the company records at fair value on a recurring basis
identified by the level of inputs used to determine fair value. See Note 1 for the definitions of these levels and for
further information on our financial instruments.
$ in millions
Financial Assets
Marketable securities
Marketable securities
valued using NAV
Total marketable
securities
Derivatives
December 31, 2022
Level 3
Level 2
Level 1
Total
Level 1
December 31, 2021
Level 3
Level 2
Total
$
310
$
1
$
8 $
319
$
393
$
1 $
7
$
401
310
—
1
7
8
—
13
332
7
393
—
1
(1)
7
—
17
418
(1)
The notional value of the company’s foreign currency forward contracts at December 31, 2022 and 2021 was $221
million and $120 million, respectively. The portion of notional value designated as a cash flow hedge at December
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NORTHROP GRUMMAN CORPORATION
31, 2022, was $87 million. At December 31, 2021, no portion of the notional value was designated as a cash flow
hedge.
The derivative fair values and related unrealized gains/losses at December 31, 2022 and 2021 were not material.
There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the years
ended December 31, 2022 and 2021.
The carrying value of cash and cash equivalents and commercial paper approximates fair value.
10. DEBT
Commercial Paper
The company maintains a commercial paper program that serves as a source of short-term financing. In December
2022, the company amended its commercial paper program to increase its capacity to issue unsecured commercial
paper notes from $2.0 billion to $2.5 billion. There were no commercial paper borrowings outstanding at December
31, 2022 and December 31, 2021, respectively. The outstanding balance of commercial paper borrowings is
recorded in Other current liabilities in the consolidated statements of financial position.
Credit Facility
In August 2022, the company entered into a new five-year senior unsecured credit facility in an aggregate principal
amount of $2.5 billion (the “2022 Credit Agreement”). The 2022 Credit Agreement replaced the company’s prior
five-year, $2.0 billion revolving credit facility entered into on August 17, 2018 and as amended on October 17,
2019. The revolving credit facility established under the 2022 Credit Agreement is intended to support the
company’s commercial paper program and other general corporate purposes. Commercial paper borrowings reduce
the amount available for borrowing under the 2022 Credit Agreement. At December 31, 2022, there were no
borrowings outstanding under this facility.
The 2022 Credit Agreement contains generally customary terms and conditions, including covenants restricting the
company’s ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake
other fundamental changes and incur liens. The company also cannot permit the ratio of its debt to capitalization (as
set forth in the credit agreement) to exceed 65 percent. At December 31, 2022, the company was in compliance with
all covenants under its credit agreement.
Unsecured Senior Notes
Repayments of Senior Notes
In March 2021, the company repaid $700 million of 3.50 percent unsecured notes upon maturity.
In March 2021, the company redeemed $1.5 billion of 2.55 percent unsecured notes due October 2022. The
company recorded a pre-tax charge of $54 million principally related to the premium paid on the redemption, which
was recorded in Other, net in the unaudited condensed consolidated statements of earnings and comprehensive
income.
Debt Exchange
On September 2, 2021, the company completed an exchange offer to eligible holders of the outstanding notes of our
direct wholly owned subsidiary, Northrop Grumman Systems Corporation (“NGSC”), maturing through 2036. An
aggregate principal amount of $422 million of the NGSC notes was exchanged for $422 million of unregistered
Northrop Grumman Corporation notes (the “Unregistered Notes”) with the same interest rates and maturity dates as
the NGSC notes exchanged.
On June 15, 2022, the company completed a registered exchange offer pursuant to which the company exchanged an
aggregate principal amount of $414 million of the Unregistered Notes for $414 million of new notes registered
under the Securities Act of 1933, as amended, (the “Registered Notes”) with the same interest rates and maturity
dates as the Unregistered Notes.
Because the debt instruments were not substantially different in either of the exchange offers, both exchanges were
treated as debt modifications for accounting purposes with no gain or loss recognized.
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NORTHROP GRUMMAN CORPORATION
Long-term debt consists of the following:
$ in millions
Fixed-rate notes and debentures, maturing in
2023
2025
2026
2027
2028
2030
2031
2040
2043
2045
2047
2050
Other
Debt issuance costs
Total long-term debt
Less: current portion(1)
Long-term debt, net of current portion
Interest rate
3.25%
2.93%
7.75% - 7.88%
3.20%
3.25%
4.40%
7.75%
5.05% - 5.15%
4.75%
3.85%
4.03%
5.25%
Various
December 31
2022
2021
$
1,050
1,500
527
750
2,000
750
466
800
950
600
2,250
1,000
293
(59)
12,877
1,072
$ 11,805
$
1,050
1,500
527
750
2,000
750
466
800
950
600
2,250
1,000
205
(65)
12,783
6
$ 12,777
(1) The current portion of long-term debt is recorded in Other current liabilities in the consolidated statements of financial
position.
The estimated fair value of long-term debt was $12.1 billion and $15.1 billion as of December 31, 2022 and 2021,
respectively. We calculated the fair value of long-term debt using Level 2 inputs, based on interest rates available for
debt with terms and maturities similar to the company’s existing debt arrangements.
Indentures underlying long-term debt issued by the company or its subsidiaries contain various restrictions with
respect to the issuer, including one or more restrictions relating to limitations on liens, sale-leaseback arrangements
and funded debt of subsidiaries. The majority of these fixed rate notes and debentures are subject to redemption at
the company’s discretion at any time prior to maturity in whole or in part at the principal amount plus any make-
whole premium and accrued and unpaid interest. Interest on these fixed rate notes and debentures are payable semi-
annually in arrears.
Total interest payments, net of interest received, were $474 million, $570 million and $572 million for the years
ended December 31, 2022, 2021 and 2020, respectively.
Maturities of long-term debt as of December 31, 2022, are as follows:
$ in millions
Year Ending December 31
2023
2024
2025
2026
2027
Thereafter
Total principal payments
Unamortized premium on long-term debt, net of discount
Debt issuance costs
Total long-term debt
-73-
$ 1,072
67
1,521
530
753
9,006
12,949
(13)
(59)
$ 12,877
NORTHROP GRUMMAN CORPORATION
11. INVESTIGATIONS, CLAIMS AND LITIGATION
On May 4, 2012, the company commenced an action, Northrop Grumman Systems Corp. v. United States, in the
U.S. Court of Federal Claims. This lawsuit related to an approximately $875 million firm fixed-price contract
awarded to the company in 2007 by the U.S. Postal Service (USPS) for the construction and delivery of flats
sequencing systems (FSS) as part of the postal automation program. The FSS were delivered. The company’s
lawsuit sought approximately $63 million for unpaid portions of the contract price, and approximately $115 million
based on the company’s assertions that, through various acts and omissions over the life of the contract, the USPS
adversely affected the cost and schedule of performance and materially altered the company’s obligations under the
contract. The United States responded to the company’s complaint with an answer, denying most of the company’s
claims, and counterclaims seeking approximately $410 million, primarily for delay and lost savings. On February 3,
2020, after extensive discovery and motions practice, the parties commenced what was expected to be a seven-week
trial. After COVID-19-related interruptions, trial concluded on March 5, 2021. On June 27, 2022, the judge issued a
decision in the company’s favor. On July 18, 2022, the government filed a motion for reconsideration. On October
17, 2022, the court denied the government’s motion for reconsideration and on October 19, 2022, the court entered
judgment in the company’s favor. On November 9, 2022, the Postal Service paid the company the full judgment
amount of approximately $83 million. Neither party appealed prior to the December 19, 2022 deadline.
The company is engaged in remediation activities relating to environmental conditions allegedly resulting from
historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. For over 20
years, the company has worked closely with the United States Navy, the United States Environmental Protection
Agency, the New York State Department of Environmental Conservation (NYSDEC), the New York State
Department of Health and other federal, state and local governmental authorities, to address legacy environmental
conditions in Bethpage. In December 2019, the State of New York issued an Amended Record of Decision seeking
to impose additional remedial requirements beyond measures the company previously had been taking; the State
also communicated that it was assessing potential natural resource damages. In December 2020, the parties reached
a tentative agreement regarding the steps the company would take to implement the State’s Amended Record of
Decision and to resolve certain potential other claims, including for natural resource damages. On September 22,
2021, the State of New York issued for public comment a new consent decree reflecting the agreement. On
December 7, 2021, the public comment period closed. On August 3, 2022, the court approved the consent decree.
We have also reached agreements with the Department of Defense and the Bethpage and South Farmingdale Water
Districts to resolve claims involving these parties. Those agreements have also been approved by the courts as
necessary. The company continues to be involved in related disputes with the Towns of Oyster Bay and Hempstead.
We have incurred, and expect to continue to incur, as included in Note 12, substantial remediation costs related to
the legacy Bethpage environmental conditions. It is also possible that applicable remediation standards and other
requirements to which we are subject may continue to change, and that our costs may increase materially. In
addition to disputes and legal proceedings related to environmental conditions and remediation at the site, we are a
party to various individual lawsuits and a putative class action alleging personal injury and property damage in the
Eastern District of New York. The filed individual lawsuits have been stayed, pending a court decision on class
certification. We are also a party, and may become a party, to other lawsuits brought by or against insurance carriers,
and by other individual plaintiffs and/or putative classes, as well as other parties. We cannot at this time predict or
reasonably estimate the potential cumulative outcomes or ranges of possible liability of these Bethpage lawsuits.
In June 2018, the FTC issued a Decision and Order enabling the company’s acquisition of OATK to proceed and
providing generally for the company to continue to make solid rocket motors available to competing missile primes
on a non-discriminatory basis. The company has taken and continues to take robust actions to help ensure
compliance with the terms of the Order. Similarly, the Compliance Officer, appointed under the Order, and the FTC
have taken and continue to take various actions to oversee compliance. In October 2019, the company received a
civil investigative demand (CID) from the FTC requesting certain information relating to a potential issue regarding
the company’s compliance with the Order in connection with a then pending missile competition. The company
promptly provided information in response to the request. In late 2021, the company resumed discussions with staff
at the FTC regarding our response and their views on compliance issues. More recently, the company received and is
responding to a follow-on CID. We cannot predict the outcome of those discussions, but we do not believe they are
likely to have a material adverse effect on the company’s consolidated financial position as of December 31, 2022,
or its annual results of operations and/or cash flows. We believe the company has been and continues to be in
compliance with the Order.
On December 9, 2022, the company received from the U.S. Department of Justice (DOJ) a criminal subpoena
seeking information regarding financial and cost accounting and controls that appears focused on the interest rate
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NORTHROP GRUMMAN CORPORATION
assumptions the company used to determine our CAS pension expense, which we have previously discussed in Note
12 below. The company has begun discussions with DOJ regarding the scope of the subpoena and is preparing to
respond to it. We cannot at this point predict the outcome of this matter.
The company is a party to various other investigations, lawsuits, arbitration, claims, enforcement actions and other
legal proceedings, including government investigations and claims, that arise in the ordinary course of our business.
The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based
on information available to the company to date, the company does not believe that the outcome of any of these
other matters pending against the company is likely to have a material adverse effect on the company’s consolidated
financial position as of December 31, 2022, or its annual results of operations and/or cash flows.
12. COMMITMENTS AND CONTINGENCIES
U.S. Government Cost Claims and Contingencies
From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed
costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government
representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to
assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated
exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent
information available. The company believes it has adequately reserved for disputed amounts that are probable and
reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its
consolidated financial position as of December 31, 2022, or its annual results of operations and/or cash flows.
In 2019, the Defense Contract Management Agency (DCMA) raised questions about an interest rate assumption
used by the company to determine our CAS pension expense. On June 1, 2020, DCMA provided written notice that
the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS. We
submitted a formal response on July 31, 2020, which we believed demonstrates the appropriateness of the
assumptions used. On November 24, 2020, DCMA replied to the company’s response, disagreeing with our position
and requesting additional input, which we provided on February 22, 2021. We continued to exchange
correspondence and engage with DCMA and DoD on this matter, including responding to requests for and providing
additional information. As noted in Note 11 above, on December 8, 2022, the U.S. Department of Justice (DOJ)
issued to the company a criminal subpoena seeking information that appears related to the interest rate assumptions
at issue in our discussions with DCMA. The company has begun discussions with DOJ regarding the scope of the
subpoena and is preparing to respond to it. We cannot at this point predict the outcome of this matter. The company
is also continuing to engage with DCMA/DoD. As previously described, the sensitivity to changes in interest rate
assumptions makes it reasonably possible the outcome of the DCMA matter could have a material adverse effect on
our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range
of any potential loss.
B-21 Low-Rate Initial Production Options
In 2015, the U.S. Air Force awarded to Northrop Grumman the B-21 contract, including a base contract for
engineering, manufacturing, and design (EMD) and five low-rate initial production (LRIP) options. The EMD phase
of the program is largely cost type and began at contract award. The LRIP options are largely fixed price and are
expected to be awarded and executed over the next decade. In the fourth quarter of 2022, we updated our estimated
cost to complete the LRIP phase of the B-21 program. Principally due to the company’s latest estimate of the impact
macroeconomic factors may have on our cost to complete the LRIP options, as well as ongoing discussions with our
suppliers and our customer, we now believe it is reasonably possible one or more of the LRIP options could be
performed at a loss and the range of such loss across the five LRIP options is between $0 and $1.2 billion. As we do
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NORTHROP GRUMMAN CORPORATION
not currently believe a loss is probable on any of the LRIP options, we have not recognized any such loss in our
financial results for the period ended December 31, 2022.
Environmental Matters
The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the
amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be
recoverable through overhead charges on U.S. government contracts as of December 31, 2022 and 2021:
$ in millions
December 31, 2022
December 31, 2021
Reasonably Possible
Future Costs in
Excess of Accrued
Costs(2)
Accrued
Costs(1)(2)
Deferred
Costs(3)
$
$
565
572
$
353
363
486
486
(1) As of December 31, 2022, $198 million is recorded in Other current liabilities and $367 million is recorded in Other non-
current liabilities.
(2) Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued
costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government
contracts.
(3) As of December 31, 2022, $180 million is deferred in Prepaid expenses and other current assets and $306 million is deferred in
Other non-current assets. These amounts are evaluated for recoverability on a routine basis.
Although management cannot predict whether (i) new information gained as our environmental remediation projects
progress, (ii) changes in remediation standards or other requirements to which we are subject, or (iii) other changes
in facts and circumstances will materially affect the estimated liability accrued, we do not anticipate that future
remediation expenditures associated with our currently identified projects will have a material adverse effect on the
company’s consolidated financial position as of December 31, 2022, or its annual results of operations and/or cash
flows.
Financial Arrangements
In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial
banks and surety bonds issued principally by insurance companies to guarantee the performance on certain
obligations. At December 31, 2022, there were $373 million of stand-by letters of credit and guarantees and $77
million of surety bonds outstanding.
Indemnifications
The company has provided indemnifications for certain environmental, income tax and other potential liabilities in
connection with certain of its divestitures. The settlement of these liabilities is not expected to have a material
adverse effect on the company’s consolidated financial position as of December 31, 2022, or its annual results of
operations and/or cash flows.
13. RETIREMENT BENEFITS
Plan Descriptions
U.S. Defined Benefit Pension Plans – The company sponsors several defined benefit pension plans in the U.S.
Pension benefits for most participants are based on years of service, age and compensation. It is our policy to fund at
least the minimum amount required for qualified plans, using actuarial cost methods and assumptions acceptable
under U.S. government regulations, by making payments into benefit trusts separate from the company.
U.S. Defined Contribution Plans – The company also sponsors defined contribution plans covering the majority of
its employees, including certain employees covered under collective bargaining agreements. Company contributions
vary depending on date of hire, with a majority of employees being eligible for employer matching of employee
contributions. Based on date of hire, certain employees are eligible to receive a company non-elective contribution
or an enhanced matching contribution in lieu of a defined benefit pension plan benefit. The company’s contributions
to these defined contribution plans for the years ended December 31, 2022, 2021 and 2020, were $558 million, $588
million and $590 million, respectively.
Non-U.S. Benefit Plans – The company sponsors several benefit plans for non-U.S. employees. These plans are
designed to provide benefits appropriate to local practice and in accordance with local regulations. Some of these
plans are funded using benefit trusts separate from the company.
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NORTHROP GRUMMAN CORPORATION
Medical and Life Benefits – The company funds a portion of the costs for certain health care and life insurance
benefits for a substantial number of its active and retired employees. In addition to a company and employee cost-
sharing feature, the health plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-
pocket limits, conformance to a schedule of reasonable fees, the use of managed care providers and coordination of
benefits with other plans. The plans also provide for a Medicare carve-out. The company reserves the right to amend
or terminate the plans at any time.
Certain covered employees and dependents are eligible to participate in plans upon retirement if they meet specified
age and years of service requirements. The company provides subsidies to reimburse certain retirees for a portion of
the cost of individual Medicare-supplemental coverage purchased directly by the retiree through a private insurance
exchange. The company has capped the amount of its contributions for substantially all of its remaining
postretirement medical and life benefit plans. In addition, after January 1, 2005 (or earlier at some businesses),
newly hired employees are not eligible for subsidized postretirement medical and life benefits.
Summary Plan Results
The cost to the company of its retirement benefit plans is shown in the following table:
$ in millions
Components of net periodic benefit cost
(benefit)
Year Ended December 31
Pension Benefits
2021
2020
2022
Medical and Life Benefits
2020
2021
2022
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service (credit) cost
Mark-to-market (benefit) expense
Other
$
$
367
1,136
(2,641)
—
(1,262)
—
$
414
1,054
(2,512)
(9)
(1,921)
(1)
Net periodic benefit cost (benefit)
$ (2,400) $ (2,975) $
409
1,226
(2,376)
(59)
1,034
10
244
$
$
$
9
47
(110)
(1)
30
—
(25) $
$
16
53
(105)
(1)
(434)
—
(471) $
17
67
(102)
4
—
2
(12)
The table below summarizes the components of changes in unamortized prior service credit (cost) for the years
ended December 31, 2020, 2021 and 2022:
$ in millions
Changes in unamortized prior service credit (cost)
Amortization of prior service credit (cost)
Tax expense
Change in unamortized prior service credit (cost) – 2020
Amortization of prior service credit (cost)
Tax expense
Change in unamortized prior service credit (cost) – 2021
Amortization of prior service credit (cost)
Tax expense
Change in unamortized prior service credit (cost) – 2022
Pension
Benefits
Medical and
Life Benefits
Total
$
$
$
59
(15)
44
9
(2)
7
—
—
— $
(4) $
1
(3)
1
—
1
1
—
1
$
55
(14)
41
10
(2)
8
1
—
1
The following table sets forth the funded status and amounts recognized in the consolidated statements of financial
position for the company’s defined benefit retirement plans. Pension benefits data includes the qualified plans,
foreign plans and U.S. unfunded non-qualified plans for benefits provided to directors, officers and certain
employees. The company uses a December 31 measurement date for its plans.
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NORTHROP GRUMMAN CORPORATION
$ in millions
Plan Assets
Fair value of plan assets at beginning of year
Net (loss) gain on plan assets
Employer contributions
Participant contributions
Benefits paid
Other
Fair value of plan assets at end of year
Projected Benefit Obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Actuarial loss
Benefits paid
Other
Projected benefit obligation at end of year
Funded status
Pension Benefits
2021
2022
Medical and
Life Benefits
2022
2021
$
$ 36,236
(5,422)
101
7
(1,973)
(29)
28,920
$ 34,452
3,637
104
8
(1,964)
(1)
36,236
38,888
367
1,136
7
(9,325)
(1,973)
(33)
29,067
40,182
414
1,054
8
(794)
(1,964)
(12)
38,888
$
1,588
(257)
35
24
(164)
—
1,226
1,685
9
47
24
(337)
(164)
—
1,264
$
(147) $ (2,652) $
(38) $
1,515
170
37
23
(157)
—
1,588
2,119
16
53
23
(369)
(157)
—
1,685
(97)
The decrease in the fair value of our plan assets for the year ended December 31, 2022 was principally driven by
losses of 15.4 percent on plan assets and $2.1 billion of benefit payments. The decrease in our projected benefit
obligation for the year ended December 31, 2022, was primarily driven by a 256 basis point increase in the discount
rate from year end 2021 and $2.1 billion of benefit payments, partially offset by $1.2 billion of interest cost.
$ in millions
Classification of amounts recognized in the consolidated
statements of financial position
Non-current assets
Current liability
Non-current liability
Pension Benefits
Medical and
Life Benefits
2022
2021
2022
2021
$
982
$
462
$
240
$
(177)
(952)
(182)
(2,932)
(42)
(236)
285
(45)
(337)
The accumulated benefit obligation for all defined benefit pension plans was $28.8 billion and $38.3 billion at
December 31, 2022 and 2021, respectively.
Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows:
$ in millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
December 31
2022
$
$
1,126
1,117
2
2021
36,524
35,994
33,410
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NORTHROP GRUMMAN CORPORATION
Plan Assumptions
On a weighted-average basis, the following assumptions were used to determine benefit obligations at December 31
of each year and net periodic benefit cost for the following year:
Discount rate
Expected long-term return on plan assets
Initial cash balance crediting rate assumed for the
next year
Rate to which the cash balance crediting rate is
assumed to increase/decrease (the ultimate rate)
Year that the cash balance crediting rate reaches
the ultimate rate
Rate of compensation increase
Initial health care cost trend rate assumed for the
next year
Rate to which the health care cost trend rate is
assumed to decline (the ultimate trend rate)
Year that the health care cost trend rate reaches
the ultimate trend rate
Pension Benefits
2021
2022
5.54 % 2.98 % 2.68 % 5.57 % 2.93 % 2.58 %
7.50 % 7.50 % 7.50 % 7.23 % 7.19 % 7.22 %
2020
Medical and Life Benefits
2020
2021
2022
3.96 % 2.25 % 2.25 %
3.88 % 2.25 % 2.25 %
2028
2026
2027
3.00 % 3.00 % 3.00 %
6.50 % 5.30 % 5.60 %
5.00 % 5.00 % 5.00 %
2028
2023
2023
Plan Assets and Investment Policy
Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and
investment return over the long term. Through consultation with our investment management team and outside
investment advisers, management develops expected long-term returns for each of the plans’ strategic asset classes.
In doing so, we consider a number of factors, including our historical investment performance, current market data
such as yields/price-earnings ratios, historical market returns over long periods and periodic surveys of investment
managers’ expectations. Liability studies are conducted on a regular basis to provide guidance in setting investment
goals with an objective to balance risk. Risk targets are established and monitored against acceptable ranges.
Our investment policies and procedures are designed to ensure the plans’ investments are in compliance with
ERISA. Guidelines are established defining permitted investments within each asset class. Derivatives are used for
transitioning assets, asset class rebalancing, managing currency risk and for management of fixed-income and
alternative investments.
For the majority of the plans’ assets, the investment policies require that the asset allocation be maintained within
the following ranges as of December 31, 2022:
Cash and cash equivalents
Global public equities
Fixed-income securities
Alternative investments
Asset Allocation Ranges
0% - 12%
24% - 44%
31% - 51%
14% - 34%
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NORTHROP GRUMMAN CORPORATION
The table below provides the fair values of the company’s pension and Voluntary Employees’ Beneficiary
Association (VEBA) trust plan assets at December 31, 2022 and 2021, by asset category. The table also identifies
the level of inputs used to determine the fair value of assets in each category. See Note 1 for the definitions of these
levels. Certain investments that are measured at fair value using NAV per share (or its equivalent) as a practical
expedient are not required to be categorized in the fair value hierarchy table. The total fair value of these
investments is included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in
the funded status table. As of December 31, 2022 and 2021, there were no investments expected to be sold at a value
materially different than NAV.
$ in millions
Asset category
Cash and cash equivalents
U.S. equities
International equities
Fixed-income securities
U.S. Treasuries
U.S. Government Agency
Non-U.S. Government
Corporate debt
Asset backed
High yield debt
Bank loans
Other assets
Investments valued using
NAV as a practical expedient
U.S. equities
International equities
Fixed-income funds
Hedge funds
Opportunistic investments
Private equity funds
Real estate funds
Payables, net
Fair value of plan assets at
the end of the year
Level 1
Level 2
Level 3
Total
2022
2021
2022
2021
2022
2021
2022
2021
$
115
$
119
$ 1,076
$ 2,268
$ 1,191
$ 2,387
2,138
1,784
3,085
3,105
22
21
28
12
30
19
33
1
2
$ — $
3
2,977
145
172
4,717
353
19
13
2
2,815
180
277
5,501
987
31
21
57
2
2
2,139
1,784
2,999
145
172
4,745
353
31
13
4
1,043
3,904
2,569
44
2,983
3,299
2,753
(25)
3,087
3,108
2,836
180
277
5,531
987
50
21
92
1,652
6,849
1,461
63
3,039
3,535
2,742
(73)
$ 4,099
$ 6,412
$ 9,475
$ 12,139
$
2
$
5
$ 30,146
$ 37,824
There were no transfers of plan assets into or out of Level 3 of the fair value hierarchy during the years ended
December 31, 2022 and 2021.
Generally, investments are valued based on information in financial publications of general circulation, statistical
and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide
offers. Cash and cash equivalents are predominantly held in money market or short-term investment funds. U.S. and
international equities consist primarily of common stocks and institutional common trust funds. Investments in
certain equity securities, which include domestic and international securities and registered investment companies,
and exchange-traded funds with fixed income strategies are valued at the last reported sales or quoted price on the
last business day of the reporting period. Fair values for certain fixed-income securities, which are not exchange-
traded, are valued using third-party pricing services.
Other assets include derivative assets with a fair value of $71 million and $78 million, derivative liabilities with a
fair value of $117 million and $38 million, and net notional amounts of $3.2 billion and $3.7 billion, as of December
31, 2022 and 2021, respectively. Derivative instruments may include exchange traded futures contracts, interest rate
swaps, options on futures and swaps, currency contracts, total return swaps and credit default swaps. Notional
amounts do not quantify risk or represent assets or liabilities of the pension and VEBA trusts, but are used in the
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NORTHROP GRUMMAN CORPORATION
calculation of cash settlement under the contracts. The volume of derivative activity is commensurate with the
amounts disclosed at year-end. Certain derivative financial instruments within the pension trust are subject to master
netting agreements with certain counterparties.
Investments in certain equity and fixed-income funds, which include common/collective trust funds, and alternative
investments, including hedge funds, opportunistic investments, private equity funds and real estate funds, are valued
based on the NAV derived by the investment managers, as a practical expedient, and are described further below.
U.S. and International equities: Generally, redemption periods are daily, monthly or quarterly with a notice
requirement less than 90 days. As of December 31, 2022, there were no unfunded commitments. As of December
31, 2021, unfunded commitments were $100 million.
Fixed-income funds: Generally, redemption periods are daily, monthly or quarterly with a notice requirement of two
days. There were no unfunded commitments as of December 31, 2022 and 2021.
Hedge funds: Consist of closed-end funds with a 5-10 year life as well as funds that allow redemption requests
subject to the liquidity limitations of the underlying investments. As of December 31, 2022 and 2021, unfunded
commitments were $6 million.
Opportunistic investments: Primarily held in partnerships with a 5-10 year life. As of December 31, 2022 and 2021,
unfunded commitments were $1.5 billion and $1.7 billion, respectively.
Private equity funds: The term of each fund is typically 10 or more years and the fund’s investors do not have an
option to redeem their interest in the fund. As of December 31, 2022 and 2021, unfunded commitments were $2.0
billion and $2.1 billion, respectively.
Real estate funds: Consist primarily of open-end funds that generally allow investors to redeem their interests in the
funds. Certain closed-end real estate funds have terms of 10 or more years. As of December 31, 2022 and 2021,
unfunded commitments were $44 million and $350 million, respectively.
For the years ended December 31, 2022 and 2021, the defined benefit pension and VEBA trusts did not hold any
Northrop Grumman common stock.
Benefit Payments
The following table reflects estimated future benefit payments for the next ten years, based upon the same
assumptions used to measure the benefit obligation, and includes expected future employee service, as of December
31, 2022:
$ in millions
Year Ending December 31
2023
2024
2025
2026
2027
2028 through 2032
Pension Plans
Medical and
Life Plans
Total
$
$
1,949
2,001
2,041
2,077
2,108
10,717
$
139
141
135
112
107
474
2,088
2,142
2,176
2,189
2,215
11,191
In 2023, the company expects to contribute the required minimum funding of approximately $100 million to its
pension plans and approximately $36 million to its medical and life benefit plans. During the year ended December
31, 2022, the company made no discretionary pension contributions.
14. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS
Stock Compensation Plans
At December 31, 2022, the company had stock-based compensation awards outstanding under the following
shareholder-approved plans: the 2011 Long-Term Incentive Stock Plan (2011 Plan), applicable to employees and
non-employee directors, and the 1993 Stock Plan for Non-Employee Directors (1993 SPND).
Employee Plans – In May 2015, the company’s shareholders approved amendments to the 2011 Plan. These
amendments provided that shares issued under the plan would be counted against the aggregate share limit on a one-
for-one basis. As amended, 5.1 million shares plus 2.4 million of newly authorized shares were available for
issuance under the 2011 Plan; as of December 31, 2022, 4.6 million shares remain available for issuance.
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NORTHROP GRUMMAN CORPORATION
The 2011 Plan provides for the following equity awards: stock options, stock appreciation rights (SARs) and stock
awards. Under the 2011 Plan, no SARs have been granted and there are no outstanding stock options. Stock awards
include restricted performance stock rights (RPSR) and restricted stock rights (RSR). RPSRs generally vest and are
paid following the completion of a three-year performance period, based primarily on achievement of certain
performance metrics determined by the Board. RSRs generally vest 100% after three years. Each includes dividend
equivalents, which are paid concurrently with the RPSR or RSR. The terms of equity awards granted under the 2011
Plan provide for accelerated vesting, and in some instances forfeiture, of all or a portion of an award upon
termination of employment.
Non-Employee Director Plans – Awards to non-employee directors are made pursuant to the Northrop Grumman
Corporation Equity Grant Program for Non-Employee Directors under the 2011 Plan (the Director Program), which
was amended and restated effective January 1, 2016. Under the amended Director Program, each non-employee
director is awarded an annual equity grant in the form of Automatic Stock Units, which vest on the one-year
anniversary of the grant date. Directors may elect to have all or any portion of their Automatic Stock Units paid on
(A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from
service as a member of the Board, or (B) on the vesting date.
Directors also may elect to defer to a later year all or a portion of their remaining cash retainer or committee retainer
fees into a stock unit account as Elective Stock Units or in alternative investment options. Elective Stock Units are
awarded on a quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the
earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the
Board. Stock units awarded under the Director Program are paid out in an equivalent number of shares of Northrop
Grumman common stock. Directors are credited with dividend equivalents in connection with the accumulated stock
units until the shares of common stock relating to such stock units are issued.
Compensation Expense
Stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020 was $99 million, $94
million and $90 million, respectively. The related tax benefits (deficiencies) for stock-based compensation for the
years ended December 31, 2022, 2021 and 2020 were $10 million, $(2) million and $14 million, respectively.
At December 31, 2022, there was $97 million of unrecognized compensation expense related to unvested stock
awards granted under the company’s stock-based compensation plans. These amounts are expected to be charged to
expense over a weighted-average period of 1.3 years.
Stock Awards
Compensation expense for stock awards is measured at the grant date based on the fair value of the award and is
recognized over the vesting period (generally three years). The fair value of stock awards and performance stock
awards is determined based on the closing market price of the company’s common stock on the grant date. The fair
value of market-based stock awards is determined at the grant date using a Monte Carlo simulation model. For
purposes of measuring compensation expense for performance awards, the number of shares ultimately expected to
vest is estimated at each reporting date based on management’s expectations regarding the relevant performance
criteria.
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NORTHROP GRUMMAN CORPORATION
Stock award activity for the years ended December 31, 2020, 2021 and 2022, is presented in the table below. Vested
awards do not include any adjustments to reflect the final performance measure for issued shares.
Outstanding at January 1, 2020
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Granted
Vested
Forfeited
Outstanding at December 31, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Stock
Awards
(in thousands)
Weighted-
Average
Grant Date
Fair Value
Per Share
Weighted-
Average
Remaining
Contractual
Term (in years)
701
262
(296)
(64)
603
304
(269)
(58)
580
238
(226)
(31)
561
$
$
$
$
278
350
305
303
311
296
286
318
314
397
327
320
344
0.9
1.4
1.4
1.4
The majority of our stock awards are granted annually during the first quarter.
The grant date fair value of shares issued in settlement of fully vested stock awards was $93 million, $103 million
and $118 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Cash Awards
The company grants certain employees cash units (CUs) and cash performance units (CPUs). Depending on actual
performance against financial objectives, recipients of CPUs earn between 0 and 200 percent of the original grant.
The following table presents the minimum and maximum aggregate payout amounts related to those cash awards
granted for the periods presented:
$ in millions
Minimum aggregate payout amount
Maximum aggregate payout amount
Year Ended December 31
2022
2021
2020
$
32 $
183
31 $
178
31
175
The majority of our cash awards are granted annually during the first quarter. CUs typically vest and settle in cash
on the third anniversary of the grant date, while CPUs generally vest and pay out in cash based primarily on the
achievement of certain performance metrics over a three-year period. At December 31, 2022, there was $119 million
of unrecognized compensation expense related to cash awards.
-83-
320
28
93
441
1,655
284
1,590
1,874
NORTHROP GRUMMAN CORPORATION
15. LEASES
Total Lease Cost
Total lease cost is included in Product and Service costs in the consolidated statement of earnings and
comprehensive income and is recorded net of immaterial sublease income. Total lease cost is comprised of the
following:
$ in millions
Operating lease cost
Variable lease cost
Short-term lease cost
Total lease cost
Year Ended December 31
2022
2021
2020
$
$
332 $
35
51
418 $
315 $
31
80
426 $
Supplemental Balance Sheet Information
Supplemental operating lease balance sheet information consists of the following:
$ in millions
Operating lease right-of-use assets
Other current liabilities
Operating lease liabilities
Total operating lease liabilities
Year Ended December 31
2022
2021
$
$
1,811 $
299
1,824
2,123 $
Other Supplemental Information
Other supplemental operating lease information consists of the following:
$ in millions
Cash paid for amounts included in the measurement of operating
lease liabilities
Right-of-use assets obtained in exchange for new lease liabilities
$
Weighted average remaining lease term
Weighted average discount rate
Year Ended December 31
2022
2021
$
316
438
306
394
11.2 years
3.4 %
11.3 years
3.1 %
Maturities of Lease Liabilities
Maturities of operating lease liabilities as of December 31, 2022 are as follows:
$ in millions
Year Ending December 31
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
$
$
351
320
279
238
188
1,263
2,639
(516)
2,123
As of December 31, 2022, we have approximately $82 million in rental commitments for real estate leases that have
not yet commenced. These leases are expected to commence in 2023 and 2024 with lease terms of 4 to 12 years.
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NORTHROP GRUMMAN CORPORATION
16. SEGMENT INFORMATION
The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics
Systems, Defense Systems, Mission Systems and Space Systems.
The following table presents sales and operating income by segment:
$ in millions
Sales
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Intersegment eliminations
Total sales
Operating income
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Intersegment eliminations
Total segment operating income
FAS/CAS operating adjustment
Unallocated corporate (expense) income
Total operating income
Year Ended December 31
2021
2020
2022
$ 10,531
5,579
10,396
12,275
(2,179)
36,602
$ 11,259
5,776
10,134
10,608
(2,110)
35,667
$ 12,169
7,543
10,080
8,744
(1,737)
36,799
1,116
664
1,618
1,158
(303)
4,253
(200)
(452)
3,601
$
1,093
696
1,579
1,121
(272)
4,217
130
1,304
5,651
$
1,206
846
1,459
893
(216)
4,188
418
(541)
4,065
$
FAS/CAS Operating Adjustment
For financial statement purposes, we account for our employee pension plans in accordance with FAS. However, the
cost of these plans is charged to our contracts in accordance with applicable FAR and CAS requirements. The FAS/
CAS operating adjustment, previously referred to as the net FAS (service)/CAS pension adjustment, reflects the
difference between CAS pension expense included as cost in segment operating income and the service cost
component of FAS expense included in total operating income.
Unallocated Corporate (Expense) Income
Unallocated corporate (expense) income includes the portion of corporate costs not considered allowable or
allocable under the applicable FAR and CAS requirements, and therefore not allocated to the segments, such as
changes in deferred state income taxes and a portion of management and administration, legal, environmental,
compensation, retiree benefits, advertising and other corporate unallowable costs. Unallocated corporate (expense)
income also includes costs not considered part of management’s evaluation of segment operating performance, such
as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair
value of property, plant and equipment acquired through business combinations, as well as certain compensation and
other costs.
During the first quarter of 2021, the $2.0 billion pre-tax gain on the sale of our IT services business and $192 million
of unallowable state taxes and transaction costs associated with the divestiture were recorded in Unallocated
corporate (expense) income.
-85-
NORTHROP GRUMMAN CORPORATION
Disaggregation of Revenue
Sales by Customer Type
$ in millions
Aeronautics Systems
U.S. government (1)
International (2)
Other customers
Intersegment sales
Aeronautics Systems sales
Defense Systems
U.S. government (1)
International (2)
Other customers
Intersegment sales
Defense Systems sales
Mission Systems
U.S. government (1)
International (2)
Other customers
Intersegment sales
Mission Systems sales
Space Systems
U.S. government (1)
International (2)
Other customers
Intersegment sales
Space Systems sales
Total
U.S. government (1)
International (2)
Other customers
Total Sales
Year Ended December 31
2022
2021
2020
$
%(3)
$
%(3)
$
%(3)
$
8,930
85 % $
9,631
85 % $ 10,411
1,344
18
239
10,531
3,344
1,358
71
806
13 %
— %
1,421
18
2 %
189
100 % 11,259
61 %
24 %
1 %
14 %
3,595
1,317
75
789
13 %
— %
2 %
100 %
62 %
23 %
1 %
14 %
1,595
41
122
12,169
5,103
1,317
395
728
86 %
13 %
— %
1 %
100 %
68 %
17 %
5 %
10 %
5,579
100 %
5,776
100 %
7,543
100 %
7,471
1,809
101
1,015
10,396
72 %
17 %
1 %
7,223
1,846
72
10 %
993
100 % 10,134
71 %
18 %
1 %
10 %
100 %
7,279
1,945
77
779
10,080
72 %
19 %
1 %
8 %
100 %
11,578
94 %
9,885
93 %
8,110
93 %
337
241
119
3 %
2 %
1 %
398
186
139
4 %
2 %
1 %
331
195
108
4 %
2 %
1 %
12,275
100 % 10,608
100 %
8,744
100 %
31,323
4,848
431
$ 36,602
86 % 30,334
4,982
13 %
1 %
351
100 % $ 35,667
85 %
14 %
30,903
5,188
1 %
708
100 % $ 36,799
84 %
14 %
2 %
100 %
(1) Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we
are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial
revenue from the U.S. government.
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a
subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted
through the U.S. government.
(3) Percentages calculated based on total segment sales.
-86-
NORTHROP GRUMMAN CORPORATION
Sales by Contract Type
Year Ended December 31
$ in millions
Aeronautics Systems
Cost-type
Fixed-price
Intersegment sales
Aeronautics Systems sales
Defense Systems
Cost-type
Fixed-price
Intersegment sales
Defense Systems sales
Mission Systems
Cost-type
Fixed-price
Intersegment sales
Mission Systems sales
Space Systems
Cost-type
Fixed-price
Intersegment sales
Space Systems sales
Total
Cost-type
Fixed-price
Total Sales
2022
2021
2020
$
%(1)
$
%(1)
$
%(1)
$
5,013
49 % $
5,419
49 % $
6,142
5,279
239
10,531
1,497
3,276
806
5,579
3,622
5,759
1,015
10,396
8,579
3,577
119
12,275
51 %
31 %
69 %
39 %
61 %
71 %
29 %
5,651
189
11,259
1,739
3,248
789
5,776
3,139
6,002
993
10,134
7,731
2,738
139
10,608
51 %
35 %
65 %
34 %
66 %
74 %
26 %
5,905
122
12,169
2,345
4,470
728
7,543
3,582
5,719
779
10,080
6,369
2,267
108
8,744
51 %
49 %
34 %
66 %
39 %
61 %
74 %
26 %
18,711
17,891
$ 36,602
51 % 18,028
49 % 17,639
51 %
49 %
18,438
18,361
50 %
50 %
$ 35,667
$ 36,799
(1) Percentages calculated based on external customer sales.
-87-
NORTHROP GRUMMAN CORPORATION
Sales by Geographic Region
Year Ended December 31
2022
2021
2020
$
%(2)
$
%(2)
$
%(2)
$ in millions
Aeronautics Systems
United States
Asia/Pacific
Europe
All other (1)
Intersegment sales
Aeronautics Systems sales
Defense Systems
United States
Asia/Pacific
Europe
All other (1)
Intersegment sales
Defense Systems sales
Mission Systems
United States
Asia/Pacific
Europe
All other (1)
Intersegment sales
Mission Systems sales
Space Systems
United States
Asia/Pacific
Europe
All other (1)
Intersegment sales
Space Systems sales
Total
United States
Asia/Pacific
Europe
All other (1)
Total Sales
87 % $
7 %
6 %
— %
$
8,948
708
585
51
239
10,531
9,649
896
461
64
189
11,259
3,670
465
314
538
789
5,776
7,295
518
1,004
324
993
10,134
71 %
10 %
10 %
9 %
81 %
6 %
10 %
3 %
1 %
2 %
— %
97 % 10,071
60
328
10
139
10,608
87 % 30,685
1,939
2,107
936
$ 35,667
5 %
6 %
2 %
8 %
4 %
1 %
87 % $ 10,452
841
574
180
122
12,169
74 %
9 %
6 %
11 %
80 %
6 %
10 %
4 %
96 %
1 %
3 %
— %
5,498
402
315
600
728
7,543
7,356
707
893
345
779
10,080
8,305
18
300
13
108
8,744
86 %
5 %
6 %
3 %
31,611
1,968
2,082
1,138
$ 36,799
87 %
7 %
5 %
1 %
81 %
6 %
4 %
9 %
79 %
8 %
9 %
4 %
96 %
— %
4 %
— %
86 %
5 %
6 %
3 %
3,415
454
477
427
806
5,579
7,572
531
977
301
1,015
10,396
11,819
109
213
15
119
12,275
31,754
1,802
2,252
794
$ 36,602
(1) All other is principally comprised of the Middle East.
(2) Percentages calculated based on external customer sales.
-88-
NORTHROP GRUMMAN CORPORATION
Intersegment Sales and Operating Income
Sales between segments are recorded at values that include intercompany operating income for the performing
segment based on that segment’s estimated average operating margin rate for external sales. Such intercompany
operating income is eliminated in consolidation, so that the company’s total sales and total operating income reflect
only those transactions with external customers. See Note 1 for additional information.
The following table presents intersegment sales and operating income before eliminations:
$ in millions
Intersegment sales and operating income
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Total
2022
Year Ended December 31
2021
2020
Sales
Operating
Income
Sales
Operating
Income
Sales
Operating
Income
$
239
806
1,015
119
$ 2,179
$ 27
95
167
14
$ 303
$
189
789
993
139
$ 2,110
$ 19
89
150
14
$ 272
$
122
728
779
108
$ 1,737
$ 11
76
116
13
$ 216
Assets
Substantially all of the company’s operating assets are located in the U.S. The following table presents assets by
segment:
$ in millions
Assets
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Corporate assets(1)
Total assets
December 31
2022
2021
$
$
9,701
6,163
10,120
11,540
6,231
43,755
$
$
9,423
5,911
9,869
10,760
6,616
42,579
(1) Corporate assets principally consist of cash and cash equivalents, refundable taxes, deferred tax assets, property, plant and
equipment, marketable securities and deferred costs associated with certain environmental matters.
Capital Expenditures and Depreciation and Amortization
The following table presents capital expenditures and depreciation and amortization by segment:
Year Ended December 31
$ in millions
2022
2021
2020
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Corporate(1)
Total
$
$
$
$
Capital Expenditures
490
110
248
529
58
1,435
465
133
236
530
51
1,415
$
$
540
78
302
440
60
1,420
$
$
2022
2020
2021
Depreciation and Amortization(2)
282
$
108
209
291
377
1,267
266
91
233
344
305
1,239
322
101
242
396
281
1,342
$
$
$
(1) Corporate amounts include the amortization of purchased intangible assets and the additional depreciation expense related to
the step-up in fair value of property, plant and equipment acquired through business combinations as they are not considered
part of management’s evaluation of segment operating performance.
(2) Beginning in 2022, depreciation and amortization amounts include the amortization expense related to the company’s right-of-
use assets. Prior year amounts have been recast to conform to current year presentation. This change in presentation had no
impact on depreciation and amortization expense in the consolidated statements of earnings and comprehensive income.
-89-
NORTHROP GRUMMAN CORPORATION
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer (Chair, Chief Executive Officer and President) and principal financial officer
(Corporate Vice President and Chief Financial Officer) have evaluated the company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange
Act)) as of December 31, 2022, and have concluded that these controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These
disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports that we file or submit is accumulated and communicated to
management, including the principal executive officer and the principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended December 31, 2022, no change occurred in our internal control over financial
reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information
None.
-90-
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Northrop Grumman Corporation (the company) prepared and is responsible for the consolidated
financial statements and all related financial information contained in this Annual Report. This responsibility
includes establishing and maintaining effective internal control over financial reporting. The company’s internal
control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America.
To comply with the requirements of Section 404 of the Sarbanes–Oxley Act of 2002, the company designed and
implemented a structured and comprehensive assessment process to evaluate its internal control over financial
reporting across the enterprise. The assessment of the effectiveness of the company’s internal control over financial
reporting is based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, a system
of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Management regularly monitors its internal control over financial reporting, and actions are taken to
correct deficiencies as they are identified. Based on its assessment, management has concluded that the company’s
internal control over financial reporting was effective as of December 31, 2022.
Deloitte & Touche LLP issued an attestation report dated January 25, 2023, concerning the company’s internal
control over financial reporting, which is contained in this Annual Report. The company’s consolidated financial
statements as of and for the year ended December 31, 2022, have been audited by the independent registered public
accounting firm of Deloitte & Touche LLP in accordance with the standards of the Public Company Accounting
Oversight Board (United States).
/s/ Kathy J. Warden
Chair, Chief Executive Officer and President
/s/ David F. Keffer
Corporate Vice President and Chief Financial Officer
January 25, 2023
-91-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Northrop Grumman Corporation
Falls Church, Virginia
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Northrop Grumman Corporation and subsidiaries
(the “Company”) as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2022, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022 of the
Company and our report dated January 25, 2023 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
McLean, Virginia
January 25, 2023
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
-92-
NORTHROP GRUMMAN CORPORATION
Item 10. Directors, Executive Officers and Corporate Governance
PART III
DIRECTORS
Information about our Directors will be incorporated herein by reference to the Proxy Statement for the 2023 Annual
Meeting of Shareholders, to be filed with the SEC within 120 days after the end of the company’s fiscal year.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Our executive officers as of January 25, 2023, are listed below, along with their ages on that date, positions and
offices held with the company, and principal occupations and employment, focused primarily on the past five years.
Name
Kathy J. Warden
Age
Office Held
51 Chair, Chief
Since
2019
Executive Officer
and President
Recent Business Experience
Chief Executive Officer and President (2019);
President and Chief Operating Officer (2018)
Ann M. Addison
61 Corporate Vice
2019
President and
Chief Human
Resources Officer
Matthew Bromberg
52 Corporate Vice
2022
Corporate Vice President (2018); Executive Vice
President and Chief Human Resources Officer,
Leidos (2016-2018)
President, Military Engines, Pratt & Whitney
(2017-2021)
Mark A. Caylor
Sheila C. Cheston
Michael A. Hardesty
Thomas H. Jones
Lesley A. Kalan
David F. Keffer
David T. Perry
President, Global
Operations
58 Corporate Vice
President and
President, Mission
Systems Sector
64 Corporate Vice
President and
General Counsel
51 Corporate Vice
President,
Controller, and
Chief Accounting
Officer
56 Corporate Vice
President and
President,
Aeronautics
Systems Sector
49 Corporate Vice
President and
Chief Strategy and
Development
Officer
45 Corporate Vice
President and
Chief Financial
Officer
58 Corporate Vice
President and
Chief Global
Business Officer
2018
2010
2013
2021 Vice President and General Manager, Airborne
C4ISR Division, Mission Systems Sector
(2017-2020)
2020
Corporate Vice President, Government Relations
(2018-2019)
2020 General Partner, Blue Delta Capital Partners
(2018-2020); Chief Financial Officer and
Executive Vice President, CSRA, Inc.
(2015-2018)
Corporate Vice President and Chief Global
Business Development Officer (2012-2019)
2019
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NORTHROP GRUMMAN CORPORATION
Name
Mary D. Petryszyn
Age
Office Held
61 Corporate Vice
President
Since
2022
Recent Business Experience
Corporate Vice President and President, Defense
Systems Sector (2020-2022); Vice President and
General Manager, Land and Avionics C4ISR
Division, Mission Systems Sector (2016-2019)
Roshan Roeder
43 Corporate Vice
President and
President, Defense
Systems Sector
Lucy C. Ryan
Thomas L. Wilson
49 Corporate Vice
President,
Communications
54 Corporate Vice
President and
President, Space
Systems Sector
2022 Vice President and General Manager, Airborne
Multifunction Sensors, Mission Systems Sector
(2020-2022); Vice President Program
Management, Communications Business Unit,
Mission Systems Sector (2018-2020); Vice
President Program Management, Advanced
Ground Sensors, Mission Systems Sector
(2016-2018)
2019 Vice President, Enterprise Communications
(2018); Director of Communications, General
Dynamics (2010-2018)
2022 Vice President and General Manager, Strategic
Space Systems Division, Space Systems Sector
(2020-2021); Vice President of Strategy and
Business Development, Space Systems Sector
(2020); Vice President of Business
Development, Former Innovation Systems Sector
(2018-2020); Vice President of Strategy and
Business Development, Space Systems Group,
Orbital ATK, Inc. (2015-2018)
AUDIT COMMITTEE FINANCIAL EXPERT
The information as to the Audit and Risk Committee and the Audit and Risk Committee Financial Expert will be
incorporated herein by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders.
CODE OF ETHICS
We have adopted Standards of Business Conduct for all of our employees, including the principal executive officer,
principal financial officer and principal accounting officer. The Standards of Business Conduct can be found on our
internet website at www.northropgrumman.com under “Who We Are – Investors – Corporate Governance –
Standards of Business Conduct.” A copy of the Standards of Business Conduct is available to any stockholder who
requests it by writing to: Northrop Grumman Corporation, c/o Office of the Secretary, 2980 Fairview Park Drive,
Falls Church, VA 22042. We disclose amendments to provisions of our Standards of Business Conduct by posting
amendments on our website. Waivers of the provisions of our Standards of Business Conduct that apply to our
directors and executive officers are disclosed in a Current Report on Form 8-K.
The website and information contained on it or incorporated in it are not intended to be incorporated in this Annual
Report on Form 10-K or other filings with the SEC.
OTHER DISCLOSURES
Other disclosures required by this Item will be incorporated herein by reference to the Proxy Statement for the 2023
Annual Meeting of Shareholders.
Item 11. Executive Compensation
Information concerning Executive Compensation required by this Item 11, including information concerning
Compensation Committee Interlocks and Insider Participation and the Compensation Committee Report, will be
incorporated herein by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information as to Securities Authorized for Issuance Under Equity Compensation Plans and Security Ownership
of Certain Beneficial Owners and Management will be incorporated herein by reference to the Proxy Statement for
the 2023 Annual Meeting of Shareholders.
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NORTHROP GRUMMAN CORPORATION
For a description of securities authorized under our equity compensation plans, see Note 14 to the consolidated
financial statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information as to Certain Relationships and Related Transactions and Director Independence will be
incorporated herein by reference to the Proxy Statement for the 2023 Annual Meeting of Shareholders.
Item 14. Principal Accounting Fees and Services
The information as to Principal Accounting Fees and Services will be incorporated herein by reference to the Proxy
Statement for the 2023 Annual Meeting of Shareholders.
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NORTHROP GRUMMAN CORPORATION
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a) 1. Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Financial Statements
Consolidated Statements of Earnings and Comprehensive Income
Consolidated Statements of Financial Position
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All schedules have been omitted because they are not applicable, not required, or the information has been
otherwise supplied in the consolidated financial statements or notes to the consolidated financial
statements.
3. Exhibits
2(a)
2(b)
3(a)
3(b)
4(a)
4(b)
4(c)
4(d)
4(e)
Agreement and Plan of Merger dated as of September 17, 2017, among Northrop Grumman
Corporation, Neptune Merger, Inc. and Orbital ATK, Inc. (incorporated by reference to Exhibit
2.1 to Form 8-K filed September 18, 2017, File No. 001-16411)
Transaction Agreement dated as of April 28, 2014, among Alliant Techsystems Inc., Vista
Spinco Inc., Vista Merger Sub Inc. and Orbital Sciences Corporation (incorporated by reference
to Exhibit 2.1 to Alliant Techsystems Inc. (now known as Northrop Grumman Innovation
Systems, Inc.) Form 8-K filed May 2, 2014, File No. 001-16411)
Amended and Restated Certificate of Incorporation of Northrop Grumman Corporation dated
May 29, 2012 (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended June
30, 2012, filed July 25, 2012, File No. 001-16411)
Amended and Restated Bylaws of Northrop Grumman Corporation dated December 4, 2018
(incorporated by reference to Exhibit 3.1 to Form 8-K filed December 10, 2018, File No.
001-16411)
Indenture dated as of October 15, 1994, between Northrop Grumman Corporation (now Northrop
Grumman Systems Corporation) and The Chase Manhattan Bank (National Association), Trustee
(incorporated by reference to Exhibit 4.1 to Form 8-K filed October 25, 1994, File No.
001-3229)
First Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman
Systems Corporation, The Bank of New York Mellon (successor trustee to JPMorgan Chase
Bank and The Chase Manhattan Bank, N.A.), Titan II, Inc. (formerly known as Northrop
Grumman Corporation), and Titan Holdings II, L.P., to Indenture dated as of October 15, 1994,
between Northrop Grumman Corporation (now Northrop Grumman Systems Corporation) and
The Chase Manhattan Bank, N.A., Trustee (incorporated by reference to Exhibit 4.1 to Form 10-
Q for the quarter ended March 31, 2011, filed April 27, 2011, File No. 001-16411)
Second Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman
Systems Corporation, The Bank of New York Mellon (successor trustee to JPMorgan Chase
Bank and The Chase Manhattan Bank, N.A.), Titan Holdings II, L.P., and Northrop Grumman
Corporation (formerly known as New P, Inc.), to Indenture dated as of October 15, 1994,
between Northrop Grumman Corporation (now Northrop Grumman Systems Corporation) and
The Chase Manhattan Bank, N.A., Trustee (incorporated by reference to Exhibit 4.2 to Form 10-
Q for the quarter ended March 31, 2011, filed April 27, 2011, File No. 001-16411)
Form of Officers’ Certificate (without exhibits) establishing the terms of Northrop Grumman
Corporation’s (now Northrop Grumman Systems Corporation’s) 7.875% Debentures due 2026
(incorporated by reference to Exhibit 4.3 to Form S-4 Registration Statement No. 333-02653
filed April 19, 1996)
Form of Northrop Grumman Corporation’s (now Northrop Grumman Systems Corporation’s)
7.875% Debentures due 2026 (incorporated by reference to Exhibit 4.6 to Form S-4 Registration
Statement No. 333-02653 filed April 19, 1996)
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NORTHROP GRUMMAN CORPORATION
4(f)
4(g)
4(h)
4(i)
4(j)
4(k)
4(l)
4(m)
4(n)
4(o)
Form of Officers’ Certificate establishing the terms of Northrop Grumman Corporation’s (now
Northrop Grumman Systems Corporation’s) 7.75% Debentures due 2031 (incorporated by
reference to Exhibit 10.9 to Form 8-K filed April 17, 2001, File No. 001-16411)
Senior Indenture dated as of December 15, 1991, between Litton Industries, Inc. (predecessor-in-
interest to Northrop Grumman Systems Corporation) and The Bank of New York, as trustee,
under which its 7.75% and 6.98% debentures due 2026 and 2036 were issued, and specimens of
such debentures (incorporated by reference to Exhibit 4.1 to the Form 10-Q of Litton Industries,
Inc. for the quarter ended April 30, 1996, filed June 11, 1996, File No. 001-3998)
Supplemental Indenture with respect to Senior Indenture dated December 15, 1991, dated as of
April 3, 2001, among Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman
Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems
Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.7 to
Form 10-Q for the quarter ended March 31, 2001, filed May 10, 2001, File No. 001-16411)
Supplemental Indenture with respect to Senior Indenture dated December 15, 1991, dated as of
December 20, 2002, among Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman
Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems
Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4(t) to
Form 10-K for the year ended December 31, 2002, filed March 24, 2003, File No. 001-16411)
Third Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman
Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York
Mellon (formerly known as The Bank of New York), as trustee, Titan II, Inc. (formerly known as
Northrop Grumman Corporation), and Titan Holdings II, L.P., to Senior Indenture dated
December 15, 1991, between Litton Industries, Inc. and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.5 to Form 10-Q for the quarter ended March 31, 2011,
filed April 27, 2011, File No. 001-16411)
Fourth Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman
Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York
Mellon (formerly known as The Bank of New York) as trustee, Titan Holdings II, L.P., and
Northrop Grumman Corporation (formerly known as New P, Inc.), to Senior Indenture dated
December 15, 1991, between Litton Industries, Inc. and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.6 to Form 10-Q for the quarter ended March 31, 2011,
filed April 27, 2011, File No. 001-16411)
Indenture between TRW Inc. (predecessor-in-interest to Northrop Grumman Systems
Corporation) and Mellon Bank, N.A., as trustee, dated as of May 1, 1986 (incorporated by
reference to Exhibit 2 to the Form 8-A Registration Statement of TRW Inc. dated July 3, 1986,
File No. 001-02384)
First Supplemental Indenture between TRW Inc. (predecessor-in-interest to Northrop Grumman
Systems Corporation) and Mellon Bank, N.A., as trustee, dated as of August 24, 1989
(incorporated by reference to Exhibit 4(b) to Form S-3 Registration Statement No. 33-30350 of
TRW Inc.)
Fifth Supplemental Indenture between TRW Inc. (predecessor-in-interest to Northrop Grumman
Systems Corporation) and The Chase Manhattan Bank, as successor trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(f) to Form S-4 Registration Statement
No. 333-83227 of TRW Inc. filed July 20, 1999)
Ninth Supplemental Indenture dated as of December 31, 2009 among Northrop Grumman Space
& Mission Systems Corp. (predecessor–in-interest to Northrop Grumman Systems Corporation);
The Bank of New York Mellon, as successor trustee; Northrop Grumman Corporation; and
Northrop Grumman Systems Corporation (incorporated by reference to Exhibit 4(p) to Form 10-
K for the year ended December 31, 2009, filed February 9, 2010, File No. 001-16411)
-97-
NORTHROP GRUMMAN CORPORATION
4(p)
4(q)
4(r)
4(s)
4(t)
4(u)
4(v)
4(w)
4(x)
4(y)
4(z)
4(aa)
4(bb)
Tenth Supplemental Indenture dated as of March 30, 2011, by and among Northrop Grumman
Systems Corporation (successor-in-interest to Northrop Grumman Space & Mission Systems
Corp. and TRW, Inc.), The Bank of New York Mellon, as successor trustee to JPMorgan Chase
Bank and to Mellon Bank, N.A., Titan II Inc. (formerly known as Northrop Grumman
Corporation), and Titan Holdings II, L.P., to Indenture between TRW Inc. and Mellon Bank,
N.A., as trustee, dated as of May 1, 1986 (incorporated by reference to Exhibit 4.7 to Form 10-Q
for the quarter ended March 31, 2011, filed April 27, 2011, File No. 001-16411)
Eleventh Supplemental Indenture dated as of March 30, 2011, by and among Northrop Grumman
Systems Corporation (successor-in-interest to Northrop Grumman Space & Mission Systems
Corp. and TRW Inc.), The Bank of New York Mellon, as successor trustee to JPMorgan Chase
Bank and to Mellon Bank, N.A., Titan Holdings II, L.P., and Northrop Grumman Corporation
(formerly known as New P, Inc.) to Indenture between TRW Inc. and Mellon Bank, N.A., as
trustee, dated as of May 1, 1986 (incorporated by reference to Exhibit 4.8 to Form 10-Q for the
quarter ended March 31, 2011, filed April 27, 2011, File No. 001-16411)
Twelfth Supplemental Indenture, dated as of August 25, 2021, to the Indenture dated as of May
1, 1986, by and among Northrop Grumman Systems Corporation, Northrop Grumman
Corporation and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit
4.1 to Form 8-K filed August 27, 2021, File No. 001-16411)
Thirteenth Supplemental Indenture, dated as of August 25, 2021, to the Indenture dated as of
May 1, 1986, by and among Northrop Grumman Systems Corporation, Northrop Grumman
Corporation and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit
4.2 to Form 8-K filed August 27, 2021, File No. 001-16411)
Indenture dated as of November 21, 2001, between Northrop Grumman Corporation and
JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed
November 21, 2001, File No. 001-16411)
First Supplemental Indenture dated as of July 30, 2009, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor trustee, to Indenture dated as of
November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form 8-K filed July 30, 2009,
File No. 001-16411)
Second Supplemental Indenture dated as of November 8, 2010, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor trustee, to Indenture dated as of
November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form 8-K filed November 8,
2010, File No. 001-16411)
Form of Northrop Grumman Corporation’s 5.050% Senior Note due 2040 (incorporated by
reference to Exhibit C to Exhibit 4(a) to Form 8-K filed November 8, 2010, File No. 001-16411)
Third Supplemental Indenture dated as of March 30, 2011, by and among Titan II, Inc. (formerly
known as Northrop Grumman Corporation), The Bank of New York Mellon, as successor trustee
to JPMorgan Chase Bank, and Titan Holdings II, L.P., to Indenture dated as of November 21,
2001 between Northrop Grumman Corporation and JPMorgan Chase Bank, as trustee
(incorporated by reference to Exhibit 4.9 to Form 10-Q for the quarter ended March 31, 2011,
filed April 27, 2011, File No. 001-16411)
Fourth Supplemental Indenture dated as of March 30, 2011, by and among Titan Holdings II,
L.P., The Bank of New York Mellon, as successor trustee to JPMorgan Chase Bank, and
Northrop Grumman Corporation (formerly known as New P, Inc.), to Indenture dated as of
November 21, 2001 between Northrop Grumman Corporation and JPMorgan Chase Bank, as
trustee (incorporated by reference to Exhibit 4.10 to Form 10-Q for the quarter ended March 31,
2011, filed April 27, 2011, File No. 001-16411)
Fifth Supplemental Indenture, dated as of May 31, 2013, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee,
to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form
8-K filed May 31, 2013, File No. 001-16411)
Form of 3.250% Senior Note due 2023 (incorporated by reference to Exhibit B to Exhibit 4(a) to
Form 8-K filed May 31, 2013, File No. 001-16411)
Form of 4.750% Senior Note due 2043 (incorporated by reference to Exhibit C to Exhibit 4(a) to
Form 8-K filed May 31, 2013, File No. 001-16411)
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NORTHROP GRUMMAN CORPORATION
4(cc)
4(dd)
4(ee)
4(ff)
4(gg)
4(hh)
4(ii)
4(jj)
4(kk)
4(ll)
Sixth Supplemental Indenture, dated as of February 6, 2015, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee,
to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-
K filed February 6, 2015, File No. 001-16411)
Form of 3.850% Senior Note due 2045 (incorporated by reference to Exhibit A to Exhibit 4.1 to
Form 8-K filed February 6, 2015, File No. 001-16411)
Seventh Supplemental Indenture, dated as of December 1, 2016, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee,
to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-
K filed December 1, 2016, File No. 001-16411)
Form of 3.200% Senior Note due 2027 (incorporated by reference to Exhibit A to Exhibit 4.1 to
Form 8-K filed December 1, 2016, File No. 001-16411)
Eighth Supplemental Indenture, dated as of October 13, 2017, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee,
to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-
K filed October 13, 2017, File No. 001-16411)
Ninth Supplemental Indenture, dated as of March 23, 2020, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase, Trustee, to
Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-K
filed March 24, 2020, File No. 001-16411)
Form of 2.930% Senior Note due 2025 (incorporated by reference to Exhibit C to Exhibit 4.1 to
Form 8-K filed October 13, 2017, File No. 001-16411)
Form of 3.250% Senior Note due 2028 (incorporated by reference to Exhibit D to Exhibit 4.1 to
Form 8-K filed October 13, 2017, File No. 001-16411)
Form of 4.030% Senior Note due 2047 (incorporated by reference to Exhibit E to Exhibit 4.1 to
Form 8-K filed October 13, 2017, File No. 001-16411)
Form of 4.400% Senior Note due 2030 (incorporated by reference to Exhibit 4.1 to Form 8-K
filed March 24, 2020, File No. 001-16411)
4(mm)
Form of 5.150% Senior Note due 2040 (incorporated by reference to Exhibit 4.1 to Form 8-K
filed March 24, 2020, File No. 001-16411)
4(nn)
4(oo)
4(pp)
4(qq)
4(rr)
4(ss)
4(tt)
Form of 5.250% Senior Note due 2050 (incorporated by reference to Exhibit 4.1 to Form 8-K
filed March 24, 2020, File No. 001-16411)
Tenth Supplemental Indenture, dated as of September 2, 2021, between Northrop Grumman
Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee,
to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-
K filed September 3, 2021, File No. 001-16411)
Form of 7.875% Senior Note due 2026 (incorporated by reference to Exhibit A in Exhibit 4.1 to
Form 8-K filed September 3, 2021, File No. 001-16411)
Form of 7.750% Senior Note due 2026 (incorporated by reference to Exhibit B in Exhibit 4.1 to
Form 8-K filed September 3, 2021, File No. 001-16411)
Form of 6.650% Senior Note due 2028 (incorporated by reference to Exhibit C in Exhibit 4.1 to
Form 8-K filed September 3, 2021, File No. 001-16411)
Form of 7.750% Senior Note due 2029 (incorporated by reference to Exhibit D in Exhibit 4.1 to
Form 8-K filed September 3, 2021, File No. 001-16411)
Form of 7.750% Senior Note due 2031 (incorporated by reference to Exhibit E in Exhibit 4.1 to
Form 8-K filed September 3, 2021, File No. 001-16411)
-99-
NORTHROP GRUMMAN CORPORATION
4(uu)
4(vv)
10(a)
10(b)
10(c)
10(d)
10(e)
Form of 6.980% Senior Note due 2036 (incorporated by reference to Exhibit F in Exhibit 4.1 to
Form 8-K filed September 3, 2021, File No. 001-16411)
Description of Securities (incorporated by reference to Exhibit 4(ll) to Form 10-K for the year
ended December 31, 2019, filed January 30, 2020, File No. 001-16411)
Credit Agreement, dated as of August 23, 2022, among Northrop Grumman Corporation, as
Borrower; Northrop Grumman Systems Corporation, as Guarantor; the lenders party thereto and
JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1
to Form 8-K filed August 23, 2022, File No. 001-16411)
Credit Agreement, dated as of August 17, 2018, among Northrop Grumman Corporation, as
Borrower; Northrop Grumman Systems Corporation, as Guarantor; the lenders party thereto and
JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1
to Form 8-K filed August 17, 2018, File No. 001-16411)
(i)
Extension and Amendment Agreement, dated as of October 17, 2019, among Northrop
Grumman Corporation, as Borrower, Northrop Grumman Systems Corporation, as
Guarantor, the issuing banks party thereto, the lenders party thereto and JPMorgan Chase
Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Form
8-K filed October 21, 2019, File No. 001-16411)
Form of Guarantee dated as of April 3, 2001, by Northrop Grumman Corporation of the
indenture indebtedness issued by Litton Industries, Inc. (predecessor-in-interest to Northrop
Grumman Systems Corporation) (incorporated by reference to Exhibit 10.10 to Form 8-K filed
April 17, 2001, File No. 001-16411)
Form of Guarantee dated as of April 3, 2001, by Northrop Grumman Corporation of Northrop
Grumman Systems Corporation indenture indebtedness (incorporated by reference to
Exhibit 10.11 to Form 8-K and filed April 17, 2001, File No. 001-16411)
Form of Guarantee dated as of March 27, 2003, by Northrop Grumman Corporation, as
Guarantor, in favor of JP Morgan Chase Bank, as trustee, of certain debt securities issued by the
former Northrop Grumman Space & Mission Systems Corp. (predecessor-in-interest to Northrop
Grumman Systems Corporation) (incorporated by reference to Exhibit 4.2 to Form 10-Q for the
quarter ended March 31, 2003, filed May 14, 2003, File No. 001-16411)
(i)
First Amendment to Guarantee, dated as of August 25, 2021, to the Guarantee dated as of
March 27, 2003, by and among Northrop Grumman Systems Corporation, Northrop
Grumman Corporation and The Bank of New York Mellon, as trustee (incorporated by
reference to Exhibit 10.1 to Form 8-K filed August 27, 2021, File No. 001-16411)
+10(f)
+10(g)
Northrop Grumman Corporation 1993 Stock Plan for Non-Employee Directors (as Amended and
Restated January 1, 2010) (incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended June 30, 2009, filed July 23, 2009, File No. 001-16411)
Amended and Restated 2011 Long-Term Incentive Stock Plan (as amended and restated effective
as of May 20, 2015) (incorporated by reference to Appendix B to the Company’s Proxy
Statement on Schedule 14A for the 2015 Annual Meeting of Shareholders filed April 6, 2015,
File No. 001-16411)
(i)
(ii)
Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors
under the Northrop Grumman 2011 Long-Term Incentive Stock Plan, Amended and
Restated Effective as of January 1, 2016 (incorporated by reference to Exhibit 10.1 to
Form 10-Q for the quarter ended September 30, 2015, filed October 28, 2015, File No.
001-16411)
2019 Restricted Stock Rights Grant Agreement Granted Under the 2011 Long-Term
Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended March 31, 2019, filed April 24, 2019, File No. 001-16411)
-100-
NORTHROP GRUMMAN CORPORATION
(iii)
(iv)
(v)
(vi)
2019 Restricted Performance Stock Rights Grant Agreement Granted Under the 2011
Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q
for the quarter ended March 31, 2019, filed April 24, 2019, File No. 001-16411)
2020 Restricted Stock Rights Grant Agreement Granted Under the 2011 Long-Term
Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended March 31, 2020, filed April 29, 2020, File No. 001-16411)
2020 Restricted Performance Stock Rights Grant Agreement Granted Under the 2011
Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q
for the quarter ended March 31, 2020, filed April 29, 2020, File No. 001-16411)
2021 Restricted Stock Rights Grant Agreement Granted Under the 2011 Long-Term
Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for the
quarter ended March 31, 2021, filed April 29, 2021, File No. 001-16411)
(vii) 2021 Restricted Performance Stock Rights Grant Agreement Granted Under the 2011
Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.3 to Form 10-Q
for the quarter ended March 31, 2021, filed April 29, 2021, File No. 001-16411)
(viii) 2022 Restricted Stock Rights Grant Agreement Granted Under the 2011 Long-Term
Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for the
quarter ended March 31, 2022, filed April 28, 2022, File No. 001-16411)
(ix)
2022 Restricted Performance Stock Rights Grant Agreement Granted Under the 2011
Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.3 to Form 10-Q
for the quarter ended March 31, 2022, filed April 28, 2022, File No. 001-16411)
+10(h)
Northrop Grumman 2011 Long-Term Incentive Stock Plan (As Amended Through December 4,
2014) (incorporated by reference to Exhibit 10(h) to Form 10-K for the year ended December 31,
2014, filed February 2, 2015, File No. 001-16411)
(i)
Summary of Non-Employee Director Award Terms Under the 2011 Long-Term Incentive
Stock Plan effective December 21, 2011 (incorporated by reference to Exhibit 10(j)(ii) to
Form 10-K for the year ended December 31, 2011, filed February 8, 2012, File No.
001-16411)
(ii) Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors
under the Northrop Grumman 2011 Long-Term Incentive Stock Plan, Amended and
Restated Effective January 1, 2015 (incorporated by reference to Exhibit 10(h)(ii) to Form
10-K for the year ended December 31, 2014, filed February 2, 2015, File No. 001-16411)
+10(i)
Northrop Grumman Supplemental Plan 2 (Amended and Restated Effective as of January 1,
2014) (incorporated by reference to Exhibit 10(l) to Form 10-K for the year ended December 31,
2013, Filed February 3, 2014, File No. 001-16411)
(i)
Appendix B to the Northrop Grumman Supplemental Plan 2: ERISA Supplemental
Program 2 (Amended and Restated Effective as of January 1, 2014) (incorporated by
reference to Exhibit 10(l)(i) to Form 10-K for the year ended December 31, 2013, filed
February 3, 2014, File No. 001-16411)
(ii) Appendix G to the Northrop Grumman Supplemental Plan 2: Officers Supplemental
Executive Retirement Program (Amended and Restated Effective as of January 1, 2012)
(incorporated by reference to Exhibit 10(k)(iv) to Form 10-K for the year ended December
31, 2011, filed February 8, 2012, File No. 001-16411)
(iii) Appendix I to the Northrop Grumman Supplemental Plan 2: Officers Supplemental
Executive Retirement Program II (Amended and Restated January 1, 2014) (incorporated
by reference to Exhibit 10(k)(iv) to Form 10-K for the year ended December 31, 2015,
filed February 1, 2016, File No. 001-16411)
(iv)
First Amendment to the Northrop Grumman Supplemental Plan 2, dated December 20,
2017 (Effective as of December 31, 2017) (incorporated by reference to Exhibit 10(j)(v) to
Form 10-K for the year ended December 31, 2017, filed January 29, 2018, File No.
001-16411)
-101-
NORTHROP GRUMMAN CORPORATION
(v)
First Amendment to Appendix F to the Northrop Grumman Supplemental Plan 2, CPC
Supplemental Executive Retirement Program, effective December 30, 2019 (incorporated
by reference to Exhibit 10(h)(v) to Form 10-K for the year ended December 31, 2019,
filed January 30, 2020, File No. 001-16411)
Northrop Grumman Supplementary Retirement Income Plan (formerly TRW Supplementary
Retirement Income Plan) (Amended and Restated Effective January 1, 2014) (incorporated by
reference to Exhibit 10(m) to Form 10-K for the year ended December 31, 2013, filed February
3, 2014, File No. 001-16411)
Severance Plan for Elected and Appointed Officers of Northrop Grumman Corporation
(Amended and Restated Effective December 31, 2019) (incorporated by reference to Exhibit
10(j) to Form 10-K for the year ended December 31, 2019, filed January 30, 2020, File No.
001-16411)
+10(j)
+10(k)
+10(l)
Non-Employee Director Compensation Term Sheet, effective May 19, 2021 (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2021, filed July 29, 2021,
File No. 001-16411)
+10(m) Non-Employee Director Compensation Term Sheet, effective May 18, 2022 (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2022, filed July 28, 2022,
File No. 001-16411)
+10(n)
+10(o)
+10(p)
+10(q)
+10(r)
+10(s)
+10(t)
+10(u)
Form of Indemnification Agreement between Northrop Grumman Corporation and its directors
and executive officers (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter
ended March 31, 2012, filed April 25, 2012, File No. 001-16411)
Northrop Grumman Deferred Compensation Plan (Amended and Restated Effective as of April
1, 2016) (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March
31, 2016, filed April 27, 2016, File No. 001-16411)
The 2002 Incentive Compensation Plan of Northrop Grumman Corporation, As Amended and
Restated effective January 1, 2009 (incorporated by reference to Exhibit 10.6 to Form 10-Q for
the quarter ended March 31, 2009, filed April 22, 2009, File No. 001-16411)
Northrop Grumman 2006 Annual Incentive Plan and Incentive Compensation Plan, as amended
and restated effective January 1, 2022 (incorporated by reference to Exhibit 10.2 to Form 10-Q
for the quarter ended June 30, 2021, filed July 29, 2021, File No. 001-16411)
Northrop Grumman Innovation Systems Nonqualified Deferred Compensation Plan, as amended
and restated January 1, 2019 (incorporated by reference to Exhibit 10(r) to Form 10-K for the
year ended December 31, 2018, filed January 31, 2019, File No. 001-16411)
Northrop Grumman Savings Excess Plan (Amended and Restated Effective as of January 1,
2020) (incorporated by reference to Exhibit 10(s) to Form 10-K for the year ended December 31,
2019, filed January 30, 2020, File No. 001-16411)
Northrop Grumman Officers Retirement Account Contribution Plan (Amended and Restated
Effective as of January 1, 2019) (incorporated by reference to Exhibit 10(v) to Form 10-K for the
year ended December 31, 2018, filed January 31, 2019, File No. 001-16411)
Northrop Grumman Innovation Systems Defined Benefit Supplemental Executive Retirement
Plan, as amended and restated effective January 1, 2019 (incorporated by reference to Exhibit
10(x) to Form 10-K for the year ended December 31, 2018, filed January 31, 2019, File No.
001-16411)
(i)
First Amendment to Northrop Grumman Innovation Systems Defined Benefit
Supplemental Executive Retirement Plan, effective December 31, 2019 (incorporated by
reference to Exhibit 10(v)(i) to Form 10-K for the year ended December 31, 2019, filed
January 30, 2020, File No. 001-16411)
+10(v)
Northrop Grumman Innovation Systems Defined Contribution Supplemental Executive
Retirement Plan, as amended and restated effective January 1, 2019 (incorporated by reference to
Exhibit 10(y) to Form 10-K for the year ended December 31, 2018, filed January 31, 2019, File
No. 001-16411)
-102-
NORTHROP GRUMMAN CORPORATION
+10(w)
+10(x)
Executive Basic Life Insurance and Accidental Death and Dismemberment Insurance Policy
dated January 1, 2019 (incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter
ended March 31, 2019, filed April 24, 2019, File No. 001-16411)
Executive Long-Term Disability Insurance Policy dated January 1, 2019 (incorporated by
reference to Exhibit 10.5 to Form 10-Q for the quarter ended March 31, 2019, filed April 24,
2019, File No. 001-16411)
+10(y)
Executive Supplemental Individual Disability Insurance Plan dated June 10, 2022
+10(z)
+10(aa)
Group Personal Excess Liability Policy effective as of January 1, 2022 (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2022, filed April 28,
2022, File No. 001-16411)
Letter dated January 10, 2018 from Northrop Grumman Corporation to Blake Larson regarding
compensation effective June 6, 2018 (incorporated by reference to Exhibit 10.3 to Form 10-Q for
quarter ended June 30, 2018, filed July 25, 2018, File No. 001-16411)
+10(bb) Letter dated February 3, 2020 from Northrop Grumman Corporation to David Keffer regarding
compensation effective February 17, 2020 (incorporated by reference to Exhibit 10.4 to Form
10-Q for the quarter ended March 31, 2020, filed April 29, 2020, File No. 001-16411)
+10(cc) Consultant Contract dated as of April 11, 2022 by and between Northrop Grumman Systems
Corporation and Blake E. Larson (incorporated by reference to Exhibit 10.2 to Form 10-Q for
the quarter ended June 30, 2022, filed July 28, 2022, File No. 001-16411)
*+10(dd) Transition and Retirement Agreement dated as of September 9, 2022, as revised, by and between
Northrop Grumman Systems Corporation and Mary D. Petryszyn
*21
*23
*24
*31.1
*31.2
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification of Kathy J. Warden pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of David F. Keffer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
**32.1
Certification of Kathy J. Warden pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**32.2
Certification of David F. Keffer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*101
Northrop Grumman Corporation Annual Report on Form 10-K for the fiscal year ended
December 31, 2022, formatted as inline XBRL (Extensible Business Reporting Language); (i)
the Cover Page, (ii) the Consolidated Statements of Earnings and Comprehensive Income,
(iii) Consolidated Statements of Financial Position, (iv) Consolidated Statements of Cash Flows,
(v) Consolidated Statements of Changes in Shareholders’ Equity, and (vi) Notes to Consolidated
Financial Statements. The instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
*104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+
*
**
Management contract or compensatory plan or arrangement
Filed with this Report
Furnished with this Report
Item 16. Form 10-K Summary
None.
-103-
NORTHROP GRUMMAN CORPORATION
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 25th day of
January 2023.
SIGNATURES
NORTHROP GRUMMAN CORPORATION
By:
/s/ Michael A. Hardesty
Michael A. Hardesty
Corporate Vice President, Controller and Chief
Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the
registrant this the 25th day of January 2023, by the following persons and in the capacities indicated.
Signature
Kathy J. Warden*
David F. Keffer*
Michael A. Hardesty
David P. Abney*
Marianne C. Brown*
Donald E. Felsinger*
Ann M. Fudge*
Madeleine A. Kleiner*
Karl J. Krapek*
Arvind Krishna*
Graham N. Robinson*
Gary Roughead*
Thomas M. Schoewe*
James S. Turley*
Mark A. Welsh III*
*By:
/s/ Jennifer C. McGarey
Jennifer C. McGarey
Corporate Vice President and Secretary
Attorney-in-Fact
pursuant to a power of attorney
Title
Chair, Chief Executive Officer and President (Principal
Executive Officer), and Director
Corporate Vice President and Chief Financial Officer (Principal
Financial Officer)
Corporate Vice President, Controller and Chief Accounting
Officer (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
-104-
Use Of Non-GAAP Financial Measures
This Annual Report contains non-GAAP (accounting principles generally accepted in the United
States of America) financial measures, as defined by Securities and Exchange Commission (SEC)
Regulation G. While we believe investors and other users of our financial statements may find these
non-GAAP financial measures useful in evaluating our financial performance and operational
trends, they should be considered as supplemental in nature and therefore, should not be
considered in isolation or as a substitute for financial information prepared in accordance with
GAAP. Definitions and reconciliations for the non-GAAP financial measures contained in this Annual
Report are provided below. Other companies may define these measures differently or may utilize
different non-GAAP financial measures.
Organic Sales:
Total sales excluding sales attributable to the company’s IT services divestiture. This measure may
be useful to investors and other users of our financial statements as a supplemental measure in
evaluating the company’s underlying sales growth as well as in providing an understanding of our
ongoing business and future sales trends by presenting the company’s sales before the impact of
divestiture activity.
$M
Total sales
IT services sales
Organic sales
2022
$36,602
–
$36,602
2021
$35,667
(162)
$35,505
2020
$36,799
(2,329)
$34,470
Segment Operating Income and Segment Operating Margin Rate:
Segment operating income, as reconciled in the table below, and segment operating margin
rate (segment operating income divided by sales) reflect the combined operating income of our
four segments less the operating income associated with intersegment sales. Segment operating
income includes pension expense allocated to our sectors under FAR and CAS and excludes FAS
pension service expense and unallocated corporate items (certain corporate-level expenses,
which are not considered allowable or allocable under applicable FAR and CAS requirements,
and costs not considered part of management’s evaluation of segment operating performance).
These non-GAAP measures may be useful to investors and other users of our financial statements
as supplemental measures in evaluating the financial performance and operational trends of
our sectors. These measures may not be defined and calculated by other companies in the same
manner and should not be considered in isolation or as alternatives to operating results presented
in accordance with GAAP.
$M
Sales
Operating income
Operating margin rate
Reconciliation to segment operating income
FAS/CAS operating adjustment
Unallocated corporate (income) expense
Segment operating income
Segment operating margin rate
2022
$36,602
$3,601
9.8%
200
452
$4,253
11.6%
2021
$35,667
$5,651
15.8%
(130)
(1,304)
$4,217
11.8%
2020
$36,799
$4,065
11.0%
(418)
541
$4,188
11.4%
NORTHROP GRUMMAN 2022 ANNUAL REPORT Transaction-Adjusted EPS:
Diluted earnings per share excluding the per share impacts related to the company’s IT services
divestiture, including the gain on sale of the business, associated federal and state income tax
expenses, transaction costs, and the make-whole premium for early debt redemption, as well as
mark-to-market (MTM) benefit (expense) and related tax impacts. This measure may be useful to
investors and other users of our financial statements as a supplemental measure in evaluating
the company’s underlying financial performance per share by presenting the company’s diluted
earnings per share results before the non-operational impact of the IT services divestiture and
pension and OPB actuarial gains and losses. Transaction-adjusted EPS is reconciled below.
Diluted earnings per share
MTM (benefit) expense per share
MTM-related deferred state tax expense (benefit) per share
Federal tax expense (benefit) of items above per share
MTM adjustment per share, net of tax
Gain on sale of business per share
State tax impact per share
Transaction costs per share
Make-whole premium per share
Federal tax impact of items above per share
Transaction adjustment per share, net of tax
Transaction-adjusted EPS
2022
$31.47
(7.92)
0.42
1.57
(5.93)
–
–
–
–
–
–
$25.54
2021
$43.54
(14.64)
0.77
2.92
(10.95)
(12.31)
0.99
0.20
0.34
3.82
(6.96)
$25.63
2020
$19.03
6.17
(0.32)
(1.23)
4.62
–
–
–
–
–
–
$23.65
NORTHROP GRUMMAN 2022 ANNUAL REPORT
General Information
Northrop Grumman
Corporation on the Internet
Information on Northrop Grumman and
its sectors, including press
releases, this Annual Report and
other reports, can be found at
www.northropgrumman.com
Annual Meeting of
Shareholders
Wednesday, May 17, 2023 8 a.m. EDT
The 2023 Annual Meeting of
Shareholders of Northrop Grumman
Corporation will be held on Wednesday,
May 17, 2023 at 8 a.m. Eastern.
Northrop Grumman Corporation
Corporate Office
2980 Fairview Park Drive
Falls Church, Virginia 22042
Independent Auditors
Deloitte & Touche LLP
Stock Listing
Northrop Grumman Corporation
common stock is listed on the New York
Stock Exchange
(trading symbol NOC).
Transfer Agent, Registrar
and Dividend Paying Agent
Computershare
P.O. Box 43006
Providence, RI 02940-3006
(877) 498-8861
www.computershare.com/investor
Investor Relations
Securities analysts, institutional investors
and portfolio managers should contact
Northrop Grumman Investor Relations at
investors@ngc.com.
Media Relations
Inquiries from the media should
be directed to Northrop Grumman
Corporate Communications at
(703) 280-4456 or send an email to
newsbureau@ngc.com.
Electronic Delivery
of Future Shareholder
Communications
If you would like to help conserve natural
resources and reduce the costs incurred
by Northrop Grumman Corporation in
mailing proxy materials, you can consent
to receiving all future proxy statements,
proxy cards and Annual Reports
electronically via e-mail or the Internet.
To sign up for electronic delivery,
registered shareholders may log onto
www.computershare.com/investor.
Dividend Reinvestment Program
Registered owners of Northrop Grumman
Corporation common stock are eligible
to participate in the company’s Automatic
Dividend Reinvestment Plan. Under this
plan, shares are purchased with reinvested
cash dividends and voluntary cash
payments of up to a specified amount
per calendar year.
For information on the company’s Dividend
Reinvestment Service, contact our Transfer
Agent and Registrar, Computershare.
Company Shareholder Services
Shareholders with questions regarding
stock ownership should contact
our Transfer Agent and Registrar,
Computershare. Stock ownership inquiries
may also be directed to Northrop
Grumman’s Shareholder Services via email
at sharesrv@ngc.com.
Duplicate Mailings
Shareholders with more than one account
or who share the same address with
another shareholder may receive more
than one Annual Report. To eliminate
duplicate mailings or to consolidate
accounts, contact Computershare.
Separate dividend checks and proxy
materials will continue to be sent for each
account on our records.
NORTHROP GRUMMAN 2022 ANNUAL REPORT
ngc.com
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