About Us
Northrop Grumman is a leading global aerospace and defense technology company. Our pioneering solutions equip our
customers with 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 employees define possible
every day.
* 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 2023 ANNUAL REPORT
Sales ($ in billions)$35.7$36.6$39.3212223Backlog ($ in billions)$76.0$78.7$84.2212223Cash Dividends Declared (per common share)$6.16$6.76$7.34212223Cash Provided by Operating Activities ($ in billions)$3.6$2.9$3.9212223Adjusted Free Cash Flow*($ in billions)$2.2$1.6$2.1212223R&D and Capital Expenditures($ in billions)$2.5$2.6$3.0212223
Dear Shareholders,
As the security landscape evolves, Northrop Grumman is trusted to
deliver the world’s most advanced security solutions. Leading-edge
technologies, developed by our more than 100,000 employees, ensure
our customers’ most urgent and challenging needs are met.
Partnering with the U.S. Air Force to successfully enter flight testing for
the B-21 Raider, delivering on key milestones in support of national
security space and the U.S. military's new Proliferated Warfighter Space
Architecture and answering significant global demand for our weapons
systems are just a few of the many incredible milestones achieved in
2023.
Key program wins, a diverse portfolio aligned to our customers’ priorities
and laser-focus on program performance strengthened our position as
trusted global technology leaders.
Anchored by our business strategy, our balanced approach to capital deployment drives innovation and
capacity to meet our customers’ needs and create value for shareholders.
2023 Performance
Growing global demand for our solutions drove another year of strong performance. Our annual sales
grew by 7% and totaled $39.3 billion. We achieved a book to bill ratio of 1.14 and ended the year with
a record $84.2 billion in backlog. We generated $3.9 billion of operating cash flow and $2.1 billion of
adjusted free cash flow* for the year. Despite a challenging macroeconomic environment, the underlying
operating margins for the majority of our programs remained solid.
Defining the future of defense requires robust investment in our tools, people and innovation. In 2023, we
invested $3.0 billion in research and development and capital expenditures into our business, providing
a strong foundation for future growth. These investments included innovation areas such as the future of
computing, microelectronics, the responsible use of artificial intelligence as well as the advanced
networking required to tie our systems together.
Our disciplined approach to capital deployment returned $2.6 billion to shareholders through dividends
and share repurchases.
Our Strong, Sustainable Culture
Innovation at this level requires diversity of thought and strong leadership. We were proud to receive
DiversityInc’s “Top 50 Companies in Diversity” in recognition of our efforts to create a culture of
belonging where people of every background can thrive.
Advancing sustainability through impactful conservation and sustainability projects remained a priority
including efforts to protect land surrounding military installations.
Recognizing our commitment to our people, community, customers, shareholders and the environment, we
were again named one of America’s Most Just Companies in 2023, and included on the Dow Jones
Sustainability North America Index for the eighth consecutive year.
NORTHROP GRUMMAN 2023 ANNUAL REPORT
Positioning for the Future
With robust demand for our products and the trust of our customers, even greater milestones are on the
horizon. Our team stands ready, remaining ahead of the expanding technological landscape.
Our distinctive, integrated solutions remain in-line with our customer’s highest priorities. No matter what
the future holds, the greater the challenge, the more determined we are to solve it.
Anchored by our values, we do the right thing, uphold our promises, commit to shared success and
develop pioneering technologies, we expect to shape our world for generations to come.
I’m confident we have the right strategy, technology and team to lead our industry in 2024 and beyond.
Sincerely,
Kathy Warden
Chair, Chief Executive Officer and President
* 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 2023 ANNUAL REPORT
Elected Officers (As of March 1, 2024)
Kathy J. Warden
Chair, Chief Executive Officer and President
Ann M. Addison
Corporate Vice President and Chief Human
Resources Officer
Matthew F. Bromberg
Corporate Vice President, Global Operations
Mark A. Caylor
Corporate Vice President and President,
Mission Systems
Heather M. Crofford
Corporate Vice President and Treasurer
Robert J. Fleming
Corporate Vice President and President, Space
Systems
Michael A. Hardesty
Corporate Vice President, Controller and Chief
Accounting Officer
Thomas H. Jones
Corporate Vice President and President,
Aeronautics Systems
Lesley A. Kalan
Corporate Vice President and Chief Strategy
and Development Officer
David F. Keffer
Corporate Vice President and Chief Financial
Officer
Jennifer C. McGarey
Corporate Vice President and Secretary
Stephen F. O'Bryan
Corporate Vice President and Chief Global
Business Development Officer
Roshan S. Roeder
Corporate Vice President and President,
Defense Systems
Lucy C. Ryan
Corporate Vice President, Communications
Kathryn G. Simpson
Corporate Vice President and General Counsel
Board of Directors (As of March 1, 2024)
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)
Ann M. Fudge 1 4
Former Chairman and Chief Executive Officer,
Young & Rubicam Brands (marketing
communications 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)
Arvind Krishna 2 4
Chairman and Chief Executive Officer,
International Business Machines Corporation
(an information technology company)
Graham N. Robinson 2 4
Senior Vice President, Stanley Black & Decker,
and President, STANLEY Industrial
(manufacturer of tools and hardware)
Kimberly A. Ross 1 4
Former Chief Financial Officer, WeWork and
Baker Hughes Company
Gary Roughead 2 4†
Admiral, United States Navy (Ret.) and Former
Chief of Naval Operations
Thomas M. Schoewe 1† 3
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
President, Texas A&M University; General,
United States Air Force (Ret.) and Former Chief
of Staff, United States Air Force
Mary A. Winston 2 4
President and Founder, WinsCo Enterprises,
Inc. (a financial and board governance
advisory consulting firm)
1 Member of Audit and Risk Committee
2 Member of Compensation and Human
Capital Committee
3 Member of Nominating and Corporate
Governance Committee
4 Member of Policy Committee
† Committee Chair
NORTHROP GRUMMAN 2023 ANNUAL REPORT
NORTHROP GRUMMAN 2023 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, 2023
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.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ☒
Yes ☐
No ☐
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 ☐
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. ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
Accelerated Filer ☐
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
As of June 30, 2023, 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 $68.9 billion.
Yes ☐
No ☒
As of January 22, 2024, 150,035,705 shares of common stock were outstanding.
Portions of Northrop Grumman Corporation’s Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for the 2024 Annual
Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
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 and Estimates
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
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16. Segment Information
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Certain Trading Agreements
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
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 Accountant 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, military aircraft, missile defense, advanced weapons and long-
range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and
breakthrough technologies, such as advanced computing, microelectronics 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 stealth aircraft. We developed into one of the largest defense
technology companies in the world through a series of acquisitions, as well as organic growth, including the
following:
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•
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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, 2023, 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 military aircraft systems for the U.S. Air Force, the U.S. Navy, other U.S. government agencies, and international
customers. Major products include strategic long-range strike aircraft; tactical fighter and air dominance aircraft;
airborne battle management and command and control systems; and unmanned autonomous aircraft systems,
including high-altitude long-endurance (HALE) strategic intelligence, surveillance and reconnaissance (ISR)
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NORTHROP GRUMMAN CORPORATION
systems and vertical take-off and landing (VTOL) tactical ISR systems. Approximately 45 percent of this business is
performed through restricted programs. Key programs include:
•
Development and production of the U.S. Air Force B-21 Raider long-range strike aircraft that defines sixth-
generation technologies;
• Modernization and sustainment services for the B-2 Spirit stealth aircraft;
•
•
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;
• 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-8C Fire Scout, ship-based, VTOL tactical ISR systems that provide situational awareness and
precision targeting for the U.S. Navy.
DEFENSE SYSTEMS
Defense Systems is a leader in the design, development, integration and production of advanced tactical weapons
and missile defense solutions, and a provider of sustainment, modernization and training services for manned and
unmanned aircraft and electronics systems for the U.S. military and a broad range of international customers. Major
products and services include integrated, all-domain command and control (C2) battle management systems,
precision strike weapons; advanced propulsion, including high speed air-breathing and hypersonic systems; high-
performance gun systems, ammunition, precision munitions and advanced fuzes; aircraft and mission systems
logistics support, sustainment, operations and modernization; and warfighter training. Less than 5 percent of this
business is performed through restricted programs. Key programs include:
•
Integrated Air and Missile Defense Battle Command System (IBCS) for the U.S. Army and Poland, which
is an open architecture system that seamlessly integrates sensors and effectors to deliver among the most
advanced C2 systems for joint and coalition forces;
• Medium (30mm and 20mm) and Large (120mm) caliber tactical and training ammunition production;
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Guided Multiple Launch Rocket System (GMLRS) propulsion and warhead subsystems for a surface-to-
surface system used to defeat targets using indirect precision fires;
U.S. Navy’s Advanced Anti-Radiation Guided Missile (AARGM), a medium-range, air-to-surface missile,
and its extended range variant, AARGM-ER;
U.S. Air Force’s Stand-In Attack Weapon (SiAW), an advanced capability air-to-surface tactical missile for
the F-35;
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;
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, NATO AGS, Triton and restricted programs;
Precision Guidance Kit (PGK), replaces conventional fuzes for artillery and mortar munitions and
transforms them into Global Positioning System enabled precision guided weapons;
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);
AAQ-24 sensor sustainment and repair for U.S. military customers;
Special Electronics Mission Aircraft (SEMA) ISR support; and
Distributed Mission Operations Network (DMON), a live, virtual, constructive, and synthetic simulation
program for global training and exercises.
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NORTHROP GRUMMAN CORPORATION
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 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; full spectrum cyber solutions; intelligence processing systems; advanced microelectronics; navigation and
positioning sensors; and maritime power, propulsion and payload launch systems. Approximately 30 percent of this
business is performed through restricted programs. Key unrestricted programs include:
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Scalable Agile Beam Radar (SABR), an active electronically scanned array fire control radar system for
F-16 aircraft;
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;
F-35 Communications, Navigation and Identification (CNI) integrated avionics system, which provides
secure communications and interoperability capabilities;
Ground/Air Task Oriented Radar (G/ATOR), a mobile multi-mode active electronically scanned array;
Surface Electronic Warfare Improvement Program (SEWIP) Block III, which protects surface ships from
anti-ship missiles, provides early detection, signal analysis and threat warning;
Airborne Early Warning & Control (AEW&C). The centerpiece 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;
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;
Battlefield Airborne Communications Node (BACN), one of the first airborne gateway systems that allows
platforms to communicate and securely share data;
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;
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;
APR-39 DV(2) and EV(2) Radar Warning Receiver programs, which provide a digital radar warning
receiver for the U.S. Army, Navy and Marines;
Exploitation and cyber programs, which provide cyber and intelligence domain support through unique
intelligence and cyber capabilities;
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.
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NORTHROP GRUMMAN CORPORATION
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 spacecraft systems,
subsystems, sensors and payloads; ground systems; missile defense systems and interceptors; launch vehicles and
related propulsion systems; and strategic missiles. Approximately 35 percent of this business is performed through
restricted programs. Key unrestricted 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) and Ground-based Midcourse Defense Weapon
Systems (GWS);
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Space Development Agency Tracking and Transport layers providing missile warning/tracking and
resilient, low-latency, high-volume data transport communication systems;
Next-Generation Overhead Persistent Infrared (Next Gen OPIR) program satellites and payloads providing
data for missile defense;
Development and production of solid rocket motors for NASA’s Space Launch System (SLS) heavy lift
vehicle;
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;
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Evolved Strategic SATCOM (ESS) and Protected Tactical SATCOM (PTS) satellites and payloads
providing survivable, protected communications to U.S. forces;
Intercontinental Ballistic Missile (ICBM) Ground Subsystem Support Contract (GSSC);
Cygnus spacecraft, used in the execution of our Commercial Resupply Services (CRS) contracts with
NASA;
Habitation and Logistics Outpost (HALO) module in support of NASA’s Gateway; and
James Webb Space Telescope (JWST) operations and sustainment contract.
CUSTOMER CONCENTRATION
Our largest customer is the U.S. government. Sales to the U.S. government accounted for 86 percent, 86 percent and
85 percent of sales during the years ended December 31, 2023, 2022 and 2021, 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 RTX 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 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.
BACKLOG
At December 31, 2023, total backlog, which is equivalent to the company’s remaining performance obligations, was
$84.2 billion as compared with $78.7 billion at December 31, 2022. For further information, see “Backlog” in
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NORTHROP GRUMMAN CORPORATION
“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 inflation, geopolitical conflicts and microelectronics shortages. 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. This focus on our culture and workforce was a factor in our
ability to hire approximately 14,500 new employees in 2023, and as of December 31, 2023, we have approximately
101,000 employees.
Additional information regarding our human capital strategy is available in our Environmental, Social, and
Governance (ESG) Report, which can be found on our company website. Information on our website, including our
ESG 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 150 business conduct advisors who promote values and an ethical culture within the
company.
Our annual Employee Experience Survey gives employees a voice and a mechanism to provide feedback on our
culture and empower our leaders to enhance the employee experience. This anonymous survey encourages employee
candor on key engagement and inclusion drivers, including belonging, respect, a sense of personal work
accomplishment and recommending the company to others. In 2023, 81 percent of employees responded to the
survey, an indication that our employees believe their feedback matters, and our survey results exceeded many of the
global norms of our third party vendor for both engagement and inclusion. Our leaders review the survey responses
and work collaboratively with their teams to take meaningful actions based on survey results.
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NORTHROP GRUMMAN CORPORATION
Diversity, Equity and Inclusion
We value diversity and belonging in its broadest sense, as an enabling force that helps us pioneer, perform and
deliver on quality, which results in value for our shareholders, customers, and employees. Across our U.S. employee
population, as of December 31, 2023, 25 percent are female, 38 percent are people of color, 18 percent are veterans
and 8 percent are persons with disabilities. At the vice president level, 35 percent are female and 20 percent are
people of color. We strive to reach all parts of the diverse talent pools available now and in the future because we
recognize that we benefit from having coworkers with different ideas, perspectives and approaches to help us
innovate.
Talent Management
Northrop Grumman’s talent strategy is focused on four key pillars: broadening talent pools; enhancing the employee
experience; building leaders of the future; and enabling new ways of working. Our strategy addresses the external
and internal landscape and ensures that we are able to attract, retain and develop the workforce necessary to support
the continued success of the business.
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, exposure and education.
Our employee development programs strengthen employee skills aligned to our current and future business needs
through on-the-job development, knowledge sharing and tools to support career growth. Employees utilize curated,
career-specific resources such as My Learning Experience, a machine learning enabled content aggregator that
creates a personalized learning experience for each employee. Our Education Assistance Program subsidizes tuition
and other educational institution fees to support development through job-related degrees and certificates. Our early-
in-career rotation program, Pathways, develops talent pipelines with both depth of critical skills and breadth of
experiences. Our technical cohort programs cultivate technical, domain expertise and collaborative thought
leadership for early through advanced career levels.
In a rapidly changing world, we maintain focus on keeping our team and our company prepared for the evolving
future of work. In addition to offering our employees flexible work arrangements, caregiver support and mental
health services that help our employees make their careers work within their lives, we also help our employees build
the careers that will serve them into the future. We ensure that our employees have the tools and resources to
develop their knowledge base and skill sets, so that they can continue to thrive at Northrop Grumman even in the
midst of change. When our employees succeed and grow at work, our business succeeds and grows. Through a focus
on our employees, we remain agile and innovative, adapting to the future as it unfolds before us. We provide many
avenues for our employees to feel included, so we can hire, develop and retain the best people to support our
common mission and better pioneer together.
Employee Health and Safety
Health and safety are a core focus in everything we do. People are our most valuable resource, and our goals have
been, and continue to be, to keep our employees safe and position the company for long-term success.
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.
Collective Agreements
Approximately 4,100 employees are covered by 15 collective agreements in the U.S., of which we negotiated one
renewal in 2023 and expect to negotiate five renewals in 2024.
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.
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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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The following table summarizes sales for the year ended December 31, 2023, recognized by contract type and
customer category:
$ in millions
Cost-type contracts
Fixed-price contracts
Total sales
U.S.
Government(1)
$
20,170 $
13,712
33,882 $
$
International(2)
Other
Customers
Total
785 $
4,120
4,905 $
24 $ 20,979
479
18,311
503 $ 39,290
Percentage
of Total
Sales
53 %
47 %
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.
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, and in 2023, we announced our goals
for water and waste. 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;
Reduce 10% of absolute water withdrawals, reuse 10% of water withdrawals and replenish 10% of water
withdrawals, focusing in water-stressed regions — all by 2030;
Reduce solid waste sent to landfill and incineration by 10% by 2030;
In collaboration with key customers, work to develop a pioneering product stewardship program focused on
material efficiency, product design and life cycle assessment;
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 2023; 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 and global security environment, defense spending levels, government and budgetary
priorities, political leadership, procurement practices and strategy, inflation and other macroeconomic trends,
military strategy; or broader changes in social, economic, security 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.
Where program cost estimates exceed certain thresholds, our customer has been, and may in the future be, required
to provide congressional notification of significant or critical cost increases (or breaches) under the Nunn-McCurdy
Act, which, in some circumstances, could result in program restructure or termination. For example, in January 2024
the customer provided congressional notification that the Ground Based Strategic Deterrent (“Sentinel”) program is
currently under a Nunn-McCurdy breach review.
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
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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 of the federal debt ceiling), 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 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, economic
and security challenges, which affect funding and budgetary priorities. The budget and macroeconomic
environment, global security 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. In addition,
high deficit levels and high debt servicing costs could drive cuts to federal spending. 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 (potentially of extended duration),
restricting new contract or program starts, presenting resource allocation challenges and placing limitations on
budgets. We also 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, and 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.
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 long-term continuing resolution (or series of continuing
resolutions) and breach of the debt ceiling, ongoing fiscal debates and the global economic and security 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, including inflation,
labor challenges, supply chain challenges, and market and exchange rate volatility; 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; challenges caused by the global health
environment; and natural disasters or environmental matters.
We aim to mitigate this risk through contract terms, and we have submitted and may submit requests for equitable
adjustment (REAs), engineering change proposals or other 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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NORTHROP GRUMMAN CORPORATION
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
2023, 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 have sought, and may in the future 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 may 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
recover on requests for equitable adjustments, engineering change proposals or other 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 and Estimates” 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, which has experienced extraordinary challenges, including
high rates of inflation; increased interest rates; widespread disruptions in supply chains; workforce challenges,
including labor shortages; and market volatility, including exchange rate 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 have improved, 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 or duration of this risk, including
how the macroeconomic environment will evolve or how it will continue to impact us.
We continue to work proactively to mitigate the challenges caused by the macroeconomic environment, including,
in some cases, seeking the inclusion of economic price adjustment clauses or seeking to recover on requests for
equitable adjustments, engineering change proposals or other claims. 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, marketing or servicing 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
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, and anticipate that
acquisitions within our industry could further increase competition. We are also facing increasing competition for,
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NORTHROP GRUMMAN CORPORATION
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. Our
success in competing depends, in part, on our ability to remain cost-competitive, accurately anticipate our
customers’ needs and successfully to effect our digital transformation strategy and 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 the start of contract activities 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 and reporting, false statements or claims, cybersecurity and pension accounting and
other employee benefit plan matters. 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 contractual 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
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 or other business arrangements and/or invest in third
parties with whom we do business. Notwithstanding our robust processes, we may be unable to prevent misconduct
or violations of applicable laws by these joint ventures (including their officers, directors and employees) or our
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NORTHROP GRUMMAN CORPORATION
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, environment, sustainability, securities, competition, compensation costs,
taxes, counterfeit parts, pensions, and use of certain non-US equipment) or more expansive interpretations or other
changes in how government agencies construe 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. The U.S. government has been pursuing and may
continue to pursue policies that could negatively impact our profitability, including those that shift additional
responsibility and performance risks to the contractor. 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 (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 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.
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•
Environmental matters, including climate change, 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. For example, some of these recently enacted laws and regulations prohibit the
use of certain chemicals or other substances that are used in our business, which may require us to identify alternate
sources, result in additional costs and/or otherwise impact our business and operations. 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, could adversely impact our ongoing operations, and
could require changes on a more accelerated time frame. 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, if we are unable to comply with legislative and regulatory
requirements or meet our sustainability objectives, our reputation and ability to do business could be negatively
impacted. In addition, our customers’ requirements, priorities and ways of doing business with respect to
environmental matters, and climate change specifically, also may have an impact on our business, operations and
financial success. For example, in 2022, the SEC and FAR council issued proposed rule-makings on climate change.
The 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 potential costs
and operational impacts, and adversely impact our ability to win business and operate successfully.
Environmental matters may 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. 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. The company has set a goal to achieve net zero greenhouse gas emissions in our
operations by 2035 and is committed to working to achieve its climate change and other sustainability goals. 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, 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.
We may be subject to substantial administrative, civil or criminal fines, penalties or other sanctions (including
suspension and debarment) for violations of environmental laws. 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.
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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
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.
We may be subject to future tax audits and legal challenges involving OATK, which we acquired in 2018, 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
•
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
non-state 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, continuing and evolving nature of cyber and other security threats, including threats from targeting by
more advanced and persistent adversaries, including nation states and other actors, 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 and verify adequate controls and safeguards to protect against and report cyber incidents. If they fail to
deter, detect 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
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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 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 our existing or future disclosure obligations and/or having our
disclosures misinterpreted. National security or public safety considerations may also affect, or in limited instances
prevent, our public disclosure of a cybersecurity incident in certain circumstances.
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.
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. Although we have realized benefits from extensive hiring and retention programs in
recent years, the risk of insufficient personnel may 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, develop and retain the
necessary talented and diverse workforce, and to maintain performance levels and our corporate culture. There is
also the risk that we are unable to achieve our environmental, social and governance (ESG) goals which may be
required by certain of our shareholders, employees, the government and other stakeholders, which could adversely
impact our reputation, business and ability to hire and retain talent.
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
impacts on operating efficiency and may be subject to work stoppages or other labor-related disruptions. Any such
expenses or delays could adversely affect our performance and results.
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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, parts 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 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. We also may experience challenges performing if we are unable to use certain
raw materials, chemicals or other substances due to laws or other regulations that restrict or prohibit the use of such
items and cannot obtain a reasonable substitute on a cost-effective basis. 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 the global security
environment, 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 and/or are restricted from procuring products or services from
certain sources. 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. For some components, there has been or may be only one supplier, or one domestic supplier.
If that supplier cannot meet our needs or if we are unable to procure components from certain suppliers due to
regulatory restrictions, we may be unable to find a suitable alternative and to meet our obligations.
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. 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 or meet their obligations to us, it 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.
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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. 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. 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. 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. 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 global threat environment, political leadership, geopolitical and economic uncertainties,
world events, government budgets, inflationary pressures, sanctions imposed in countries where we do business or
seek to do business, 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 certain suppliers, as in the U.S., 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 for reasons outside our control. 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.
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.
• 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. The global health environment has contributed to business slowdowns or shutdowns, labor shortages,
supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary
pressures and market volatility. Although we aim to mitigate impacts of adverse changes in the global health
environment, these changes can be unpredictable and we may be unable to effectively mitigate them. If a health
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epidemic, pandemic or similar outbreak were to occur or worsen, 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 and/or production delays, market volatility and
other financial impacts. If any or all of these items were to occur, we could experience material adverse impacts on
our business, financial position, results of operations and/or cash flows.
•
Our future success depends, in part, on our ability to innovate, develop new products and technologies, progress
and benefit from digital transformation and maintain technologies, facilities and equipment to win new
competitions and meet the needs of our customers. Failure to do so or meet our contractual obligations that
require innovative design 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. 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, our ability to compete (including with commercial companies)
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. 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.
We aim to ensure that our technical solutions are responsibly developed, tested and operated. 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, satellite system or other 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. 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
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other weather events (which may be exacerbated by climate change). 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).
If a natural disaster occurs, our operations could be interrupted, our employees could be impacted, we could incur
significant costs and our performance could be adversely affected. 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.
• 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.
3861, 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 or other hazardous substances. 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 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.
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NORTHROP GRUMMAN CORPORATION
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
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.
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. For example, the space and property
insurance markets are experiencing increased price volatility and capacity constraint. Due to recent increases in the
frequency and severity of losses, insurers are decreasing limits, increasing pricing and some may exit the market.
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 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.
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NORTHROP GRUMMAN CORPORATION
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 is an intangible asset that we recognize in connection with acquisitions of third-party businesses. Goodwill
accounts for approximately 38 percent of our total assets as of December 31, 2023. Other long-lived assets
principally comprise property, plant and equipment (PP&E) used in operating our business. The cost of PP&E
utilized in support of our commercial business, including approximately $500 million of PP&E used in our
commercial space business, is not allocable to government contracts and is therefore subject to greater recoverability
risk than PP&E utilized in support of our U.S. government contracts. Although the fair value of our reporting units
and the net realizable value of our other long-lived assets currently exceed their respective carrying values, changes
in business conditions, the market-based inputs used in our goodwill impairment test, or our assumptions related to
the recoverability of our long-lived assets, 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.
Item 1C. Cybersecurity
We recognize the critical importance of maintaining the safety and security of our systems and data and have a
holistic process for overseeing and managing cybersecurity and related risks. This process is supported by both
management and our Board of Directors.
The Chief Information Office, which maintains our cybersecurity function, is led by our Chief Information Officer
(CIO), who reports to our CEO. The Chief Information Security Officer (CISO) reports to the CIO and generally is
responsible for management of cybersecurity risk and the protection and defense of our networks and systems. The
CISO manages a team of cybersecurity professionals with broad experience and expertise, including in cybersecurity
threat assessments and detection, mitigation technologies, cybersecurity training, incident response, cyber forensics,
insider threats and regulatory compliance.
Our Board of Directors is responsible for overseeing our enterprise risk management activities in general, and each
of our Board committees assists the Board in the role of risk oversight. The full Board receives an update on the
Company’s risk management process and the risk trends related to cybersecurity at least annually. The Audit and
Risk Committee specifically assists the Board in its oversight of risks related to cybersecurity. To help ensure
effective oversight, the Audit and Risk Committee receives reports on information security and cybersecurity from
the CISO at least four times a year.
In addition, the Company’s Enterprise Risk Management Council (ERMC) considers risks relating to cybersecurity,
among other significant risks, and applicable mitigation plans to address such risks. The ERMC is comprised of the
Executive Leadership Team, as well as the Chief Accounting Officer, Chief Compliance Officer, Corporate
Secretary, Chief Sustainability Officer, Treasurer and Vice President, Internal Audit. The CIO and CISO attend each
ERMC meeting. The ERMC meets during the year and receives periodic updates on cybersecurity risks from the
CIO and CISO. We have an established process and playbook led by our CISO governing our assessment, response
and notifications internally and externally upon the occurrence of a cybersecurity incident. Depending on the nature
and severity of an incident, this process provides for escalating notification to our CEO and the Board (including our
Lead Independent Director and the Audit and Risk Committee chair).
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NORTHROP GRUMMAN CORPORATION
Our approach to cybersecurity risk management includes the following key elements:
• Multi-Layered Defense and Continuous Monitoring – We work to protect our computing environments and
products from cybersecurity threats through multi-layered defenses and apply lessons learned from our
defense and monitoring efforts to help prevent future attacks. We utilize data analytics to detect anomalies
and search for cyber threats. Our Cybersecurity Operations Center provides comprehensive cyber threat
detection and response capabilities and maintains a 24x7 monitoring system which complements the
technology, processes and threat detection techniques we use to monitor, manage and mitigate
cybersecurity threats. From time to time, we engage third party consultants or other advisors to assist in
assessing, identifying and/or managing cybersecurity threats. We also periodically use our Internal Audit
function to conduct additional reviews and assessments.
•
•
•
•
•
Insider Threats – We maintain an insider threat program designed to identify, assess, and address potential
risks from within our Company. Our program evaluates potential risks consistent with industry practices,
customer requirements and applicable law, including privacy and other considerations.
Information Sharing and Collaboration – We work with government, customer, industry and/or supplier
partners, such as the National Defense Information Sharing and Analysis Center and other government-
industry partnerships, to gather and develop best practices and share information to address cyber threats.
These relationships enable the rapid sharing of threat and vulnerability mitigation information across the
defense industrial base and supply chain.
Third Party Risk Assessments – We conduct information security assessments before sharing or allowing
the hosting of sensitive data in computing environments managed by third parties, and our standard terms
and conditions contain contractual provisions requiring certain security protections.
Training and Awareness – We provide awareness training to our employees to help identify, avoid and
mitigate cybersecurity threats. Our employees with network access participate annually in required training,
including spear phishing and other awareness training. We also periodically host tabletop exercises with
management and other employees to practice rapid cyber incident response.
Supplier Engagement – We provide training and other resources to our suppliers to support cybersecurity
resiliency in our supply chain. We also require our suppliers to comply with our standard information
security terms and conditions, in addition to any requirements from our customers, as a condition of doing
business with us, and require them to complete information security questionnaires to review and assess
any potential cyber-related risks depending on the nature of the services being provided.
While we have experienced cybersecurity incidents in the past, to date none have materially affected the Company
or our financial position, results of operations and/or cash flows. We continue to invest in the cybersecurity and
resiliency of our networks and to enhance our internal controls and processes, which are designed to help protect our
systems and infrastructure, and the information they contain. For more information regarding the risks we face from
cybersecurity threats, please see “Risk Factors.”
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 SEC
filings. These risks and uncertainties are amplified by the global macroeconomic, security and political
environments, including inflationary pressures, labor and supply chain challenges, 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 the global security environment or 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 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 climate change, 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
•
•
•
•
•
•
•
•
•
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
impacts related to health epidemics and pandemics and similar outbreaks
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 innovate, develop new products and technologies, progress and benefit from digital transformation
and maintain technologies to meet the needs of our customers
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
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
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NORTHROP GRUMMAN CORPORATION
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, 2023, we had approximately 51 million square feet of floor space at 459 separate locations,
primarily in the U.S., for manufacturing, warehousing, research and testing, administration and various other uses.
We leased to third parties approximately 37,000 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; Northridge, 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, Boulder, and Colorado Springs, CO; Beltsville, MD; Devens, MA;Clearfield, Corinne,
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, 2023:
Square feet (in thousands)
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Corporate
Total
Owned
Leased
U.S. Government
Owned/Leased
Total
3,179
1,367
8,033
9,546
372
22,497
6,204
3,328
4,145
8,714
246
22,637
3,302
2,285
—
589
—
6,176
12,685
6,980
12,178
18,849
618
51,310
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.
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
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NORTHROP GRUMMAN CORPORATION
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 150,109,271 shares and 153,157,924
shares were issued and outstanding as of December 31, 2023 and 2022, 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, 2023 and 2022.
MARKET INFORMATION
Our common stock is listed on the New York Stock Exchange and trades under the symbol NOC.
HOLDERS
As of January 22, 2024, there were 18,531 common shareholders of record.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Period
September 30, 2023 - October 27, 2023
October 28, 2023 - November 24, 2023
November 25, 2023 - December 31, 2023
Total
Number
of Shares
Purchased
Average
Price
Paid per
Share(1)
85,824 $ 449.40
293,446
379,654
466.94
470.52
758,924 $ 466.75
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)(2)
85,824
293,446
379,654
758,924
$
$
1,441
1,304
3,625
3,625
(1) Excludes commissions paid.
(2) The value remaining on December 31, 2023 includes an additional $2.5 billion share repurchase authorization approved by the
company’s board of directors on December 6, 2023.
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
• Assumes $100 invested at the close of business on December 31, 2018, 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 Axon Enterprise, Inc., The Boeing Company, General Dynamics
Corporation, Howmet Aerospace Inc., Huntington Ingalls Industries Inc., L3Harris Technologies, Inc.,
Lockheed Martin Corporation, Northrop Grumman Corporation, RTX Corporation, Textron Inc., and
TransDigm Group Incorporated.
• 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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Period EndingNorthrop GrummanS&P 500 IndexS&P A&D Index201820192020202120222023$0$50$100$150$200$250$300$350$400
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, 2022 (“2022 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. We continue to not anticipate significant adverse financial
impacts directly from the ongoing conflict. We have experienced, and, while difficult to predict, may continue to
experience a modest increase in demand for certain of our goods and services directly and indirectly related to the
conflict in Ukraine, either through direct sales or if the U.S. provides increased military assistance and support to
Ukraine.
More recently, the hostilities in Israel and the Gaza Strip have further heightened global tensions and instability. At
this time, it is unknown whether hostilities in this region will escalate into an even larger conflict. The demand for
our goods and services may increase, especially if the U.S. provides increased military assistance and support to
Israel. We do not have a significant business presence in the region, and therefore do not anticipate significant
adverse financial impacts directly from the current conflict.
More broadly, the ongoing conflicts in Ukraine and Israel and threats elsewhere, particularly in the Pacific region,
have heightened tensions and highlighted security requirements globally, including Europe, the Middle East and the
Pacific region, as well as the U.S. These conflicts may result in increased demand for defense products and services
from allies and partner nations, particularly in those areas. We are actively exploring both opportunities and risks
associated with the broader global security environment.
We believe the current global security environment highlights the significant national security threats to the U.S. and
its allies, and the need for strong deterrence and a robust defense capability. We believe our capabilities, particularly
in space, C4ISR, missile defense, battle management, advanced weapons, and 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.
Global Economic Environment
The global economic environment has experienced extraordinary challenges, including high rates of inflation and
inflationary pressures; widespread delays and disruptions in supply chains; business slowdowns or shutdowns;
workforce challenges and labor shortfalls; and market volatility. Some of these challenges were due, in part, to the
global health emergency caused by COVID-19, which the World Health organization declared ended in May 2023.
Direct impacts of COVID-19 on our business during 2023 were limited, and we are not currently expecting
significant direct impacts on our business going forward.
The macroeconomic factors have contributed, and we expect will continue to contribute, to increased costs, delays,
disruptions and other performance challenges, as well as increased competing demands for limited resources to
address such increased costs and other challenges, for our company, our suppliers and partners, and our customers.
We continue to work hard to mitigate 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, 2023. We cannot clearly predict how long these macroeconomic challenges will
continue, 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 and
suppliers, our industry and our company in 2024.
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NORTHROP GRUMMAN CORPORATION
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
The U.S. continues to face an uncertain and evolving political, budget and regulatory environment. In particular, it is
difficult to predict the specific course of future defense budgets. Current and future requirements related to the
conflicts in Ukraine and Israel, threats in the Pacific regions and other security priorities, as well as global inflation,
the national debt, and other domestic priorities, among other things, in the U.S. and globally, will continue to impact
our customers’ budgets, spending and priorities, and our industry. The U.S. political environment, including the U.S.
election cycle, may also impact defense budgets and priorities, issues related to the national debt, and government
spending more broadly. We anticipate that issues related to budgetary priorities and defense spending levels, the
debt ceiling, and the spending caps imposed by the Fiscal Responsibility Act of 2023 (FRA), particularly with
respect to discretionary spending, will continue to be a subject of considerable debate, with a potentially significant
impact on our programs and the company.
Annual appropriations to fund the federal government for FY 2024 have not been enacted. Congress continues to
pass short-term continuing resolutions (CR) to fund the federal government. The most recent “laddered” CR passed
in January 2024 funds the government through March 2024, depending on the appropriation bill. If Congress does
not pass full year appropriations or an additional CR before current funding expires, the federal government (or
select departments) could face a shutdown and cease what are characterized as certain non-essential operations.
Depending on the nature and duration of a potential shutdown, businesses that rely on government funding,
including defense contractors, could be significantly impacted. If the federal government remains under a CR at the
end of April 2024, the one percent discretionary spending cuts under the FRA could be triggered, potentially
resulting in lower funding on the programs in which we participate.
In December 2023, the president signed the National Defense Authorization Act (NDAA) for FY 2024 which
supports approximately $886 billion in FY 2024 funding for national defense, $842 billion of which is for the DoD.
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 conflicts and heightened global tensions, 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, pockets of 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 global security and economic environment and U.S. political, budget and regulatory
environment, including the risks related thereto, see “Liquidity and Capital Resources,” “Quantitative and
Qualitative Disclosures About Market Risks” and “Risks Factors” included in this Form 10-K.
Ground-Based Strategic Deterrent (“GBSD” or “Sentinel”) Program Nunn-McCurdy Breach Review
Due in part to the impact of macroeconomic factors, in January 2024 the customer provided congressional
notification that the Sentinel program is currently under a Nunn-McCurdy breach review, which is required when
total program cost estimates exceed certain defined thresholds. This notification, which has been driven primarily by
increases in construction and procurement cost projections for the Production and Deployment phases, commences
the process to achieve recertification for continuance of the program and update its baseline cost estimates. We are
currently executing under a cost-type contract for the Engineering and Manufacturing Development phase, and the
Production and Deployment phases are yet to be priced and negotiated. We are continuing to partner with our
customer to address this critical mission. For more information, 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 Information Solutions and
Services (IS&S) division of Defense Systems (excluding the Vinnell Arabia business); select cyber, intelligence and
missions support programs, which were part of the former Cyber and Intelligence Mission Solutions (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
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NORTHROP GRUMMAN CORPORATION
date; therefore, no sales and operating income were recognized for this business during the years ended December
31, 2023 and 2022. The company recorded sales of $162 million and pre-tax profit of $20 million for the IT and
mission support services business during the year ended December 31, 2021.
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).
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”).
Mark-to-market adjusted net earnings (MTM-adjusted net earnings) and MTM-adjusted earnings per share (MTM-
adjusted EPS) exclude MTM pension and OPB (expense)/benefit and related tax impacts, which are generally only
recognized during the fourth quarter. Transaction-adjusted net earnings and transaction-adjusted earnings per share
(transaction-adjusted EPS) exclude the MTM impacts noted above, as well as 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. 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 pension and OPB actuarial gains and losses, and with regard to transaction-adjusted net earnings and EPS, the
impact of certain divestiture activity. These measures are also consistent with how management views the
underlying performance of the business as the impact of MTM accounting and the IT services divestiture 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.
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NORTHROP GRUMMAN CORPORATION
Selected financial highlights are presented in the table below:
$ in millions, except per share amounts
2023
2022
2021
2023
2022
Sales
Operating costs and expenses
$ 39,290
$ 36,602
$ 35,667
36,753
33,001
31,996
7 %
11 %
3 %
3 %
Operating costs and expenses as a % of sales
93.5 %
90.2 %
89.7 %
Year Ended December 31
% Change in
Gain on sale of business
Operating income
Operating margin rate
—
2,537
—
3,601
1,980
5,651
— %
NM
(30) % (36) %
6.5 %
9.8 %
15.8 %
Mark-to-market pension and OPB (expense) benefit
Federal and foreign income tax expense
(422)
290
1,232
940
2,355
1,933
NM (48) %
(69) % (51) %
Effective income tax rate
Net earnings
Diluted earnings per share
12.4 %
16.1 %
21.6 %
2,056
4,896
7,005
(58) % (30) %
$ 13.53
$ 31.47
$ 43.54
(57) % (28) %
Sales
2023 sales increased $2.7 billion, or 7 percent, due to higher sales at all four sectors. 2023 sales reflect continued
strong demand for our products and services.
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
2023 operating income decreased $1.1 billion, or 30 percent, primarily due to a $1.56 billion charge on the B-21
program at Aeronautics Systems, partially offset by higher operating income at Space Systems and Defense
Systems. The B-21 charge relates to the low-rate initial production (LRIP) phase of the program and is due
principally to a change in our assumptions regarding funding to mitigate the impact of macroeconomic disruptions
on the program and higher projected manufacturing costs that reflect recent supplier negotiations and our experience
in completing the first aircraft. The decrease was also offset by $311 million of lower unallocated corporate expense,
largely due to higher deferred state tax benefits associated with the MTM adjustment and B-21 charge and lower
intangible asset amortization and PP&E step-up depreciation, as well as a $118 million reduction in the FAS/CAS
operating adjustment. 2023 operating margin rate declined to 6.5 percent from 9.8 percent reflecting the items
above.
2023 G&A costs as a percentage of sales decreased to 10.2 percent from 10.6 percent, primarily due to higher sales,
which more than offset our continued investments for future business opportunities.
For further information regarding product and service operating costs and expenses, see “Product and Service
Analysis” below.
Mark-to-Market Pension and OPB Benefit/Expense
The primary components of pre-tax MTM (expense) benefit are presented in the table below:
$ in millions
Actuarial (losses) gains on projected benefit obligation
Actuarial gains (losses) on plan assets
MTM (expense) benefit
Year Ended December 31
2023
2022
2021
$
$
(1,489) $
1,067
(422) $
9,662 $
(8,430)
1,232 $
1,163
1,192
2,355
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NORTHROP GRUMMAN CORPORATION
The 2023 MTM expense of $422 million was primarily driven by a 39 basis point decrease in the discount rate from
year end 2022, partially offset by actual net plan asset returns of 11.1 percent compared to our 7.5 percent asset
return assumption.
Federal and Foreign Income Taxes
The 2023 effective tax rate (ETR) decreased to 12.4 percent from 16.1 percent in 2022 primarily due to lower
earnings before income taxes as a result of the B-21 charge and MTM expense, which collectively reduced the 2023
ETR by 3.8 percentage points. The 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points. See Note 7
to the consolidated financial statements for additional information.
Net Earnings
The table below reconciles net earnings to MTM-adjusted net earnings and transaction-adjusted net earnings:
$ in millions
Net earnings
MTM expense (benefit)
MTM-related deferred state tax (benefit) expense(1)
Federal tax (benefit) expense of items above(2)
MTM adjustment, net of tax
MTM-adjusted net earnings
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
2021
2022
2023
$ 2,056 $ 4,896 $ 7,005
(1,232) (2,355)
124
65
245
469
(922) (1,762)
5,243
(1,980)
160
32
54
614
(1,120)
$ 2,372 $ 3,974 $ 4,123
422
(22)
(84)
316
2,372
—
—
—
—
—
—
3,974
—
—
—
—
—
—
% Change in
2022
2023
(58) % (30) %
NM (48) %
NM (48) %
NM (48) %
NM (48) %
(40) % (24) %
NM
NM
NM
NM
NM
NM
(4) %
NM
NM
NM
NM
NM
NM
(40) %
(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.
2023 net earnings decreased $2.8 billion, or 58 percent, principally due to a $1.7 billion decrease in our MTM
(expense) benefit, a $975 million reduction in the non-operating FAS pension benefit and the $1.1 billion decrease
in operating income described above, partially offset by a $650 million decrease in income tax expense, a
$107 million increase in returns on marketable securities related to our non-qualified benefit plans, and a $97 million
gain recognized upon the sale of our minority investment in an Australian business.
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NORTHROP GRUMMAN CORPORATION
Diluted Earnings Per Share
The table below reconciles diluted earnings per share to MTM-adjusted EPS and transaction-adjusted EPS:
Diluted earnings per share
MTM expense (benefit) per share
MTM-related deferred state tax (benefit) expense per share(1)
Federal tax (benefit) expense of items above per share(2)
MTM adjustment per share, net of tax
MTM-adjusted EPS
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
2021
2022
2023
$ 13.53 $ 31.47 $ 43.54
(7.92) (14.64)
2.78
0.77
0.42
(0.14)
1.57
2.92
(0.56)
(5.93) (10.95)
2.08
32.59
25.54
15.61
(12.31)
—
—
0.99
—
—
0.20
—
—
0.34
—
—
3.82
—
—
(6.96)
—
—
$ 15.61 $ 25.54 $ 25.63
% Change in
2022
2023
(57) % (28) %
NM (46) %
NM (45) %
NM (46) %
NM (46) %
(39) % (22) %
NM
NM
NM
NM
NM
NM
— %
NM
NM
NM
NM
NM
NM
(39) %
(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.
2023 diluted earnings per share decreased $17.94, or 57 percent, reflecting the 58 percent decrease in net earnings
described above and a 2 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.”
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
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NORTHROP GRUMMAN CORPORATION
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
Deferred state tax (benefit) expense(1) of MTM
adjustment
Deferred state tax benefit of B-21 charge(1)
Other unallocated corporate expense
Unallocated corporate expense (income)
Segment operating income
Segment operating margin rate
Year Ended December 31
2022
$ 3,601
2021
$ 5,651
2023
$ 2,537
% Change in
2023
(30) % (36) %
2022
6.5 %
9.8 %
15.8 %
(154)
236
82
—
—
122
(167)
367
200
—
—
242
(544)
414
(130)
(1,980)
192
254
(8) % (69) %
(36) % (11) %
(59) % (254) %
NM
— %
— %
NM
(50) %
(5) %
(22)
(82)
123
141
$ 2,760
65
—
145
452
$ 4,253
124
—
106
(1,304)
$ 4,217
(134) % (48) %
NM
NM
(15) %
37 %
(69) % (135) %
1 %
(35) %
7.0 %
11.6 %
11.8 %
(1) Represents the deferred state tax (benefits) expenses associated with MTM (expense) benefit and the B-21 charge, which are
recorded in Unallocated corporate expense (income) consistent with other changes in deferred state taxes.
Segment Operating Income and Margin Rate
2023 segment operating income decreased $1.5 billion, or 35 percent, and segment operating margin rate decreased
to 7.0 percent primarily due to the B-21 charge at Aeronautics Systems. Operating income at Space Systems and
Defense Systems was higher than in the prior year period.
FAS/CAS Operating Adjustment
The decrease in our 2023 FAS/CAS operating adjustment is primarily due to lower FAS pension service expense
resulting from changes in certain actuarial assumptions as of December 31, 2022.
Unallocated Corporate Expense (Income)
The decrease in 2023 unallocated corporate expense is primarily due to higher deferred state tax benefits associated
with the MTM adjustment and B-21 charge and lower intangible asset amortization and PP&E step-up depreciation.
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
Year Ended December 31
2023
2022
2021
$
$
1,314 $
1,337 $
1,242
(1,230)
(977)
(715)
84 $
360 $
527
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NORTHROP GRUMMAN CORPORATION
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
AERONAUTICS SYSTEMS
Year Ended December 31
2023
2022
2021
$
(44) $
174 $
111
149
(121)
(11)
111
138
(38)
(25)
$
84 $
360 $
25
113
263
134
(8)
527
Aeronautics Systems is a leader in the design, development, production, integration, sustainment and modernization
of military aircraft systems for the U.S. Air Force, the U.S. Navy, other U.S. government agencies, and international
customers. Major products include strategic long-range strike aircraft; tactical fighter and air dominance aircraft;
airborne battle management and command and control systems; and unmanned autonomous aircraft systems,
including high-altitude long-endurance (HALE) strategic intelligence, surveillance and reconnaissance (ISR)
systems and vertical take-off and landing (VTOL) tactical ISR systems.
$ in millions
Sales
Operating (loss) income
Operating margin rate
Year Ended December 31
2023
$ 10,786
(473)
(4.4) %
2022
$ 10,531
1,116
10.6 %
2021
$ 11,259
1,093
9.7 %
% Change in
2023
2022
2 %
NM
(6) %
2 %
Sales
2023 sales increased $255 million, or 2 percent, primarily due to higher volume on restricted programs, partially
offset by a $191 million decrease on the F/A-18 program largely due to post Multi-Year Procurement 4 (MYP4)
contract award timing, a $131 million decrease on the Joint Surveillance and Target Attack Radar System (JSTARS)
program as that program nears completion and a decrease on the E-2 program largely related to higher material
volume in the prior year.
Operating Income
2023 operating income decreased $1.6 billion and operating margin rate decreased to (4.4) percent primarily due to
the previously described $1.56 billion charge recorded on the LRIP phase of the B-21 program, inclusive of a
$143 million unfavorable EAC adjustment for the first LRIP lot. The prior year period includes $133 million of
favorable EAC adjustments on the engineering, manufacturing and development phase of the B-21 program and a
$38 million gain on a property sale. Apart from the B-21 EAC adjustments noted above, net EAC adjustments across
the sector were $58 million higher than in the prior year.
DEFENSE SYSTEMS
Defense Systems is a leader in the design, development, integration and production of advanced tactical weapons
and missile defense solutions, and a provider of sustainment, modernization and training services for manned and
unmanned aircraft and electronics systems for the U.S. military and a broad range of international customers. Major
products and services include integrated, all-domain command and control (C2) battle management systems,
precision strike weapons; advanced propulsion, including high speed air-breathing and hypersonic systems; high-
performance gun systems, ammunition, precision munitions and advanced fuzes; aircraft and mission systems
logistics support, sustainment, operations and modernization; and warfighter training.
$ in millions
Sales
Operating income
Operating margin rate
Year Ended December 31
2022
$ 5,579
664
11.9 %
2023
$ 5,862
710
12.1 %
2021
$ 5,776
696
12.0 %
% Change in
2023
2022
5 %
7 %
(3) %
(5) %
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NORTHROP GRUMMAN CORPORATION
Sales
2023 sales increased $283 million, or 5 percent, primarily due to higher volume on several programs, including
ammunition programs, Guided Multiple Launch Rocket System (GMLRS), an international training program,
Hypersonic Attack Cruise Missile (HACM), and Stand-in Attack Weapon (SiAW).
Operating Income
2023 operating income increased $46 million, or 7 percent, due to higher sales and a higher operating margin rate.
Operating margin rate increased to 12.1 percent from 11.9 percent primarily due to the write-down of an
unconsolidated joint venture investment in the prior year.
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 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; full spectrum cyber solutions; intelligence processing systems; advanced microelectronics; navigation and
positioning sensors; and maritime power, propulsion and payload launch systems.
$ in millions
Sales
Operating income
Operating margin rate
Year Ended December 31
2022
$ 10,396
1,618
15.6 %
2023
$ 10,895
1,609
14.8 %
2021
$ 10,134
1,579
15.6 %
% Change in
2023
2022
5 %
(1) %
3 %
2 %
Sales
2023 sales increased $499 million, or 5 percent, primarily due to higher restricted sales on advanced
microelectronics programs, as well as a $165 million increase on marine systems programs. These increases were
partially offset by a $107 million decrease on the Ground/Air Task Oriented Radar (G/ATOR) program largely
driven by the timing of material receipts and full-rate production (FRP) 5 contract award, as well as lower volume
on airborne radar programs.
Operating Income
2023 operating income decreased $9 million, or 1 percent, due to a lower operating margin rate, which more than
offset higher sales. Operating margin rate decreased to 14.8 percent from 15.6 percent primarily due to a prior year
$33 million benefit recognized in connection with a contract-related legal matter, as well as changes in contract mix
toward more cost-type content.
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 spacecraft systems,
subsystems, sensors and payloads; ground systems; missile defense systems and interceptors; launch vehicles and
related propulsion systems; and strategic missiles.
$ in millions
Sales
Operating income
Operating margin rate
Year Ended December 31
2022
$ 12,275
1,158
2023
$ 13,946
1,212
8.7 %
9.4 %
2021
$ 10,608
1,121
10.6 %
% Change in
2023
2022
14 %
5 %
16 %
3 %
Sales
2023 sales increased $1.7 billion, or 14 percent, primarily due to higher volume on restricted programs and ramp-up
on development programs, including increases of $426 million on the Ground Based Strategic Deterrent (GBSD)
program, $333 million on the Next-Generation Overhead Persistent Infrared Polar (NextGen Polar) program,
$219 million on the Next Generation Interceptor (NGI) program, $119 million on the Space Development Agency
(SDA) Tranche 1 Tracking Layer program and $102 million on the SDA Tranche 2 Transport Layer program. These
increases were partially offset by a $172 million decrease for Commercial Resupply Services (CRS) missions and a
$109 million decrease on the Habitation and Logistics Outpost (HALO) program.
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NORTHROP GRUMMAN CORPORATION
Operating Income
2023 operating income increased $54 million, or 5 percent, due to higher sales, partially offset by a lower operating
margin rate. Operating margin rate decreased to 8.7 percent from 9.4 percent primarily due to a prior year
$96 million gain recognized in connection with a land exchange transaction, as well as lower net EAC adjustments
driven by $100 million of unfavorable EAC adjustments on the HALO program in 2023. These decreases were
partially offset by a $42 million benefit from insurance recoveries in our commercial space business during 2023.
PRODUCT AND SERVICE ANALYSIS
The following table presents product and service sales and operating costs and expenses by segment:
$ in millions
2023
Year Ended December 31
2022
2021
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
Total Product
Total Service
Total Company
Operating
Costs and
Expenses
Sales
Operating
Costs and
Expenses
Sales
Operating
Costs and
Expenses
Sales
$ 8,157 $ 8,942 $ 7,981 $ 7,161 $ 9,408 $ 8,534
1,462
170
10,166
2,389
240
10,786
2,099
218
11,259
1,662
189
11,259
2,311
239
10,531
2,042
212
9,415
2,984
2,080
798
5,862
7,749
2,092
1,054
10,895
2,615
1,836
701
5,152
6,669
1,730
887
9,286
2,717
2,056
806
5,579
7,376
2,005
1,015
10,396
2,385
1,819
711
4,915
6,291
1,639
848
8,778
2,564
2,423
789
5,776
7,064
2,077
993
10,134
2,243
2,137
700
5,080
6,017
1,695
843
8,555
10,448
1,708
119
12,275
12,007
1,832
107
13,946
11,067
1,572
95
12,734
7,898
1,464
125
9,487
$ 30,897 $ 29,293 $ 28,522 $ 25,292 $ 27,868 $ 24,692
6,758
$ 39,290 $ 36,530 $ 36,602 $ 32,349 $ 35,667 $ 31,450
8,832
1,637
139
10,608
9,455
1,557
105
11,117
8,393
7,057
7,799
8,080
7,237
Product Sales and Costs
2023 product sales increased $2.4 billion, or 8 percent, due to an increase in product sales at all four sectors. The
increase was principally driven by higher volume on restricted programs, GBSD and NGI at Space Systems, higher
restricted sales at Mission Systems and Aeronautics Systems, and higher volume on ammunition programs,
GMLRS, IBCS and HACM at Defense Systems.
2023 product costs increased $4.0 billion, or 16 percent, consistent with the higher product sales described above
and reflect a lower operating margin rate principally due to the previously described $1.56 billion charge on the
B-21 program at Aeronautics Systems and lower net EAC adjustments on Space Systems production programs.
Service Sales and Costs
2023 service sales increased $313 million, or 4 percent, due to an increase in service sales at all four sectors. The
increase was principally driven by higher restricted sales at Space Systems and Aeronautics Systems, higher volume
on restricted programs and F-35 sustainment at Mission Systems, and higher volume on an international training
program at Defense Systems.
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NORTHROP GRUMMAN CORPORATION
2023 service costs increased $180 million, or 3 percent, consistent with the higher service sales described above and
reflects a higher operating margin rate on Space Systems service programs.
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, 2023 and 2022:
$ in millions
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Total backlog
2023
Funded
Unfunded
Total
Backlog
2022
Total
Backlog
% Change
in 2023
$
9,660 $
6,346
11,334
10,035
9,923 $ 19,583 $ 19,397
7,515
8,064
1,718
13,875
16,108
4,774
37,956
40,475
30,440
$ 37,375 $ 46,855 $ 84,230 $ 78,743
1 %
7 %
16 %
7 %
7 %
2023 net awards totaled $44.8 billion. Significant 2023 new awards include $15.5 billion for restricted programs
(primarily at Space Systems, Aeronautics Systems and Mission Systems), $2.1 billion for F-35 programs (primarily
at Aeronautics Systems and Mission Systems), $1.7 billion for E-2, $1.5 billion for Triton, $1.4 billion for SDA
Tranche 2 Transport Layer, and $0.8 billion for GMLRS.
Subsequent Event – In January 2024, the company received a termination for convenience in our restricted Space
business. The company expects to reduce backlog by approximately $2 billion during the first quarter of 2024
related to the termination.
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, 2023, we had cash and cash equivalents of $3.1 billion; $277 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 2023, we renewed our one-year $500 million uncommitted credit facility. At December 31, 2023, there
were no borrowings outstanding under these credit facilities. In February 2023, we issued $2.0 billion of unsecured
senior notes for general corporate purposes, including debt repayment, share repurchases and working capital.
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, 2023, we had $20.7 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, 2023, we had capital expenditure commitments of $1.4 billion, which we expect to satisfy with
cash on hand. We also had provisions for uncertain tax positions of $2.0 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
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NORTHROP GRUMMAN CORPORATION
credit and guarantees (Note 12), future minimum contributions for the company’s pension and OPB plans (Note 13),
and lease payment obligations (Note 15).
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 estimated
tax payments we made related to Section 174. As we finalized our 2022 federal tax return along with our continued
analysis of research and development expenditures, we reduced the previously estimated impact of Section 174 on
our tax liability for 2022 and 2023 to approximately $700 million and $500 million, respectively. Congress is
considering 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 provided by operating activities:
$ in millions
Net earnings
Gain on sale of business
B-21 charge
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
2022
2021
2023
$
$
2,056 $
—
1,559
551
(139)
(144)
(8)
3,875 $
4,896 $
—
—
(1,305)
(136)
(600)
46
2,901 $
7,005
(1,980)
—
(1,510)
(141)
181
12
3,567
(1) Includes depreciation and amortization, non-cash lease expense, MTM (expense) benefit, stock based compensation expense,
deferred income taxes and net periodic pension and OPB income.
2023 cash provided by operating activities increased $974 million, or 34 percent, principally due to improved trade
working capital largely driven by increased billings and cash collections, partially offset by higher supplier
payments.
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, if any. 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
Adjusted free cash flow
Year Ended December 31
2021
2022
2023
$ 3,875 $ 2,901 $ 3,567
(1,775) (1,435) (1,415)
84
—
$ 2,100 $ 1,621 $ 2,236
155
% Change in
2023
2022
34 % (19) %
1 %
24 %
(100) % 85 %
30 % (28) %
2023 adjusted free cash flow increased $479 million, or 30 percent, principally due to higher net cash provided by
operating activities, partially offset by an increase in capital expenditures.
Investing Cash Flow
2023 net cash used in investing activities increased $341 million principally due to higher capital expenditures.
Proceeds from the sale of minority investments in 2023 were largely offset by cash received in 2022 from the sale of
equipment to a customer.
Financing Cash Flow
2023 net cash used in financing activities decreased $852 million principally due to the issuance of $2.0 billion in
long-term debt, partially offset by $1.05 billion in debt repayments. Cash returned to shareholders through share
repurchases and dividends totaled $2.6 billion in each period.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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), un-priced change orders, REAs and contract claims. 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 often
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 2023, 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 2023 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. These assessments require judgments and estimates
that can be affected by any number of these factors over time, which may cause actual results to differ materially
from those estimates as facts and circumstances change or become known to us.
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. When 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 materially. 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 5.15 percent at December 31,
2023 and 5.54 percent at December 31, 2022.
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, 2023 discount rate assumption would have the following estimated effects on 2023 pension and OPB
obligations, which would be reflected in the 2023 MTM expense (benefit), and 2024 expected pension and OPB
expense:
$ in millions
25 Basis Point
Decrease in
Rate
25 Basis Point
Increase in
Rate
2023 pension and OPB obligation and MTM expense (benefit)
$
2024 pension and OPB (benefit) expense
866 $
(23)
(827)
22
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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 returns. 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 4.02
percent for all years. Holding all other assumptions constant, an increase or decrease of 25 basis points in the
December 31, 2023 cash balance crediting rate assumption would have the following estimated effects on the 2023
pension benefit obligation, which would be reflected in the 2023 MTM expense (benefit), and 2024 expected
pension expense:
$ in millions
2023 pension obligation and MTM expense (benefit)
2024 pension (benefit) expense
25 Basis Point
Decrease in
Rate
25 Basis Point
Increase in
Rate
$
(105) $
(9)
108
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 plan 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 2023, 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 40% to 43%. The
current asset allocation is now approximately 42% fixed-income, 27% public equities, 28% alternatives and 3%
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 2023 was approximately 10.7 percent and our 20-year and 30-year rolling
average rates of return were approximately 7.9 percent and 8.7 percent, respectively, each determined on an
arithmetic basis and net of expenses. Our 2023 return on plan assets, net of expenses, were approximately 11.1
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.
For determining 2023 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 7.23 percent. For 2024 FAS expense, we
have assumed an expected long-term rate of return on pension plan assets of 7.5 percent and 7.12 percent on OPB
plans. Holding all other assumptions constant, an increase or decrease of 25 basis points in our December 31, 2023
EROA assumption would have the following estimated effects on 2024 expected pension and OPB expense:
$ in millions
2024 pension and OPB expense (benefit)
25 Basis Point
Decrease
25 Basis Point
Increase
$
76 $
(76)
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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 2024 MTM expense (benefit):
$ in millions
2024 MTM expense (benefit)
100 Basis Point
Decrease
100 Basis Point
Increase
$
305 $
(305)
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 or MP-2023 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, we adopted the full MP-2021 projection scale while continuing
to use the Pri-2012 White Collar table, supplemented 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, to develop our
mortality assumptions used in calculating our pension and OPB obligations recognized at December 31, 2023, and
the amounts estimated for our 2024 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. As of December 31, 2023, we expect approximately 90 percent of the
company’s environmental remediation costs to be recoverable; however, to the extent our judgments on the
recoverability of our environmental remediation costs change or the unallowable portion of our environmental
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NORTHROP GRUMMAN CORPORATION
remediation costs otherwise increase, there could be a significant impact on our consolidated financial position,
annual results of operations and/or cash flows.
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. As of December 31, 2023, we
have approximately $2.0 billion in unrecognized tax benefits. 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, annual results of operations and/or cash flows.
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 record property, plant and equipment (PP&E) for capital assets used in operating our business. The cost of
PP&E utilized in support of our government contracts is generally allowable and allocable cost in accordance with
applicable FAR and CAS requirements, which limits our risk of impairment on those assets. However, the cost of
PP&E utilized in support of our commercial business, including approximately $500 million of PP&E used in our
commercial space business, is not allocable to government contracts and is therefore subject to greater recoverability
risk.
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, 2023 and 2022,
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, 2023, 2022 and 2021.
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 2023, 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
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 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
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NORTHROP GRUMMAN CORPORATION
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, 2023, 2022 and
2021.
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 developing
the estimates used in our impairment analyses, differences in assumptions may have a material effect on the results
of those impairment analyses.
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NORTHROP GRUMMAN CORPORATION
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
EQUITY RISK
We have been and continue to be exposed to market risk with respect to our portfolio of marketable securities with a
fair value of $339 million at December 31, 2023. 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, 2023. At December 31, 2023, we have $13.9 billion of long-term debt, primarily
consisting of fixed-rate debt, with a fair value of approximately $13.4 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, 2023, foreign currency forward contracts with a notional amount of $286 million were outstanding.
At December 31, 2023, 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 extraordinary challenges, including the highest rates of
inflation in 40 years. The company, its subcontractors and other suppliers, have experienced, and continue to
experience, increased pressures from heightened levels of inflation and the challenges of the current macroeconomic
environment, which we have not been able to fully mitigate on a number of our fixed-price contracts, in particular
on the LRIP phase of the B-21 program at Aeronautics Systems. 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. 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 flow.
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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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2023, 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, 2023, 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 24, 2024 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 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 certain programs,
which could include forecasted cost impacts and assumptions on the ability to recover
those costs.
Evaluating selected changes to the estimates of costs and obtaining supporting
documentation on timing and amounts of these changes in estimates.
–
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.
Auditing certain assumptions associated with the Company’s uncertain tax positions involved 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 certain assumptions used in determining uncertain tax positions included the
following, among others:
• We tested the effectiveness of 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.
–
–
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 24, 2024
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 (expense) benefit
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 income (loss), net of tax
Change in cumulative translation adjustment
Change in other, net
Other comprehensive income (loss), net of tax
Comprehensive income
Year Ended December 31
2022
2023
2021
$ 30,897
8,393
39,290
$ 28,522
8,080
36,602
$ 27,868
7,799
35,667
26,226
6,513
4,014
36,753
—
2,537
22,761
6,367
3,873
33,001
—
3,601
22,309
6,090
3,597
31,996
1,980
5,651
(545)
530
(506)
1,505
(556)
1,469
(422)
246
2,346
290
$ 2,056
1,232
4
5,836
940
$ 4,896
2,355
19
8,938
1,933
$ 7,005
$ 13.57
151.5
$ 13.53
152.0
$ 31.61
154.9
$ 31.47
155.6
$ 43.70
160.3
$ 43.54
160.9
$ 2,056
$ 4,896
$ 7,005
23
(16)
(7)
2
25
$ 2,081
6
(10)
$ 4,886
(8)
(15)
$ 6,990
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 $7,964 for 2023 and
$7,258 for 2022
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 $70 for 2023 and $1,072 for 2022
Pension and other postretirement benefit plan liabilities
Operating lease liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity
December 31
2023
2022
$ 3,109
1,454
5,693
1,109
2,341
13,706
9,653
1,818
17,517
305
1,020
2,525
$ 46,544
$ 2,110
2,251
4,193
3,388
11,942
13,786
1,290
1,892
2,839
31,749
$ 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
2,039
28,443
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:
2023—150,109,271 and 2022—153,157,924
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.
—
—
150
—
14,773
(128)
14,795
$ 46,544
153
—
15,312
(153)
15,312
$ 43,755
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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 expense (benefit)
Stock-based compensation
Deferred income taxes
Gain on sale of business
B-21 charge
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
Proceeds from sale of minority investments
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
Common stock repurchases
Cash dividends paid
Payments of employee taxes withheld from share-based awards
Other, net
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Year Ended December 31
2022
2021
2023
$ 2,056
$ 4,896
$ 7,005
1,338
422
87
(988)
—
1,559
(308)
(139)
54
247
(220)
(86)
519
(658)
(8)
3,875
—
(1,775)
—
197
(4)
(1,582)
1,342
(1,232)
99
(321)
—
—
(1,193)
(136)
(44)
(646)
(205)
2
572
(279)
46
2,901
—
(1,435)
155
—
39
(1,241)
1,239
(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
1,995
(1,050)
(1,500)
(1,116)
(52)
(38)
(1,761)
532
2,577
$ 3,109
—
—
(1,504)
(1,052)
(50)
(7)
(2,613)
(953)
3,530
$ 2,577
—
(2,236)
(3,705)
(983)
(34)
(44)
(7,002)
(1,377)
4,907
$ 3,530
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
End of year
Retained earnings
Beginning of year
Common stock repurchased
Net earnings
Dividends declared
Stock compensation
End of year
Accumulated other comprehensive loss
Beginning of year
Other comprehensive income (loss), net of tax
End of year
Total shareholders’ equity
Cash dividends declared per share
Year Ended December 31
2022
2021
2023
$
$
153
(3)
—
150
—
—
—
—
$
156
(4)
1
153
—
—
—
—
167
(11)
—
156
58
(60)
2
—
15,312
(1,519)
2,056
(1,114)
38
14,773
12,913
(1,497)
4,896
(1,052)
52
15,312
10,482
(3,645)
7,005
(989)
60
12,913
(153)
25
(128)
$ 14,795
7.34
$
(143)
(10)
(153)
$ 15,312
6.76
$
(128)
(15)
(143)
$ 12,926
6.16
$
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, military aircraft, missile defense, advanced weapons and long-
range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and
breakthrough technologies, such as advanced computing, microelectronics 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
During the first quarter of 2023, we changed the presentation of the components of other comprehensive income
(loss), net of tax in the consolidated statement of earnings and comprehensive income. Prior period amounts have
been recast to conform to current period presentation. This change in presentation had no impact on our previously
reported comprehensive income in total.
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
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
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NORTHROP GRUMMAN CORPORATION
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), un-priced change orders, REAs and contract claims. 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.
At the request of the National Aeronautics and Space Administration (NASA), Space Systems submitted an
engineering change proposal (ECP) during the fourth quarter of 2023 for scope increases and other aspects of the
Habitation and Logistics Outpost (HALO) contract largely stemming from evolving Lunar Gateway architecture and
mission requirements. The ECP addresses both work performed and work expected to be performed by the company
resulting from scope changes previously approved by NASA, as well as changes NASA has requested the company
to propose but has not yet directed the company to perform. The company has begun negotiating with NASA on
these various changes and other aspects of the HALO contract. The company’s 2023 results include $100 million of
unfavorable EAC adjustments on the HALO contract and reflect our current best estimate of the outcome of the ECP
negotiations assuming the terms of the current contract; however, if the outcome is less favorable than what we have
assumed, it could have an adverse effect on our financial position, results of operations and/or cash flows.
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.
B-21 Low-Rate Initial Production Options
In 2015, the U.S. Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for
engineering, manufacturing, and design (EMD) and five low-rate initial production (LRIP) options in varying
quantities. 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 through approximately the end of the decade.
During the fourth quarter of 2023, the B-21 program entered flight testing and the company received an award for
the first LRIP lot.
We previously disclosed it was reasonably possible one or more of the LRIP options could be performed at a loss
principally due to the company’s 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. During the fourth quarter of
2023, we again reviewed our estimated profitability on the LRIP phase of the program, and we now believe it is
probable each of the first five LRIP lots will be performed at a loss. The loss is largely driven by a change in our
assumptions regarding funding to mitigate the impact of macroeconomic disruptions on the LRIP phase of the
program and higher projected manufacturing costs that reflect recent supplier negotiations and our experience in
completing the first aircraft.
The projected loss across the five LRIP lots, which we recognized during the fourth quarter of 2023, is $1.56 billion.
The loss comprises a $143 million unfavorable EAC adjustment for the first LRIP lot and a $1.37 billion loss
contingency accrual and $45 million reduction of inventoried costs for the unexercised LRIP lots. As of December
31, 2023, $631 million of the loss contingency accrual is included in Other current liabilities and $740 million is
included in Other non-current liabilities in the consolidated statement of financial position.
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NORTHROP GRUMMAN CORPORATION
If our estimated cost to complete the LRIP phase of the program changes or our assumptions regarding contract
performance, quantities, or funding to mitigate the impact of macroeconomic disruptions are resolved more or less
favorably than what we have estimated, our financial position, results of operations and/or cash flows could be
materially affected.
Net EAC Adjustments
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
2023
2022
2021
$
298 $
447 $
84
66
0.43
360
284
1.83
568
527
416
2.59
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 fourth quarter of 2023, we recorded a $143 million unfavorable EAC
adjustment on the first LRIP lot of the B-21 program at Aeronautics Systems as described above. During 2023, we
recorded $100 million of unfavorable EAC adjustments on the HALO program at Space Systems largely due to cost
growth stemming from evolving Lunar Gateway architecture and mission requirements combined with
macroeconomic challenges. During 2022, we recorded $133 million of favorable EAC adjustments on the EMD
phase of the B-21 program at Aeronautics Systems. During 2021, we recorded $135 million of unfavorable EAC
adjustments on the F-35 program at Aeronautics Systems. No other such adjustments were significant to the
financial statements during the years ended December 31, 2023, 2022 and 2021.
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.
Company backlog as of December 31, 2023 was $84.2 billion. Of our December 31, 2023 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.
Subsequent Event – In January 2024, the company received a termination for convenience in our restricted Space
business. The company expects to reduce backlog by approximately $2 billion during the first quarter of 2024
related to the termination.
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.
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NORTHROP GRUMMAN CORPORATION
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
December 31,
2023
December 31,
2022
$ Change
%
Change
$
5,693 $
5,983 $
(290)
(5) %
16 %
Advance payments and amounts in excess of costs incurred
(4,193)
(3,609)
(584)
Net contract assets
$
1,500 $
2,374 $
(874)
(37) %
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, 2023
decreased 37 percent from the prior year, primarily due to decreases in net contracts assets at Space Systems,
Missions Systems and Aeronautics Systems.
The amount of revenue recognized for the years ended December 31, 2023, 2022 and 2021 that was included in the
contract liability balance at the beginning of each year was $3.1 billion, $2.4 billion and $2.0 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, $1.2 billion and $1.1 billion in 2023, 2022 and 2021,
respectively, which represented 3.0 percent, 3.3 percent and 3.2 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 are, therefore, 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. 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.
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NORTHROP GRUMMAN CORPORATION
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.
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 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 $65 million and $59 million as of December 31, 2023
and 2022, 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
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NORTHROP GRUMMAN CORPORATION
non-qualified employee retirement plans. As of December 31, 2023 and 2022, the carrying values associated with
these policies were $399 million and $367 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.
Machinery and other equipment is primarily depreciated using declining-balance methods. The other asset categories
are generally depreciated using the straight-line method. Depreciation expense is generally an allowable and
allocable cost in accordance with applicable FAR and CAS requirements and is 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 PP&E
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 PP&E 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
Useful Life
Up to 40(1)
Up to 45
Up to 20
3-5
Lease Term(2)
December 31
2023
2022
$
742 $
3,605
9,641
553
3,076
17,617
741
3,272
8,774
524
2,747
16,058
(7,258)
$ 9,653 $ 8,800
(7,964)
(1) Land is not a depreciable asset.
(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 PP&E. 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 payments of $155 million and $84
million related to the equipment sale during 2022 and 2021, respectively, and included it in Proceeds from sale of
equipment to a customer in the consolidated statements of cash flows. The company received no cash payments in
2023 related to the equipment sale.
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, 2023 and 2022, the company received lease incentives for landlord funded leasehold improvements of
$55 million and $96 million, respectively, related to Space Systems real estate leases, 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 $75 million, $113 million
and $91 million as of December 31, 2023, 2022 and 2021, respectively.
Sale of Minority Investment
In July 2023, the company sold its minority investment in an Australian business for AUD $235 million (the
equivalent of $157 million upon settlement). The sale resulted in a pre-tax gain of $97 million, which is reflected in
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NORTHROP GRUMMAN CORPORATION
Other, net on the consolidated statements of earnings and comprehensive income for the year ended December 31,
2023. Proceeds from the sale are included in investing activities on the consolidated statement of cash flows for the
year ended December 31, 2023.
Goodwill and Other Purchased Intangible Assets
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.
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 likely 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
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NORTHROP GRUMMAN CORPORATION
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 (the “FAS/CAS operating adjustment”) 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 any given
reporting period.
Actuarial gains and losses are immediately recognized in net periodic benefit cost for FAS through MTM (expense)
benefit 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. 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), 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. 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. 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.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, are as follows:
$ in millions
Cumulative translation adjustment
Other, net
Total accumulated other comprehensive loss
Related Party Transactions
For all periods presented, the company had no material related party transactions.
December 31
2023
2022
$
$
(138) $
10
(128) $
(161)
8
(153)
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NORTHROP GRUMMAN CORPORATION
Accounting Standards Updates
On November 27, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Among
other new disclosure requirements, ASU 2023-07 requires companies to disclose significant segment expenses that
are regularly provided to the chief operating decision maker. ASU 2023-07 will be effective for annual periods
beginning on January 1, 2024 and interim periods beginning on January 1, 2025. ASU 2023-07 must be applied
retrospectively to all prior periods presented in the financial statements. We are evaluating the disclosure impact of
ASU 2023-07; however, the standard will not have an impact on the company’s consolidated financial position,
results of operations and/ or cash flows.
On December 14, 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income
Tax Disclosures. ASU 2023-09 requires companies to disclose, on an annual basis, specific categories in the
effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative
threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid.
ASU 2023-09 will be effective for annual periods beginning January 1, 2025 and will be applied on a prospective
basis with the option to apply the standard retrospectively. We are evaluating the disclosure impact of ASU 2023-09;
however, the standard will not have an impact on the company’s consolidated financial position, results of
operations and/or cash flows.
Other accounting standards updates adopted and/or issued, but not effective until after December 31, 2023, 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
Information Solutions and Services (IS&S) division of Defense Systems (excluding the Vinnell Arabia business);
select cyber, intelligence and missions support programs, which were part of the former Cyber and Intelligence
Mission Solutions (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 years ended December 31, 2023 and 2022. The company recorded sales of $162 million and pre-tax profit
of $20 million for the IT and mission support services business during the year ended December 31, 2021.
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 0.5 million, 0.7 million and 0.6 million shares for
the years ended December 31, 2023, 2022 and 2021, respectively.
Share Repurchases
Share Repurchase Programs
On December 4, 2018, the company’s board of directors authorized a share repurchase program of up to $3.0 billion
in share repurchases of the company’s common stock (the “2018 Repurchase Program”). Repurchases under the
2018 Repurchase Program commenced in March 2020 and 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 and were completed in April 2023.
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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”).
Repurchases under the 2022 Repurchase Program commenced in April 2023 upon completion of the 2021
Repurchase Program. As of December 31, 2023, repurchases under the 2022 Repurchase Program totaled
$0.9 billion; $1.1 billion remained under this share repurchase authorization. By its terms, the 2022 Repurchase
Program will expire when we have used all authorized funds for repurchases.
On December 6, 2023, the company’s board of directors authorized a new share repurchase program of up to an
additional $2.5 billion in share repurchases of the company’s common stock (the “2023 Repurchase Program”).
Repurchases under the 2023 Repurchase Program will commence upon completion of the 2022 Repurchase Program
and will expire when we have used all authorized funds for repurchases. As of December 31, 2023, there have been
no repurchases under the 2023 Repurchase Program and the company’s total outstanding share repurchase
authorization was $3.6 billion.
Accelerated Share Repurchase Agreements
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.
During the first quarter of 2023, the company entered into an ASR agreement with Bank of America, N.A. (Bank of
America) to repurchase $500 million of the company’s common stock as part of the 2021 and 2022 Repurchase
Programs. Under the agreement, we made a payment of $500 million to Bank of America and received an initial
delivery of 0.9 million shares valued at $400 million that were immediately canceled by the company. The
remaining balance of $100 million was settled on April 27, 2023 with a final delivery of 0.2 million shares from
Bank of America. The final average purchase price was $458.28 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)
Average
Price
Repurchase Program
Authorization Date
December 4, 2018
January 25, 2021
January 24, 2022
December 6, 2023
$
$
$
$
3,000
3,000
2,000
2,500
Per Share(1) Date Completed
337.18 October 2021
8.9 $
7.0 $
431.05
April 2023
1.9 $
454.03
— $
—
Shares Repurchased
(in millions)
Year Ended
December 31
2022
2023
2021
1.4
1.9
—
—
8.4
2.2
3.3
—
—
—
—
—
3.3
3.3
10.6
(1) As a part of the 2023 Repurchase Program, the board of directors approved that the purchases under this program, and the
authorization remaining under the 2022 program, be exclusive of brokerage commissions. Commissions paid are included for
the 2018 and 2021 Repurchase Programs.
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NORTHROP GRUMMAN CORPORATION
Dividends on Common Stock
In May 2023, the company increased the quarterly common stock dividend 8 percent to $1.87 per share from the
previous amount of $1.73 per share.
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.
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net represent amounts billed and due from customers. Substantially all accounts receivable at
December 31, 2023 are expected to be collected in 2024. 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.
Accounts receivable, net consisted of the following:
$ in millions
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
2023
2022
276
1,460
$ 1,184 $ 1,215
304
1,519
(8)
(6)
$ 1,454 $ 1,511
(1) Includes receivables due from the U.S. government associated with foreign military sales, which are contracted with and 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. A large majority of the company’s unbilled receivables at December 31, 2023 are expected to be billed
and collected in 2024. 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
2023
2022
$ 23,655 $ 23,304
(18,321) (17,664)
5,640
5,334
1,720
1,822
(1,344)
(1,460)
376
5,710
362
6,002
(17)
(19)
$ 5,693 $ 5,983
(1) Includes unbilled receivables due from the U.S. government associated with foreign military sales, which are contracted with
and paid by the U.S. government.
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NORTHROP GRUMMAN CORPORATION
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. The company recorded write-downs of commercial business inventory at Space Systems
for which its cost exceeded net realizable value of $43 million and $45 million during the years ended December 31,
2023 and 2022, respectively. As discussed in Note 1, the company recognized a $45 million reduction of inventoried
costs related to the B-21 program at Aeronautics Systems during the year ended December 31, 2023.
Inventoried costs, net consisted of the following:
$ in millions
Contracts in process
Product inventory:
Raw materials
Work in process
Finished goods
Total product inventory
Inventoried costs, net
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
December 31
2023
2022
$
647 $
574
338
72
52
$
462 $
$ 1,109 $
325
31
48
404
978
Year Ended December 31
2021
2022
2023
$
949 $ 1,289 $ 1,398
518
(353)
(670)
1,916
936
279
15
(4)
11
290 $
3
1
4
6
11
17
940 $ 1,933
$
Earnings before income taxes associated with the company’s foreign operations are not material in the periods
presented.
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NORTHROP GRUMMAN CORPORATION
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
Net interest expense
Other, net
Total federal and foreign income taxes
2023
Year Ended December 31
2022
2021
$ 493
(210)
(63)
—
(1)
69
2
$ 290
21.0 % $ 1,226
(177)
(8.9)
(66)
(2.7)
—
—
(86)
—
22
2.9
0.1
21
12.4 % $ 940
21.0 % $ 1,877
(192)
(3.0)
(50)
(1.1)
250
—
—
(1.5)
17
0.4
0.3
31
16.1 % $ 1,933
21.0 %
(2.2)
(0.6)
2.8
—
0.2
0.4
21.6 %
The 2023 ETR decreased to 12.4 percent from 16.1 percent in 2022 primarily due to lower earnings before income
taxes as a result of the B-21 charge and MTM expense, which collectively reduced the 2023 ETR by 3.8 percentage
points. The 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points.
The 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.
Income tax payments, net of refunds received, were $1.2 billion, $1.5 billion and $1.3 billion for the years ended
December 31, 2023, 2022 and 2021, respectively. Taxes receivable, which are included in Prepaid expenses and
other current assets in the consolidated statements of financial position, were $1.5 billion and $850 million as of
December 31, 2023 and 2022, respectively.
Uncertain Tax Positions
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The
Northrop Grumman 2018-2020 federal tax returns are currently under Internal Revenue Service (IRS) examination.
During the second quarter of 2023, the company entered into an agreed Revenue Agent’s Report (“RAR”) for
certain matters related to the company’s 2014-2017 federal income tax returns, resulting in a $90 million reduction
to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the
agreed RAR related to the company’s 2014-2017 federal income tax returns and refund claims related to its
2007-2016 federal tax returns are currently under review by the IRS Appeals Office.
In the second quarter of 2023, the California Franchise Tax Board approved a resolution of the state examination
primarily related to California state apportionment in the company’s 2007 to 2016 tax years, resulting in a
$95 million reduction to our unrecognized tax benefits and an $11 million reduction to unallocated corporate
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.
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NORTHROP GRUMMAN CORPORATION
The change in unrecognized tax benefits during 2023, 2022 and 2021, 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
2023
December 31
2022
$ 1,663 $ 1,630 $ 1,481
355
47
262
6
276
254
2021
(9)
(124)
(251)
(189)
(1)
(1)
(1)
149
$ 1,994 $ 1,663 $ 1,630
(110)
(1)
33
331
Our 2023 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, 2023, we have approximately $2.0 billion in unrecognized tax benefits,
including $843 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 related to these matters may increase by
approximately $120 million.
Our current unrecognized tax benefits, which are included in Other current liabilities in the consolidated statements
of financial position, were $964 million and $728 million as of December 31, 2023 and 2022, respectively, with the
remainder of our unrecognized tax benefits included within Other non-current liabilities. These liabilities include
$305 million and $216 million of accrued interest and penalties as of December 31, 2023 and 2022, respectively. If
the income tax benefits from these tax positions are ultimately realized, $848 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 $62 million,
$29 million, and $25 million for the years ended December 31, 2023, 2022, and 2021, respectively.
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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
December 31
2023
2022
$
115 $
3,380
400
509
279
35
575
557
215
6,065
(517)
5,548
534
83
805
563
2,437
106
4,528
$ 1,020 $
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
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, 2023, the company has available tax credits and unused net operating losses of $615 million and
$358 million, respectively, that may be applied against future taxable income. The majority of tax credits and net
operating losses expire in 2024 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 $344 million and $46 million, respectively, as of December 31, 2023.
Undistributed Foreign Earnings
As of December 31, 2023, 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, 2022 and 2023, were as follows:
$ in millions
Balance as of December 31, 2021
Other (1)
Balance as of December 31, 2022
Other (1)
Balance as of December 31, 2023
Aeronautics
Systems
Defense
Systems
Mission
Systems
Space
Systems
Total
$
$
$
3,467 $
—
3,412 $
1
5,881 $
—
4,755 $
—
17,515
1
3,467 $
3,413 $
5,881 $
4,755 $
17,516
—
1
—
—
1
3,467 $
3,414 $
5,881 $
4,755 $
17,517
(1) Other consists primarily of adjustments for foreign currency translation.
At December 31, 2023 and 2022, 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
2023
2022
$
$
3,365 $
(3,060)
305 $
3,364
(2,980)
384
Amortization expense for 2023, 2022 and 2021, was $80 million, $197 million and $204 million, respectively. As of
December 31, 2023, the expected future amortization of purchased intangibles for each of the next five years is as
follows:
$ in millions
2024
2025
2026
2027
2028
$
57
45
42
31
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, 2023
December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$
321 $
1 $
8 $
330 $
310 $
1 $
8 $
319
321
—
1
5
8
—
9
339
5
310
—
1
7
8
—
13
332
7
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NORTHROP GRUMMAN CORPORATION
The notional value of the company’s foreign currency forward contracts at December 31, 2023 and 2022 was $286
million and $221 million, respectively. The portion of notional value designated as a cash flow hedge at December
31, 2023 and 2022 was $162 million and $87 million, respectively.
The derivative fair values and related unrealized gains/losses at December 31, 2023 and 2022 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, 2023 and 2022.
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 with capacity to
issue unsecured commercial paper notes up to $2.5 billion. There were no commercial paper borrowings outstanding
at December 31, 2023 and December 31, 2022, respectively.
Credit Facility
The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $2.5 billion
(the “2022 Credit Agreement”) that matures in August 2027. 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, 2023, 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, 2023, the company was in compliance with
all covenants under its credit agreement.
Unsecured Senior Notes
Issuance of Senior Notes
In February 2023, the company issued $2.0 billion of unsecured senior notes for general corporate purposes,
including debt repayment, share repurchases, and working capital, as follows:
•
•
$1.0 billion of 4.70% senior notes due 2033 (the “2033 Notes”) and
$1.0 billion of 4.95% senior notes due 2053 (the “2053 Notes”).
We refer to the 2033 Notes and the 2053 Notes, together, as the “notes.” Interest on the notes is payable semi-
annually in arrears. The notes are generally subject to redemption, in whole or in part, at the company’s discretion at
any time, or from time to time, prior to maturity at a redemption price equal to the greater of 100% of the principal
amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest.
Repayments of Senior Notes
In August 2023, the company repaid $1.05 billion of 3.25 percent unsecured senior notes upon maturity.
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 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.
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NORTHROP GRUMMAN CORPORATION
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.
Long-term debt consists of the following:
$ in millions
Fixed-rate notes and debentures, maturing in
2023
2025
2026
2027
2028
2030
2031
2033
2040
2043
2045
2047
2050
2053
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%
5.05% - 5.15%
3.20%
3.25%
4.40%
7.75%
4.70%
4.75%
3.85%
4.03%
5.25%
4.95%
Various
December 31
2023
2022
$
1,500
527
750
2,000
750
466
1,000
800
950
600
2,250
1,000
1,000
332
(69)
— $ 1,050
1,500
527
750
2,000
750
466
—
800
950
600
2,250
1,000
—
293
(59)
12,877
1,072
$ 13,786 $ 11,805
13,856
70
(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 $13.4 billion and $12.1 billion as of December 31, 2023 and 2022,
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 and capitalized, were $437 million, $474 million and $570 million
for the years ended December 31, 2023, 2022 and 2021, respectively. The company capitalized interest expense of
$95 million, $53 million and $17 million during the years ended December 31, 2023, 2022 and 2021, respectively.
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NORTHROP GRUMMAN CORPORATION
Maturities of long-term debt as of December 31, 2023, are as follows:
$ in millions
Year Ending December 31
2024
2025
2026
2027
2028
Thereafter
Total principal payments
Unamortized premium on long-term debt, net of discount
Debt issuance costs
Total long-term debt
11. INVESTIGATIONS, CLAIMS AND LITIGATION
$
70
1,582
530
754
2,043
8,963
13,942
(17)
(69)
$ 13,856
For over 25 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, the New York State
Department of Health and other federal, state and local governmental authorities, to address 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 these 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 2022, we resolved several disputes and regulatory proceedings concerning the scope and allocation of
remediation responsibilities and costs related to this site. The company continues to be involved in related disputes,
none of which are material individually or in the aggregate. We are also a party to various individual lawsuits and a
putative class action in the Eastern District of New York alleging personal injury and property damage related to the
legacy Bethpage environmental conditions. The court has stayed the filed individual lawsuits, pending its 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.
The company received from the U.S. Department of Justice (DOJ) a criminal subpoena on December 9, 2022, and a
civil investigative demand on February 2, 2023, both seeking information regarding financial and cost accounting
and controls that appears focused on the interest rate assumptions the company used to determine our CAS pension
expense, which we discuss in Note 12 below. The company is engaging with the government and responding to the
requests. We cannot at this point predict the outcome of these matters.
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, 2023, 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, 2023, or its annual results of operations and/or cash flows.
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NORTHROP GRUMMAN CORPORATION
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 have continued to exchange
correspondence and engage with DCMA on this matter, including responding to requests for and providing
additional information. As noted in Note 11 above, the company received from the DOJ a criminal subpoena on
December 9, 2022, and a CID on February 2, 2023, both seeking information that appears related to the interest rate
assumptions at issue in our discussions with DCMA. The company is engaging with the government and responding
to the requests. We cannot at this point predict the outcome of these matters. 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.
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, 2023 and 2022:
$ in millions
December 31, 2023
December 31, 2022
Reasonably Possible
Future Costs in
Excess of Accrued
Costs(2)
Accrued
Costs(1)(2)
Deferred
Costs(3)
$
584 $
565
387 $
353
518
486
(1) As of December 31, 2023, $223 million is recorded in Other current liabilities and $361 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, 2023, $206 million is deferred in Prepaid expenses and other current assets and $312 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, 2023, 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, 2023, there were $411 million of stand-by letters of credit and guarantees and $263
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, 2023, 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
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NORTHROP GRUMMAN CORPORATION
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, 2023, 2022 and 2021, were $634 million, $558
million and $588 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.
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:
Year Ended December 31
Pension Benefits
2022
2021
2023
Medical and Life Benefits
2021
2022
2023
$ in millions
Components of net periodic benefit cost
(benefit)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Mark-to-market expense (benefit)
Other
Net periodic benefit cost (benefit)
$
5 $
67
(85)
(1)
(20)
—
(34) $
9 $
47
(110)
(1)
30
—
(25) $
16
53
(105)
(1)
(434)
—
(471)
$
236 $
367 $
414 $
1,054
1,568
(2,512)
(2,098)
(9)
—
(1,921)
442
—
(1)
148 $ (2,400) $ (2,975) $
1,136
(2,641)
—
(1,262)
—
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NORTHROP GRUMMAN CORPORATION
The table below summarizes the components of changes in unamortized prior service credit (cost) for the years
ended December 31, 2021, 2022 and 2023:
$ in millions
Changes in unamortized prior service credit (cost)
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
Amortization of prior service credit (cost)
Tax expense
Change in unamortized prior service credit (cost) – 2023
Pension
Benefits
Medical and
Life Benefits
Total
$
$
9 $
(2)
7
—
—
—
—
—
— $
1 $
—
1
1
—
1
1
—
1 $
10
(2)
8
1
—
1
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.
$ in millions
Plan Assets
Fair value of plan assets at beginning of year
Net gain (loss) 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 (gain)
Benefits paid
Other
Projected benefit obligation at end of year
Funded status
Pension Benefits
2022
2023
Medical and
Life Benefits
2023
2022
3,104
105
6
(5,422)
101
7
$ 28,920 $ 36,236 $ 1,226 $ 1,588
(257)
35
24
(164)
—
1,226
146
34
27
(159)
—
1,274
(1,894)
10
30,251
(1,973)
(29)
28,920
29,067
236
1,568
6
1,447
(1,894)
13
30,443
$
38,888
367
1,136
7
(9,325)
(1,973)
(33)
29,067
1,264
5
67
27
42
(159)
—
1,246
1,685
9
47
24
(337)
(164)
—
1,264
(38)
(192) $
(147) $
28 $
The increase in the fair value of our plan assets for the year ended December 31, 2023 was principally driven by net
plan asset returns of 11.1 percent, partially offset by $2.1 billion of benefit payments. The increase in our projected
benefit obligation for the year ended December 31, 2023, was primarily driven by $1.6 billion of interest cost and a
39 basis point decrease in the discount rate from year end 2022, partially offset by $2.1 billion of benefit payments.
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NORTHROP GRUMMAN CORPORATION
$ 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
2023
2022
2023
2022
$ 1,042 $
982 $
289 $
240
(178)
(177)
(27)
(42)
(1,056)
(952)
(234)
(236)
The accumulated benefit obligation for all defined benefit pension plans was $30.1 billion and $28.8 billion at
December 31, 2023 and 2022, 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
2023
2022
$
1,152 $
1,143
3
1,126
1,117
2
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
2022
2023
5.15 % 5.54 % 2.98 % 5.20 % 5.57 % 2.93 %
7.50 % 7.50 % 7.50 % 7.12 % 7.23 % 7.19 %
2021
Medical and Life Benefits
2021
2022
2023
4.02 % 3.96 % 2.25 %
4.02 % 3.88 % 2.25 %
2029
2027
2028
3.00 % 3.00 % 3.00 %
6.20 % 6.50 % 5.30 %
5.00 % 5.00 % 5.00 %
2028
2028
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. 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.
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NORTHROP GRUMMAN CORPORATION
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, 2023:
Cash and cash equivalents
Global public equities
Fixed-income securities
Alternative investments
Asset Allocation Ranges
0% - 12%
21% - 41%
35% - 55%
12% - 32%
The table below provides the fair values of the company’s pension and Voluntary Employees’ Beneficiary
Association (VEBA) trust plan assets at December 31, 2023 and 2022, 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, 2023 and 2022, there were no investments expected to be sold at a value
materially different than NAV.
$ in millions
Asset category
Level 1
Level 2
Level 3
Total
2023
2022
2023
2022
2023
2022
2023
2022
Cash and cash equivalents
$
85 $ 115 $
830 $ 1,076
U.S. equities
International equities
Fixed-income securities
1,712
2,138
1,506
1,784
1
1
$
915 $ 1,191
1,713
2,139
1,506
1,784
U.S. Treasuries
—
22
3,890
2,977
3,890
2,999
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
74
13
64
124
176
145
172
124
176
145
172
28
4,432
4,717
4,506
4,745
12
436
20
15
43
353
19
13
2 $
2 $
2
436
33
15
109
353
31
13
4
1,294
3,972
1,043
3,904
4,057
2,569
38
44
3,176
2,983
3,466
3,299
2,123
2,753
(24)
(25)
$ 3,454 $ 4,099 $ 9,967 $ 9,475 $
2 $
2 $ 31,525 $ 30,146
There were no transfers of plan assets into or out of Level 3 of the fair value hierarchy during the years ended
December 31, 2023 and 2022.
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
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NORTHROP GRUMMAN CORPORATION
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 $172 million and $71 million, derivative liabilities with a
fair value of $101 million and $117 million, and net notional amounts of $4.9 billion and $3.2 billion, as of
December 31, 2023 and 2022, 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 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, 2023 and 2022, there were no unfunded commitments.
Fixed-income funds: Generally, redemption periods are daily, monthly or quarterly with a notice requirement of two
days. As of December 31, 2023 and 2022 there were no unfunded commitments.
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, 2023 and 2022, unfunded
commitments were $6 million.
Opportunistic investments: Primarily held in partnerships with a 5-10 year life. As of December 31, 2023 and 2022,
unfunded commitments were $1.6 billion and $1.5 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, 2023 and 2022, unfunded commitments were $1.9
billion and $2.0 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, 2023 and 2022,
unfunded commitments were $28 million and $44 million, respectively.
For the years ended December 31, 2023 and 2022, 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, 2023:
$ in millions
Year Ending December 31
2024
2025
2026
2027
2028
2029 through 2033
Pension Plans
Medical and
Life Plans
Total
$
2,012 $
2,058
2,095
2,129
2,151
10,820
134 $
137
131
107
103
455
2,146
2,195
2,226
2,236
2,254
11,275
In 2024, the company expects to contribute the required minimum funding of approximately $99 million to its
pension plans and approximately $35 million to its medical and life benefit plans. During the year ended December
31, 2023, the company made no discretionary pension contributions.
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NORTHROP GRUMMAN CORPORATION
14. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS
Stock Compensation Plans
At December 31, 2023, 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, 2023, 4.4 million shares remain available for issuance.
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, 2023, 2022 and 2021 was $87 million, $99
million and $94 million, respectively. The related tax benefits (deficiencies) for stock-based compensation for the
years ended December 31, 2023, 2022 and 2021 were $9 million, $10 million and $(2) million, respectively.
At December 31, 2023, there was $96 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.
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NORTHROP GRUMMAN CORPORATION
Stock Awards
Stock award activity for the years ended December 31, 2021, 2022 and 2023, 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, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Granted
Vested
Forfeited
Outstanding at December 31, 2023
Stock
Awards
(in thousands)
Weighted-
Average
Grant Date
Fair Value
Per Share
Weighted-
Average
Remaining
Contractual
Term (in years)
603 $
304
(269)
(58)
580 $
238
(226)
(31)
561 $
216
(249)
(29)
499 $
311
296
286
318
314
397
327
320
344
478
315
373
417
1.4
1.4
1.4
1.3
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 $99 million, $93 million and
$103 million during the years ended December 31, 2023, 2022 and 2021, 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
2023
2022
2021
$
34 $
192
32 $
183
31
178
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, 2023, there was $116 million
of unrecognized compensation expense related to cash awards.
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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
2023
2022
2021
$
$
358 $
48
69
475 $
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
2023
2022
1,818 $
300
1,892
2,192 $
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
2023
2022
$
341
314
316
438
11.0 years
3.9 %
11.2 years
3.4 %
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NORTHROP GRUMMAN CORPORATION
Maturities of Lease Liabilities
Maturities of operating lease liabilities as of December 31, 2023 are as follows:
$ in millions
Year Ending December 31
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
$
$
363
354
307
252
222
1,235
2,733
(541)
2,192
As of December 31, 2023, we have approximately $270 million in rental commitments for real estate leases that
have not yet commenced. These leases are expected to commence in 2024 and 2025 with lease terms of 5 to 20
years.
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
Other (expense) income
Interest expense
Non-operating FAS pension benefit
Mark-to-market pension and OPB (expense) benefit
Other, net
Earnings before income taxes
-83-
Year Ended December 31
2022
2021
2023
5,862
10,895
13,946
$ 10,786 $ 10,531 $ 11,259
5,776
10,134
10,608
(2,110)
35,667
5,579
10,396
12,275
36,602
39,290
(2,179)
(2,199)
(473)
710
1,609
1,212
(298)
2,760
1,093
696
1,579
1,121
(272)
4,217
130
1,304
$ 2,537 $ 3,601 $ 5,651
1,116
664
1,618
1,158
(303)
4,253
(200)
(452)
(82)
(141)
(545)
530
(422)
246
(556)
1,469
2,355
19
$ 2,346 $ 5,836 $ 8,938
(506)
1,505
1,232
4
NORTHROP GRUMMAN CORPORATION
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 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 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 PP&E 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.
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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
2023
2022
2021
$
%(3)
$
%(3)
$
%(3)
$ 9,132
85 % $ 8,930
85 % $ 9,631
1,379
13 %
1,344
13 %
1,421
35
— %
18
— %
18
240
10,786
2 %
239
100 % 10,531
2 %
189
100 % 11,259
3,497
1,491
76
798
60 %
25 %
1 %
14 %
3,344
1,358
71
806
61 %
24 %
1 %
14 %
3,595
1,317
75
789
85 %
13 %
— %
2 %
100 %
62 %
23 %
1 %
14 %
5,862
100 %
5,579
100 %
5,776
100 %
7,999
1,757
85
73 %
16 %
1 %
7,471
1,809
101
72 %
17 %
1 %
7,223
1,846
72
1,054
10,895
10 %
1,015
100 % 10,396
10 %
993
100 % 10,134
71 %
18 %
1 %
10 %
100 %
13,254
95 % 11,578
94 %
9,885
93 %
278
307
107
2 %
2 %
1 %
337
241
119
3 %
2 %
1 %
398
186
139
4 %
2 %
1 %
13,946
100 % 12,275
100 % 10,608
100 %
33,882
4,905
503
$ 39,290
86 % 31,323
4,848
13 %
86 % 30,334
4,982
13 %
1 %
431
100 % $ 36,602
1 %
351
100 % $ 35,667
85 %
14 %
1 %
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.
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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
2023
2022
2021
$
%(1)
$
%(1)
$
%(1)
$ 5,235
50 % $ 5,013
49 % $ 5,419
5,311
240
10,786
50 %
5,279
51 %
5,651
239
10,531
189
11,259
1,591
3,473
798
5,862
4,116
5,725
1,054
31 %
69 %
42 %
58 %
1,497
3,276
806
5,579
3,622
5,759
1,015
31 %
69 %
39 %
61 %
1,739
3,248
789
5,776
3,139
6,002
993
10,895
10,396
10,134
10,037
3,802
107
73 %
27 %
8,579
3,577
119
71 %
29 %
7,731
2,738
139
13,946
12,275
10,608
49 %
51 %
35 %
65 %
34 %
66 %
74 %
26 %
20,979
18,311
$ 39,290
53 % 18,711
51 % 18,028
47 % 17,891
49 % 17,639
51 %
49 %
$ 36,602
$ 35,667
(1) Percentages calculated based on external customer sales.
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NORTHROP GRUMMAN CORPORATION
Sales by Geographic Region
Year Ended December 31
$ 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
2023
2022
2021
$
%(2)
$
%(2)
$
%(2)
$ 9,167
607
736
36
240
10,786
87 % $ 8,948
708
6 %
585
7 %
51
— %
239
10,531
87 % $ 9,649
896
7 %
461
6 %
64
— %
189
11,259
3,573
419
601
471
798
5,862
8,084
460
959
338
1,054
10,895
13,561
82
159
37
107
13,946
34,385
1,568
2,455
882
$ 39,290
71 %
8 %
12 %
9 %
3,415
454
477
427
806
5,579
82 %
5 %
10 %
3 %
7,572
531
977
301
1,015
10,396
98 % 11,819
109
1 %
213
1 %
15
— %
119
12,275
88 % 31,754
1,802
4 %
2,252
6 %
794
2 %
$ 36,602
71 %
10 %
10 %
9 %
3,670
465
314
538
789
5,776
81 %
6 %
10 %
3 %
7,295
518
1,004
324
993
10,134
97 % 10,071
60
1 %
328
2 %
10
— %
139
10,608
87 % 30,685
1,939
5 %
2,107
6 %
936
2 %
$ 35,667
87 %
8 %
4 %
1 %
74 %
9 %
6 %
11 %
80 %
6 %
10 %
4 %
96 %
1 %
3 %
— %
86 %
5 %
6 %
3 %
(1) All other is principally comprised of the Middle East.
(2) Percentages calculated based on external customer sales.
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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:
$ in millions
Intersegment sales and operating income
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Total
2023
Year Ended December 31
2022
2021
Sales
Operating
Income
Sales
Operating
Income
Sales
Operating
Income
$ 240
798
1,054
107
$ 2,199
$ 22 $ 239
806
1,015
119
97
167
12
$ 27 $ 189
789
993
139
95
167
14
$ 298 $ 2,179
$ 303 $ 2,110
$ 19
89
150
14
$ 272
Capital Expenditures and Depreciation and Amortization
The following table presents capital expenditures and depreciation and amortization by segment:
Year Ended December 31
$ in millions
2023
2022
2021
2023
2022
2021
Aeronautics Systems
Defense Systems
Mission Systems
Space Systems
Corporate(1)
Total
$
Depreciation and Amortization
Capital Expenditures
504 $
111
288
798
74
266
91
233
344
305
$ 1,775 $ 1,435 $ 1,415 $ 1,338 $ 1,342 $ 1,239
465 $
133
236
530
51
490 $
110
248
529
58
322 $
101
242
396
281
384 $
107
246
447
154
(1) Corporate amounts include the amortization of purchased intangible assets and the additional depreciation expense related to
the step-up in fair value of PP&E acquired through business combinations as they are not considered part of management’s
evaluation of segment operating performance.
Assets
Our chief operating decision maker does not use assets by segment to evaluate segment performance or allocate
resources. Therefore, we do not disclose assets by segment.
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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, 2023, 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, 2023, 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
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, 2023.
Deloitte & Touche LLP issued an attestation report dated January 24, 2024, 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, 2023, 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 24, 2024
-89-
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, 2023, 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, 2023, 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, 2023 of the
Company and our report dated January 24, 2024 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 24, 2024
-90-
CERTAIN TRADING AGREEMENTS
During the quarter ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the
Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading
arrangement”, as those terms are defined in Item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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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 2024 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 24, 2024, 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
Mark A. Caylor
Robert J. Fleming
Michael A. Hardesty
Thomas H. Jones
David F. Keffer
Roshan S. Roeder
Age
52 Chair, Chief
Office Held
Executive Officer
and President
59 Corporate Vice
President and
President, Mission
Systems Sector
51 Corporate Vice
President and
President, Space
Systems Sector
52 Corporate Vice
President,
Controller, and
Chief Accounting
Officer
57 Corporate Vice
President and
President,
Aeronautics
Systems Sector
46 Corporate Vice
President and
Chief Financial
Officer
44 Corporate Vice
President and
President, Defense
Systems Sector
Kathryn G. Simpson
60 Corporate Vice
President and
General Counsel
AUDIT COMMITTEE FINANCIAL EXPERT
Recent Business Experience
Chief Executive Officer and President (2019);
President and Chief Operating Officer (2018)
Since
2019
2018
2023 Vice President and General Manager, Strategic
Space Systems Division, Space Systems Sector
(2021-2023); Vice President, Business
Development and Strategy, Space Systems
Sector (2020-2021); Vice President, Space
Programs, Strategic Force Programs, Mission
Systems Sector (2019-2020)
2013
2021 Vice President and General Manager, Airborne
C4ISR Division, Mission Systems Sector
(2017-2020)
2020 General Partner, Blue Delta Capital Partners
(2018-2020); Chief Financial Officer and
Executive Vice President, CSRA, Inc.
(2015-2018)
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)
2023 Vice President, Associate General Counsel,
Mission Systems Sector (2021-2023); Vice
President, Deputy General Counsel (2012-2021)
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 2024 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
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NORTHROP GRUMMAN CORPORATION
internet website at www.northropgrumman.com under “Who We Are – Investors – Corporate Governance –
Overview – 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 2024
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 2024 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 2024 Annual Meeting of Shareholders.
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 2024 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
The information as to Principal Accountant Fees and Services will be incorporated herein by reference to the Proxy
Statement for the 2024 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 17, 2023 (incorporated by reference to Exhibit 3.1 to Form 8-K filed May 19, 2023, File
No. 001-16411)
Amended and Restated Bylaws of Northrop Grumman Corporation dated May 17, 2023
(incorporated by reference to Exhibit 3.2 to Form 8-K filed May 19, 2023, 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)
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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)
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)
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 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)
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)
4(bb)
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)
-96-
NORTHROP GRUMMAN CORPORATION
4(cc)
4(dd)
4(ee)
4(ff)
4(gg)
4(hh)
4(ii)
4(jj)
4(kk)
4(ll)
4(mm)
4(nn)
4(oo)
4(pp)
4(qq)
4(rr)
4(ss)
4(tt)
4(uu)
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)
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)
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)
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)
Eleventh Supplemental Indenture, dated as of February 8, 2023, 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 8, 2023, File No. 001-16411)
-97-
NORTHROP GRUMMAN CORPORATION
4(vv)
4(ww)
10(a)
10(b)
10(c)
10(d)
Form of 4.700% Senior Note due 2033 (incorporated by reference to Exhibit A included in
Exhibit 4.1 to Form 8-K filed February 8, 2023, File No. 001-16411)
Form of 4.950% Senior Note due 2053 (incorporated by reference to Exhibit B included in
Exhibit 4.1 to Form 8-K filed February 8, 2023, 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)
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(e) 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)
‘+10(f)
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) 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)
(ii)
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)
(iii) 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)
(ii)
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)
(iii) 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)
-98-
NORTHROP GRUMMAN CORPORATION
(iv) 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)
(v)
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)
(vi) 2023 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, 2023, filed April 26, 2023, File No. 001-16411)
(vii) 2023 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, 2023, filed April 26, 2023, File No. 001-16411)
*(viii) Special 2023 Restricted Stock Rights Grant Agreement Granted to Roshan Roeder Under
the 2011 Long-Term Incentive Stock Plan
‘+10(g) 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(h) 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)
(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)
-99-
NORTHROP GRUMMAN CORPORATION
‘+10(i)
‘+10(j)
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(k) Non-Employee Director Compensation Term Sheet, effective May 17, 2023 (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2023, filed July 26, 2023,
File No. 001-16411)
‘+10(l)
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(m) 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)
‘+10(n) 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)
‘*+10(o) Northrop Grumman 2006 Annual Incentive Plan and Incentive Compensation Plan, as amended
and restated effective January 1, 2024
‘+10(p) 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)
‘+10(q) Northrop Grumman Savings Excess Plan (Amended and Restated Effective as of July 1, 2023)
(incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended June 30, 2023,
filed July 26, 2023, File No. 001-16411)
‘+10(r)
‘+10(s)
‘+10(t)
‘+10(u)
‘+10(v)
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)
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)
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(w) Executive Supplemental Individual Disability Insurance Plan dated June 10, 2022
-100-
NORTHROP GRUMMAN CORPORATION
‘+10(x) Group Personal Excess Liability Policy effective as of January 1, 2023 (incorporated by
reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2023, filed April 26,
2023, File No. 001-16411)
‘+10(y)
‘+10(z)
*21
*23
*24
*31.1
*31.2
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)
Transition and Retirement Agreement dated as of September 9, 2022, as revised, by and between
Northrop Grumman Systems Corporation and Mary D. Petryszyn (incorporated by reference to
Exhibit 10(dd) to Form 10-K for the year ended December 31, 2022, filed January 25, 2023, File
No. 001-16411)
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
*97
*101
Northrop Grumman Policy Regarding the Recoupment of Certain Incentive Compensation
Payments
Northrop Grumman Corporation Annual Report on Form 10-K for the fiscal year ended
December 31, 2023, 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.
-101-
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 24th day of
January 2024.
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 24th day of January 2024, 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*
Ann M. Fudge*
Madeleine A. Kleiner*
Arvind Krishna*
Graham N. Robinson*
Kimberly A. Ross*
Gary Roughead*
Thomas M. Schoewe*
James S. Turley*
Mark A. Welsh III*
Mary A. Winston*
*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
-102-
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.
Adjusted Free Cash Flow:
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, if any. 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. 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.
$ in millions
Net cash provided by operating activities
Capital expenditures
2023
$3,875
2022
$2,901
2021
$3,567
(1,775)
(1,435)
(1,415)
Proceeds from sale of equipment to a customer
—
155
84
Adjusted free cash flow
$
2,100 $
1,621 $
2,236
NORTHROP GRUMMAN 2023 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 15, 2024
8 a.m. EDT
The 2024 Annual Meeting of Shareholders of
Northrop Grumman Corporation will be held
virtually on Wednesday, May 15, 2024 at 8
a.m. Eastern. Details are available in our
Notice of 2024 Annual Meeting and Proxy
Statement.
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
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.
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.
NORTHROP GRUMMAN 2023 ANNUAL REPORT
NORTHROP GRUMMAN 2023 ANNUAL REPORT