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What changed in Northrop Grumman's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Northrop Grumman's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+384 added−396 removedSource: 10-K (2025-01-30) vs 10-K (2024-01-25)

Top changes in Northrop Grumman's 2024 10-K

384 paragraphs added · 396 removed · 316 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

46 edited+11 added−11 removed31 unchanged
Biggest changeKey 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); • 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.
Biggest changeKey unrestricted programs include: • Evolved Strategic SATCOM (ESS) satellites and payloads providing assured, no-fail, and survivable Nuclear Command and Control (NC3) communications capabilities; • Next-Generation Overhead Persistent Infrared (Next-Gen OPIR) program satellites and payloads providing resilient and enhanced missile warning over the critical northern polar region; • Space Development Agency Tracking and Transport layers providing missile warning/tracking and resilient, low-latency, high-volume data transport communication systems; • Missile defense systems, interceptors, targets, mission processing and boosters for the Missile Defense Agency's (MDA) Ground-based Midcourse Defense Weapon Systems (GWS); • Cygnus spacecraft, used in the execution of our Commercial Resupply Services (CRS) contracts with NASA to resupply and re-boost the International Space Station; • Development and production of solid rocket motors for NASA’s Space Launch System (SLS) heavy lift vehicle; • Habitation and Logistics Outpost (HALO) module in support of NASA’s Lunar Gateway; • 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.
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.
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-35 Lighting II Joint Strike Fighter and F/A-18 Super Hornet for use by U.S. and international forces; • E-2D Advanced Hawkeye battle management aircraft production for the U.S.
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.
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; advanced microelectronics; navigation and positioning sensors; maritime power, propulsion and payload launch systems; full spectrum cyber solutions; and intelligence processing systems.
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.
We ensure that our employees have the tools and resources to develop their knowledge base and skill sets, so 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.
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.
Additional information regarding our environmental sustainability goals is available in our Sustainability 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 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.
Additionally, 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.
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.
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 diverse perspectives 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.
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.
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, 2024, the company was aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.
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.
Each of the company’s segments derives a substantial percentage of its 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.
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.
DEFENSE SYSTEMS Defense Systems is a leader in the design, engineering, development, integration and production of strategic deterrent systems, 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.
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.
Environmental Our operations are subject to and affected by federal, state, local and foreign laws, regulations and enforcement actions relating to protection of human health and 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 goals.
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.
Collective Agreements Approximately 4,100 employees are covered by 15 collective agreements in the U.S., of which we negotiated five renewals in 2024 and expect to negotiate seven renewals in 2025. See “Risk Factors” for further discussion regarding risks related to our workforce and employee relations.
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.
Major products include satellites and spacecraft systems, subsystems, sensors and payloads; ground systems; missile defense systems and interceptors; and launch vehicles and related propulsion systems. Approximately 40 percent of this business is performed through restricted programs.
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.
CUSTOMER CONCENTRATION Our largest customer is the U.S. government. Sales to the U.S. government accounted for 87 percent, 86 percent and 86 percent of sales during the years ended December 31, 2024, 2023 and 2022, respectively. For further information on sales by customer type, contract type and geographic region, see Note 15 to the consolidated financial statements.
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. -2- 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.
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; -2- NORTHROP GRUMMAN CORPORATION • 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; and • Special Electronics Mission Aircraft (SEMA) ISR support.
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. -7- NORTHROP GRUMMAN CORPORATION The following table summarizes sales for the year ended December 31, 2023, recognized by contract type and customer category: $ in millions U.S.
See Note 1 to the consolidated financial statements and “Risk Factors” for further information regarding our contracts and Note 15 to the consolidated financial statements for sales by contract type. The following table summarizes sales for the year ended December 31, 2024, recognized by contract type and customer category: $ in millions U.S.
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.
Interim target of 50% GHG emissions reduction by 2030; • 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.
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.
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.
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.
Among other programs through which the company lives its values, the company maintains a Standards of Business Conduct program through which our employees are empowered to raise concerns through multiple channels 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 leaders review the survey responses and work collaboratively with their teams to take meaningful actions based on survey results. -5- 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.
Our leaders review the survey responses and work collaboratively with their teams to take meaningful actions based on survey results. Our culture and values serve as an enabling force that helps us pioneer, perform and deliver on quality, which results in value for our shareholders, customers, and employees.
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.
REGULATORY MATTERS Government Contract Security Restrictions We are prohibited by the U.S. government from publicly discussing the details of 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.
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.
In 2024, 80 percent of employees responded to the survey, an indication that our employees believe their feedback matters. Our performance on the annual survey is compared to the Qualtrics Global Benchmark and our survey results exceeded many of their global norms for both engagement and inclusion.
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.
Air Force, Japan, and the Republic of Korea; and • North Atlantic Treaty Organization (NATO) Alliance Ground Surveillance (AGS), a Global Hawk variant, for strategic ISR missions conducted in multinational theater operations.
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, 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; and • 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. -3- 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, and launch systems for national security, civil government, commercial and 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.
Major products and services include strategic missiles; integrated, all-domain command and control (C2) systems; precision strike weapons; advanced propulsion, including tactical solid rocket motors and high speed air-breathing and hypersonic systems; high-performance gun systems, ammunition, precision munitions and advanced fuzes; and aircraft and mission systems logistics support, sustainment, operations and modernization.
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.
We evaluate the effectiveness of our health and safety programs by conducting trend analyses of our past performance and externally through benchmarking with industry peers and the U.S. Bureau of Labor Statistics.
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. -8- 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.
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.
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.
Cost-type contracts typically require that the contractor use its best efforts to accomplish the scope of work within some specified time and stated dollar limitation.
Government (1) International (2) Other Customers Total Percentage of Total Sales Cost-type contracts $ 20,170 $ 785 $ 24 $ 20,979 53 % Fixed-price contracts 13,712 4,120 479 18,311 47 % Total sales $ 33,882 $ 4,905 $ 503 $ 39,290 100 % (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.
Government (1) International (2) Other Customers Total Percentage of Total Sales Cost-type contracts $ 20,256 $ 684 $ 24 $ 20,964 51 % Fixed-price contracts 15,180 4,316 573 20,069 49 % Total sales $ 35,436 $ 5,000 $ 597 $ 41,033 100 % (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.
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.
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 Underpinned by our values and culture, we hire, promote, and pay based on merit and performance to ensure we have the best team to deliver for our customers.
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 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.
Approximately 45 percent of this business is performed through restricted programs. Key programs include: • Development and production of the U.S.
Key programs include: • Development and production of the U.S.
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) -1- NORTHROP GRUMMAN CORPORATION systems and vertical take-off and landing (VTOL) tactical ISR systems.
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. Approximately 45 percent of this business is performed through restricted programs.
The consolidated financial statements and financial information in this Annual Report reflect the operating results of our entire company, including restricted programs. -6- NORTHROP GRUMMAN CORPORATION Contracts We generate the majority of our business from long-term contracts with the U.S. government for development, production and support activities.
Contracts We generate the majority of our business from long-term contracts with the U.S. government for development, production and support activities.
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.
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.
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).
We monitor our contracts on a regular basis for compliance with our policies and procedures and applicable government laws and regulations.
You can learn more about us by reviewing our SEC filings on the investor relations page of our website.
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.
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.
This realignment is not reflected in the financial information contained in this report; it will be reflected in the company’s operating results beginning in the first quarter of 2025. 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.
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.
In addition, costs incurred and allocated to contracts with the U.S. government are routinely audited by the Defense Contract Audit Agency (DCAA). -6- NORTHROP GRUMMAN CORPORATION 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.
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 -4- 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.
SEASONALITY No material portion of our business is seasonal. -4- NORTHROP GRUMMAN CORPORATION BACKLOG At December 31, 2024, total backlog, which is equivalent to the company’s remaining performance obligations, was $91.5 billion as compared with $84.2 billion at December 31, 2023.
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.
We routinely apply for patents related to the technologies we develop in the U.S. and in certain foreign jurisdictions. We license some intellectual property rights to third parties and we also license or otherwise obtain access to intellectual property from third parties.
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.
Our focus on technology, innovation and career growth enables us to attract qualified talent, particularly those with security clearances and requisite skills in multiple areas, including science, technology, engineering and math.
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.
Through a focus on our employees, we remain agile and innovative, adapting to the future as it unfolds before us. Employee Health and Safety Health and safety are foundational to our success. People are our most valuable resource and we prioritize occupational health and safety to position the company for long-term success.
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 refresh and review succession plans to ensure a robust 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.
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.
Our strategy addresses the external and internal landscape and ensures that we can 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.
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.
See “Risk Factors” and Notes 1 and 11 to the consolidated financial statements for further information regarding environmental matters. Our environmental sustainability goals focus on Northrop Grumman’s facilities in addition to supply chain partners and customers: -7- NORTHROP GRUMMAN CORPORATION • Net zero greenhouse gas emissions (GHG) in operations (Scopes 1 and 2) by 2035.
Removed
Key programs include: • Integrated Air and Missile Defense Battle Command System (IBCS) for the U.S.
Added
Effective July 1, 2024, the company realigned the Strategic Deterrent Systems (SDS) division, which includes the Ground-Based Strategic Deterrent (“Sentinel”) program, from Space Systems to Defense Systems.
Removed
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. -3- 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.
Added
This realignment is reflected in the financial information contained in this report. -1- NORTHROP GRUMMAN CORPORATION Subsequent Realignment - Effective January 1, 2025, the company realigned the Strike and Surveillance Aircraft Solutions (SSAS) business unit from Defense Systems to Aeronautics Systems.
Removed
Navy's Trident II Fleet Ballistic Missile program; • 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.
Added
Less than 5 percent of this business is performed through restricted programs. Key programs include: • Sentinel Engineering & Manufacturing Development (EMD) program, initial phase of the modernization of the intercontinental ballistic missile (ICBM) system that will serve as the ground-based strategic deterrent for the U.S. nuclear triad; • Integrated Battle Command System (IBCS) for the U.S.
Removed
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.
Added
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.
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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.
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Navy's Trident II Fleet Ballistic Missile program; • Glide Phase Interceptor (GPI) Cooperative Development producing interceptor capability to defeat hypersonic threats; • Protected Tactical SATCOM (PTS) satellites and payloads providing resilient, protected tactical communications to U.S. forces; and • Arctic Satellite Broadband Mission (ASBM) satellites and payloads expanding both commercial as well as military broadband communications for an international partner.
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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.
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For further information, see “Backlog” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) and Note 1 to the consolidated financial statements. INTELLECTUAL PROPERTY We protect our technological innovations using a combination of trade secrets, patents, trademarks, and copyrights.
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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.
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Our differentiated culture and workforce was a factor in our ability to hire approximately 7,400 new employees in 2024, and as of December 31, 2024, we have approximately 97,000 employees.
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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.
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We actively seek candidates for employment from a wide range of backgrounds and experiences to tap into the full spectrum of talent available now and in the future to create a culture of belonging for everyone. -5- NORTHROP GRUMMAN CORPORATION 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 fostering employee growth.
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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.
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In a rapidly changing world, we maintain focus on keeping our team and our company prepared for the evolving future of work.
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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.
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Training and risk and hazard identification, mitigation and prevention are key components of Northrop Grumman’s safety program. Everyone has a responsibility to identify workplace hazards, and employees may raise concerns without fear of reprisal.
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Such information should not be considered a part of this report, unless otherwise expressly incorporated by reference in this report.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeImproper 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.
Biggest changeSee Note 10 to the consolidated financial statements for information regarding the company’s investigations, claims and litigation. • 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 changes in such laws, regulations or terms, any negative findings by the U.S. government as to our or our partners’ compliance with them, and changes in our customers’ business practices globally could affect our ability to compete and have a material adverse effect on our financial position, results of operations and/or cash flows.
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.
We are or 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.
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.
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, our compliance, and the adequacy of our systems in meeting government requirements.
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.
Problems and delays in the successful development and delivery of our solutions, including as a result of issues with 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.
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.
Our operating results and growth opportunities are heavily dependent upon our ability to attract and retain sufficient qualified 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.
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).
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, water scarcity and/or poor water quality).
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.
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, remediate or report cyber incidents in a timely manner, we may suffer financial and other harm, including to our information, operations, performance, employees and reputation.
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.
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 strategies, priorities and spending could have a material adverse effect on our financial position, results of operations and/or cash flows.
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.
The U.S. and its allies and security partners 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.
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 operate in highly competitive markets and our competitors may have more financial capacity or more extensive or specialized engineering, technical, manufacturing, marketing or servicing capabilities. They may be willing to accept more risk or lower profitability in competing for contracts.
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.
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 legal requirements globally.
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 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 contract and program 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.
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.
We endeavor to obtain insurance from financially stable, 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.
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.
Sales to customers outside the U.S. are an important component of our strategy. Our international business (including our participation in joint ventures and other forms of collaboration, 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.
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.
Changes in laws, political leadership and environment, and/or security risks may dramatically affect our ability to conduct or continue to conduct business in international markets.
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.
Certain outcomes 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.
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.
These direct and indirect costs can 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.
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.
New laws or other requirements, or changes to existing ones (including, for example, related to cybersecurity, information and data 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.
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.
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 or illegal behavior, or a misalignment between our contractual obligations to our customers and our agreements 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.
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.
The U.S. continues to face a changing geopolitical 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.
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.
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. We also face risks related to the unintended or unauthorized use of our products and resources.
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.
Disruptions also impact the availability and cost of materials needed for manufacturing and can increase insurance and other operating costs, or result in a lack of available coverage.
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.
Our primary customer is the U.S. government, from which we derived 87 percent of our sales in 2024; 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.
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.
The policy limits and terms of coverage reasonably obtainable may not be sufficient to cover actual losses or liabilities. For example, the space 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 have exited the market.
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.
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, sanctions and other trade restrictive activities, 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 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.
The cost of PP&E utilized in support of our commercial business, including approximately $575 million of PP&E 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.
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.
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. • We use estimates when accounting for contracts.
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.
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; and natural disasters or environmental matters.
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 -9- NORTHROP GRUMMAN CORPORATION predict what funding will ultimately be approved for individual programs.
When we or our subcontractors incur costs in excess of funds obligated on a contract, we are generally at risk for reimbursement unless and until additional funds are obligated to the contract. We cannot predict what funding will ultimately be approved for individual programs.
In 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 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, -8- NORTHROP GRUMMAN CORPORATION but not the anticipated profit that would have been earned.
These risks differ in some respects from those associated with our U.S. -17- NORTHROP GRUMMAN CORPORATION 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.
These risks differ in some respects from those associated with our U.S. business and our exposure to such risks is expected to increase if and as our international business continues to grow. Our international business is generally subject to both U.S. and foreign laws, regulations and practices.
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.
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 avoid or mitigate some such incidents, as well as potentially insurance coverage and indemnification to address resulting liabilities, but they may not be successful.
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.
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, including those with security clearances.
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.
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.
These requirements, whether specific to our industry or broadly applicable, may limit our ability to achieve our goals.
These requirements, whether specific to our industry or broadly applicable, can limit our ability to achieve our goals.
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.
If, for example, we also 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.
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.
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 or cause suppliers to be unwilling or unable to supply them and we cannot obtain a reasonable substitute on a cost-effective basis.
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.
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 for us to negotiate directly with third parties to obtain necessary rights on reasonable terms,which may not be practicable.
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.
Increased worldwide focus on climate change has -13- NORTHROP GRUMMAN CORPORATION led to legislative and regulatory efforts to combat both potential causes and adverse impacts of climate change, including regulation of greenhouse gas emissions.
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.
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.
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.
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, challenges in estimating contract revenues and costs and supplier challenges. In 2024, approximately half of our sales were derived from fixed-price contracts.
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 the event of misuse, theft or misappropriation of such intellectual property rights or breach of confidentiality obligations, 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.
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.
Goodwill is an intangible asset that we recognize in connection with acquisitions of third-party businesses. Goodwill accounts for approximately 35 percent of our total assets as of December 31, 2024. Other long-lived assets -20- NORTHROP GRUMMAN CORPORATION principally comprise property, plant and equipment (PP&E) used in operating our business.
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.
Our intellectual property is subject to challenge, invalidation, 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, has been and could in the future be costly.
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.
These rights may not be sufficient to protect us. • Unanticipated 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.
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.
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.
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. -10- NORTHROP GRUMMAN CORPORATION Our risk varies with the type of contract.
However, our contracts may not enable full recovery, and/or customers may disagree with our requests or may not have funding to cover them. Our risk varies with the type of contract.
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.
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 may continue to increase.
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.
To perform on our contracts and to win new business, we also depend increasingly on our ability to progress successfully on our digital transformation strategy. To meet evolving customer requirements, it is increasingly necessary to differentiate our offerings and to achieve efficiencies in our operations through digital based solutions.
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.
In addition, the final determination of any tax audits or related litigation, in particular with regard to our positions on research credits, could be materially different from our historical income tax provisions and accruals.
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.
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.
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.
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 has, in some cases, required us to identify alternate sources, resulting in additional costs and/or otherwise impacting our business and operations.
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.
Legal proceedings, even if pending or not ultimately resulting in adverse action, 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.
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.
Costs ultimately found to be unallowable or improperly allocated are generally not reimbursed or require us to refund the customer. When an audit uncovers improper or illegal activities, we are subject to possible civil and criminal penalties, sanctions, or suspension or debarment.
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.
Our business, financial position, results of operations and/or cash flows have been and may in the future be adversely impacted by the global macroeconomic environment, which impacts have included and may in the future include high rates of inflation; increased interest rates; tight credit in financial markets; widespread disruptions in supply chains; workforce challenges, including labor shortages; and market volatility, including exchange rate volatility.
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 -15- NORTHROP GRUMMAN CORPORATION 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.
Cyber threats, both on premises and in the cloud, are complex, continuous and evolving and include, but are not limited to: malicious software, destructive malware, ransomware, targeting by more advanced and persistent -14- NORTHROP GRUMMAN CORPORATION adversaries, including nation states and other actors, zero-day attacks, attempts to gain unauthorized access to systems or data, disruption to operations, critical systems or denial of service attacks; unauthorized release of confidential, personal or other protected information (ours or that of our employees, customers or partners); corruption of data, networks or systems; harm to individuals; and loss of assets.
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.
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.
Even where a bid protest does not result in such a loss, it can delay the start of contract activities and earnings.
Even where a bid protest does not result in such a loss, it can result in significant expenses and delay the start of contract activities and revenue or result in contract modifications.
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.
To perform on our contracts and to win new business, we depend on our ability to develop, protect and exploit our intellectual property and use the intellectual property of others.
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.
We use and provide energetic materials, including in propulsion systems, which are highly explosive and flammable. We develop missile systems, and counter systems, including strategic deterrents, as well as subsystems and components.
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.
These and other macroeconomic challenges have led and can lead to increased costs, labor and supply shortages, and delays and disruption in performance, as well as competing demands for scarce resources, which in turn have adversely impacted and may continue to adversely impact our customers, our industry, our company, our suppliers and others with whom we do business.
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 increasing and evolving disclosure obligations related to cyber and other security events and the risk of 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.
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.
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, which could have a material adverse effect on our financial condition and/or results of operations.
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.
We face potential liability based on misconduct by employees, agents or others working with us or on our behalf that could 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.
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.
Changes in procurement practices, including those favoring -12- NORTHROP GRUMMAN CORPORATION incentive-based fee arrangements; fixed price development or long-term production programs; different award criteria; and non-traditional contract provisions have affected and may in the future affect our profitability and predictability.
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 addition, if we are unable to do that or if our suppliers are no longer able to perform due to financial difficulties, we may face additional losses and liabilities under our current contracts and adversely impact the prospects for certain new ones.
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.
We may be subject to potential liabilities, including for personal injury and harm to human health, property damage, environmental harm, and reputational harm arising out of such incidents or hazardous activities and operations, whether or not the cause was within our control, and insurance may not be reasonably available.
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.
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 with traditional defense companies, new entrants in our markets and commercial companies, globally, with increasing wage rates and, in some cases, greater flexibility around working conditions.
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.
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 workforce, and to maintain performance levels and our corporate culture. Certain of our employees are covered by collective agreements.
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.
We also face threats to our physical security, including to our facilities and the safety and well-being of our people, including senior executives. These threats could involve terrorism, insider threats, targeted threats against senior executives, workplace violence, civil unrest, natural disasters, damaging weather or fires, which could adversely affect our company.
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 -19- NORTHROP GRUMMAN CORPORATION other weather events (which may be exacerbated by climate change).
We expect our facilities, operations, employees and communities in the future, particularly at facilities prone to extreme weather events, such as in Florida and California, to continue to be at risk for future natural disasters or other weather events (which may be exacerbated by climate change).
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.
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 as compared to fixed-price development work.
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.
We typically seek to protect this information by entering into confidentiality and intellectual property agreements with our employees and third parties such as consultants, collaborators and suppliers. These agreements and other measures may not provide adequate protection for our trade secrets and other proprietary information.
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.
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. For example, please see Note 10 for a discussion of certain disputes and lawsuits related to legacy Bethpage environmental conditions.
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.
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. Further, the sophistication, availability and use of artificial intelligence by threat actors present an increased level of risk.
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.
In some cases, they have also ultimately resulted and could result in termination of a contract for convenience or reduced future orders. • Significant delays or reductions in appropriations for our programs or U.S. government funding more broadly, including a prolonged continuing resolution, government shutdown or breach of the debt ceiling, and future budget and program decisions 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.
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.
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.
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.
We are also facing increasing competition for, and more limited access to various critical products, services and other supplies. In some instances, foreign companies may receive loans, subsidies and other assistance from their governments that may not be available to U.S. companies and foreign companies may be subject to fewer restrictions on technology transfer.
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.
Such natural disasters and other significant disruptions can interrupt our operations, impact our employees, and result in significant costs and adversely affect our performance. Our subcontractors and other suppliers have also been, and may in the future be, subject to natural disasters or other significant disruptions that could affect their ability to deliver or perform.
We generally have been able to renegotiate renewals to expiring agreements without significant disruption of operating activities.
We generally have been able to renegotiate renewals to expiring agreements without significant disruption of operating activities. However, other companies recently have experienced challenges in renewing labor agreements.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThey include: Industry and Economic Risks • our dependence on the U.S. government for a substantial portion of our business -23- 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 -24- 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.
Biggest changeThey include: Industry and Economic Risks • our dependence on the U.S. government for a substantial portion of our business • 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 • increased competition within our markets and bid protests • continued pressures from macroeconomic trends, including on costs, schedules, performance and ability to meet expectations Legal and Regulatory Risks • investigations, claims, disputes, enforcement actions, litigation (including criminal, civil and administrative) and/or other legal proceedings • 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 • 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 • 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 • the performance and viability of our subcontractors and suppliers and the availability and pricing of raw materials, chemicals, parts and components, particularly with inflationary pressures, increased costs, shortages in labor and financial resources, supply chain disruptions, and extended material lead times • our ability to attract and retain a qualified and talented workforce with the necessary security clearances to meet our performance obligations • 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 • natural disasters, epidemics, pandemics and similar outbreaks and other significant disruptions • 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 • 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 protect and exploit intellectual property rights -23- NORTHROP GRUMMAN CORPORATION General and Other Risk Factors • the adequacy and availability of, and ability to obtain, insurance coverage, customer indemnifications or other liability protections • the future investment performance of plan assets, gains or losses associated with changes in valuation of marketable securities related to our non-qualified benefit plans, changes in actuarial assumptions associated with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our pension and postretirement benefit obligations • changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets, and other potential future liabilities You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements.
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.
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 programs, systems and infrastructure, and the information they contain.
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.
Our -21- NORTHROP GRUMMAN CORPORATION 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.
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.
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 -22- NORTHROP GRUMMAN CORPORATION under “Risk Factors” and other important factors disclosed in this report and from time to time in our other filings with the SEC.
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.
These relationships enable the rapid sharing of threat and vulnerability mitigation information across the defense industrial base and supply chain. • Third Party Risk Management – We conduct cybersecurity assessments before sharing or allowing the hosting or processing of sensitive data in computing environments managed by third parties, and our standard terms and conditions contain contractual provisions requiring certain cybersecurity and data protections and controls.
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.
The CISO is responsible for the assessment and management of cybersecurity risk and the resiliency, protection and defense of our networks and systems. The CISO leads 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, data protection, privacy, insider threats and regulatory compliance.
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 periodically host cybersecurity and ransomware tabletop exercises with management and other company functional stakeholders to practice rapid cyber incident response. • Supplier Engagement – We provide training and other resources to our suppliers to support cybersecurity resiliency and data security principles in our supply chain.
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.
We also periodically use our Internal Audit function to conduct additional reviews and assessments. • Insider Threats – We maintain an insider threat program, led by our Vice President, Corporate and Enterprise Security, designed to identify, assess, and address potential risks from within our company.
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.
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 or vulnerabilities. From time to time, we engage third-party consultants or other advisors to assist in assessing, identifying and/or managing cybersecurity threats.
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 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.
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.
We also require our suppliers, subcontractors and third-party service providers to comply with our standard cybersecurity-related 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 or products being provided. • Third Party Cybersecurity Service Providers – We engage third party service providers to expand the capabilities and capacity of our cybersecurity program, including for design, monitoring and testing of the program’s risk prevention and protection measures and process execution, including incident detection, investigation, analysis and response, eradication and recovery.
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). -22- 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.
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.
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.
The ERMC meets during the year and receives periodic updates from the CIDO and CISO on cybersecurity risks. We have an established process governing our response to a cybersecurity incident from detection to mitigation, recovery, assessment, internal and external notifications and functional stakeholder engagements with legal, privacy and risk management, among others.
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.
To help ensure effective oversight, the CISO briefs the Audit and Risk Committee on the company’s information security and cybersecurity risk posture 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.
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 ERMC is comprised of the Executive Leadership Team, as well as the Chief Accounting Officer, Chief Ethics and Compliance Officer, Corporate Secretary, Chief Sustainability Officer, Treasurer and Vice President, Internal Audit. The CISO and the CIDO (previously the CIO) attend each ERMC meeting.
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.
In 2024, our global cybersecurity function was maintained in our Chief Information Office, led by our Chief Information Officer (CIO), who reported to our CEO.
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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.
Added
In 2025, we have brought together our chief information and digital transformation offices into a newly formed Chief Information and Digital Office, led by our Chief Information and Digital Officer (CIDO), who reports to the CEO. The Chief Information Security Officer (CISO), who previously reported to the CIO, now reports to the CIDO and continues to lead our cybersecurity functions.
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The current CISO is an executive with extensive technical and operational experience in building and leading cybersecurity and resiliency teams in the industry and government. 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.
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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), as appropriate.
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Finally, we require these third parties to notify us promptly of cyber incidents or data breaches so that we can assess potential impact on us. • Training and Awareness – We provide annual cybersecurity and information security awareness training to our employees with network access to help identify, avoid and mitigate cybersecurity threats and insider risks.
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This training also includes awareness about the policies and guidance associated with data privacy and protection of personal information, and protection and security of our company, customer and other third-party data. Our employees with network access also participate in annual spear phishing exercises.
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Additionally, several external entities evaluate our cybersecurity program, including the U.S. Defense Contract Management Agency, the Defense Industrial Base Cybersecurity Assessment Center and a Cybersecurity Maturity Model Certification Third Party Assessment Organization, to assess and certify our cybersecurity regulatory compliance.
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We also engage with external auditors and consultants who conduct audits and assessments of our cybersecurity controls. • Product Security – We provide cyber threat intelligence to, and collaboration with, our product security teams and share expertise in cyber vulnerability, exploit and resilience technology that can be applied to network infrastructure and company product offerings.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeGovernment Owned/Leased Total Aeronautics Systems 3,179 6,204 3,302 12,685 Defense Systems 1,367 3,328 2,285 6,980 Mission Systems 8,033 4,145 — 12,178 Space Systems 9,546 8,714 589 18,849 Corporate 372 246 — 618 Total 22,497 22,637 6,176 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.
Biggest changeGovernment Owned/Leased Total Aeronautics Systems 3,141 6,305 3,451 12,897 Defense Systems 921 4,857 2,285 8,063 Mission Systems 8,055 4,110 — 12,165 Space Systems 10,640 7,150 589 18,379 Corporate 372 268 — 640 Total 23,129 22,690 6,325 52,144 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. -24- NORTHROP GRUMMAN CORPORATION
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.
The company’s major operations are at the following locations: Aeronautics Systems El Segundo, Mojave, Palmdale, and San Diego, CA; Melbourne and St. Augustine, FL; Iuka and Moss Point, MS; Beavercreek, OH; Oklahoma City, OK; and Clearfield, UT.
Corporate Falls Church, VA The following is a summary of our floor space at December 31, 2023: Square feet (in thousands) Owned Leased U.S.
Corporate Falls Church, VA The following is a summary of our floor space at December 31, 2024: Square feet (in thousands) Owned Leased U.S.
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.
Defense Systems Huntsville and Madison, AL; Mesa and Sierra Vista, AZ; Northridge, CA; Warner Robins, GA; Lake Charles, LA; Elkton, MD; Elk River and Plymouth, MN; Ogden and Roy, UT; Dulles, McLean and Radford, VA; and Keyser, WV. Locations outside the U.S. include Australia.
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.
Item 2. Properties At December 31, 2024, we had approximately 52 million square feet of floor space at 466 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.
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.
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, Salt Lake City and Tremonton, UT; and Dulles, McLean and Sterling, VA.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThese types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms -25- 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.
Biggest changeThese types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms include judgments or convictions and consent or other voluntary decrees or agreements); compensatory, treble or other damages; non-monetary relief; or other liabilities.
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.
For additional information on pending matters, please see Notes 10 and 11 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 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.
Item 3. Legal Proceedings We have provided information about certain legal proceedings in which we are involved in Notes 10 and 11 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.
Removed
Item 4. Mine Safety Disclosures No information is required in response to this item. -26- NORTHROP GRUMMAN CORPORATION PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Period Number of Shares Purchased Average Price Paid per Share (1) 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) September 30, 2023 - October 27, 2023 85,824 $ 449.40 85,824 $ 1,441 October 28, 2023 - November 24, 2023 293,446 466.94 293,446 1,304 November 25, 2023 - December 31, 2023 379,654 470.52 379,654 3,625 Total 758,924 $ 466.75 758,924 $ 3,625 (1) Excludes commissions paid.
Biggest changePURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Period Number of Shares Purchased Average Price Paid per Share (1) 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) September 28, 2024 - October 25, 2024 150,761 $ 530.15 150,761 $ 1,483 October 26, 2024 - November 22, 2024 335,909 506.90 335,909 1,313 November 23, 2024 - December 31, 2024 376,550 478.58 376,550 4,133 Total 863,220 $ 498.61 863,220 $ 4,133 (1) Excludes commissions paid and other costs of execution, including taxes.
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.
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, 2024 and 2023. MARKET INFORMATION Our common stock is listed on the New York Stock Exchange and trades under the symbol NOC.
See Note 3 to the consolidated financial statements for further information on our share repurchase programs. -27- 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.
See Note 2 to the consolidated financial statements for further information on our share repurchase programs. -26- 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, 2019, 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, General Electric Company, 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.
(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.
(2) The value remaining on December 31, 2024 includes an additional $3.0 billion share repurchase authorization approved by the company’s board of directors on December 11, 2024. 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.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities COMMON STOCK We have 800,000,000 shares authorized at a $1 par value per share, of which 144,952,026 shares and 150,109,271 shares were issued and outstanding as of December 31, 2024 and 2023, respectively.
HOLDERS As of January 22, 2024, there were 18,531 common shareholders of record.
HOLDERS As of January 27, 2025, there were 17,776 common shareholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(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. -33- NORTHROP GRUMMAN CORPORATION Diluted Earnings Per Share The table below reconciles diluted earnings per share to MTM-adjusted EPS and transaction-adjusted EPS: Year Ended December 31 % Change in 2023 2022 2021 2023 2022 Diluted earnings per share $ 13.53 $ 31.47 $ 43.54 (57) % (28) % MTM expense (benefit) per share 2.78 (7.92) (14.64) NM (46) % MTM-related deferred state tax (benefit) expense per share (1) (0.14) 0.42 0.77 NM (45) % Federal tax (benefit) expense of items above per share (2) (0.56) 1.57 2.92 NM (46) % MTM adjustment per share, net of tax 2.08 (5.93) (10.95) NM (46) % MTM-adjusted EPS 15.61 25.54 32.59 (39) % (22) % Gain on sale of business per share — — (12.31) NM NM State tax impact (3) per share — — 0.99 NM NM Transaction costs per share — — 0.20 NM NM Make-whole premium per share — — 0.34 NM NM Federal tax impact of items above (4) per share — — 3.82 NM NM Transaction adjustment per share, net of tax — — (6.96) NM NM Transaction-adjusted EPS $ 15.61 $ 25.54 $ 25.63 (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.
Biggest changeDiluted Earnings Per Share The table below reconciles diluted earnings per share to MTM-adjusted EPS: Year Ended December 31 % Change in 2024 2023 2022 2024 2023 Diluted earnings per share $ 28.34 $ 13.53 $ 31.47 109 % (57) % MTM (benefit) expense per share (3.02) 2.78 (7.92) NM NM MTM-related deferred state tax expense (benefit) per share (1) 0.16 (0.14) 0.42 NM NM Federal tax expense (benefit) of items above per share (2) 0.60 (0.56) 1.57 NM NM MTM adjustment per share, net of tax (2.26) 2.08 (5.93) NM NM MTM-adjusted EPS $ 26.08 $ 15.61 $ 25.54 67 % (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.
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.
Mark-to-market adjusted net earnings (MTM-adjusted net earnings) and MTM-adjusted earnings per share (MTM-adjusted EPS) exclude MTM pension and OPB benefit/(expense) and related tax impacts, which are generally only recognized during the fourth quarter.
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.
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; advanced microelectronics; navigation and positioning sensors; maritime power, propulsion and payload launch systems; full spectrum cyber solutions; and intelligence processing systems.
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 principal estimates and assumptions that have a significant effect on our consolidated financial position and 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 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 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 these events, including global unrest.
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.
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, 2024, and the amounts estimated for our 2025 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.
For further information regarding our pension and OPB plans, see “Risk Factors” and Notes 1 and 12 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.
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.
However, the cost of PP&E utilized in support of our commercial business, including approximately $575 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.
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.
We believe our capabilities, particularly in space, C4ISR, missile defense, battle management, advanced weapons, strategic deterrence, 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.
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.
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 2024, we determined there were no impairment indicators requiring us to perform an interim goodwill impairment test.
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.
The company has a five-year senior unsecured credit facility in an aggregate principal amount of $2.5 billion, and in April 2024, we renewed our one-year $500 million uncommitted credit facility. At December 31, 2024, there were no borrowings outstanding under these credit facilities.
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.
The results of our annual goodwill impairment tests as of December 31, 2024 and 2023, 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, 2024, 2023 and 2022.
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.
There were no impairment charges recorded in the years ended December 31, 2024, 2023 and 2022. Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions.
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.
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 -43- NORTHROP GRUMMAN CORPORATION 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.
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.
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 – We use mortality assumptions to estimate life expectancies of plan participants.
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.
At this time, the Investment Committee is not planning any significant changes to that mix. For further information on plan asset investments, see Note 12 to the consolidated financial statements.
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. -46- NORTHROP GRUMMAN CORPORATION
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. -45- NORTHROP GRUMMAN CORPORATION
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.
Adjusted free cash flow includes proceeds from the sale of equipment to a customer as -39- NORTHROP GRUMMAN CORPORATION 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.
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.
DEFENSE SYSTEMS Defense Systems is a leader in the design, engineering, development, integration and production of strategic deterrent systems, 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.
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.
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.
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.
As we expect to recover a significant 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.
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.
This income valuation method requires management to project sales, operating expenses, working capital, capital -44- NORTHROP GRUMMAN CORPORATION 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.
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 25 Basis Point Decrease in Rate 25 Basis Point Increase in Rate 2023 pension obligation and MTM expense (benefit) $ (105) $ 108 2024 pension (benefit) expense (9) 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.
Holding all other assumptions constant, an increase or decrease of 25 basis points in the December 31, 2024 cash balance crediting rate assumption would have the following estimated effects on the 2024 pension benefit obligation, which would be reflected in the 2024 MTM (benefit) expense, and 2025 expected pension expense: $ in millions 25 Basis Point Decrease in Rate 25 Basis Point Increase in Rate 2024 pension obligation and MTM (benefit) expense $ (101) $ 104 2025 pension (benefit) expense (9) 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.
Our assessment is based on our projection of the undiscounted future -45- 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.
Our assessment is based on our projection of the undiscounted future operating cash flows of the related asset group. If such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amount, we recognize a non-cash impairment charge to reduce the carrying amount to fair value.
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.
Major products include satellites and spacecraft systems, subsystems, sensors and payloads; ground systems; missile defense systems and interceptors; and launch vehicles and related propulsion systems.
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 measures are also consistent with how management views the underlying performance of the business as the impact of MTM accounting is 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.
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.
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.
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 25 Basis Point Decrease 25 Basis Point Increase 2024 pension and OPB expense (benefit) $ 76 $ (76) -43- 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 100 Basis Point Decrease 100 Basis Point Increase 2024 MTM expense (benefit) $ 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.
Holding all other assumptions constant, an increase or decrease of 25 basis points in our December 31, 2024 EROA assumption would have the following estimated effects on 2025 expected pension and OPB expense: $ in millions 25 Basis Point Decrease 25 Basis Point Increase 2025 pension and OPB expense (benefit) $ 75 $ (75) 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 2025 MTM expense (benefit): $ in millions 100 Basis Point Decrease 100 Basis Point Increase 2025 MTM expense (benefit) $ 300 $ (300) 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.
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.
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, 2024, we have approximately $1.4 billion in unrecognized tax benefits.
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.
In January 2024, we issued $2.5 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, 2024, we had $20.5 billion of purchase obligations, approximately half of which is short-term.
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.
Operating margin rate decreased to 9.5 percent from 10.2 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.
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.
For determining 2024 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 7.12 percent. For 2025 FAS expense, we have assumed an expected long-term rate of return on pension plan assets of 7.5 percent and 7.08 percent on OPB plans.
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.
Our average annual rate of return from 1976 to 2024 was approximately 10.5 percent and our 20-year and 30-year rolling average rates of return were approximately 7.5 percent and 8.9 percent, respectively, each determined on an arithmetic basis and net of expenses. Our 2024 return on plan assets, net of expenses, was approximately 4.7 percent.
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 -44- 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.
As of December 31, 2024, we expect approximately 93 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 remediation costs otherwise increase, there could be a significant impact on our consolidated financial position, annual results of operations and/or cash flows.
See Note 7 to the consolidated financial statements for additional information.
See Note 6 to the consolidated financial statements for additional information.
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.
Taking into consideration the factors noted above, our weighted-average composite pension discount rate was 5.73 percent at December 31, 2024 and 5.15 percent at December 31, 2023. -41- NORTHROP GRUMMAN CORPORATION The effects of a hypothetical change in the discount rate may be nonlinear and asymmetrical for future years as the discount rate changes.
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.
For further information on litigation, commitments and contingencies, see “Risk Factors” and Note 1, Note 6, Note 10 and Note 11 to the consolidated financial statements.
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) $ 866 $ (827) 2024 pension and OPB (benefit) expense (23) 22 -42- 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.
Holding all other assumptions constant, an increase or decrease of 25 basis points in the December 31, 2024 discount rate assumption would have the following estimated effects on 2024 pension and OPB obligations, which would be reflected in the 2024 MTM expense (benefit), and 2025 expected pension and OPB expense: $ in millions 25 Basis Point Decrease in Rate 25 Basis Point Increase in Rate 2024 pension and OPB obligation and MTM expense (benefit) $ 785 $ (750) 2025 pension and OPB (benefit) expense (20) 19 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.
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 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 robust defense capabilities, and are actively evaluating both opportunities and risks associated with this environment.
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.
Current and future requirements related to the conflicts in Ukraine and the Middle East, threats in the Pacific region and other security priorities, as well as the macroeconomic environment, 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.
Mark-to-Market Pension and OPB Benefit/Expense The primary components of pre-tax MTM (expense) benefit are presented in the table below: Year Ended December 31 $ in millions 2023 2022 2021 Actuarial (losses) gains on projected benefit obligation $ (1,489) $ 9,662 $ 1,163 Actuarial gains (losses) on plan assets 1,067 (8,430) 1,192 MTM (expense) benefit $ (422) $ 1,232 $ 2,355 -32- 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.
Mark-to-Market Pension and OPB Benefit/Expense The primary components of pre-tax MTM benefit (expense) are presented in the table below: Year Ended December 31 $ in millions 2024 2023 2022 Actuarial gains (losses) on projected benefit obligation $ 1,314 $ (1,489) $ 9,662 Actuarial (losses) gains on plan assets (871) 1,067 (8,430) MTM benefit (expense) $ 443 $ (422) $ 1,232 The 2024 MTM benefit of $443 million was primarily driven by a 58 basis point increase in the discount rate from year end 2023, partially offset by actual net plan asset returns of 4.7 percent compared to our 7.5 percent asset return assumption.
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.
These macroeconomic factors have contributed, and in the future could 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.
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 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.
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.
Major products and services include strategic missiles; integrated, all-domain command and control (C2) systems; precision strike weapons; advanced propulsion, including tactical solid rocket motors and high speed air-breathing and hypersonic systems; high-performance gun systems, ammunition, precision munitions and advanced fuzes; and aircraft and mission systems logistics support, sustainment, operations and modernization.
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.
The RPEC has not released a projection scale since MP-2021, citing complexities in incorporating the substantial number of “excess deaths” in 2020 and 2021 into their existing model and uncertainties about future expectations primarily related to COVID-19.
These measures may not be -34- 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.
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.
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 -39- 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).
Refer to the respective notes to the consolidated financial statements for further information about our share repurchase programs (Note 2), commercial paper, credit facilities and long-term debt (Note 9), standby letters of credit and guarantees (Note 11), future minimum contributions for the company’s pension and OPB plans (Note 12), and lease payment obligations (Note 14).
Net EAC adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below: Year Ended December 31 $ in millions 2023 2022 2021 Favorable EAC adjustments $ 1,314 $ 1,337 $ 1,242 Unfavorable EAC adjustments (1,230) (977) (715) Net EAC adjustments $ 84 $ 360 $ 527 -35- NORTHROP GRUMMAN CORPORATION Net EAC adjustments by segment are presented in the table below: Year Ended December 31 $ in millions 2023 2022 2021 Aeronautics Systems $ (44) $ 174 $ 25 Defense Systems 111 111 113 Mission Systems 149 138 263 Space Systems (121) (38) 134 Eliminations (11) (25) (8) Net EAC adjustments $ 84 $ 360 $ 527 AERONAUTICS SYSTEMS Aeronautics Systems is a leader in the design, development, production, integration, sustainment and modernization of military aircraft systems for the U.S.
Net EAC adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below: Year Ended December 31 $ in millions 2024 2023 2022 Favorable EAC adjustments $ 1,461 $ 1,314 $ 1,337 Unfavorable EAC adjustments (1,111) (1,230) (977) Net EAC adjustments $ 350 $ 84 $ 360 -33- NORTHROP GRUMMAN CORPORATION Net EAC adjustments by segment are presented in the table below: Year Ended December 31 $ in millions 2024 2023 2022 Aeronautics Systems $ 151 $ (44) $ 174 Defense Systems 96 91 104 Mission Systems 59 149 138 Space Systems 42 (101) (31) Eliminations 2 (11) (25) Net EAC adjustments $ 350 $ 84 $ 360 AERONAUTICS SYSTEMS Aeronautics Systems is a leader in the design, development, production, integration, sustainment and modernization of military aircraft systems for the U.S.
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.
The U.S. political environment may also impact defense budgets and priorities, issues related to the national debt, and -28- NORTHROP GRUMMAN CORPORATION government spending more broadly.
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.
As of December 31, 2024, we had cash and cash equivalents of $4.4 billion; $268 million was held outside of the U.S. by foreign subsidiaries.
Global Economic Enviro nment 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.
Global Economic Environment Over the past several years, the global economic environment has experienced extraordinary challenges, including inflationary pressures; widespread delays and disruptions in supply chains; business slowdowns or shutdowns; workforce challenges and labor shortfalls; and market volatility.
Operating Cash Flow The table below summarizes key components of cash provided by operating activities: Year Ended December 31 $ in millions 2023 2022 2021 Net earnings $ 2,056 $ 4,896 $ 7,005 Gain on sale of business — — (1,980) B-21 charge 1,559 — — Non-cash items (1) 551 (1,305) (1,510) Pension and OPB contributions (139) (136) (141) Changes in trade working capital (144) (600) 181 Other, net (8) 46 12 Net cash provided by operating activities $ 3,875 $ 2,901 $ 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.
Operating Cash Flow The table below summarizes key components of cash provided by operating activities: Year Ended December 31 $ in millions 2024 2023 2022 Net earnings $ 4,174 $ 2,056 $ 4,896 B-21 charge — 1,559 — Non-cash items (1) 8 551 (1,305) Pension and OPB contributions (129) (139) (136) Changes in trade working capital 274 (144) (600) Other, net 61 (8) 46 Net cash provided by operating activities $ 4,388 $ 3,875 $ 2,901 (1) Includes depreciation and amortization, non-cash lease expense, MTM benefit (expense), stock based compensation expense, deferred income taxes and net periodic pension and OPB income. 2024 cash provided by operating activities increased $513 million, or 13 percent, principally due to improved trade working capital, largely driven by lower net tax payments, as well as higher net earnings.
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.
Purchase obligations are largely comprised of open purchase -38- NORTHROP GRUMMAN CORPORATION 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.
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.
Economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials, the imposition of retaliatory tariffs or other trade protection measures and renegotiation of free trade agreements, could also further impact the global market for defense products, services and solutions. U.S.
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.
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. -40- NORTHROP GRUMMAN CORPORATION We also consider the impact of macroeconomic factors on our estimates, in particular on contract EACs that span several years.
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.
Cash returned to shareholders through share repurchases and dividends totaled $3.7 billion in 2024 and $2.6 billion in 2023. 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.
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. -38- 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.
The increase was principally driven by higher restricted sales at Space Systems and Aeronautics Systems, and higher volume on restricted programs and F-35 sustainment at Mission Systems. 2024 service costs were comparable to the prior year, consistent with the change in services sales described above. 2023 service costs increased $186 million, or 3 percent, consistent with the higher service sales described above and reflects a higher operating margin rate on Space Systems service programs.
Net Earnings The table below reconciles net earnings to MTM-adjusted net earnings and transaction-adjusted net earnings: Year Ended December 31 % Change in $ in millions 2023 2022 2021 2023 2022 Net earnings $ 2,056 $ 4,896 $ 7,005 (58) % (30) % MTM expense (benefit) 422 (1,232) (2,355) NM (48) % MTM-related deferred state tax (benefit) expense (1) (22) 65 124 NM (48) % Federal tax (benefit) expense of items above (2) (84) 245 469 NM (48) % MTM adjustment, net of tax 316 (922) (1,762) NM (48) % MTM-adjusted net earnings 2,372 3,974 5,243 (40) % (24) % Gain on sale of business — — (1,980) NM NM State tax impact (3) — — 160 NM NM Transaction costs — — 32 NM NM Make-whole premium — — 54 NM NM Federal tax impact of items above (4) — — 614 NM NM Transaction adjustment, net of tax — — (1,120) NM NM Transaction-adjusted net earnings $ 2,372 $ 3,974 $ 4,123 (40) % (4) % (1) The deferred state tax impact in each period was calculated using the company’s blended state tax rate of 5.25 percent and is included in Unallocated corporate expense within operating income.
Net Earnings The table below reconciles net earnings to MTM-adjusted net earnings: Year Ended December 31 % Change in $ in millions 2024 2023 2022 2024 2023 Net earnings $ 4,174 $ 2,056 $ 4,896 103 % (58) % MTM (benefit) expense (443) 422 (1,232) NM NM MTM-related deferred state tax expense (benefit) (1) 23 (22) 65 NM NM Federal tax expense (benefit) of items above (2) 88 (84) 245 NM NM MTM adjustment, net of tax (332) 316 (922) NM NM MTM-adjusted net earnings $ 3,842 $ 2,372 $ 3,974 62 % (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.
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.
See Note 15 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.
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.
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 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.
For example, we have included in our EACs management’s best estimate of the impact inflation and disruptions in the supply chain have had and may continue to have on our contracts.
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.
These decreases were partially offset by sales growth on higher margin advanced microelectronics programs. -35- 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, and launch systems for national security, civil government, commercial and international customers.
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.
Annual appropriations to fund the federal government for FY 2025 have not yet been enacted. Congress continues to pass short-term continuing resolutions (CR) to fund the federal government. The most recent CR passed in December 2024 extends current funding levels until March 14, 2025.
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.
The increase was principally driven by higher volume on restricted programs and NGI at Space Systems, higher volume on Sentinel, ammunition programs, GMLRS, HACM, and the Integrated Battle Command System (IBCS) program at Defense Systems, and higher restricted sales at Mission Systems and Aeronautics Systems. 2024 product costs were comparable to the prior year, reflecting a higher operating margin rate principally due to the prior year $1.56 billion charge on the B-21 program at Aeronautics Systems and higher EAC adjustments at Space Systems, largely driven by the HALO program. 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. -37- NORTHROP GRUMMAN CORPORATION Service Sales and Costs 2024 service sales decreased $86 million, or 1 percent, primarily due to a decrease in service sales at Defense Systems principally due to the completion of an international training program and lower volume on SEMA, partially offset by an increase in service sales at Aeronautics Systems driven by higher volume on restricted programs and Global Hawk. 2023 service sales increased $313 million, or 4 percent, due to an increase in service sales at Space Systems, Mission Systems, and Aeronautics Systems.
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.
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. Effective July 1, 2024, the company realigned the Strategic Deterrent Systems (SDS) division, which includes the Ground-Based Strategic Deterrent (“Sentinel”) program, from Space Systems to Defense Systems.
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.
Segment Operating Income and Margin Rate 2024 segment operating income increased $1.8 billion, or 65 percent, primarily due to higher operating income at Aeronautics Systems, largely driven by the prior year $1.56 billion charge on the B-21 program, as well as higher operating income at Space Systems and Defense Systems.
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. -37- 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.
These increases were partially offset by a $172 million decrease for CRS missions and a $109 million decrease on the HALO program. Operating Income 2024 operating income increased $124 million, or 11 percent, primarily due to a higher operating margin rate.
In the meantime, we expect to continue to make additional federal tax payments based on the current Section 174 tax law.
In the meantime, we expect to continue to make additional federal tax payments based on the current Section 174 tax law, which we estimate will reduce our 2025 cash from operations by approximately $230 million.
Year Ended December 31 % Change in $ in millions 2023 2022 2021 2023 2022 Operating income $ 2,537 $ 3,601 $ 5,651 (30) % (36) % Operating margin rate 6.5 % 9.8 % 15.8 % Reconciliation to segment operating income: CAS pension expense (154) (167) (544) (8) % (69) % FAS pension service expense 236 367 414 (36) % (11) % FAS/CAS operating adjustment 82 200 (130) (59) % (254) % Gain on sale of business — — (1,980) — % NM IT services divestiture – unallowable state taxes and transaction costs — — 192 — % NM Intangible asset amortization and PP&E step-up depreciation 122 242 254 (50) % (5) % Deferred state tax (benefit) expense (1) of MTM adjustment (22) 65 124 (134) % (48) % Deferred state tax benefit of B-21 charge (1) (82) — — NM NM Other unallocated corporate expense 123 145 106 (15) % 37 % Unallocated corporate expense (income) 141 452 (1,304) (69) % (135) % Segment operating income $ 2,760 $ 4,253 $ 4,217 (35) % 1 % Segment operating margin rate 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.
These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP. -32- NORTHROP GRUMMAN CORPORATION Year Ended December 31 % Change in $ in millions 2024 2023 2022 2024 2023 Operating income $ 4,370 $ 2,537 $ 3,601 72 % (30) % Operating margin rate 10.6 % 6.5 % 9.8 % Reconciliation to segment operating income: CAS pension expense (279) (154) (167) 81 % (8) % FAS pension service expense 239 236 367 1 % (36) % FAS/CAS operating adjustment (40) 82 200 NM (59) % Intangible asset amortization and PP&E step-up depreciation 97 122 242 (20) % (50) % Deferred state tax expense (benefit) (1) of MTM adjustment 23 (22) 65 NM (134) % Deferred state tax benefit of B-21 charge (1) — (82) — NM NM Other unallocated corporate expense 94 123 145 (24) % (15) % Unallocated corporate expense 214 141 452 52 % (69) % Segment operating income $ 4,544 $ 2,760 $ 4,253 65 % (35) % Segment operating margin rate 11.1 % 7.0 % 11.6 % (1) Represents the deferred state tax expense (benefit) associated with MTM benefit (expense) and the prior year B-21 charge, which are recorded in Unallocated corporate expense consistent with other changes in deferred state taxes.
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.
During 2024, 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 43% to 45%. The actual asset allocation as of December 31, 2024 was approximately 41% fixed-income, 29% public equities, 23% alternatives, 6% private credit and 1% cash.
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.
Operating margin rate decreased to 10.0 percent from 10.2 percent, primarily due to lower net EAC adjustments. 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.
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.
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 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 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.
The political environment, federal budget, debt ceiling and regulatory environment, including potential tax reform, are expected to continue to be the subject of considerable debate, especially in light of the ongoing conflicts and heightened global tensions, the macroeconomic environment and political tensions.
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 a result, sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts. -29- NORTHROP GRUMMAN CORPORATION 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.
At this time, we are unable to estimate the timing and amount of any future cash outflows related to these uncertain tax positions.
We also had provisions for uncertain tax positions of $1.4 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.
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.
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).
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. -31- NORTHROP GRUMMAN CORPORATION Selected financial highlights are presented in the table below: Year Ended December 31 % Change in $ in millions, except per share amounts 2023 2022 2021 2023 2022 Sales $ 39,290 $ 36,602 $ 35,667 7 % 3 % Operating costs and expenses 36,753 33,001 31,996 11 % 3 % Operating costs and expenses as a % of sales 93.5 % 90.2 % 89.7 % Gain on sale of business — — 1,980 — % NM Operating income 2,537 3,601 5,651 (30) % (36) % Operating margin rate 6.5 % 9.8 % 15.8 % Mark-to-market pension and OPB (expense) benefit (422) 1,232 2,355 NM (48) % Federal and foreign income tax expense 290 940 1,933 (69) % (51) % Effective income tax rate 12.4 % 16.1 % 21.6 % Net earnings 2,056 4,896 7,005 (58) % (30) % Diluted earnings per share $ 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.
Selected financial highlights are presented in the table below: Year Ended December 31 % Change in $ in millions, except per share amounts 2024 2023 2022 2024 2023 Sales $ 41,033 $ 39,290 $ 36,602 4 % 7 % Operating costs and expenses 36,663 36,753 33,001 — % 11 % Operating costs and expenses as a % of sales 89.4 % 93.5 % 90.2 % Operating income 4,370 2,537 3,601 72 % (30) % Operating margin rate 10.6 % 6.5 % 9.8 % Mark-to-market pension and OPB benefit (expense) 443 (422) 1,232 NM NM Federal and foreign income tax expense 842 290 940 190 % (69) % Effective income tax rate 16.8 % 12.4 % 16.1 % Net earnings 4,174 2,056 4,896 103 % (58) % Diluted earnings per share $ 28.34 $ 13.53 $ 31.47 109 % (57) % Sales 2024 sales increased $1.7 billion, or 4 percent, due to a 12 percent growth in sales at Aeronautics Systems and higher sales at Mission Systems and Defense Systems, partially offset by lower sales at Space Systems largely driven by a reduction of $595 million associated with wind-down of work on the restricted space and NGI programs, as previously disclosed. 2024 sales reflect continued strong demand for our products and services. -30- NORTHROP GRUMMAN CORPORATION See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail.
In particular, it is difficult to predict the specific course of future defense budgets.
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.
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. -41- 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.
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.
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.
This notification, which had been driven primarily by increases in cost estimates for the Production and Deployment phases, commenced the process to achieve certification for continuance of the program and update its baseline cost estimates. We are currently executing under a cost-type contract for the EMD phase, and the Production and Deployment phases are yet to be priced and negotiated.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeINFLATION RISK The global macroeconomic environment has experienced extraordinary challenges, including the highest rates of inflation in 40 years.
Biggest changeINFLATION RISK The global macroeconomic environment has experienced extraordinary challenges in recent years, including the highest rates of inflation in 40 years. The company, its subcontractors and other suppliers, have experienced, and may in the future experience, pressures from heightened levels of inflation and challenges from the macroeconomic environment.
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.
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 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.
We do not hold or issue derivative financial instruments for trading purposes. At December 31, 2024, foreign currency forward contracts with a notional amount of $399 million were outstanding. At December 31, 2024, 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.
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.
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 $347 million at December 31, 2024. 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.
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, 2024. At December 31, 2024, we have $16.3 billion of long-term debt, primarily consisting of fixed-rate debt, with a fair value of approximately $15.3 billion.
Removed
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.
Added
Certain of our fixed-price contracts include economic price adjustment (EPA) clauses to help protect the company against inflationary pressures. However, these EPA clauses may not be able to fully mitigate adverse impacts of rising inflation on the company’s financial position, results of operations and/or cash flows. -46-
Removed
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.
Removed
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. -47-

Other NOC 10-K year-over-year comparisons