10-K 1 noc-20221231.htm 10-K noc-20221231
FY12/31/2022FALSE202212/31NORTHROP GRUMMAN CORP /DE/000113342100011334212022-01-012022-12-3100011334212022-06-30iso4217:USD00011334212023-01-23xbrli:shares0001133421us-gaap:ProductMember2022-01-012022-12-310001133421us-gaap:ProductMember2021-01-012021-12-310001133421us-gaap:ProductMember2020-01-012020-12-310001133421us-gaap:ServiceMember2022-01-012022-12-310001133421us-gaap:ServiceMember2021-01-012021-12-310001133421us-gaap:ServiceMember2020-01-012020-12-3100011334212021-01-012021-12-3100011334212020-01-012020-12-310001133421us-gaap:RetainedEarningsMember2020-01-012020-12-31iso4217:USDxbrli:shares00011334212022-12-3100011334212021-12-3100011334212020-12-3100011334212019-12-310001133421us-gaap:CommonStockMember2021-12-310001133421us-gaap:CommonStockMember2020-12-310001133421us-gaap:CommonStockMember2019-12-310001133421us-gaap:CommonStockMember2022-01-012022-12-310001133421us-gaap:CommonStockMember2021-01-012021-12-310001133421us-gaap:CommonStockMember2020-01-012020-12-310001133421us-gaap:CommonStockMember2022-12-310001133421us-gaap:AdditionalPaidInCapitalMember2021-12-310001133421us-gaap:AdditionalPaidInCapitalMember2020-12-310001133421us-gaap:AdditionalPaidInCapitalMember2019-12-310001133421us-gaap:AdditionalPaidInCapitalMember2022-01-012022-12-310001133421us-gaap:AdditionalPaidInCapitalMember2021-01-012021-12-310001133421us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001133421us-gaap:AdditionalPaidInCapitalMember2022-12-310001133421us-gaap:RetainedEarningsMember2021-12-310001133421us-gaap:RetainedEarningsMember2020-12-310001133421us-gaap:RetainedEarningsMember2019-12-310001133421us-gaap:RetainedEarningsMember2022-01-012022-12-310001133421us-gaap:RetainedEarningsMember2021-01-012021-12-310001133421us-gaap:RetainedEarningsMember2022-12-310001133421us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001133421us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001133421us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001133421us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-12-310001133421us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-310001133421us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-310001133421us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-3100011334212021-01-300001133421us-gaap:ContractsAccountedForUnderPercentageOfCompletionMember2022-01-012022-12-310001133421us-gaap:ContractsAccountedForUnderPercentageOfCompletionMember2021-01-012021-12-310001133421us-gaap:ContractsAccountedForUnderPercentageOfCompletionMember2020-01-012020-12-310001133421noc:AeronauticsSystemsMemberus-gaap:ContractsAccountedForUnderPercentageOfCompletionMembernoc:RestrictedProgramMember2022-01-012022-03-310001133421noc:AeronauticsSystemsMemberus-gaap:ContractsAccountedForUnderPercentageOfCompletionMembernoc:RestrictedProgramMember2022-10-012022-12-310001133421noc:AeronauticsSystemsMemberus-gaap:ContractsAccountedForUnderPercentageOfCompletionMembernoc:F35ProgramMember2021-01-012021-12-31xbrli:pure0001133421us-gaap:LandAndLandImprovementsMembersrt:MaximumMember2022-01-012022-12-310001133421us-gaap:LandAndLandImprovementsMember2022-12-310001133421us-gaap:LandAndLandImprovementsMember2021-12-310001133421us-gaap:BuildingAndBuildingImprovementsMembersrt:MaximumMember2022-01-012022-12-310001133421us-gaap:BuildingAndBuildingImprovementsMember2022-12-310001133421us-gaap:BuildingAndBuildingImprovementsMember2021-12-310001133421us-gaap:MachineryAndEquipmentMembersrt:MaximumMember2022-01-012022-12-310001133421us-gaap:MachineryAndEquipmentMember2022-12-310001133421us-gaap:MachineryAndEquipmentMember2021-12-310001133421srt:MinimumMemberus-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-01-012022-12-310001133421us-gaap:SoftwareAndSoftwareDevelopmentCostsMembersrt:MaximumMember2022-01-012022-12-310001133421us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-12-310001133421us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2021-12-310001133421us-gaap:LeaseholdImprovementsMember2022-12-310001133421us-gaap:LeaseholdImprovementsMember2021-12-310001133421us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-01-012022-12-310001133421us-gaap:LeaseholdImprovementsMember2022-01-012022-12-310001133421us-gaap:LeaseholdImprovementsMember2021-01-012021-12-310001133421us-gaap:LandMember2022-01-012022-12-310001133421noc:September2015ShareRepurchaseOriginalAuthorizationMember2015-09-160001133421noc:December2018ShareRepurchaseOriginalAuthorizationMember2018-12-040001133421noc:January2021ShareRepurchaseProgramMember2021-01-250001133421noc:January2021ShareRepurchaseProgramMember2021-01-252022-12-310001133421noc:January2021ShareRepurchaseProgramMember2022-12-310001133421noc:January2022ShareRepurchaseProgramMember2022-01-240001133421noc:January2022ShareRepurchaseProgramMember2022-12-3100011334212021-02-012021-02-0100011334212021-02-0100011334212021-06-0100011334212021-11-022021-11-0200011334212021-11-0200011334212022-02-010001133421noc:September2015ShareRepurchaseOriginalAuthorizationMember2015-04-162020-02-290001133421noc:September2015ShareRepurchaseOriginalAuthorizationMember2022-01-012022-12-310001133421noc:September2015ShareRepurchaseOriginalAuthorizationMember2021-01-012021-12-310001133421noc:September2015ShareRepurchaseOriginalAuthorizationMember2020-01-012020-12-310001133421noc:December2018ShareRepurchaseOriginalAuthorizationMember2018-12-042021-09-300001133421noc:December2018ShareRepurchaseOriginalAuthorizationMember2022-01-012022-12-310001133421noc:December2018ShareRepurchaseOriginalAuthorizationMember2021-01-012021-12-310001133421noc:December2018ShareRepurchaseOriginalAuthorizationMember2020-01-012020-12-310001133421noc:January2021ShareRepurchaseProgramMember2022-01-012022-12-310001133421noc:January2021ShareRepurchaseProgramMember2021-01-012021-12-310001133421noc:January2021ShareRepurchaseProgramMember2020-01-012020-12-310001133421noc:January2022ShareRepurchaseProgramMember2022-01-242022-12-310001133421noc:January2022ShareRepurchaseProgramMember2022-01-012022-12-310001133421noc:January2022ShareRepurchaseProgramMember2021-01-012021-12-310001133421noc:January2022ShareRepurchaseProgramMember2020-01-012020-12-3100011334212022-05-012022-05-3100011334212021-05-012021-05-3100011334212020-05-012020-05-3100011334212019-05-012019-05-310001133421noc:USGovernmentMember2022-12-310001133421noc:USGovernmentMember2021-12-310001133421noc:InternationalandOtherCustomersMember2022-12-310001133421noc:InternationalandOtherCustomersMember2021-12-310001133421noc:AeronauticsSystemsMember2020-12-310001133421noc:DefenseSystemsMember2020-12-310001133421noc:MissionSystemsMember2020-12-310001133421noc:SpaceSystemsMember2020-12-310001133421noc:AeronauticsSystemsMember2021-01-012021-12-310001133421noc:DefenseSystemsMember2021-01-012021-12-310001133421noc:MissionSystemsMember2021-01-012021-12-310001133421noc:SpaceSystemsMember2021-01-012021-12-310001133421noc:AeronauticsSystemsMember2021-12-310001133421noc:DefenseSystemsMember2021-12-310001133421noc:MissionSystemsMember2021-12-310001133421noc:SpaceSystemsMember2021-12-310001133421noc:AeronauticsSystemsMember2022-01-012022-12-310001133421noc:DefenseSystemsMember2022-01-012022-12-310001133421noc:MissionSystemsMember2022-01-012022-12-310001133421noc:SpaceSystemsMember2022-01-012022-12-310001133421noc:AeronauticsSystemsMember2022-12-310001133421noc:DefenseSystemsMember2022-12-310001133421noc:MissionSystemsMember2022-12-310001133421noc:SpaceSystemsMember2022-12-310001133421us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001133421us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001133421us-gaap:FairValueMeasurementsRecurringMember2022-12-310001133421us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001133421us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001133421us-gaap:FairValueMeasurementsRecurringMember2021-12-310001133421us-gaap:FairValueMeasurementsNonrecurringMember2022-12-310001133421us-gaap:FairValueMeasurementsNonrecurringMember2021-12-310001133421us-gaap:FairValueInputsLevel1Member2022-12-310001133421us-gaap:FairValueInputsLevel2Member2022-12-310001133421us-gaap:FairValueInputsLevel3Member2022-12-310001133421us-gaap:FairValueInputsLevel1Member2021-12-310001133421us-gaap:FairValueInputsLevel2Member2021-12-310001133421us-gaap:FairValueInputsLevel3Member2021-12-310001133421us-gaap:CommercialPaperMember2021-12-310001133421us-gaap:CommercialPaperMember2022-12-310001133421noc:FiveYearTermMemberDomain2022-12-310001133421noc:FiveYearTermMemberDomain2021-12-3100011334212021-03-0100011334212021-09-0200011334212022-06-150001133421noc:TwoThousandTwentyThreeMember2022-12-310001133421noc:TwoThousandTwentyThreeMember2021-12-310001133421noc:TwoThousandTwentyFiveMember2022-12-310001133421noc:TwoThousandTwentyFiveMember2021-12-310001133421srt:MinimumMembernoc:TwoThousandTwentySixMember2022-12-310001133421noc:TwoThousandTwentySixMembersrt:MaximumMember2022-12-310001133421noc:TwoThousandTwentySixMember2022-12-310001133421noc:TwoThousandTwentySixMember2021-12-310001133421noc:TwoThousandTwentySevenMember2022-12-310001133421noc:TwoThousandTwentySevenMember2021-12-310001133421noc:TwoThousandTwentyEightMember2022-12-310001133421noc:TwoThousandTwentyEightMember2021-12-310001133421noc:TwoThousandThirtyMember2022-12-310001133421noc:TwoThousandThirtyMember2021-12-310001133421noc:TwoThousandThirtyOneMember2022-12-310001133421noc:TwoThousandThirtyOneMember2021-12-310001133421srt:MinimumMembernoc:TwoThousandFortyMember2022-12-310001133421noc:TwoThousandFortyMembersrt:MaximumMember2022-12-310001133421noc:TwoThousandFortyMember2022-12-310001133421noc:TwoThousandFortyMember2021-12-310001133421noc:TwoThousandFortyThreeMember2022-12-310001133421noc:TwoThousandFortyThreeMember2021-12-310001133421noc:TwoThousandFortyFiveMember2022-12-310001133421noc:TwoThousandFortyFiveMember2021-12-310001133421noc:TwoThousandFortySevenMember2022-12-310001133421noc:TwoThousandFortySevenMember2021-12-310001133421noc:TwoThousandFiftyMember2022-12-310001133421noc:TwoThousandFiftyMember2021-12-310001133421noc:UnitedStatesPostalServiceMember2007-12-310001133421noc:UnpaidPortionsOfContractPriceAndDirectCostsIncurredMembernoc:UnitedStatesPostalServiceMember2012-05-040001133421noc:UnitedStatesPostalServiceMembernoc:ActsAndOmissionsWithAdverseAffectsOnPerformanceAndObligationsMember2012-05-040001133421noc:UnitedStatesPostalServiceMembersrt:MaximumMember2021-12-310001133421noc:UnitedStatesPostalServiceMember2022-11-090001133421noc:MinimumLossContingencyMember2022-12-310001133421noc:MaximumLossContingencyMember2022-12-310001133421us-gaap:OtherCurrentLiabilitiesMember2022-12-310001133421us-gaap:OtherNoncurrentLiabilitiesMember2022-12-310001133421us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2022-12-310001133421us-gaap:OtherNoncurrentAssetsMember2022-12-310001133421us-gaap:PensionPlansDefinedBenefitMember2022-01-012022-12-310001133421us-gaap:PensionPlansDefinedBenefitMember2021-01-012021-12-310001133421us-gaap:PensionPlansDefinedBenefitMember2020-01-012020-12-310001133421us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2022-01-012022-12-310001133421us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-01-012021-12-310001133421us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2020-01-012020-12-310001133421us-gaap:PensionPlansDefinedBenefitMember2021-12-310001133421us-gaap:PensionPlansDefinedBenefitMember2020-12-310001133421us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-12-310001133421us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2020-12-310001133421us-gaap:PensionPlansDefinedBenefitMember2022-12-310001133421us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2022-12-310001133421us-gaap:PensionPlansDefinedBenefitMemberus-gaap:SubsequentEventMember2023-01-012023-12-310001133421us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMemberus-gaap:SubsequentEventMember2023-01-012023-12-310001133421noc:PostretirementBenefitCostMemberus-gaap:SubsequentEventMember2023-12-310001133421noc:BenefitObligationMember2022-12-310001133421noc:PostretirementBenefitCostMember2022-12-310001133421noc:BenefitObligationMember2021-12-310001133421noc:BenefitObligationMember2020-12-310001133421noc:PostretirementBenefitCostMember2021-12-310001133421noc:BenefitObligationMember2022-01-012022-12-310001133421noc:PostretirementBenefitCostMemberus-gaap:SubsequentEventMember2023-01-012023-12-310001133421noc:BenefitObligationMember2021-01-012021-12-310001133421noc:PostretirementBenefitCostMember2022-01-012022-12-310001133421noc:PostretirementBenefitCostMember2021-01-012021-12-310001133421noc:BenefitObligationMember2020-01-012020-12-310001133421srt:MinimumMemberus-gaap:CashAndCashEquivalentsMember2022-12-310001133421us-gaap:CashAndCashEquivalentsMembersrt:MaximumMember2022-12-310001133421srt:MinimumMemberus-gaap:EquitySecuritiesMember2022-12-310001133421us-gaap:EquitySecuritiesMembersrt:MaximumMember2022-12-310001133421srt:MinimumMemberus-gaap:FixedIncomeSecuritiesMember2022-12-310001133421us-gaap:FixedIncomeSecuritiesMembersrt:MaximumMember2022-12-310001133421noc:RealEstateAndOtherSecuritiesMembersrt:MinimumMember2022-12-310001133421noc:RealEstateAndOtherSecuritiesMembersrt:MaximumMember2022-12-310001133421us-gaap:FairValueInputsLevel1Memberus-gaap:CashAndCashEquivalentsMember2022-12-310001133421us-gaap:FairValueInputsLevel1Memberus-gaap:CashAndCashEquivalentsMember2021-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:CashAndCashEquivalentsMember2022-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:CashAndCashEquivalentsMember2021-12-310001133421us-gaap:CashAndCashEquivalentsMember2022-12-310001133421us-gaap:CashAndCashEquivalentsMember2021-12-310001133421noc:U.S.EquitySecuritiesMemberus-gaap:FairValueInputsLevel1Member2022-12-310001133421noc:U.S.EquitySecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:U.S.EquitySecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:U.S.EquitySecuritiesMember2021-12-310001133421noc:U.S.EquitySecuritiesMember2022-12-310001133421noc:U.S.EquitySecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel1Membernoc:InternationalEquitySecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel1Membernoc:InternationalEquitySecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel3Membernoc:InternationalEquitySecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel3Membernoc:InternationalEquitySecuritiesMember2021-12-310001133421noc:InternationalEquitySecuritiesMember2022-12-310001133421noc:InternationalEquitySecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasurySecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasurySecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2021-12-310001133421us-gaap:USTreasurySecuritiesMember2022-12-310001133421us-gaap:USTreasurySecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001133421us-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-12-310001133421us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:ForeignGovernmentDebtSecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:ForeignGovernmentDebtSecuritiesMember2021-12-310001133421us-gaap:ForeignGovernmentDebtSecuritiesMember2022-12-310001133421us-gaap:ForeignGovernmentDebtSecuritiesMember2021-12-310001133421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2022-12-310001133421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2021-12-310001133421us-gaap:CorporateDebtSecuritiesMember2022-12-310001133421us-gaap:CorporateDebtSecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:AssetBackedSecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Memberus-gaap:AssetBackedSecuritiesMember2021-12-310001133421us-gaap:AssetBackedSecuritiesMember2022-12-310001133421us-gaap:AssetBackedSecuritiesMember2021-12-310001133421noc:HighYieldDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2022-12-310001133421noc:HighYieldDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:HighYieldDebtSecuritiesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:HighYieldDebtSecuritiesMember2021-12-310001133421noc:HighYieldDebtSecuritiesMember2022-12-310001133421noc:HighYieldDebtSecuritiesMember2021-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:BankLoansMember2022-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:BankLoansMember2021-12-310001133421noc:BankLoansMember2022-12-310001133421noc:BankLoansMember2021-12-310001133421us-gaap:FairValueInputsLevel1Membernoc:OtherAssetCategoriesMember2022-12-310001133421us-gaap:FairValueInputsLevel1Membernoc:OtherAssetCategoriesMember2021-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:OtherAssetCategoriesMember2022-12-310001133421us-gaap:FairValueInputsLevel2Membernoc:OtherAssetCategoriesMember2021-12-310001133421us-gaap:FairValueInputsLevel3Membernoc:OtherAssetCategoriesMember2022-12-310001133421us-gaap:FairValueInputsLevel3Membernoc:OtherAssetCategoriesMember2021-12-310001133421noc:OtherAssetCategoriesMember2022-12-310001133421noc:OtherAssetCategoriesMember2021-12-310001133421noc:U.S.EquitySecuritiesMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001133421noc:U.S.EquitySecuritiesMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2021-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMembernoc:InternationalEquitySecuritiesMember2022-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMembernoc:InternationalEquitySecuritiesMember2021-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMemberus-gaap:FixedIncomeFundsMember2022-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMemberus-gaap:FixedIncomeFundsMember2021-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMemberus-gaap:HedgeFundsMember2022-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMemberus-gaap:HedgeFundsMember2021-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMembernoc:OpportunisticFundsMember2022-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMembernoc:OpportunisticFundsMember2021-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMemberus-gaap:PrivateEquityFundsMember2022-12-310001133421us-gaap:FairValueMeasuredAtNetAssetValuePerShareMemberus-gaap:PrivateEquityFundsMember2021-12-310001133421us-gaap:RealEstateFundsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001133421us-gaap:RealEstateFundsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2021-12-310001133421us-gaap:NotesPayableOtherPayablesMember2022-12-310001133421us-gaap:NotesPayableOtherPayablesMember2021-12-310001133421noc:PensionandOtherPostretirementbenefitplansMember2022-12-310001133421noc:PensionandOtherPostretirementbenefitplansMember2021-12-310001133421noc:U.S.EquitySecuritiesMember2022-01-012022-12-310001133421noc:InternationalEquitySecuritiesMember2022-01-012022-12-310001133421us-gaap:FixedIncomeFundsMember2022-01-012022-12-310001133421us-gaap:FixedIncomeFundsMember2022-12-310001133421us-gaap:FixedIncomeFundsMember2021-12-310001133421srt:MinimumMemberus-gaap:HedgeFundsMember2022-01-012022-12-310001133421us-gaap:HedgeFundsMembersrt:MaximumMember2022-01-012022-12-310001133421us-gaap:HedgeFundsMember2021-12-310001133421srt:MinimumMembernoc:OpportunisticFundsMember2022-01-012022-12-310001133421noc:OpportunisticFundsMembersrt:MaximumMember2022-01-012022-12-310001133421noc:OpportunisticFundsMember2022-12-310001133421noc:OpportunisticFundsMember2021-12-310001133421us-gaap:PrivateEquityFundsMember2022-01-012022-12-310001133421us-gaap:PrivateEquityFundsMember2022-12-310001133421us-gaap:PrivateEquityFundsMember2021-12-310001133421us-gaap:RealEstateFundsMember2022-01-012022-12-310001133421us-gaap:RealEstateFundsMember2022-12-310001133421us-gaap:RealEstateFundsMember2021-12-310001133421noc:Amended2011PlanDomain2022-12-310001133421noc:Amended2011PlanDomain2022-01-012022-12-310001133421noc:A2011LongTermIncentiveStockPlanMember2022-12-3100011334212019-01-012019-12-310001133421srt:MinimumMembernoc:GrantsDuring2010AndAfterMember2022-01-012022-12-310001133421noc:GrantsDuring2010AndAfterMembersrt:MaximumMember2022-01-012022-12-310001133421srt:MinimumMembernoc:CashUnitsAndCashPerformanceUnitsMember2022-12-310001133421srt:MinimumMembernoc:CashUnitsAndCashPerformanceUnitsMember2021-12-310001133421srt:MinimumMembernoc:CashUnitsAndCashPerformanceUnitsMember2020-12-310001133421noc:CashUnitsAndCashPerformanceUnitsMembersrt:MaximumMember2022-12-310001133421noc:CashUnitsAndCashPerformanceUnitsMembersrt:MaximumMember2021-12-310001133421noc:CashUnitsAndCashPerformanceUnitsMembersrt:MaximumMember2020-12-310001133421noc:CashUnitsAndCashPerformanceUnitsMember2022-12-31utr:Rate0001133421srt:MinimumMember2022-12-310001133421srt:MaximumMember2022-12-310001133421us-gaap:OperatingSegmentsMembernoc:AeronauticsSystemsMember2022-01-012022-12-310001133421us-gaap:OperatingSegmentsMembernoc:AeronauticsSystemsMember2021-01-012021-12-310001133421us-gaap:OperatingSegmentsMembernoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:DefenseSystemsMemberus-gaap:OperatingSegmentsMember2022-01-012022-12-310001133421noc:DefenseSystemsMemberus-gaap:OperatingSegmentsMember2021-01-012021-12-310001133421noc:DefenseSystemsMemberus-gaap:OperatingSegmentsMember2020-01-012020-12-310001133421us-gaap:OperatingSegmentsMembernoc:MissionSystemsMember2022-01-012022-12-310001133421us-gaap:OperatingSegmentsMembernoc:MissionSystemsMember2021-01-012021-12-310001133421us-gaap:OperatingSegmentsMembernoc:MissionSystemsMember2020-01-012020-12-310001133421noc:SpaceSystemsMemberus-gaap:OperatingSegmentsMember2022-01-012022-12-310001133421noc:SpaceSystemsMemberus-gaap:OperatingSegmentsMember2021-01-012021-12-310001133421noc:SpaceSystemsMemberus-gaap:OperatingSegmentsMember2020-01-012020-12-310001133421us-gaap:IntersegmentEliminationMember2022-01-012022-12-310001133421us-gaap:IntersegmentEliminationMember2021-01-012021-12-310001133421us-gaap:IntersegmentEliminationMember2020-01-012020-12-310001133421us-gaap:OperatingSegmentsMember2022-01-012022-12-310001133421us-gaap:OperatingSegmentsMember2021-01-012021-12-310001133421us-gaap:OperatingSegmentsMember2020-01-012020-12-310001133421us-gaap:MaterialReconcilingItemsMember2022-01-012022-12-310001133421us-gaap:MaterialReconcilingItemsMember2021-01-012021-12-310001133421us-gaap:MaterialReconcilingItemsMember2020-01-012020-12-310001133421us-gaap:CorporateNonSegmentMember2022-01-012022-12-310001133421us-gaap:CorporateNonSegmentMember2021-01-012021-12-310001133421us-gaap:CorporateNonSegmentMember2020-01-012020-12-310001133421noc:AeronauticsSystemsMembernoc:USGovernmentMember2022-01-012022-12-310001133421noc:AeronauticsSystemsMembernoc:USGovernmentMember2021-01-012021-12-310001133421noc:AeronauticsSystemsMembernoc:USGovernmentMember2020-01-012020-12-310001133421noc:InternationalCustomerMembernoc:AeronauticsSystemsMember2022-01-012022-12-310001133421noc:InternationalCustomerMembernoc:AeronauticsSystemsMember2021-01-012021-12-310001133421noc:InternationalCustomerMembernoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:OtherCustomersMembernoc:AeronauticsSystemsMember2022-01-012022-12-310001133421noc:OtherCustomersMembernoc:AeronauticsSystemsMember2021-01-012021-12-310001133421noc:OtherCustomersMembernoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:IntersegmentSalesMembernoc:AeronauticsSystemsMember2022-01-012022-12-310001133421noc:IntersegmentSalesMembernoc:AeronauticsSystemsMember2021-01-012021-12-310001133421noc:IntersegmentSalesMembernoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:DefenseSystemsMembernoc:USGovernmentMember2022-01-012022-12-310001133421noc:DefenseSystemsMembernoc:USGovernmentMember2021-01-012021-12-310001133421noc:DefenseSystemsMembernoc:USGovernmentMember2020-01-012020-12-310001133421noc:DefenseSystemsMembernoc:InternationalCustomerMember2022-01-012022-12-310001133421noc:DefenseSystemsMembernoc:InternationalCustomerMember2021-01-012021-12-310001133421noc:DefenseSystemsMembernoc:InternationalCustomerMember2020-01-012020-12-310001133421noc:DefenseSystemsMembernoc:OtherCustomersMember2022-01-012022-12-310001133421noc:DefenseSystemsMembernoc:OtherCustomersMember2021-01-012021-12-310001133421noc:DefenseSystemsMembernoc:OtherCustomersMember2020-01-012020-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421noc:MissionSystemsMembernoc:USGovernmentMember2022-01-012022-12-310001133421noc:MissionSystemsMembernoc:USGovernmentMember2021-01-012021-12-310001133421noc:MissionSystemsMembernoc:USGovernmentMember2020-01-012020-12-310001133421noc:MissionSystemsMembernoc:InternationalCustomerMember2022-01-012022-12-310001133421noc:MissionSystemsMembernoc:InternationalCustomerMember2021-01-012021-12-310001133421noc:MissionSystemsMembernoc:InternationalCustomerMember2020-01-012020-12-310001133421noc:OtherCustomersMembernoc:MissionSystemsMember2022-01-012022-12-310001133421noc:OtherCustomersMembernoc:MissionSystemsMember2021-01-012021-12-310001133421noc:OtherCustomersMembernoc:MissionSystemsMember2020-01-012020-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421noc:SpaceSystemsMembernoc:USGovernmentMember2022-01-012022-12-310001133421noc:SpaceSystemsMembernoc:USGovernmentMember2021-01-012021-12-310001133421noc:SpaceSystemsMembernoc:USGovernmentMember2020-01-012020-12-310001133421noc:SpaceSystemsMembernoc:InternationalCustomerMember2022-01-012022-12-310001133421noc:SpaceSystemsMembernoc:InternationalCustomerMember2021-01-012021-12-310001133421noc:SpaceSystemsMembernoc:InternationalCustomerMember2020-01-012020-12-310001133421noc:SpaceSystemsMembernoc:OtherCustomersMember2022-01-012022-12-310001133421noc:SpaceSystemsMembernoc:OtherCustomersMember2021-01-012021-12-310001133421noc:SpaceSystemsMembernoc:OtherCustomersMember2020-01-012020-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421noc:USGovernmentMember2022-01-012022-12-310001133421noc:USGovernmentMember2021-01-012021-12-310001133421noc:USGovernmentMember2020-01-012020-12-310001133421noc:InternationalCustomerMember2022-01-012022-12-310001133421noc:InternationalCustomerMember2021-01-012021-12-310001133421noc:InternationalCustomerMember2020-01-012020-12-310001133421noc:OtherCustomersMember2022-01-012022-12-310001133421noc:OtherCustomersMember2021-01-012021-12-310001133421noc:OtherCustomersMember2020-01-012020-12-310001133421noc:AeronauticsSystemsMemberus-gaap:TimeAndMaterialsContractMember2022-01-012022-12-310001133421noc:AeronauticsSystemsMemberus-gaap:TimeAndMaterialsContractMember2021-01-012021-12-310001133421noc:AeronauticsSystemsMemberus-gaap:TimeAndMaterialsContractMember2020-01-012020-12-310001133421noc:AeronauticsSystemsMemberus-gaap:FixedPriceContractMember2022-01-012022-12-310001133421noc:AeronauticsSystemsMemberus-gaap:FixedPriceContractMember2021-01-012021-12-310001133421noc:AeronauticsSystemsMemberus-gaap:FixedPriceContractMember2020-01-012020-12-310001133421noc:IntersegmentSalesMembernoc:AeronauticsSystemsMember2022-01-012022-12-310001133421noc:IntersegmentSalesMembernoc:AeronauticsSystemsMember2021-01-012021-12-310001133421noc:IntersegmentSalesMembernoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:DefenseSystemsMemberus-gaap:TimeAndMaterialsContractMember2022-01-012022-12-310001133421noc:DefenseSystemsMemberus-gaap:TimeAndMaterialsContractMember2021-01-012021-12-310001133421noc:DefenseSystemsMemberus-gaap:TimeAndMaterialsContractMember2020-01-012020-12-310001133421noc:DefenseSystemsMemberus-gaap:FixedPriceContractMember2022-01-012022-12-310001133421noc:DefenseSystemsMemberus-gaap:FixedPriceContractMember2021-01-012021-12-310001133421noc:DefenseSystemsMemberus-gaap:FixedPriceContractMember2020-01-012020-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421noc:MissionSystemsMemberus-gaap:TimeAndMaterialsContractMember2022-01-012022-12-310001133421noc:MissionSystemsMemberus-gaap:TimeAndMaterialsContractMember2021-01-012021-12-310001133421noc:MissionSystemsMemberus-gaap:TimeAndMaterialsContractMember2020-01-012020-12-310001133421noc:MissionSystemsMemberus-gaap:FixedPriceContractMember2022-01-012022-12-310001133421noc:MissionSystemsMemberus-gaap:FixedPriceContractMember2021-01-012021-12-310001133421noc:MissionSystemsMemberus-gaap:FixedPriceContractMember2020-01-012020-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421noc:SpaceSystemsMemberus-gaap:TimeAndMaterialsContractMember2022-01-012022-12-310001133421noc:SpaceSystemsMemberus-gaap:TimeAndMaterialsContractMember2021-01-012021-12-310001133421noc:SpaceSystemsMemberus-gaap:TimeAndMaterialsContractMember2020-01-012020-12-310001133421noc:SpaceSystemsMemberus-gaap:FixedPriceContractMember2022-01-012022-12-310001133421noc:SpaceSystemsMemberus-gaap:FixedPriceContractMember2021-01-012021-12-310001133421noc:SpaceSystemsMemberus-gaap:FixedPriceContractMember2020-01-012020-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421us-gaap:TimeAndMaterialsContractMember2022-01-012022-12-310001133421us-gaap:TimeAndMaterialsContractMember2021-01-012021-12-310001133421us-gaap:TimeAndMaterialsContractMember2020-01-012020-12-310001133421us-gaap:FixedPriceContractMember2022-01-012022-12-310001133421us-gaap:FixedPriceContractMember2021-01-012021-12-310001133421us-gaap:FixedPriceContractMember2020-01-012020-12-310001133421country:USnoc:AeronauticsSystemsMember2022-01-012022-12-310001133421country:USnoc:AeronauticsSystemsMember2021-01-012021-12-310001133421country:USnoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:AeronauticsSystemsMembersrt:AsiaPacificMember2022-01-012022-12-310001133421noc:AeronauticsSystemsMembersrt:AsiaPacificMember2021-01-012021-12-310001133421noc:AeronauticsSystemsMembersrt:AsiaPacificMember2020-01-012020-12-310001133421srt:EuropeMembernoc:AeronauticsSystemsMember2022-01-012022-12-310001133421srt:EuropeMembernoc:AeronauticsSystemsMember2021-01-012021-12-310001133421srt:EuropeMembernoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:AllOtherGeographicRegionDomainnoc:AeronauticsSystemsMember2022-01-012022-12-310001133421noc:AllOtherGeographicRegionDomainnoc:AeronauticsSystemsMember2021-01-012021-12-310001133421noc:AllOtherGeographicRegionDomainnoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:AeronauticsSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:AeronauticsSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:AeronauticsSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421noc:DefenseSystemsMembercountry:US2022-01-012022-12-310001133421noc:DefenseSystemsMembercountry:US2021-01-012021-12-310001133421noc:DefenseSystemsMembercountry:US2020-01-012020-12-310001133421noc:DefenseSystemsMembersrt:AsiaPacificMember2022-01-012022-12-310001133421noc:DefenseSystemsMembersrt:AsiaPacificMember2021-01-012021-12-310001133421noc:DefenseSystemsMembersrt:AsiaPacificMember2020-01-012020-12-310001133421noc:DefenseSystemsMembersrt:EuropeMember2022-01-012022-12-310001133421noc:DefenseSystemsMembersrt:EuropeMember2021-01-012021-12-310001133421noc:DefenseSystemsMembersrt:EuropeMember2020-01-012020-12-310001133421noc:AllOtherGeographicRegionDomainnoc:DefenseSystemsMember2022-01-012022-12-310001133421noc:AllOtherGeographicRegionDomainnoc:DefenseSystemsMember2021-01-012021-12-310001133421noc:AllOtherGeographicRegionDomainnoc:DefenseSystemsMember2020-01-012020-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:DefenseSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421country:USnoc:MissionSystemsMember2022-01-012022-12-310001133421country:USnoc:MissionSystemsMember2021-01-012021-12-310001133421country:USnoc:MissionSystemsMember2020-01-012020-12-310001133421noc:MissionSystemsMembersrt:AsiaPacificMember2022-01-012022-12-310001133421noc:MissionSystemsMembersrt:AsiaPacificMember2021-01-012021-12-310001133421noc:MissionSystemsMembersrt:AsiaPacificMember2020-01-012020-12-310001133421noc:MissionSystemsMembersrt:EuropeMember2022-01-012022-12-310001133421noc:MissionSystemsMembersrt:EuropeMember2021-01-012021-12-310001133421noc:MissionSystemsMembersrt:EuropeMember2020-01-012020-12-310001133421noc:AllOtherGeographicRegionDomainnoc:MissionSystemsMember2022-01-012022-12-310001133421noc:AllOtherGeographicRegionDomainnoc:MissionSystemsMember2021-01-012021-12-310001133421noc:AllOtherGeographicRegionDomainnoc:MissionSystemsMember2020-01-012020-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:MissionSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421noc:SpaceSystemsMembercountry:US2022-01-012022-12-310001133421noc:SpaceSystemsMembercountry:US2021-01-012021-12-310001133421noc:SpaceSystemsMembercountry:US2020-01-012020-12-310001133421noc:SpaceSystemsMembersrt:AsiaPacificMember2022-01-012022-12-310001133421noc:SpaceSystemsMembersrt:AsiaPacificMember2021-01-012021-12-310001133421noc:SpaceSystemsMembersrt:AsiaPacificMember2020-01-012020-12-310001133421noc:SpaceSystemsMembersrt:EuropeMember2022-01-012022-12-310001133421noc:SpaceSystemsMembersrt:EuropeMember2021-01-012021-12-310001133421noc:SpaceSystemsMembersrt:EuropeMember2020-01-012020-12-310001133421noc:AllOtherGeographicRegionDomainnoc:SpaceSystemsMember2022-01-012022-12-310001133421noc:AllOtherGeographicRegionDomainnoc:SpaceSystemsMember2021-01-012021-12-310001133421noc:AllOtherGeographicRegionDomainnoc:SpaceSystemsMember2020-01-012020-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2022-01-012022-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2021-01-012021-12-310001133421noc:SpaceSystemsMembernoc:IntersegmentSalesMember2020-01-012020-12-310001133421country:US2022-01-012022-12-310001133421country:US2021-01-012021-12-310001133421country:US2020-01-012020-12-310001133421srt:AsiaPacificMember2022-01-012022-12-310001133421srt:AsiaPacificMember2021-01-012021-12-310001133421srt:AsiaPacificMember2020-01-012020-12-310001133421srt:EuropeMember2022-01-012022-12-310001133421srt:EuropeMember2021-01-012021-12-310001133421srt:EuropeMember2020-01-012020-12-310001133421noc:AllOtherGeographicRegionDomain2022-01-012022-12-310001133421noc:AllOtherGeographicRegionDomain2021-01-012021-12-310001133421noc:AllOtherGeographicRegionDomain2020-01-012020-12-310001133421us-gaap:IntersegmentEliminationMembernoc:AeronauticsSystemsMember2022-01-012022-12-310001133421us-gaap:IntersegmentEliminationMembernoc:AeronauticsSystemsMember2021-01-012021-12-310001133421us-gaap:IntersegmentEliminationMembernoc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:DefenseSystemsMemberus-gaap:IntersegmentEliminationMember2022-01-012022-12-310001133421noc:DefenseSystemsMemberus-gaap:IntersegmentEliminationMember2021-01-012021-12-310001133421noc:DefenseSystemsMemberus-gaap:IntersegmentEliminationMember2020-01-012020-12-310001133421us-gaap:IntersegmentEliminationMembernoc:MissionSystemsMember2022-01-012022-12-310001133421us-gaap:IntersegmentEliminationMembernoc:MissionSystemsMember2021-01-012021-12-310001133421us-gaap:IntersegmentEliminationMembernoc:MissionSystemsMember2020-01-012020-12-310001133421noc:SpaceSystemsMemberus-gaap:IntersegmentEliminationMember2022-01-012022-12-310001133421noc:SpaceSystemsMemberus-gaap:IntersegmentEliminationMember2021-01-012021-12-310001133421noc:SpaceSystemsMemberus-gaap:IntersegmentEliminationMember2020-01-012020-12-310001133421us-gaap:OperatingSegmentsMembernoc:AeronauticsSystemsMember2022-12-310001133421us-gaap:OperatingSegmentsMembernoc:AeronauticsSystemsMember2021-12-310001133421noc:DefenseSystemsMemberus-gaap:OperatingSegmentsMember2022-12-310001133421noc:DefenseSystemsMemberus-gaap:OperatingSegmentsMember2021-12-310001133421us-gaap:OperatingSegmentsMembernoc:MissionSystemsMember2022-12-310001133421us-gaap:OperatingSegmentsMembernoc:MissionSystemsMember2021-12-310001133421noc:SpaceSystemsMemberus-gaap:OperatingSegmentsMember2022-12-310001133421noc:SpaceSystemsMemberus-gaap:OperatingSegmentsMember2021-12-310001133421us-gaap:CorporateNonSegmentMember2022-12-310001133421us-gaap:CorporateNonSegmentMember2021-12-310001133421noc:AeronauticsSystemsMember2020-01-012020-12-310001133421noc:DefenseSystemsMember2020-01-012020-12-310001133421noc:MissionSystemsMember2020-01-012020-12-310001133421noc:SpaceSystemsMember2020-01-012020-12-310001133421us-gaap:CorporateMember2022-01-012022-12-310001133421us-gaap:CorporateMember2021-01-012021-12-310001133421us-gaap:CorporateMember2020-01-012020-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-16411
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 80-0640649
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification Number)
2980 Fairview Park Drive
Falls Church,Virginia22042
(Address of principal executive offices)(Zip code)
(703280-2900
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockNOCNew York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
    Yes ☒    No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
    Yes ☐    No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
    Yes ☒    No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
    Yes ☒    No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ☒    Accelerated Filer     Smaller Reporting Company
Non-accelerated Filer         Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
    Yes     No
As of June 30, 2022, the aggregate market value of the common stock (based upon the closing price of the stock on the New York Stock Exchange) of the registrant held by non-affiliates was approximately $74.0 billion.
As of January 23, 2023, 153,053,371 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Northrop Grumman Corporation’s Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.



NORTHROP GRUMMAN CORPORATION

 TABLE OF CONTENTS
 
  Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
[Reserved]
Item 7.
Item 7A.
Item 8.
i


 

  Page
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
 


ii


NORTHROP GRUMMAN CORPORATION

PART I
Item 1. Business
HISTORY AND ORGANIZATION
History
Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global aerospace and defense technology company. We deliver a broad range of products, services and solutions to U.S. and international customers, and principally to the U.S. Department of Defense (DoD) and intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity.
The company is a leading provider of space systems, advanced aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and breakthrough technologies, such as artificial intelligence, advanced computing and cyber. We are focused on competing and winning programs that enable continued growth, performing on our commitments and affordably delivering capability our customers need. With the investments we've made in advanced technologies, combined with our talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet our customers' needs today and in the future. For a discussion of risks associated with our operations, see Risk Factors.
The company originally was formed in 1939 in Hawthorne, California as Northrop Aircraft Incorporated and was reincorporated in Delaware in 1985, as Northrop Corporation. Northrop Corporation was a principal developer of flying wing technology, including the B-2 Spirit bomber. We developed into one of the largest defense companies in the world through a series of acquisitions, as well as organic growth, including the following:
1994 - Acquired Grumman Corporation, a premier military aircraft systems integrator. The combined company was renamed Northrop Grumman Corporation;
1996 - Acquired the defense and electronics businesses of Westinghouse Electric Corporation, developer of sophisticated radar and other electronics systems;
2001 - Acquired Litton Industries, Inc., a global electronics and information technology company and full service shipbuilder;
2001 - Acquired Newport News Shipbuilding Inc., designer and builder of nuclear-powered aircraft carriers and submarines;
2002 - Acquired TRW Inc., developer of military and civil space systems and payloads, and integrator of complex, mission-enabling systems and services;
2011 - Completed the spin-off of Huntington Ingalls Industries, Inc., operator of our former shipbuilding business, comprised largely of a part of Litton Industries and Newport News Shipbuilding;
2018 - Acquired Orbital ATK, Inc. (OATK), developer and producer of satellites and other space systems, launch vehicles and missile products; and
2021 - Completed the sale of our IT and mission support services business (the “IT services divestiture”) to Veritas Capital.
Organization
From time to time, we acquire or dispose of businesses and realign contracts, programs or businesses among and within our operating segments. Internal realignments are typically designed to leverage existing capabilities more fully and to enhance efficient development and delivery of products and services. At December 31, 2022, the company was aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.
AERONAUTICS SYSTEMS
Aeronautics Systems is a leader in the design, development, production, integration, sustainment and modernization of advanced aircraft systems for the U.S. Air Force, the U.S. Navy, other U.S. government agencies, and international customers. These aircraft systems support four mission areas: strike; air dominance; battle management
-1-


NORTHROP GRUMMAN CORPORATION

and control; and intelligence, surveillance and reconnaissance (ISR). Aeronautics Systems is reported in two business areas: Autonomous Systems and Manned Aircraft.
Autonomous Systems – provides unmanned autonomous aircraft systems, including high-altitude long-endurance (HALE) strategic ISR systems and vertical take-off and landing (VTOL) tactical ISR systems. Key programs include:
MQ-4C Triton, which provides wide area strategic ISR over vast ocean and coastal regions for maritime domain awareness to the U.S. Navy and Australia;
RQ-4 Global Hawk, which provides high resolution imagery of land masses for theater awareness and strategic ISR to the U.S. Air Force, Japan, and the Republic of Korea;
North Atlantic Treaty Organization (NATO) Alliance Ground Surveillance (AGS), a Global Hawk variant, for strategic ISR missions conducted in multinational theater operations; and
MQ-8B and MQ-8C Fire Scout, ship-based, VTOL tactical ISR systems that provide situational awareness and precision targeting for the U.S. Navy.
Manned Aircraft – provides strategic long-range strike aircraft, tactical fighter and air dominance aircraft, and airborne battle management and command and control systems. Key programs include:
Development and production of the U.S. Air Force B-21 Raider long-range strike bomber, as well as modernization and sustainment services for the B-2 Spirit bomber;
Fuselage production for the F/A-18 Super Hornet and the F-35 Lighting II Joint Strike Fighter for use by U.S. and international forces;
E-2D Advanced Hawkeye battle management aircraft production for the U.S. Navy, Japan, and France; and
E-8C Joint Surveillance Target Attack Radar System (JSTARS) aircraft sustainment and modernization for the U.S. Air Force.
DEFENSE SYSTEMS
Defense Systems is a leader in the design, development, production, integration, sustainment and modernization of weapon and mission systems for U.S. military and civilian agency customers, and a broad range of international customers. Major products and services include integrated battle management systems, weapons systems and aircraft and mission systems sustainment and modernization. The sector is reported in two business areas: Battle Management & Missile Systems, and Mission Readiness.
Battle Management & Missile Systems – designs, develops and integrates all-domain command and control (C2) and weapons systems, including munitions and missiles. The business provides integration and interoperability of net-enabled battle management, sensors, targeting and surveillance systems – a backbone architecture for Joint All-Domain Command and Control (JADC2) capable of integrating sensors and shooters, as well as air and missile defense C2 systems. It also develops and produces precision strike weapons; advanced propulsion, including high speed air-breathing and hypersonic systems; and high-performance gun systems and precision munitions. Competencies include system and software development; integration of weapon systems; tactical missile and component development and production; and production of advanced fuzes, munitions and defense electronics. Key programs include:
Integrated Air and Missile Defense Battle Command System (IBCS) for the U.S. Army and Poland, which is a system that integrates sensors and effectors to deliver among the most advanced C2 systems for joint and coalition forces;
U.S. Navy’s Advanced Anti-Radiation Guided Missile (AARGM), a medium-range, air-to-surface missile, and its extended range variant, AARGM-ER;
Guided Multiple Launch Rocket System (GMLRS) propulsion and warhead subsystems for a surface-to-surface system used to defeat targets using indirect precision fires up to 70-plus kilometers;
Precision Guidance Kit (PGK), replaces conventional fuzes for artillery and mortar munitions and transforms them into Global Positioning System enabled precision guided weapons;
Hypersonic Attack Cruise Missile (HACM) air-breathing, scramjet propulsion subsystem for the hypersonic air-launched cruise missile to travel at speeds of Mach 5 or greater; and
-2-


NORTHROP GRUMMAN CORPORATION

Forward Area Air Defense Command and Control (FAAD C2), the Army’s long-standing program of record for short range air defense and Counter Rocket, Artillery and Mortar (C-RAM), as well as the interim C2 for Counter Unmanned Aircraft Systems (C-UAS).
Mission Readiness – provides full life cycle service and support for software, weapons systems and aircraft, and logistics support, sustainment, operations and modernization for air, sea and ground systems. It also supports critical warfighter training for complex missions in a realistic virtual environment. Competencies include aircraft, electronics and embedded software sustainment; digital engineering and extended reality training for platform logistics; and maintenance. Key programs include:
Global system sustainment and operations support for the F-35, B-2, P-3 Orion, E-6B Mercury, KC-30A multi-role tanker, C-27J transport, Global Hawk and Triton programs;
Special Electronics Mission Aircraft (SEMA) intelligence, surveillance and reconnaissance support;
AAQ-24 sensor sustainment and repair for U.S. military customers; and
APN-241 radar sustainment, repair and production for U.S. military and foreign military sales (FMS) customers.
MISSION SYSTEMS
Mission Systems is a leader in advanced mission solutions and multifunction systems, primarily for the U.S. defense and intelligence community, and international customers. Major products and services include cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR) systems; radar, electro-optical/infrared (EO/IR) and acoustic sensors; electronic warfare systems; advanced communications and network systems; cyber solutions; intelligence processing systems; navigation; and maritime power, propulsion and payload launch systems. The sector is reported in four business areas: Airborne Multifunction Sensors; Maritime/Land Systems & Sensors; Navigation, Targeting & Survivability; and Networked Information Solutions.
Airborne Multifunction Sensors – delivers products, systems and services that support airborne platforms with multi-function radio frequency (RF) and EO/IR systems; radar, electronic warfare and situational awareness mission systems; and high altitude ISR sensors. Competencies include fire control, surveillance and early warning and control radar systems; electronic attack and electronic support systems; and multi-sensor processing. Key unrestricted programs include:
Airborne Early Warning & Control (AEW&C). The center piece of the E-7 AEW&C aircraft is the Multi-role Electronically Scanned Array (MESA) radar which enables 360 degree long range advanced air moving target indicator (AMTI) capabilities for Battle Management, Command and Control, and Maritime Surveillance;
F-35 fire control radar and Distributed Aperture System (DAS), which provides 360 degree field of view tracking, identifying, missile warning and night vision capabilities;
LONGBOW Fire Control Radar (FCR), which provides fire control radar capabilities for the global AH-64 helicopter fleet; and
Scalable Agile Beam Radar (SABR), an active electronically scanned array fire control radar system for F-16 aircraft.
Maritime/Land Systems & Sensors – delivers products, systems and services that enable maritime and ground platform mission capabilities via sensors, targeting and surveillance systems; electronic warfare systems; mission module integration; power, propulsion and control systems; and missile launchers. Competencies include ground and maritime radar systems; nuclear ship propulsion and power generation systems; shipboard missile and encapsulated payload launch systems; integrated bridge systems; unmanned maritime vehicles; high-resolution undersea sensors; deep-sea packaging; and mission integration. Key unrestricted programs include:
Surface Electronic Warfare Improvement Program (SEWIP) Block III, which protects surface ships from anti-ship missiles, provides early detection, signal analysis and threat warning;
Ground/Air Task Oriented Radar (G/ATOR), a mobile multi-mode active electronically scanned array;
Littoral Combat Ship Mission Module Integration, which provides engineering design, support and production of mission modules for U.S. Navy littoral combat ships; and
-3-


NORTHROP GRUMMAN CORPORATION

DDG Modernization, which is comprised of several subsystems to support modernization of Arleigh Burke-class guided missile destroyers including Integrated Bridge and Navigation Systems (IBNS) and ship control systems.
Navigation, Targeting & Survivability – delivers products, systems and services that support aircraft platforms with targeting, self-protection and situational awareness mission systems; and provides embedded navigation and positioning sensors for a range of platforms including ships, aircraft, spacecraft and weapons. Competencies include EO/IR and RF self-protection; targeting and surveillance systems; digitized cockpits; and inertial navigation systems. Key unrestricted programs include:
LITENING Advanced Targeting Pod, an electro-optical infrared sensor system for targeting and surveillance that enables aircrews to detect, acquire, identify and track targets at long ranges;
Large Aircraft and Common Infrared Countermeasures (LAIRCM, DoN LAIRCM, CIRCM) systems, which protect large aircraft as well as rotary wing and medium fixed wing aircraft from infrared missiles using advanced laser technology;
APR-39 DV(2) and EV(2) Radar Warning Receiver programs, which produce a digital radar warning receiver for the U.S. Army, Navy and Marines;
AC/MC 130J Radio Frequency Countermeasures system, which provides superior situational awareness and better enables aircraft survivability in operationally relevant environments;
Embedded Global Positioning System (GPS) / Inertial Navigation Systems-Modernization (EGI-M) program, which provides state-of-the-art airborne navigation capabilities with an open architecture that enables rapid responses to future threats; and
UH-60V Black Hawk integrated mission equipment package, which modernizes the U.S. Army’s Black Hawk helicopters with a glass cockpit, including an integrated computational system, visual display system and control display units, extending the life and mission capabilities of the UH-60 platform.
Networked Information Solutions – delivers products, systems and services in the areas of advanced communications and network systems, full spectrum cyber solutions, secure processing, transformational computing, advanced technology development, and Signals Intelligence (SIGINT) mission systems. Competencies include software defined radios and network gateways, communications and counter-communications systems; cyber mission management; large scale cyber solutions for national security applications; cyber survivability; ground software systems; and SIGINT sensors and processing. Key unrestricted programs include:
F-35 Communications, Navigation and Identification (CNI) integrated avionics system, which provides secure communications and interoperability capabilities;
Battlefield Airborne Communications Node (BACN), one of the first airborne gateway systems that allows platforms to communicate and securely share data;
Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW), a software-programmable jammer that provides protection from improvised explosive devices (IEDs);
Exploitation and cyber programs, which provide cyber and intelligence domain support through unique intelligence and cyber capabilities; and
Airborne Signals Intelligence Payload (ASIP), which delivers key signals intelligence capabilities to the warfighter by detecting, identifying, and locating radar and other types of electronic and modern communication signals.
SPACE SYSTEMS
Space Systems is a leader in delivering end-to-end mission solutions through the design, development, integration, production and operation of space, missile defense, launch and strategic missile systems for national security, civil government, commercial and international customers. Major products include satellites and payloads; ground systems; missile defense systems and interceptors; launch vehicles and related propulsion systems; and strategic missiles. The sector is reported in two business areas: Space and Launch & Strategic Missiles.
Space – designs, develops, manufactures and integrates spacecraft systems, subsystems, sensors, payloads and ground systems to deliver mission capability to national security, science and environmental, communications, on-orbit servicing, and human-rated space systems for earth orbit and deep-space exploration missions. Much of this business is performed through restricted programs. Key unrestricted programs include:
-4-


NORTHROP GRUMMAN CORPORATION

Cygnus spacecraft, used in the execution of our CRS contracts with NASA;
Habitation and Logistics Outpost (HALO) module in support of NASA’s Gateway;
Evolved Strategic SATCOM (ESS) and Protected Tactical SATCOM (PTS) satellites and payloads providing survivable, protected communications to U.S. forces;
Next-Generation Overhead Persistent Infrared (Next Gen OPIR) program satellites and payloads providing data for missile defense;
Space Development Agency Tracking and Transport layers providing missile warning/tracking and resilient, low-latency, high-volume data transport communication systems; and
James Webb Space Telescope (JWST) operations and sustainment contract.
Launch & Strategic Missiles – designs, develops, manufactures and integrates small- and medium-class space launch vehicles to place satellites into earth orbit; suborbital launch vehicles that place payloads into a variety of high-altitude trajectories; large strategic missile systems; and missile defense systems. Competencies include large strategic missile design, integration, production and sustainment, as well as the production of medium- and large-class rocket propulsion systems for human and cargo launch vehicles, hypersonic boosters and missile defense interceptors. Key programs include:
Ground Based Strategic Deterrent (GBSD) Engineering & Manufacturing Development (EMD) program;
Missile defense systems, interceptors, targets, mission processing and boosters for the Missile Defense Agency's (MDA) Next-Generation Interceptor (NGI), Ground-based Midcourse Defense Weapon Systems (GWS);
Development and production of solid rocket motors for NASA’s Space Launch System (SLS) heavy lift vehicle;
Antares rocket, used in the execution of our Commercial Resupply Services (CRS) contracts with the National Aeronautics and Space Administration (NASA);
63-inch diameter Graphite Epoxy Motor (GEM 63) and the extended length variation (GEM 63XL) solid rocket boosters used to provide lift capability for the ATLAS V and Vulcan launch vehicles;
Medium-class solid rocket motors for the U.S. Navy's Trident II Fleet Ballistic Missile program; and
Intercontinental Ballistic Missile (ICBM) Ground Subsystem Support Contract (GSSC).
CUSTOMER CONCENTRATION
Our largest customer is the U.S. government. Sales to the U.S. government accounted for 86 percent, 85 percent and 84 percent of sales during the years ended December 31, 2022, 2021 and 2020, respectively. For further information on sales by customer type, contract type and geographic region, see Note 16 to the consolidated financial statements. See “Risk Factors” for further discussion regarding risks related to customer concentration.
COMPETITIVE CONDITIONS
We compete with many companies in the defense, intelligence and federal civil markets. The Boeing Company, General Dynamics, L3Harris Technologies, Lockheed Martin, and Raytheon Technologies are some of our primary competitors. Key characteristics of our industry include long operating cycles and intense competition, which is evident through the number of competitors bidding on program opportunities and the number of bid protests (competitor protests of U.S. government procurement awards).
It is common in the defense industry for work on major programs to be shared among a number of companies. A company competing to be a prime contractor may, upon ultimate award of the contract to another competitor, serve as a subcontractor to the ultimate prime contracting company. It is not unusual to compete for a contract award with a peer company and, simultaneously, perform as a supplier to or a customer of that same competitor on other contracts, or vice versa.
SEASONALITY
No material portion of our business is considered to be seasonal.
-5-


NORTHROP GRUMMAN CORPORATION

BACKLOG
At December 31, 2022, total backlog, which is equivalent to the company’s remaining performance obligations, was $78.7 billion as compared with $76.0 billion at December 31, 2021. For further information, see “Backlog” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) and Note 1 to the consolidated financial statements.
INTELLECTUAL PROPERTY
We routinely apply for and own a number of U.S. and foreign patents related to the technologies we develop. We also develop and protect intellectual property as trade secrets. In addition to owning a large portfolio of proprietary intellectual property, we license some intellectual property rights to third parties and we license or otherwise obtain access to intellectual property from third parties. The U.S. government typically holds licenses to patents developed in the performance of U.S. government contracts and may use or authorize others to use the inventions covered by these patents for certain purposes. See “Risk Factors” for further discussion regarding risks related to intellectual property.
RAW MATERIALS
We have experienced challenges with access to certain raw materials due to macroeconomic factors and several global events such as microelectronics shortages, COVID-19 and geopolitical conflicts. In some cases, these challenges have significantly increased the cost and/or lead time required to obtain certain raw materials. Nonetheless, these challenges have not to date materially impacted our ability to perform on our contracts. See “Risk Factors” for further discussion regarding risks related to raw materials.
HUMAN CAPITAL
Fostering a culture that offers employees opportunities to live our values, deliver for our customers, and act responsibly and sustainably is central to our diverse and talented workforce. Our culture and values enable us to continue attracting qualified talent, particularly those with security clearances and requisite skills in multiple areas, including science, technology, engineering and math. During 2022, despite facing a tight labor market, this focus on our culture and workforce was a factor in our ability to hire approximately 16,000 new employees, and as of December 31, 2022, we have approximately 95,000 employees.
Additional information regarding our human capital strategy is available in our Environmental, Social, and Governance (ESG) Report and Proxy Statement, which can be found on our company website. Information on our website, including our ESG Report (formerly our Sustainability Report), is not incorporated by reference into this Annual Report.
Our Values and Culture
Our values reflect our priorities and form the bedrock of our culture:
We do the right thing – we earn trust, act with ethics, integrity and transparency, treat everyone with respect, value diversity and foster safe and inclusive environments.
We do what we promise – we own the delivery of results, focused on quality.
We commit to shared success – we work together to focus on the mission and take accountability for the sustainable success of our people, customers, shareholders, suppliers and communities.
We pioneer – with fierce curiosity, dedication and innovation, we seek to solve the world’s most challenging problems.
We believe our culture and values are vital to the ongoing success of the company, including our ability to attract and retain a talented and diverse workforce. Our values are also integral to our commitment to long-term sustainability, with robust ESG practices across our company. The company has a Standards of Business Conduct program. Our employees are empowered to raise concerns without fear of reprisal. In addition to full-time ethics professionals, we also have over 140 business conduct advisors who promote values and an ethical culture within the company.
Our annual engagement survey gives employees a voice and a mechanism to provide feedback on our culture. This survey is managed by a third-party vendor to encourage employee candor on key engagement drivers, including company leadership, culture, inclusion and career development. In 2022, 79 percent of employees responded to the survey, an indication that our employees believe their feedback matters, and we were named a “High Performing
-6-


NORTHROP GRUMMAN CORPORATION

Company” by the third party vendor based on our survey results. Our leaders review the survey responses and work collaboratively with their teams to take meaningful actions based on survey results.
Diversity, Equity and Inclusion
Diversity, equity and inclusion (DE&I) is vital to our culture and our company’s success. Our ability to leverage the power of our diverse workforce enhances employee engagement and enables us to innovate, perform and deliver on quality, which results in value for our shareholders, customers, and employees. Diversity is one of the company’s non-financial ESG performance metrics and is reviewed by the Board of Directors. Across our U.S. employee population, as of December 31, 2022, 25 percent are female, 37 percent are people of color, 18 percent are veterans and 8 percent are persons with disabilities. At the vice president level, 34 percent are female and 19 percent are people of color.
Talent Management
Northrop Grumman’s talent strategy is designed to maximize the full potential of our people and our business. We are focused on providing an end-to-end experience from pre-hire to retirement. This includes creating inclusive, employee-centric experiences, cultivating leadership, offering multiple development pathways and expanding the talent pipeline into and through the company.
We hold regular talent review discussions to ensure line of sight to talent at various levels of the organization. Succession plans are refreshed and reviewed to ensure a robust, diverse pipeline of talent and business continuity with a tight linkage to development.
We focus on accelerating learning and development of our leaders by providing a combination of experiences and education. Our Leading for Impact Program offers developmental paths for new and experienced managers seeking to refresh or build their leadership capabilities. Nearly 3,000 leaders have honed their skills leveraging various learning modalities, including virtual and in-person instructor-led, web-based training and micro-courses to support our managers.
Our employee development programs are designed to strengthen employee skills that align to our current and future business needs, encourage knowledge sharing and support career progression and growth. We utilize My Learning Experience, a machine learning enabled content aggregator designed to create a unique and personalized learning experience for each employee. We offer our employees online career-specific tools and resources and we also support development opportunities through educational institutions with our Education Assistance Program. Our early-in-career rotation program, Pathways, develops talent pipelines with both depth of skills and breadth of experiences that are critical to the company’s future talent needs. Our technical cohort programs are uniquely designed to cultivate technical, domain expertise and collaborative thought leadership for early through advanced career levels.
As our company continues to grow, we rely on an integrated talent acquisition approach. The company strategically attracts, identifies, and onboards candidates in support of business needs and priorities. In order to accomplish our goals, we seek talent with unique perspectives, skills and experiences; maintain strategic relationships with colleges; offer a robust employee referral program; and partner with numerous diversity organizations, military organizations and trusted external partners, with a commitment to growing and supporting a diverse talent pipeline. Amidst the evolving and, at times, challenging hiring environment, we apply agile recruiting methods as we work to adapt to the changing labor marketplace and to ensure employees and candidates have an exceptional experience.
Employee Health and Safety
People are our most valuable resource, and we work diligently to protect the health, safety and well-being of our employees, customers, visitors and others at our facilities. During 2022, we have taken, and continue to take, robust actions in response to the COVID-19 pandemic to help protect the health, safety and well-being of our employees and others. See “COVID-19” in MD&A for further discussion.
Health and safety are a core focus in everything we do. Risk and hazard identification, abatement and prevention are key components of Northrop Grumman’s safety program. Everyone has a responsibility to identify workplace hazards and we empower employees to report these hazards without fear of repercussion. We evaluate the effectiveness of our health and safety programs externally, through benchmarking with industry peers and the U.S. Bureau of Labor Statistics. Internally, we determine program effectiveness by conducting trend analyses of our past performance.
-7-


NORTHROP GRUMMAN CORPORATION

Collective Agreements
Approximately 4,000 employees are covered by 15 collective agreements in the U.S., of which we negotiated four renewals in 2022 and expect to negotiate one renewal in 2023.
See “Risk Factors” for further discussion regarding risks related to our workforce and employee relations.
REGULATORY MATTERS
Government Contract Security Restrictions
We are prohibited by the U.S. government from publicly discussing the details of certain classified programs. These programs are generally referred to as “restricted” in this Annual Report. The consolidated financial statements and financial information in this Annual Report reflect the operating results of our entire company, including restricted programs.
Contracts
We generate the majority of our business from long-term contracts with the U.S. government for development, production and support activities. Unless otherwise specified in a contract, allowable and allocable costs are billed to contracts with the U.S. government pursuant to the Federal Acquisition Regulation (FAR) and U.S. government Cost Accounting Standards (CAS), which are regulations that govern cost accounting requirements for government contracts. Examples of costs incurred by us and not billed to the U.S. government in accordance with applicable FAR and CAS requirements include, but are not limited to, unallowable employee compensation, charitable donations, interest expense, advertising, and certain legal and travel costs.
We monitor our contracts on a regular basis for compliance with our policies and procedures and applicable government laws and regulations. In addition, costs incurred and allocated to contracts with the U.S. government are routinely audited by the Defense Contract Audit Agency (DCAA).
Our long-term contracts typically fall into one of two contract types:
Cost-type contracts – Cost-type contracts include cost plus fixed fee, cost plus award fee and cost plus incentive fee contracts. Cost-type contracts generally provide for reimbursement of a contractor’s allowable costs incurred plus fee. As a result, cost-type contracts have less financial risk associated with unanticipated cost growth but generally provide lower profit margins than fixed-price contracts. Cost-type contracts typically require that the contractor use its best efforts to accomplish the scope of the work within some specified time and stated dollar limitation. Fees on cost-type contracts can be fixed in terms of dollar value or can be variable due to award and incentive fees, which are generally based on performance criteria such as cost, schedule, quality and/or technical performance. Award fees are determined and earned based on customer evaluation of the company’s performance against contractual criteria. Incentive fees are generally based on cost or schedule and provide for an initially negotiated fee to be adjusted later, based on the relationship of total allowable costs to total target costs or as schedule milestones are met. Award and incentive fees are included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled.
Fixed-price contracts – Firm fixed-price contracts include a specified scope of work for a price that is a pre-determined, negotiated amount and not typically subject to adjustment regardless of costs incurred by the contractor, absent changes by the customer. As a result, fixed-price contracts typically have more financial risk associated with unanticipated cost growth, but provide the opportunity for higher profit margins. Certain fixed-price incentive fee contracts provide for reimbursement of the contractor’s allowable costs plus a fee up to a cost ceiling amount, typically through a cost-sharing ratio that affects profitability. These contracts effectively become firm fixed-price contracts once the cost-share ceiling is reached. Time-and-materials contracts are considered fixed-price contracts as they specify a fixed hourly rate for each labor hour charged.
Profit margins on our contracts may vary materially depending on, among other things, the contract type, contract phase (e.g., development, low-rate production or mature production), negotiated fee arrangements, achievement of performance objectives, unexpected macroeconomic factors or other circumstances, and cost, schedule and technical performance.
See Note 1 to the consolidated financial statements and “Risk Factors” for further information regarding our contracts and Note 16 to the consolidated financial statements for sales by contract type.
-8-


NORTHROP GRUMMAN CORPORATION

The following table summarizes sales for the year ended December 31, 2022, recognized by contract type and customer category:
$ in millions
U.S.
Government(1)
International(2)
Other CustomersTotalPercentage
of Total Sales
Cost-type contracts$18,110 $594 $$18,711 51 %
Fixed-price contracts13,213 4,254 424 17,891 49 %
Total sales$31,323 $4,848 $431 $36,602 100 %
(1)Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.
Environmental
Our operations are subject to and affected by federal, state, local and foreign laws, regulations and enforcement actions relating to protection of the environment. We have incurred and expect to continue to incur capital and operating costs to comply with applicable environmental laws and regulations and to achieve our environmental sustainability commitments. See “Risk Factors” and Notes 1 and 12 to the consolidated financial statements for further information regarding environmental matters.
In 2022, we announced our next generation environmental sustainability goals. These goals focus on Northrop Grumman’s facilities in addition to supply chain partners and customers:
Net zero greenhouse gas emissions in operations by 2035;
Source 50 percent of total electricity from renewable sources by 2030;
Strengthen leadership in operational footprint reduction through setting and achieving pioneering targets in environmental stewardship by 2025, including potable water use and solid waste to landfill;
In collaboration with key customers, work to develop a pioneering product stewardship program focused on material efficiency, product design and life cycle assessment;
Update the company’s "Standards of Business Conduct for Suppliers and Other Trading Partners" to incorporate industry-leading sustainability practices by 2023;
Expand Technology for Conservation initiatives in proximity to Northrop Grumman's U.S. locations by 2030, in collaboration with external partners.
Additional information regarding our environmental sustainability goals is available in our ESG Report, which can be found on our company website.
EXECUTIVE OFFICERS
See “Directors, Executive Officers and Corporate Governance” for information about our executive officers.
AVAILABLE INFORMATION
Our principal executive offices are located at 2980 Fairview Park Drive, Falls Church, Virginia 22042. Our telephone number is (703) 280-2900 and our home page is www.northropgrumman.com.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statement for the annual shareholders’ meeting, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with the U.S. Securities and Exchange Commission (SEC). You can learn more about us by reviewing our SEC filings on the investor relations page of our website.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including Northrop Grumman Corporation.
-9-


NORTHROP GRUMMAN CORPORATION

References to our website and the SEC’s website in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, such websites. Such information should not be considered a part of this report, unless otherwise expressly incorporated by reference in this report.
Item 1A. Risk Factors
Our consolidated financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control, that may cause actual performance to differ materially from historical or projected future performance. We encourage you to consider carefully the risk factors described below in evaluating the information contained in this report as the outcome of one or more of these risks could have a material adverse effect on our financial position, results of operations and/or cash flows.
Industry and Economic Risks
We depend heavily on a single customer, the U.S. government, for a substantial portion of our business. Changes in this customer’s priorities and spending could have a material adverse effect on our financial position, results of operations and/or cash flows.
Our primary customer is the U.S. government, from which we derived 86 percent of our sales in 2022; we have a number of large programs with the U.S. Department of the Air Force, in particular. The U.S. government has the ability to delay, modify or cancel ongoing competitions, procurements and programs, as well as to change its future acquisition strategy. We cannot predict the impact on existing, follow-on, replacement or future programs from potential changes in the threat environment, defense spending levels, government priorities, political leadership, procurement practices and strategy, inflation and other macroeconomic trends, military strategy; or broader changes in social, economic or political demands and priorities.
The U.S. government has the ability to terminate contracts, in whole or in part, for its convenience or for default based on performance. In the event of termination for convenience, contractors are generally protected by provisions covering reimbursement for costs incurred and profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned. In the event of termination due to default, contractors may be required to pay for re-procurement costs in excess of the original contract price, net of the value of work accepted from the original contract, as well as other damages. Termination due to our default (or that of a teammate) could have a material adverse effect on our reputation, our ability to compete for other contracts and our financial position, results of operations and/or cash flows.
The U.S. government also has the ability to stop work under a contract for a limited period of time for its convenience. The U.S. government has invoked and could invoke this ability across a limited or broad number of contracts. In the event of a stop work order, contractors are typically protected by provisions covering reimbursement for costs incurred to date and for costs associated with the temporary stoppage of work plus a reasonable fee. However, such temporary stoppages often introduce inefficiencies and result in financial and other damages for which contractors may not be able to negotiate full recovery. In some cases, they have also ultimately resulted and could result in termination of a contract for convenience or reduced future orders.
A significant shift in government priorities, programs or strategies could have a material adverse effect on our financial position, results of operations and/or cash flows.
Significant delays or reductions in appropriations for our programs and U.S. government funding more broadly, including a prolonged continuing resolution or breach of the debt ceiling, can negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations and/or cash flows.
U.S. government programs are subject to annual congressional budget authorization and appropriation processes. For many programs, Congress appropriates funds annually even though the program performance period may extend over several years. Programs are often partially funded initially, with additional funds committed only as Congress makes further appropriations. When we or our subcontractors incur costs in excess of funds obligated on a contract, we are generally at risk for reimbursement unless and until additional funds are obligated to the contract. We cannot predict what funding will ultimately be approved for individual programs. In addition, pressures on, as well as laws and plans relating to the federal budget, potential changes in priorities and defense spending, the timing and substance of the appropriations process, use of continuing resolutions (with restrictions, e.g., on new starts) and the federal debt limit (including a breach), have adversely affected and could adversely affect the amount and timing of funding for individual programs and delay purchasing or payments by our customers. In the event government
-10-


NORTHROP GRUMMAN CORPORATION

funding for our significant programs is reduced, delayed or unavailable, or orders are reduced, our contracts or subcontracts, or competitions for such programs have at times been, and in the future may be, terminated or changed.
The U.S. continues to face an uncertain and changing political environment, along with substantial fiscal and economic challenges, which affect funding. The budget and macroeconomic environment, political instability, and uncertainty surrounding the appropriations processes and the debt ceiling, remain significant short and long-term risks. See “Overview” in MD&A. Considerable uncertainty exists regarding how future budget and program decisions will unfold. If annual appropriations bills are not timely enacted, the U.S. government may continue to operate under a continuing resolution, restricting new contract or program starts, presenting resource allocation challenges and placing limitations on budgets, and we may face a prolonged government shutdown that could lead to program cancellations, disruptions and/or stop work orders and could limit the U.S. government’s ability to progress programs and make timely payments. A prolonged shutdown could limit our ability to perform on our contracts and successfully compete for new work. If the statutory debt limit is not increased adequately, we could be obligated to work without receiving timely payments. A prolonged breach could have far-reaching adverse consequences. If current macroeconomic pressures (especially from inflation and labor and supply chain challenges) are prolonged or worsen, and increased costs continue, then existing or anticipated appropriated and contracted funds may not be sufficient to cover costs incurred on existing or future programs. The National Defense Authorization Act for FY 2023 grants DoD discretionary authority under limited circumstances to provide extraordinary relief to contractors to address certain inflationary impacts under the current macroeconomic environment for FY 2023. This or other relief may not be available or adequate to address the significant impacts of the broader macroeconomic environment.
Future funding for certain programs in which we participate may be reduced, delayed or cancelled. Budget cuts globally could adversely affect the viability of our subcontractors and suppliers. While we believe that our business is well-positioned in areas for future defense spending, changing priorities, budget pressures, defense spending cuts, challenges in the appropriations process, the possibility of a year-long continuing resolution and breach of the debt ceiling, ongoing fiscal debates and the global economic environment increase uncertainties and risk.
Significant delays or reductions in appropriations for our current and future programs; long-term funding under a continuing resolution; an extended debt ceiling breach or government shutdown; and/or future budget and program decisions, among other items, may negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations and/or cash flows.
We use estimates when accounting for contracts. Contract cost growth or changes in estimated contract revenues and costs can affect our profitability and our overall financial position.
Contract accounting requires judgment, including in assessing risks, estimating contract revenues and costs, and predicting future performance. Given the size and nature of our many contracts, estimating total revenues and costs at completion is complex and subject to many variables. When there is sufficient information to assess expected future performance, we consider performance related incentives, awards and penalties in estimating revenue and profit rates. Suppliers’ expected performance, and the availability and costs of labor, materials and components, are also considered.
Our operating income can be adversely affected when estimated contract costs increase, especially without comparable increases in revenue. There are many reasons estimated contract costs can increase. They include: macroeconomic trends (including inflation, labor shortages and supply chain challenges); delays or limitations in customer funding; design or other development challenges; production challenges (including from technical or quality issues and other performance concerns); inability to realize learning curves or other cost savings; changes in laws or regulations; actions necessary for long-term customer satisfaction; global pandemics, such as COVID-19; and natural disasters or environmental matters. For example, as discussed in greater detail in Note 12 to the consolidated financial statements, our latest estimated cost to complete the low-rate initial production (LRIP) phase of the B-21 program reflects updated estimates for adverse impacts from these macroeconomic factors, as well as potential opportunities to address them.
We aim to mitigate this risk through contract terms, and we have filed and may file requests for equitable adjustment or claims to seek recovery in whole or in part for our increased costs. We have also sought, and will seek, other avenues, as appropriate, to compensate the company for certain unexpected cost increases. However, our contracts may not enable full recovery, and/or the government may disagree with our requests and may not have funding to cover them.
-11-


NORTHROP GRUMMAN CORPORATION

Our risk varies with the type of contract. Fixed-price contracts inherently tend to have more financial risk than cost-type contracts, including as a result of inflationary pressures, labor rates and shortages, and supplier challenges. In 2022, approximately half of our sales were derived from fixed-price contracts. We have more often entered into fixed-price contracts where costs can be more reasonably estimated based on actual experience, such as for mature production programs. However, our customers may also seek fixed-price contracts for development programs, combined development and production programs, or low-rate initial production programs, where the risks are greater. In addition, our contracts contain provisions relating to cost controls and audit rights. If we do not achieve our estimates or meet terms in our contracts, our profitability has at times been and may be reduced, and we have incurred and may incur losses.
Certain of our fixed-price contracts include or may include fixed-price development work. This work is inherently more uncertain, and, as a result, there is typically more variability in estimates of the costs to complete the development stage. As work progresses into production, the risks associated with estimating total costs are typically reduced. While management uses its best judgment to estimate costs associated with fixed-price contracts, future events could result in significant adjustments.
Under cost-type contracts, allowable costs are generally subject to reimbursement plus a fee. We often enter into cost-type contracts for development programs with complex design and technical challenges. These cost-type programs typically have award or incentive fees that are uncertain and may be earned over extended periods or towards the end of the contract. In these cases, the financial risks are typically in recognizing profit, which ultimately may not be earned, or program cancellation if cost, schedule, or technical performance issues arise. We also face additional financial risk when solicitations require us to bid on cost-type development work and fixed-price production lots and/or options in one submission, or cost-type development work requiring us to provide certain items at our expense or with little or no fee. Ongoing macroeconomic challenges increase these risks.
Because of the significance of management’s judgments and the estimation processes, and the difficulties inherent in estimating future costs, particularly in a challenging macroeconomic environment, it is possible that we could see materially different results. Changes in underlying assumptions, circumstances or estimates, and the failure to prevail on claims could have a material adverse effect on the profitability of one or more of our contracts and on our overall financial position, results of operations and/or cash flows. See “Critical Accounting Policies, Estimates and Judgments” in MD&A and Note 12 to the consolidated financial statements.
The global macroeconomic environment could negatively impact our business and our financial position, results of operations and/or cash flows could be materially adversely affected.
Our business, financial position, results of operations and/or cash flows have been and may continue to be adversely impacted by the global macroeconomic environment. The global macroeconomic environment has experienced, and continues to experience, extraordinary challenges, including high rates of inflation; widespread disruptions in supply chains; workforce challenges, including labor shortages; and market volatility. These challenges have, among other things, led to increased costs, labor and supply shortages, and delays and disruption in performance, as well as competing demands for scarce resources. Those challenges have adversely impacted our customers, our industry, our company, our suppliers and others with whom we do business. While some aspects of the macroeconomic environment appear to be improving, and we have been able to mitigate some of the challenges (especially with respect to labor shortages), other challenges persist. We cannot predict the future trajectory of this risk, including how the macroeconomic environment will evolve or how it will continue to impact us.
We (including our suppliers and other partners) have and may continue to experience inflationary pressures, supply chain disruption and labor and material cost increases at a rate higher than anticipated. Given the nature of our business and our contracts (many of which are fixed price and of long duration), we may be unable to recover some of these increased costs or to offset such costs with greater than expected efficiencies. Our government customers are likely to continue to face competing priorities and increased demands for their limited resources. We cannot predict how long these challenges will persist or how they will change over time. We continue to work proactively to mitigate these challenges. However, if we are unable to do so successfully, our financial position, results of operations and/or cash flows could be materially adversely affected.
Competition within our markets and bid protests may affect our ability to win new contracts and result in reduced revenues and market share.
We operate in highly competitive markets and our competitors may have more financial capacity or more extensive or specialized engineering, manufacturing, or marketing capabilities. They may be willing to accept more risk or lower profitability in competing for contracts. We have seen, and anticipate we will continue to see, increased
-12-


NORTHROP GRUMMAN CORPORATION

competition in some of our core markets, especially as a result of our customers’ budget pressures, their focus on affordability and competition, and our own success in winning business. We are facing increasing competition in the U.S. and outside the U.S. from U.S., foreign and multinational firms, including new entrants. We are also facing increasing competition for, and more limited access to various critical products, services and other supplies. In some instances, foreign companies may receive loans, subsidies and other assistance from their governments that may not be available to U.S. companies and foreign companies may be subject to fewer restrictions on technology transfer. Some customers, including the DoD, are turning to commercial contractors, rather than traditional defense contractors, for some products and services, and continue to utilize small business contractors or determine to source work internally. In addition, our success in competing and remaining cost-competitive depends, in part, on our ability successfully to effect our digital transformation strategy and to adopt and integrate new digital manufacturing and operating technologies into our products and services.
Bid protests can result in contract modifications or the award decision being reversed and loss of the contract award. Even where a bid protest does not result in such a loss, it can delay execution and earnings.
If we are unable to continue to compete successfully against our current or future competitors, or prevail in protests, or to prevail against other attempts to interfere with our ability to obtain and retain awards, we may experience declines in future revenues and market share, which could have a material adverse effect on our financial position, results of operations and/or cash flows.
Legal and Regulatory Risks
We are subject to various investigations, claims, disputes, enforcement actions, litigation, and other legal proceedings that could ultimately be resolved against us.
The size, nature and complexity of our business make us particularly susceptible to investigations, claims, disputes, enforcement actions, prosecutions, litigation and other legal proceedings (collectively “legal proceedings”), particularly those involving governments, which have at times been, and may continue to be, increasingly aggressive. We are and may become subject to legal proceedings globally (including criminal, civil and administrative) and across a broad array of matters, including, but not limited to, government contracts, cost accounting, financial accounting or reporting, commercial transactions, false statements or claims, pension accounting, antitrust, compliance with government orders, mischarging, security (cyber and physical), performance, fraud, procurement integrity, securities laws and requirements, products liability, warranties, hazardous materials, personal injury claims, environmental (including remediation and toxic torts), shareholder derivative actions, M&A, intellectual property, tax, corporate law, employees, export/import, anti-corruption, debt and equity, labor, health and safety, the COVID-19 pandemic and the company’s response to it, accidents, launch failures, employee benefits and plans, including pension plans and plan administration, improper payments, and privacy, as well as matters relating to the Orbital ATK Federal Trade Commission (FTC) decision and order. These matters can divert resources; result in administrative, civil or criminal fines, penalties or other sanctions (including judgments, convictions, consent or other voluntary decrees or agreements), compensatory, treble or other damages, non-monetary relief, or other liabilities; and otherwise harm our business and our ability to obtain and retain awards. Certain allegations may lead to suspension or debarment from government contracts or suspension of export/import privileges for the company or one or more of its components. Suspension or debarment or criminal resolutions in particular could have a material adverse effect on the company because of our reliance on government contracts and export authorizations. An investigation, claim, dispute, enforcement action or litigation, even if pending or not ultimately substantiated or if fully indemnified or insured, can negatively impact our reputation among our customers and the public, and make it substantially more difficult for us to compete effectively for business, obtain and retain awards, ensure adequate funding for our programs or obtain adequate insurance in the future. Investigations, claims, disputes, enforcement actions, litigation or other legal proceedings could have a material adverse effect on our financial position, results of operations and/or cash flows. See Note 11 to the consolidated financial statements for information regarding investigations, claims and litigation.
The improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate can impact our reputation, our ability to do business and our financial position, results of operations and/or cash flows.
We have implemented policies, training and other compliance controls, and have negotiated terms designed to prevent misconduct by employees, agents or others working with us or on our behalf that would violate the applicable laws of the jurisdictions in which we operate, including laws governing improper payments to government officials, the protection of export controlled or classified information, false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy, intellectual property and
-13-


NORTHROP GRUMMAN CORPORATION

contract terms. However, we cannot ensure that we will prevent all such misconduct committed by our employees, agents, suppliers, partners or others working with us or on our behalf. We have in the past experienced and may in the future experience such misconduct, despite a vigorous compliance program, our values and strong culture. This risk of improper conduct may increase as we continue to expand globally, with greater opportunities and demands to do more business with local and new partners, and in new environments. At the same time, law enforcement agencies are continuing to focus collaboratively on combating global corruption and other misconduct. In the ordinary course we form and are members of joint ventures (with that term used throughout to refer to joint efforts or business arrangements of any type). Notwithstanding our robust processes, we are unable to prevent any and all misconduct or violations of applicable laws by these joint ventures (including their officers, directors and employees) or our partners. Improper actions by our employees or those with whom or through whom we do business subjects us to risk of administrative, civil or criminal investigations and enforcement actions; monetary and non-monetary penalties; liabilities; and the loss of privileges and other sanctions, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.
As a U.S. government contractor, we and our partners are subject to various procurement and other laws, regulations and contract terms applicable to our industry, as well as those more broadly applicable to industry, and we could be adversely affected by changes in such laws, regulations or terms, or any negative findings by the U.S. government as to our compliance with them. We also may be adversely affected by changes in our customers’ business practices globally.
U.S. government contractors (including their subcontractors and others with whom they do business) must comply with various specific procurement laws, regulations, rules and other legal requirements, as well as ones more broadly applicable. These various legal requirements, although sometimes customary in government contracting, increase costs and risks. They have been and are evolving at a significant pace. The costs are not always fully recoverable. New laws or other requirements, or changes to existing ones (including, for example, related to cyber, information protection, cost accounting, climate, environment, COVID-19, securities, competition, compensation costs, taxes, counterfeit parts, pensions, and use of certain non-US equipment) or changes in how government agencies interpret existing ones, can significantly increase our costs and risks and reduce our profitability.
We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies, such as the DCAA, Defense Contract Management Agency (DCMA) and the DoD Inspector General. These agencies review performance under our contracts, our cost structure and accounting, and our compliance, and the adequacy of our systems in meeting government requirements. Costs ultimately found to be unallowable or improperly allocated may not be reimbursed or may be refunded. When an audit uncovers improper or illegal activities, we are subject to possible civil and criminal penalties, sanctions, or suspension or debarment. Whether or not illegal activities are alleged, the U.S. government has the ability to decrease or withhold certain payments when it deems systems to be inadequate, with significant financial impact, regardless of the ultimate outcome. In addition, we risk serious reputational harm in situations involving allegations of impropriety made against us or our business partners.
Our industry has experienced, and we expect it will continue to experience, significant changes to business practices globally, in part as a result of changes in the global security and threat environment and an increased focus on affordability, efficiencies, business systems, recovery of costs and a reprioritization of available defense funds. We have experienced and may continue to experience an increased number of audits and challenges to our claims and our business systems for current and past years, as well as longer periods to close audits, broader requests for information and an increased risk of withholdings of payments. For example, the thresholds for certain allowable costs have been reduced; and the allowability of other costs and how the company treated them, including certain costs related to pensions, and certain assumptions used by the company to determine pension expense, are being challenged and investigated, all with risks and costs to the company. The U.S. government is also pursuing alternatives to shift additional responsibility and performance risks to the contractor. The U.S. government has been pursuing and may continue to pursue policies that could negatively impact our profitability. Changes in procurement practices, including those favoring incentive-based fee arrangements; fixed price development or long-term production programs; different award criteria; non-traditional contract provisions; and contract negotiation offers that indicate what our costs should be, have affected and may in the future affect our profitability and predictability.
We (again, including our subcontractors and others with whom we do business) also are subject to, and expected to perform in compliance with, a vast array of federal, state and local laws, regulations, contract terms and requirements related to our industry, our products and the businesses we operate, as well as those more broadly applicable to industry, such as securities laws and regulations. These laws and regulations include, but are not
-14-


NORTHROP GRUMMAN CORPORATION

limited to, the Truthful Cost or Pricing Data Act, False Claims Act, Procurement Integrity Act, CAS, FAR/DFAR, export controls and international sanctions, FCPA (and similar anti-corruption provisions) and SEC rules and regulations, as well as those related to pandemics. These requirements, whether specific to our industry or broadly applicable, may limit our ability to achieve our goals. If we are found to have violated any such requirements, or are found not to have acted responsibly, we may be subject to a wide array of actions, including contract modifications or termination; payment withholds; the loss of export/import privileges; administrative, civil or criminal judgments or penalties (including convictions, agreements, fines, damages and non-monetary relief); or suspension or debarment.
If we or those with whom we do business do not comply with the laws, regulations, rules, contract terms and processes to which we are subject or if customer business practices or requirements change significantly, including with respect to allowable costs, it could affect our ability to compete and have a material adverse effect on our financial position, results of operations and/or cash flows.
Environmental matters, including unforeseen costs associated with compliance and remediation efforts, and government and third party claims, could have a material adverse effect on our reputation and our financial position, results of operations and/or cash flows.
Our operations are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations, including as they may be expanded, otherwise changed or enforced differently over time. Compliance with these existing and evolving environmental laws and regulations requires, and is expected to continue to require, significant operating and capital costs. We may be subject to substantial administrative, civil or criminal fines, penalties or other sanctions (including suspension and debarment) for violations. If we are found to be in violation of the Federal Clean Air Act or the Clean Water Act, the facility or facilities involved in the violation could be placed by the Environmental Protection Agency on a list of facilities that generally cannot be used in performing on U.S. government contracts until the violation is corrected.
We incur, and expect to continue to incur, substantial remediation costs related to the cleanup of pollutants previously released into the environment. Stricter or different remediation standards or enforcement of existing laws and regulations; new requirements, including regulation of new substances; discovery of previously unknown or more extensive contamination or new contaminants; imposition of fines, penalties, or damages (including natural resource damages); a determination that certain remediation or other costs are unallowable; rulings on allocation or insurance coverage; and/or the insolvency, inability or unwillingness of other parties to pay their share, could require us to incur material additional costs in excess of those anticipated.
We are and may become a party to various legal proceedings and disputes involving government and private parties (including individual and class actions) relating to alleged impacts from pollutants released into the environment, including bodily injury and property damage. These matters could result in material compensatory or other damages, remediation costs, penalties, and non-monetary relief, and adverse determinations on allowability or insurance coverage.
The company is engaged in remediation activities relating to environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. We have incurred, and expect to continue to incur, as included in Note 12, substantial remediation costs related to the legacy Bethpage environmental conditions. It is also possible that applicable remediation standards and other requirements to which we are subject may continue to change, and our costs may increase materially. In 2022, the company entered into a consent decree with the State of New York and reached agreements with the Department of Defense and Bethpage and South Farmingdale Water Districts to resolve claims involving these parties. In addition, we are a party to, and may become a party to, various legal proceedings with individual and class action plaintiffs alleging personal injury and property damage, as well as with insurance carriers and other parties.
Government and private parties also seek to hold us responsible for liabilities or obligations related to former operations that have been divested or spun-off and/or for which we believe other parties have agreed to be responsible and/or to indemnify us. These rights may not be sufficient to protect us.
The impact of these factors is difficult to predict, but one or more of them could harm our reputation and business and have a material adverse effect on our financial position, results of operations and/or cash flows.
Unanticipated changes in our tax provisions or exposure to additional tax liabilities could affect our profitability and cash flow.
We are subject to income and other taxes in the U.S. and foreign jurisdictions. Changes in applicable tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, have affected and
-15-


NORTHROP GRUMMAN CORPORATION

could affect our tax expense. In addition, the final determination of any tax audits or related litigation, in particular with regard to our positions on research credits and timing of revenue recognition under IRC Section 451(b), could be materially different from our historical income tax provisions and accruals.
As a result of our acquisition of OATK in 2018, we may be subject to future tax audits and legal challenges involving OATK (including its subsidiaries and their successors) or the spinoff of its then subsidiary Vista Outdoor, and we may be unable to obtain indemnification or we may be required to indemnify Vista.
Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements, could have a material adverse effect on our financial position, results of operations and/or cash flows.
Business and Operational Risks
We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.
We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, especially of infectious diseases, including COVID-19. Since first reported in late 2019, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility. As discussed in our prior and current Form 10-K and 10-Q filings, our operations have been and we expect will continue to be impacted by the COVID-19 pandemic and its related economic challenges. However, the company has worked hard to address and mitigate adverse impacts from COVID-19, and we do not currently anticipate significant additional direct impacts from the pandemic itself on our operations. Nonetheless, we cannot predict the future course of events.
If, for example, the COVID-19 pandemic worsens, due to spread, new or additional variants, or if a new health epidemic or outbreak were to occur, we likely would experience broad and varied impacts, including potentially to our workforce and supply chain, with inflationary pressures and increased costs (which may or may not be fully recoverable or insured), schedule or production delays, market volatility and other financial impacts. If any or all of these items were to occur, we could experience adverse impacts on our overall performance, operations and financial results. Given the tremendous uncertainties and variables, we cannot at this time predict the impact of the global COVID-19 pandemic, or any future health epidemics, pandemics or similar outbreaks, but any one could have a material adverse effect on our business, financial position, results of operations and/or cash flows.
Our business could be negatively impacted by cyber and other security threats or disruptions.
As a defense contractor, we face significant cyber and other security threats. They include, among other things, attempts to gain unauthorized access to sensitive information or otherwise compromise the integrity, confidentiality and/or availability of our systems, hardware and networks, and the information on them; insider threats; ransomware; threats to the safety of our directors, officers and employees; threats to our facilities, infrastructure, products (we produce and use), and subcontractors or other suppliers (referred to inclusively as suppliers); and threats from terrorist acts, espionage, civil unrest and other acts of aggression. We are also subject to increasing government, customer and other cyber and security requirements, including disclosure obligations.
We have robust measures in place to address and mitigate cyber-related risks. However, we have experienced cyber attacks and expect we will continue to experience additional attacks in the future, including from nation states and criminal actors. We continue to invest in the cybersecurity and resiliency of our networks and products and to enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and the information they contain. These include timely detection of incidents through monitoring, training, incident response capabilities, and mitigating cyber and security risks to our data, systems, products and services. We also partner with the government and others in our industry to help protect national security. However, given the complex and evolving nature of cyber and other security threats, including threats from targeting by more advanced and persistent adversaries, including nation states, these efforts may not be fully effective, particularly against previously unknown vulnerabilities that could go undetected for an extended period.
Our customers and partners (including our suppliers and joint ventures) to whom we entrust confidential data, and on whom we rely to provide products and services, face similar threats and growing requirements, including ones for which others may seek to hold us responsible. We depend on our customers, suppliers, and other business partners to implement adequate controls and safeguards to protect against and report cyber incidents. If they fail to deter, detect
-16-


NORTHROP GRUMMAN CORPORATION

or report cyber incidents in a timely manner, we may suffer financial and other harm, including to our information, operations, performance, employees and reputation.
Although we implement various measures and controls to monitor and mitigate risks associated with these threats and to increase the cyber resiliency of our infrastructure and products, there can be no assurance that these processes will be sufficient. Successful attacks could lead to losses or misuse of sensitive information or capabilities; theft or corruption of data; harm to personnel, infrastructure or products; financial costs and liabilities; protracted disruptions in our operations and performance; and the misuse of our products, as well as damage to our reputation as a provider of cyber-related or cyber-protected goods and services. We have not always been able to and may in the future not always be able to obtain adequate insurance to cover our losses.
Cyber threats, both on premises and in the cloud, are evolving and include, but are not limited to: malicious software, destructive malware, ransomware, attempts to gain unauthorized access to systems or data, disruption to operations, critical systems or denial of service attacks; unauthorized release of confidential, personal or other protected information (ours or that of our employees, customers or partners); corruption of data, networks or systems; harm to individuals; and loss of assets. We have been and could be impacted by cyber threats or other disruptions or vulnerabilities found in products or services we use or in our internal, partners’ or customers’ systems that are used in connection with our business. Some of these threats are zero-day attacks associated with previously unknown vulnerabilities in third party software or products we utilize in our business. Cyber events, if not prevented or effectively mitigated, have caused and could cause harm and require remedial actions. They could also damage our reputation, disrupt performance, impact our ability to obtain future insurance coverage, and lead to loss of business, regulatory actions, liabilities or other financial losses, for which we do not have adequate sources of recovery.
We also face threats to our physical security, including to our facilities and the safety and well-being of our people. These threats could involve terrorism, insider threats, workplace violence, civil unrest, natural disasters, damaging weather, or fires, which could adversely affect our company. Our customers and suppliers face similar risks that, if realized, could also adversely impact our operations. Such acts could cause delays, manufacturing downtime, or other impacts that could detrimentally impact our ability to perform our operations. We could also incur unanticipated costs to remediate impacts and lost business.
We provide systems, products and services to various customers who also face cyber threats. Our systems, products and services may not be able to detect or deter threats, or effectively to mitigate resulting losses. These losses could adversely affect our customers and our company.
We also face increasing and evolving disclosure obligations related to cyber and other security events. Despite rigorous processes, we risk failing to meet all of our existing or future disclosure obligations and/or having our disclosures misinterpreted.
The occurrence and impact of these various risks are difficult to predict, but one or more of them could have a material adverse effect on our financial position, results of operations and/or cash flows.
Our ability to win new competitions and meet the needs of our customers depends, in part, on our ability to maintain a qualified workforce.
Our operating results and growth opportunities are heavily dependent upon our ability to attract and retain sufficient qualified and diverse personnel who are or can reasonably be cleared (and obtain program access), who have the requisite skills in multiple areas, including science, technology, engineering and math, and who share our values and are able to operate effectively consistent with our culture. Outside the U.S., it is increasingly important that we are also able to attract and retain personnel with relevant local qualifications and experience. We continue to face increased competition for talent, both with traditional defense companies and commercial companies, globally, and with increasing wage rates. In addition, during the COVID-19 pandemic, we have faced labor shortages, as a result of both absenteeism among our workforce and a tight labor market more broadly, among other factors. While we continue to have labor challenges, they seem to be lessening, as we are realizing benefits from extensive hiring and retention programs. Of course the risk of insufficient personnel may again increase, either broadly or with respect to select critical staffing requirements. If necessary qualified personnel are more scarce or more difficult to attract or retain under reasonable terms, or if we experience a high level of attrition, generally or in particular areas, or if such personnel are increasingly unable to obtain security clearances or program access on a timely basis or are unable to be timely and effectively trained, we would expect higher labor-related costs and we could face challenges performing on various of our programs and meeting financial expectations. In addition, the macroeconomic environment, including continued challenges in the global labor market, may further affect our ability to hire,
-17-


NORTHROP GRUMMAN CORPORATION

develop and retain the necessary talented and diverse workforce, and to maintain performance levels and our corporate culture. These challenges may be further compounded by a significant element of remote work. There is also the risk that we are unable to achieve our diversity, equity and inclusion objectives or, more broadly, to meet sustainability goals increasingly required by our shareholders, employees, the government and other stakeholders.
Certain of our employees are covered by collective agreements. We generally have been able to renegotiate renewals to expiring agreements without significant disruption of operating activities. However, the environment appears to be shifting, and if, for example, we experience difficulties with renewals and renegotiations of existing collective agreements, or if our employees pursue new collective representation, we could incur additional expenses and may be subject to work stoppages or other labor-related disruptions. Any such expenses or delays could adversely affect our performance and results.
If we are unable to attract and retain a qualified workforce, we may be unable to maintain our competitive position or achieve our results, and it could have a material adverse effect on our financial position, results of operations and/or cash flows.
Our earnings and profitability depend, in part, on subcontractor and supplier performance and financial viability as well as raw material and component availability and pricing.
We rely on other companies to provide raw materials, chemicals and components and subsystems for our products, produce hardware elements and sub-assemblies, provide software and intellectual property, provide information about the parts they supply to us, and perform some of the services we need for our operations or provide to our customers, and to do so in compliance with all applicable laws, regulations and contract terms, while maintaining strong values and cultures. Disruptions or performance problems with our subcontractors or other suppliers (referred to inclusively as suppliers), unanticipated cost growth for the products and services they provide, failure to meet regulatory or contractual requirements, unethical behavior, or a misalignment between our contractual obligations to our customers and our agreement with our suppliers, have had and may continue to have various adverse impacts on the company, including on our ability to meet our commitments to customers and financial expectations. This risk of delays and disruptions in the supply chain, and supply chain challenges more broadly, has been and continues to be significantly heightened globally, in the current macroeconomic environment.
Our ability to perform our obligations on time is adversely affected if one or more of our suppliers is unable to provide the agreed-upon products, materials or information, or perform the agreed-upon services in a timely, compliant and cost-effective manner. Changes in political or economic conditions, including changes in demand, changes in the macroeconomic environment (including inflation and labor and supply chain challenges), changes in defense budgets and/or priorities, changes in export/import restrictions, evolving requirements, or changes in access to critical technology and materials (including metals and components), among others, have adversely affected and could in the future adversely affect the financial stability of our suppliers and/or their ability to perform effectively. The inability of our suppliers to perform effectively has required and may require us to provide them additional support and/or to transition to alternate suppliers, if available, with additional costs and delays. We expect we will need to continue to provide additional resources to support certain of our suppliers in performing under our contracts. In addition, if we are unable to do that, we may face additional losses and liabilities under our current contracts and adversely impact the prospects for certain new ones.
In connection with our U.S. government contracts, we are required to procure certain materials, components and parts from supply sources approved by the customer. For example, we require assured access to certain microelectronics. Our ability to produce and/or deliver products will be significantly impacted if the microelectronics manufacturing supply chain is cut off or significantly delayed. We and our suppliers are also facing increased regulatory requirements globally. We may be held responsible not only for our compliance, but that of our suppliers. For some components, there has been or may be only one supplier, or one domestic supplier. If that supplier cannot meet our needs, we may be unable to find a suitable alternative and to meet our obligations.
Our procurement practices are intended to reduce the risk we procure counterfeit, unauthorized or otherwise non-compliant parts or materials. We rely on our suppliers also to comply with applicable laws and contract terms, to ensure the quality of their components and effectively to mitigate the risk of cyber and security threats or other disruptions to their performance.
If our suppliers are not financially viable, incur increased costs of delays, fail to comply with legal requirements, or otherwise fail to address these risks and meet their obligations to us, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
-18-


NORTHROP GRUMMAN CORPORATION

Risks associated with environmental, social and governance matters (ESG), including especially climate change and other environmental impacts, and increased focus and evolving views of our customers, shareholders and other stakeholders on these issues, could negatively affect our business and operations.
Environmental, social and governance matters significantly impact our business and operations and present evolving risks and challenges. Environmental impacts, including climate change specifically, create short and long-term financial risks to our business globally. We have significant operations located in regions that have been, and may in the future be, exposed to significant weather events and other natural disasters. Climate related changes can impact natural disasters, including weather patterns, with the increased frequency and severity of significant weather events (e.g., flooding, hurricanes and tropical storms), natural hazards (e.g., increased wildfire risk), rising mean temperature and sea levels, and long-term changes in precipitation patterns (e.g., drought, desertification, and/or poor water quality).
Increased worldwide focus on climate change has led to legislative and regulatory efforts to combat both potential causes and adverse impacts of climate change, including regulation of greenhouse gas emissions. New or more stringent laws and regulations related to greenhouse gas emissions and other climate change related concerns have affected and will likely continue to affect us, our suppliers and our customers. Some of our facilities are, for example, engaged in manufacturing processes that produce greenhouse gas emissions, including carbon dioxide, or rely on products from others that do so. We are working to identify opportunities to utilize alternatives to fossil-based energy sources, to decrease our greenhouse gas emissions, to reduce our consumption of water and generation of waste, and to ensure our compliance with environmental regulations where we operate, enhancing our record of environmental sustainability. However, new and evolving laws, regulations and rule makings globally are expected to impose different and more restrictive standards, and require greater disclosures. They could also require capital investments, including to transition to low emission technologies, could adversely impact our ongoing operations, and could require changes on a more accelerated time frame. In the U.S., both the SEC and DoD are actively engaged in climate-related rule-makings. Our suppliers are expected to face similar challenges and incur additional compliance costs that may be passed on to us. These direct and indirect costs may adversely impact our results of operations and financial condition. And non-compliance with legislative and regulatory requirements could also negatively impact our reputation and ability to do business.
In 2022, the SEC and FAR council issued proposed rule-makings on climate change. The new proposed rules, depending on how they are finally adopted, as well as other changes the government might implement, could impose significant new burdens on the company and our suppliers, with significant costs and operational impacts, and adversely impact our ability to win business and operate successfully.
Changes in our customers’ requirements, priorities, and ways of doing business are also likely to have an impact on our business, operations, and financial success. These changes create opportunities and risks. If, for example, our customers develop requirements and adopt policies that place further emphasis on social and environmental objectives, and we are unable to meet those evolving demands, we will be less successful in selling our products, winning new business, and growing our revenues.
The company is building on its strong environmental record, with a particular focus on the reduction of greenhouse gas emissions from our operations, and has set a goal to achieve net zero greenhouse gas emissions in our operations by 2035. The company is committed to working to achieve its climate change related objectives. However, the costs of doing so may be greater than expected, and there can be no assurance the company will achieve its objectives, or meet the evolving sustainability expectations and standards of our investors and other external stakeholders. Any failure to achieve our goals, a perception that we are not responsible stewards, or failure effectively to respond to new or evolving legal and regulatory requirements or other sustainability concerns could adversely affect our business, reputation or financial position.
The company also has a strong record and is deeply committed to maintaining robust social and governance practices consistent with our values. As with environmental sustainability matters, shareholders and other stakeholders are increasingly interested in these social and governance practices, including, for example, with respect to values, risk management oversight, responsible business practices, and diversity, equity and inclusion.
Shareholders and others have increasingly looked to a company’s ESG practices, disclosures and performance when making investment or other financial decisions. Customers, regulators and oversight agencies have been increasing requirements and enforcement activities. And employees increasingly look to ESG practices in considering where to work. We believe our ESG practices, disclosures and performance are strong and growing. However, if they do not meet the evolving expectations of our stakeholders, we can expect to experience adverse impacts on our reputation and our ability to win programs, to employ and retain talent, to remain in compliance, and to continue to enjoy
-19-


NORTHROP GRUMMAN CORPORATION

access to capital. A failure to meet expectations may materially negatively affect our results of operations, ability to manage our liquidity, or implement our strategies.
The effects and costs of environmental, social and governance concerns or any failure to meet related requirements or expectations could have a material adverse effect on our financial position, results of operations and/or cash flows.
Our international business exposes us to additional risks, including risks related to geopolitical and economic factors, laws and regulations.
Sales to customers outside the U.S. are an important component of our strategy. Our international business (including our participation in joint ventures, requirements for local content, and our global supply chain) is subject to numerous political and economic factors, legal requirements, cross-cultural considerations and other risks associated with doing business globally. These risks differ in some respects from those associated with our U.S. business and our exposure to such risks is expected to increase if and as our international business continues to grow.
Our international business is generally subject to both U.S. and foreign laws, regulations and practices, including, without limitation, ones relating to export/import controls, sanctions, technology transfers, government contracts and procurement, local participation, data privacy and protection, exchange rates and controls, the FCPA and other anti-corruption laws, anti-boycott provisions, securities laws, labor and employment, works councils and other labor groups, taxes, environment, security restrictions and intellectual property. Failure by us, our employees, partners or others with whom we work to comply with applicable laws and regulations could result in administrative, civil, commercial or criminal liabilities, including suspension or debarment from government contracts or suspension of export/import privileges. Failure to comply with local practices can adversely impact our ability to win and perform business. Our customers outside of the U.S. also often have the ability to terminate contracts for convenience as well as for default based on performance. Suspension or debarment, or termination of a contract due to default could have a material adverse effect on our reputation, our ability to compete for other contracts and our financial position, results of operations and/or cash flows.
New regulations and requirements, or changes to existing ones in countries in which we operate can significantly increase our costs and risks of doing business internationally. Despite robust processes, we also face risks related to the unintended or unauthorized use of our products and resources.
Changes in laws, political leadership and environment, and/or security risks may dramatically affect our ability to conduct or continue to conduct profitable business in international markets. Our international business is impacted by changes in U.S. and non-U.S. national policies and priorities, and geopolitical relationships, any of which may be influenced by changes in the threat environment, political leadership, geopolitical and economic uncertainties, world events, government budgets, inflationary pressures and economic and political factors more generally. The U.S. and its allies continue to face a global security environment of heightened tensions and instability, threats from state and non-state actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, and diverse regional security concerns. Any of these factors may impact demand for our products and services, funding for programs, our ability to perform, our supply chain, export authorizations, purchasing decisions or customer payments. Global macroeconomic conditions, as well as fluctuations in foreign currency exchange rates and credit are also likely to further impact our business.
Our contracts with non-U.S. customers in some cases include terms and reflect legal requirements that create additional risks. They may include requirements to hire, invest, manufacture or purchase locally, or specific financial obligations, including offset obligations, and they may provide for significant penalties if we fail to meet such requirements. They may also require us to enter into letters of credit, performance bonds, bank guarantees or other financial arrangements. If we are dependent on in-country suppliers, we face risks related to their failure to perform in accordance with legal requirements, particularly where we rely on a sole source supplier. Our ability to sell products globally could be adversely affected if we are unable to design our products on a cost effective basis or to obtain and retain all necessary export authorizations, which the U.S. government can deny, change or revoke. Our business outside of the U.S. also depends on our ability to attract and retain sufficient qualified personnel with the skills and/or security clearances in the markets in which we do business. We may need to partner successfully with non-U.S. companies, including through joint ventures, teaming agreements, co-production or other arrangements. This risk includes the ability to identify and negotiate appropriate arrangements with qualified and acceptable local partners, potential exposure for their actions, and the ability effectively to terminate these arrangements. This risk is complicated further when we partner with government-affiliated entities.
-20-


NORTHROP GRUMMAN CORPORATION

The products and services we provide, including those provided by suppliers and joint ventures, are sometimes in countries with unstable governments, economic or fiscal challenges, military or political conflicts, different business practices and/or developing legal systems. This may increase the risk to our employees, suppliers or other third parties, including for their safety, and increase our risk to a wide range of financial consequences and other liabilities, as well as loss of property or damage to our products.
The occurrence and impact of these factors is difficult to predict, but one or more of them could have a material adverse effect on our financial position, results of operations and/or cash flows.
Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise or are dependent upon factors not wholly within our control. Failure to meet our contractual obligations could adversely affect our profitability, reputation and future prospects.
We design, develop and manufacture technologically advanced and innovative products and services, which are applied by our customers in a variety of environments, including highly demanding operating conditions, to accomplish challenging missions. Problems and delays in the successful development and delivery of our solutions, including as a result of issues with our design, technology or operations, digital transformation, inability to achieve learning curve assumptions, artificial intelligence, manufacturing materials or components, or subcontractor (or other supplier) performance can prevent us from meeting requirements and create significant risk and liabilities. Similarly, failures to perform on schedule or otherwise to fulfill our contractual obligations can negatively impact our financial position, reputation and ability to win future business.
In addition, our products cannot be tested and proven in all situations and are otherwise subject to unforeseen problems that can negatively affect revenue, schedule and profitability, and result in loss of life or property. They include loss on launch or flight of spacecraft, loss of aviation platforms, premature failure of products that cannot be accessed for repair or replacement, unintended explosions, problems with design, quality and workmanship, country of origin of procured materials, inadequate supplier components and degradation of product performance. Factors that may affect revenue and profitability also include: inaccurate cost estimates, design issues, human factors, unforeseen costs and expenses, diversion of management focus, loss of follow-on work, replacement obligations, and repayment to the government customer of certain contract cost and fee payments previously received.
Certain contracts, primarily involving space satellite systems, contain provisions that entitle the customer to recover fees in the event of failure of the system upon launch or subsequent deployment for less than a specified period of time. Under such terms, we are generally required to forfeit fees previously recognized and/or collected.
If we are unable to meet our obligations, including due to issues regarding the design, development or manufacture of our products or services, or we experience launch, platform or satellite system failures, it could have a material adverse effect on our reputation, our ability to compete for other contracts and our financial position, results of operations and/or cash flows.
Our business is subject to disruption caused by natural disasters that could adversely affect our profitability and our overall financial position.
We have significant operations, including centers of excellence, located in regions that have been, and may in the future be, exposed to hurricanes, earthquakes, water levels, wildfires, windstorms, and other natural disasters. For example, in recent years, our facilities in Lake Charles, LA, and Melbourne, FL, were damaged by hurricanes, which temporarily interrupted site operations and had significant adverse impacts on our employees, their families and the local communities, as well as our costs and performance. We expect our facilities, operations, employees and communities in the future, particularly at facilities in coastal areas and areas prone to extreme weather events and water scarcity to continue to be at risk for future natural disasters or other weather events (which may be exacerbated by climate change). Our subcontractors and other suppliers have also been, and may in the future be, subject to natural disasters that could cause disruption and affect their ability to deliver or perform. Disruptions also impact the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs, or result in a lack of available coverage. Although we take steps to mitigate these risks, including considering them in determining where to put new businesses, the damage and disruption resulting from natural disasters, which may increase, as well as delays in recovery, may be significant.
If insurance or other sources are unavailable or insufficient to recover all costs or if we experience a significant disruption to our business due to a natural disaster, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
-21-


NORTHROP GRUMMAN CORPORATION

We provide products and services, including related to hazardous and high risk operations, which subjects us to various environmental, regulatory, financial, reputational and other risks.
We provide products and services related to hazardous and high risk operations. Among other such operations, our products and services are used in nuclear-related activities (including nuclear-powered platforms) and used in support of nuclear-related operations of third parties. In addition, certain of our products are provided with space and missile launches. We use and provide energetic materials, including in propulsion systems, which include products that involve highly explosive or flammable elements. We develop missile systems, and counter systems, including strategic deterrents, as well as subsystems and components. These and other activities subject us to various extraordinary risks, including (1) potential liabilities relating to nuclear or non-nuclear launch-related incidents, unintended initiation of energetic materials and explosions, including risk of personal injury, property damage and environmental harm; (2) harmful effects on the environment and human health that may result from nuclear-related activities, operations or incidents; the storage, handling and disposal of radioactive materials; and the development, testing and use of energetics, including in propulsion systems, and unintended explosions or releases and (3) to failed launches. We may be subject to reputational harm and potential liabilities arising out of such incidents or hazardous operations, whether or not the cause was within our control, and insurance may not be reasonably available. Under some circumstances, the U.S. government and prime contractors may provide for certain indemnification and other protection, including pursuant to, or in connection with, Public Law 85-804, 10 U.S.C. 2354, the Price-Anderson Nuclear Industries Indemnity Act, the NASA Space Act, the Commercial Space Launch Act and the Terrorism Risk Insurance Reauthorization Act, for certain risks, but those protections may not be available or adequate.
Certain of our products, such as medium and large caliber ammunition and propulsion systems, involve the use, manufacture and/or handling of a variety of explosive and flammable materials. These activities have resulted and may result in incidents that cause workplace injuries and fatalities, the temporary shut down or other disruption of manufacturing, production delays, environmental harm and expense, fines and liabilities to third parties. We have safety and loss prevention programs, which provide for pre-construction reviews, along with safety audits of operations involving explosive materials, to attempt to mitigate some such incidents, as well as potentially insurance coverage and indemnification, but they may not be successful.
In addition, our customers may use or misuse our products and services in ways that can be unusually hazardous or risky, or in ways that are not intended, which may create potential liabilities for our company, as well as reputational harm.
If any of these risks were to materialize (e.g. if there was a nuclear incident, or an incident related to launch activities or the use of energetics or propulsion systems), and if insurance coverage or indemnification or other protection was not fully available, it could adversely affect our reputation and have a material adverse effect on our financial position, results of operations and/or cash flows.
We may be unable fully to exploit or adequately to protect intellectual property rights, which could materially affect our ability to compete, our reputation and our financial position, results of operations and/or cash flows.
To perform on our contracts and to win new business, we depend on our ability to develop, protect and exploit our intellectual property and also to access the intellectual property of others under reasonable terms. Increasing demands from our customers to access and obtain rights in our intellectual property, and positions taken by our suppliers and competitors challenge our ability to exploit, protect and access intellectual property.
We own many forms of intellectual property, including U.S. and foreign patents, trademarks, copyrights and trade secrets and we license or otherwise obtain access to various intellectual property rights of third parties. The U.S. government and certain foreign governments hold licenses or other rights to certain intellectual property that we develop in performance of government contracts, and at times seek to use or authorize others to use such intellectual property, including in competition with us and including where we do not believe they are entitled to do so. Governments continue to increase efforts to assert or obtain more extensive rights in intellectual property, which could reduce our ability to develop, protect and exploit certain of our intellectual property rights and to compete. Governments also decline at times to make intellectual property of others available to us under acceptable terms.
We rely significantly upon proprietary technology, information, processes and know-how. We typically seek to protect this information, including by entering into intellectual property agreements with our employees and other parties such as consultants, teammates and subcontractors. These agreements and other measures may not provide adequate protection for our trade secrets and other proprietary information. In the event of an infringement of such intellectual property rights, a breach of a confidentiality agreement, a misuse or theft of our intellectual property or
-22-


NORTHROP GRUMMAN CORPORATION

divulgence of proprietary information, we may not have adequate legal remedies. In addition, our trade secrets or other proprietary information may otherwise become known or be independently developed by competitors.
In some instances, our ability to win or perform contracts requires us to use third party intellectual property. This may require the government or our customer to provide rights to such third party intellectual property, or that we are able to negotiate directly with third parties to obtain necessary rights on reasonable terms. That may not be practicable.
Our intellectual property is subject to challenge, invalidation, misappropriation or circumvention by third parties. Our access to and use of intellectual property licensed or otherwise obtained from third parties is also subject to challenges. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention. Moreover, the laws concerning intellectual property rights vary among countries and the protection provided to our intellectual property by foreign laws and courts may not be favorable.
If we are unable adequately to exploit our intellectual property rights, to protect our intellectual property rights, to obtain rights to intellectual property of others, it could have a material adverse effect on our reputation, ability to compete for and perform on contracts, financial position, results of operations and/or cash flows.
Our future success depends, in part, on our ability to develop new products and new technologies, progress and benefit from digital transformation and maintain technologies, facilities and equipment to win new competitions and meet the needs of our customers.
Many of the markets in which we operate are characterized by rapidly changing technologies. The product, program and service needs of our customers evolve regularly. Our success depends upon our ability to develop technologically advanced, innovative and cost-effective products and services and market these products and services to our customers globally. Our ability to develop innovative and technologically advanced products depends on the talent of our workforce, continued funding for, and investment in, research and development projects, continued access to assured suppliers of important technologies and components and our ability to provide the people, technologies, facilities, equipment and financial capacity needed to develop and deliver those products and services with maximum efficiency.
To perform on our contracts and to win new business, we also depend increasingly on our ability to progress successfully on our digital transformation. It is increasingly necessary to meet evolving customer requirements, to differentiate our offerings, and to achieve efficiencies that we and our suppliers/partners successfully develop digital based solutions and transform our operations. While we are committing significant resources to these efforts, and are making good progress, our company and our suppliers/partners face various substantial challenges and we may not be fully successful with digital transformation.
Our customers increasingly require us to be agile and efficient, digitally enabled and able to harness integrated digital technologies and capabilities to deliver solutions with agility and affordability. If we are unable to continue to develop new products and technologies in a timely fashion, and progress successfully to effect digital solutions and transformation, or if we fail to achieve market acceptance more rapidly than our competitors, we may be unable to maintain our competitive position and our future success could be materially adversely affected. If we fail to maintain our competitive position, we could lose a significant amount of future business to our competitors, which also could have a material adverse effect on our ability to generate favorable financial results and maintain market share and on our financial position, results of operations and/or cash flows.
General and Other Risk Factors
Our insurance coverage, customer indemnifications or other liability protections may be unavailable or inadequate to cover all of our significant risks, which could adversely affect our profitability and overall financial position.
We endeavor to obtain insurance from financially solid, responsible, highly rated counterparties in established markets to cover significant risks and liabilities (including, for example, natural disasters, space launches and on-orbit operations, cyber security, hazardous operations, energetics and products liability). Not every risk or liability can be insured, and insurance coverage is not always reasonably available. The policy limits and terms of coverage reasonably obtainable may not be sufficient to cover actual losses or liabilities. Even if insurance coverage is available, we are not always able to obtain it at a price or on terms acceptable to us or without increasing exclusions. Disputes with insurance carriers over the availability of coverage, and the insolvency of one or more of our insurers has affected and may continue to affect the availability or timing of recovery, as well as our ability to obtain
-23-


NORTHROP GRUMMAN CORPORATION

insurance coverage at reasonable rates in the future. In some circumstances we may be entitled to certain legal protections or indemnifications from our customers through contractual provisions, laws or otherwise. However, these protections are not always available, are difficult to negotiate and obtain, are typically subject to certain terms or limitations, including the availability of funds, and may not be sufficient to cover our losses or liabilities. If insurance coverage, customer indemnifications and/or other legal protections are not available or are not sufficient to cover risks or losses, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
Pension and other postretirement benefit (OPB) obligations and related expenses and funding requirements may fluctuate significantly depending upon investment performance of plan assets, changes in actuarial assumptions, and legislative or other regulatory actions.
The company’s pension and OPB obligations and related expenses are dependent upon the investment performance of plan assets and various assumptions, including discount rates, mortality and the estimated long-term rates of return on plan assets. Changes in assumptions associated with our pension and OPB plans, investment performance of plan assets, and gains or losses associated with changes in valuation of marketable securities related to our non-qualified plans and other non-operating assets could have a material adverse effect on our financial position, results of operations and/or cash flows.
Funding requirements for our pension plans, including Pension Benefit Guaranty Corporation premiums, are subject to legislative and other government regulatory actions. In accordance with government regulations, pension plan cost recoveries under our U.S. government contracts may occur in different periods from when they are recognized for financial statement purposes or when pension funding is made. These timing differences, as well as government challenges to pension and OPB cost recovery, could have a material adverse effect on our financial position, results of operations and/or cash flows.
Business investments and/or recorded goodwill and other long-lived assets may become impaired, resulting in substantial losses and write-downs that would reduce our operating income.
Goodwill accounts for approximately 40 percent of our total assets as of December 31, 2022. Although we currently have excess fair value of our reporting units over their respective carrying values, changes in business conditions or in the market-based inputs used in our goodwill impairment test, could result in significant write-offs of goodwill or other long-lived assets, which could have a material adverse effect on our financial condition and/or results of operations.
Item 1B. Unresolved Staff Comments
None.
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Annual Report on Form 10-K and the information we are incorporating by reference contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “anticipate,” “intend,” “may,” “could,” “should,” “plan,” “project,” “forecast,” “believe,” “estimate,” “guidance,” “outlook,” “trends,” “goals” and similar expressions generally identify these forward-looking statements. Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or cash flows. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified under “Risk Factors” and other important factors disclosed in this report and from time to time in our other filings with the SEC. These risks and uncertainties are amplified by the global macroeconomic, health, security and political environments, including inflationary pressures, labor and supply chain challenges and the COVID-19 pandemic, which have caused and will continue to cause significant challenges, instability and uncertainty. They include:
Industry and Economic Risks
our dependence on the U.S. government for a substantial portion of our business
-24-


NORTHROP GRUMMAN CORPORATION


                        
significant delays or reductions in appropriations and/or for our programs, and U.S. government funding and program support more broadly, including as a result of a prolonged continuing resolution and/or government shutdown, and/or related to hostilities and other global events
significant delays or reductions in payments as a result of or related to a breach of the debt ceiling
the use of estimates when accounting for our contracts and the effect of contract cost growth and our efforts to recover or offset such costs and/or changes in estimated contract costs and revenues, including as a result of inflationary pressures, labor shortages, supply chain challenges and/or other macroeconomic factors, and risks related to management’s judgments and assumptions in estimating and/or projecting contract revenue and performance which may be inaccurate
continued pressures from macroeconomic trends, including inflation, supply chain delays and disruptions, and labor challenges, including on costs, schedules, performance and ability to meet expectations
increased competition within our markets and bid protests
Legal and Regulatory Risks
investigations, claims, disputes, enforcement actions, litigation (including criminal, civil and administrative) and/or other legal proceedings
the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate, including the impact on our reputation and our ability to do business
changes in procurement and other laws, SEC, DoD and other rules and regulations, contract terms and practices applicable to our industry, findings by the U.S. government as to our compliance with such requirements, more aggressive enforcement of such requirements and changes in our customers’ business practices globally
environmental matters, including unforeseen environmental costs and government and third party claims
unanticipated changes in our tax provisions or exposure to additional tax liabilities
Business and Operational Risks
impacts related to health epidemics, pandemics, including the COVID-19 pandemic, such as labor, supply chain or financial, schedule or cost impacts (without corresponding recovery), among other impacts
cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners, and changes in related regulations
our ability to attract and retain a qualified, talented and diverse workforce with the necessary security clearances to meet our performance obligations
the performance and viability of our subcontractors and suppliers and the availability and pricing of raw materials and components, particularly with inflationary pressures, increased costs, shortages in labor and financial resources, supply chain disruptions, and extended material lead times
environmental, social and governance matters, including especially climate change, their impacts on our company, our operations and our stakeholders (employees, suppliers, customers, shareholders and regulators), and changes in laws, regulations and priorities related to these issues
our exposure to additional risks as a result of our international business, including risks related to global security, geopolitical and economic factors, misconduct, suppliers, laws and regulations
our ability to meet performance obligations under our contracts, including obligations that require innovative design capabilities, are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control
natural disasters
products and services we provide related to hazardous and high risk operations, including the production and use of such products, which subject us to various environmental, regulatory, financial, reputational and other risks
our ability appropriately to exploit and/or protect intellectual property rights
our ability to develop new products and technologies, progress digital transformation, and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers
-25-


NORTHROP GRUMMAN CORPORATION


                        
General and Other Risk Factors
the adequacy and availability of, and ability to obtain, insurance coverage, customer indemnifications or other liability protections
the future investment performance of plan assets, gains or losses associated with changes in valuation of marketable securities related to our non-qualified benefit plans, changes in actuarial assumptions associated with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our pension and postretirement benefit obligations
changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets, and other potential future liabilities
We urge you to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this report is first filed or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Item 2. Properties
At December 31, 2022, we had approximately 52 million square feet of floor space at 473 separate locations, primarily in the U.S., for manufacturing, warehousing, research and testing, administration and various other uses. We leased to third parties approximately 255,000 square feet of our owned and leased facilities. The company’s major operations are at the following locations:
Aeronautics Systems
El Segundo, Mojave, Palmdale, Redondo Beach and San Diego, CA; Melbourne and St. Augustine, FL; Iuka and Moss Point, MS; Beavercreek, OH; Oklahoma City, OK; and Clearfield, UT.
Defense Systems
Huntsville, AL; Mesa and Sierra Vista, AZ; Los Angeles, CA; Warner Robins, GA; Lake Charles, LA; Elkton, MD; Elk River and Plymouth, MN; Dulles, McLean and Radford, VA; and Keyser, WV. Locations outside the U.S. include Australia.
Mission Systems
McClellan, San Diego, Sunnyvale and Woodland Hills, CA; Apopka, FL; Rolling Meadows, IL; Annapolis, Annapolis Junction, Elkridge, Halethorpe, Linthicum and Sykesville, MD; Bethpage and Williamsville, NY; Cincinnati, OH; Salt Lake City, UT; and Chantilly, Charlottesville and Fairfax, VA. Locations outside the U.S. include France, Germany, Italy and the United Kingdom.
Space Systems
Huntsville, AL; Chandler and Gilbert, AZ; Azusa, Carson, Los Angeles, Manhattan Beach, Oxnard, Redondo Beach and San Diego, CA; Aurora and Colorado Springs, CO; Beltsville, MD; Devens, MA; Brigham City, Clearfield, Magna, Ogden, Roy and Tremonton, UT; and Dulles and Sterling, VA.
Corporate
Falls Church, VA
The following is a summary of our floor space at December 31, 2022:
Square feet (in thousands)OwnedLeasedU.S. Government
Owned/Leased
Total
Aeronautics Systems3,170 6,427 3,302 12,899 
Defense Systems1,367 3,397 2,285 7,049 
Mission Systems7,995 4,331 — 12,326 
Space Systems9,350 8,659 548 18,557 
Corporate372 305 — 677 
Total22,254 23,119 6,135 51,508 
We maintain our properties in good operating condition and believe the productive capacity of our properties is adequate to meet current contractual requirements and those for the foreseeable future.
-26-


NORTHROP GRUMMAN CORPORATION


                        
Item 3. Legal Proceedings
We have provided information about certain legal proceedings in which we are involved in Notes 11 and 12 to the consolidated financial statements.
We are a party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. These types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms include judgments or convictions and consent or other voluntary decrees or agreements); compensatory, treble or other damages; non-monetary relief or actions; or other liabilities. Government regulations provide that certain allegations against a contractor may lead to suspension or debarment from future government contracts or suspension of export privileges for the company or one or more of its components. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. For additional information on pending matters, please see Notes 11 and 12 to the consolidated financial statements, and for further information on the risks we face from existing and future investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, please see “Risk Factors.”
Consistent with SEC Regulation S-K Item 103, we have elected to disclose those environmental proceedings with a governmental entity as a party where the company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more.
Item 4. Mine Safety Disclosures
No information is required in response to this item.
-27-


NORTHROP GRUMMAN CORPORATION


                        
PART II
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 153,157,924 shares and 156,284,423 shares were issued and outstanding as of December 31, 2022 and 2021, respectively.
PREFERRED STOCK
We have 10,000,000 shares authorized at a $1 par value per share, of which no shares were issued and outstanding as of December 31, 2022 and 2021.
MARKET INFORMATION
Our common stock is listed on the New York Stock Exchange and trades under the symbol NOC.
HOLDERS
As of January 23, 2023, there were 19,192 common shareholders of record.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The table below summarizes our repurchases of common stock during the three months ended December 31, 2022:
PeriodTotal Number
of Shares
Purchased
Average Price
Paid per
Share(1)
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
under the
Plans or Programs
($ in millions)
October 1, 2022 - October 28, 2022235,900 $503.31 235,900 $3,000 
October 29, 2022 - November 25, 2022485,309 519.87 485,309 2,748 
November 26, 2022 - December 31, 2022215,725 532.61 215,725 2,633 
Total936,934 $518.63 936,934 $2,633 
(1)Includes commissions paid.
Share repurchases take place from time to time, subject to market and regulatory conditions and management’s discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs.
See Note 3 to the consolidated financial statements for further information on our share repurchase programs.
-28-


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
noc-20221231_g1.jpg

Assumes $100 invested at the close of business on December 31, 2017, in Northrop Grumman Corporation common stock, the S&P 500 Index and the S&P A&D Index.
The cumulative total return assumes reinvestment of dividends.
The S&P A&D Index is comprised of The Boeing Company, General Dynamics Corporation, Howmet Aerospace Inc., Huntington Ingalls Industries Inc., L3Harris Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Technologies Corporation, Textron, Inc., and TransDigm Group Incorporated.
The total return is weighted according to market capitalization of each company at the beginning of each year.
This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.
Item 6. [Reserved]
-29-


NORTHROP GRUMMAN CORPORATION


                        
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following discussion should be read along with the financial statements included in this Form 10-K, as well as Part II, “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2021 (“2021 Annual Report on Form 10-K”).
Global Security Environment
The U.S. and its allies continue to face a global security environment of heightened tensions and instability, threats from state and non-state actors, including in particular major global powers, as well as terrorist organizations, increasing nuclear tensions, diverse regional security concerns and political instability. The market for defense products, services and solutions globally is driven by these complex and evolving security challenges, considered in the broader context of political and socioeconomic circumstances and priorities. Our operations and financial performance, as well as demand for our products and services, are impacted by global events, including violence and unrest. The same is true for our suppliers and other business partners.
The conflict in Ukraine has increased global tensions and instability, highlighted threats and increased global demand, as well as further disrupted global supply chains and added costs. We have experienced a modest increase in demand for certain of our goods and services directly and indirectly related to the conflict in the Ukraine. We also have experienced a slight disruption to some of our programs and supply chain, including unanticipated cost growth, as a result of the conflict in Ukraine and economic sanctions. However, we do not have sizable business dealings in Russia or Ukraine, and do not anticipate significant adverse impacts from the ongoing conflict.
More broadly, the conflict in Ukraine and threats elsewhere have heightened tensions and highlighted security requirements globally, especially in Europe and the Pacific region, as well as the U.S. We have started to see, and expect to continue to see, increased demand for defense products and services from allies and partner nations, particularly in those areas. We are actively exploring both opportunities and risks.
For further information on the global security environment, including the risks related thereto, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Liquidity and Capital Resources,” “Quantitative and Qualitative Disclosures About Market Risks” and “Risk Factors.”
Global Health and Economic Environment
COVID-19
Since at least March 2020, when it was first characterized as a global pandemic, COVID-19 has dramatically impacted and continues to impact the global health and economic environments, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortfalls, supply chain challenges, regulatory challenges, inflationary pressures and market volatility. We discussed in some detail in our Annual Reports on Form 10-K for the fiscal years ended December 31, 2020 and 2021, and subsequent SEC filings, the pandemic, its impacts and risks, and actions taken up to the time of each filing. In this Form 10-K, we provide a further update.
In 2022, the pandemic continued to have significant adverse impacts on the global health and macroeconomic environments, particularly with the spread of new variants and other viruses and illnesses, ongoing disruption of the labor force and supply chains, continued inflation, and market volatility and uncertainties. We expect such adverse impacts to continue. However, with extraordinary efforts by our employees, our governments and customers, our partners and our company, direct COVID-19-related impacts on our business generally declined in 2022. While we cannot predict the future course of the pandemic or its consequences, we are not currently assuming significant additional direct COVID-19 related impacts on our business.
The company continues to work to monitor and address the pandemic, including its impact on our company, our employees, our customers, our suppliers and our communities. Our goals have been, and continue to be, to keep our employees safe, to lessen the potential adverse impacts, both health and economic, and to continue to position the company for long-term success. Like the communities in which we operate, our actions have varied, and will continue to vary, depending on the spread of COVID-19 and other illnesses, applicable government requirements, and the needs of our stakeholders.
Global Economic Environment
In part as a result of the COVID-19 pandemic, the global economic environment has experienced, and continues to experience, extraordinary challenges, including high rates of inflation and inflationary pressures; widespread delays and disruptions in supply chains; workforce challenges, including labor shortages (especially in critical skill areas); and market volatility. These macroeconomic factors have contributed, and we expect will continue to contribute, to increased costs, delays and other performance challenges, as well as increased competing demands for limited
-30-


NORTHROP GRUMMAN CORPORATION


                        
resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers. For example, as discussed in greater detail in Note 12 to the consolidated financial statements, our latest estimated cost to complete the low-rate initial production (LRIP) phase of the B-21 program reflects updated estimates for adverse impacts from these macroeconomic factors, as well as potential opportunities to address them.
We continue to work hard to mitigate some of the challenges caused by the current macroeconomic environment on our business, including by taking steps to support our suppliers and small businesses and enhancing our workforce through extensive hiring, development and retention efforts. However, the broader macroeconomic environment, including inflationary pressures and supply chain challenges, continued adversely to affect the company’s results for the year ended December 31, 2022. We cannot clearly predict how long these macroeconomic challenges will continue, or how they will change over time, or what additional resources will be available, but we expect to see this challenging macroeconomic environment continue adversely to impact the global economy, our customers, our industry and our company in 2023.
In addition, increased interest rates, raising the cost of borrowing for governments, could further impact government spending priorities (in the U.S. and allied countries, in particular), including their demand for defense products. Economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements, could also further impact the global market for defense products, services and solutions.
U.S. Political, Budget and Regulatory Environment
On March 15, 2022, the President signed into law the Consolidated Appropriations Act for FY 2022, which provided full-year funding for federal agencies, including $782 billion for national defense. This represented an approximately $42 billion or 6 percent increase above the budget for FY 2021, approximately $30 billion more than the Administration had initially requested. The Pentagon’s portion of the overall national defense budget for FY 2022 was $743 billion.
On March 28, 2022, the President proposed his budget for FY 2023, which included $813 billion for national defense programs, approximately $31 billion or 4 percent higher than what was appropriated in FY 2022. The Pentagon’s portion of the overall requested national defense budget was $773 billion.
On December 23, 2022, the President signed the National Defense Authorization Act (NDAA) for FY 2023, which supports approximately $858 billion in FY 2023 funding for national defense, $817 billion of which is for the DoD. In addition, the FY 2023 NDAA grants DoD discretionary authority under limited circumstances to provide extraordinary relief to contractors to address certain inflationary impacts. Although discussions have occurred, DoD has not yet issued written guidance for how it intends to exercise this authority.
On December 29, 2022, the President signed an Omnibus appropriations act for FY 2023 that provided $858 billion for national defense programs, approximately $45 billion more than the Administration initially requested for FY 2023 and approximately $76 billion or 10 percent higher than what was appropriated in FY 2022. The Pentagon’s portion of the overall national defense budget for FY 2023 is $817 billion. It includes up to $1 billion for extraordinary relief in FY 2023.
In addition to the U.S. national security spending detailed above, the U.S. has pledged over $100 billion in security assistance to address the ongoing conflict in Ukraine across FY 2022 and FY 2023, including approximately $50 billion in DoD spending. Assistance includes transfers of weapons systems from U.S. inventories, orders for production of additional weapons systems, both to backfill U.S. stockpiles and for Ukraine directly, and assistance from U.S. capabilities.
It is difficult to predict the specific course of future defense budgets. Current and future requirements related to the conflict in Ukraine, threats in the Pacific regions and other security priorities, as well as global inflation, the national debt, the costs of the pandemic and other domestic priorities, among other things, in the U.S. and globally, will continue to impact our customers’ budgets and priorities, and our industry. Current tensions within Congress and the wider U.S. political environment may also impact defense budgets and government spending more broadly.
We believe the current global security environment highlights the significant national security threats to our nation and our allies, and the need for strong deterrence and a robust defense capability. We believe that our capabilities, particularly in space, C4ISR, missile defense, battle management, advanced weapons, survivable aircraft and mission systems should help our customers in the U.S. and globally defend against current and future threats and, as a result, continue to allow for long-term profitable business growth.
The Bipartisan Budget Act of 2019 suspended the debt ceiling through July 31, 2021. In October 2021, the statutory debt limit was increased by $480 billion and, in December 2021, it was further increased by $2.5 trillion, which is
-31-


NORTHROP GRUMMAN CORPORATION


                        
currently expected to allow the Treasury Department to finance the government into 2023. In January 2023, the debt ceiling was reached and the Treasury Department began taking “extraordinary measures” to finance the government and avoid a breach of the debt ceiling. We expect statutory action will be needed in 2023 to increase or suspend the debt ceiling.
During the third quarter of 2022, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022, which includes an advanced manufacturing investment tax credit, among other provisions, and the Inflation Reduction Act of 2022, which includes implementation of a new alternative minimum tax and a one percent excise tax on share repurchases, among other provisions, were signed into law. We expect the excise tax on share repurchases to impact us beginning in 2023; however, we do not expect this tax or any other provision of this legislation to have a material impact on our results of operations or cash flows.
More broadly, we have seen, and expect to continue to see, an accelerated pace of new rulemakings, new and expanded uses of existing authorities, changing legal rulings and landscapes, and aggressive enforcement actions. These changes and the accelerated pace of change, not only impose additional obligations and risk, but also create further uncertainty regarding our operating environment.
The political environment, federal budget, debt ceiling and regulatory environment are expected to continue to be the subject of considerable debate, especially in light of the ongoing conflict in Ukraine, the inflationary environment and political tensions. The results of those debates could have material impacts on defense spending broadly and the company’s programs in particular. We anticipate that the broader macroeconomic environment, with ongoing inflationary pressures, labor challenges, and supply chain disruption, among other considerations, will continue to play a significant role in the outcome of these debates and, in turn, on our industry and company.
For further information on the risks we face from the current political and economic environment, see “Risk Factors.”
Disposition of IT and Mission Support Services Business
Effective January 30, 2021 (the “Divestiture date”), we completed the sale of our IT and mission support services business (the “IT services divestiture”) for $3.4 billion in cash and recorded a pre-tax gain of $2.0 billion. The IT and mission support services business was comprised of the majority of the former IS&S division of Defense Systems (excluding the Vinnell Arabia business); select cyber, intelligence and missions support programs, which were part of the former CIMS division of Mission Systems; and the former Space Technical Services business unit of Space Systems. Operating results include sales and operating income for the IT and mission support services business prior to the Divestiture date; therefore, no sales and operating income were recognized for this business during the year ended December 31, 2022.
The company recorded pre-tax profit of the IT and mission support services business of $20 million and $247 million for the years ended December 31, 2021 and 2020, respectively.
Operating Performance Assessment and Reporting
We manage and assess our business based on our performance on contracts and programs (typically larger contracts or two or more closely-related contracts). We recognize sales from our portfolio of long-term contracts as control is transferred to the customer, primarily over time on a cost-to-cost basis (cost incurred relative to costs estimated at completion). As a result, sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts. Due to the applicable FAR and CAS requirements that govern our U.S. government business, most types of costs are allocable to U.S. government contracts. As such, we do not focus on individual cost groupings (such as manufacturing, engineering and design labor, subcontractor, material, overhead and general and administrative (G&A) costs), as much as we do on total contract cost, which is the key driver of our sales and operating income.
In evaluating our operating performance, we primarily focus on changes in sales and operating margin rates. Where applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between products and services. Changes in sales are generally described in terms of volume, while changes in operating margin rates are generally described in terms of performance and/or contract mix. For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume-related changes in profitability, which are typically described in terms of changes in net EAC adjustments. Contract mix generally refers to changes in the ratio of contract type and/or life cycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).
-32-


NORTHROP GRUMMAN CORPORATION


                        
CONSOLIDATED OPERATING RESULTS
For purposes of the operating results discussion below, we assess our performance using certain financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”). Organic sales is defined as total sales excluding sales attributable to the company's IT services divestiture. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the company’s underlying sales growth as well as in providing an understanding of our ongoing business and future sales trends by presenting the company’s sales before the impact of divestiture activity.
Transaction-adjusted net earnings and transaction-adjusted earnings per share (transaction-adjusted EPS) exclude impacts related to the IT services divestiture, including the gain on sale of the business, associated federal and state income tax expenses, transaction costs, and the make-whole premium for early debt redemption. They also exclude the impact of mark-to-market pension and OPB (“MTM”) benefit/(expense) and related tax impacts, which are generally only recognized during the fourth quarter. These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the company’s underlying financial performance by presenting the company’s operating results before the non-operational impact of divestiture activity and pension and OPB actuarial gains and losses. These measures are also consistent with how management views the underlying performance of the business as the impact of the IT services divestiture and MTM accounting are not considered in management’s assessment of the company’s operating performance or in its determination of incentive compensation awards.
We reconcile these non-GAAP financial measures to their most directly comparable GAAP financial measures below. These non-GAAP measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.
Selected financial highlights are presented in the table below:
 Year Ended December 31% Change in
$ in millions, except per share amounts20222021202020222021
Sales$36,602 $35,667 $36,799 3 %(3)%
Operating costs and expenses33,001 31,996 32,734 3 %(2)%
Operating costs and expenses as a % of sales90.2 %89.7 %89.0 %
Gain on sale of business 1,980 — NMNM
Operating income3,601 5,651 4,065 (36)%39 %
Operating margin rate9.8 %15.8 %11.0 %
Mark-to-market pension and OPB benefit (expense) 1,232 2,355 (1,034)(48)%(328)%
Federal and foreign income tax expense940 1,933 539 (51)%259 %
Effective income tax rate16.1 %21.6 %14.5 %
Net earnings4,896 7,005 3,189 (30)%120 %
Diluted earnings per share$31.47 $43.54 $19.03 (28)%129 %
-33-


NORTHROP GRUMMAN CORPORATION


                        
Sales
The tables below reconcile sales to organic sales:
Year Ended December 31
20222021
$ in millionsSalesIT services salesOrganic
sales
SalesIT services salesOrganic
sales
Organic sales % change
Aeronautics Systems$10,531 $ $10,531 $11,259 $— $11,259 (6)%
Defense Systems5,579  5,579 5,776 (106)5,670 (2)%
Mission Systems10,396  10,396 10,134 (42)10,092 3 %
Space Systems12,275  12,275 10,608 (16)10,592 16 %
Intersegment eliminations(2,179) (2,179)(2,110)(2,108)
Total$36,602 $ $36,602 $35,667 $(162)$35,505 3 %
Year Ended December 31
20212020
$ in millionsSalesIT services salesOrganic
sales
SalesIT services salesOrganic
sales
Organic sales % change
Aeronautics Systems$11,259 $ $11,259 $12,169 $— $12,169 (7)%
Defense Systems5,776 (106)5,670 7,543 (1,637)5,906 (4)%
Mission Systems10,134 (42)10,092 10,080 (527)9,553 6 %
Space Systems10,608 (16)10,592 8,744 (182)8,562 24 %
Intersegment eliminations(2,110)2 (2,108)(1,737)17 (1,720)
Total$35,667 $(162)$35,505 $36,799 $(2,329)$34,470 3 %
2022 sales increased $935 million and 2022 organic sales increased $1.1 billion, or 3 percent, due to higher sales at Space Systems and Mission Systems, partially offset by lower sales at Aeronautics Systems and Defense Systems. 2022 sales reflect strong demand, the timing of material receipts and improving trends in labor availability during the second half of the year.
See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 16 to the consolidated financial statements for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments.
Operating Income and Margin Rate
2022 operating income decreased $2.1 billion, or 36 percent, primarily due to a $2.0 billion pre-tax gain on sale and $192 million of unallocated corporate expenses recognized in the prior year associated with the IT services divestiture. Operating income also decreased due to a $330 million reduction in the FAS/CAS operating adjustment, which more than offset higher segment operating income and lower non-divestiture-related unallocated corporate expense. 2022 operating margin rate declined to 9.8 percent from 15.8 percent reflecting the items above.
2022 G&A costs as a percentage of sales increased to 10.6 percent from 10.1 percent, primarily due to an increase in investments for future business opportunities.
For further information regarding product and service operating costs and expenses, see “Product and Service Analysis” below.
-34-


NORTHROP GRUMMAN CORPORATION


                        
Mark-to-Market Pension and OPB Benefit/Expense
The primary components of pre-tax MTM benefit (expense) are presented in the table below:
 Year Ended December 31
$ in millions202220212020
Actuarial gains (losses) on projected benefit obligation$9,662 $1,163 $(3,570)
Actuarial (losses) gains on plan assets (8,430)1,192 2,536 
MTM benefit (expense)
$1,232 $2,355 $(1,034)
2022 MTM benefit (expense) of $1.2 billion was primarily driven by a 256 basis point increase in the discount rate from year end 2021, partially offset by losses of 15.4 percent on plan assets compared to our 7.5 percent asset return assumption.
Federal and Foreign Income Taxes
The 2022 effective tax rate (ETR) decreased to 16.1 percent from 21.6 percent primarily due to an $86 million benefit resulting from the resolution of the IRS examination of certain legacy OATK tax returns, as well as additional federal income taxes in the prior year resulting from the IT services divestiture. The company’s 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points; however, the 2021 MTM benefit did not significantly impact the 2021 ETR. See Note 7 to the consolidated financial statements for additional information.
Net Earnings
The table below reconciles net earnings to transaction-adjusted net earnings:
 Year Ended December 31% Change in
$ in millions20222021202020222021
Net earnings$4,896 $7,005 $3,189 (30)%120 %
MTM (benefit) expense (1,232)(2,355)1,034 (48)%(328)%
MTM-related deferred state tax expense (benefit)(1)
65 124 (54)(48)%(330)%
Federal tax expense (benefit) of items above(2)
245 469 (206)(48)%(328)%
MTM adjustment, net of tax(922)(1,762)774 (48)%(328)%
Gain on sale of business (1,980)— NMNM
State tax impact(3)
 160 — NMNM
Transaction costs 32 — NMNM
Make-whole premium 54 — NMNM
Federal tax impact of items above(4)
 614 — NMNM
Transaction adjustment, net of tax (1,120)— NMNM
Transaction-adjusted net earnings$3,974 $4,123 $3,963 (4)%%
(1)The deferred state tax impact in each period was calculated using the company’s blended state tax rate of 5.25 percent and is included in Unallocated corporate expense within operating income.
(2)The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM benefit (expense) and applying the 21 percent federal statutory rate.
(3)The state tax impact includes $62 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.
(4)The federal tax impact was calculated by applying the 21 percent federal statutory rate to the adjustment items and also includes $250 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.
2022 net earnings decreased $2.1 billion, or 30 percent, principally due to a $1.1 billion decrease associated with the IT services divestiture, net of tax, and an $840 million decrease in our MTM benefit (expense), net of tax. Transaction-adjusted net earnings decreased $149 million, or 4 percent, primarily due to a $330 million reduction in the FAS/CAS operating adjustment and $97 million of lower returns on marketable securities, partially offset by lower income tax and interest expense and higher segment operating income.
-35-


NORTHROP GRUMMAN CORPORATION


                        
Diluted Earnings Per Share
The table below reconciles diluted earnings per share to transaction-adjusted EPS:
 Year Ended December 31% Change in
20222021202020222021
Diluted earnings per share$31.47 $43.54 $19.03 (28)%129 %
MTM (benefit) expense per share(7.92)(14.64)6.17 (46)%(337)%
MTM-related deferred state tax expense (benefit) per share(1)
0.42 0.77 (0.32)(45)%(341)%
Federal tax expense (benefit) of items above per share(2)
1.57 2.92 (1.23)(46)%(337)%
MTM adjustment per share, net of tax(5.93)(10.95)4.62 (46)%(337)%
Gain on sale of business per share (12.31)— NMNM
State tax impact(3) per share
 0.99 — NMNM
Transaction costs per share 0.20 — NMNM
Make-whole premium per share 0.34 — NMNM
Federal tax impact of items above(4) per share
 3.82 — NMNM
Transaction adjustment per share, net of tax (6.96)— NMNM
Transaction-adjusted EPS$25.54 $25.63 $23.65  %%
(1)The deferred state tax impact in each period was calculated using the company’s blended state tax rate of 5.25 percent and is included in Unallocated corporate expense within operating income.
(2)The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM benefit (expense) and applying the 21 percent federal statutory rate.
(3)The state tax impact includes $62 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.
(4)The federal tax impact was calculated by applying the 21 percent federal statutory rate to the adjustment items and also includes $250 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.
2022 diluted earnings per share decreased $12.07, or 28 percent, principally due to a $6.96 decrease associated with the IT services divestiture, net of tax, and a $5.02 decrease in our 2022 MTM benefit, net of tax. Transaction-adjusted EPS was comparable with the prior year and reflects a 4 percent reduction in transaction-adjusted net earnings and a 3 percent decrease in weighted-average diluted shares outstanding.
SEGMENT OPERATING RESULTS
Basis of Presentation
The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. For a more complete description of each segment’s products and services, see “Business.”
We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities:
Aeronautics SystemsDefense SystemsMission SystemsSpace Systems
Autonomous SystemsBattle Management & Missile SystemsAirborne Multifunction SensorsLaunch & Strategic Missiles
Manned AircraftMission ReadinessMaritime/Land Systems & SensorsSpace
Navigation, Targeting & Survivability
Networked Information Solutions
This section discusses segment sales, operating income and operating margin rate. A reconciliation of segment operating income to total operating income is provided below.
-36-


NORTHROP GRUMMAN CORPORATION


                        
Segment Operating Income and Margin Rate
Segment operating income, as reconciled in the table below, and segment operating margin rate (segment operating income divided by sales) are non-GAAP measures that reflect the combined operating income of our four segments less the operating income associated with intersegment sales. Segment operating income includes pension expense allocated to our sectors under FAR and CAS and excludes FAS pension service expense and unallocated corporate items (certain corporate-level expenses, which are not considered allowable or allocable under applicable FAR and CAS requirements, and costs not considered part of management’s evaluation of segment operating performance). These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the financial performance and operational trends of our sectors. These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.
Year Ended December 31% Change in
$ in millions20222021202020222021
Operating income$3,601 $5,651 $4,065 (36)%39 %
Operating margin rate9.8 %15.8 %11.0 %
Reconciliation to segment operating income:
CAS pension expense(167)(544)(827)(69)%(34)%
FAS pension service expense367 414 409 (11)%%
FAS/CAS operating adjustment200 (130)(418)(254)%(69)%
Gain on sale of business (1,980)— NMNM
IT services divestiture – unallowable state taxes and transaction costs 192 — NMNM
Intangible asset amortization and PP&E step-up depreciation242 254 322 (5)%(21)%
MTM-related deferred state tax expense (benefit)(1)
65 124 (54)(48)%(330)%
Other unallocated corporate expense145 106 273 37 %(61)%
Unallocated corporate expense (income)452 (1,304)541 (135)%(341)%
Segment operating income$4,253 $4,217 $4,188 1 %%
Segment operating margin rate11.6 %11.8 %11.4 %
(1)Represents the deferred state tax benefit associated with MTM benefit (expense), which is recorded in Unallocated corporate expense consistent with other changes in deferred state taxes.
Segment Operating Income and Margin Rate
2022 segment operating income increased $36 million, or 1 percent, due to higher operating income at Mission Systems, Space Systems and Aeronautics Systems, partially offset by lower operating income at Defense Systems due, in part, to the impact of the IT services divestiture. 2021 segment operating income included $20 million from the IT services business, as well as a benefit of approximately $100 million due to the impact of lower overhead rates on the company’s fixed price contracts. Segment operating margin rate decreased to 11.6 percent from 11.8 percent principally due to lower net EAC adjustments due, in part, to macroeconomic impacts, including inflationary pressures and supply chain challenges.
FAS/CAS Operating Adjustment
The decrease in our 2022 FAS/CAS operating adjustment is due to lower CAS pension expense resulting from favorable plan asset returns in 2021 and changes in certain CAS actuarial assumptions as of December 31, 2021.
Unallocated Corporate Expense (Income)
The change in 2022 unallocated corporate expense (income) is primarily due to the prior year $2.0 billion pre-tax gain on sale and $192 million of unallowable state taxes and transaction costs associated with the IT services divestiture.
-37-


NORTHROP GRUMMAN CORPORATION


                        
Net Estimate-At-Completion (EAC) Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below:
Year Ended December 31
$ in millions202220212020
Favorable EAC adjustments$1,337 $1,242 $1,082 
Unfavorable EAC adjustments(977)(715)(616)
Net EAC adjustments$360 $   527 $   466 
Net EAC adjustments by segment are presented in the table below:
Year Ended December 31
$ in millions202220212020
Aeronautics Systems$174 $25 $77 
Defense Systems111 113 148 
Mission Systems138 263 216 
Space Systems(38)134 33 
Eliminations(25)(8)(8)
Net EAC adjustments$360 $527 $466 
For purposes of the discussion in the remainder of this Segment Operating Results section, references to operating income and operating margin rate reflect segment operating income and segment operating margin rate, respectively.
AERONAUTICS SYSTEMS
 Year Ended December 31% Change in
$ in millions20222021202020222021
Sales$10,531 $11,259 $12,169 (6)%(7)%
Operating income1,116 1,093 1,206 2 %(9)%
Operating margin rate10.6 %9.7 %9.9 %
Sales
2022 sales decreased $728 million, or 6 percent, due to lower volume in both Manned Aircraft and Autonomous Systems, including restricted programs, a $180 million decrease on the Global Hawk program, a $159 million decrease on the E-2 program and a $119 million decrease on the JSTARS program as it nears completion.
Operating Income
2022 operating income increased $23 million, or 2 percent, due to a higher operating margin rate, partially offset by lower sales. 2022 operating margin rate increased to 10.6 percent from 9.7 percent primarily due to higher net favorable EAC adjustments and a $38 million gain on a property sale. Higher net favorable EAC adjustments reflect $133 million of positive adjustments on the engineering, manufacturing and development phase of the B-21 program, partially offset by lower net EAC adjustments associated with other restricted work, as well as $135 million of unfavorable EAC adjustments on F-35 in the prior year. The prior year operating margin rate also reflects a $21 million benefit associated with favorable overhead rate performance.
-38-


NORTHROP GRUMMAN CORPORATION


                        
DEFENSE SYSTEMS
 Year Ended December 31% Change in
$ in millions20222021202020222021
Sales$5,579 $5,776 $7,543 (3)%(23)%
Operating income664 696 846 (5)%(18)%
Operating margin rate11.9 %12.0 %11.2 %
Sales
2022 sales decreased $197 million, or 3 percent, due, in part, to a $106 million reduction in sales related to the IT services divestiture. 2022 organic sales decreased $91 million, or 2 percent, principally due to a $154 million decrease from lower scope on an international training program, completion of a Joint Services support program and wind-down of the UKAWACS and JSTARS programs, partially offset by a $144 million increase from ramp-up on the Integrated Air and Missile Defense Battle Command System (IBCS) program, as well as higher volume on the Special Ammunition and Weapon Systems (SAWS) and NATO Alliance Ground Surveillance In-Service Support (NATO AGS ISS) programs.
Operating Income
2022 operating income decreased $32 million, or 5 percent, due, in part, to a $14 million reduction in operating income related to the IT services divestiture, as well as lower sales. Operating margin rate was comparable with the prior year.
MISSION SYSTEMS
 Year Ended December 31% Change in
$ in millions20222021202020222021
Sales$10,396 $10,134 $10,080 3 %%
Operating income1,618 1,579 1,459 2 %%
Operating margin rate15.6 %15.6 %14.5 %
Sales
2022 sales increased $262 million, or 3 percent, and includes a $42 million reduction in sales related to the IT services divestiture. 2022 organic sales increased $304 million, or 3 percent, primarily due to higher restricted sales in the Networked Information Solutions business area, $107 million of higher volume on airborne radar programs and a $107 million increase on the Surface Electronic Warfare Improvement Program (SEWIP). These increases were partially offset by a $231 million decrease on Navigation, Targeting and Survivability programs and a $118 million decrease on the Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW) program.
Operating Income
2022 operating income increased $39 million, or 2 percent, due to higher sales. Operating margin rate was comparable with the prior year and reflects a $33 million benefit recognized in connection with a contract-related legal matter, partially offset by the previously described overhead rate benefit to fixed price contracts in the prior year.
-39-


NORTHROP GRUMMAN CORPORATION


                        
SPACE SYSTEMS
 Year Ended December 31% Change in
$ in millions20222021202020222021
Sales$12,275 $10,608 $8,744 16 %21 %
Operating income1,158 1,121 893 3 %26 %
Operating margin rate9.4 %10.6 %10.2 %
Sales
2022 sales and organic sales increased $1.7 billion, or 16 percent, due to higher sales in both business areas. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, including a $454 million increase on the Ground Based Strategic Deterrent (GBSD) program and a $449 million increase on the Next Generation Interceptor (NGI) program, as well as higher volume on the GEM63 program in support of Amazon’s Project Kuiper. Sales in the Space business area were driven by a $320 million increase due to ramp-up on the Space Development Agency (SDA) Tranche 1 Transport and Tracking Layer programs awarded earlier this year, higher volume on restricted programs and a $134 million increase in sales on the Commercial Resupply Services (CRS) program, partial