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Item 1. Business

2023-01-26 compared with 2022-01-27 · 78 added, 72 removed, 293 unchanged (34% of the section changed)

HISTORY AND ORGANIZATION

Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global aerospace and defense company.

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.

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Northrop Corporation was a principal developer of flying wing technology, including the B-2 Spirit bomber.

The company developed into one of the largest defense contractors in the world through a series of acquisitions, as well as organic growth, including the following:

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.

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Battle Management & Missile Systems, and Mission Readiness.

Battle Management & Missile Systems – designs, develops and integrates multi-domain command and control (C2) and weapons systems, including munitions and missiles.

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.

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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;

• Counter Rocket, Artillery and Mortar (C-RAM), a set of systems used to detect and destroy incoming threats;

Navy’s Advanced Anti-Radiation Guided Missile (AARGM), a medium-range, air-to-surface missile, and its extended range variant, AARGM-ER;

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• 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;

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Army’s Mission Command Training Program (MCTP), providing the design, development and support to train and exercise senior Army Commanders on modern warfighting operations .

• 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.

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Key programs include:

• Global system sustainment and operations support for the F-35, B-2, E-8C JSTARS surveillance aircraft, P-3 Orion, KC-30A multi-role tanker, C-27J transport, Global Hawk and Triton programs;

• 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;

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• 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.

• Offshore Patrol Cutter (OPC), the integrator for C5ISR systems on the U.S.

Coast Guard OPC including integrated bridge, navigation, command and control, computing network, machinery and propulsion control.

Navigation, Targeting & Survivability – delivers products, systems and services that support aircraft platforms with targeting, self-protection and situational awareness mission systems;

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Key unrestricted programs include:

• Battlefield Airborne Communications Node (BACN), one of the first airborne gateway systems that allows platforms to communicate and securely share data;

• 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;

• Exploitation and cyber programs, which provide cyber and intelligence domain support through unique intelligence and cyber capabilities;

• 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.

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SPACE SYSTEMS

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The sector is reported in two business areas:

Launch & Strategic Missiles, and Space.

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:

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.

• 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;

• 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;

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Key programs include:

• Antares rocket, used in the execution of our Commercial Resupply Services (CRS) contracts with the National Aeronautics and Space Administration (NASA);

• Development and production of solid rocket motors for NASA’s Space Launch System (SLS) heavy lift vehicle;

• Missile defense systems, interceptors, targets, mission processing and boosters for the Missile Defense Agency's (MDA) Next-Generation Interceptor (NGI), Ground-based Midcourse Defense (GMD) system and Ground Based Interceptor (GBI);

• Ground Based Strategic Deterrent (GBSD) Engineering & Manufacturing Development (EMD) program;

• 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.

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• Intercontinental Ballistic Missile (ICBM) Ground Subsystem Support Contract (GSSC).

Much of this business is performed through restricted programs.

Key unrestricted programs include:

• Cygnus spacecraft, used in the execution of our CRS contracts with NASA;

• Habitation and Logistics Outpost (HALO) module in support of NASA’s Gateway;

• Advanced Extremely High Frequency (AEHF), Enhanced Polar System (EPS), Evolved Strategic SATCOM (ESS), and Protected Tactical SATCOM (PTS) satellites and payloads providing survivable, protected communications to U.S.

• Next-Generation Overhead Persistent Infrared (Next Gen OPIR) program satellites and payloads providing data for missile defense;

• Space sustainability driven by on orbit servicing vehicles Mission Extension Vehicle (MEV) 1 and 2;

• James Webb Space Telescope (JWST), a large infrared telescope built for NASA that was launched on December 25, 2021 to study the origins of the universe.

CUSTOMER CONCENTRATION

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government procurement awards).

NORTHROP GRUMMAN CORPORATION

It is common in the defense industry for work on major programs to be shared among a number of companies.

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No material portion of our business is considered to be seasonal.

NORTHROP GRUMMAN CORPORATION

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.

In connection with the IT services divestiture, the company reduced backlog by $1.4 billion during the first quarter of 2021 ($1.0 billion at Defense Systems, $0.2 billion at Mission Systems and $0.2 billion at Space Systems).

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.

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RAW MATERIALS

We have experienced challenges with access to certain raw materials due to several global events such as microelectronics shortages and COVID-19.

Nonetheless, these challenges have not to date led to significant cost increases or schedule delays.

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

Creating a diverse, talented and inclusive workplace is central to our culture, employee engagement, innovation and excellence, and in performing and delivering on our commitments.

Our culture is an important factor in our ability to continue attracting and retaining qualified employees, particularly those with security clearances and requisite skills in multiple areas, including science, technology, engineering and math.

This focus was a factor in our ability to hire approximately 9,500 new employees in 2021 and as of December 31, 2021, we have approximately 88,000 employees.

Additional information regarding our human capital strategy is available in our Sustainability Report and Proxy Statement, which can be found on our company website.

Information on our website, including our Sustainability Report, is not incorporated by reference into this Annual Report.

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

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• We pioneer – with fierce curiosity, dedication and innovation, we seek to solve the world’s most challenging problems.

We believe our values are vital to the continued and future success of the company, and in our ability to attract and retain a diverse workforce.

Our values are also integral to our commitment to long-term sustainability, with robust environmental, social and governance (ESG) practices across our company.

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.

All employees are empowered to raise concerns without fear of reprisal.

We employ 140 business conduct advisors whose job is to promote values and an ethical culture within the company.

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

NORTHROP GRUMMAN CORPORATION

Our annual employee survey gives employees the opportunity to provide feedback on our culture.

This survey is managed by a third-party vendor to encourage candor and solicit feedback on many aspects of engagement, including company leadership, culture, inclusion and career development.

In 2021, our employee response rate was 82 percent, an indication that our employees believe their feedback is important, and we were named a “High Performing Company” by the third-party vendor based on our strong survey results.

Our leaders review the survey feedback and work with their teams to take action based on survey results.

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) are, and have long been, critical to our culture and our company’s success.

Our focus on DE&I enhances engagement and increases innovation and quality, enabling us to deliver better performance for our shareholders, customers, and employees.

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 total employee population, as of December 31, 2021, 25 percent are female, 36 percent are people of color, 18 percent are veterans and 9 percent are persons with disabilities.

Over the past 10 years, at the vice president level, we have more than doubled the representation of females from 16 percent to 35 percent and increased the representation of people of color by approximately 65 percent, from 11 percent to 18 percent.

Talent Acquisition, Management and Development

We execute our Talent Management strategy with the whole employee experience in mind.

We utilize an employee experience continuum that focuses on key career milestones and aligns our employee development, engagement and retention efforts with the specific needs of our employees throughout their careers.

We believe this holistic approach to talent management results in a better experience for our employees, from recruiting to retirement.

We hold regular talent review discussions to ensure insight into talent at various levels of the organization.

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 design our employee development programs to strengthen employee skills aligned to our current and future business needs, encourage knowledge transfer and support career growth and progression.

In late 2020, we launched My Learning Experience, a machine learning enabled content aggregator designed to create a unique and personalized learning experience for each employee.

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 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 program.

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 different perspectives, skills and experiences;

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 our trusted external partners.

The company continues to monitor the evolving hiring environment, while applying agile recruiting methods to ensure employees and candidates have an exceptional experience.

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

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Internally, we determine program effectiveness by conducting trend analyses of our past performance.

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Collective Agreements

Approximately 3,900 employees are covered by 15 collective agreements in the U.S., of which we negotiated five renewals in 2021 and expect to negotiate four renewals in 2022.

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.

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REGULATORY MATTERS

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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 costs.

We monitor our contracts on a regular basis for compliance with our policies and procedures and applicable government laws and regulations.

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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 generally subject to adjustment regardless of costs incurred by the contractor, absent changes in scope by the customer.

As a result, fixed-price contracts have more financial risk associated with unanticipated cost growth, but generally provide the opportunity for higher profit margins than cost-type contracts.

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.

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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, and cost, schedule and technical performance.

See Note 1 to the consolidated financial statements and “Risk Factors” for further information regarding our contracts and Note 16 to the consolidated financial statements for sales by contract type.

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Our operations are subject to and affected by federal, state, local and foreign laws, regulations and enforcement actions relating to protection of the environment.

In 2015, we announced our 2020 environmental sustainability goals:

to reduce absolute greenhouse gas emissions by 30 percent from 2010 levels;

to reduce potable water use by 20 percent from 2014 levels;

and to achieve a 70 percent solid waste diversion rate (away from landfills).

In 2021, we measured our performance against these goals and exceeded our greenhouse gas goal by reducing emissions 44 percent and met our potable water reduction goal of 20 percent.

We made strong progress in increasing our solid waste diversion from landfills, achieving a 69 percent diversion rate, falling just short of our goal.

We were challenged by changes in collection methods and waste haulers at some sites, related, in some cases, to COVID-19.

We are continuing our commitment to climate and environmental sustainability and are in the process of finalizing the next generation of goals for 2022 and beyond.

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

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The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including Northrop Grumman Corporation.

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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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business