What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-01-26 compared with 2022-01-27 · 167 added, 170 removed, 1206 unchanged (22% of the section changed)

41 unchanged sentences

– Evaluated the estimates of total cost and revenue for the performance obligation by:

▪ Conducting inquiries at the relevant program locations, or virtually, (as a result of the COVID-19 pandemic and remote working environment) regarding any challenges related to the program.

▪ Conducting inquiries of relevant program teams regarding any challenges related to the program.

▪ Comparing costs incurred to date to the costs management estimated to be incurred to date.

▪ Evaluating management’s ability to achieve the estimates of total cost and revenue by performing corroborating inquiries with the Company’s program and business management, and testing management’s process used to develop the estimates based on their work plans, engineering specifications, program labor, and supplier contracts.

This includes management’s process to identify COVID-19 impacts to programs, which could include forecasted cost impacts and assumptions on the ability to recover those costs.

This includes management’s process to identify macroeconomic impacts to programs, which could include forecasted cost impacts and assumptions on the ability to recover those costs.

▪ Comparing management’s estimates for the selected contracts to costs and revenues of similar performance obligations, when applicable.

15 unchanged sentences

• With the assistance of our income tax specialists, we selected specific uncertain tax positions for testing and performed the following procedures:

– Inquired both in-person and virtually (as a result of the COVID-19 pandemic and the remote working environment) of the Company’s tax department, financial reporting department, and other personnel directly involved in the development of the estimates.

– Inquired of the Company’s tax department, financial reporting department, and other personnel directly involved in the development of the estimates.

– Obtained supporting documentation and evaluated how the Company supported the position, including the assumptions and estimates used for measurement, and how the taxing authorities have historically challenged the tax position, if applicable.

34 unchanged sentences

Net earnings (from above) $ 4,896 $ 7,005 $ 3,189

Other comprehensive loss

Change in unamortized prior service credit, net of tax expense of $ 2 in 2021, $ 14 in 2020 and $ 15 in 2019

( 8 ) ( 41 ) ( 47 )

Other comprehensive loss, net of tax

Change in unamortized prior service credit ( 1 ) ( 8 ) ( 41 )

Change in cumulative translation adjustment and other, net ( 9 ) ( 7 ) 10

10 unchanged sentences

Prepaid expenses and other current assets 1,439 1,126

Assets of disposal group held for sale — 1,635

Total current assets 12,488 12,426

10 unchanged sentences

Other current liabilities 3,334 2,314

Liabilities of disposal group held for sale — 258

Total current liabilities 11,587 9,530

49 unchanged sentences

Other, net 39 ( 11 ) 4

Net cash provided by (used in) investing activities 2,058 ( 1,211 ) ( 1,207 )

Net cash (used in) provided by investing activities ( 1,241 ) 2,058 ( 1,211 )

Financing activities

2 unchanged sentences

Payments to credit facilities — — ( 78 )

Net repayments of commercial paper — — ( 198 )

Common stock repurchases ( 1,504 ) ( 3,705 ) ( 490 )

39 unchanged sentences

Nature of Operations

Northrop Grumman Corporation is a leading global aerospace and defense company.

Northrop Grumman Corporation is a leading global aerospace and defense technology company.

We deliver a broad range of products, services and solutions to U.S.

14 unchanged sentences

and the former Space Technical Services business unit of Space Systems.

The assets and liabilities of the IT and mission support services business were classified as held for sale in the consolidated statement of financial position as of December 31, 2020.

Operating results include sales and operating income for the IT and mission support services business prior to the Divestiture date .

See Note 2 for further information regarding the divestiture and Note 8 for the allocation of goodwill to the divestiture.

During the first quarter of 2021, we changed the naming convention for our FAS/CAS pension accounts.

The Net FAS (service)/CAS pension adjustment is now referred to as the FAS/CAS operating adjustment and the FAS (non-service) pension benefit is now referred to as the Non-operating FAS pension benefit.

This change does not impact any current or previously reported amounts.

During the second quarter of 2021, we changed the presentation of the retiree benefits components in the operating cash flow section of the consolidated statements of cash flows.

Prior period amounts have been conformed to current period presentation and this change does not impact previously reported cash provided by operating activities.

See Note 2 for further information regarding the divestiture.

Accounting Estimates

11 unchanged sentences

In some contracts, the company provides multiple distinct goods or services to a customer, most commonly when a contract covers multiple phases of the product life cycle (e.g., development, production, sustainment, etc.).

In those cases, the company accounts for the distinct contract deliverables as separate

NORTHROP GRUMMAN CORPORATION

performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin.

In those cases, the company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin.

Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not considered to be separate performance obligations.

4 unchanged sentences

Similarly, our non-U.S.

government contracts generally contain contractual termination clauses or entitle the company to payment for work performed to date for goods and services that do not have an alternative use.

government contracts generally contain contractual termination clauses or entitle the company to payment for work performed to date for

NORTHROP GRUMMAN CORPORATION

goods and services that do not have an alternative use.

For most of our contracts, control is effectively transferred during the period of performance, so we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion).

25 unchanged sentences

When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments.

During the third quarter of 2021, we recorded a $ 42 million unfavorable EAC adjustment on the F-35 program at Aeronautics Systems due to labor-related production inefficiencies largely driven by COVID-19-related impacts on the labor market and employee leave.

During the fourth quarter of 2021, we recorded an additional $ 93 million unfavorable EAC adjustment on the F-35 program at Aeronautics Systems related to continued labor-related production impacts largely driven by COVID-19.

During the fourth quarter of 2021, we modified our F-35 production plan to support a more consistent flow on the program and expect gradually to

NORTHROP GRUMMAN CORPORATION

increase production rate over time as COVID-19-related impacts subside.

During the first and fourth quarters of 2022, we recorded favorable EAC adjustments of $ 67 million and $ 66 million, respectively, on the engineering, manufacturing and development (EMD) phase of the B-21 program at Aeronautics Systems largely related to an increase in the amount of performance incentives we expect to earn.

See Note 12 for a discussion of reasonably possible losses we may incur on the low-rate initial production (LRIP) phase of B-21.

During 2021, we recorded $ 135 million of unfavorable EAC adjustments on the F-35 program at Aeronautics Systems due to labor-related production impacts largely driven by COVID-19.

No other such adjustments were significant to the financial statements during the years ended December 31, 2022, 2021 and 2020.

2 unchanged sentences

Unexercised contract options and IDIQ contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded.

NORTHROP GRUMMAN CORPORATION

Company backlog as of December 31, 2022 was $ 78.7 billion.

5 unchanged sentences

Contract assets are equivalent to and reflected as Unbilled receivables in the consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers.

Unbilled receivables are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts.

Unbilled receivables are classified as current assets and include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts.

Accumulated contract costs in unbilled receivables include costs such as direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A.

11 unchanged sentences

The change in the balances of the company’s contract assets and liabilities primarily results from timing differences between revenue recognition and customer billings and/or payments.

Net contract assets as of December 31, 2021 decreased 6 percent from the prior year, primarily due to an increase in Advance payments and amounts in excess of costs incurred at Aeronautics Systems, partially offset by an increase in unbilled receivables driven by sales growth at Space Systems.

Net contract assets as of December 31, 2022 decreased 4 percent from the prior year, primarily due to decreases in net contracts assets at Aeronautics Systems and Space Systems, partially offset by an increase in net contract assets at Defense Systems.

The amount of revenue recognized for the years ended December 31, 2022, 2021 and 2020 that was included in the contract liability balance at the beginning of each year was $ 2.4 billion, $ 2.0 billion and $ 1.6 billion, respectively.

2 unchanged sentences

We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

NORTHROP GRUMMAN CORPORATION

General and Administrative Expenses

4 unchanged sentences

Company-sponsored research and development activities primarily include efforts related to government programs.

Company-sponsored IR&D expenses totaled $ 1.1 billion, $ 1.1 billion and $ 953 million in 2021, 2020 and 2019, respectively, which represented 3.2 percent, 2.9 percent and 2.8 percent of total sales, respectively.

Company-sponsored IR&D expenses totaled $ 1.2 billion, $ 1.1 billion and $ 1.1 billion in 2022, 2021 and 2020,

NORTHROP GRUMMAN CORPORATION

respectively, which represented 3.3 percent, 3.2 percent and 2.9 percent of total sales, respectively.

Customer-funded research and development activities are charged directly to the related contracts.

26 unchanged sentences

Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair value on a recurring basis.

Changes in the fair value of derivative financial instruments that are designated as fair value hedges are recorded in net earnings, while changes in the fair value of derivative financial instruments that are

NORTHROP GRUMMAN CORPORATION

designated as cash flow hedges are recorded as a component of other comprehensive income until settlement.

Changes in the fair value of derivative financial instruments that are designated as fair value hedges are recorded in Other, net in the consolidated statements of earnings and comprehensive income, while changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recorded as a component of other comprehensive income until settlement.

For derivative financial instruments not designated as hedging instruments, gains or losses resulting from changes in the fair value are reported in Other, net in the consolidated statements of earnings and comprehensive income.

1 unchanged sentence

For foreign currency forward contracts, where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties’ credit risks.

NORTHROP GRUMMAN CORPORATION

The company does not use derivative financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments.

5 unchanged sentences

G&A included in Inventoried costs, net was $ 59 million and $ 44 million as of December 31, 2022 and 2021, respectively.

Inventoried costs are classified as current assets and, in accordance with industry practice, include amounts related to contracts having production cycles longer than one year.

Inventoried costs are classified as current assets and include amounts related to contracts having production cycles longer than one year due to the long-cycle nature of our business.

Cash Surrender Value of Life Insurance Policies

4 unchanged sentences

Property, Plant and Equipment

Property, plant and equipment are depreciated over the estimated useful lives of individual assets.

Property, plant and equipment (PP&E) are depreciated over the estimated useful lives of individual assets.

Most assets are depreciated using declining-balance methods, with the remainder using the straight-line method.

13 unchanged sentences

(2) Leasehold improvements are depreciated over the shorter of the useful life of the asset or lease term.

NORTHROP GRUMMAN CORPORATION

During the fourth quarter of 2020, the company completed a sale of equipment to a customer on a restricted Aeronautics Systems program for $ 444 million.

2 unchanged sentences

Although we generally classify proceeds from revenue transactions as cash inflows from operating activities, we recognized the proceeds from this transaction as cash inflows from investing activities, consistent with our prior recognition of the cost to acquire the equipment as capital expenditures.

The company received cash payments of $ 84 million and $ 205 million related to the equipment sale during 2021 and 2020, respectively, and included it in Proceeds from sale of equipment to a customer in the consolidated statement of cash flows.

The remaining $ 155 million is expected to be collected in 2022.

During the year ended December 31, 2021, the company received lease incentives for landlord funded leasehold improvements of $ 150 million related to a Space Systems real estate lease, which were recorded in PP&E and included in non-cash investing activities.

The company received cash

NORTHROP GRUMMAN CORPORATION

payments of $ 155 million, $ 84 million and $ 205 million related to the equipment sale during 2022, 2021 and 2020, respectively, and included it in Proceeds from sale of equipment to a customer in the consolidated statement of cash flows.

During the year ended December 31, 2022, the company acquired $ 46 million of internal use software through long-term financing directly with the supplier.

The software was recorded in PP&E as a non-cash investing activity and the related liability was recorded in long-term debt as a non-cash financing activity.

During the years ended December 31, 2022 and 2021, the company received lease incentives for landlord funded leasehold improvements of $ 96 million and $ 150 million, respectively, related to a Space Systems real estate lease, which were recorded in PP&E and included in non-cash investing activities.

On December 28, 2022 the company acquired certain leased land in exchange for company-owned land, which had been used previously for production-related activities at Space Systems.

The exchange was accounted for as a nonmonetary transaction, and the acquired land, valued at approximately $ 155 million, was recorded in PP&E as a non-cash investing activity.

The transaction resulted in a $ 96 million gain, which was reflected in operating costs and expenses in the consolidated statements of earnings and comprehensive income.

Non-cash investing activities also include capital expenditures incurred but not yet paid of $ 113 million, $ 91 million and $ 72 million as of December 31, 2022, 2021 and 2020, respectively.

7 unchanged sentences

The company leases certain buildings, land and equipment.

Under Accounting Standards Codification (ASC) 842, at contract inception we determine whether a contract is or contains a lease and whether the lease should be classified as an operating or finance lease.

At contract inception, we determine whether a contract is or contains a lease and whether the lease should be classified as an operating or finance lease.

Operating lease balances are included in Operating lease right-of-use assets, Other current liabilities, and Operating lease liabilities in our consolidated statements of financial position.

16 unchanged sentences

When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, the low end of the range is recorded.

Legal fees are expensed as incurred.

Legal fees are generally expensed as incurred.

Due to the inherent uncertainties surrounding gain contingencies, we generally do not recognize potential gains until realized.

25 unchanged sentences

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:

The components of accumulated other comprehensive loss, net of tax, are as follows:

$ in millions 2022 2021

Unamortized prior service credit, net of tax expense of $ 1 for 2021 and $ 3 for 2020

Unamortized prior service credit $ 1 $ 2

Cumulative translation adjustment and other, net ( 154 ) ( 145 )

9 unchanged sentences

and the former Space Technical Services business unit of Space Systems.

The assets and liabilities of the IT and mission support services business were classified as held for sale in the consolidated statement of financial position as of December 31, 2020.

Operating results include sales and operating income for the IT and mission support services business prior to the Divestiture date;

The company recorded pre-tax profit of the IT and mission support services business of $ 20 million, $ 247 million and $ 245 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The carrying amounts of the major classes of assets and liabilities of the IT and mission support services business classified as held for sale as of December 31, 2020 were as follows:

$ in millions

Accounts receivable, net $ 110

Unbilled receivables, net 269

Other current assets 9

Property, plant and equipment 14

Operating lease right-of-use assets 38

Total assets of disposal group held for sale $ 1,635

Trade accounts payable ( 99 )

Accrued employee compensation ( 59 )

Advance payments and billings in excess of costs incurred ( 31 )

Other current liabilities ( 42 )

Non-current operating lease liabilities ( 27 )

Total liabilities of disposal group held for sale $ ( 258 )

(1) See Note 8 for a summary by reportable segment of Goodwill reclassified to Assets of disposal group held for sale as of December 31, 2020.

NORTHROP GRUMMAN CORPORATION

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.

EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK

14 unchanged sentences

By its terms, the 2021 Repurchase Program is set to expire when we have used all authorized funds for repurchases.

On January 24, 2022, the company’s board of directors authorized a new share repurchase program of up to an additional $ 2.0 billion in share repurchases of the company’s common stock (the “2022 Repurchase Program”), bringing the total outstanding authorization up to $ 4.2 billion.

NORTHROP GRUMMAN CORPORATION

By its terms, repurchases under the 2022 Repurchase Program will commence upon completion of the 2021 Repurchase Program and will expire when we have used all authorized funds for repurchases.

As of December 31, 2022, there have been no repurchases under the 2022 Repurchase Program and the company’s total outstanding share repurchase authorization was $ 2.6 billion.

During the first quarter of 2021, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co.

5 unchanged sentences

Under the agreement, we made a payment of $ 500 million to Goldman Sachs and received an initial delivery of 1.2 million shares valued at $ 425 million that were immediately canceled by the company.

The remaining balance of $ 75 million is included as a reduction to Retained earnings on the consolidated statement of financial position.

The final number of shares to be repurchased will be based on the company’s daily volume-weighted average share price during the term of the transaction, less a discount, and is expected to be completed in the first quarter of 2022.

Goldman Sachs may be required to deliver additional shares of common stock to the company at final settlement or, under certain circumstances, the company may be required to either, at the company’s election, deliver shares or make a cash payment to Goldman Sachs.

The remaining balance of $ 75 million was settled on February 1, 2022 with a final delivery of 0.1 million shares from Goldman Sachs.

The final average purchase price was $ 374.79 per share.

Share repurchases take place from time to time, subject to market and regulatory conditions and management’s discretion, in the open market or in privately negotiated transactions.

The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs.

NORTHROP GRUMMAN CORPORATION

The table below summarizes the company’s share repurchases to date under the authorizations described above:

12 unchanged sentences

January 25, 2021 $ 3,000 5.5 $ 426.46 3.3 2.2 —

January 24, 2022 $ 2,000 — $ — — — —

(1) Includes commissions paid.

8 unchanged sentences

government either as the ultimate customer or in connection with foreign military sales.

NORTHROP GRUMMAN CORPORATION

Accounts receivable, net consisted of the following:

14 unchanged sentences

Progress and performance-based payments are reflected as an offset to the related unbilled receivable balances.

NORTHROP GRUMMAN CORPORATION

Unbilled receivables, net consisted of the following:

17 unchanged sentences

INVENTORIED COSTS, NET

Inventoried costs are primarily associated with contracts where the U.S.

Inventoried costs are principally associated with contracts where the U.S.

government is the primary customer, therefore the company does not believe it has significant exposure to recoverability risk related to these amounts.

Inventoried costs associated with our commercial businesses, while less significant in total, are subject to a greater level of recoverability risk.

During the year ended December 31, 2022, the company recorded a $ 45 million write-down of commercial business inventory at Space Systems for which its cost exceeded net realizable value.

Inventoried costs, net consisted of the following:

1 unchanged sentence

Contracts in process $ 574 $ 478

Product inventory and raw material 333 329

Product inventory 404 333

Inventoried costs, net $ 978 $ 811

NORTHROP GRUMMAN CORPORATION

Federal and foreign income tax expense consisted of the following:

10 unchanged sentences

Total federal and foreign income tax expense $ 940 $ 1,933 $ 539

Earnings from foreign operations before income taxes are not material for all periods presented.

NORTHROP GRUMMAN CORPORATION

Earnings before income taxes associated with the company’s foreign operations are not material in the periods presented.

Income tax expense differs from the amount computed by multiplying earnings before income taxes by the statutory federal income tax rate due to the following:

5 unchanged sentences

IT services divestiture nondeductible goodwill — — 250 2.8 — —

Settlements with taxing authorities ( 86 ) ( 1.5 ) — — — —

Other, net 43 0.7 48 0.6 17 0.5

Total federal and foreign income taxes $ 940 16.1 % $ 1,933 21.6 % $ 539 14.5 %

The year to date 2021 ETR increased to 21.6 percent from 14.5 percent in the same period of 2020 primarily due to federal income taxes resulting from the IT services divestiture, including $ 250 million of income tax expense related to $ 1.2 billion of nondeductible goodwill in the divested business.

The year to date 2022 ETR decreased to 16.1 percent from 21.6 percent in 2021 primarily due to an $ 86 million benefit resulting from the resolution of the IRS examination of certain legacy OATK tax returns, as well as additional federal income taxes in the prior year resulting from the IT services divestiture.

The company’s 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points;

however, the MTM benefit in 2021 did not significantly impact the 2021 ETR.

The year to date 2021 ETR increased to 21.6 percent from 14.5 percent in 2020 primarily due to the federal income taxes resulting from the IT services divestiture described above.

The company’s 2021 MTM benefit did not significantly impact the 2021 ETR;

however, MTM expense in 2020 reduced the 2020 ETR by 1.3 percentage points.

The year to date 2020 ETR increased to 14.5 percent from 11.8 percent in the same period of 2019.

MTM expense reduced the 2020 ETR by 1.3 percentage points and the 2019 ETR by 3.7 percentage points.

Income tax payments, net of refunds received, were $ 1.3 billion, $ 312 million and $ 324 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Income tax payments, net of refunds received, were $ 1.5 billion, $ 1.3 billion and $ 312 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Taxes receivable, which are included in Prepaid expenses and other current assets in the consolidated statements of financial position, were $ 850 million and $ 571 million as of December 31, 2022 and 2021, respectively.

NORTHROP GRUMMAN CORPORATION

Uncertain Tax Positions

1 unchanged sentence

federal jurisdiction and in various state and foreign jurisdictions.

The Northrop Grumman 2017-2018 federal tax returns are currently under Internal Revenue Service (IRS) examination.

During the third quarter of 2021, the company requested an appeal with the IRS for the Northrop Grumman 2014-2016 federal income tax returns and refund claims related to its 2007-2016 federal tax returns.

In addition, legacy OATK federal tax returns for the years ended March 31, 2014 and 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 (the “OATK 2014 to 2017 tax years”) are currently under appeal with the IRS.

The Northrop Grumman 2014-2020 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under Internal Revenue Service (IRS) examination.

During the second quarter of 2022, the company’s 2014-2016 federal income tax returns and refund claims related to its 2007-2016 federal tax returns reverted back from IRS Appeals to IRS examination for additional factual review.

During the fourth quarter of 2022, the U.S.

Congressional Joint Committee on Taxation approved a resolution of the IRS examination of the legacy OATK federal tax returns for the years ended March 31, 2014 and 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017, which resulted in a $ 110 million reduction to our unrecognized tax benefits and an $ 86 million reduction to income tax expense.

Tax returns for open tax years related to state and foreign jurisdictions remain subject to examination.

11 unchanged sentences

Unrecognized tax benefits at end of the year $ 1,663 $ 1,630 $ 1,481

NORTHROP GRUMMAN CORPORATION

Our 2022 increase in unrecognized tax benefits was primarily related to our methods of accounting associated with the timing of revenue recognition and related costs and the 2017 Tax Cuts and Jobs Act, which includes related final revenue recognition regulations issued in December 2020 under IRC Section 451(b) and procedural guidance issued in August 2021.

1 unchanged sentence

If these matters, including our position on IRC Section 451(b), are unfavorably resolved, there could be a material impact on our future cash flows.

It is reasonably possible that within the next 12 months unrecognized tax benefits may increase by approximately $ 120 million.

Additionally, it is reasonably possible that within the next twelve months, unrecognized tax benefits claimed in legacy OATK’s 2014 to 2017 tax years may decline by up to $ 110 million through administrative resolution with IRS Appeals.

It is reasonably possible that within the next 12 months our unrecognized tax benefits may increase by approximately $ 120 million.

Additionally, it is reasonably possible that within the next 12 months, unrecognized tax benefits claimed primarily related to California state apportionment in the company’s 2007 to 2016 tax years may decline by up to $ 100 million through administrative resolution with the California Franchise Tax Board.

Our current unrecognized tax benefits, which are included in Other current liabilities in the consolidated statements of financial position, were $ 728 million and $ 590 million as of December 31, 2022 and 2021, respectively, with the remainder of our unrecognized tax benefits included within Other non-current liabilities.

These liabilities include $ 175 million of accrued interest and penalties.

These liabilities include $ 216 million and $ 175 million of accrued interest and penalties as of December 31, 2022 and 2021, respectively.

If the income tax benefits from these tax positions are ultimately realized, $ 636 million of federal and foreign tax benefits would reduce the company’s ETR.

Net interest expense within the company’s federal, foreign and state income tax provisions was not material for all years presented.

NORTHROP GRUMMAN CORPORATION

Deferred Income Taxes

1 unchanged sentence

Net deferred tax assets and liabilities are classified as non-current in the consolidated statements of financial position.

The tax effects of significant temporary differences and carryforwards that gave rise to year-end deferred federal, state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows:

The tax effects of temporary differences and carryforwards that gave rise to year-end deferred federal, state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows:

$ in millions 2022 2021

1 unchanged sentence

Retiree benefits $ 117 $ 804

Capitalized research and experimental expenditures 1,671 —

Accrued employee compensation 378 371

15 unchanged sentences

Deferred tax liabilities 3,458 3,019

Total net deferred tax (liabilities) assets $ ( 290 ) $ 311

Total net deferred tax assets (liabilities) $ 30 $ ( 290 )

Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods.

1 unchanged sentence

At December 31, 2022, the company has available tax credits and unused net operating losses of $ 510 million and $ 349 million, respectively, that may be applied against future taxable income.

The majority of tax credits and net

NORTHROP GRUMMAN CORPORATION

operating losses expire in 2022 through 2046, however, some may be carried forward indefinitely.

Due to the uncertainty of the realization of the tax credits and net operating losses, the company has recorded valuation allowances of $ 230 million and $ 40 million as of December 31, 2021, respectively.

The majority of tax credits and net operating losses expire in 2023 through 2046, however, some may be carried forward indefinitely.

Due to the uncertainty of the realization of the tax credits and net operating losses, the company has recorded valuation allowances of $ 295 million and $ 32 million, respectively, as of December 31, 2022.

Undistributed Foreign Earnings

3 unchanged sentences

cash generation will be sufficient to meet future U.S.

NORTHROP GRUMMAN CORPORATION

GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

2 unchanged sentences

Balance as of December 31, 2020 $ 3,467 $ 3,415 $ 5,881 $ 4,755 $ 17,518

Reclassification to assets of disposal group held for sale (1)

— ( 3 ) — — ( 3 )

Balance as of December 31, 2021 $ 3,467 $ 3,412 $ 5,881 $ 4,755 $ 17,515

— ( 3 ) — — ( 3 )

Balance as of December 31, 2022 $ 3,467 $ 3,413 $ 5,881 $ 4,755 $ 17,516

(1) Represents the reclassification of goodwill to assets of disposal group held for sale due to the divestiture of our IT and mission support services business that was pending as of December 31, 2020 (See Note 2 ).

(1) Other consists primarily of adjustments for foreign currency translation.

9 unchanged sentences

$ in millions

NORTHROP GRUMMAN CORPORATION

FAIR VALUE OF FINANCIAL INSTRUMENTS

9 unchanged sentences

The notional value of the company’s foreign currency forward contracts at December 31, 2022 and 2021 was $ 221 million and $ 120 million, respectively.

At December 31, 2021 and 2020, no portion of the notional value was designated as a cash flow hedge.

The portion of notional value designated as a cash flow hedge at December

NORTHROP GRUMMAN CORPORATION

31, 2022, was $ 87 million.

At December 31, 2021, no portion of the notional value was designated as a cash flow hedge.

The derivative fair values and related unrealized gains/losses at December 31, 2022 and 2021 were not material.

2 unchanged sentences

Commercial Paper

The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $ 2.0 billion.

The company maintains a commercial paper program that serves as a source of short-term financing.

In December 2022, the company amended its commercial paper program to increase its capacity to issue unsecured commercial paper notes from $ 2.0 billion to $ 2.5 billion.

There were no commercial paper borrowings outstanding at December 31, 2022 and December 31, 2021, respectively.

1 unchanged sentence

Credit Facility

In August 2018, the company entered into a five-year senior unsecured credit facility in an aggregate principal amount of $ 2.0 billion (the “2018 Credit Agreement”).

In October 2019, the company amended the 2018 Credit Agreement to extend its maturity date by one year from August 2023 to August 2024.

In August 2022, the company entered into a new five-year senior unsecured credit facility in an aggregate principal amount of $ 2.5 billion (the “2022 Credit Agreement”).

The 2022 Credit Agreement replaced the company’s prior five-year, $ 2.0 billion revolving credit facility entered into on August 17, 2018 and as amended on October 17, 2019.

The revolving credit facility established under the 2022 Credit Agreement is intended to support the company’s commercial paper program and other general corporate purposes.

At December 31, 2021, there was no balance outstanding under this facility.

Commercial paper borrowings reduce the amount available for borrowing under the 2022 Credit Agreement.

Our credit agreement contains generally customary terms and conditions, including covenants restricting the company’s ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake other fundamental changes and incur liens.

At December 31, 2022, there were no borrowings outstanding under this facility.

The 2022 Credit Agreement contains generally customary terms and conditions, including covenants restricting the company’s ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake other fundamental changes and incur liens.

The company also cannot permit the ratio of its debt to capitalization (as set forth in the credit agreement) to exceed 65 percent.

7 unchanged sentences

On September 2, 2021, the company completed an exchange offer to eligible holders of the outstanding notes of our direct wholly owned subsidiary, Northrop Grumman Systems Corporation (“NGSC”), maturing through 2036.

An aggregate principal amount of $ 422 million of the NGSC notes was exchanged for $ 422 million of Northrop Grumman Corporation notes with the same interest rates and maturity dates as the NGSC notes exchanged.

An aggregate principal amount of $ 422 million of the NGSC notes was exchanged for $ 422 million of unregistered Northrop Grumman Corporation notes (the “Unregistered Notes”) with the same interest rates and maturity dates as the NGSC notes exchanged.

On June 15, 2022, the company completed a registered exchange offer pursuant to which the company exchanged an aggregate principal amount of $ 414 million of the Unregistered Notes for $ 414 million of new notes registered under the Securities Act of 1933, as amended, (the “Registered Notes”) with the same interest rates and maturity dates as the Unregistered Notes.

Because the debt instruments were not substantially different in either of the exchange offers, both exchanges were treated as debt modifications for accounting purposes with no gain or loss recognized.

NORTHROP GRUMMAN CORPORATION

the debt instruments are not substantially different, the exchange was treated as a debt modification for accounting purposes with no gain or loss recognized.

Long-term debt consists of the following:

$ in millions

$ in millions December 31

Fixed-rate notes and debentures, maturing in Interest rate

11 unchanged sentences

2050 5.25 % 1,000 1,000

2047 4.03 % 2,250 2,250

2050 5.25 % 1,000 1,000

Other Various 293 205

10 unchanged sentences

Total interest payments, net of interest received, were $ 474 million, $ 570 million and $ 572 million for the years ended December 31, 2022, 2021 and 2020, respectively.

NORTHROP GRUMMAN CORPORATION

Maturities of long-term debt as of December 31, 2022, are as follows:

6 unchanged sentences

Total long-term debt $ 12,877

NORTHROP GRUMMAN CORPORATION

INVESTIGATIONS, CLAIMS AND LITIGATION

2 unchanged sentences

Court of Federal Claims.

This lawsuit relates to an approximately $ 875 million firm fixed-price contract awarded to the company in 2007 by the U.S.

This lawsuit related to an approximately $ 875 million firm fixed-price contract awarded to the company in 2007 by the U.S.

Postal Service (USPS) for the construction and delivery of flats sequencing systems (FSS) as part of the postal automation program.

The FSS were delivered.

The company’s lawsuit seeks approximately $ 63 million for unpaid portions of the contract price, and approximately $ 115 million based on the company’s assertions that, through various acts and omissions over the life of the contract, the USPS adversely affected the cost and schedule of performance and materially altered the company’s obligations under the contract.

The United States responded to the company’s complaint with an answer, denying most of the company’s claims, and counterclaims seeking approximately $ 410 million, less certain amounts outstanding under the contract.

In the course of the litigation, the United States subsequently amended its counterclaim, reducing it to seek approximately $ 193 million.

The principal counterclaim alleges that the company delayed its performance and caused damages to the USPS because USPS did not realize certain costs savings as early as it had expected.

The company’s lawsuit sought approximately $ 63 million for unpaid portions of the contract price, and approximately $ 115 million based on the company’s assertions that, through various acts and omissions over the life of the contract, the USPS adversely affected the cost and schedule of performance and materially altered the company’s obligations under the contract.

The United States responded to the company’s complaint with an answer, denying most of the company’s claims, and counterclaims seeking approximately $ 410 million, primarily for delay and lost savings.

On February 3, 2020, after extensive discovery and motions practice, the parties commenced what was expected to be a seven-week trial.

After COVID-19-related interruptions, trial concluded on March 5, 2021.

On October 12, 2021, the parties completed post-trial briefing, and on December 8, 2021, the court held a post-trial oral argument.

Although the ultimate outcome of this matter cannot be predicted or reasonably estimated at this time, the company intends to continue vigorously to pursue and defend the matter.

On June 27, 2022, the judge issued a decision in the company’s favor.

On July 18, 2022, the government filed a motion for reconsideration.

On October 17, 2022, the court denied the government’s motion for reconsideration and on October 19, 2022, the court entered judgment in the company’s favor.

On November 9, 2022, the Postal Service paid the company the full judgment amount of approximately $ 83 million.

Neither party appealed prior to the December 19, 2022 deadline.

The company is engaged in remediation activities relating to environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York.

2 unchanged sentences

the State also communicated that it was assessing potential natural resource damages.

In December 2020, the parties reached a tentative agreement regarding the steps the company will take to implement the State’s Amended Record of Decision and to resolve certain potential other claims, including for natural resource damages.

In December 2020, the parties reached a tentative agreement regarding the steps the company would take to implement the State’s Amended Record of Decision and to resolve certain potential other claims, including for natural resource damages.

On September 22, 2021, the State of New York issued for public comment a new consent decree reflecting the agreement.

On December 7, 2021, the public comment period closed.

We understand that the State will next seek court approval of the consent decree.

We are also in discussions with the DoD (Navy and DCMA) and the Bethpage and South Farmingdale Water Districts to explore whether claims involving these parties can be resolved at this stage.

On August 3, 2022, the court approved the consent decree.

We have also reached agreements with the Department of Defense and the Bethpage and South Farmingdale Water Districts to resolve claims involving these parties.

Those agreements have also been approved by the courts as necessary.

The company continues to be involved in related disputes with the Towns of Oyster Bay and Hempstead.

We have incurred, and expect to continue to incur, as included in Note 12, substantial remediation costs related to the legacy Bethpage environmental conditions.

It is also possible that applicable remediation, allocation and allowability standards and other requirements to which we are subject may continue to change, and our costs may increase materially.

In addition to disputes and legal proceedings related to environmental conditions at the site (including remediation, allocation and allowability), we are a party to various, and may become a party to additional disputes and legal proceedings with individual and class action plaintiffs alleging personal injury and property

NORTHROP GRUMMAN CORPORATION

damage, with insurance carriers and with other parties.

We cannot at this time predict or reasonably estimate the potential cumulative outcomes or ranges of possible liability of these aggregate Bethpage matters.

It is also possible that applicable remediation standards and other requirements to which we are subject may continue to change, and that our costs may increase materially.

In addition to disputes and legal proceedings related to environmental conditions and remediation at the site, we are a party to various individual lawsuits and a putative class action alleging personal injury and property damage in the Eastern District of New York.

The filed individual lawsuits have been stayed, pending a court decision on class certification.

We are also a party, and may become a party, to other lawsuits brought by or against insurance carriers, and by other individual plaintiffs and/or putative classes, as well as other parties.

We cannot at this time predict or reasonably estimate the potential cumulative outcomes or ranges of possible liability of these Bethpage lawsuits.

In June 2018, the FTC issued a Decision and Order enabling the company’s acquisition of OATK to proceed and providing generally for the company to continue to make solid rocket motors available to competing missile primes on a non-discriminatory basis.

1 unchanged sentence

Similarly, the Compliance Officer, appointed under the Order, and the FTC have taken and continue to take various actions to oversee compliance.

In October 2019, the company received a civil investigative demand from the FTC requesting certain information relating to a potential issue regarding the company’s compliance with the Order in connection with a then pending missile competition.

In October 2019, the company received a civil investigative demand (CID) from the FTC requesting certain information relating to a potential issue regarding the company’s compliance with the Order in connection with a then pending missile competition.

The company promptly provided information in response to the request.

We have recently resumed discussions with staff at the FTC regarding our response and their views.

In late 2021, the company resumed discussions with staff at the FTC regarding our response and their views on compliance issues.

More recently, the company received and is responding to a follow-on CID.

We cannot predict the outcome of those discussions, but we do not believe they are likely to have a material adverse effect on the company’s consolidated financial position as of December 31, 2022, or its annual results of operations and/or cash flows.

We believe the company has been and continues to be in compliance with the Order.

On December 9, 2022, the company received from the U.S.

Department of Justice (DOJ) a criminal subpoena seeking information regarding financial and cost accounting and controls that appears focused on the interest rate

NORTHROP GRUMMAN CORPORATION

assumptions the company used to determine our CAS pension expense, which we have previously discussed in Note 12 below.

The company has begun discussions with DOJ regarding the scope of the subpoena and is preparing to respond to it.

We cannot at this point predict the outcome of this matter.

The company is a party to various other investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business.

10 unchanged sentences

The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its consolidated financial position as of December 31, 2022, or its annual results of operations and/or cash flows.

government has raised questions about an interest rate assumption used by the company to determine our CAS pension expense.

On June 1, 2020, the government provided written notice that the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS.

We submitted a formal response on July 31, 2020, which we believe demonstrates the appropriateness of the assumptions used.

On November 24, 2020, the government replied to the company’s response, disagreeing with our position and requesting additional input, which we provided on February 22, 2021 and further discussed with the government.

We are prepared to engage further if, and as, appropriate.

The sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of this matter could have a material adverse effect on our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range of any potential loss.

In 2019, the Defense Contract Management Agency (DCMA) raised questions about an interest rate assumption used by the company to determine our CAS pension expense.

On June 1, 2020, DCMA provided written notice that the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS.

We submitted a formal response on July 31, 2020, which we believed demonstrates the appropriateness of the assumptions used.

On November 24, 2020, DCMA replied to the company’s response, disagreeing with our position and requesting additional input, which we provided on February 22, 2021.

We continued to exchange correspondence and engage with DCMA and DoD on this matter, including responding to requests for and providing additional information.

As noted in Note 11 above, on December 8, 2022, the U.S.

Department of Justice (DOJ) issued to the company a criminal subpoena seeking information that appears related to the interest rate assumptions at issue in our discussions with DCMA.

The company has begun discussions with DOJ regarding the scope of the subpoena and is preparing to respond to it.

We cannot at this point predict the outcome of this matter.

The company is also continuing to engage with DCMA/DoD.

As previously described, the sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of the DCMA matter could have a material adverse effect on our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range of any potential loss.

B-21 Low-Rate Initial Production Options

In 2015, the U.S.

Air Force awarded to Northrop Grumman the B-21 contract, including a base contract for engineering, manufacturing, and design (EMD) and five low-rate initial production (LRIP) options.

The EMD phase of the program is largely cost type and began at contract award.

The LRIP options are largely fixed price and are expected to be awarded and executed over the next decade.

In the fourth quarter of 2022, we updated our estimated cost to complete the LRIP phase of the B-21 program.

Principally due to the company’s latest estimate of the impact macroeconomic factors may have on our cost to complete the LRIP options, as well as ongoing discussions with our suppliers and our customer, we now believe it is reasonably possible one or more of the LRIP options could be performed at a loss and the range of such loss across the five LRIP options is between $ 0 and $ 1.2 billion.

NORTHROP GRUMMAN CORPORATION

not currently believe a loss is probable on any of the LRIP options, we have not recognized any such loss in our financial results for the period ended December 31, 2022.

Environmental Matters

12 unchanged sentences

These amounts are evaluated for recoverability on a routine basis.

Although management cannot predict whether new information gained as our environmental remediation projects progress, or as changes in facts and circumstances occur, will materially affect the estimated liability accrued, except with respect to Bethpage, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s consolidated financial position as of December 31, 2021, or its annual results of operations and/or cash flows.

With respect to Bethpage, as discussed in Note 11, in December 2019, the State of New York issued an Amended Record of Decision, seeking to impose additional remedial requirements beyond those the company previously had been taking;

the State also communicated that it was assessing potential natural resource damages.

On September 22, 2021, the State of New York issued for public comment a new consent decree reflecting the agreement.

On December 7, 2021, the public comment period closed.

We understand that the State will next seek court approval of the consent decree.

As discussed in Note 11, the applicable remediation standards and other requirements to which we are subject may continue to change, our costs may increase materially, and those costs may not be fully recoverable.

Although management cannot predict whether (i) new information gained as our environmental remediation projects progress, (ii) changes in remediation standards or other requirements to which we are subject, or (iii) other changes in facts and circumstances will materially affect the estimated liability accrued, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s consolidated financial position as of December 31, 2022, or its annual results of operations and/or cash flows.

Financial Arrangements

8 unchanged sentences

Pension benefits for most participants are based on years of service, age and compensation.

It is our policy to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S.

It is our policy to fund at least the minimum amount required for qualified plans, using actuarial cost methods and assumptions acceptable under U.S.

government regulations, by making payments into benefit trusts separate from the company.

1 unchanged sentence

Company contributions vary depending on date of hire, with a majority of employees being eligible for employer matching of employee contributions.

Based on date of hire, certain employees are eligible to receive a company non-elective contribution

NORTHROP GRUMMAN CORPORATION

or an enhanced matching contribution in lieu of a defined benefit pension plan benefit.

Based on date of hire, certain employees are eligible to receive a company non-elective contribution or an enhanced matching contribution in lieu of a defined benefit pension plan benefit.

The company’s contributions to these defined contribution plans for the years ended December 31, 2022, 2021 and 2020, were $ 558 million, $ 588 million and $ 590 million, respectively.

2 unchanged sentences

Some of these plans are funded using benefit trusts separate from the company.

NORTHROP GRUMMAN CORPORATION

Medical and Life Benefits – The company funds a portion of the costs for certain health care and life insurance benefits for a substantial number of its active and retired employees.

4 unchanged sentences

The company provides subsidies to reimburse certain retirees for a portion of the cost of individual Medicare-supplemental coverage purchased directly by the retiree through a private insurance exchange.

The company has capped the amount of its contributions to substantially all of its remaining postretirement medical and life benefit plans.

The company has capped the amount of its contributions for substantially all of its remaining postretirement medical and life benefit plans.

In addition, after January 1, 2005 (or earlier at some businesses), newly hired employees are not eligible for subsidized postretirement medical and life benefits.

14 unchanged sentences

$ in millions Pension Benefits Medical and Life Benefits Total

Changes in unamortized prior service credit

Amortization of prior service credit $ 59 $ 3 $ 62

Changes in unamortized prior service credit (cost)

Amortization of prior service credit (cost) $ 59 $ ( 4 ) $ 55

Tax expense ( 15 ) 1 ( 14 )

Change in unamortized prior service credit – 2019 45 2 47

Change in unamortized prior service credit (cost) – 2020 44 ( 3 ) 41

Amortization of prior service credit (cost) 9 1 10

5 unchanged sentences

The following table sets forth the funded status and amounts recognized in the consolidated statements of financial position for the company’s defined benefit retirement plans.

Pension benefits data includes the qualified plans,

NORTHROP GRUMMAN CORPORATION

foreign plans and U.S.

Pension benefits data includes the qualified plans, foreign plans and U.S.

unfunded non-qualified plans for benefits provided to directors, officers and certain employees.

The company uses a December 31 measurement date for its plans.

NORTHROP GRUMMAN CORPORATION

Pension Benefits Medical and Life Benefits

1 unchanged sentence

Fair value of plan assets at beginning of year $ 36,236 $ 34,452 $ 1,588 $ 1,515

Net gain on plan assets 3,637 4,802 170 218

Net (loss) gain on plan assets ( 5,422 ) 3,637 ( 257 ) 170

Employer contributions 101 104 35 37

8 unchanged sentences

Participant contributions 7 8 24 23

Actuarial (gain) loss ( 794 ) 3,455 ( 369 ) 115

Actuarial loss ( 9,325 ) ( 794 ) ( 337 ) ( 369 )

Benefits paid ( 1,973 ) ( 1,964 ) ( 164 ) ( 157 )

2 unchanged sentences

Funded status $ ( 147 ) $ ( 2,652 ) $ ( 38 ) $ ( 97 )

Pension Benefits

The increase in the fair value of our plan assets for the year ended December 31, 2021 was principally driven by net plan asset returns of 10.9 percent.

In 2020, the fair value of our plan assets increased primarily due to net plan asset returns of 16.2 percent and a $ 750 million discretionary pension contribution.

The decrease in our projected benefit obligation for the year ended December 31, 2021, was primarily driven by a 30 basis point increase in the discount rate from year end 2020.

In 2020, our projected benefit obligation increased primarily due to a 71 basis point decrease in the discount rate from year end 2019.

The decrease in the fair value of our plan assets for the year ended December 31, 2022 was principally driven by losses of 15.4 percent on plan assets and $ 2.1 billion of benefit payments.

The decrease in our projected benefit obligation for the year ended December 31, 2022, was primarily driven by a 256 basis point increase in the discount rate from year end 2021 and $ 2.1 billion of benefit payments, partially offset by $ 1.2 billion of interest cost.

Pension Benefits Medical and Life Benefits

18 unchanged sentences

Initial cash balance crediting rate assumed for the next year 3.96 % 2.25 % 2.25 %

Rate to which the cash balance crediting rate is assumed to increase (the ultimate rate) 2.25 % 2.25 % 2.64 %

Rate to which the cash balance crediting rate is assumed to increase/decrease (the ultimate rate) 3.88 % 2.25 % 2.25 %

Year that the cash balance crediting rate reaches the ultimate rate 2028 2027 2026

19 unchanged sentences

NORTHROP GRUMMAN CORPORATION

The table below provides the fair values of the company’s pension and Voluntary Employee Beneficiary Association (VEBA) trust plan assets at December 31, 2021 and 2020, by asset category.

The table below provides the fair values of the company’s pension and Voluntary Employees’ Beneficiary Association (VEBA) trust plan assets at December 31, 2022 and 2021, by asset category.

The table also identifies the level of inputs used to determine the fair value of assets in each category.

44 unchanged sentences

Generally, redemption periods are daily, monthly or quarterly with a notice requirement less than 90 days.

As of December 31, 2022, there were no unfunded commitments.

As of December 31, 2021, unfunded commitments were $ 100 million.

There were no unfunded commitments as of December 31, 2020.

Fixed-income funds:

Generally, redemption periods are daily, monthly or quarterly with a notice requirement of two days .

There were no unfunded commitments as of December 31, 2021.

Unfunded commitments were $ 2 million as of December 31, 2020.

There were no unfunded commitments as of December 31, 2022 and 2021.

Consist of closed-end funds with a 5 - 10 year life as well as funds that allow redemption requests subject to the liquidity limitations of the underlying investments.

As of December 31, 2021 and 2020, unfunded commitments were $ 6 million and $ 9 million, respectively.

As of December 31, 2022 and 2021, unfunded commitments were $ 6 million.

Opportunistic investments:

26 unchanged sentences

Employee Plans – In May 2015, the company’s shareholders approved amendments to the 2011 Plan.

These amendments provided that shares issued under the plan would be counted against the aggregate share limit on a one-

NORTHROP GRUMMAN CORPORATION

for-one basis.

These amendments provided that shares issued under the plan would be counted against the aggregate share limit on a one-for-one basis.

As amended, 5.1 million shares plus 2.4 million of newly authorized shares were available for issuance under the 2011 Plan;

as of December 31, 2022, 4.6 million shares remain available for issuance.

NORTHROP GRUMMAN CORPORATION

The 2011 Plan provides for the following equity awards:

16 unchanged sentences

Stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020 was $ 99 million, $ 94 million and $ 90 million, respectively.

The related tax (deficiencies) benefits for stock-based compensation for the years ended December 31, 2021, 2020 and 2019 were $( 2 ) million, $ 14 million and $ 14 million, respectively.

The related tax benefits (deficiencies) for stock-based compensation for the years ended December 31, 2022, 2021 and 2020 were $ 10 million, $( 2 ) million and $ 14 million, respectively.

At December 31, 2022, there was $ 97 million of unrecognized compensation expense related to unvested stock awards granted under the company’s stock-based compensation plans.

70 unchanged sentences

As of December 31, 2022, we have approximately $ 82 million in rental commitments for real estate leases that have not yet commenced.

These leases are expected to commence in 2022 with lease terms of 3 to 16 years.

These leases are expected to commence in 2023 and 2024 with lease terms of 4 to 12 years.

NORTHROP GRUMMAN CORPORATION

19 unchanged sentences

FAS/CAS operating adjustment ( 200 ) 130 418

Unallocated corporate income (expense) 1,304 ( 541 ) ( 474 )

Unallocated corporate (expense) income ( 452 ) 1,304 ( 541 )

Total operating income $ 3,601 $ 5,651 $ 4,065

3 unchanged sentences

The FAS/CAS operating adjustment, previously referred to as the net FAS (service)/CAS pension adjustment, reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income.

Unallocated Corporate Income (Expense)

Unallocated corporate income (expense) includes the portion of corporate costs not considered allowable or allocable under the applicable FAR and CAS requirements, and therefore not allocated to the segments, such as changes in deferred state income taxes and a portion of management and administration, legal, environmental, compensation, retiree benefits, advertising and other corporate unallowable costs.

Unallocated corporate income (expense) also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations, as well as certain compensation and other costs.

During the first quarter of 2021, the $ 2.0 billion pre-tax gain on the sale of our IT services business and $ 192 million of unallowable state taxes and transaction costs associated with the divestiture were recorded in Unallocated corporate income (expense).

Unallocated Corporate (Expense) Income

Unallocated corporate (expense) income includes the portion of corporate costs not considered allowable or allocable under the applicable FAR and CAS requirements, and therefore not allocated to the segments, such as changes in deferred state income taxes and a portion of management and administration, legal, environmental, compensation, retiree benefits, advertising and other corporate unallowable costs.

Unallocated corporate (expense) income also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations, as well as certain compensation and other costs.

NORTHROP GRUMMAN CORPORATION

156 unchanged sentences

Corporate (1)

58 51 60 281 305 377

Total $ 1,435 $ 1,415 $ 1,420 $ 1,342 $ 1,239 $ 1,267

(1) Corporate amounts include the amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations as they are not considered part of management’s evaluation of segment operating performance.

(2) Beginning in 2022, depreciation and amortization amounts include the amortization expense related to the company’s right-of-use assets.

Prior year amounts have been recast to conform to current year presentation.

This change in presentation had no impact on depreciation and amortization expense in the consolidated statements of earnings and comprehensive income.

NORTHROP GRUMMAN CORPORATION

1 unchanged sentence

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 8. Financial Statements and Supplementary Data