What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-07-27 compared with 2023-04-27 · 106 added, 91 removed, 499 unchanged (28% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions, except per share amounts 2023 2022 2023 2022

28 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

$ in millions, except par value March 31, 2023 December 31, 2022

$ in millions, except par value June 30, 2023 December 31, 2022

Cash and cash equivalents $ 3,384 $ 2,577

39 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31

Six Months Ended June 30

$ in millions 2023 2022

1 unchanged sentence

Net earnings $ 1,654 $ 1,901

Adjustments to reconcile to net cash used in operating activities:

Adjustments to reconcile to net cash provided by (used in) operating activities:

Depreciation and amortization 621 633

11 unchanged sentences

Other, net 51 67

Net cash used in operating activities ( 702 ) ( 488 )

Net cash provided by (used in) operating activities 217 ( 685 )

Investing activities

4 unchanged sentences

Net proceeds from issuance of long-term debt 1,995 —

Net borrowings on commercial paper 768 —

Common stock repurchases ( 931 ) ( 640 )

3 unchanged sentences

Net cash provided by (used in) financing activities 1,202 ( 1,208 )

Decrease in cash and cash equivalents ( 82 ) ( 1,356 )

Increase (decrease) in cash and cash equivalents 807 ( 2,361 )

Cash and cash equivalents, beginning of year 2,577 3,530

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions, except per share amounts 2023 2022 2023 2022

31 unchanged sentences

These financial statements should be read in conjunction with the information contained in the company’s 2022 Annual Report on Form 10-K.

During the first quarter of 2023, we changed the presentation of the components of other comprehensive income (loss), net of tax in the Unaudited condensed consolidated statement of earnings and comprehensive income.

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

15 unchanged sentences

The following table presents the effect of aggregate net EAC adjustments:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions, except per share data 2023 2022 2023 2022

3 unchanged sentences

Diluted earnings per share (1)

0.39 0.47 0.63 1.34

(1) Based on a 21 percent statutory tax rate .

1 unchanged sentence

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

During the three months ended March 31, 2022, we recorded a $ 67 million favorable

During the three months ended June 30, 2023, we recorded a $ 36 million unfavorable

NORTHROP GRUMMAN CORPORATION

EAC adjustment on the engineering, manufacturing and development (EMD) phase of the B-21 program at Aeronautics Systems.

No such adjustments were material to the financial statements during the three months ended March 31, 2023.

EAC adjustment on the Habitation and Logistics Outpost (HALO) program at Space Systems largely due to cost growth stemming from evolving Lunar Gateway architecture and mission requirements combined with macroeconomic challenges.

During the three months ended March 31, 2022, we recorded a $ 67 million favorable EAC adjustment on the engineering, manufacturing and development (EMD) phase of the B-21 program at Aeronautics Systems.

No EAC adjustments on a single performance obligation had a significant impact on the financial statements during the three months ended March 31, 2023 or June 30, 2022.

Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent to the company’s remaining performance obligations at the end of each period.

1 unchanged sentence

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

Company backlog as of March 31, 2023 was $ 77.5 billion.

Of our March 31, 2023 backlog, we expect to recognize approximately 40 percent as revenue over the next 12 months and 65 percent as revenue over the next 24 months, with the remainder to be recognized thereafter.

Backlog is converted into sales as costs are incurred or deliveries are made.

Company backlog as of June 30, 2023 was $ 78.8 billion.

Of our June 30, 2023 backlog, we expect to recognize approximately 40 percent as revenue over the next 12 months and 65 percent as revenue over the next 24 months, with the remainder to be recognized thereafter.

Contract Assets and Liabilities

2 unchanged sentences

Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position.

The amount of revenue recognized for the three months ended March 31, 2023 and 2022 that was included in the contract liability balances at the beginning of each year was $ 1.7 billion and $ 1.4 billion, respectively.

The amount of revenue recognized for the three and six months ended June 30, 2023 that was included in the December 31, 2022 contract liability balance was $ 899 million and $ 2.6 billion, respectively.

The amount of revenue recognized for the three and six months ended June 30, 2022 that was included in the December 31, 2021 contract liability balance was $ 466 million and $ 1.9 billion, respectively.

Disaggregation of Revenue

2 unchanged sentences

Property, Plant, and Equipment

During the three months ended March 31, 2022, the company received lease incentives for landlord funded leasehold improvements of $ 35 million related to a Space Systems real estate lease, which were recorded in PP&E and included in non-cash investing activities.

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

During the six months ended June 30, 2022, the company received lease incentives for landlord funded leasehold improvements of $ 63 million related to a Space Systems real estate lease, which were recorded in PP&E and included in non-cash investing activities.

During the six months ended June 30, 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.

Non-cash investing activities also include capital expenditures incurred but not yet paid of $ 43 million and $ 56 million as of March 31, 2023 and 2022, respectively.

Non-cash investing activities also include capital expenditures incurred but not yet paid of $ 62 million and $ 73 million as of June 30, 2023 and 2022, respectively.

Sale of Minority Investment

In April 2023, the company reached an agreement to sell its minority investment in an international business.

The transaction, which is subject to final government approvals and closing conditions, is expected to be completed in the third quarter.

We expect to recognize a pre-tax gain of approximately $ 100 million when the transaction closes.

Accumulated Other Comprehensive Loss

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

$ in millions March 31, 2023 December 31, 2022

$ in millions June 30, 2023 December 31, 2022

Cumulative translation adjustment $ ( 156 ) $ ( 161 )

3 unchanged sentences

For all periods presented, the company had no material related party transactions.

NORTHROP GRUMMAN CORPORATION

Accounting Standards Updates

Accounting standards updates adopted and/or issued, but not effective until after March 31, 2023, are not expected to have a material effect on the company’s unaudited condensed consolidated financial position, annual results of operations and/or cash flows.

Accounting standards updates adopted and/or issued, but not effective until after June 30, 2023, are not expected to have a material effect on the company’s unaudited condensed consolidated financial position, annual results of operations and/or cash flows.

EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK

1 unchanged sentence

We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period.

NORTHROP GRUMMAN CORPORATION

Diluted Earnings Per Share

Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans.

The dilutive effect of these securities totaled 0.6 million shares for each of the three month periods ended March 31, 2023 and 2022.

The dilutive effect of these securities totaled 0.5 million shares and 0.6 million shares for the three and six months ended June 30, 2023, respectively, and 0.6 million shares for the three and six months ended June 30, 2022.

Share Repurchases

On January 25, 2021, the company’s board of directors authorized a share repurchase program of up to $ 3.0 billion of the company’s common stock (the “2021 Repurchase Program”).

Repurchases under the 2021 Repurchase Program commenced in October 2021.

As of March 31, 2023, $ 10 million remained under this share repurchase authorization.

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

Repurchases under the 2021 Repurchase Program commenced in October 2021 and were completed in April 2023.

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”).

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 March 31, 2023, there have been no repurchases under the 2022 Repurchase Program, and the company’s total outstanding share repurchase authorization was $ 2.0 billion.

Repurchases under the 2022 Repurchase Program commenced in April 2023 upon completion of the 2021 Repurchase Program.

As of June 30, 2023, repurchases under the 2022 Repurchase Program totaled 0.3 billion;

$ 1.7 billion remained under this share repurchase authorization.

By its terms, the 2022 Repurchase Program will expire when we have used all authorized funds for repurchases.

During the first quarter of 2023, the company entered into an accelerated share repurchase (ASR) agreement with Bank of America, N.A.

1 unchanged sentence

Under the agreement, we made a payment of $ 500 million to Bank of America and received an initial delivery of 0.9 million shares valued at $ 400 million that were immediately canceled by the company.

The remaining balance of $ 100 million is included as a reduction to Retained earnings on the unaudited condensed 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 agreement, less a discount.

The ASR is expected to be completed in the second quarter of 2023.

The remaining balance of $ 100 million was settled on April 27, 2023 with a final delivery of 0.2 million shares from Bank of America.

The final average purchase price was $ 458.28 per share.

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

9 unchanged sentences

Per Share (1)

Date Completed Three Months Ended March 31

January 25, 2021 $ 3,000 6.9 430.92 1.4 0.9

Date Completed Six Months Ended June 30

January 25, 2021 $ 3,000 7.0 $ 431.05 April 2023 1.4 1.6

January 24, 2022 $ 2,000 0.6 $ 452.91 0.6 —

2 unchanged sentences

In May 2023, the company increased the quarterly common stock dividend 8 percent to $ 1.87 per share from the previous amount of $ 1.73 per share.

Three Months Ended March 31

NORTHROP GRUMMAN CORPORATION

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2023 2022 2023 2022

1 unchanged sentence

Effective income tax rate 17.7 % 17.7 % 16.7 % 17.1 %

The first quarter 2023 effective tax rate (ETR) decreased to 15.6 percent from 16.5 percent principally due to higher current year ETR benefits associated with research credits and FDII deductions as well as favorable returns on tax-exempt marketable securities, partially offset by higher interest expense on unrecognized tax benefits.

The company’s first quarter 2023 ETR includes benefits of $ 40 million for research credits and $ 15 million for foreign

NORTHROP GRUMMAN CORPORATION

derived intangible income (FDII).

The company’s first quarter 2022 ETR included benefits of $ 41 million for research credits and $ 15 million for FDII.

Taxes receivable, which are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position, were $ 274 million as of March 31, 2023 and $ 850 million as of December 31, 2022.

Current Quarter

The company’s second quarter 2023 effective tax rate (ETR) of 17.7 percent was comparable with the prior year period and reflects higher interest expense on unrecognized tax benefits, offset by favorable returns on tax-exempt marketable securities.

The second quarter 2023 ETR includes benefits of $ 38 million for research credits and $ 14 million for foreign derived intangible income (FDII).

The second quarter 2022 ETR included benefits of $ 41 million for research credits and $ 15 million for FDII.

The company’s year to date 2023 ETR decreased to 16.7 percent from 17.1 percent in the prior year period principally due to higher current year ETR benefits associated with research credits and FDII deductions as well as favorable returns on tax-exempt marketable securities, partially offset by higher interest expense on unrecognized tax benefits.

The year to date 2023 ETR includes benefits of $ 78 million for research credits and $ 29 million for FDII.

The year to date 2022 ETR included benefits of $ 82 million for research credits and $ 29 million for FDII.

Taxes receivable, which are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position, were $ 566 million as of June 30, 2023 and $ 850 million as of December 31, 2022.

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

As of March 31, 2023, we have approximately $ 1.7 billion in unrecognized tax benefits, including $ 572 million related to our position on IRC Section 451(b).

As of June 30, 2023, we have approximately $ 1.6 billion in unrecognized tax benefits, including $ 601 million related to our position on IRC Section 451(b).

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

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

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 unaudited condensed consolidated statements of financial position, were $ 769 million and $ 728 million as of March 31, 2023 and December 31, 2022, respectively, with the remainder of our unrecognized tax benefits included within Other non-current liabilities.

In the second quarter of 2023, the California Franchise Tax Board approved a resolution of the state examination primarily related to California state apportionment in the company’s 2007 to 2016 tax years, resulting in a $ 95 million reduction to our unrecognized tax benefits and an $ 11 million reduction to unallocated corporate expense.

We file income tax returns in the U.S.

1 unchanged sentence

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 second quarter of 2023, the company entered into an agreed Revenue Agent’s Report (“RAR”) for certain matters related to the company’s 2014-2017 federal income tax returns, resulting in a $ 90 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense.

Our current unrecognized tax benefits, which are included in Other current liabilities in the unaudited condensed consolidated statements of financial position, were $ 689 million and $ 728 million as of June 30, 2023 and December 31, 2022, respectively, with the remainder of our unrecognized tax benefits included within Other non-current liabilities.

FAIR VALUE OF FINANCIAL INSTRUMENTS

1 unchanged sentence

A portion of these securities are held in common/collective trust funds and are measured at fair value using net asset value (NAV) per share as a practical expedient;

therefore, they are not required to be categorized in the fair value hierarchy table below.

therefore, they are not categorized in the fair value hierarchy table below.

Marketable securities are included in Other non-current assets in the unaudited condensed consolidated statements of financial position.

NORTHROP GRUMMAN CORPORATION

The company’s derivative portfolio consists primarily of foreign currency forward contracts.

1 unchanged sentence

The following table presents the financial assets and liabilities the company records at fair value on a recurring basis identified by the level of inputs used to determine fair value:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

$ in millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

4 unchanged sentences

Derivatives — 2 — 2 — 7 — 7

The notional value of the company’s foreign currency forward contracts at March 31, 2023 and December 31, 2022 was $ 237 million and $ 221 million, respectively.

The portion of notional value designated as a cash flow hedge at March 31, 2023 and December 31, 2022 was $ 88 million and $ 87 million, respectively.

The derivative fair values and related unrealized gains/losses at March 31, 2023 and December 31, 2022 were not material.

NORTHROP GRUMMAN CORPORATION

There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the three months ended March 31, 2023.

The notional value of the company’s foreign currency forward contracts at June 30, 2023 and December 31, 2022 was $ 271 million and $ 221 million, respectively.

The portion of notional value designated as a cash flow hedge at June 30, 2023 and December 31, 2022 was $ 59 million and $ 87 million, respectively.

The derivative fair values and related unrealized gains/losses at June 30, 2023 and December 31, 2022 were not material.

There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the six months ended June 30, 2023.

The carrying value of cash and cash equivalents and commercial paper approximates fair value.

Long-term Debt

The estimated fair value of long-term debt was $ 14.4 billion and $ 12.1 billion as of March 31, 2023 and December 31, 2022, respectively.

The estimated fair value of long-term debt was $ 14.3 billion and $ 12.1 billion as of June 30, 2023 and December 31, 2022, respectively.

We calculated the fair value of long-term debt using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements.

1 unchanged sentence

Unsecured Senior Notes

In February 2023, the company issued $ 2.0 billion of unsecured senior notes for general corporate purposes, which may include debt repayment (including our 3.25% senior notes due in 2023), share repurchases, and working capital, as follows:

In February 2023, the company issued $ 2.0 billion of unsecured senior notes for general corporate purposes, which may include debt repayment (including our 3.25% senior notes due in August 2023), share repurchases, and working capital, as follows:

• $ 1.0 billion of 4.70 % senior notes due 2033 (the “2033 Notes”) and

2 unchanged sentences

The notes are generally subject to redemption, in whole or in part, at the company’s discretion at any time, or from time to time, prior to maturity at a redemption price equal to the greater of 100% of the principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest.

NORTHROP GRUMMAN CORPORATION

INVESTIGATIONS, CLAIMS AND LITIGATION

21 unchanged sentences

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

NORTHROP GRUMMAN CORPORATION

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 unaudited condensed consolidated financial position as of March 31, 2023, or its annual results of operations and/or cash flows.

In late 2022, the company received a follow-on CID;

the company responded to it earlier this year.

We cannot predict any additional steps, but we do not believe they are likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2023, 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.

2 unchanged sentences

The company is engaging with the government and responding to the requests.

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

We cannot at this point predict the outcome of these matters.

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

The nature of legal proceedings is such that we cannot assure the outcome of any particular matter.

However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of March 31, 2023, or its annual results of operations and/or cash flows.

However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2023, or its annual results of operations and/or cash flows.

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

When such findings are presented, the company and U.S.

government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed.

NORTHROP GRUMMAN CORPORATION

representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed.

Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs.

Such provisions are reviewed periodically using the most recent information available.

The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of March 31, 2023, or its annual results of operations and/or cash flows.

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 unaudited condensed consolidated financial position as of June 30, 2023, or its annual results of operations and/or cash flows.

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.

3 unchanged sentences

We have 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 5 above, the company received from the the U.S.

Department of Justice (DOJ) a criminal subpoena on December 9, 2022 and a civil investigative demand on February 2, 2023, both seeking information that appears related to the interest rate assumptions at issue in our discussions with DCMA.

As noted in Note 5 above, the company received from the DOJ a criminal subpoena on December 9, 2022 and a CID on February 2, 2023, both seeking information that appears related to the interest rate assumptions at issue in our discussions with DCMA.

The company is engaging with the government and responding to the requests.

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

We cannot at this point predict the outcome of these matters.

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

4 unchanged sentences

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 first quarter of 2023, we reviewed our estimated cost to complete the LRIP phase of the B-21 program.

The LRIP options are largely fixed price and are expected to be awarded and executed through approximately the end of the decade.

In the second quarter of 2023, we again reviewed our estimated cost to complete the LRIP phase of the B-21 program.

Principally due to the company’s estimate of the impact macroeconomic factors may have on our cost to complete the LRIP options, as well as ongoing discussions with our suppliers and our customer, we continue to 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

do 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 March 31, 2023.

As we do 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 June 30, 2023.

Environmental Matters

The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S.

government contracts as of March 31, 2023 and December 31, 2022:

government contracts as of June 30, 2023 and December 31, 2022:

$ in millions Accrued Costs (1)(2)

1 unchanged sentence

Deferred Costs (3)

March 31, 2023 $ 570 $ 357 $ 498

June 30, 2023 $ 562 $ 353 $ 490

December 31, 2022 565 353 486

(1) As of March 31, 2023, $ 200 million is recorded in Other current liabilities and $ 370 million is recorded in Other non-current liabilities.

(1) As of June 30, 2023, $ 202 million is recorded in Other current liabilities and $ 360 million is recorded in Other non-current liabilities.

(2) Estimated remediation costs are not discounted to present value.

1 unchanged sentence

government contracts.

(3) As of March 31, 2023, $ 181 million is deferred in Prepaid expenses and other current assets and $ 317 million is deferred in Other non-current assets.

(3) As of June 30, 2023, $ 181 million is deferred in Prepaid expenses and other current assets and $ 309 million is deferred in Other non-current assets.

These amounts are evaluated for recoverability on a routine basis.

Although management cannot predict whether (i) new information gained as our environmental remediation projects progress, (ii) changes in remediation standards or other requirements to which we are subject, or (iii) other changes in facts and circumstances will materially affect the estimated liability accrued, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s unaudited condensed consolidated financial position as of March 31, 2023, or its annual results of operations and/or cash flows.

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 unaudited condensed consolidated financial position as of June 30, 2023, or its annual results of operations and/or cash flows.

NORTHROP GRUMMAN CORPORATION

Financial Arrangements

In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations.

At March 31, 2023, there were $ 367 million of stand-by letters of credit and guarantees and $ 79 million of surety bonds outstanding.

At June 30, 2023, there were $ 356 million of stand-by letters of credit and guarantees and $ 79 million of surety bonds outstanding.

Commercial Paper

The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $ 2.5 billion.

At March 31, 2023, there were no commercial paper borrowings outstanding.

At June 30, 2023, there were $ 779 million of outstanding short-term commercial paper borrowings at a weighted-average interest rate of 5.73 % that have original maturities of three months or less from the date of issuance.

The outstanding balance of commercial paper borrowings is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.

Credit Facilities

1 unchanged sentence

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

At March 31, 2023, there were no borrowings outstanding under this facility.

At June 30, 2023, there were no borrowings outstanding under this facility;

however, the amount available for borrowing was reduced by the $ 779 million of outstanding, short-term commercial paper borrowings described above.

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

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

At March 31, 2023, the company was in compliance with all covenants under its credit agreements.

NORTHROP GRUMMAN CORPORATION

At June 30, 2023, the company was in compliance with all covenants under its credit agreements.

RETIREMENT BENEFITS

The cost to the company of its pension and other postretirement benefit (OPB) plans is shown in the following table:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

Benefits OPB Pension

$ in millions 2023 2022 2023 2022 2023 2022 2023 2022

3 unchanged sentences

Expected return on plan assets ( 525 ) ( 661 ) ( 21 ) ( 27 ) ( 1,049 ) ( 1,321 ) ( 42 ) ( 55 )

Amortization of prior service (credit) cost — — — ( 1 ) — — — ( 1 )

Net periodic benefit cost (benefit) $ ( 74 ) $ ( 285 ) $ ( 4 ) $ ( 14 ) $ ( 147 ) $ ( 569 ) $ ( 7 ) $ ( 28 )

3 unchanged sentences

Contributions made by the company to its retirement plans are as follows:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2023 2022 2023 2022

2 unchanged sentences

Defined contribution plans 146 122 361 321

NORTHROP GRUMMAN CORPORATION

STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS

The following table presents the number of restricted stock rights (RSRs) and restricted performance stock rights (RPSRs) granted to employees under the company’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented:

Three Months Ended March 31

Six Months Ended June 30

in millions 2023 2022

4 unchanged sentences

The following table presents the minimum and maximum aggregate payout amounts related to cash units (CUs) and cash performance units (CPUs) granted to employees in the periods presented:

Three Months Ended March 31

Six Months Ended June 30

$ in millions 2023 2022

5 unchanged sentences

The following table presents sales and operating income by segment:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2023 2022 2023 2022

25 unchanged sentences

Disaggregation of Revenue

Sales by Customer Type Three Months Ended March 31

Sales by Customer Type Three Months Ended June 30 Six Months Ended June 30

2023 2022 2023 2022

$ in millions $ % (3)

44 unchanged sentences

NORTHROP GRUMMAN CORPORATION

Sales by Contract Type Three Months Ended March 31

Sales by Contract Type Three Months Ended June 30 Six Months Ended June 30

2023 2022 2023 2022

$ in millions $ % (1)

24 unchanged sentences

NORTHROP GRUMMAN CORPORATION

Sales by Geographic Region Three Months Ended March 31

Sales by Geographic Region Three Months Ended June 30 Six Months Ended June 30

2023 2022 2023 2022

$ in millions $ % (2)

28 unchanged sentences

All other (1)

20 1 % 4 — % 26 — % 7 — %

Intersegment sales 26 31 58 62

8 unchanged sentences

(2) Percentages calculated based on external customer sales.

SUBSEQUENT EVENT

In April 2023, the company reached an agreement to sell its minority investment in an international business.

The transaction, which is subject to final government approvals and closing conditions, is expected to be completed later this year.

We currently expect to recognize a pre-tax gain of approximately $ 100 million when the transaction closes.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

3 unchanged sentences

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of March 31, 2023, and the related condensed consolidated statements of earnings and comprehensive income, cash flows, and changes in shareholders’ equity for the three-month periods ended March 31, 2023 and 2022, and the related notes (collectively referred to as the “interim financial information”).

We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of June 30, 2023, and the related condensed consolidated statements of earnings and comprehensive income and changes in shareholders’ equity for the three-month and six-month periods ended June 30, 2023 and 2022, and of cash flows for the six-month periods ended June 30, 2023 and 2022 and the related notes (collectively referred to as the “interim financial information”).

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

12 unchanged sentences

McLean, Virginia

April 26, 2023

July 26, 2023

NORTHROP GRUMMAN CORPORATION

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-Q

Item 1. Financial Statements