What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-10-26 compared with 2023-07-27 · 101 added, 86 removed, 519 unchanged (26% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 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 June 30, 2023 December 31, 2022

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

Cash and cash equivalents $ 2,082 $ 2,577

39 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30

Nine Months Ended September 30

$ in millions 2023 2022

1 unchanged sentence

Net earnings $ 2,591 $ 2,816

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

Adjustments to reconcile to net cash provided by operating activities:

Depreciation and amortization 938 960

11 unchanged sentences

Other, net ( 43 ) 96

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

Net cash provided by operating activities 1,445 650

Investing activities

Capital expenditures ( 972 ) ( 803 )

Proceeds from sale of equipment to a customer — 100

Proceeds from sale of minority investment 157 —

Other, net 3 40

2 unchanged sentences

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

Net borrowings on commercial paper 768 —

Payments of long-term debt ( 1,050 ) —

Common stock repurchases ( 1,154 ) ( 1,011 )

2 unchanged sentences

Other, net ( 34 ) ( 4 )

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

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

Net cash used in financing activities ( 1,128 ) ( 1,851 )

Decrease in cash and cash equivalents ( 495 ) ( 1,864 )

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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

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

44 unchanged sentences

Contract Estimates

Contract sales may include estimates of variable consideration, including cost or performance incentives (such as award and incentive fees), un-priced change orders, REAs and contract claims.

Variable consideration is included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

We estimate variable consideration as the most likely amount to which we expect to be entitled.

At the request of the National Aeronautics and Space Administration (NASA), Space Systems is preparing engineering change proposals (ECPs) for scope increases and other aspects of the Habitation and Logistics Outpost (HALO) contract largely stemming from evolving Lunar Gateway architecture and mission requirements.

We expect the ECPs will address both work performed and work expected to be performed by the company resulting from scope changes previously approved by NASA, as well as changes NASA has requested the company to propose but has not yet directed the company to perform.

The company plans to submit an ECP prior to the end of the year and begin negotiating with NASA on these various changes and other aspects of the HALO contract.

The company’s third quarter results reflect our current best estimate of the outcome of the ECP negotiations assuming the terms of the current contract;

however, if the outcome is less favorable than what we have assumed, it could have an adverse effect on our financial position, results of operations and/or cash flows.

We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis.

1 unchanged sentence

sales and operating margins in future periods are recognized as if the revised estimates had been used since contract inception.

If it is determined that a loss is expected to result on an individual performance obligation, the entire amount of the estimable future loss, including an allocation of general and administrative expense, is charged against income in the period the loss is identified.

If it is determined that a loss is expected to result on an individual performance

NORTHROP GRUMMAN CORPORATION

obligation, the entire amount of the estimable future loss, including an allocation of general and administrative expense, is charged against income in the period the loss is identified.

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

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

2 unchanged sentences

Net earnings (1)

46 36 142 245

Diluted earnings per share (1)

3 unchanged sentences

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

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

NORTHROP GRUMMAN CORPORATION

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 June 30, 2023, we recorded a $ 36 million unfavorable EAC adjustment on the HALO program at Space Systems.

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.

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

2 unchanged sentences

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.

Company backlog as of September 30, 2023 was $ 83.9 billion.

Of our September 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 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.

The amount of revenue recognized for the three and nine months ended September 30, 2023 that was included in the December 31, 2022 contract liability balance was $ 358 million and $ 2.9 billion, respectively.

The amount of revenue recognized for the three and nine months ended September 30, 2022 that was included in the December 31, 2021 contract liability balance was $ 303 million and $ 2.2 billion, respectively.

Disaggregation of Revenue

1 unchanged sentence

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

Property, Plant, and Equipment

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.

During the nine months ended September 30, 2022, the company received lease incentives for landlord funded leasehold improvements of $ 96 million related to a Space Systems real estate lease, which were recorded in PP&E and included in non-cash investing activities.

During the nine months ended September 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 $ 62 million and $ 73 million as of June 30, 2023 and 2022, respectively.

Non-cash investing activities also include capital expenditures incurred but not yet paid of $ 134 million and $ 118 million as of September 30, 2023 and 2022, respectively.

In the fourth quarter of 2020, the company completed a sale of equipment to a customer on a restricted Aeronautics Systems program.

During the nine months ended September 30, 2022, the company received cash payments of $ 100 million related to the equipment sale and included it in Proceeds from sale of equipment to a customer in the unaudited condensed consolidated statement of cash flows.

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.

In July 2023, the company sold its minority investment in an Australian business for AUD $ 235 million (the equivalent of $ 157 million upon settlement).

The sale resulted in a pre-tax gain of $ 97 million, which is reflected in Other, net on the unaudited condensed consolidated statements of earnings and comprehensive income for the three and nine months ended September 30, 2023.

Proceeds from the sale are included in investing activities on the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2023.

Accumulated Other Comprehensive Loss

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

$ in millions June 30, 2023 December 31, 2022

$ in millions September 30, 2023 December 31, 2022

Cumulative translation adjustment $ ( 150 ) $ ( 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 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.

Accounting standards updates adopted and/or issued, but not effective until after September 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

3 unchanged sentences

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 0.5 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.

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

The dilutive effect of these securities totaled 0.7 million shares and 0.6 million shares for the three and nine months ended September 30, 2022, respectively.

Share Repurchases

1 unchanged sentence

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

NORTHROP GRUMMAN CORPORATION

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”).

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;

As of September 30, 2023, repurchases under the 2022 Repurchase Program totaled 0.5 billion;

$ 1.5 billion remained under this share repurchase authorization.

16 unchanged sentences

Per Share (1)

Date Completed Six Months Ended June 30

Date Completed Nine Months Ended September 30

January 25, 2021 $ 3,000 7.0 $ 431.05 April 2023 1.4 2.4

3 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.

NORTHROP GRUMMAN CORPORATION

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

$ in millions 2023 2022 2023 2022

2 unchanged sentences

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’s third quarter 2023 effective tax rate (ETR) of 16.2 percent was comparable with the prior year period and reflects an increase in research credits, partially offset by higher interest expense on unrecognized tax benefits.

The third quarter 2023 ETR includes benefits of $ 62 million for research credits and $ 19 million for foreign derived intangible income (FDII), partially offset by $ 21 million of interest expense on unrecognized tax benefits.

The third quarter 2022 ETR included benefits of $ 42 million for research credits and $ 16 million for FDII, partially offset by $ 11 million of interest expense on unrecognized tax benefits.

The company’s year to date 2023 ETR decreased to 16.5 percent from 16.8 percent in the prior year period principally due to an increase in research credits as well as more 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 $ 140 million for research credits and $ 48 million for FDII, partially offset by $ 48 million of interest expense on unrecognized tax benefits.

The year to date 2022 ETR included benefits of $ 124 million for

NORTHROP GRUMMAN CORPORATION

research credits and $ 46 million for FDII, partially offset by $ 26 million of interest expense on unrecognized tax benefits.

Taxes receivable, which are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position, were $ 810 million as of September 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 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).

As of September 30, 2023, we have approximately $ 1.9 billion in unrecognized tax benefits, including $ 807 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.

5 unchanged sentences

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.

Our current unrecognized tax benefits, which are included in Other current liabilities in the unaudited condensed consolidated statements of financial position, were $ 909 million and $ 728 million as of September 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

3 unchanged sentences

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:

June 30, 2023 December 31, 2022

September 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 — 1 — 1 — 7 — 7

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.

The notional value of the company’s foreign currency forward contracts at September 30, 2023 and December 31, 2022 was $ 215 million and $ 221 million, respectively.

The portion of notional value designated as a cash flow hedge at September 30, 2023 and December 31, 2022 was $ 88 million and $ 87 million, respectively.

NORTHROP GRUMMAN CORPORATION

The derivative fair values and related unrealized gains/losses at September 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 nine months ended September 30, 2023.

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

Long-term Debt

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.

The estimated fair value of long-term debt was $ 12.5 billion and $ 12.1 billion as of September 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 August 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, including debt repayment, 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

In August 2023, the company repaid $ 1.05 billion of 3.25 percent unsecured senior notes upon maturity.

INVESTIGATIONS, CLAIMS AND LITIGATION

18 unchanged sentences

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 (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.

In October 2019, the company received a

NORTHROP GRUMMAN CORPORATION

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.

2 unchanged sentences

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.

On October 20, 2023, the FTC informed the company that the FTC has now closed the investigation with no further action.

The company received from the U.S.

4 unchanged sentences

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 June 30, 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 September 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.

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.

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.

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 June 30, 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 September 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.

13 unchanged sentences

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.

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.

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

NORTHROP GRUMMAN CORPORATION

is between $ 0 and $ 1.2 billion.

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 September 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 June 30, 2023 and December 31, 2022:

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

$ in millions Accrued Costs (1)(2)

1 unchanged sentence

Deferred Costs (3)

June 30, 2023 $ 562 $ 353 $ 490

September 30, 2023 $ 574 $ 368 $ 511

December 31, 2022 565 353 486

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

(1) As of September 30, 2023, $ 217 million is recorded in Other current liabilities and $ 357 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 June 30, 2023, $ 181 million is deferred in Prepaid expenses and other current assets and $ 309 million is deferred in Other non-current assets.

(3) As of September 30, 2023, $ 201 million is deferred in Prepaid expenses and other current assets and $ 310 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 June 30, 2023, or its annual results of operations and/or cash flows.

NORTHROP GRUMMAN CORPORATION

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 September 30, 2023, or its annual results of operations and/or cash flows.

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

At September 30, 2023, there were $ 374 million of stand-by letters of credit and guarantees and $ 78 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 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.

At September 30, 2023, there were no commercial paper borrowings outstanding.

Credit Facilities

1 unchanged sentence

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

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.

At September 30, 2023, 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.

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

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

NORTHROP GRUMMAN CORPORATION

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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

Benefits OPB Pension

10 unchanged sentences

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

$ in millions 2023 2022 2023 2022

2 unchanged sentences

Defined contribution plans 126 108 487 429

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:

Six Months Ended June 30

Nine Months Ended September 30

in millions 2023 2022

3 unchanged sentences

RSRs typically vest on the third anniversary of the grant date, while RPSRs generally vest and pay out based on the achievement of certain performance metrics over a three-year period.

NORTHROP GRUMMAN CORPORATION

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:

Six Months Ended June 30

Nine Months Ended September 30

$ in millions 2023 2022

2 unchanged sentences

CUs typically vest and settle in cash on the third anniversary of the grant date, while CPUs generally vest and pay out in cash based on the achievement of certain performance metrics over a three-year period.

NORTHROP GRUMMAN CORPORATION

SEGMENT INFORMATION

The following table presents sales and operating income by segment:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

$ in millions 2023 2022 2023 2022

25 unchanged sentences

Disaggregation of Revenue

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

Sales by Customer Type Three Months Ended September 30 Nine Months Ended September 30

2023 2022 2023 2022

45 unchanged sentences

NORTHROP GRUMMAN CORPORATION

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

Sales by Contract Type Three Months Ended September 30 Nine Months Ended September 30

2023 2022 2023 2022

25 unchanged sentences

NORTHROP GRUMMAN CORPORATION

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

Sales by Geographic Region Three Months Ended September 30 Nine Months Ended September 30

2023 2022 2023 2022

45 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 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”).

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

July 26, 2023

October 25, 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