NORTHROP GRUMMAN CORP /DE/ 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Northrop Grumman Corporation Falls Church, Virginia Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of earnings and comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 29, 2025 expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit and risk committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition - Estimates of Revenue and Cost at Completion for Select Long-Term Contracts - Refer to Note 1 to the financial statements Critical Audit Matter Description As further described in Note 1 to the financial statements, the Company recognizes revenue as control is transferred to the customer, which for long-term contracts is generally over-time using the cost-to-cost method (cost incurred relative to total cost estimated at completion). Use of the cost-to-cost-method requires the Company to make reasonably dependable estimates regarding the revenue and costs associated with the design, manufacture and delivery of their products or services. The Company estimates profit on these contracts as the difference between total estimated revenue and total estimated costs at completion and recognizes that profit as costs are incurred. We -47- NORTHROP GRUMMAN CORPORATION analyzed the Company’s contract portfolio to identify contracts that we believe had elevated financial or performance risk. For those contracts identified, the evaluation of one or more of the assumptions used to recognize revenue required extensive audit effort due to the complexity of the contracts and a high degree of auditor judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the revenue and cost estimates for these contracts identified included the following, among others: • We tested the operating effectiveness of controls over the significant assumptions and judgments underlying the estimates of revenues and costs to completion associated with these long-term contracts. • Based on the risk characteristic identified on an individual contract, we evaluated certain revenue and cost assumptions by: – Reading the underlying contract and any amendments or modifications to understand the contractual requirements and performance obligations. – Assessing the timing of recognition of any incentive fees or award fees based on contract terms and relevant historical trends. – Evaluating management’s ability to achieve the estimates of remaining revenue and costs by performing inquiries with the Company’s program and business management regarding their basis of estimates including work plans, engineering specifications, program labor and suppliers, challenges or opportunities related to the program, actual performance to date compared to plan, and any recent correspondence between the Company and the customer on changes in scope or contractual terms. – Evaluating selected changes to the estimates of costs to completion and obtaining supporting documentation on the appropriateness of the timing and amounts of these changes in estimates. – Testing the accuracy and completeness of the information used in developing estimates, as well as the mathematical accuracy of management’s calculation of revenue recognized during the period for the performance obligations. /s/ Deloitte & Touche LLP McLean, Virginia January 29, 2025 We have served as the Company’s auditor since 1975. -48- NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME Year Ended December 31 $ in millions, except per share amounts 2024 2023 2022 Sales Product $ 32,726 $ 30,897 $ 28,522 Service 8,307 8,393 8,080 Total sales 41,033 39,290 36,602 Operating costs and expenses Product 26,188 26,226 22,761 Service 6,483 6,513 6,367 General and administrative expenses 3,992 4,014 3,873 Total operating costs and expenses 36,663 36,753 33,001 Operating income 4,370 2,537 3,601 Other (expense) income Interest expense ( 621 ) ( 545 ) ( 506 ) Non-operating FAS pension benefit 656 530 1,505 Mark-to-market pension and OPB benefit (expense) 443 ( 422 ) 1,232 Other, net 168 246 4 Earnings before income taxes 5,016 2,346 5,836 Federal and foreign income tax expense 842 290 940 Net earnings $ 4,174 $ 2,056 $ 4,896 Basic earnings per share $ 28.39 $ 13.57 $ 31.61 Weighted-average common shares outstanding, in millions 147.0 151.5 154.9 Diluted earnings per share $ 28.34 $ 13.53 $ 31.47 Weighted-average diluted shares outstanding, in millions 147.3 152.0 155.6 Net earnings (from above) $ 4,174 $ 2,056 $ 4,896 Other comprehensive (loss) income, net of tax Change in cumulative translation adjustment ( 2 ) 23 ( 16 ) Change in other, net ( 22 ) 2 6 Other comprehensive (loss) income, net of tax ( 24 ) 25 ( 10 ) Comprehensive income $ 4,150 $ 2,081 $ 4,886 The accompanying notes are an integral part of these consolidated financial statements. -49- NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31 $ in millions, except par value 2024 2023 Assets Cash and cash equivalents $ 4,353 $ 3,109 Accounts receivable, net 1,272 1,454 Unbilled receivables, net 5,908 5,693 Inventoried costs, net 1,455 1,109 Prepaid expenses and other current assets 1,286 2,341 Total current assets 14,274 13,706 Property, plant and equipment, net of accumulated depreciation of $ 8,733 for 2024 and $ 7,964 for 2023 10,536 9,653 Operating lease right-of-use assets 1,770 1,818 Goodwill 17,512 17,517 Intangible assets, net 254 305 Deferred tax assets 1,599 1,020 Pension and other postretirement benefit plan assets 2,184 1,331 Other non-current assets 1,230 1,194 Total assets $ 49,359 $ 46,544 Liabilities Trade accounts payable $ 2,599 $ 2,110 Accrued employee compensation 2,271 2,251 Advance payments and billings in excess of costs incurred 4,070 4,193 Other current liabilities 5,188 3,388 Total current liabilities 14,128 11,942 Long-term debt, net of current portion of $ 1,582 for 2024 and $ 70 for 2023 14,692 13,786 Pension and other postretirement benefit plan liabilities 1,120 1,290 Operating lease liabilities 1,798 1,892 Other non-current liabilities 2,331 2,839 Total liabilities 34,069 31,749 Commitments and contingencies (Note 11) Shareholders’ equity Preferred stock, $ 1 par value; 10,000,000 shares authorized; no shares issued and outstanding — — Common stock, $ 1 par value; 800,000,000 shares authorized; issued and outstanding: 2024— 144,952,026 and 2023— 150,109,271 145 150 Paid-in capital — — Retained earnings 15,297 14,773 Accumulated other comprehensive loss ( 152 ) ( 128 ) Total shareholders’ equity 15,290 14,795 Total liabilities and shareholders’ equity $ 49,359 $ 46,544 The accompanying notes are an integral part of these consolidated financial statements. -50- NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 $ in millions 2024 2023 2022 Operating activities Net earnings $ 4,174 $ 2,056 $ 4,896 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 1,370 1,338 1,342 Mark-to-market pension and OPB (benefit) expense ( 443 ) 422 ( 1,232 ) Stock-based compensation 101 87 99 Deferred income taxes ( 582 ) ( 988 ) ( 321 ) B-21 charge — 1,559 — Net periodic pension and OPB income ( 438 ) ( 308 ) ( 1,193 ) Pension and OPB contributions ( 129 ) ( 139 ) ( 136 ) Changes in assets and liabilities: Accounts receivable, net 182 54 ( 44 ) Unbilled receivables, net ( 215 ) 247 ( 646 ) Inventoried costs, net ( 358 ) ( 220 ) ( 205 ) Prepaid expenses and other assets 35 ( 86 ) 2 Accounts payable and other liabilities ( 513 ) 519 572 Income taxes payable, net 1,143 ( 658 ) ( 279 ) Other, net 61 ( 8 ) 46 Net cash provided by operating activities 4,388 3,875 2,901 Investing activities Capital expenditures ( 1,767 ) ( 1,775 ) ( 1,435 ) Proceeds from sale of equipment to a customer — — 155 Proceeds from sale of minority investments — 197 — Other, net 18 ( 4 ) 39 Net cash used in investing activities ( 1,749 ) ( 1,582 ) ( 1,241 ) Financing activities Net proceeds from issuance of long-term debt 2,495 1,995 — Payments of long-term debt — ( 1,050 ) — Common stock repurchases ( 2,514 ) ( 1,500 ) ( 1,504 ) Cash dividends paid ( 1,186 ) ( 1,116 ) ( 1,052 ) Payments of employee taxes withheld from share-based awards ( 58 ) ( 52 ) ( 50 ) Other, net ( 132 ) ( 38 ) ( 7 ) Net cash used in financing activities ( 1,395 ) ( 1,761 ) ( 2,613 ) Increase (decrease) in cash and cash equivalents 1,244 532 ( 953 ) Cash and cash equivalents, beginning of year 3,109 2,577 3,530 Cash and cash equivalents, end of period $ 4,353 $ 3,109 $ 2,577 The accompanying notes are an integral part of these consolidated financial statements. -51- NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Year Ended December 31 $ in millions, except per share amounts 2024 2023 2022 Common stock Beginning of year $ 150 $ 153 $ 156 Common stock repurchased ( 5 ) ( 3 ) ( 4 ) Shares issued for employee stock awards and options — — 1 End of year 145 150 153 Paid-in capital Beginning of year — — — End of year — — — Retained earnings Beginning of year 14,773 15,312 12,913 Common stock repurchased ( 2,510 ) ( 1,519 ) ( 1,497 ) Net earnings 4,174 2,056 4,896 Dividends declared ( 1,185 ) ( 1,114 ) ( 1,052 ) Stock compensation 45 38 52 End of year 15,297 14,773 15,312 Accumulated other comprehensive loss Beginning of year ( 128 ) ( 153 ) ( 143 ) Other comprehensive (loss) income, net of tax ( 24 ) 25 ( 10 ) End of year ( 152 ) ( 128 ) ( 153 ) Total shareholders’ equity $ 15,290 $ 14,795 $ 15,312 Cash dividends declared per share $ 8.05 $ 7.34 $ 6.76 The accompanying notes are an integral part of these consolidated financial statements. -52- NORTHROP GRUMMAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations 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. and international customers, and principally to the U.S. Department of Defense and intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity. The company is a leading provider of space systems, military aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and breakthrough technologies, such as advanced computing, microelectronics and cyber. We are focused on competing and winning programs that enable continued growth, performing on our commitments and affordably delivering capability our customers need. With the investments we've made in advanced technologies, combined with our talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet our customers' needs today and in the future. Principles of Consolidation and Reporting The consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman and its subsidiaries and joint ventures or other investments for which we consolidate the financial results. Intercompany accounts, transactions and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method. The financial statements are prepared in conformity with U.S. GAAP and in accordance with the rules of the SEC. The financial statements include adjustments of a normal recurring nature considered necessary by management for a fair presentation of the company’s consolidated financial position, results of operations and cash flows. For classification of certain current assets and liabilities, we consider the duration of our customer contracts when defining our operating cycle, which is generally longer than one year. Effective July 1, 2024, the company realigned the Strategic Deterrent Systems (SDS) division, which includes the Ground-Based Strategic Deterrent (“Sentinel”) program, from Space Systems to Defense Systems. This realignment is reflected in the financial information contained in this report. Subsequent Realignment - Effective January 1, 2025, the company realigned the Strike and Surveillance Aircraft Solutions (SSAS) business unit from Defense Systems to Aeronautics Systems. This realignment is not reflected in the financial information contained in this report; it will be reflected in the company’s operating results beginning in the first quarter of 2025. Accounting Estimates Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates. Revenue Recognition The majority of our sales are derived from long-term contracts with the U.S. government for the development or production of goods, the provision of services, or a combination of both. The company classifies sales as product or service based on the predominant attributes of each performance obligation. The company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. 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 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. Assets recognized from the costs to obtain or fulfill a contract are not material. -53- NORTHROP GRUMMAN CORPORATION The company recognizes revenue as control is transferred to the customer, either over time or at a point in time. In general, our U.S. government contracts contain termination for convenience and/or other clauses that generally provide the customer rights to goods produced and/or in-process. 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. 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). The company believes this represents the most appropriate measurement towards satisfaction of its performance obligations. Revenue for contracts in which the control of goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon delivery). Contracts are often modified for changes in contract specifications or requirements, which may result in scope and/or price changes. Most of the company’s contract modifications are for goods or services that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative EAC adjustment. Contract Estimates Use of the cost-to-cost method requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. The company estimates profit on these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes that profit as costs are incurred. Significant judgment is used to estimate total sales and cost at completion. 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. We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative EAC adjustments represent the cumulative effect of the changes on current and prior periods; 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 G&A costs, is charged against income in the period the loss is identified. B-21 Program During the fourth quarter of 2023, we recognized a projected loss of $ 1.56 billion across the five LRIP options of the B-21 program. As of December 31, 2024, the remaining loss accrual is $ 1.3 billion, which is included in Other current liabilities. Net EAC Adjustments The following table presents the effect of aggregate net EAC adjustments: Year Ended December 31 $ in millions, except per share data 2024 2023 2022 Revenue $ 396 $ 298 $ 447 Operating income 350 84 360 Net earnings (1) 277 66 284 Diluted earnings per share (1) 1.88 0.43 1.83 (1) Based on a 21% federal statutory tax rate. EAC adjustments on a single performance obligation can have a significant effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. During the third quarter of 2024, we recorded a $ 39 million favorable EAC adjustment on the HALO program at Space Systems related to the resolution of an engineering change proposal (ECP) as previously disclosed. During 2023, we recorded a $ 143 million unfavorable EAC adjustment on the first LRIP lot of the B-21 program at Aeronautics Systems and $ 100 million of unfavorable EAC adjustments on the HALO program at Space Systems. During 2022, we recorded $ 133 million of favorable EAC adjustments on the EMD phase of the -54- NORTHROP GRUMMAN CORPORATION B-21 program at Aeronautics Systems. No other such adjustments were significant to the financial statements during the years ended December 31, 2024, 2023 and 2022. Backlog 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. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and IDIQ contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded. Company backlog as of December 31, 2024 was $ 91.5 billion. Of our December 31, 2024 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. During 2024, the company reduced unfunded backlog by $ 1.6 billion and $ 0.7 billion related to terminations for convenience in our restricted space business and on the NGI program at Space Systems, respectively. Contract Assets and Liabilities For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis. 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 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. Unbilled receivables also include certain estimates of variable consideration described above. These contract assets are not considered a significant financing component of the company’s contracts as the payment terms are intended to protect the customer in the event the company does not perform on its obligations under the contract. Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the consolidated statements of financial position. Certain customers make advance payments prior to the company’s satisfaction of its obligations on the contract. These amounts are recorded as contract liabilities until such obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements. Net contract assets are as follows: $ in millions December 31, 2024 December 31, 2023 $ Change % Change Unbilled receivables, net $ 5,908 $ 5,693 $ 215 4 % Advance payments and amounts in excess of costs incurred ( 4,070 ) ( 4,193 ) 123 ( 3 ) % Net contract assets $ 1,838 $ 1,500 $ 338 23 % Changes in the company’s contract assets and liabilities primarily result from timing differences between revenue recognition and customer billings and/or payments. Net contract assets as of December 31, 2024 increased 23 percent from the prior year, primarily due to the burn down of advances on certain Aeronautics Systems programs and an increase in unbilled receivables on several programs at Space Systems. The amount of revenue recognized for the years ended December 31, 2024, 2023 and 2022 that was included in the contract liability balance at the beginning of each year was $ 3.6 billion, $ 3.1 billion and $ 2.4 billion, respectively. Disaggregation of Revenue See Note 15 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. -55- NORTHROP GRUMMAN CORPORATION General and Administrative Expenses In accordance with applicable FAR and CAS requirements, most general management and corporate expenses incurred at the segment and corporate locations are considered allowable and allocable costs to our U.S. government contracts. Allowable and allocable G&A costs, including independent research and development (IR&D) and bid and proposal (B&P) costs, are allocated on a systematic basis to contracts in progress and are included as a component of total estimated contract costs. Research and Development Company-sponsored research and development activities primarily include efforts related to government programs. Company-sponsored IR&D expenses totaled $ 1.1 billion, $ 1.2 billion and $ 1.2 billion in 2024, 2023 and 2022, respectively, which represented 2.7 percent, 3.0 percent and 3.3 percent of total sales, respectively. Customer-funded research and development activities are charged directly to the related contracts. Income Taxes Provisions for federal and foreign income taxes are calculated on reported earnings before income taxes based on current tax law and include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently payable because certain items of income and expense are recognized in different periods for financial reporting purposes than for income tax purposes. The company recognizes federal and foreign interest accrued related to unrecognized tax benefits in income tax expense. Federal tax penalties are also recognized as a component of income tax expense. In accordance with applicable FAR and CAS requirements, current state and local income and franchise taxes are generally considered allowable and allocable costs to our U.S. government contracts and are, therefore, recorded in operating costs and expenses. The company generally recognizes changes in deferred state taxes and unrecognized state tax benefits in unallocated corporate expenses. Uncertain tax positions reflect the company’s expected treatment of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim. Until these positions are sustained by the taxing authorities or the statute of limitations concerning such issues lapses, the company does not generally recognize the tax benefits resulting from such positions and reports the tax effects as a liability for uncertain tax positions in its consolidated statements of financial position. Cash and Cash Equivalents Cash and cash equivalents are comprised of cash in banks and highly liquid instruments with original maturities of three months or less, primarily consisting of bank time deposits and investments in institutional money market funds. Cash in bank accounts often exceeds federally insured limits. Fair Value of Financial Instruments The company measures the fair value of its financial instruments using observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy: Level 1 - Quoted prices for identical instruments in active markets. Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 - Significant inputs to the valuation model are unobservable. The company holds a portfolio of marketable securities to partially fund non-qualified employee benefit plans. A portion of these securities are held in common/collective trust funds and are measured at fair value using NAV per share as a practical expedient. Marketable securities accounted for as trading are recorded at fair value on a recurring basis and are included in Other non-current assets in the consolidated statements of financial position. Changes in unrealized gains and losses on trading securities are included in Other, net in the consolidated statements of earnings and comprehensive income. Investments in held-to-maturity instruments with original maturities greater than three months are recorded at amortized cost. 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 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 -56- NORTHROP GRUMMAN CORPORATION component of other comprehensive income until the hedged transaction is recognized in earnings. 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. The company uses derivative financial instruments to manage its exposure to foreign currency exchange risk related to receipts from customers and payments to suppliers denominated in foreign currencies (i.e., foreign currency forward contracts). 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. The company does not use derivative financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments. Credit risk related to derivative financial instruments is considered minimal and is managed through the use of multiple counterparties with high credit standards and periodic settlements of positions, as well as by entering into master netting agreements with most of our counterparties. Inventoried Costs The company records inventoried costs at the lower of cost or net realizable value. Inventoried costs are categorized into raw materials, work in process, and finished goods. Raw materials are recognized using the average cost method and are generally included in contract cost when allocated to specific contracts. Work in process primarily consists of a) costs associated with specific anticipated contracts or costs incurred in excess of existing contract requirements, which are probable of recovery, and b) costs associated with unsatisfied performance obligations on contracts accounted for using point in time revenue recognition. Finished goods primarily consists of inventory maintained in support of sustainment contracts. Inventoried costs include direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. G&A included in Inventoried costs, net was $ 100 million and $ 65 million as of December 31, 2024 and 2023, respectively. 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 The company maintains whole life and split-dollar life insurance policies primarily on former officers and executives. Whole life insurance policies are recorded at their cash surrender value as determined by the insurance carrier, and split-dollar life insurance policies are recorded at the lesser of their cash surrender value or premiums paid. These policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. As of December 31, 2024 and 2023, the carrying values associated with these policies were $ 416 million and $ 399 million, respectively, and are recorded in Other non-current assets in the consolidated statements of financial position. Property, Plant and Equipment Property, plant and equipment (PP&E) are depreciated over the estimated useful lives of individual assets. Machinery and other equipment is primarily depreciated using declining-balance methods. The other asset categories are generally depreciated using the straight-line method. Depreciation expense is generally an allowable and allocable cost in accordance with applicable FAR and CAS requirements and is recorded in the same segment where the related assets are held. However, the additional depreciation expense related to the step-up in fair value of PP&E acquired through business combinations is recorded in unallocated corporate expense within operating income as such depreciation is not allocable to government contracts and not considered part of management’s evaluation of segment operating performance. Major classes of PP&E and their useful lives are as follows: -57- NORTHROP GRUMMAN CORPORATION December 31 Useful life in years, $ in millions Useful Life 2024 2023 Land and land improvements Up to 40 (1) $ 782 $ 742 Buildings and improvements Up to 45 4,031 3,605 Machinery and other equipment Up to 20 10,389 9,641 Capitalized software costs 3 - 5 779 553 Leasehold improvements Lease Term (2) 3,288 3,076 Property, plant and equipment, at cost 19,269 17,617 Accumulated depreciation ( 8,733 ) ( 7,964 ) Property, plant and equipment, net $ 10,536 $ 9,653 (1) Land is not a depreciable asset. (2) Leasehold improvements are depreciated over the shorter of the useful life of the asset or lease term. 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. The company previously intended to use the equipment for internal purposes so we recognized the acquisition costs as capital expenditures and included the equipment in PP&E. As we regularly sell this type of equipment to customers in the ordinary course of business, we recorded the sale as a revenue transaction and included the net book value of the equipment in Operating costs and expenses. 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 the final cash payment of $ 155 million related to the equipment sale during 2022 and included it in Proceeds from sale of equipment to a customer in the consolidated statements 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 year ended December 31, 2023, the company received lease incentives for landlord funded leasehold improvements of $ 55 million related to Space Systems real estate leases, 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 $ 242 million, $ 75 million and $ 113 million as of December 31, 2024, 2023 and 2022, respectively. Sale of Minority Investment 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 consolidated statements of earnings and comprehensive income for the year ended December 31, 2023. Proceeds from the sale are included in investing activities on the consolidated statement of cash flows for the year ended December 31, 2023. Goodwill and Other Purchased Intangible Assets Goodwill and other purchased intangible asset balances are included in the identifiable assets of their assigned business segment. However, the company includes the amortization of other purchased intangible assets in unallocated corporate expense within operating income as such amortization is not allocable to government contracts and not considered part of management’s evaluation of segment operating performance. The company’s customer-related intangible assets are generally amortized over their respective useful lives based on the pattern in which the future economic benefits of the intangible assets are expected to be consumed. Other intangible assets are generally amortized on a straight-line basis over their estimated useful lives. -58- NORTHROP GRUMMAN CORPORATION Leases The company leases certain buildings, land and equipment. 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. The company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. Many of our leases include renewal options aligned with our contract terms. We define the initial lease term to include renewal options determined to be reasonably certain. We do not recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. We elected the practical expedient to not separate lease components from nonlease components and applied that practical expedient to all material classes of leased assets. Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays or rent escalation clauses. For tenant improvement incentives received, if the incentive is determined to be a leasehold improvement owned by the company, we generally record the incentives as a reduction to the right-of-use asset, which reduces rent expense over the lease term. For rent holidays and rent escalation clauses during the lease term, the company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation for intended use. Finance leases are not material to our consolidated financial statements and the company is not a lessor in any material arrangements. We do not have any material restrictions or covenants in our lease agreements, sale-leaseback transactions, land easements or residual value guarantees. Litigation, Commitments and Contingencies We accrue for litigation, commitments and contingencies when management, after considering the facts and circumstances of each matter as then known to management, has determined it is probable a liability will be found to have been incurred and the amount of the loss can be reasonably estimated. 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 generally expensed as incurred. Due to the inherent uncertainties surrounding gain contingencies, we generally do not recognize potential gains until realized. Environmental Costs We accrue for environmental liabilities when management determines that, based on the facts and circumstances known to the company, it is probable the company will incur costs to address environmental impacts and the costs are reasonably estimable. When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, we record the low end of the range. The company typically projects environmental costs for up to 30 years, records environmental liabilities on an undiscounted basis, and excludes asset retirement obligations and certain legal costs. At sites involving multiple parties, we accrue environmental liabilities based upon our expected share of liability, considering the financial viability of other liable parties. Retirement Benefits The company sponsors various defined benefit pension plans and defined contribution retirement plans covering substantially all employees. In most cases, our defined contribution plans provide for a company match of employee contributions. The company also provides postretirement benefits other than pensions to eligible retirees and qualifying dependents, consisting principally of health care and life insurance benefits. The liabilities, unamortized prior service credits and annual income or expense of the company’s defined benefit pension and OPB plans are determined using methodologies that involve several actuarial assumptions. Because U.S. government regulations provide for the costs of pension and OPB plans to be charged to our contracts in accordance with applicable FAR and CAS requirements, we calculate retiree benefit plan costs under both FAS and CAS methods. While both FAS and CAS recognize a normal service cost component in measuring periodic pension cost, there are differences in the way the components of annual pension costs are calculated under each method. Measuring plan obligations under FAS and CAS also includes different assumptions and models, such as in estimating returns on plan assets, calculating interest expense and the periods over which gains/losses related to pension assets and actuarial changes are recognized. As a result, annual retiree benefit plan expense amounts for -59- NORTHROP GRUMMAN CORPORATION FAS are different from the amounts for CAS in any given reporting period even though the ultimate cost of providing benefits over the life of the plans is the same under each method. CAS retiree benefit plan costs are charged to contracts and are included in segment operating income, and the difference between the service cost component of FAS expense and total CAS expense (the “FAS/CAS operating adjustment”) is recorded in operating income at the consolidated company level. Not all net periodic pension expense is recognized in net earnings in the year incurred because it is allocated as production costs and a portion remains in inventory at the end of any given reporting period. Actuarial gains and losses are immediately recognized in net periodic benefit cost for FAS through MTM benefit (expense) upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. Prior service credits are recognized as a component of Accumulated other comprehensive loss and amortized into earnings in future periods. Stock Compensation The company’s stock compensation plans are classified as equity plans. Compensation expense for stock awards is measured at the grant date based on the fair value of the award and is recognized over the vesting period (generally three years ), net of estimated forfeitures. The company issues stock awards in the form of restricted performance stock rights and restricted stock rights. The fair value of stock awards and performance stock awards is determined based on the closing market price of the company’s common stock on the grant date. The fair value of market-based stock awards is determined at the grant date using a Monte Carlo simulation model. For purposes of measuring compensation expense for performance awards, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. At each reporting date, the number of shares used to calculate compensation expense and diluted earnings per share is adjusted to reflect the number ultimately expected to vest. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, net of tax, are as follows: December 31 $ in millions 2024 2023 Cumulative translation adjustment $ ( 140 ) $ ( 138 ) Other, net ( 12 ) 10 Total accumulated other comprehensive loss $ ( 152 ) $ ( 128 ) Related Party Transactions For all periods presented, the company had no material related party transactions. Accounting Standards Updates On November 27, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Among other new disclosure requirements, ASU 2023-07 requires companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker. We adopted the standard effective January 1, 2024 and applied the disclosure requirements retrospectively to all prior periods presented in the financial statements. Adoption of ASU 2023-07 did not have an impact on the company’s consolidated financial position, results of operations and/or cash flows. On December 14, 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures . ASU 2023-09 requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. ASU 2023-09 will be effective for annual periods beginning January 1, 2025 and will be applied on a prospective basis with the option to apply the standard retrospectively. We are evaluating the disclosure impact of ASU 2023-09; however, the standard will not have an impact on the company’s consolidated financial position, results of operations and/or cash flows. On November 4, 2024, the FASB issued ASU No. 2024-03 Disaggregation of Income Statement Expenses (Subtopic 220-40). ASU 2024-03 requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 will be effective for annual periods beginning January 1, 2027 and interim periods beginning January 1, 2028 and will be applied on a prospective basis with the option to apply the standard retrospectively. We are evaluating the disclosure impact of ASU 2023-09; however, we do not -60- NORTHROP GRUMMAN CORPORATION expect the standard will have a material impact on the company’s consolidated financial position, results of operations and/or cash flows. Other accounting standards updates adopted and/or issued, but not effective until after December 31, 2024, are not expected to have a material effect on the company’s consolidated financial position, annual results of operations and/or cash flows. 2. EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK Basic Earnings Per Share We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period. 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 0.3 million, 0.5 million and 0.7 million shares for the years ended December 31, 2024, 2023 and 2022, respectively. Share Repurchases Share Repurchase Programs On January 25, 2021, the company’s board of directors authorized a share repurchase program of up to $ 3.0 billion in share repurchases of the company’s common stock (the “2021 Repurchase Program”). 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”). Repurchases under the 2022 Repurchase Program commenced in April 2023 and were completed in February 2024. On December 6, 2023, the company’s board of directors authorized a new share repurchase program of up to an additional $ 2.5 billion in share repurchases of the company’s common stock (the “2023 Repurchase Program”). Repurchases under the 2023 Repurchase Program commenced in February 2024 upon completion of the 2022 Repurchase Program. As of December 31, 2024, repurchases under the 2023 Repurchase Program totaled $ 1.4 billion; $ 1.1 billion remained under this share repurchase authorization. By its terms, the 2023 Repurchase Program will expire when we have used all authorized funds for repurchases. On December 11, 2024, the company’s board of directors authorized a new share repurchase program of up to an additional $ 3.0 billion in share repurchases of the company’s common stock (the “2024 Repurchase Program”). Repurchases under the 2024 Repurchase Program will commence upon completion of the 2023 Repurchase Program and will expire when we have used all authorized funds for repurchases. As of December 31, 2024, there have been no repurchases under the 2024 Repurchase Program and the company’s total outstanding share repurchase authorization was $ 4.1 billion. Accelerated Share Repurchase Agreements During the first quarter of 2023, the company entered into an accelerated share repurchase (ASR) agreement with Bank of America, N.A. (Bank of America) to repurchase $ 500 million of the company’s common stock as part of the 2021 and 2022 Repurchase Programs. 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 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. During the first quarter of 2024, the company entered into an ASR agreement with Morgan Stanley & Co. LLC (Morgan Stanley) to repurchase $ 1.0 billion of the company’s common stock as part of the 2022 Repurchase Program. Under the agreement, we made a payment of $ 1.0 billion to Morgan Stanley and received an initial delivery of 1.8 million shares valued at $ 800 million that were immediately canceled by the company. The remaining balance of $ 200 million was settled on May 1, 2024 with a final delivery of 0.4 million shares from Morgan Stanley. The final average purchase price was $ 455.73 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. -61- NORTHROP GRUMMAN CORPORATION The table below summarizes the company’s share repurchases to date under the authorizations described above: Repurchase Program Authorization Date Amount Authorized (in millions) Total Shares Retired (in millions) Average Price Per Share (1) Date Completed Shares Repurchased (in millions) Year Ended December 31 2024 2023 2022 January 25, 2021 $ 3,000 7.0 $ 431.05 April 2023 — 1.4 3.3 January 24, 2022 (2) $ 2,000 4.4 $ 455.01 February 2024 2.5 1.9 — December 6, 2023 $ 2,500 2.9 $ 472.26 2.9 — — December 11, 2024 $ 3,000 — $ — — — — 5.4 3.3 3.3 (1) Beginning with the 2022 Repurchase Program, the board of directors has approved that the purchases and authorizations under our repurchase programs be exclusive of brokerage commissions and other costs of execution, including taxes. Commissions paid are included for the 2021 Repurchase Program. (2) The 2022 Repurchase Program completed in February 2024; however, it included the $ 1.0 billion ASR for which the final delivery of shares was outstanding at the end of the first quarter of 2024. On May 1, 2024, the company received a final delivery of 0.4 million shares for that ASR, which are included in the 2022 Repurchase Program authorization. Dividends on Common Stock In May 2024, the company increased the quarterly common stock dividend 10 percent to $ 2.06 per share from the previous amount of $ 1.87 per share. 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. In May 2022, the company increased the quarterly common stock dividend 10 percent to $ 1.73 per share from the previous amount of $ 1.57 per share. 3. ACCOUNTS RECEIVABLE, NET Accounts receivable, net represent amounts billed and due from customers. Substantially all accounts receivable at December 31, 2024 are expected to be collected in 2025. The company does not believe it has significant exposure to credit risk as the majority of our accounts receivable are due from the U.S. government either as the ultimate customer or in connection with foreign military sales. Accounts receivable, net consisted of the following: December 31 $ in millions 2024 2023 Due from U.S. government (1) $ 951 $ 1,184 Due from international and other customers 326 276 Accounts receivable, gross 1,277 1,460 Allowance for expected credit losses ( 5 ) ( 6 ) Accounts receivable, net $ 1,272 $ 1,454 (1) Includes receivables due from the U.S. government associated with foreign military sales, which are contracted with and paid by the U.S. government. 4. UNBILLED RECEIVABLES, NET Unbilled receivables, net represent revenue recognized under the cost-to-cost method that exceeds amounts billed to customers. A large majority of the company’s unbilled receivables at December 31, 2024 are expected to be billed and collected in 2025. Progress and performance-based payments are reflected as an offset to the related unbilled receivable balances. -62- NORTHROP GRUMMAN CORPORATION Unbilled receivables, net consisted of the following: December 31 $ in millions 2024 2023 Due from U.S. government (1) Unbilled receivables $ 22,871 $ 23,655 Progress and performance-based payments received ( 17,300 ) ( 18,321 ) Total due from U.S. government 5,571 5,334 Due from international and other customers Unbilled receivables 1,108 1,720 Progress and performance-based payments received ( 757 ) ( 1,344 ) Total due from international and other customers 351 376 Unbilled receivables, net of progress and performance-based payments received 5,922 5,710 Allowance for expected credit losses ( 14 ) ( 17 ) Unbilled receivables, net $ 5,908 $ 5,693 (1) Includes unbilled receivables due from the U.S. government associated with foreign military sales, which are contracted with and paid by the U.S. government. 5. INVENTORIED COSTS, NET 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. Inventoried costs, net consisted of the following: December 31 $ in millions 2024 2023 Raw materials $ 293 $ 338 Work in process 1,118 719 Finished goods 44 52 Inventoried costs, net $ 1,455 $ 1,109 Inventoried costs, net increased $ 346 million, or 31 percent, largely due to an increase in costs incurred for specific anticipated contracts to reduce customer delivery lead times. The company recorded write-downs of commercial business inventory at Space Systems for which its cost exceeded net realizable value of $ 43 million during the year ended December 31, 2023. In addition, the company recognized a $ 45 million reduction of inventoried costs related to the B-21 program at Aeronautics Systems during the year ended December 31, 2023. -63- NORTHROP GRUMMAN CORPORATION 6. INCOME TAXES Federal and foreign income tax expense consisted of the following: Year Ended December 31 $ in millions 2024 2023 2022 Federal income tax expense: Current $ 628 $ 949 $ 1,289 Deferred 204 ( 670 ) ( 353 ) Total federal income tax expense 832 279 936 Foreign income tax expense: Current 13 15 3 Deferred ( 3 ) ( 4 ) 1 Total foreign income tax expense 10 11 4 Total federal and foreign income tax expense $ 842 $ 290 $ 940 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: Year Ended December 31 $ in millions 2024 2023 2022 Income tax expense at statutory rate $ 1,053 21.0 % $ 493 21.0 % $ 1,226 21.0 % Research credit ( 361 ) ( 7.2 ) ( 210 ) ( 8.9 ) ( 177 ) ( 3.0 ) Foreign derived intangible income 13 0.3 ( 63 ) ( 2.7 ) ( 66 ) ( 1.1 ) Settlements with taxing authorities — — ( 1 ) — ( 86 ) ( 1.5 ) Net interest expense 145 2.9 69 2.9 22 0.4 Other, net ( 8 ) ( 0.2 ) 2 0.1 21 0.3 Total federal and foreign income taxes $ 842 16.8 % $ 290 12.4 % $ 940 16.1 % The 2024 ETR increased to 16.8 percent from 12.4 percent in 2023 primarily due to the impact of the prior year B-21 charge and the MTM adjustment on our ETR. The 2024 MTM benefit increased the 2024 ETR by 0.4 percentage points, whereas the prior year B-21 charge and MTM expense collectively reduced the 2023 ETR by 3.8 percentage points. The 2024 ETR also reflects a net reduction in tax reserves largely due to a recent federal court decision, partially offset by higher interest expense on unrecognized tax benefits. The 2023 ETR decreased to 12.4 percent from 16.1 percent in 2022 primarily due to lower earnings before income taxes as a result of the B-21 charge and MTM expense, which collectively reduced the 2023 ETR by 3.8 percentage points. The 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points. Income tax payments, net of refunds received, were $ 880 million, $ 1.2 billion and $ 1.5 billion for the years ended December 31, 2024, 2023 and 2022, respectively. Taxes receivable, which are included in Prepaid expenses and other current assets in the consolidated statements of financial position, were $ 517 million and $ 1.5 billion as of December 31, 2024 and 2023, respectively. Net interest expense within the company’s federal, foreign and state income tax provisions was $ 164 million, $ 62 million, and $ 29 million for the years ended December 31, 2024, 2023, and 2022, respectively. The Organization for Economic Co-operation and Development issued Pillar Two model rules for a global minimum tax of 15% effective January 1, 2024. While it is uncertain whether the United States will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar Two. Pillar Two had no impact on our 2024 ETR, and we do not currently expect Pillar Two to significantly impact our ETR going forward. -64- NORTHROP GRUMMAN CORPORATION Uncertain Tax Positions We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. During the fourth quarter of 2024, the company entered into an agreed RAR for certain matters related to the company’s 2018-2020 federal income tax returns, largely related to our methods of accounting associated with the timing of revenue recognition and related costs under IRC Section 451(b), resulting in a $ 766 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the agreed RAR related to the company’s 2018-2020 federal tax returns are currently under Internal Revenue Service (IRS) examination. During the second quarter of 2023, the company entered into an agreed 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. The matters not addressed by the agreed RAR related to the company’s 2014-2017 federal income tax returns and refund claims related to its 2007-2016 federal tax returns are currently under review by the IRS Appeals Office. 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. Tax returns for open tax years related to state and foreign jurisdictions remain subject to examination. As state income taxes are generally considered allowable and allocable costs, any individual or aggregate state examination impacts are not expected to have a material impact on our financial results. Amounts currently subject to examination related to foreign jurisdictions are not material. The company’s unrecognized tax benefits, excluding accrued interest and penalties of $ 373 million, $ 305 million and $ 216 million as of December 31, 2024, 2023 and 2022, respectively, are presented below: December 31 $ in millions 2024 2023 2022 Unrecognized tax benefits at beginning of the year $ 1,994 $ 1,663 $ 1,630 Additions based on tax positions related to the current year 236 276 262 Additions for tax positions of prior years 90 254 6 Reductions for tax positions of prior years ( 106 ) ( 9 ) ( 124 ) Settlements with taxing authorities ( 766 ) ( 189 ) ( 110 ) Other, net ( 1 ) ( 1 ) ( 1 ) Net change in unrecognized tax benefits ( 547 ) 331 33 Unrecognized tax benefits at end of the year $ 1,447 $ 1,994 $ 1,663 The 2024 decrease in unrecognized tax benefits was primarily related to the settlement of certain matters related to the company’s methods of accounting associated with the timing of revenue recognition under IRC Section 451(b) as discussed above, partially offset by additional reserves on current year tax positions related to 451(b) (prior to settlement) and research credits. It is reasonably possible that within the next 12 months the company’s unrecognized tax benefits may increase by approximately $ 100 million. If the income tax benefits from these tax positions are ultimately realized, $ 914 million of federal and foreign tax benefits would reduce the company’s ETR. Inclusive of accrued interest and penalties, the company’s current unrecognized tax benefits of $ 345 million and $ 964 million as of December 31, 2024 and 2023, respectively, are included in Other current liabilities in the consolidated statements of financial position. -65- NORTHROP GRUMMAN CORPORATION Deferred Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Net deferred tax assets and liabilities are classified as non-current in the consolidated statements of financial position. 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: December 31 $ in millions 2024 2023 Deferred Tax Assets Retiree benefits $ — $ 115 Capitalized research and experimental expenditures 4,816 3,380 Accrued employee compensation 386 400 Provisions for accrued liabilities 468 509 Inventory 36 279 Stock-based compensation 37 35 Operating lease liabilities 557 575 Tax credits 562 557 Other 241 215 Gross deferred tax assets 7,103 6,065 Less: valuation allowance ( 526 ) ( 517 ) Net deferred tax assets 6,577 5,548 Deferred Tax Liabilities Retiree benefits 153 — Goodwill 534 534 Purchased intangibles 69 83 Property, plant and equipment, net 827 805 Operating lease right-of-use assets 554 563 Contract accounting differences 2,714 2,437 Other 127 106 Deferred tax liabilities 4,978 4,528 Total net deferred tax assets $ 1,599 $ 1,020 Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods. The company believes it is more-likely-than-not our net deferred tax assets will be realized. At December 31, 2024, the company has available tax credits and unused net operating losses of $ 627 million and $ 318 million, respectively, that may be applied against future taxable income. The majority of tax credits and net operating losses expire between 2025 and 2047, 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 $ 343 million and $ 42 million, respectively, as of December 31, 2024. Undistributed Foreign Earnings As of December 31, 2024, the company has accumulated undistributed earnings generated by our foreign subsidiaries and most have been taxed in the U.S. We intend to indefinitely reinvest these earnings, as well as future earnings from our foreign subsidiaries to fund our international operations. In addition, we expect future U.S. cash generation will be sufficient to meet future U.S. cash needs. -66- NORTHROP GRUMMAN CORPORATION 7. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS Goodwill Changes in the carrying amounts of goodwill for the years ended December 31, 2023 and 2024, were as follows: $ in millions Aeronautics Systems Defense Systems Mission Systems Space Systems Total Balance as of December 31, 2022 $ 3,467 $ 4,228 $ 5,881 $ 3,940 $ 17,516 Other (1) — 1 — — 1 Balance as of December 31, 2023 $ 3,467 $ 4,229 $ 5,881 $ 3,940 $ 17,517 Other (1) — ( 5 ) — — ( 5 ) Balance as of December 31, 2024 $ 3,467 $ 4,224 $ 5,881 $ 3,940 $ 17,512 (1) Other consists primarily of adjustments for foreign currency translation. At December 31, 2024 and 2023, accumulated goodwill impairment losses totaled $ 417 million at Aeronautics Systems, $ 121 million at Space Systems, and $ 32 million at Defense Systems. Other Purchased Intangible Assets Net customer-related and other intangible assets are as follows: December 31 $ in millions 2024 2023 Gross customer-related and other intangible assets $ 3,371 $ 3,365 Less accumulated amortization ( 3,117 ) ( 3,060 ) Net customer-related and other intangible assets $ 254 $ 305 Amortization expense for 2024, 2023 and 2022, was $ 57 million, $ 80 million and $ 197 million, respectively. As of December 31, 2024, the expected future amortization of purchased intangibles for each of the next five years is as follows: $ in millions 2025 $ 45 2026 42 2027 31 2028 31 2029 31 8. FAIR VALUE OF FINANCIAL INSTRUMENTS 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. See Note 1 for the definitions of these levels and for further information on our financial instruments. December 31, 2024 December 31, 2023 $ in millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Financial Assets Marketable securities $ 325 $ — $ 14 $ 339 $ 321 $ 1 $ 8 $ 330 Marketable securities valued using NAV 8 9 Total marketable securities 325 — 14 347 321 1 8 339 Derivatives — ( 11 ) — ( 11 ) — 5 — 5 -67- NORTHROP GRUMMAN CORPORATION The notional value of the company’s foreign currency forward contracts at December 31, 2024 and 2023 was $ 399 million and $ 286 million, respectively. The portion of notional value designated as a cash flow hedge at December 31, 2024 and 2023 was $ 273 million and $ 162 million, respectively. The derivative fair values and related unrealized gains/losses at December 31, 2024 and 2023 were not material. There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2024 and 2023. The carrying value of cash and cash equivalents approximates fair value. 9. DEBT 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. There were no commercial paper borrowings outstanding at December 31, 2024 and December 31, 2023, respectively. Credit Facility The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $ 2.5 billion (the “2022 Credit Agreement”) that matures in August 2027. 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. Commercial paper borrowings reduce the amount available for borrowing under the 2022 Credit Agreement. At December 31, 2024, 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 December 31, 2024, the company was in compliance with all covenants under its credit agreement. Unsecured Senior Notes Issuance of Senior Notes In January 2024, the company issued $ 2.5 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases, and working capital, as follows: • $ 500 million of 4.60 % senior notes due 2029 (the “2029 Notes”), • $ 850 million of 4.90 % senior notes due 2034 (the “2034 Notes”), and • $ 1.15 billion of 5.20 % senior notes due 2054 (the “2054 Notes”). 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 • $ 1.0 billion of 4.95 % senior notes due 2053 (the “2053 Notes”). We refer to the 2029 Notes, 2033 Notes, 2034 Notes, 2053 Notes and 2054 Notes, together, as the “notes.” Interest on the notes is payable semi-annually in arrears. 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. -68- NORTHROP GRUMMAN CORPORATION Repayments of Senior Notes In August 2023, the company repaid $ 1.05 billion of 3.25 percent unsecured senior notes upon maturity. Subsequent Event - In January 2025, the company repaid $ 1.5 billion of 2.93 percent unsecured senior notes upon maturity. Long-term debt consists of the following: $ in millions December 31 2024 2023 Fixed-rate notes and debentures, maturing in Interest rate 2025 2.93 % $ 1,500 $ 1,500 2026 7.75 % - 7.88 % 527 527 2027 3.20 % 750 750 2028 3.25 % 2,000 2,000 2029 4.60 % 500 — 2030 4.40 % 750 750 2031 7.75 % 466 466 2033 4.70 % 1,000 1,000 2034 4.90 % 850 — 2040 5.05 % - 5.15 % 800 800 2043 4.75 % 950 950 2045 3.85 % 600 600 2047 4.03 % 2,250 2,250 2050 5.25 % 1,000 1,000 2053 4.95 % 1,000 1,000 2054 5.20 % 1,150 — Other Various 264 332 Debt issuance costs ( 83 ) ( 69 ) Total long-term debt 16,274 13,856 Less: current portion (1) 1,582 70 Long-term debt, net of current portion $ 14,692 $ 13,786 (1) The current portion of long-term debt is recorded in Other current liabilities in the consolidated statements of financial position. The estimated fair value of long-term debt was $ 15.3 billion and $ 13.4 billion as of December 31, 2024 and 2023, 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. Indentures underlying long-term debt issued by the company or its subsidiaries contain various restrictions with respect to the issuer, including one or more restrictions relating to limitations on liens, sale-leaseback arrangements and funded debt of subsidiaries. The majority of these fixed rate notes and debentures are subject to redemption at the company’s discretion at any time prior to maturity in whole or in part at the principal amount plus any make-whole premium and accrued and unpaid interest. Interest on these fixed rate notes and debentures are payable semi-annually in arrears. Total interest payments, net of interest received and capitalized, were $ 475 million, $ 437 million and $ 474 million for the years ended December 31, 2024, 2023 and 2022, respectively. The company capitalized interest expense of $ 113 million, $ 95 million and $ 53 million during the years ended December 31, 2024, 2023 and 2022, respectively. -69- NORTHROP GRUMMAN CORPORATION Maturities of long-term debt as of December 31, 2024, are as follows: $ in millions Year Ending December 31 2025 $ 1,582 2026 534 2027 755 2028 2,044 2029 592 Thereafter 10,871 Total principal payments 16,378 Unamortized premium on long-term debt, net of discount ( 21 ) Debt issuance costs ( 83 ) Total long-term debt $ 16,274 10. INVESTIGATIONS, CLAIMS AND LITIGATION For over 25 years, the company has worked closely with the United States Navy, the United States Environmental Protection Agency, the New York State Department of Environmental Conservation, the New York State Department of Health and other federal, state and local governmental authorities, to address environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. We have incurred, and expect to continue to incur, as included in Note 11, substantial remediation costs related to these Bethpage environmental conditions, including potential costs relating to unanticipated developments such as new discoveries of potential contaminants. 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 2022, we resolved several disputes and regulatory proceedings concerning the scope and allocation of remediation responsibilities and costs related to this site and we continue remediation consistent with agreements through which those disputes were resolved. The company continues to be involved in other remediation-related disputes, none of which are material individually or in the aggregate. We are also a party to various individual lawsuits and a putative class action in the Eastern District of New York alleging personal injury and property damage related to the legacy Bethpage environmental conditions (the “Bethpage EDNY cases”). The court has stayed the filed individual lawsuits, pending its decision on class certification, which the court will undertake if an ongoing mediation between the parties is unsuccessful. 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 outcomes or ranges of possible liability of the Bethpage EDNY cases . The company received from the U.S. Department of Justice (DOJ) a criminal subpoena on December 9, 2022, and a civil investigative demand (CID) on February 2, 2023, both seeking information regarding financial and cost accounting and controls that appears focused on the interest rate assumptions the company used to determine our U.S. Government Cost Accounting Standards (CAS) pension expense, which we discuss in Note 11 below. The company is engaging with the government and responding to the requests. 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 consolidated financial position as of December 31, 2024, or its annual results of operations and/or cash flows. 11. COMMITMENTS AND CONTINGENCIES U.S. Government Cost Claims and Contingencies From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. 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 -70- NORTHROP GRUMMAN CORPORATION 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 consolidated financial position as of December 31, 2024, 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. 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 subsequently continued to exchange correspondence and engage with DCMA on this matter, including responding to requests for and providing additional information. On February 15, 2024, DCMA sent to the company a Contracting Officer’s determination of noncompliance with CAS, which is an interim, non-final determination, and the parties engaged in discussions. As noted in Note 10 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 has responded to requests and expects to continue discussions with the DOJ and DCMA as these matters progress. We cannot at this point predict the outcome of these matters. 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. 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 December 31, 2024 and 2023: $ in millions Accrued Costs (1)(2) Reasonably Possible Future Costs in Excess of Accrued Costs (2) Deferred Costs (3) December 31, 2024 $ 546 $ 377 $ 507 December 31, 2023 584 387 518 (1) As of December 31, 2024, $ 196 million is recorded in Other current liabilities and $ 350 million is recorded in Other non-current liabilities. (2) Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts. (3) As of December 31, 2024, $ 186 million is deferred in Prepaid expenses and other current assets and $ 321 million is deferred in Other non-current assets. These amounts reflect a $ 26 million increase during the second quarter of 2024 in our estimated recovery of certain environmental remediation costs and 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 consolidated financial position as of December 31, 2024, 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 December 31, 2024, there were $ 484 million of stand-by letters of credit and guarantees and $ 272 million of surety bonds outstanding. Indemnifications The company has provided indemnifications for certain environmental, income tax and other potential liabilities in connection with certain of its divestitures. The settlement of these liabilities is not expected to have a material -71- NORTHROP GRUMMAN CORPORATION adverse effect on the company’s consolidated financial position as of December 31, 2024, or its annual results of operations and/or cash flows. 12. RETIREMENT BENEFITS Plan Descriptions U.S. Defined Benefit Pension Plans – The company sponsors several defined benefit pension plans in the U.S. 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 qualified plans, using actuarial cost methods and assumptions acceptable under U.S. government regulations, by making payments into benefit trusts separate from the company. U.S. Defined Contribution Plans – The company also sponsors defined contribution plans covering the majority of its employees, including certain employees covered under collective bargaining agreements. 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 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, 2024, 2023 and 2022, were $ 657 million, $ 634 million and $ 558 million, respectively. Non-U.S. Benefit Plans – The company sponsors several benefit plans for non-U.S. employees. These plans are designed to provide benefits appropriate to local practice and in accordance with local regulations. Some of these plans are funded using benefit trusts separate from the company. 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. In addition to a company and employee cost-sharing feature, the health plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, conformance to a schedule of reasonable fees, the use of managed care providers and coordination of benefits with other plans. The plans also provide for a Medicare carve-out. The company reserves the right to amend or terminate the plans at any time. Certain covered employees and dependents are eligible to participate in plans upon retirement if they meet specified age and years of service requirements. 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 for substantially all 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. Summary Plan Results The cost to the company of its retirement benefit plans is shown in the following table: Year Ended December 31 Pension Benefits Medical and Life Benefits $ in millions 2024 2023 2022 2024 2023 2022 Components of net periodic benefit cost (benefit) Service cost $ 239 $ 236 $ 367 $ 4 $ 5 $ 9 Interest cost 1,526 1,568 1,136 62 67 47 Expected return on plan assets ( 2,197 ) ( 2,098 ) ( 2,641 ) ( 87 ) ( 85 ) ( 110 ) Amortization of prior service credit — — — — ( 1 ) ( 1 ) Mark-to-market (benefit) expense ( 450 ) 442 ( 1,262 ) 7 ( 20 ) 30 Other 15 — — — — — Net periodic benefit cost (benefit) $ ( 867 ) $ 148 $ ( 2,400 ) $ ( 14 ) $ ( 34 ) $ ( 25 ) -72- NORTHROP GRUMMAN CORPORATION The table below summarizes the changes in unamortized prior service credit for the years ended December 31, 2022, 2023 and 2024: $ in millions Pension Benefits Medical and Life Benefits Total Changes in unamortized prior service credit Amortization of prior service credit $ — $ 1 $ 1 Tax expense — — — Decrease (increase) in unamortized prior service credit – 2022 — 1 1 Amortization of prior service credit — 1 1 Tax expense — — — Decrease (increase) in unamortized prior service credit – 2023 — 1 1 (Increase) decrease in prior service credit — ( 12 ) ( 12 ) Amortization of prior service credit — — — Tax expense — 3 3 (Increase) decrease in unamortized prior service credit – 2024 $ — $ ( 9 ) $ ( 9 ) 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, 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. Pension Benefits Medical and Life Benefits $ in millions 2024 2023 2024 2023 Plan Assets Fair value of plan assets at beginning of year $ 30,251 $ 28,920 $ 1,274 $ 1,226 Net gain on plan assets 1,358 3,104 61 146 Employer contributions 96 105 33 34 Participant contributions 6 6 26 27 Benefits paid ( 1,942 ) ( 1,894 ) ( 157 ) ( 159 ) Other — 10 — — Fair value of plan assets at end of year 29,769 30,251 1,237 1,274 Projected Benefit Obligation Projected benefit obligation at beginning of year 30,443 29,067 1,246 1,264 Service cost 239 236 4 5 Interest cost 1,526 1,568 62 67 Participant contributions 6 6 26 27 Actuarial (gain) loss ( 1,295 ) 1,447 ( 19 ) 42 Benefits paid ( 1,942 ) ( 1,894 ) ( 157 ) ( 159 ) Other 15 13 ( 12 ) — Projected benefit obligation at end of year 28,992 30,443 1,150 1,246 Funded status $ 777 $ ( 192 ) $ 87 $ 28 The decrease in the fair value of plan assets for the year ended December 31, 2024 was principally driven by $ 2.1 billion of benefit payments, partially offset by net returns on plan assets of 4.7 percent. The decrease in our projected benefit obligation for the year ended December 31, 2024, was primarily driven by $ 2.1 billion of benefit payments and a 58 basis point increase in the discount rate from year end 2023, partially offset by $ 1.6 billion of interest cost. -73- NORTHROP GRUMMAN CORPORATION Pension Benefits Medical and Life Benefits $ in millions 2024 2023 2024 2023 Classification of amounts recognized in the consolidated statements of financial position Non-current assets $ 1,851 $ 1,042 $ 333 $ 289 Current liability ( 177 ) ( 178 ) ( 23 ) ( 27 ) Non-current liability ( 897 ) ( 1,056 ) ( 223 ) ( 234 ) The accumulated benefit obligation for all defined benefit pension plans was $ 28.7 billion and $ 30.1 billion at December 31, 2024 and 2023, respectively. Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows: December 31 $ in millions 2024 2023 Projected benefit obligation $ 1,076 $ 1,152 Accumulated benefit obligation 1,066 1,143 Fair value of plan assets 3 3 Plan Assumptions On a weighted-average basis, the following assumptions were used to determine benefit obligations at December 31 of each year and net periodic benefit cost for the following year: Pension Benefits Medical and Life Benefits 2024 2023 2022 2024 2023 2022 Discount rate 5.73 % 5.15 % 5.54 % 5.69 % 5.20 % 5.57 % Expected long-term return on plan assets 7.50 % 7.50 % 7.50 % 7.08 % 7.12 % 7.23 % Initial cash balance crediting rate assumed for the next year 4.78 % 4.02 % 3.96 % Rate to which the cash balance crediting rate is assumed to increase/decrease (the ultimate rate) 4.90 % 4.02 % 3.88 % Year that the cash balance crediting rate reaches the ultimate rate 2030 2029 2028 Rate of compensation increase 3.00 % 3.00 % 3.00 % Initial health care cost trend rate assumed for the next year 5.90 % 6.20 % 6.50 % Rate to which the health care cost trend rate is assumed to decline (the ultimate trend rate) 5.00 % 5.00 % 5.00 % Year that the health care cost trend rate reaches the ultimate trend rate 2028 2028 2028 Plan Assets and Investment Policy Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. Liability studies are conducted on a regular basis to provide guidance in setting investment goals with an objective to balance risk. Risk targets are established and monitored against acceptable ranges. Our investment policies and procedures are designed to ensure the plans’ investments comply with ERISA. Guidelines are established defining permitted investments within each asset class. Derivatives are used for transitioning assets, asset class rebalancing, managing currency risk and for management of fixed-income and alternative investments. -74- NORTHROP GRUMMAN CORPORATION For the majority of the plans’ assets, the investment policies require that the asset allocation be maintained within the following ranges as of December 31, 2024: Asset Allocation Ranges Cash and cash equivalents 0 % - 12 % Global public equities 18 % - 38 % Fixed-income securities 35 % - 55 % Alternative investments 10 % - 30 % Private credit 0 % - 15 % The table below provides the fair values of the company’s pension and Voluntary Employees’ Beneficiary Association (VEBA) trust plan assets at December 31, 2024 and 2023, by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category. See Note 1 for the definitions of these levels. Certain investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient are not required to be categorized in the fair value hierarchy table. The total fair value of these investments is included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in the funded status table. As of December 31, 2024 and 2023, there were no investments expected to be sold at a value materially different than NAV. Level 1 Level 2 Level 3 Total $ in millions 2024 2023 2024 2023 2024 2023 2024 2023 Asset category Cash and cash equivalents $ 223 $ 85 $ 751 $ 830 $ 974 $ 915 U.S. equities 1,824 1,712 — 1 1,824 1,713 International equities 1,570 1,506 1,570 1,506 Fixed-income securities U.S. Treasuries 17 — 3,520 3,890 3,537 3,890 U.S. Government Agency 97 124 97 124 Non-U.S. Government 1 — 282 176 283 176 Corporate debt 79 74 3,664 4,432 3,743 4,506 Asset backed 1,301 436 1,301 436 High yield debt 12 13 20 20 32 33 Bank loans 16 15 16 15 Derivatives and other assets ( 55 ) 64 99 43 $ 2 $ 2 46 109 Investments valued using NAV as a practical expedient U.S. equities 1,486 1,294 International equities 4,071 3,972 Fixed-income funds 3,559 4,057 Hedge funds 32 38 Opportunistic investments 1,816 3,176 Private equity funds 3,521 3,466 Real estate funds 1,860 2,123 Private credit 1,779 — Payables, net ( 541 ) ( 24 ) Fair value of plan assets at the end of the year $ 3,671 $ 3,454 $ 9,750 $ 9,967 $ 2 $ 2 $ 31,006 $ 31,525 There were no transfers of plan assets into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2024 and 2023. -75- NORTHROP GRUMMAN CORPORATION Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers. Cash and cash equivalents are predominantly held in money market or short-term investment funds. U.S. and international equities consist primarily of common stocks and institutional common trust funds. Investments in certain equity securities, which include domestic and international securities and registered investment companies, and exchange-traded funds with fixed income strategies are valued at the last reported sales or quoted price on the last business day of the reporting period. Fair values for certain fixed-income securities, which are not exchange-traded, are valued using third-party pricing services. Derivatives and other assets include derivative assets with a fair value of $ 107 million and $ 172 million, derivative liabilities with a fair value of $ 123 million and $ 101 million, and net notional amounts of $ 9.2 billion and $ 4.9 billion, as of December 31, 2024 and 2023, respectively. Derivative instruments may include exchange traded futures contracts, interest rate swaps, options on futures and swaps, currency contracts, total return swaps and credit default swaps. Notional amounts do not quantify risk or represent assets or liabilities of the pension and VEBA trusts, but are used in the calculation of cash settlement under the contracts. Certain derivative financial instruments within the pension trust are subject to master netting agreements with certain counterparties. Investments in certain equity and fixed-income funds, which include common/collective trust funds, and alternative investments, including hedge funds, opportunistic investments, private equity funds and real estate funds, are valued based on the NAV derived by the investment managers, as a practical expedient, and are described further below. U.S. and International equities: Generally, redemption periods are daily, monthly or quarterly with a notice requirement less than 90 days. As of December 31, 2024 and 2023, there were no unfunded commitments. Fixed-income funds: Generally, redemption periods are daily, monthly or quarterly with a notice requirement of two days . As o f December 31, 2024 and 2023 there were no unfunded commitments. Hedge funds: 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, 2024 and 2023, unfunded commitments were $ 6 million. Opportunistic investments: 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, 2024 and 2023, unfunded commitments were $ 1.3 billion and $ 1.6 billion, respectively. Private equity funds: The term of each fund is typically 10 or more years and the fund’s investors do not have an option to redeem their interest in the fund. As of December 31, 2024 and 2023, unfunded commitments were $ 1.6 billion and $ 1.9 billion, respectively. Real estate funds: Consist primarily of open-end funds that generally allow investors to redeem their interests in the funds. Certain closed-end real estate funds have terms of 10 or more years. A s of December 31, 2024 and 2023, unfunded commitments were $ 24 million and $ 28 million, respectively. Private credit: 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, 2024, unfunded commitments were $ 721 million. At December 31, 2024 and 2023, the defined benefit pension trust held $ 1 million and $ 0 , respectively, of Northrop Grumman common stock. At December 31, 2024 and 2023, the VEBA trust did not hold any Northrop Grumman common stock. -76- NORTHROP GRUMMAN CORPORATION Benefit Payments The following table reflects estimated future benefit payments for the next ten years, based upon the same assumptions used to measure the benefit obligation, and includes expected future employee service, as of December 31, 2024: $ in millions Pension Plans Medical and Life Plans Total Year Ending December 31 2025 $ 2,058 $ 111 $ 2,169 2026 2,101 112 2,213 2027 2,138 111 2,249 2028 2,164 109 2,273 2029 2,183 106 2,289 2030 through 2034 10,909 473 11,382 In 2025, the company expects to contribute the required minimum funding of approximately $ 94 million to its pension plans and approximately $ 33 million to its medical and life benefit plans. During the year ended December 31, 2024, the company made no discretionary pension contributions. 13. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS Stock Compensation Plans At December 31, 2024, the company had stock-based compensation awards outstanding under the following shareholder-approved plans: the 2024 Long-Term Incentive Stock Plan (2024 Plan) and the 2011 Long-Term Incentive Stock Plan (2011 Plan), both applicable to employees and non-employee directors, and the 1993 Stock Plan for Non-Employee Directors (1993 SPND). Employee Plans – On May 15, 2024, the company’s shareholders approved the company’s new 2024 Plan, which replaced the 2011 Plan. The 2024 Plan authorized 5.75 million new shares (less the number of shares subject to any new awards under the 2011 Plan between March 1 and May 15, 2024). Under the terms of the 2024 Plan, in the event outstanding awards under the 2011 Plan expire or terminate without being exercised or paid, as the case may be, such forfeited shares will become available for award under the 2024 Plan and increase the authorization. As of December 31, 2024, 5.8 million shares remain available for issuance under the 2024 Plan. The 2011 Plan provided for and the 2024 Plan provides for the following equity awards: stock options, stock appreciation rights (SARs) and stock awards. Under the 2011 Plan and 2024 Plan, no SARs have been granted and there are no outstanding stock options. Stock awards include restricted performance stock rights (RPSR) and restricted stock rights (RSR). RPSRs generally vest and are paid following the completion of a three-year performance period, based primarily on achievement of certain performance metrics determined by the Board. RSRs generally vest 100% after three years. Each includes dividend equivalents, which are paid concurrently with the RPSR or RSR. The terms of equity awards granted under the 2011 Plan and 2024 Plan provide for accelerated vesting, and in some instances forfeiture, of all or a portion of an award upon termination of employment. Non-Employee Director Plans – Awards to non-employee directors are made pursuant to the Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors (the Director Program). The Director Program was amended and restated effective January 1, 2016 (the Amended Director Program). The Director Program was again amended and restated effective May 15, 2024, consistent with the shareholder-approved 2024 Plan (the Restated Director Program). Under the Restated Director Program, each non-employee director is awarded an annual equity grant in the form of Automatic Stock Units, which vest on the one-year anniversary of the annual shareholder meeting. Directors may elect to have all or any portion of their Automatic Stock Units paid on (A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from service as a member of the Board, or (B) on the vesting date. Directors also may elect to defer to a later year all or a portion of their remaining cash retainer or committee retainer fees into a stock unit account as Elective Stock Units or in alternative investment options. Elective Stock Units are awarded on a quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the Board. Stock units awarded under the Amended Director Program and Restated Director Program are paid out in an equivalent number of shares of Northrop Grumman common stock. Directors are credited with dividend equivalents -77- NORTHROP GRUMMAN CORPORATION in connection with the accumulated stock units until the shares of common stock relating to such stock units are issued. Compensation Expense Stock-based compensation expense for the years ended December 31, 2024, 2023 and 2022 was $ 101 million, $ 87 million and $ 99 million, respectively. The related tax benefits for stock-based compensation for the years ended December 31, 2024, 2023 and 2022 were $ 15 million, $ 9 million and $ 10 million, respectively. At December 31, 2024, there was $ 102 million of unrecognized compensation expense related to unvested stock awards granted under the company’s stock-based compensation plans. These amounts are expected to be charged to expense over a weighted-average period of 1.3 years. Stock Awards Stock award activity for the years ended December 31, 2022, 2023 and 2024, is presented in the table below. Vested awards do not include any adjustments to reflect the final performance measure for issued shares. Stock Awards (in thousands) Weighted- Average Grant Date Fair Value Per Share Weighted- Average Remaining Contractual Term (in years) Outstanding at January 1, 2022 580 $ 314 1.4 Granted 238 397 Vested ( 226 ) 327 Forfeited ( 31 ) 320 Outstanding at December 31, 2022 561 $ 344 1.4 Granted 216 478 Vested ( 249 ) 315 Forfeited ( 29 ) 373 Outstanding at December 31, 2023 499 $ 417 1.3 Granted 238 465 Vested ( 221 ) 366 Forfeited ( 47 ) 450 Outstanding at December 31, 2024 469 $ 462 1.4 The majority of our stock awards are granted annually during the first quarter. The grant date fair value of shares issued in settlement of fully vested stock awards was $ 86 million, $ 99 million and $ 93 million during the years ended December 31, 2024, 2023 and 2022, respectively. Cash Awards The company grants certain employees cash units (CUs) and cash performance units (CPUs). Depending on actual performance against financial objectives, recipients of CPUs earn between 0 and 200 percent of the original grant. The following table presents the minimum and maximum aggregate payout amounts related to those cash awards granted for the periods presented: Year Ended December 31 $ in millions 2024 2023 2022 Minimum aggregate payout amount $ 35 $ 34 $ 32 Maximum aggregate payout amount 200 192 183 The majority of our cash awards are granted annually during the first quarter. 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 primarily on the achievement of certain performance metrics over a three-year period. At December 31, 2024, there was $ 120 million of unrecognized compensation expense related to cash awards. -78- NORTHROP GRUMMAN CORPORATION 14. LEASES Total Lease Cost Total lease cost is included in Product and Service costs in the consolidated statement of earnings and comprehensive income and is recorded net of immaterial sublease income. Total lease cost is comprised of the following: Year Ended December 31 $ in millions 2024 2023 2022 Operating lease cost $ 370 $ 358 $ 332 Variable lease cost 49 48 35 Short-term lease cost 51 69 51 Total lease cost $ 470 $ 475 $ 418 Supplemental Balance Sheet Information Supplemental operating lease balance sheet information consists of the following: Year Ended December 31 $ in millions 2024 2023 Operating lease right-of-use assets $ 1,770 $ 1,818 Other current liabilities 324 300 Operating lease liabilities 1,798 1,892 Total operating lease liabilities $ 2,122 $ 2,192 Other Supplemental Information Other supplemental operating lease information consists of the following: Year Ended December 31 $ in millions 2024 2023 Cash paid for amounts included in the measurement of operating lease liabilities $ 373 $ 341 Right-of-use assets obtained in exchange for new lease liabilities 272 314 Weighted average remaining lease term 10.4 years 11.0 years Weighted average discount rate 4.0 % 3.9 % -79- NORTHROP GRUMMAN CORPORATION Maturities of Lease Liabilities Maturities of operating lease liabilities as of December 31, 2024 are as follows: $ in millions Year Ending December 31 2025 $ 388 2026 357 2027 299 2028 258 2029 225 Thereafter 1,091 Total lease payments 2,618 Less: imputed interest ( 496 ) Present value of operating lease liabilities $ 2,122 As of December 31, 2024, we have approximately $ 498 million in rental commitments for real estate leases that have not yet commenced. These leases are expected to commence in 2025 and 2026 with lease terms of 3 to 20 years. 15. SEGMENT INFORMATION The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. We generally organize our segments based on the nature of products and services offered. The company’s chief operating decision maker (“CODM”) is the Chair, Chief Executive Officer and President . The CODM is responsible for allocating resources and assessing performance of the consolidated enterprise and operating sectors. The profitability measure the CODM uses to assess segment performance and allocate resources is segment operating income (and related margin rate, calculated as segment operating income divided by sales) by comparing historical, actual, and forecasted amounts on a regular basis. -80- NORTHROP GRUMMAN CORPORATION The following table presents sales, operating costs and expenses, and operating income by segment: Year Ended December 31 $ in millions 2024 2023 2022 Aeronautics Systems Sales $ 12,030 $ 10,786 $ 10,531 Operating costs and expenses: Product 8,248 8,942 7,161 Service 2,382 2,099 2,042 Intersegment 218 218 212 Aeronautics Systems operating income (loss) 1,182 ( 473 ) 1,116 Defense Systems Sales 8,560 8,289 7,629 Operating costs and expenses: Product 5,304 4,819 4,163 Service 1,641 1,959 1,985 Intersegment 749 682 700 Defense Systems operating income 866 829 781 Mission Systems Sales 11,399 10,895 10,396 Operating costs and expenses: Product 7,000 6,669 6,291 Service 1,805 1,730 1,639 Intersegment 996 887 848 Mission Systems operating income 1,598 1,609 1,618 Space Systems Sales 11,731 11,873 10,570 Operating costs and expenses: Product 8,711 8,844 7,664 Service 1,398 1,468 1,404 Intersegment 368 431 424 Space Systems operating income 1,254 1,130 1,078 Intersegment profit eliminations ( 356 ) ( 335 ) ( 340 ) Total segment operating income 4,544 2,760 4,253 FAS/CAS operating adjustment 40 ( 82 ) ( 200 ) Unallocated corporate expense ( 214 ) ( 141 ) ( 452 ) Total operating income $ 4,370 $ 2,537 $ 3,601 Other (expense) income Interest expense ( 621 ) ( 545 ) ( 506 ) Non-operating FAS pension benefit 656 530 1,505 Mark-to-market pension and OPB benefit (expense) 443 ( 422 ) 1,232 Other, net 168 246 4 Earnings before income taxes $ 5,016 $ 2,346 $ 5,836 FAS/CAS Operating Adjustment For financial statement purposes, we account for our employee pension plans in accordance with FAS. However, the cost of these plans is charged to our contracts in accordance with applicable FAR and CAS requirements. The FAS/CAS operating 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. -81- NORTHROP GRUMMAN CORPORATION Unallocated Corporate (Expense) Income Unallocated corporate (expense) income includes the portion of corporate costs not considered allowable or allocable under 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 PP&E acquired through business combinations, as well as certain compensation and other costs. -82- NORTHROP GRUMMAN CORPORATION Disaggregation of Revenue Sales by Customer Type Year Ended December 31 2024 2023 2022 $ in millions $ % (3) $ % (3) $ % (3) Aeronautics Systems U.S. government (1) $ 10,087 86 % $ 9,132 87 % $ 8,930 87 % International (2) 1,678 14 % 1,379 13 % 1,344 13 % Other customers 22 — % 35 — % 18 — % Intersegment sales 243 240 239 Aeronautics Systems sales 12,030 100 % 10,786 100 % 10,531 100 % Defense Systems U.S. government (1) 6,333 82 % 5,946 79 % 5,406 79 % International (2) 1,301 17 % 1,491 20 % 1,358 20 % Other customers 71 1 % 76 1 % 71 1 % Intersegment sales 855 776 794 Defense Systems sales 8,560 100 % 8,289 100 % 7,629 100 % Mission Systems U.S. government (1) 8,322 81 % 7,999 81 % 7,471 80 % International (2) 1,809 18 % 1,757 18 % 1,809 19 % Other customers 91 1 % 85 1 % 101 1 % Intersegment sales 1,177 1,054 1,015 Mission Systems sales 11,399 100 % 10,895 100 % 10,396 100 % Space Systems U.S. government (1) 10,694 94 % 10,805 95 % 9,516 95 % International (2) 212 2 % 278 2 % 337 3 % Other customers 413 4 % 307 3 % 241 2 % Intersegment sales 412 483 476 Space Systems sales 11,731 100 % 11,873 100 % 10,570 100 % Total U.S. government (1) 35,436 87 % 33,882 86 % 31,323 86 % International (2) 5,000 12 % 4,905 13 % 4,848 13 % Other customers 597 1 % 503 1 % 431 1 % Total Sales $ 41,033 100 % $ 39,290 100 % $ 36,602 100 % (1) Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives a substantial percentage of its revenue from the U.S. government. (2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government. (3) Percentages calculated based on external customer sales. -83- NORTHROP GRUMMAN CORPORATION Sales by Contract Type Year Ended December 31 2024 2023 2022 $ in millions $ % (1) $ % (1) $ % (1) Aeronautics Systems Cost-type $ 5,373 46 % $ 5,235 50 % $ 5,013 49 % Fixed-price 6,414 54 % 5,311 50 % 5,279 51 % Intersegment sales 243 240 239 Aeronautics Systems sales 12,030 10,786 10,531 Defense Systems Cost-type 4,002 52 % 3,991 53 % 3,516 51 % Fixed-price 3,703 48 % 3,522 47 % 3,319 49 % Intersegment sales 855 776 794 Defense Systems sales 8,560 8,289 7,629 Mission Systems Cost-type 4,589 45 % 4,116 42 % 3,622 39 % Fixed-price 5,633 55 % 5,725 58 % 5,759 61 % Intersegment sales 1,177 1,054 1,015 Mission Systems sales 11,399 10,895 10,396 Space Systems Cost-type 7,000 62 % 7,637 67 % 6,560 65 % Fixed-price 4,319 38 % 3,753 33 % 3,534 35 % Intersegment sales 412 483 476 Space Systems sales 11,731 11,873 10,570 Total Cost-type 20,964 51 % 20,979 53 % 18,711 51 % Fixed-price 20,069 49 % 18,311 47 % 17,891 49 % Total Sales $ 41,033 $ 39,290 $ 36,602 (1) Percentages calculated based on external customer sales. -84- NORTHROP GRUMMAN CORPORATION Sales by Geographic Region Year Ended December 31 2024 2023 2022 $ in millions $ % (3) $ % (3) $ % (3) Aeronautics Systems United States (1) $ 10,109 86 % $ 9,167 87 % $ 8,948 87 % Asia/Pacific 694 6 % 607 6 % 708 7 % Europe 947 8 % 736 7 % 585 6 % Other geographic regions (2) 37 — % 36 — % 51 — % Intersegment sales 243 240 239 Aeronautics Systems sales 12,030 10,786 10,531 Defense Systems United States (1) 6,404 83 % 6,022 80 % 5,477 80 % Asia/Pacific 344 4 % 419 6 % 454 7 % Europe 766 10 % 601 8 % 477 7 % Other geographic regions (2) 191 3 % 471 6 % 427 6 % Intersegment sales 855 776 794 Defense Systems sales 8,560 8,289 7,629 Mission Systems United States (1) 8,413 82 % 8,084 82 % 7,572 81 % Asia/Pacific 472 5 % 460 5 % 531 6 % Europe 990 10 % 959 10 % 977 10 % Other geographic regions (2) 347 3 % 338 3 % 301 3 % Intersegment sales 1,177 1,054 1,015 Mission Systems sales 11,399 10,895 10,396 Space Systems United States (1) 11,107 98 % 11,112 98 % 9,757 97 % Asia/Pacific 42 1 % 82 1 % 109 1 % Europe 134 1 % 159 1 % 213 2 % Other geographic regions (2) 36 — % 37 — % 15 — % Intersegment sales 412 483 476 Space Systems sales 11,731 11,873 10,570 Total United States (1) 36,033 88 % 34,385 88 % 31,754 87 % Asia/Pacific 1,552 4 % 1,568 4 % 1,802 5 % Europe 2,837 7 % 2,455 6 % 2,252 6 % Other geographic regions (2) 611 1 % 882 2 % 794 2 % Total Sales $ 41,033 $ 39,290 $ 36,602 (1) No country other than the United States represents greater than 10% of total company sales. (2) Other geographic regions are principally comprised of the Middle East. (3) Percentages calculated based on external customer sales. -85- NORTHROP GRUMMAN CORPORATION Segment Sales The following table presents sales for each of our reportable segments and total intersegment eliminations: Year Ended December 31 $ in millions 2024 2023 2022 Sales Aeronautics Systems $ 12,030 $ 10,786 $ 10,531 Defense Systems 8,560 8,289 7,629 Mission Systems 11,399 10,895 10,396 Space Systems 11,731 11,873 10,570 Intersegment eliminations ( 2,687 ) ( 2,553 ) ( 2,524 ) Total sales $ 41,033 $ 39,290 $ 36,602 Intersegment Sales and Operating Income Sales between segments are recorded at values that include intercompany operating income for the performing segment based on that segment’s estimated average operating margin rate for external sales. Such intercompany operating income is eliminated in consolidation , so that the company’s total sales and total operating income reflect only those transactions with external customers. See Note 1 for additional information. The following table presents intersegment sales and operating income: Year Ended December 31 $ in millions 2024 2023 2022 Sales Operating Income Sales Operating Income Sales Operating Income Intersegment sales and operating income Aeronautics Systems $ 243 $ 25 $ 240 $ 22 $ 239 $ 27 Defense Systems 855 106 776 94 794 94 Mission Systems 1,177 181 1,054 167 1,015 167 Space Systems 412 44 483 52 476 52 Total $ 2,687 $ 356 $ 2,553 $ 335 $ 2,524 $ 340 Capital Expenditures and Depreciation and Amortization The following table presents capital expenditures and depreciation and amortization for each of our reportable segments and for Corporate: Year Ended December 31 $ in millions 2024 2023 2022 2024 2023 2022 Capital Expenditures Depreciation and Amortization Aeronautics Systems $ 596 $ 504 $ 490 $ 380 $ 384 $ 322 Defense Systems 139 164 166 180 184 174 Mission Systems 314 288 248 255 246 242 Space Systems 652 745 473 362 370 323 Corporate (1) 66 74 58 193 154 281 Total $ 1,767 $ 1,775 $ 1,435 $ 1,370 $ 1,338 $ 1,342 (1) Corporate amounts include the amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of PP&E acquired through business combinations as they are not considered part of management’s evaluation of segment operating performance. Assets Our CODM does not use assets by segment to evaluate segment performance or allocate resources. Therefore, we do not disclose assets by segment. -86- NORTHROP GRUMMAN CORPORATION 16. SUBSEQUENT EVENT On January 29, 2025, the company entered into a definitive agreement to sell substantially all of the Immersive Mission Solutions (IMS) operating unit of Defense Systems for $ 327 million in cash. IMS is a provider of mission training and satellite ground network communications software for U.S. government customers. The transaction, which is subject to final government approvals and closing conditions, is expected to be completed mid-year 2025. We expect to recognize an after-tax gain of approximately $ 150 million when the transaction closes. -87- NORTHROP GRUMMAN CORPORATION Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.