What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-01-27 compared with 2025-01-30 · 229 added, 202 removed, 398 unchanged (52% of the section changed)

2 unchanged sentences

Management's Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) of our Form 10-K for the year ended December 31, 2024 (“2024 Annual Report on Form 10-K”).

To the extent the July 1, 2024 SDS realignment impacted the disclosures in the 2023 Annual Report on Form 10-K, we recast those prior year MD&A disclosures herein.

To the extent the January 1, 2025 SSAS realignment impacted the disclosures in the 2024 Annual Report on Form 10-K, we recast those prior year disclosures herein.

Divestiture of Training Services Business

On May 24, 2025 (the “Divestiture date”), the company completed its previously announced sale of substantially all

of the Immersive Mission Solutions (IMS) operating unit of Defense Systems (the “training services” business or

“divestiture”) for $333 million in cash and recorded a pre-tax gain on sale of $231 million.

IMS is a provider of mission training and satellite ground network communications software for U.S.

government customers.

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

Global Security Environment

3 unchanged sentences

The same is true for our suppliers and other business partners.

The conflicts in Ukraine and the Middle East and threats elsewhere, particularly in the Pacific region, have increased global tensions and instability and highlighted security requirements globally, including in Europe, the Middle East and the Pacific region, as well as the U.S.

These conflicts have resulted in and may continue to result in increased demand for defense products and services from allies and partner nations, particularly in those areas.

For example, we have experienced an increase in demand for certain of our products and services directly and indirectly related to the conflict in Ukraine.

We continue to monitor developments in these regions, but have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from the conflicts in Ukraine or the Middle East.

We believe the current global security environment highlights the significant national security threats to the U.S.

and its allies, and the need for strong deterrence and robust defense capabilities, and are actively evaluating both opportunities and risks associated with this environment.

We believe our capabilities, particularly in space, C4ISR, missile defense, battle management, advanced weapons, strategic deterrence, and survivable aircraft and mission systems should help our customers in the U.S.

and globally defend against current and future threats and, as a result, continue to allow for long-term profitable business growth.

The ongoing conflict in Ukraine, recent events in Venezuela and threats elsewhere, particularly in the Middle East and the Western Pacific region, have increased global tensions and instability and highlighted security requirements globally, including in Europe, the Middle East, the Pacific region and Latin America, as well as the U.S.

These conflicts have resulted in and may continue to result in increased demand for defense products and services from allies and partner nations, particularly in those regions.

For example, we experienced an increase in demand for certain of our products and services directly and indirectly related to the conflict in Ukraine.

We continue to monitor developments in these regions, but have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from these conflicts.

We believe the current global security environment, characterized by significant national security threats to the U.S.

and its allies, continues to highlight the need for strong deterrence and robust defense capabilities, and we are actively evaluating both opportunities and risks associated with this environment.

We believe our capabilities, particularly in space, C4ISR, air and missile defense, battle management, advanced weapons, strategic deterrence, survivable aircraft and mission systems should help our customers in the U.S.

and globally defend against current and future threats and, as a result, continue to position us for long-term profitable business growth.

Global Economic Environment

Over the past several years, the global economic environment has experienced extraordinary challenges, including inflationary pressures;

Over the past several years, the global economic environment has experienced challenges, including inflationary pressures;

widespread delays and disruptions in supply chains;

2 unchanged sentences

and market volatility.

These macroeconomic factors have contributed, and in the future could contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers.

We continue to work to address challenges caused by the macroeconomic environment on our business.

We have seen positive progress in the supply chain as on-time deliveries and quality have improved.

In remaining areas of pressure, we are proactively working with our suppliers to ensure we meet our contract commitments.

Although certain pockets of our business were adversely affected by the broader macroeconomic environment during the fourth quarter of 2024, the overall financial impact on our company has continued to subside.

In addition, an overall increase in interest rates in recent years has raised the cost of borrowing for governments, and if rates further increase, it could impact government spending priorities (in the U.S.

and allied countries, in particular), including their demand for defense products.

Economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials, the imposition of retaliatory tariffs or other trade protection measures and renegotiation of free trade agreements, could also further impact the global market for defense products, services and solutions.

These macroeconomic factors can and have contributed, and could continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers.

We continue to work to address challenges to our business caused by the macroeconomic environment.

We have seen progress in the supply chain as on-time deliveries and quality continue to improve.

In remaining areas of pressure, we are proactively working with our suppliers to help meet our contract commitments.

In addition, although interest rates have declined over the past year, they remain elevated compared to recent years and have raised the cost of borrowing for governments.

If rates increase or remain elevated, it could impact government spending priorities (in the U.S.

and allied countries, in particular), including the demand for defense products.

Economic tensions and changes in international trade policies, including, for example, the widespread tariffs announced since last year by the U.S.

on its major trading partners, higher tariffs on imported goods and materials and actions taken in response (such as retaliatory tariffs or other trade protectionist measures or the renegotiation of free trade agreements), could also further impact the global market for defense products, services and solutions.

The full impact of these governmental actions on macroeconomic conditions and on our business is uncertain, difficult to predict and depends on a number of factors, including the extent and duration of tariffs, any

NORTHROP GRUMMAN CORPORATION

reversal or temporary suspension of announced tariffs, the availability of exemptions, changes in the amount and scope of tariffs, the imposition of new tariffs and other measures that target countries may take in response to U.S.

trade policies, and possible resulting general inflationary pressures in the global economy.

We are continuing to monitor the impact on our business, suppliers and customers, but do not believe that the tariffs in effect at this time will have a material adverse effect on our business.

Political, Budget and Regulatory Environment

1 unchanged sentence

In particular, it is difficult to predict the specific course of future defense budgets.

Current and future requirements related to the conflicts in Ukraine and the Middle East, threats in the Pacific region and other security priorities, as well as the macroeconomic environment, the national debt, and other domestic priorities, among other things, in the U.S.

Current and future requirements related to the conflict in Ukraine and threats in the Middle East, the Western Pacific and Latin America and other security priorities, as well as the macroeconomic environment, the national debt, and other domestic priorities, among other things, in the U.S.

and globally, will continue to impact our customers’ budgets, spending and priorities, and our industry.

political environment may also impact defense budgets and priorities, issues related to the national debt, and

NORTHROP GRUMMAN CORPORATION

government spending more broadly.

We anticipate that issues related to budgetary priorities and defense spending levels, the debt ceiling, and the spending caps imposed by the Fiscal Responsibility Act of 2023 (FRA), particularly with respect to discretionary spending, will continue to be a subject of considerable debate, with a potentially significant impact on our programs and the company.

political environment may also impact defense budgets and priorities, issues related to the national debt, and government spending more broadly.

We anticipate that issues related to budgetary priorities, defense spending levels and the debt ceiling will continue to be subjects of considerable debate, with a potentially significant impact on our programs and the company.

On July 4, 2025, the FY 2025 reconciliation bill titled the One Big Beautiful Bill Act (the “OBBBA”) was enacted.

The OBBBA allocates approximately $150 billion in funds for defense spending, including funding for air and missile defense, munitions, strategic deterrence, shipbuilding and supply chains and other military capabilities, and the appropriated funds will remain available to be obligated until September 30, 2029 and expended through FY 2034.

The OBBBA is expected to result in increased investments by the DoW in defense modernization projects and Pacific region deterrence, among other programs.

See Note 6 to the financial statements for additional information on key income tax provisions of the OBBBA.

Annual appropriations to fund the federal government for FY 2026 have not yet been enacted.

Congress continues to pass short-term continuing resolutions (CR) to fund the federal government.

The most recent CR passed in December 2024 extends current funding levels until March 14, 2025.

It remains uncertain when the government will approve FY 2025 appropriations, and the levels of funding FY 2025 appropriations will provide.

Government operations under an extended CR could have potential impacts on our programs and new starts, in particular.

The political environment, federal budget, debt ceiling and regulatory environment, including potential tax reform, are expected to continue to be the subject of considerable debate, especially in light of the ongoing conflicts and heightened global tensions, the macroeconomic environment and political tensions.

The results of those debates could have material impacts on defense spending broadly and the company’s programs in particular.

On October 1, 2025, the U.S.

Government entered a shutdown, which ended on November 12, 2025.

The federal government is currently operating under a continuing resolution (“CR”) that extends funding for most agencies (including DoW) until January 30, 2026.

It remains uncertain when the government will approve FY 2026 appropriations and what levels of funding the appropriations will provide.

Government operations under an extended CR or a government shutdown could have adverse impacts on our programs and new starts, in particular, and the U.S.

Government’s ability to make timely payments.

The Presidential Administration (the “Administration”) has issued numerous executive orders, including orders to undertake a comprehensive overhaul of the Federal Acquisition Regulation, to reform the DoW defense acquisition process and, more recently, to address underperformance and insufficient prioritization of government contracts, insufficient investment in production and production speed and incentive compensation metrics applicable to defense contractors.

See “Risk factors” for further discussion regarding risks associated with executive orders and regulatory changes.

Some of the Administration’s executive orders are subject to ongoing court challenges.

Implementation of certain of these executive orders could adversely affect our business or create a more challenging or costly regulatory, operating and economic environment.

In light of the ongoing conflicts and heightened global instability as well as political tensions and related legal challenges, we expect continued uncertainty in the global security, U.S.

political, budget and regulatory environment.

Initiatives to reduce governmental spending, federal budget and debt ceiling action, and further changes in U.S.

government policy positions, including trade and foreign policy, tax policy and DoW policies or priorities, could materially impact defense spending broadly and the company’s programs in particular.

In 2015, the U.S.

6 unchanged sentences

Final terms, quantity, and pricing for these subsequent lots are not fully negotiated.

We are in discussions with the U.S.

Air Force regarding the potential for an accelerated production rate on the program.

While the ultimate outcome of these discussions remains uncertain, we currently expect any agreement to accelerate production rate would require future investment by the

NORTHROP GRUMMAN CORPORATION

company to expand production capacity along with the opportunity to earn improved returns on the LRIP and NTE phases of the program.

During the fourth quarter of 2023, we recognized a projected loss of $1.56 billion across the five LRIP options.

During the fourth quarter of 2024, we again reviewed our estimated profitability on the program and made no significant changes to the previously recognized loss.

The company’s 2024 results reflect our current best estimate of our cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers and our customer.

If our estimated cost to complete the aircraft changes or our assumptions regarding contract performance, quantities, supplier negotiations, or funding to mitigate the impact of macroeconomic disruptions are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

During the first quarter of 2025, we recognized an additional $477 million loss across the five LRIP options.

During the fourth quarter of 2025, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss.

The company’s 2025 results reflect our current best estimate of cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers.

If our estimated cost to complete the aircraft changes, if we reach an agreement with the customer regarding an accelerated production rate, or if our assumptions regarding contract performance, quantities, supplier negotiations, or funding to mitigate the impact of macroeconomic disruptions are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Sentinel Program

5 unchanged sentences

We are currently executing under a cost-type contract for the EMD phase, and the Production and Deployment phases are yet to be priced and negotiated.

In July 2024, the Sentinel program was certified for continuation by the DoD upon completion of the Nunn-McCurdy breach review.

In connection with the certification, the DoD directed that the program be restructured, including plans for infrastructure related to the command and launch segment, which was the main driver of the increased cost estimates for the Production and Deployment phases.

We are partnering with our customer to establish a new program baseline as part of the restructuring activities.

In July 2024, the Sentinel program was certified for continuation by the DoW upon completion of the Nunn-McCurdy breach review.

In connection with the certification, the DoW directed that the program be restructured, including plans for infrastructure related to the command and launch segment, which was the main driver of the increased cost estimates for the Production and Deployment phases.

During the second quarter of 2025, we partnered with the U.S.

Air Force in defining the preliminary execution framework necessary for successful restructure of the program.

The program restructure will include a revision to the acquisition strategy, joint establishment of a new program baseline, and other critical preparation activities necessary to re-accomplish Milestone B approval.

Based on this preliminary execution framework, we updated our estimated profitability on the program and recognized a $76 million favorable estimate-at-completion (EAC) adjustment during the second quarter of 2025 largely related to our expectations for achieving certain contract incentives.

During the fourth quarter of 2025, we reviewed our estimated profitability on the Sentinel program and made no significant changes.

The Sentinel EAC incorporates our best estimate of costs to complete the restructured EMD effort;

however, if the outcome is more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

If our estimated cost to complete the restructured EMD effort or our expectations for achieving contract incentives are more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Operating Performance Assessment and Reporting

2 unchanged sentences

As a result, sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts.

NORTHROP GRUMMAN CORPORATION

Due to the applicable FAR and CAS requirements that govern our U.S.

7 unchanged sentences

For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume-related changes in profitability, which are typically described in terms of changes in net EAC adjustments.

Contract mix generally refers to changes in the ratio of contract type and/or life cycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).

Contract mix generally refers to changes in the ratio

NORTHROP GRUMMAN CORPORATION

of contract type and/or life cycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).

Contract mix can also refer to differences in the profitability of the programs that drive changes in sales (e.g., sales growth or decreases on programs with accretive or dilutive margin rates).

CONSOLIDATED OPERATING RESULTS

For purposes of the operating results discussion below, we assess our performance using certain financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”).

Non-GAAP Financial Measures

• Organic sales is defined as total sales excluding sales attributable to the company's former training services business.

This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the company’s underlying sales growth as well as in understanding our ongoing business and future sales trends by presenting the company’s sales adjusted for the impact of the divestiture.

• Mark-to-market adjusted net earnings (MTM-adjusted net earnings) and MTM-adjusted earnings per share (MTM-adjusted EPS) exclude MTM pension and OPB benefit (expense) and related tax impacts, which are generally only recognized during the fourth quarter.

3 unchanged sentences

These non-GAAP measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.

Financial Highlights

Selected financial highlights are presented in the table below:

4 unchanged sentences

Operating costs and expenses as a % of sales 89.8 % 89.4 % 93.5 %

Gain on sale of business

231 — — NM — %

Operating income 4,511 4,370 2,537 3 % 72 %

Operating margin rate 10.8 % 10.6 % 6.5 %

Mark-to-market pension and OPB benefit (expense) 443 (422) 1,232 NM NM

Mark-to-market pension and OPB benefit (expense) 527 443 (422) 19 % NM

Federal and foreign income tax expense 886 842 290 5 % 190 %

2 unchanged sentences

Diluted earnings per share

2024 sales increased $1.7 billion, or 4 percent, due to a 12 percent growth in sales at Aeronautics Systems and higher sales at Mission Systems and Defense Systems, partially offset by lower sales at Space Systems largely driven by a reduction of $595 million associated with wind-down of work on the restricted space and NGI programs, as previously disclosed.

2024 sales reflect continued strong demand for our products and services.

$ 29.08 $ 28.34 $ 13.53 3 % 109 %

NORTHROP GRUMMAN CORPORATION

The table below reconciles sales to organic sales:

Year Ended December 31

$ in millions

2025 2024 2023 2025 2024

Sales $ 41,954 $ 41,033 $ 39,290 2 % 4 %

Training services sales

(112) (304) (302)

Organic sales

$ 41,842 $ 40,729 $ 38,988 3 % 4 %

2025 sales increased $921 million, or 2 percent, due to higher sales of $1.1 billion at Mission Systems, $603 million at Defense Systems, net of a $192 million reduction related to the training services divestiture, and $596 million at Aeronautics Systems.

These increases were partially offset by $960 million of lower sales at Space Systems, largely due to a $738 million sales reduction associated with wind-down of work on the restricted space and NGI programs, and $425 million of higher intercompany eliminations.

See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail.

1 unchanged sentence

Operating Income and Margin Rate

2024 operating income increased $1.8 billion, or 72 percent, primarily due to higher operating income at Aeronautics Systems, largely driven by the prior year $1.56 billion charge on the B-21 program, as well as higher operating income at Space Systems and Defense Systems.

2024 operating income also increased due to a $122 million increase in the FAS/CAS operating adjustment, partially offset by $73 million of higher unallocated corporate expense, largely due to a $127 million increase in deferred state taxes related to the MTM benefit (expense) and prior year B-21 charge and $25 million of lower intangible amortization and PP&E step-up depreciation.

2025 operating income increased $141 million, or 3 percent, primarily due to a $231 million pre-tax gain on sale for the training services divestiture and a $218 million increase in the FAS/CAS operating adjustment.

These increases were partially offset by a $167 million decrease in segment operating income, primarily driven by $423 million of lower operating income at Aeronautics Systems reflecting the first quarter B-21 loss provision, and a $126 million increase in non-divestiture-related unallocated corporate expense largely driven by higher deferred state tax expense.

2025 operating margin rate increased to 10.8 percent from 10.6 percent reflecting the items above.

2024 G&A costs as a percentage of sales decreased to 9.7 percent from 10.2 percent primarily due to higher sales.

2025 G&A costs as a percentage of sales of 9.6 percent were comparable to the prior year.

See “Segment Operating Results” below for further information by segment.

For further information regarding product and service operating costs and expenses, see “Product and Service Analysis” below.

3 unchanged sentences

$ in millions 2025 2024 2023

Actuarial gains (losses) on projected benefit obligation $ 1,314 $ (1,489) $ 9,662

Actuarial (losses) gains on plan assets (871) 1,067 (8,430)

Actuarial (losses) gains on projected benefit obligation $ (609) $ 1,314 $ (1,489)

Actuarial gains (losses) on plan assets 1,136 (871) 1,067

MTM benefit (expense)

$ 527 $ 443 $ (422)

The 2024 MTM benefit of $443 million was primarily driven by a 58 basis point increase in the discount rate from year end 2023, partially offset by actual net plan asset returns of 4.7 percent compared to our 7.5 percent asset return assumption.

The 2025 MTM benefit of $527 million was primarily driven by actual net plan asset returns of 11.3 percent compared to our 7.5 percent asset return assumption, partially offset by a 15 basis point decrease in the discount rate from year end 2024.

Federal and Foreign Income Taxes

The 2024 effective tax rate (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.

In July 2025, the OBBBA was enacted.

Key income tax-related provisions of the OBBBA include the repeal of mandatory capitalization of research and development expenditures under Internal Revenue Code (IRC) Section 174 (reinstating full expensing beginning in 2025), extension of bonus depreciation, and revisions to international tax regimes.

The company recognized the income tax effects of the OBBBA in its 2025 financial statements.

NORTHROP GRUMMAN CORPORATION

2025 income tax expense increased $44 million, or 5 percent, due to a higher effective tax rate (ETR) and higher earnings before income taxes.

The 2025 ETR increased to 17.5 percent from 16.8 percent in 2024 primarily due to a net reduction in tax reserves in the prior year, lower research credits principally due to enactment of the OBBBA, and additional income tax expense related to nondeductible goodwill in the divested training services business.

These increases were partially offset by lower interest expense on unrecognized tax benefits.

The MTM benefit in both 2025 and 2024 increased each respective year’s ETR by 0.4 percentage points.

See Note 6 to the consolidated financial statements for additional information.

4 unchanged sentences

MTM (benefit) expense

(443) 422 (1,232) NM NM

(527) (443) 422 19 % NM

MTM-related deferred state tax expense (benefit) (1)

23 (22) 65 NM NM

28 23 (22) 22 % NM

Federal tax expense (benefit) of items above (2)

88 (84) 245 NM NM

MTM adjustment, net of tax (332) 316 (922) NM NM

105 88 (84) 19 % NM

MTM adjustment, net of tax (394) (332) 316 19 % NM

MTM-adjusted net earnings $ 3,788 $ 3,842 $ 2,372 (1) % 62 %

1 unchanged sentence

(2) The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM (benefit) expense and applying the 21 percent federal statutory rate.

2024 net earnings increased $2.1 billion, or 103 percent, primarily due to $1.8 billion of higher operating income, an $865 million increase in our MTM benefit (expense), and a $126 million increase in the non-operating FAS pension benefit.

These increases were partially offset by a $552 million increase in income tax expense, a $97 million gain

NORTHROP GRUMMAN CORPORATION

recognized in the prior year upon the sale of our minority investment in an Australian business, and $76 million of higher interest expense on our long-term debt.

2025 net earnings were comparable to the prior year and reflect the $141 million increase in operating income described above and an $84 million increase in our MTM benefit, partially offset by a $115 million decrease in the non-operating FAS pension benefit, $44 million of higher interest expense and a $44 million increase in income tax expense.

Diluted Earnings Per Share

4 unchanged sentences

MTM (benefit) expense per share

(3.02) 2.78 (7.92) NM NM

(3.66) (3.02) 2.78 21 % NM

MTM-related deferred state tax expense (benefit) per share (1)

0.16 (0.14) 0.42 NM NM

0.19 0.16 (0.14) 19 % NM

Federal tax expense (benefit) of items above per share (2)

0.60 (0.56) 1.57 NM NM

0.73 0.60 (0.56) 22 % NM

MTM adjustment per share, net of tax

(2.26) 2.08 (5.93) NM NM

(2.74) (2.26) 2.08 21 % NM

MTM-adjusted EPS

2 unchanged sentences

(2) The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM (benefit) expense and applying the 21 percent federal statutory rate.

2024 diluted earnings per share increased $14.81, or 109 percent, reflecting the 103 percent increase in net earnings described above and a 3 percent reduction in weighted-average diluted shares outstanding.

2025 diluted earnings per share increased $0.74, or 3 percent, reflecting comparable net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.

SEGMENT OPERATING RESULTS

2 unchanged sentences

Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.

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.

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 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.

NORTHROP GRUMMAN CORPORATION

For a more complete description of each segment’s products and services, see “Business.”

4 unchanged sentences

These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.

NORTHROP GRUMMAN CORPORATION

Year Ended December 31 % Change in

6 unchanged sentences

FAS/CAS operating adjustment (258) (40) 82 545 % NM

Gain on sale of business

(231) — — NM — %

Training services divestiture - unallowable state taxes and transaction costs

20 5 — 300 % NM

Intangible asset amortization and PP&E step-up depreciation 84 97 122 (13) % (20) %

1 unchanged sentence

28 23 (22) 22 % NM

Deferred state tax benefit of B-21 charge (1)

Deferred state tax benefit of B-21 loss provisions (1)

(25) — (82) NM NM

4 unchanged sentences

Segment operating margin rate 10.4 % 11.1 % 7.0 %

(1) Represents the deferred state tax expense (benefit) associated with MTM benefit (expense) and the prior year B-21 charge, which are recorded in Unallocated corporate expense consistent with other changes in deferred state taxes.

(1) Represents the deferred state tax expense (benefit) associated with MTM benefit (expense) and the B-21 loss provisions, which are recorded in Unallocated corporate expense consistent with other changes in deferred state taxes.

Segment Operating Income and Margin Rate

2024 segment operating income increased $1.8 billion, or 65 percent, primarily due to higher operating income at Aeronautics Systems, largely driven by the prior year $1.56 billion charge on the B-21 program, as well as higher operating income at Space Systems and Defense Systems.

Segment operating margin rate increased to 11.1 percent reflecting higher operating margin rates at Aeronautics Systems and Space Systems, partially offset by a lower operating margin rate at Mission Systems.

2025 segment operating income decreased $167 million, or 4 percent, primarily due to $423 million of lower operating income at Aeronautics Systems reflecting the first quarter B-21 loss provision and $71 million of lower operating income at Space Systems, partially offset by higher operating income of $229 million at Mission Systems and $155 million at Defense Systems.

Segment operating margin rate decreased to 10.4 percent primarily due to the B-21 loss provision at Aeronautics Systems, partially offset by higher operating margin rates at Defense Systems, Mission Systems and Space Systems.

FAS/CAS Operating Adjustment

1 unchanged sentence

Unallocated Corporate Expense

The increase in 2024 unallocated corporate expense is primarily due to a $127 million increase in deferred state taxes associated with the prior year B-21 charge and the MTM adjustment, partially offset by lower intangible asset amortization and PP&E step-up depreciation and a loss recognized in the prior year in connection with the divestiture of a small international subsidiary.

Net Estimate-At-Completion (EAC) Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting.

Net EAC adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below:

The decrease in 2025 unallocated corporate expense is primarily due to a $231 million gain on the sale of our training services business.

Non-divestiture-related unallocated corporate expense increased primarily due to higher deferred state tax expense largely related to the repeal of mandatory capitalization of research and development expenditures under IRC Section 174.

NORTHROP GRUMMAN CORPORATION

Net EAC Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting.

Net EAC adjustments can have a significant effect on reported sales, operating income and margin rate.

The aggregate favorable and unfavorable EAC adjustments are presented in the table below:

Year Ended December 31

3 unchanged sentences

Net EAC adjustments $ 209 $ 350 $ 84

NORTHROP GRUMMAN CORPORATION

Net EAC adjustments by segment are presented in the table below:

15 unchanged sentences

airborne battle management and command and control systems;

and unmanned autonomous aircraft systems, including high-altitude long-endurance (HALE) strategic intelligence, surveillance and reconnaissance (ISR) systems.

and uncrewed autonomous aircraft systems, including high-altitude long-endurance (HALE) strategic intelligence, surveillance and reconnaissance (ISR) systems.

Year Ended December 31 % Change in

2 unchanged sentences

Operating income (loss)

1,182 (473) 1,116 NM NM

813 1,236 (416) (34) % NM

Operating margin rate 6.3 % 10.0 % (3.7) %

2024 sales increased $1.2 billion, or 12 percent, primarily due to the continuing transition to production on B-21 driving higher restricted volume, a $448 million increase in F-35 production and sustainment volume due, in part, to the timing of materials, a $134 million increase in Triton LRIP production volume, a $134 million increase in E-2 fleet sustainment and modernization work, and higher volume on Global Hawk sustainment activities.

2025 sales increased $596 million, or 5 percent, primarily due to a $385 million increase on F-35 largely driven by material volume, a $379 million increase on TACAMO as that program ramps, and higher volume on the E-2 and B-21 programs.

These increases were partially offset by lower sales on other restricted programs and a $106 million decrease on F/A-18 as final production deliveries were completed.

Operating Income

2024 operating income increased $1.7 billion primarily due to the prior year $1.56 billion charge on the B-21 program as well as higher sales.

Operating margin rate increased to 9.8 percent principally due to the prior year B-21 charge.

2025 operating income decreased $423 million and operating margin rate decreased to 6.3 percent primarily due to a $477 million loss provision recorded on the LRIP phase of the B-21 program in the first quarter of 2025.

This was partially offset by higher net EAC adjustments across the portfolio.

DEFENSE SYSTEMS

Defense Systems is a leader in the design, engineering, development, integration and production of strategic deterrent systems, advanced tactical weapons, and missile defense solutions, and a provider of sustainment, modernization and training services for manned and unmanned aircraft and electronics systems for the U.S.

Defense Systems is a leader in the design, engineering, development, integration and production of strategic deterrent systems, advanced tactical weapons, and missile defense solutions for the U.S.

military and a broad range of international customers.

4 unchanged sentences

high-performance gun systems, ammunition, precision munitions and advanced fuzes;

and aircraft and mission systems logistics support, sustainment, operations and modernization.

and weapons integration, modernization, and sustainment.

NORTHROP GRUMMAN CORPORATION

Year Ended December 31 % Change in

1 unchanged sentence

Sales $ 8,002 $ 7,399 $ 7,185 8 % 3 %

Training services sales (112) (304) (302)

Organic sales $ 7,890 $ 7,095 $ 6,883 11 % 3 %

Operating income $ 871 $ 716 $ 684 22 % 5 %

Operating margin rate 10.9 % 9.7 % 9.5 %

NORTHROP GRUMMAN CORPORATION

2024 sales increased $271 million, or 3 percent, primarily due to a $182 million increase on Sentinel as that program continues to ramp, a $163 million increase on certain military ammunition programs, a $124 million increase on Stand-in Attack Weapon (SiAW) as the program ramps and higher volume from timing of materials and increased order quantities on the Guided Multiple Launch Rocket System (GMLRS) program.

These increases were partially offset by a $262 million decrease due to the completion of an international training program and lower volume on the Special Electronic Mission Aircraft (SEMA) program as it nears completion.

2023 sales increased $660 million, or 9 percent, primarily due to a $426 million increase driven by Sentinel ramp-up, as well as higher volume on ammunition programs, GMLRS, an international training program, Hypersonic Attack Cruise Missile (HACM), and SiAW.

2025 sales increased $603 million, or 8 percent, primarily due to a $224 million increase on Sentinel as that program continues to ramp, a $185 million increase on armament programs, including military ammunition programs, a $153 million increase in sales from new awards across the IBCS program portfolio, and higher volume due to material timing on the GMLRS program.

These increases were partially offset by a $192 million reduction in sales related to the divested training services business.

Operating Income

2024 operating income increased $37 million, or 4 percent, primarily due to higher sales.

Operating margin rate was comparable to the prior period.

2023 operating income increased $48 million, or 6 percent, due to higher sales, partially offset by a lower operating margin rate.

Operating margin rate decreased to 10.0 percent from 10.2 percent, primarily due to lower net EAC adjustments.

2025 operating income increased $155 million, or 22 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 10.9 percent from 9.7 percent primarily due to higher net EAC adjustments, including a $76 million favorable EAC adjustment on the Sentinel program during the second quarter of 2025.

MISSION SYSTEMS

1 unchanged sentence

defense and intelligence community, and international customers.

Major products and services include command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR) systems;

radar, electro-optical/infrared (EO/IR) and acoustic sensors;

Major products and services include radar, electro-optical/infrared (EO/IR) and acoustic sensors;

command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR) systems;

electronic warfare systems;

10 unchanged sentences

Operating margin rate 14.6 % 14.0 % 14.8 %

2024 sales increased $504 million, or 5 percent, primarily due to higher volume on restricted advanced microelectronics and technology programs, increased marine systems sales due, in part, to the timing of materials, and higher Ground/Air Task Oriented Radar (G/ATOR) volume due to continued ramp-up on full-rate production (FRP) awards.

These increases were partially offset by lower sales on restricted airborne radar programs and the Scalable Agile Beam Radar (SABR) program.

2025 sales increased $1.1 billion, or 10 percent, primarily due to continued ramp-up on restricted airborne radar programs, as well as higher sales of $161 million on marine systems programs, $141 million on international ground-based radar programs and $105 million on communications programs, as several programs ramp up following new awards.

Operating Income

2024 operating income decreased $11 million, or 1 percent, due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 14.0 percent from 14.8 percent primarily due to lower net EAC adjustments on certain airborne radar production programs due, in part, to production inefficiencies that have driven higher labor costs, as well as changes in contract mix toward more cost-type content.

These decreases were partially offset by sales growth on higher margin advanced microelectronics programs.

2025 operating income increased $229 million, or 14 percent, due to higher sales and a higher operating margin rate.

Operating margin rate increased to 14.6 percent from 14.0 percent primarily due to higher net EAC adjustments, including a $68 million favorable EAC adjustment recorded in the third quarter of 2025 in the restricted advanced microelectronics portfolio, partially offset by investments made by the sector in connection with restricted business opportunities during the first quarter of 2025.

NORTHROP GRUMMAN CORPORATION

10 unchanged sentences

Operating margin rate 11.0 % 10.7 % 9.5 %

2024 sales decreased $142 million, or 1 percent, primarily due to wind-down of work on the restricted space and NGI programs, which reduced sales by $595 million.

This reduction was partially offset by a $302 million increase on Space Development Agency (SDA) satellite programs and a $130 million increase on the Habitation and Logistics Outpost (HALO) program.

2023 sales increased $1.3 billion, or 12 percent, primarily due to higher volume on restricted programs and ramp-up on development programs, including $333 million on the Next-Gen Polar program, $219 million on the NGI program, $119 million on the SDA Tranche 1 Tracking Layer program and $102 million on the SDA Tranche 2 Transport Layer program.

These increases were partially offset by a $172 million decrease for CRS missions and a $109 million decrease on the HALO program.

2025 sales decreased $960 million, or 8 percent, primarily due to wind-down of work on the restricted space and NGI programs, which reduced sales by $738 million, as well as a $172 million decrease for the SDA satellite programs due to the timing of materials and a $102 million decrease driven by lower volume on the SLS Booster program.

These decreases were partially offset by a $168 million increase on GEM 63 and higher volume on HALO as those programs continue to ramp.

Operating Income

2024 operating income increased $124 million, or 11 percent, primarily due to a higher operating margin rate.

Operating margin rate increased to 10.7 percent from 9.5 percent primarily due to higher net EAC adjustments largely driven by the HALO program as previously disclosed.

2023 operating income increased $52 million, or 5 percent, due to higher sales, partially offset by a lower operating margin rate.

Operating margin rate decreased to 9.5 percent from 10.2 percent primarily due to a prior year $96 million gain recognized in connection with a land exchange transaction, as well as lower net EAC adjustments driven by $100 million of unfavorable EAC adjustments on the HALO program in 2023.

These decreases were partially offset by a $42 million benefit from insurance recoveries in our commercial space business during 2023.

2025 operating income decreased $71 million, or 6 percent, due to lower sales, partially offset by a higher operating margin rate.

Operating margin rate increased to 11.0 percent from 10.7 percent principally due to more favorable contract mix.

NORTHROP GRUMMAN CORPORATION

31 unchanged sentences

Product Sales and Costs

2024 product sales increased $1.8 billion, or 6 percent, due to an increase in product sales at all four sectors.

The increase was principally driven by higher volume on restricted programs, F-35, Triton and E-2 at Aeronautics Systems, higher volume on Sentinel, certain military ammunition programs, SiAW and GMLRS at Defense Systems, higher restricted sales, partially offset by lower SABR volume, at Mission Systems and sales growth on SDA satellite programs and HALO, partially offset by wind-down of work on the restricted space and NGI programs, at Space Systems.

2023 product sales increased $2.4 billion, or 8 percent, due to an increase in product sales at all four sectors.

The increase was principally driven by higher volume on restricted programs and NGI at Space Systems, higher volume on Sentinel, ammunition programs, GMLRS, HACM, and the Integrated Battle Command System (IBCS) program at Defense Systems, and higher restricted sales at Mission Systems and Aeronautics Systems.

2024 product costs were comparable to the prior year, reflecting a higher operating margin rate principally due to the prior year $1.56 billion charge on the B-21 program at Aeronautics Systems and higher EAC adjustments at Space Systems, largely driven by the HALO program.

2023 product costs increased $4.0 billion, or 16 percent, consistent with the higher product sales described above and reflect a lower operating margin rate principally due to the previously described $1.56 billion charge on the B-21 program at Aeronautics Systems and lower net EAC adjustments on Space Systems production programs.

NORTHROP GRUMMAN CORPORATION

2025 product sales increased $1.0 billion, or 3 percent, primarily due to higher sales on restricted airborne radar, marine systems and international ground-based radar programs at Mission Systems, higher volume on Sentinel, military ammunition programs and the IBCS program portfolio at Defense Systems, and higher sales on the F-35, TACAMO, E-2, and B-21 programs at Aeronautics Systems.

These increases were partially offset by wind-down of work on the restricted space and NGI programs and lower volume on SDA satellite programs at Space Systems.

2025 product costs increased $1.2 billion, or 4 percent, reflecting a lower operating margin rate principally due to the $477 million loss provision recorded on the B-21 program at Aeronautics Systems in the first quarter of 2025, partially offset by higher net EAC adjustments at Defense Systems largely driven by Sentinel.

Service Sales and Costs

2024 service sales decreased $86 million, or 1 percent, primarily due to a decrease in service sales at Defense Systems principally due to the completion of an international training program and lower volume on SEMA, partially offset by an increase in service sales at Aeronautics Systems driven by higher volume on restricted programs and Global Hawk.

2023 service sales increased $313 million, or 4 percent, due to an increase in service sales at Space Systems, Mission Systems, and Aeronautics Systems.

The increase was principally driven by higher restricted sales at Space Systems and Aeronautics Systems, and higher volume on restricted programs and F-35 sustainment at Mission Systems.

2024 service costs were comparable to the prior year, consistent with the change in services sales described above.

2023 service costs increased $186 million, or 3 percent, consistent with the higher service sales described above and reflects a higher operating margin rate on Space Systems service programs.

2025 service sales decreased $94 million, or 1 percent, primarily due to lower restricted sales at Space Systems and lower service volume at Defense Systems due to the training services divestiture, partially offset by higher restricted sales at Mission Systems and higher volume on aircraft sustainment services at Aeronautics Systems.

2025 service costs decreased $106 million, or 1 percent, consistent with the change in services sales described above.

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.

It comprises both funded backlog

NORTHROP GRUMMAN CORPORATION

(firm orders for which funding is authorized and appropriated) and unfunded backlog.

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

10 unchanged sentences

2025 net awards totaled $46.3 billion.

Significant 2024 new awards include $11.8 billion for restricted programs (primarily at Aeronautics Systems, Mission Systems, and Space Systems), $3.5 billion for the Take Charge and Move Out (TACAMO) mission, $3.5 billion for F-35 (primarily at Aeronautics Systems), $2.4 billion for E-2, $1.8 billion for Next-Gen OPIR Polar, $0.9 billion for Poland IBCS, and $0.8 billion for certain military ammunition programs.

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.

Significant 2025 new awards include $14.8 billion for restricted programs (primarily at Aeronautics Systems, Space Systems, and Mission Systems), $3.3 billion for F-35 (at Mission Systems and Aeronautics Systems), $2.5 billion for GEM 63, $1.8 billion for GWS, and $1.3 billion for Virginia Class submarines.

LIQUIDITY AND CAPITAL RESOURCES

We are focused on the efficient conversion of operating income into cash to provide for the company’s material cash requirements, including working capital needs, satisfaction of contractual commitments, funding of our pension and OPB plans, investment in our business through capital expenditures, and shareholder return through dividend payments and share repurchases.

We are focused on the efficient conversion of operating income into cash to provide for the company’s material cash requirements, including working capital needs, satisfaction of contractual commitments, investment in our business through capital expenditures, funding of our pension and OPB plans, and shareholder returns.

As of December 31, 2025, we had cash and cash equivalents of $4.4 billion;

4 unchanged sentences

At December 31, 2025, there were no borrowings outstanding under these credit facilities.

In January 2024, we issued $2.5 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases and working capital.

In May 2025, we issued $1.0 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases and working capital.

The company’s principal contractual commitments include purchase obligations, repayments of long-term debt and related interest, and payments under operating leases.

At December 31, 2024, we had $20.5 billion of purchase obligations, approximately half of which is short-term.

Purchase obligations are largely comprised of open purchase

NORTHROP GRUMMAN CORPORATION

order commitments to suppliers and subcontractors under U.S.

At December 31, 2025, we had $23.9 billion of purchase obligations, approximately half of which are short-term.

Purchase obligations are largely comprised of open purchase order commitments to suppliers and subcontractors under U.S.

government contracts.

In most circumstances, our risk associated with the purchase obligations on our U.S.

government contracts is limited to the termination liability provisions within those contracts.

government contracts is limited by the termination liability provisions within those contracts.

As such, we do not believe they represent a material liquidity risk to the company.

3 unchanged sentences

Refer to the respective notes to the consolidated financial statements for further information about our share repurchase programs (Note 2), commercial paper, credit facilities and long-term debt (Note 9), standby letters of credit and guarantees (Note 11), future minimum contributions for the company’s pension and OPB plans (Note 12), and lease payment obligations (Note 14).

Income Tax Matters

During the fourth quarter of 2024, the company entered into an agreed Revenue Agent’s Report (“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).

The company made a $956 million payment in December 2024, inclusive of associated interest, in connection with the agreed RAR.

Refer to Note 6 to the financial statements for further information about our unrecognized tax benefits.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to amortize them over five years pursuant to IRC Section 174.

Our 2024 and 2023 cash from operations were reduced for federal estimated tax payments we made related to Section 174 of approximately $350 million and $500 million, respectively.

In the future, Congress may consider legislation that would defer the amortization requirement to later years, possibly with retroactive effect.

In the meantime, we expect to continue to make additional federal tax payments based on the current Section 174 tax law, which we estimate will reduce our 2025 cash from operations by approximately $230 million.

The impact of Section 174 on our cash from operations depends on the amount of research and development expenditures incurred by the company and whether the IRS issues guidance on the provision which differs from our current interpretation, among other things.

NORTHROP GRUMMAN CORPORATION

Cash Flow Measures

In addition to our cash position, we consider various cash flow measures in capital deployment decision-making, including cash provided by operating activities and adjusted free cash flow, a non-GAAP measure described in more detail below.

In addition to our cash position, we consider various cash flow measures in capital deployment decision-making, including cash provided by operating activities and free cash flow, a non-GAAP measure described in more detail below.

Operating Cash Flow

3 unchanged sentences

Net earnings $ 4,182 $ 4,174 $ 2,056

B-21 charge — 1,559 —

Non-cash items (1)

8 551 (1,305)

Pension and OPB contributions (129) (139) (136)

Changes in trade working capital (1)

(100) (29) 199

Other, net 675 243 1,620

Net cash provided by operating activities $ 4,757 $ 4,388 $ 3,875

(1) Includes depreciation and amortization, non-cash lease expense, MTM benefit (expense), stock based compensation expense, deferred income taxes and net periodic pension and OPB income.

2024 cash provided by operating activities increased $513 million, or 13 percent, principally due to improved trade working capital, largely driven by lower net tax payments, as well as higher net earnings.

Adjusted Free Cash Flow

Adjusted free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by or used in operating activities, less capital expenditures, plus proceeds from the sale of equipment to a customer (not otherwise included in net cash provided by or used in operating activities) and the after-tax impact of discretionary pension contributions, if any.

Adjusted free cash flow includes proceeds from the sale of equipment to a customer as

NORTHROP GRUMMAN CORPORATION

such proceeds were generated in a customer sales transaction.

It also includes the after-tax impact of discretionary pension contributions for consistency and comparability of financial performance.

(1) Beginning in the fourth quarter of 2025, the company redefined trade working capital presented in this table to include accounts receivable, unbilled receivables, inventoried costs, trade accounts payable and advance payments and billings in excess of costs incurred.

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

2025 cash provided by operating activities increased $369 million, or 8 percent, primarily due to $149 million of lower net cash tax payments and improvements in trade working capital.

2024 cash provided by operating activities increased $513 million, or 13 percent, driven by $355 million lower net cash tax payments.

Free Cash Flow

Free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by or used in operating activities less capital expenditures.

This measure may not be defined and calculated by other companies in the same manner.

We use adjusted free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases.

We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases.

This non-GAAP measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP.

The table below reconciles net cash provided by operating activities to adjusted free cash flow:

The table below reconciles net cash provided by operating activities to free cash flow:

Year Ended December 31 % Change in

2 unchanged sentences

Capital expenditures (1,450) (1,767) (1,775) (18) % — %

Proceeds from sale of equipment to a customer — — 155 NM (100) %

Adjusted free cash flow $ 2,621 $ 2,100 $ 1,621 25 % 30 %

2024 adjusted free cash flow increased $521 million, or 25 percent, principally due to higher net cash provided by operating activities.

Free cash flow

$ 3,307 $ 2,621 $ 2,100 26 % 25 %

2025 free cash flow increased $686 million, or 26 percent, due to higher net cash provided by operating activities as well as lower capital expenditures.

Investing Cash Flow

2024 net cash used in investing activities increased $167 million principally due to the receipt of proceeds from the sale of minority investments in the prior year.

2025 net cash used in investing activities decreased $594 million as compared with 2024, principally due to $333 million in proceeds from the sale of the training services business and $317 million of lower capital expenditures.

Financing Cash Flow

2024 net cash used in financing activities decreased $366 million primarily due to $1.05 billion of lower debt repayments and a $500 million increase in proceeds from long-term debt, partially offset by a $1.0 billion increase in share repurchases and a $70 million increase in dividends paid.

2025 net cash used in financing activities increased $2.2 billion as compared with 2024, primarily due to a $3.0 billion net decrease in cash from long-term debt, partially offset by a $890 million decrease in share repurchases.

Cash returned to shareholders through share repurchases and dividends totaled $2.9 billion in 2025 and $3.7 billion in 2024.

1 unchanged sentence

Our consolidated financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements.

We employ judgment in making our estimates in consideration of historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances.

We employ judgment in making our estimates in consideration of historical experience, currently available information

NORTHROP GRUMMAN CORPORATION

and various other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ from our estimates and assumptions, and any such differences could be material to our consolidated financial statements.

2 unchanged sentences

Revenue Recognition

Due to the long-term nature of our contracts, we generally recognize revenue over time using the cost-to-cost method, which requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services.

Due to the long-term nature of our contracts, we generally recognize revenue over time using the cost-to-cost method, which requires us to make reasonable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services.

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.

3 unchanged sentences

We prepare EACs for our contracts and calculate an estimated contract profit based on total estimated contract sales and cost.

Since our contracts often span a period of several years, estimation of revenue, cost, and progress toward completion requires the use of judgment.

Since our contracts often span a period of several years, estimation of revenue, cost, and progress toward completion requires significant judgment.

Factors considered in these estimates include our historical performance, the availability, productivity and cost of labor, the nature and complexity of work to be performed, the effect of change orders, availability and cost of materials, components and subcontracts, the effect of any delays in performance and the level of indirect cost allocations.

NORTHROP GRUMMAN CORPORATION

We also consider the impact of macroeconomic factors on our estimates, in particular on contract EACs that span several years.

13 unchanged sentences

We perform an annual review of our actuarial assumptions in consultation with our actuaries.

When we determine changes in the assumptions are warranted, or as a result of plan amendments, future pension and OPB expense and our projected benefit obligation could increase or decrease materially.

When we determine changes in the assumptions are warranted, or as a result of plan amendments, future pension and OPB expense and our projected

NORTHROP GRUMMAN CORPORATION

benefit obligation could increase or decrease materially.

The principal estimates and assumptions that have a significant effect on our consolidated financial position and results of operations are the discount rate, cash balance crediting rate, expected long-term rate of return on plan assets, estimated fair market value of plan assets, and the mortality rate of those covered by our pension and OPB plans.

The effects of actual results differing from our assumptions and the effects of changing assumptions (i.e., actuarial gains or losses) are recognized immediately through earnings upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.

Discount Rate – The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle our pension and OPB obligations.

Discount Rate – The discount rate represents the interest rate we use to determine the present value of future cash flows currently expected to be required to settle our pension and OPB obligations.

The discount rate is generally based on the yield of high-quality corporate fixed-income investments.

1 unchanged sentence

Taking into consideration the factors noted above, our weighted-average composite pension discount rate was 5.58 percent at December 31, 2025 and 5.73 percent at December 31, 2024.

NORTHROP GRUMMAN CORPORATION

The effects of a hypothetical change in the discount rate may be nonlinear and asymmetrical for future years as the discount rate changes.

Holding all other assumptions constant, an increase or decrease of 25 basis points in the December 31, 2024 discount rate assumption would have the following estimated effects on 2024 pension and OPB obligations, which would be reflected in the 2024 MTM expense (benefit), and 2025 expected pension and OPB expense:

Holding all other assumptions constant, an increase or decrease of 25 basis points in the December 31, 2025 discount rate assumption would have the following estimated effects on 2025 pension and OPB obligations, which would be reflected in the 2025 MTM (benefit) expense, and 2026 expected pension and OPB expense:

$ in millions 25 Basis Point Decrease in Rate 25 Basis Point Increase in Rate

5 unchanged sentences

The interest crediting rate is part of the cash balance formula and independent of actual pension investment returns.

The cash balance crediting rate tends to move in concert with the discount rate but has an offsetting effect on pension benefit obligations and the related MTM expense (benefit).

In general, the cash balance crediting rate tends to move in concert with the discount rate but has an offsetting effect on pension benefit obligations and the related MTM (benefit) expense.

The minimum cash balance crediting rate allowed under the plan is 2.25 percent.

7 unchanged sentences

EROA is a long-term assumption, which we review annually and adjust to reflect changes in our long-term view of expected market returns and/or significant changes in our plan asset investment policy.

Due to the inherent uncertainty of this assumption, we consider multiple data points at the measurement date including the plan’s target asset allocation, historical plan asset returns and third-party projection models of expected long-term returns for each of the plans’ strategic asset classes.

Due to the inherent uncertainty of this assumption, we consider multiple data points at the measurement date including the plan’s target asset allocation, third-party projection models of expected long-term returns for each of the plans’ strategic asset classes and historical plan asset returns.

In addition to the data points themselves, we consider trends in the data points, including changes from the prior measurement date.

2 unchanged sentences

During 2025, the Investment Committee of the company’s benefit plans reviewed the plans’ major asset class allocations and approved an update to increase the target fixed-income asset allocation from 45% to 48%.

The actual asset allocation as of December 31, 2024 was approximately 41% fixed-income, 29% public equities, 23% alternatives, 6% private credit and 1% cash.

NORTHROP GRUMMAN CORPORATION

asset allocation as of December 31, 2025 was approximately 43% fixed-income, 28% public equities, 27% alternatives, and 2% cash.

At this time, the Investment Committee is not planning any significant changes to that mix.

For further information on plan asset investments, see Note 12 to the consolidated financial statements.

Consistent with our past practice, we obtained long-term capital market forecasting models from several third parties and, using our target asset allocation, developed an expected rate of return on plan assets from each model.

We considered not only the specific returns projected by those third-party models, but also changes in the models year-to-year when developing our EROA.

While historical market returns are not necessarily predictive of future market returns, given our long history of plan performance supported by the stability in our investment mix, investment managers, and active asset management, we believe our actual historical performance is a reasonable metric to consider when developing our EROA.

1 unchanged sentence

Our 2025 return on plan assets, net of expenses, was approximately 11.3 percent.

NORTHROP GRUMMAN CORPORATION

considered not only the specific returns projected by those third-party models, but also changes in the models year-to-year when developing our EROA.

For determining 2025 FAS expense, we assumed an expected long-term rate of return on pension plan assets of 7.5 percent and an expected long-term rate of return on OPB plan assets of 7.08 percent.

For 2025 FAS expense, we have assumed an expected long-term rate of return on pension plan assets of 7.5 percent and 7.08 percent on OPB plans.

Holding all other assumptions constant, an increase or decrease of 25 basis points in our December 31, 2024 EROA assumption would have the following estimated effects on 2025 expected pension and OPB expense:

For 2026 FAS expense, we have assumed an expected long-term rate of return of 7.5 percent on pension plan assets and 7.1 percent on OPB plans.

Holding all other assumptions constant, an increase or decrease of 25 basis points in our December 31, 2025 EROA assumption would have the following estimated effects on 2026 expected pension and OPB expense (benefit):

$ in millions 25 Basis Point Decrease 25 Basis Point Increase

4 unchanged sentences

$ 314 $ (314)

Estimated Fair Market Value of Plan Assets – For certain plan assets where the fair market value is not readily determinable, such as real estate, private equity, hedge funds and opportunistic investments, we develop estimates of fair value using the best information available.

Estimated Fair Market Value of Plan Assets – For certain plan assets where the fair market value is not readily determinable, such as private equity, real estate, and other alternative investments, we develop estimates of fair value using the best information available.

Estimated fair values on these plan assets are based on redemption values and net asset values (NAV), as well as valuation methodologies that include third-party appraisals, comparable transactions, discounted cash flow valuation models and public market data.

4 unchanged sentences

The RPEC has not released a projection scale since MP-2021, citing complexities in incorporating the substantial number of “excess deaths” in 2020 and 2021 into their existing model and uncertainties about future expectations primarily related to COVID-19.

As such, after considering the information released by the RPEC in October 2021 as well as the company’s recent mortality experience, we adopted the full MP-2021 projection scale while continuing to use the Pri-2012 White Collar table, supplemented with 50% of the Gradual Wear-Off illustration as outlined in the RPEC’s 2022 Mortality Improvement Update paper to reflect the future impacts of COVID-19, to develop our mortality assumptions used in calculating our pension and OPB obligations recognized at December 31, 2024, and the amounts estimated for our 2025 pension and OPB expense.

We used these mortality assumptions to calculate our pension and OPB obligations recognized at December 31, 2025, and the amounts estimated for our 2026 pension and OPB expense.

For further information regarding our pension and OPB plans, see “Risk Factors” and Notes 1 and 12 to the consolidated financial statements.

NORTHROP GRUMMAN CORPORATION

Litigation, Commitments and Contingencies

1 unchanged sentence

Estimating liabilities and costs associated with these matters requires judgment based upon the professional knowledge and experience of management.

We determine whether to record a reserve and, if so, what amount based on consideration of the facts and circumstances of each matter as then known to us.

Determinations regarding whether to record a reserve and, if so, of what amount, reflect management’s assessment regarding what is likely to occur;

We determine whether to accrue a loss and, if so, what amount based on consideration of the facts and circumstances of each matter as then known to us.

Determinations regarding whether to accrue a loss and, if so, of what amount, reflect management’s assessment regarding what is likely to occur;

they do not necessarily reflect what management believes should occur.

4 unchanged sentences

changes in the estimated time required to conduct remedial actions;

discovery of more or less extensive (or different) contamination

NORTHROP GRUMMAN CORPORATION

than anticipated;

discovery of more or less extensive (or different) contamination than anticipated;

information regarding the potential causes and effects of contamination;

8 unchanged sentences

government contract mix and past practices.

Portions of the company’s environmental liabilities we do not expect to be recoverable have been expensed.

Portions of the company’s environmental liabilities we do not expect to be recoverable are expensed when the liability is established.

As of December 31, 2025, we expect approximately 92 percent of the company’s environmental remediation costs to be recoverable.

however, to the extent our judgments on the recoverability of our environmental remediation costs change or the unallowable portion of our environmental remediation costs otherwise increase, there could be a significant impact on our consolidated financial position, annual results of operations and/or cash flows.

A 10 percentage point decrease in this assumption would result in approximately a $55 million reduction to operating income.

To the extent our judgments on the recoverability of our environmental remediation costs change or the unallowable portion of our environmental remediation costs otherwise increase, there could be a significant impact on our consolidated financial position, annual results of operations and/or cash flows.

Income Tax Matters – The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim, requires the use of judgment.

9 unchanged sentences

Goodwill and Long-Lived Assets

Overview – We allocate the purchase price of acquired businesses to the underlying tangible and intangible assets acquired and liabilities assumed based upon their respective fair values, with the excess recorded as goodwill.

Such fair value assessments require judgments and estimates that can be affected by contract performance and other factors over time, which may cause final amounts to differ materially from original estimates.

2 unchanged sentences

The cost of PP&E utilized in support of our government contracts is generally allowable and allocable cost in accordance with applicable FAR and CAS requirements, which limits our risk of impairment on those assets.

However, the cost of PP&E utilized in support of our commercial business, including approximately $575 million of PP&E used in our commercial space business, is not allocable to government contracts and is therefore subject to greater recoverability risk.

Impairment Testing – We test for impairment of goodwill annually at each of our reporting units, which comprise our operating segments.

The results of our annual goodwill impairment tests as of December 31, 2024 and 2023, respectively, indicated that the estimated fair value of each reporting unit significantly exceeded its respective carrying value.

There were no impairment charges recorded in the years ended December 31, 2024, 2023 and 2022.

In addition to performing an annual goodwill impairment test, we may perform an interim impairment test if events occur or circumstances change that suggest goodwill in any of our reporting units may be impaired.

Such indicators may include, but are not limited to, the loss of significant business, significant reductions in federal government appropriations or other significant adverse changes in industry or market conditions.

During 2024, we determined there were no impairment indicators requiring us to perform an interim goodwill impairment test.

When testing goodwill for impairment, we compare the fair values of each of our reporting units to their respective carrying values.

To determine the fair value of our reporting units, we primarily use the income approach based on the cash flows we expect the reporting units to generate in the future, consistent with our operating plans.

This income valuation method requires management to project sales, operating expenses, working capital, capital

However, the cost of PP&E utilized in support of our commercial business, including approximately $600 million of PP&E used in our

NORTHROP GRUMMAN CORPORATION

spending and cash flows for the reporting units over a multi-year period, as well as to determine the weighted-average cost of capital (WACC) used as a discount rate and terminal value assumptions.

The WACC takes into account the relative weights of each component of our consolidated capital structure (equity and debt) and represents the expected cost of new capital adjusted as appropriate to consider lower risk profiles associated with longer-term contracts and barriers to market entry.

The terminal value assumptions are applied to the final year of the discounted cash flow model.

We use industry multiples (including relevant control premiums) of operating earnings to corroborate the fair values of our reporting units determined under the market valuation method of the income approach.

We test for impairment of our long-lived assets when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

commercial space business, is not allocable to government contracts and is therefore subject to greater recoverability risk.

Impairment Testing – We test for impairment of goodwill annually as of December 31 at each of our reporting units, which comprise our operating segments, or more frequently if events occur or circumstances change such that it is more likely than not an impairment may exist.

When testing for goodwill impairment, we may perform both qualitative and quantitative assessments.

If we perform a qualitative assessment and conclude that it is more likely than not that the fair value of a reporting unit is less than the carrying value, then a quantitative assessment is performed.

When a quantitative assessment is performed, we compare the carrying value of each reporting unit to its respective fair value and recognize an impairment loss to the extent that the fair value is less than the carrying value.

Our qualitative assessment evaluates relevant events and circumstances such as macroeconomic conditions, industry considerations, and reporting unit financial performance.

If we perform a quantitative assessment, we primarily use the income approach based on the cash flows we expect the reporting units to generate in the future, consistent with our operating plans.

This income valuation method requires management to project sales, operating expenses, working capital, capital spending and cash flows for the reporting units over a multi-year period, as well as to determine the weighted-average cost of capital (WACC) used as a discount rate and terminal value assumptions.

We performed qualitative assessments for each of our reporting units as of December 31, 2025 and determined that no adjustments to the carrying value of goodwill were necessary.

We performed our most recent quantitative analysis as of December 31, 2024, where we determined the fair value of each of our reporting units substantially exceeded their respective carrying values.

We test for impairment of long-lived assets when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Our assessment is based on our projection of the undiscounted future operating cash flows of the related asset group.

If such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amount, we recognize a non-cash impairment charge to reduce the carrying amount to fair value.

There were no impairment charges recorded in the years ended December 31, 2024, 2023 and 2022.

There were no material impairment charges recorded in the years ended December 31, 2025, 2024 and 2023.

Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions.

2 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis