Northrop Grumman (NOC) 10-K risk factor changes: FY2019 vs FY2018

Our consolidated financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control, that may cause actual performance to differ materially from historical or projected future performance.

We encourage you to consider carefully the risk factors described below in evaluating the information contained in this report as the outcome of one or more of these risks could have a material adverse effect on our financial position, results of operations and/or cash flows.

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NORTHROP GRUMMAN CORPORATION

| | |

| --- | --- |

| ▪ | We depend heavily on a single customer, the U.S. government, for a substantial portion of our business. Changes in this customer’s priorities and spending could have a material adverse effect on our financial position, results of operations and/or cash flows. |

Our primary customer is the U.S. government, from which we derived 82 percent, 85 percent and 84 percent of our sales during the years ended December 31, 2018, 2017 and 2016, respectively; we have a number of large programs with the U.S. Air Force, in particular.

The U.S. government has been implementing significant changes and spending levels have fluctuated and may continue to fluctuate over time.

We cannot predict the impact on existing, follow-on, replacement or future programs from potential changes in priorities due to changes in defense spending levels, the threat environment, military strategy and planning and/or changes in social, economic or political priorities.

The U.S. government generally has the ability to terminate contracts, in whole or in part, for its convenience or for default based on performance.

In the event of termination for the U.S. government’s convenience, contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned had the contract been completed.

Termination by the U.S. government of a contract due to default could require us to pay for re-procurement costs in excess of the original contract price, net of the value of work accepted from the original contract, as well as other damages.

Termination of a contract due to our default could have a material adverse effect on our reputation, our ability to compete for other contracts and our financial position, results of operations and/or cash flows.

The U.S. government also has the ability to stop work under a contract for a limited period of time for its convenience.

It is possible that the U.S. government could invoke this ability across a limited or broad number of contracts.

In the event of a stop work order, contractors are typically protected by provisions covering reimbursement for costs incurred on the contract to date and for costs associated with the temporary stoppage of work on the contract plus a reasonable fee.

However, such temporary stoppages and delays could introduce inefficiencies and result in financial and other damages for which we may not be able to negotiate full recovery from the U.S. government.

They could also ultimately result in termination of a contract (or contracts) for convenience or reduced future orders.

A significant shift in government priorities to programs in which we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset by other programs and opportunities, could have a material adverse effect on our financial position, results of operations and/or cash flows.

| | |

| --- | --- |

| ▪ | Significant delays or reductions in appropriations for our programs and U.S. government funding more broadly may negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations and/or cash flows. |

U.S. government programs are subject to annual congressional budget authorization and appropriation processes.

For many programs, Congress appropriates funds on an annual fiscal year basis even though the program performance period may extend over several years.

Consequently, programs are often partially funded initially and additional funds are committed only as Congress makes further appropriations.

If we incur costs in excess of funds obligated on a contract, we may be at risk for reimbursement of those costs unless and until additional funds are obligated to the contract.

We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the annual appropriations ultimately approved by Congress and the President or in separate supplemental appropriations or continuing resolutions, as applicable.

Laws and plans adopted by the U.S. government relating to, along with pressures on and uncertainty surrounding the federal budget, potential changes in priorities and defense spending levels, sequestration, the appropriations process, use of continuing resolutions (with restrictions, e.g., on new starts) and the permissible federal debt limit, could adversely affect the funding for individual programs and delay purchasing or payment decisions by our customers.

In the event government funding for our significant programs becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contract or subcontract under such programs may be terminated or adjusted by the U.S. government or the prime contractor.

The U.S. continues to face an uncertain political environment and substantial fiscal and economic challenges, which affect funding for discretionary and non-discretionary budgets.

The Budget Control Act of 2011 (BCA) mandated spending caps for all federal discretionary spending across a ten-year period (FY 2012 through FY 2021), including specific limits for defense and non-defense spending.

In prior years, these spending caps have been revised by separate bills for specific fiscal years.

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NORTHROP GRUMMAN CORPORATION

Most recently, on February 9, 2018, Congress passed the Bipartisan Budget Act (BBA) of 2018, which raised the statutory budget caps for defense spending, including for Overseas Contingency Operations (OCO), by $80 billion for FY 2018 and by $85 billion for FY 2019.

The BBA also raised non-defense spending by $63 billion for FY 2018 and $68 billion for FY 2019 and suspended the debt ceiling until March 1, 2019.

The original spending caps established by the BCA will return for FY 2020 and FY 2021 without another statutory change.

Similarly, the suspension of the debt ceiling is expected to end on March 1, 2019 absent further action.

On March 23, 2018, the President signed the Omnibus Appropriations Act for FY 2018, which provided $1.3 trillion in discretionary funding for federal agencies.

OVERVIEW

As previously announced, effective January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, and ASU No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, using the full retrospective method.

Additionally, during the fourth quarter of 2018, we changed our GAAP accounting method related to the recognition of actuarial gains and losses for the company’s pension and other postretirement benefit (OPB) plans (the “Accounting change”).

Prior to the Accounting change, actuarial gains and losses were recognized as a component of Accumulated other comprehensive (loss) income upon annual remeasurement and were amortized into earnings in future periods on a plan-by-plan basis when they exceeded the accounting corridor, a defined range within which amortization of net gains and losses is not required.

Under the new method, actuarial gains and losses are immediately recognized in net periodic benefit cost through Mark-to-market pension and OPB (“MTM”) (expense) benefit upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.

Our 2017 and 2016 results below have been recast to reflect the impact of the adoption of ASC Topic 606 and ASU 2017-07 and the Accounting change as described in Notes 1, 13, 16, 17 and 18 to the consolidated financial statements.

Acquisition of Orbital ATK

On June 6, 2018 (the “Merger Date”), the company completed its previously announced acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”), by acquiring all of the outstanding shares of Orbital ATK for a purchase price of $7.7 billion in cash.

On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc. We established Innovation Systems as a new, fourth business sector, whose main products include launch vehicles and related propulsion systems; missile products and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures.

The acquisition was financed with proceeds from the company’s debt financing completed in October 2017 and cash on hand.

We believe this acquisition will enable us to broaden our capabilities and offerings, provide additional innovative solutions to meet our customers’ emerging requirements, create value for shareholders and provide expanded opportunities for our combined employees.

See Note 2 to the consolidated financial statements for further information regarding the acquisition of Orbital ATK.

Global Security and Economic Environment

The U.S. and its allies continue to face a global security environment of heightened tensions and instability, threats from state and non-state actors as well as terrorist organizations, emerging nuclear tensions, diverse regional security concerns and political instability.

Global threats persist across all domains, from undersea to space to cyber.

The market for defense products, services and solutions globally is driven by these complex and evolving security challenges, considered in the broader context of political and socioeconomic priorities.

The global geopolitical and economic environments also continue to be impacted by uncertainty.

Geopolitical relationships are changing and global economic growth is expected to remain in the low single digits in 2019, reflecting the impact of and uncertainty surrounding geopolitical tensions globally and financial market volatility.

The global economy may also be affected by Britain’s anticipated exit from the European Union, the full impact of which is not known at this time.

Additionally, economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements, could impact the global market for defense products, services and solutions.

U.S. Political and Economic Environment

The U.S. continues to face an uncertain political environment and substantial fiscal and economic challenges, which affect funding for discretionary and non-discretionary budgets.

The Budget Control Act of 2011 (BCA) mandated spending caps for all federal discretionary spending across a ten-year period (FY 2012 through FY 2021), including specific limits for defense and non-defense spending.

In prior years, these spending caps have been revised by separate bills for specific fiscal years.

Most recently, on February 9, 2018, Congress passed the Bipartisan Budget Act (BBA) of 2018, which raised the statutory budget caps for defense spending, including for Overseas Contingency Operations (OCO), by $80 billion for FY 2018 and by $85 billion for FY 2019.

The BBA also raised non-defense spending by $63 billion for FY 2018 and $68 billion for FY 2019 and suspended the debt ceiling until March 1, 2019.

The original spending caps

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NORTHROP GRUMMAN CORPORATION

established by the BCA will return for FY 2020 and FY 2021 without another statutory change.

Similarly, the suspension of the debt ceiling is expected to end on March 1, 2019 absent further action.

On March 23, 2018, the President signed the Omnibus Appropriations Act for FY 2018, which provided $1.3 trillion in discretionary funding for federal agencies.

In total for FY 2018, Congress appropriated approximately $700 billion for national security, including approximately $630 billion for base discretionary funding and approximately $70 billion in OCO funding.

On September 28, 2018, full-year appropriations for FY 2019 were enacted representing over half of discretionary federal spending.

For FY 2019, Congress appropriated approximately $716 billion for national security, including approximately $647 billion for base discretionary funding and approximately $69 billion in OCO funding.

A continuing resolution was approved to provide further funding for other agencies (including NASA and other civil agencies) through December 7, 2018, which was subsequently extended through December 21, 2018.

On December 22, 2018, U.S. government agencies that had not yet received full-year appropriations and did not otherwise have funding entered into a temporary shutdown.

On January 25, 2019, a third continuing resolution was enacted, which funds these agencies through February 15, 2019.

The federal budget and debt ceiling are expected to continue to be the subject of considerable debate, which could have significant impacts on defense spending broadly and the company’s programs in particular.

For further information on the risks we face from the current political and economic environment, see “Risk Factors.”

[removed: EQUITY RISK][added: EQUITY RISK]

We are exposed to market risk with respect to our portfolio of marketable securities with a fair value of [removed: $335] [added: $382] million at December 31, [removed: 2018.][added: 2019.]

[removed: INTEREST] [added: INTEREST] RATE [removed: RISK][added: RISK]

We are exposed to interest rate risk on variable-rate, short-term borrowings under our credit facilities, for which there was [removed: £85] [added: £60] million (the equivalent of approximately [removed: $108] [added: $78] million as of December 31, [removed: 2018) outstanding at December 31, 2018 and on our outstanding short-term commercial paper borrowings, for which there was $198 million] [added: 2019)] outstanding at December 31, [removed: 2018.][added: 2019.]

At December 31, [removed: 2018,] [added: 2019,] we have [removed: $14.4] [added: $13.9] billion of long-term debt, primarily consisting of fixed-rate debt, with a fair value of approximately [removed: $14.3] [added: $15.1] billion.

[removed: FOREIGN] [added: FOREIGN] CURRENCY [removed: RISK][added: RISK]

At December 31, [removed: 2018,] [added: 2019,] foreign currency forward contracts with a notional amount of [removed: $114] [added: $98] million were outstanding.

At December 31, [removed: 2018,] [added: 2019,] a 10 percent unfavorable foreign exchange rate movement would not have a material impact on our consolidated financial position, annual results of operations and/or cash flows.

[removed: INFLATION RISK][added: INFLATION RISK]

[removed: At December 31, 2018, a 10 percent unfavorable change in commodity prices would] [added: The settlement of these liabilities is] not [added: expected to] have a material [removed: impact] [added: adverse effect] on [removed: our] [added: the company’s] consolidated financial [removed: position,] [added: position as of December 31, 2019, or its] annual results of operations and/or cash flows.

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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, 2019 and 2018, and 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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, 2020 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of ASC 842, *Leases*.

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 Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition - Cost and Revenue Estimates for Development Contracts - Refer to Note 1 to the financial statements

*Critical Audit Matter Description*

As more fully described in Note 1 to the financial statements, the Company recognizes substantially all revenue as control is transferred to the customer on their long-term contracts 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

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NORTHROP GRUMMAN CORPORATION

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 sales and total estimated costs at completion and recognizes that profit as costs are incurred.

Cost estimates on contracts requiring development work are inherently more uncertain as to future events than production contracts, and, as a result, there is typically more variability in those estimates.

Certain of these contracts are fixed price in nature, which results in greater financial risk associated with unanticipated cost growth.

Alternatively, cost-type contracts may have award or incentive fees that are subject to uncertainty and may be earned over extended periods or towards the end of the contract.

As a result, the estimation of costs required to complete these contracts and the expected revenues that will be earned is complex and requires significant judgment.

Given the judgment necessary to make reasonably dependable estimates regarding the revenue and costs associated with such contracts, auditing these estimates required extensive audit effort due to the complexity of the underlying programs and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

*How the Critical Audit Matter Was Addressed in the Audit*

We do not hold or issue derivative financial instruments for trading purposes.

COMMODITY PRICE RISK

In certain circumstances, we are exposed to commodity price risk on purchases of inventory such as copper and zinc.

We enter into forward contracts and purchase orders for the current expected production requirements for small-caliber ammunition supply contracts.

At December 31, 2018, we had commodity forward contracts outstanding that hedge forecasted commodity purchases of 10 million pounds of copper and 4 million pounds of zinc.

[removed: HISTORY] [added: HISTORY] AND [removed: ORGANIZATION][added: ORGANIZATION]

[removed: History][added: History]

On June 6, 2018 (the “Merger date”), the company completed its [removed: previously announced] acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”).

[removed: AEROSPACE SYSTEMS][added: AEROSPACE SYSTEMS]

[removed: Autonomous Systems] [added: *Autonomous Systems*] – designs, develops, manufactures, integrates and sustains autonomous aircraft systems for tactical and strategic ISR missions.

Key programs include high-altitude long-endurance (HALE) systems, such as the Global Hawk system, which provides near real-time high resolution imagery of land masses for theater awareness; the Triton system, which provides real-time ISR over vast ocean and coastal regions for maritime domain [removed: awareness; and the North Atlantic Treaty Organization (NATO) Alliance Ground Surveillance (AGS) system for multinational theater operations; and the ship-based vertical take off and landing (VTOL) Fire Scout system, which provides situational awareness for maritime forces and precision targeting support.]

[removed: Manned Aircraft] [added: *Manned Aircraft*] – designs, develops, [removed: manufactures,] [added: manufactures] and integrates long-range strike aircraft systems, airborne C4ISR systems, tactical aircraft systems and directed energy systems.

Key airborne C4ISR programs include the E-2D Advanced Hawkeye and Joint Surveillance Target Attack [added: Radar System (JSTARS).]

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

Directed energy involves the design, [removed: development,] [added: development] and integration of laser weapon systems for air, ground, and sea [removed: platforms,] [added: platforms] and production of the Airborne Laser Mine Detection System for the U.S. Navy and international customers.

[removed: Space] [added: *Space*] – designs, develops, [removed: manufactures,] [added: manufactures] and integrates spacecraft systems, subsystems, sensors and communications payloads in support of space C4ISR and science missions.

[removed: INNOVATION SYSTEMS][added: INNOVATION SYSTEMS]

[removed: Defense Systems] [added: *Defense Systems*] – develops and produces small-, medium- and large-caliber ammunition; precision weapons and munitions; high-performance gun systems; and propellant and energetic materials.

[removed: Flight Systems] [added: *Flight Systems*] – designs, develops and manufactures small- and medium-class space launch vehicles to place satellites into earth orbit and escape trajectories; interceptor and target vehicles for missile defense systems; and suborbital launch vehicles that place payloads into a variety of high-altitude trajectories.

[removed: Space Systems] [added: *Space Systems*] – develops and produces small- and [removed: medium- class] [added: medium-class] satellites for global and regional communications and broadcasting, space-related scientific [removed: research,] [added: research] and national security; human-rated space systems for earth orbit and deep-space exploration, including delivering cargo to the International Space Station (ISS); and spacecraft components and subsystems as well as specialized engineering and operations services to U.S. government agencies.

[removed: MISSION SYSTEMS][added: MISSION SYSTEMS]

[removed: Advanced Capabilities] [added: *Advanced Capabilities*] – provides integration and interoperability of net-enabled battle management, sensors, targeting and surveillance systems; air and missile defense command and control (C2); and global battlespace awareness.

[removed: Cyber] [added: *Cyber] and [removed: ISR] [added: ISR*] – delivers products, systems and services that support full-spectrum cyber solutions, space-based payload and exploitation systems, space-based communications, C2 and processing systems, and enterprise integration of multi-intelligence mission data across all domains.

Key programs include exploitation and cyber programs; operational services to the United States Computer Emergency Readiness Team (US-CERT); worldwide IT coverage and support services through Solutions for the Information Technology Enterprise (SITE); the Enterprise Application Managed Services (EAMS) program; [added: the Unified Platform System Coordinator program;] and restricted programs.

[removed: Sensors] [added: *Sensors] and [removed: Processing] [added: Processing*] – delivers products, systems and services that support ground-based and fixed wing and rotary wing aircraft platforms with radar, electronic warfare, C2, Signals Intelligence (SIGINT), and situational awareness mission systems.

Competencies include targeting, surveillance, air [removed: defense,] [added: defense] and early warning & control radar systems; EO/IR and radio frequency (RF) self-protection, targeting and surveillance systems; electronic attack and electronic support systems; communications and intelligence systems; digitized cockpits; and multi-sensor processing.

[removed: TECHNOLOGY SERVICES][added: TECHNOLOGY SERVICES]

The sector is reported in [removed: three] [added: two] business areas, which reflect our core capabilities: [removed: Advanced Defense Services;] Global Logistics and [removed: Modernization; and System] Modernization and [added: Global] Services.

[removed: Global] [added: *Global] Logistics and [removed: Modernization] [added: Modernization*] – provides global logistics support, sustainment, operations and modernization for air, sea and ground systems and weapon system components.

This realignment is not reflected in the business descriptions [removed: above] [added: below] or in [added: any of] the [added: accompanying] financial information contained in this report.

[removed: SELECTED] [added: SELECTED] FINANCIAL [removed: DATA][added: DATA]

[removed: CUSTOMER CONCENTRATION][added: CUSTOMER CONCENTRATION]

Sales to the U.S. government accounted for [removed: 82] [added: 83] percent, [removed: 85] [added: 82] percent and [removed: 84] [added: 85] percent of sales during the years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016,] [added: 2017,] respectively.

For further information on sales by customer [removed: category,] [added: type, contract type and geographic region,] see Note [removed: 15] [added: 16] to the consolidated financial statements.

[removed: COMPETITIVE CONDITIONS][added: COMPETITIVE CONDITIONS]

BAE Systems, Boeing, Booz Allen Hamilton, General Dynamics, [removed: Harris, L3] [added: L3Harris] Technologies, Leidos, Leonardo, Lockheed Martin, Raytheon and Thales are some of our primary competitors.

[removed: SEASONALITY][added: SEASONALITY]

[removed: BACKLOG][added: BACKLOG]

At December 31, [removed: 2018,] [added: 2019,] total backlog, which is equivalent to the company’s remaining performance obligations, was [removed: $53.5] [added: $64.8] billion as compared with [removed: $42.6] [added: $53.5] billion at December 31, [removed: 2017.][added: 2018.]

[removed: INTELLECTUAL PROPERTY][added: INTELLECTUAL PROPERTY]

[removed: RAW MATERIALS][added: RAW MATERIALS]

[removed: EMPLOYEE RELATIONS][added: EMPLOYEE RELATIONS]

We believe that we maintain good relations with our approximately [removed: 85,000] [added: 90,000] employees.

Approximately [removed: 4,800] [added: 5,000] are covered by [removed: 16] [added: 17] collective agreements in the U.S., of which we negotiated [removed: three] [added: two] renewals [added: and one new agreement] in [removed: 2018] [added: 2019] and expect to negotiate [removed: two] [added: six] renewals in [removed: 2019.][added: 2020.]

[removed: REGULATORY MATTERS][added: REGULATORY MATTERS]

Organization

At December 31, 2019, the company was aligned in four operating sectors, which also comprise our reportable segments: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services.

*Subsequent Realignment* – Effective January 1, 2020, the company reorganized its sectors to better align the company’s broad portfolio to serve its customers’ needs.

The four new sectors are: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.

awareness; the North Atlantic Treaty Organization (NATO) Alliance Ground Surveillance (AGS) system for multinational theater operations; and the ship-based vertical take off and landing (VTOL) Fire Scout system, which provides situational awareness for maritime forces and precision targeting support.

NORTHROP GRUMMAN CORPORATION

Technology Services, headquartered in Herndon, Virginia, is a leader in delivering full life-cycle solutions and services in support of mission-critical networks and systems including: sustainment, modernization, training and simulation, software, engineering services, cyber, rapidly-deployable global logistics and information technology.

Customers include the DoD, federal, civilian and health agencies, and international customers.

NORTHROP GRUMMAN CORPORATION

*Global Services* – provides information technology and mission support services to our customers in defense, civil, health and restricted arenas; delivers technology differentiated services to modernize and sustain mission critical IT systems, improve the health of people, and strengthen the security of the U.S. and its allies.

From an information technology perspective, Global Services supports the full software life cycle providing software development, sustainment and modernization services as well as delivering secure and resilient next generation information solutions that enable customer missions.

Our services and solutions include agile/DevSecOps, legacy modernization, mission information processing and analytics, cybersecurity, cloud migration and services, and secure networks and infrastructure.

From a mission support perspective, we deliver the people and services supporting cyber operations, systems engineering and scientific analysis.

We also deliver the full range of training services, from individual training products and courseware to networked and integrated live, virtual and constructive training systems.

NORTHROP GRUMMAN CORPORATION

We are prohibited by the U.S. government from publicly discussing the details of certain classified programs.

These programs are generally referred to as “restricted” in this Annual Report.

NORTHROP GRUMMAN CORPORATION

| Cost-type contracts | | $ | 15,720 | | | $ | 683 | | | $ | 76 | | | $ | 16,479 | | | 49 | % |

| Fixed-price contracts | | 12,214 | | | | 4,471 | | | | 677 | | | | 17,362 | | | | 51 | % |

| Total sales | | $ | 27,934 | | | $ | 5,154 | | | $ | 753 | | | $ | 33,841 | | | 100 | % |

Item 1A.

Risk Factors

Our consolidated financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control, that may cause actual performance to differ materially from historical or projected future performance.

We encourage you to consider carefully the risk factors described below in evaluating the information contained in this report as the outcome of one or more of these risks could have a material adverse effect on our financial position, results of operations and/or cash flows.

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NORTHROP GRUMMAN CORPORATION

| | |

| --- | --- |

| ▪ | We depend heavily on a single customer, the U.S. government, for a substantial portion of our business. Changes in this customer’s priorities and spending could have a material adverse effect on our financial position, results of operations and/or cash flows. |

Our primary customer is the U.S. government, from which we derived 83 percent of our sales in 2019; we have a number of large programs with the U.S. Air Force, in particular.

The U.S. government has been implementing significant changes and spending levels have fluctuated and may continue to fluctuate over time.

We cannot predict the impact on existing, follow-on, replacement or future programs from potential changes in priorities due to changes in defense spending levels, the threat environment, procurement strategy, military strategy and planning and/or changes in social, economic or political priorities.

The U.S. government also has the ability to delay, modify or cancel ongoing competitions, procurements and programs, as well as to change its acquisition strategy.

The U.S. government generally has the ability to terminate contracts, in whole or in part, for its convenience or for default based on performance.

In the event of termination for the U.S. government’s convenience, contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned had the contract been completed.

Termination by the U.S. government of a contract due to default could require us to pay for re-procurement costs in excess of the original contract price, net of the value of work accepted from the original contract, as well as other damages.

Termination of a contract due to our default could have a material adverse effect on our reputation, our ability to compete for other contracts and our financial position, results of operations and/or cash flows.

The U.S. government also has the ability to stop work under a contract for a limited period of time for its convenience.

It is possible that the U.S. government could invoke this ability across a limited or broad number of contracts.

Radar System (JSTARS).

Technology Services, headquartered in Herndon, Virginia, is a leader in logistic solutions supporting the full life cycle of platforms and systems and delivering innovative, technology-driven solutions and services for DoD, global defense and federal-civil customers.

Major products and services include software and system sustainment; modernization of platforms and associated subsystems; advanced training solutions; and integrated logistics support.

Advanced Defense Services – provides advanced defense and security services including cyber; network operations and security; system and software sustainment and modernization; and training to strengthen the national security of the U.S. and its allies.

Key programs include the Marine Corps Cyber Operations Group, which provides network defense services for the U.S. Marine Corps; Ministry of the National Guard (MNG) Training Support, through our interest in a joint venture for which we consolidate the financial results, which provides equipment fielding, training and maintenance, logistics and operations support to the Saudi Arabia MNG; and the Mission Command Training Program, the Army's premier leadership and staff training exercise program at the tactical and operational level.

System Modernization and Services – provides full life cycle information systems modernization and sustainment primarily in support of civilian government agencies.

Competencies include analytics; mission information processing; cyber and secure networking; and software development.

Capabilities include fraud detection and compliance services, data analysis and decision support tools, software system sustainment and modernization, and application migration to the cloud; services to U.S. government healthcare agencies, including benefits systems administration, fraud prevention, payment modernization, bioinformatics, and precision health; and information sharing and analysis solutions as well as sophisticated enterprise-wide solutions to design, build and manage resilient and secure next generation IT infrastructures.

Our capabilities provide proactive network monitoring, patch management and desktop optimization to control and reduce overall operating costs.

Subsequent Realignment – Effective January 1, 2019, Advanced Defense Services and System Modernization and Services merged to create the Global Services business area.

Certain classified programs with the U.S. government are prohibited by the customer from being publicly discussed and are therefore generally referred to as “restricted” in this Annual Report.

| Cost-type contracts | | $ | 14,234 | | | $ | 680 | | | $ | 90 | | | $ | 15,004 | | | 50 | % |

| Fixed-price contracts | | 10,562 | | | | 3,754 | | | | 775 | | | | 15,091 | | | | 50 | % |

| Total sales | | $ | 24,796 | | | $ | 4,434 | | | $ | 865 | | | $ | 30,095 | | | 100 | % |

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: | FORM | 10-K |]

| [removed: x] [added: ☒] | [added: |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the fiscal year ended December 31, [removed: 2018][added: 2019]

| [removed: o] [added: ☐] | [added: |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

| [removed: DELAWARE] [added: Delaware] | | [removed: 80-0640649] | [added: 80-0640649 |]

| (State or other jurisdiction of incorporation or organization) | | [added: |] (I.R.S. Employer Identification Number) |

| [removed: 2980] [added: 2980] Fairview Park [removed: Drive Falls Church, Virginia] [added: Drive] | | [removed: 22042] | [added: |]

| (Address of principal executive offices) | | [added: |] (Zip code) |

[removed: (703) 280-2900][added: (703) 280-2900]

| Title of each class | [added: Trading Symbol(s)] | Name of each exchange on which registered |

| Common [removed: Stock, $1 par value] [added: Stock] | [added: NOC] | New York Stock Exchange |

Securities registered pursuant to Section 12(g) of the Act: [added: None]

[removed: |] Yes [removed: x | |] [added: ☒] No [removed: o |][added: ☐]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the [removed: Act.][added: Act]

[removed: |] Yes [removed: o | |] [added: ☐] No [removed: x |][added: ☒]

[removed: |] Large [removed: accelerated filer x | |] Accelerated [removed: filer o | |] [added: Filer ☒ Accelerated Filer ☐] Smaller [removed: reporting company o | | |][added: Reporting Company ☐]

[removed: |] Non-accelerated [removed: filer o | | | |] [added: Filer ☐] Emerging [removed: growth company o | | |][added: Growth Company ☐]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange [removed: Act.o][added: Act.]

As of June 30, [removed: 2018,] [added: 2019,] the aggregate market value of the common stock (based upon the closing price of the stock on the New York Stock Exchange) of the registrant held by non-affiliates was approximately [removed: $53.4] [added: $54.5] billion.

As of January [removed: 28, 2019, 169,737,507] [added: 27, 2020, 167,637,130] shares of common stock were outstanding.

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of Northrop Grumman Corporation’s Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for the [removed: 2019] [added: 2020] Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| | | [removed: Page] [added: Page] |

[removed: | | [PART I](#s44DF293D31A45226970B00A01012EB02) | |][added: PART I]

| Item 1. | [removed: [Business](#s79773DD301E55CF0A5B0AFABC1B1E45C)] [added: [Business](#s4283C870AD6D58BDB9CB7265D2592F5E)] | [removed: [1](#s79773DD301E55CF0A5B0AFABC1B1E45C)] [added: [1](#s4283C870AD6D58BDB9CB7265D2592F5E)] |

| Item 1A. | [Risk [removed: Factors](#s10F1A946211051188F6DE26258723834)] [added: Factors](#s07FC8CA4FB885C6CBAB980AD5DF1C6C0)] | [removed: [6](#s10F1A946211051188F6DE26258723834)] [added: [6](#s07FC8CA4FB885C6CBAB980AD5DF1C6C0)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s0227A90D01F459D99A97C7BF75D7321B)] [added: Comments](#s012A6820CF5153A2A4AB9AA98B6E145E)] | [removed: [19](#s0227A90D01F459D99A97C7BF75D7321B)] [added: [19](#s012A6820CF5153A2A4AB9AA98B6E145E)] |

| Item 2. | [removed: [Properties](#s859655249BEE5A37BB898D9EE5899E8E)] [added: [Properties](#s66871ABA45E2568390FFF56340C5D11E)] | [removed: [20](#s859655249BEE5A37BB898D9EE5899E8E)] [added: [20](#s66871ABA45E2568390FFF56340C5D11E)] |

| Item 3. | [Legal [removed: Proceedings](#s53F20AE79BED56BEAC18639E02290CE0)] [added: Proceedings](#sD4B1FA4228F550799C07805BD9DA258B)] | [removed: [21](#s53F20AE79BED56BEAC18639E02290CE0)] [added: [21](#sD4B1FA4228F550799C07805BD9DA258B)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s52339D511FE15EC286B73F69391556B6)] [added: Disclosures](#s93E71BDBEC175427AB133E6E4F27F46B)] | [removed: [21](#s52339D511FE15EC286B73F69391556B6)] [added: [21](#s93E71BDBEC175427AB133E6E4F27F46B)] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s6FA92FE852DF526D96B47ECE23454C80)] [added: Securities](#s75F32C7A835158838A3C64AFB315CEF3)] | [removed: [22](#s6FA92FE852DF526D96B47ECE23454C80)] [added: [22](#s75F32C7A835158838A3C64AFB315CEF3)] |

| Item 6. | [Selected Financial [removed: Data](#s33662F1ECFC756C7A8ADB4776FBA3E18)] [added: Data](#sAE23503354845EC09FDB092E23A54C16)] | [removed: [24](#s33662F1ECFC756C7A8ADB4776FBA3E18)] [added: [24](#sAE23503354845EC09FDB092E23A54C16)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s1BF7333D367552A49C665602652DF1AC)] [added: Operations](#sD3971408030850D8A5C6AC4101E2121C)] | [removed: [25](#s1BF7333D367552A49C665602652DF1AC)] [added: [25](#sD3971408030850D8A5C6AC4101E2121C)] |

| | [Consolidated Operating [removed: Results](#s63C52FEB18CF5B5D8D7721C8DC477EBE)] [added: Results](#s8C4EEE9AA49457DD8AD025A6761281EA)] | [removed: [26](#s63C52FEB18CF5B5D8D7721C8DC477EBE)] [added: [26](#s8C4EEE9AA49457DD8AD025A6761281EA)] |

| | [Segment Operating [removed: Results](#s33270907268B5B13B479C72F6B9ADC1D)] [added: Results](#s148A8A76A956555499EDB58E62527E62)] | [removed: [29](#s33270907268B5B13B479C72F6B9ADC1D)] [added: [28](#s148A8A76A956555499EDB58E62527E62)] |

| | | | |

| --- | --- | --- | --- |

| | | | |

| | | | |

| Falls Church, | Virginia | | 22042 |

Yes ☒ No ☐

Yes ☒ No ☐

Yes ☐ No ☒

NORTHROP GRUMMAN CORPORATION

| | [PART II](#s7D8F5B71D09C53DF812F2E6D3E33FA38) | |

| | [Overview](#s546FD2074DED5413B23CEAD5EE30C3ED) | [25](#s546FD2074DED5413B23CEAD5EE30C3ED) |

| | [Backlog](#s1D1E5B88B7CA5F779B22EE8B5FAF4D7A) | [32](#s1D1E5B88B7CA5F779B22EE8B5FAF4D7A) |

| | | Page |

| | [15. Leases](#s87FA3D25400E59B38BB2A84F044A055C) | [76](#s87FA3D25400E59B38BB2A84F044A055C) |

| | [16. Segment Information](#s7802DC3979E1512EBBFD7F3608D6A781) | [78](#s7802DC3979E1512EBBFD7F3608D6A781) |

| | [PART IV](#s954E1B2213D0504CB036BC12BE3410F0) | |

| | [Signatures](#s4279F60261B15CB3ADE61CF657C1A3C8) | [99](#s4279F60261B15CB3ADE61CF657C1A3C8) |

NORTHROP GRUMMAN CORPORATION

10-K 1 noc-12312018x10k.htm 10-K

_____________________

| | |

| --- | --- |

| | | |

| --- | --- | --- |

None

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | [PART II](#sE9E15DE5DD6F5E54A2DAE1E52E512FDB) | |

| | [Overview](#s2CCE8B1530E7574C9E04FE6D83F5873A) | [25](#s2CCE8B1530E7574C9E04FE6D83F5873A) |

| | [Backlog](#s22C155BAD2BC596A8EDB2D9C4B420BF1) | [35](#s22C155BAD2BC596A8EDB2D9C4B420BF1) |

| | [15. Segment Information](#sCA09578D04CC5EC8A81702595ACC68DC) | [79](#sCA09578D04CC5EC8A81702595ACC68DC) |

| | [17. 2018 Impact of Accounting Method Change](#sb1c02f527caf4341b0598a3481333c8a) | [86](#sb1c02f527caf4341b0598a3481333c8a) |

| | [18. Recast 2017 and 2016 Financial Information](#s14def98f08f041de81ea3b6652518aa0) | [88](#s14def98f08f041de81ea3b6652518aa0) |

| | [PART IV](#s43C701B20C7954469FBD891508EC5E6E) | |

| | [Signatures](#s5C3CF617341E59BD879E39279C5A28BD) | [109](#s5C3CF617341E59BD879E39279C5A28BD) |

At December 31, [removed: 2018,] [added: 2019,] we had approximately [removed: 53] [added: 54] million square feet of floor space at [removed: 548] [added: 545] separate locations, primarily in the U.S., for manufacturing, warehousing, research and testing, administration and various other uses.

At December 31, [removed: 2018,] [added: 2019,] we leased to third parties approximately [removed: 317,000] [added: 304,000] square feet of our owned and leased facilities.

At December 31, [removed: 2018,] [added: 2019,] we had major operations at the following locations:

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

[removed: Aerospace Systems][added: Aerospace Systems]

[removed: Innovation Systems][added: Innovation Systems]

Chandler, Gilbert, Mesa and Tempe, AZ; Los Angeles and San Diego, CA; Beltsville, Cumberland and Elkton, MD; Eden Prairie, Elk River and Plymouth, MN; Independence, MO; Iuka, MS; Beavercreek, OH; Fort Worth, TX; Brigham City, Clearfield, [removed: Magna] [added: Magna, Salt Lake City] and Tremonton, UT; Dulles, Radford and Sterling, VA; and [removed: Rocket Center,] [added: Keyser,] WV.

[removed: Mission Systems][added: Mission Systems]

[removed: Technology Services][added: Technology Services]

Sierra Vista, AZ; Warner Robins, GA; Lake Charles, LA; [removed: Baltimore, MD;] and Herndon, VA.

[removed: Corporate][added: Corporate]

The following is a summary of our floor space at December 31, [removed: 2018:][added: 2019:]

| [removed: Square] [added: *Square] feet (in [removed: thousands)] [added: thousands)*] | | Owned | | | Leased | | | U.S. Government Owned/Leased | | | Total | |

| Mission Systems | | 8,584 | | | [removed: 5,735] [added: 5,757] | | | — | | | [removed: 14,319] [added: 14,341] | |

| Technology Services | | 434 | | | [removed: 2,576] [added: 2,689] | | | — | | | [removed: 3,010] [added: 3,123] | |

| Aerospace Systems | | 6,884 | | | 6,774 | | | 3,255 | | | 16,913 | |

| Innovation Systems | | 6,161 | | | 6,748 | | | 5,388 | | | 18,297 | |

| Corporate | | 614 | | | 492 | | | — | | | 1,106 | |

| Total | | 22,677 | | | 22,460 | | | 8,643 | | | 53,780 | |

| Aerospace Systems | | 6,780 | | | 7,146 | | | 3,209 | | | 17,135 | |

| Innovation Systems | | 6,161 | | | 6,165 | | | 5,394 | | | 17,720 | |

| Corporate | | 614 | | | 485 | | | — | | | 1,099 | |

| Total | | 22,573 | | | 22,107 | | | 8,603 | | | 53,283 | |

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

[removed: PART II][added: PART II]

[removed: COMMON STOCK][added: COMMON STOCK]

We have 800,000,000 shares authorized at a $1 par value per share, of which [removed: 170,607,336] [added: 167,848,424] shares and [removed: 174,085,619] [added: 170,607,336] shares were issued and outstanding as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] respectively.

[removed: PREFERRED STOCK][added: PREFERRED STOCK]

We have 10,000,000 shares authorized at a $1 par value per share, of which no shares were issued and outstanding as of December 31, [removed: 2018] [added: 2019] and [removed: 2017.][added: 2018.]

[removed: MARKET INFORMATION][added: MARKET INFORMATION]

[removed: HOLDERS][added: HOLDERS]

[removed: PURCHASES] [added: PURCHASES] OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED [removed: PURCHASERS][added: PURCHASERS]

The table below summarizes our repurchases of common stock during the three months ended December 31, [removed: 2018:][added: 2019:]

| [removed: Period] [added: Period] | [removed: Total] [added: Total] Number of Shares [removed: Purchased] [added: Purchased] | | | [removed: Average] [added: Average] Price Paid per [removed: Share(1)] [added: Share(1)] | | | | [removed: Total] [added: Total] Number of Shares Purchased as Part of Publicly Announced Plans or [removed: Programs] [added: Programs] | | | [removed: Approximate] [added: Approximate] Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs ($ in [removed: millions)(2)] [added: millions)] | | | |

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

[removed: STOCK] [added: STOCK] PERFORMANCE [removed: GRAPH][added: GRAPH]

[removed: Comparison] [added: Comparison] of Cumulative Five Year Total [removed: Return][added: Return]

[removed: ][added: ]

| • | Assumes $100 invested at the close of business on December 31, [removed: 2013,] [added: 2014,] in Northrop Grumman Corporation common stock, Standard & Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index. |

| • | The S&P Aerospace & Defense Index is comprised of Arconic, Inc., The Boeing Company, General Dynamics Corporation, [removed: Harris Corporation,] Huntington Ingalls Industries Inc., [removed: L3] [added: L3Harris] Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company, Textron, Inc., TransDigm Group and United Technologies Corporation. |

As of January 27, 2020, there were 21,374 common shareholders of record.

| September 28, 2019 - October 25, 2019 | 216,962 | | | $ | 361.84 | | | 216,962 | | | | $ | 3,553 | |

| October 26, 2019 - November 22, 2019 | 286,241 | | | 350.08 | | | | 286,241 | | | | 3,453 | | |

| November 23, 2019 - December 31, 2019 | 356,900 | | | 346.23 | | | | 356,900 | | | | 3,330 | | |

| Total | 860,103 | | | $ | 351.45 | | | 860,103 | | | | $ | 3,330 | |

NORTHROP GRUMMAN CORPORATION

Item 6.

Selected Financial Data

The data presented in the following table is derived from the audited consolidated financial statements and other information.

SELECTED FINANCIAL DATA

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | |

| | | Year Ended December 31 | | | | | | | | | | | | | | | | | | |

| *$ in millions, except per share amounts* | | 2019 | | | | 2018(1) | | | | 2017 | | | | 2016 | | | | 2015(2) | | |

| Sales | | $ | 33,841 | | | $ | 30,095 | | | $ | 26,004 | | | $ | 24,706 | | | $ | 23,526 | |

| Operating income | | 3,969 | | | | 3,780 | | | | 3,218 | | | | 3,277 | | | | 2,984 | | |

| Net earnings | | 2,248 | | | | 3,229 | | | | 2,869 | | | | 2,043 | | | | 2,119 | | |

| Basic earnings per share | | $ | 13.28 | | | $ | 18.59 | | | $ | 16.45 | | | $ | 11.42 | | | $ | 11.19 | |

| Diluted earnings per share | | 13.22 | | | | 18.49 | | | | 16.34 | | | | 11.32 | | | | 11.06 | | |

| Cash dividends declared per common share | | 5.16 | | | | 4.70 | | | | 3.90 | | | | 3.50 | | | | 3.10 | | |

| Year-End Financial Position | | | | | | | | | | | | | | | | | | | | |

| Total assets(3) | | $ | 41,089 | | | $ | 37,653 | | | $ | 35,128 | | | $ | 25,815 | | | $ | 24,424 | |

| Notes payable to banks and long-term debt | | 13,879 | | | | 14,400 | | | | 15,266 | | | | 7,070 | | | | 6,496 | | |

| Other long-term obligations(3)(4) | | 10,066 | | | | 7,309 | | | | 6,505 | | | | 7,667 | | | | 7,059 | | |

| Financial Metrics | | | | | | | | | | | | | | | | | | | | |

| Net cash provided by operating activities | | $ | 4,297 | | | $ | 3,827 | | | $ | 2,613 | | | $ | 2,813 | | | $ | 2,162 | |

| Free cash flow(5) | | 3,033 | | | | 2,578 | | | | 1,685 | | | | 1,893 | | | | 1,691 | | |

| Other Information | | | | | | | | | | | | | | | | | | | | |

| Company-sponsored research and development expenses | | $ | 953 | | | $ | 764 | | | $ | 639 | | | $ | 705 | | | $ | 712 | |

| Total backlog(6) | | 64,840 | | | | 53,500 | | | | 42,629 | | | | 45,339 | | | | 35,923 | | |

| Square footage at year-end (in thousands) | | 53,780 | | | | 53,283 | | | | 35,379 | | | | 34,112 | | | | 34,392 | | |

| Number of employees at year-end | | 90,000 | | | | 85,000 | | | | 70,000 | | | | 67,000 | | | | 65,000 | | |

| (1) | Selected financial data includes the operating results of Innovation Systems subsequent to the Merger date. |

| (2) | Years prior to 2016 do not reflect the effects from our January 1, 2018 adoption of ASC Topic 606, *Revenue from Contracts with Customers.* |

| | |

| --- | --- |

| (3) | We adopted ASC Topic 842, *Leases*, on January 1, 2019 using the optional transition method and, as a result, did not recast prior period consolidated comparative financial statements. |

| | |

| --- | --- |

The approximate number of common stockholders was 22,385 as of January 28, 2019.

| September 29, 2018 - October 26, 2018 | 163,268 | | | $ | 302.39 | | | 163,268 | | | | $ | 2,084 | |

| October 27, 2018 - November 23, 2018(3) | 2,964,720 | | | 269.84 | | | | 2,964,720 | | | | 1,284 | | |

| November 24, 2018 - December 31, 2018 | — | | | — | | | | — | | | | 4,284 | | |

| Total | 3,127,988 | | | $ | 271.54 | | | 3,127,988 | | | | $ | 4,284 | |

| (2) | The value remaining on December 31, 2018 includes an additional $3.0 billion share repurchase authorization approved by the company’s board of directors on December 4, 2018. |

| (3) | The company entered into an accelerated share repurchase agreement with Goldman Sachs & Co. LLC to repurchase $1.0 billion of the company’s common stock and received an initial delivery of shares representing approximately 80 percent of the share repurchase agreement. |

[removed: DISCLOSURE] [added: DISCLOSURE] CONTROLS AND [removed: PROCEDURES][added: PROCEDURES]

Our principal executive officer [removed: (Chief] [added: (Chairman, Chief] Executive Officer and President) and principal financial officer (Corporate Vice President and Chief Financial Officer) have evaluated the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) as of December 31, [removed: 2018,] [added: 2019,] and have concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the [removed: Securities and Exchange Commission’s] [added: SEC’s] rules and forms.

[removed: CHANGES] [added: CHANGES] IN INTERNAL CONTROL OVER FINANCIAL [removed: REPORTING][added: REPORTING]

[removed: Other than integrating such controls, during] [added: During] the three months ended December 31, [removed: 2018,] [added: 2019,] no change occurred in our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As previously discussed, we completed our acquisition of Orbital ATK during the second quarter of 2018 (see Note 2 to the consolidated financial statements).

We are in the process of integrating certain controls and related procedures for legacy Orbital ATK with those of legacy Northrop Grumman.

[removed: MANAGEMENT’S] [added: MANAGEMENT’S] REPORT ON INTERNAL CONTROL OVER FINANCIAL [removed: REPORTING][added: REPORTING]

The assessment of the effectiveness of the company’s internal control over financial reporting is based on criteria established in [removed: Internal] [added: *Internal] Control—Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on its assessment, management has concluded that the company’s internal control over financial reporting was effective as of December 31, [removed: 2018.][added: 2019.]

Deloitte & Touche LLP issued an attestation report dated January [removed: 30, 2019,] [added: 29, 2020,] concerning the company’s internal control over financial reporting, which is contained in this Annual Report.

The company’s consolidated financial statements as of and for the year ended December 31, [removed: 2018,] [added: 2019,] have been audited by the independent registered public accounting firm of Deloitte & Touche LLP in accordance with the standards of the Public Company Accounting Oversight Board (United States).

[added: Chairman,] Chief Executive Officer and President

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Northrop Grumman Corporation][added: NORTHROP GRUMMAN CORPORATION]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited the internal control over financial reporting of Northrop Grumman Corporation and subsidiaries (the “Company”) as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on the criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, [removed: 2018] [added: 2019] of the Company and our report dated January [removed: 30, 2019] [added: 29, 2020] expressed an unqualified opinion on those financial statements and included an explanatory paragraph [removed: concerning] [added: regarding] the Company’s [removed: election during 2018 to change its method of accounting for recognizing pension and other postretirement benefit plans actuarial gains and losses as well as the change in the manner in which it accounts for revenue from contracts with customers due to the] adoption of [removed: the new revenue standard] [added: ASC 842, *Leases*,] during [removed: 2018.][added: 2019.]

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting][added: Reporting]

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become [added: inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.]

[removed: PART III][added: PART III]

\-84\-

January 29, 2020

\-85\-

January 29, 2020

\-86\-

Item 10.

Directors, Executive Officers and Corporate Governance

DIRECTORS

Information about our Directors will be incorporated herein by reference to the Proxy Statement for the 2020 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission (SEC) within 120 days after the end of the company’s fiscal year.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Our executive officers as of January 29, 2020, are listed below, along with their ages on that date, positions and offices held with the company, and principal occupations and employment, focused primarily on the past five years.

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

| Name | | Age | | | Office Held | | Since | | Recent Business Experience |

| Kathy J. Warden | | 48 | | | Chairman, Chief Executive Officer and President | | 2019 | | Chief Executive Officer and President (2019); President and Chief Operating Officer (2018); Corporate Vice President and President, Mission Systems Sector (2016-2017); Corporate Vice President and President, Former Information Systems Sector (2013-2015) |

| Ann M. Addison | | 58 | | | Corporate Vice President and Chief Human Resources Officer | | 2019 | | Corporate Vice President (2018); Executive Vice President and Chief Human Resources Officer, Leidos (2016-2018); Vice President, Human Resources, Lockheed Martin (2010-2016) |

| Kenneth L. Bedingfield | | 47 | | | Corporate Vice President and Chief Financial Officer | | 2015 | | Vice President, Finance (2014-2015) |

| Mark A. Caylor | | 55 | | | Corporate Vice President and President, Mission Systems Sector | | 2018 | | Corporate Vice President and President, Enterprise Services and Chief Strategy Officer (2014-2017) |

| Sheila C. Cheston | | 61 | | | Corporate Vice President and General Counsel | | 2010 | | |

| Michael A. Hardesty | | 48 | | | Corporate Vice President, Controller, and Chief Accounting Officer | | 2013 | | |

| Lesley A. Kalan | | 46 | | | Corporate Vice President and Chief Strategy and Development Officer | | 2020 | | Corporate Vice President, Government Relations (2018-2019); Vice President, Legislative Affairs (2010-2017) |

| Blake E. Larson | | 60 | | | Corporate Vice President and President, Space Systems Sector | | 2020 | | Corporate Vice President and President, Former Innovation Systems Sector (2018-2020); Chief Operating Officer, Orbital ATK, Inc. (2015-2018); Senior Vice President and President, Aerospace Group, Alliant Techsystems, Inc. (2010-2015) |

| Janis G. Pamiljans | | 59 | | | Corporate Vice President and President, Aeronautics Systems Sector | | 2020 | | Corporate Vice President and President, Former Aerospace Systems Sector (2017-2020); Vice President and General Manager, Strategic Systems Division, Former Aerospace Systems Sector (2015-2017) |

\-87\-

NORTHROP GRUMMAN CORPORATION

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

| Name | | Age | | | Office Held | | Since | | Recent Business Experience |

| David T. Perry | | 55 | | | Corporate Vice President and Chief Global Business Officer | | 2019 | | Corporate Vice President and Chief Global Business Development Officer (2012-2019) |

| Mary D. Petryszyn | | 58 | | | Corporate Vice President and President, Defense Systems Sector | | 2020 | | Vice President and General Manager, Land and Avionics C4ISR Division, Mission Systems Sector (2016-2019), Vice President, Global Strategy and Mission Solutions, Aerospace Systems Sector (2015-2016), Vice President, International, Aerospace Systems Sector (2013-2015) |

| Shawn N. Purvis | | 46 | | | Corporate Vice President and President, Enterprise Services | | 2018 | | Vice President and Chief Information Officer (2016-2017); Vice President and General Manager, Cyber Division, Former Information Systems Sector (2014-2016) |

| Lucy C. Ryan | | 46 | | | Corporate Vice President, Communications | | 2019 | | Vice President, Enterprise Communications (2018); Director of Communications, General Dynamics (2010-2018) |

AUDIT COMMITTEE FINANCIAL EXPERT

The information as to the Audit Committee and the Audit Committee Financial Expert will be incorporated herein by reference to the Proxy Statement for the 2020 Annual Meeting of Shareholders.

CODE OF ETHICS

We have adopted Standards of Business Conduct for all of our employees, including the principal executive officer, principal financial officer and principal accounting officer.

The Standards of Business Conduct can be found on our internet website at www.northropgrumman.com under “Investor Relations – Corporate Governance – Overview.” A copy of the Standards of Business Conduct is available to any stockholder who requests it by writing to: Northrop Grumman Corporation, c/o Office of the Secretary, 2980 Fairview Park Drive, Falls Church, VA 22042.

We disclose amendments to provisions of our Standards of Business Conduct by posting amendments on our website.

\-93\-

In accordance with SEC rules, management elected to exclude Orbital ATK, acquired on June 6, 2018, from its assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2018.

Orbital ATK, which subsequently became Northrop Grumman Innovation Systems, represents approximately 10 percent of the company’s consolidated total assets, excluding the preliminary value of goodwill and purchased intangible assets, as of December 31, 2018 and 10 percent and 10 percent of the company’s consolidated sales and operating income, respectively, for the year ended December 31, 2018.

January 30, 2019

\-94\-

As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Orbital ATK, Inc., which was acquired by the Company on June 6, 2018 and subsequently became Northrop Grumman Innovation Systems, and whose financial statements represent approximately 10 percent of the Company’s consolidated total assets, excluding the preliminary value of goodwill and purchased intangible assets, as of December 31, 2018, and 10 percent and 10 percent of the Company’s consolidated sales and operating income, respectively, for the year ended December 31, 2018.

Accordingly, our audit did not include the internal control over financial reporting at Northrop Grumman Innovation Systems.

\-95\-

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

\-96\-

Information concerning Executive Compensation, including information concerning Compensation Committee Interlocks and Insider Participation and the Compensation Committee Report, will be incorporated herein by reference to the Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Shareholders.

The information as to Securities Authorized for Issuance Under Equity Compensation Plans and Security Ownership of Certain Beneficial Owners and Management will be incorporated herein by reference to the Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Shareholders.

\-88\-

NORTHROP GRUMMAN CORPORATION

The information as to Certain Relationships and Related Transactions and Director Independence will be incorporated herein by reference to the Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Shareholders.

The information as to Principal [removed: Accountant] [added: Accounting] Fees and Services will be incorporated herein by reference to the Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Shareholders.

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

[removed: PART IV][added: PART IV]

\-89\-

\-99\-

[Consolidated Statements of Earnings and Comprehensive [removed: Income](#sF42B37951EE95A4BADC8FEA6ECFA93A8)][added: Income](#s427564CD66A758B89BF83E9688B2682C)]

[Consolidated Statements of Financial [removed: Position](#sA394E1DF23BA5518B946C1614242F94F)][added: Position](#s7F82239FF65E57F8A455DAA5B64D6CA4)]

[Consolidated Statements of Cash [removed: Flows](#sDE174486601A52488F69C4982A87475B)][added: Flows](#s7BFA5E43DB1D57D0A6473A4B584F4A19)]

[Consolidated Statements of Changes in Shareholders’ [removed: Equity](#s2282623A9E185009AAFCD83554EFA3B2)][added: Equity](#s17C3D452E9EF54CE87DE4748271A4560)]

[Notes to Consolidated Financial [removed: Statements](#s113CA254A55658078A455650885299D0)][added: Statements](#sFC9F7CAC5C185F70902F5475EA2AAC4D)]

| | 2(c) | [Agreement and Plan of Merger dated as of September 17, 2017, among Northrop Grumman Corporation, Neptune Merger, Inc. and Orbital ATK, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed September 18, [removed: 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000095015717001300/ex2-1.htm)] [added: 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095015717001300/ex2-1.htm)] |

| | 2(d) | [Transaction Agreement dated as of April 28, 2014, among Alliant Techsystems Inc., Vista Spinco Inc., Vista Merger Sub Inc. and Orbital Sciences Corporation (incorporated by reference to Exhibit 2.1 to Alliant Techsystems Inc. (now known as Northrop Grumman Innovation Systems, Inc.) Form 8-K filed May 2, [removed: 2014)](http://www.sec.gov/Archives/edgar/data/866121/000095015714000426/ex2-1.htm)] [added: 2014, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/866121/000095015714000426/ex2-1.htm)] |

| | 3(b) | [Amended and Restated Bylaws of Northrop Grumman Corporation dated December 4, 2018 (incorporated by reference to Exhibit 3.1 to Form 8-K filed December 10, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000055/form8-k120418xex31bylaws.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000055/form8-k120418xex31bylaws.htm)] |

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

| | 4(t) | [removed: [First] [added: [Second] Supplemental Indenture dated as of [removed: July 30, 2009,] [added: November 8, 2010,] between Northrop Grumman Corporation and The Bank of New York Mellon, as successor trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form 8-K filed [removed: July 30, 2009,] [added: November 8, 2010,] File No. [removed: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012309027412/v53270exv4wxay.htm)] [added: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012310102289/v57777exv4wa.htm)] |

| | 4(u) | [Form of Northrop Grumman Corporation’s [removed: 5.05%] [added: 3.500%] Senior Note due [removed: 2019] [added: 2021] (incorporated by reference to Exhibit B to Exhibit 4(a) to Form 8-K filed [removed: July 30, 2009,] [added: November 8, 2010,] File No. [removed: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012309027412/v53270exv4wxay.htm)] [added: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012310102289/v57777exv4wa.htm)] |

| | [removed: 4(v)] [added: 4(y)] | [removed: [Second] [added: [Fifth] Supplemental [removed: Indenture] [added: Indenture,] dated as of [removed: November 8, 2010,] [added: May 31, 2013,] between Northrop Grumman Corporation and The Bank of New York Mellon, as successor [removed: trustee,] to [added: JPMorgan Chase Bank, Trustee, to] Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form 8-K filed [removed: November 8, 2010,] [added: May 31, 2013,] File No. [removed: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012310102289/v57777exv4wa.htm)] [added: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312513243040/d545882dex4a.htm)] |

| | [removed: 4(w)] [added: 4(v)] | [Form of Northrop Grumman Corporation’s [removed: 3.500%] [added: 5.050%] Senior Note due [removed: 2021] [added: 2040] (incorporated by reference to Exhibit [removed: B] [added: C] to Exhibit 4(a) to Form 8-K filed November 8, 2010, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012310102289/v57777exv4wa.htm) |

| | [removed: 4(x)] [added: 4(z)] | [Form of [removed: Northrop Grumman Corporation’s 5.050%] [added: 3.250%] Senior Note due [removed: 2040] [added: 2023] (incorporated by reference to Exhibit [removed: C] [added: B] to Exhibit 4(a) to Form 8-K filed [removed: November 8, 2010,] [added: May 31, 2013,] File No. [removed: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012310102289/v57777exv4wa.htm)] [added: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312513243040/d545882dex4a.htm)] |

| | [removed: 4(y)] [added: 4(w)] | [Third Supplemental Indenture dated as of March 30, 2011, by and among Titan II, Inc. (formerly known as Northrop Grumman Corporation), The Bank of New York Mellon, as successor trustee to JPMorgan Chase Bank, and Titan Holdings II, L.P., to Indenture dated as of November 21, 2001 between Northrop Grumman Corporation and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.9 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012311039852/v58707exv4w9.htm) |

| | [removed: 4(z)] [added: 4(x)] | [Fourth Supplemental Indenture dated as of March 30, 2011, by and among Titan Holdings II, L.P., The Bank of New York Mellon, as successor trustee to JPMorgan Chase Bank, and Northrop Grumman Corporation (formerly known as New P, Inc.), to Indenture dated as of November 21, 2001 between Northrop Grumman Corporation and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.10 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012311039852/v58707exv4w10.htm) |

| | [removed: 4(aa)] [added: 4(bb)] | [removed: [Fifth] [added: [Sixth] Supplemental Indenture, dated as of [removed: May 31, 2013,] [added: February 6, 2015,] between Northrop Grumman Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit [removed: 4(a)] [added: 4.1] to Form 8-K filed [removed: May 31, 2013,] [added: February 6, 2015,] File No. [removed: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312513243040/d545882dex4a.htm)] [added: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312515037499/d865409dex41.htm)] |

| | [removed: 4(bb)] [added: 4(aa)] | [Form of [removed: 3.250%] [added: 4.750%] Senior Note due [removed: 2023] [added: 2043] (incorporated by reference to Exhibit [removed: B] [added: C] to Exhibit 4(a) to Form 8-K filed May 31, 2013, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312513243040/d545882dex4a.htm) |

| | 4(cc) | [Form of [removed: 4.750%] [added: 3.850%] Senior Note due [removed: 2043] [added: 2045] (incorporated by reference to Exhibit [removed: C] [added: A] to Exhibit [removed: 4(a)] [added: 4.1] to Form 8-K filed [removed: May 31, 2013,] [added: February 6, 2015,] File No. [removed: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312513243040/d545882dex4a.htm)] [added: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312515037499/d865409dex41.htm)] |

| | 4(dd) | [removed: [Sixth] [added: [Seventh] Supplemental Indenture, dated as of [removed: February 6, 2015,] [added: December 1, 2016,] between Northrop Grumman Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-K filed [removed: February 6, 2015)](http://www.sec.gov/Archives/edgar/data/1133421/000119312515037499/d865409dex41.htm)] [added: December 1, 2016, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312516782630/d301589dex41.htm)] |

| | 4(ee) | [Form of [removed: 3.850%] [added: 3.200%] Senior Note due [removed: 2045] [added: 2027] (incorporated by reference to Exhibit A to Exhibit 4.1 to Form 8-K filed [removed: February 6, 2015)](http://www.sec.gov/Archives/edgar/data/1133421/000119312515037499/d865409dex41.htm)] [added: December 1, 2016, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312516782630/d301589dex41.htm)] |

| | 4(ff) | [removed: [Seventh] [added: [Eighth] Supplemental Indenture, dated as of [removed: December 1, 2016,] [added: October 13, 2017,] between Northrop Grumman Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-K filed [removed: December 1, 2016)](http://www.sec.gov/Archives/edgar/data/1133421/000119312516782630/d301589dex41.htm)] [added: October 13, 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] |

| | 4(gg) | [Form of [removed: 3.200%] [added: 2.080%] Senior Note due [removed: 2027] [added: 2020] (incorporated by reference to Exhibit A to Exhibit 4.1 to Form 8-K filed [removed: December 1, 2016)](http://www.sec.gov/Archives/edgar/data/1133421/000119312516782630/d301589dex41.htm)] [added: October 13, 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] |

| | [removed: 4(ii)] [added: 4(hh)] | [Form of [removed: 2.080%] [added: 2.550%] Senior Note due [removed: 2020] [added: 2022] (incorporated by reference to Exhibit [removed: A] [added: B] to Exhibit 4.1 to Form 8-K filed October 13, [removed: 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] [added: 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] |

| | [removed: 4(jj)] [added: 4(ii)] | [Form of [removed: 2.550%] [added: 2.930%] Senior Note due [removed: 2022] [added: 2025] (incorporated by reference to Exhibit [removed: B] [added: C] to Exhibit 4.1 to Form 8-K filed October 13, [removed: 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] [added: 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] |

| | [removed: 4(kk)] [added: 4(jj)] | [Form of [removed: 2.930%] [added: 3.250%] Senior Note due [removed: 2025] [added: 2028] (incorporated by reference to Exhibit [removed: C] [added: D] to Exhibit 4.1 to Form 8-K filed October 13, [removed: 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] [added: 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] |

| | [removed: 4(ll)] [added: 4(kk)] | [Form of [removed: 3.250%] [added: 4.030%] Senior Note due [removed: 2028] [added: 2047] (incorporated by reference to Exhibit [removed: D] [added: E] to Exhibit 4.1 to Form 8-K filed October 13, [removed: 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] [added: 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm)] |

| | 10(a) | [Credit Agreement, dated as of August 17, 2018, among Northrop Grumman Corporation, as Borrower; Northrop Grumman Systems Corporation, as Guarantor; the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Form 8-K filed August 17, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000095015718000910/ex10-1.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095015718000910/ex10-1.htm)] |

| | [removed: +10(f)] | [added: (ii) |] [Northrop Grumman Corporation [added: Equity Grant Program for] Non-Employee Directors [removed: Equity Participation Plan (Amended] [added: under the Northrop Grumman 2011 Long-Term Incentive Stock Plan, Amended] and Restated [added: Effective] January 1, [removed: 2008)] [added: 2015] (incorporated by reference to Exhibit [removed: 10(q)] [added: 10(h)(ii)] to Form 10-K for the year ended December 31, [removed: 2007,] [added: 2014,] filed February [removed: 20, 2008,] [added: 2, 2015,] File No. [removed: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000095012408000713/v37202exv10wxqy.htm)] [added: 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342115000008/noc-12312014xex10hii.htm)] |

| | [removed: +10(g)] [added: +10(f)] | [Amended and Restated 2011 Long-Term Incentive Stock Plan (as amended and restated effective as of May 20, 2015) (incorporated by reference to Appendix B to the Company’s Proxy Statement on Schedule 14A for the 2015 Annual Meeting of Shareholders filed April 6, [removed: 2015)](http://www.sec.gov/Archives/edgar/data/1133421/000119312515120112/d883285ddef14a.htm#rom883285_55)] [added: 2015, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000119312515120112/d883285ddef14a.htm#rom883285_55)] |

| | | (i) | [Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors under the Northrop Grumman 2011 Long-Term Incentive Stock Plan, Amended and Restated Effective as of January 1, 2016 (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2015, filed October 28, [removed: 2015)](http://www.sec.gov/Archives/edgar/data/1133421/000113342115000057/noc-9302015xex101.htm)] [added: 2015, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342115000057/noc-9302015xex101.htm)] |

| | | (vii) | [Grant Certificate Specifying the Terms and Conditions Applicable to 2017 Restricted Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2017, filed April 26, [removed: 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000113342117000020/noc-03312017xex101.htm)] [added: 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342117000020/noc-03312017xex101.htm)] |

| | | (viii) | [Grant Certificate Specifying the Terms and Conditions Applicable to 2017 Restricted Performance Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2017, filed April 26, [removed: 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000113342117000020/noc-03312017xex102.htm)] [added: 2017, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342117000020/noc-03312017xex102.htm)] |

| | | (x) | [Grant Certificate Specifying the Terms and Conditions Applicable to 2018 Restricted Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2018, filed April 25, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000012/noc-03312018xex101.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000012/noc-03312018xex101.htm)] |

| | | (xi) | [Grant Certificate Specifying the Terms and Conditions Applicable to 2018 Restricted Performance Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2018, filed April 25, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000012/noc-03312018xex102.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000012/noc-03312018xex102.htm)] |

| | | (xii) | [Grant Certificate Specifying the Terms and Conditions Applicable to Special 2018 Restricted Stock Rights Granted to Blake Larson Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended June 30, 2018, filed July 25, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000038/noc-06302018xex102.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000038/noc-06302018xex102.htm)] |

| | | (xiii) | [Modified Terms and Conditions Applicable to 2017 Restricted Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.3 to Form 8-K filed September 21, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex103.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex103.htm)] |

| | | (xiv) | [Modified Terms and Conditions Applicable to 2017 Restricted Performance Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.4 to Form 8-K filed September 21, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex104.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex104.htm)] |

| | | (xv) | [Modified Terms and Conditions Applicable to 2018 Restricted Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed September 21, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex101.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex101.htm)] |

| | | (xvi) | [Modified Terms and Conditions Applicable to 2018 Restricted Performance Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed September 21, [removed: 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex102.htm)] [added: 2018, File No. 001-16411)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000042/form8-k091918xex102.htm)] |

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NORTHROP GRUMMAN CORPORATION

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NORTHROP GRUMMAN CORPORATION

| | *4(ll) | [Description of Securities](https://www.sec.gov/Archives/edgar/data/1133421/000113342120000006/noc-12312019xex4ll.htm) |

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NORTHROP GRUMMAN CORPORATION

| | | (i) | [Extension and Amendment Agreement, dated as of October 17, 2019, among Northrop Grumman Corporation, as Borrower, Northrop Grumman Systems Corporation, as Guarantor, the issuing banks party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Form 8-K filed October 21, 2019, File No. 001-16411)](https://www.sec.gov/Archives/edgar/data/1133421/000095015719001202/ex10-1.htm) |

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NORTHROP GRUMMAN CORPORATION

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NORTHROP GRUMMAN CORPORATION

| | | *(v) | [First Amendment to Appendix F to the Northrop Grumman Supplemental Plan 2, CPC Supplemental Executive Retirement Program, effective December 30, 2019](https://www.sec.gov/Archives/edgar/data/1133421/000113342120000006/noc-12312019xex10hv.htm) |

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NORTHROP GRUMMAN CORPORATION

| | +10(aa) | [Group Personal Excess Liability Policy dated February 14, 2019 and effective as of January 1, 2019 (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2019, filed April 24, 2019, File No. 001-16411)](https://www.sec.gov/Archives/edgar/data/1133421/000113342119000021/noc-03312019xex103.htm) |

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NORTHROP GRUMMAN CORPORATION

| | *104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |

| | | |

| --- | --- | --- |

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| | 4(hh) | [Eighth Supplemental Indenture, dated as of October 13, 2017, between Northrop Grumman Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-K filed October 13, 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm) |

| | 4(mm) | [Form of 4.030% Senior Note due 2047 (incorporated by reference to Exhibit E to Exhibit 4.1 to Form 8-K filed October 13, 2017)](http://www.sec.gov/Archives/edgar/data/1133421/000119312517309966/d463997dex41.htm) |

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| | +10(s) | [Trust Agreement for Alliant Techsystems Inc. Nonqualified Deferred Compensation Plan effective January 1, 2003 (incorporated by reference to Exhibit 10.9.2 to Alliant Techsystems, Inc. (now known as Northrop Grumman Innovation Systems, Inc.) Form 10-K for the year ended March 31, 2003 filed June 18, 2003, File No. 001-10582)](http://www.sec.gov/Archives/edgar/data/866121/000104746903021547/a2112669zex-10_92.htm) |

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| | | (i) | [Amendment to Executive Life Insurance Policy effective July 1, 2016 (incorporated by reference to Exhibit 10(w)(i) to Form 10-K for the year ended December 31, 2017, filed January 29, 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000005/noc-12312017xex10wi.htm) |

| | +10(bb) | [Executive Long-Term Disability Insurance Policy as amended by Amendment No. 7 dated December 29, 2016 and effective as of January 1, 2017 (incorporated by reference to Exhibit 10(y) to Form 10-K for the year ended December 31, 2017, filed January 29, 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000005/noc-12312017xex10y.htm) |

| | +10(cc) | [Executive Supplemental Individual Disability Insurance Plan dated June 30, 2014 (incorporated by reference to Exhibit 10(z) to Form 10-K for the year ended December 31, 2017, filed January 29, 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000005/noc-12312017xex10z.htm) |

| | +*10(dd) | [Group Personal Excess Liability Policy dated October 20, 2016 and effective as of January 1, 2018](https://www.sec.gov/Archives/edgar/data/1133421/000113342119000007/noc-123118xex10dd.htm) |

| | +10(gg) | [Letter dated January 10, 2018 from Northrop Grumman Corporation to Blake Larson regarding compensation effective June 6, 2018 (incorporated by reference to Exhibit 10.3 to Form 10-Q for quarter ended June 30, 2018, filed July 25, 2018)](http://www.sec.gov/Archives/edgar/data/1133421/000113342118000038/noc-06302018xex103.htm) |

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| | *23 | [Consent of Independent Registered Public Accounting Firm](https://www.sec.gov/Archives/edgar/data/1133421/000113342119000007/noc-12312018xex23.htm) |

[removed: NORTHROP] [added: NORTHROP] GRUMMAN [removed: CORPORATION][added: CORPORATION]

[removed: SIGNATURES][added: SIGNATURES]

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the [removed: 30th] [added: 29th] day of January [removed: 2019.][added: 2020.]

| | By: | [removed: /s/] [added: /s/] Michael A. [removed: Hardesty] [added: Hardesty] |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the registrant this the [removed: 30th] [added: 29th] day of January [removed: 2019,] [added: 2020,] by the following persons and in the capacities indicated.

| [removed: Signature] [added: Signature] | | [removed: Title] [added: Title] |

| Kathy J. Warden* | | [added: Chairman,] Chief Executive Officer and President (Principal Executive Officer), and Director |

| *By: | [removed: /s/] [added: /s/] Jennifer C. [removed: McGarey] [added: McGarey] |

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| | | |

| Wesley G. Bush* | | Chairman and Director |

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None.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

This Annual Report on Form 10-K and the information we are incorporating by reference contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as “will,” “expect,” “anticipate,” “intend,” “may,” “could,” “should,” “plan,” “project,” “forecast,” “believe,” “estimate,” “outlook,” “trends,” “goals” and similar expressions generally identify these forward-looking statements.

Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or cash flows.

Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time.

These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict.

Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified under “Risk Factors” and other important factors disclosed in this report and from time to time in our other filings with the SEC.

They include:

| | |

| --- | --- |

| • | our dependence on the U.S. government for a substantial portion of our business |

| | |

| --- | --- |

| • | significant delays or reductions in appropriations for our programs and U.S. government funding more broadly |

| | |

| --- | --- |

| • | investigations, claims, disputes, enforcement actions and/or litigation |

| | |

| --- | --- |

| • | the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs |

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NORTHROP GRUMMAN CORPORATION

| | |

| --- | --- |

| • | our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, laws and regulations |

| | |

| --- | --- |

| • | the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation, our ability to do business, and our financial position, results of operations and/or cash flows |

| | |

| --- | --- |

| • | cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners |

| | |

| --- | --- |

| • | the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials, chemicals and components |

| | |

| --- | --- |

| • | changes in procurement and other laws, regulations and practices applicable to our industry, findings by the U.S. government as to our compliance with such laws and regulations, and changes in our customers’ business practices globally |

| | |

| --- | --- |

The data presented in the following table is derived from the audited consolidated financial statements and other information.

SELECTED FINANCIAL DATA

Selected financial data below reflects the retrospective effects from the January 1, 2018 adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and Accounting Standards Update (ASU) No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost and the fourth quarter 2018 change in accounting method related to the recognition of actuarial gains and losses for our pension and OPB plans (see Notes 1, 13, 16, 17 and 18 to the consolidated financial statements for further information on these changes).

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | |

| | | Year Ended December 31 | | | | | | | | | | | | | | | | | | |

| $ in millions, except per share amounts | | 2018(5) | | | | 2017 | | | | 2016 | | | | 2015(3) | | | | 2014(3) | | |

| Sales | | $ | 30,095 | | | $ | 26,004 | | | $ | 24,706 | | | $ | 23,526 | | | $ | 23,979 | |

| Operating income | | 3,780 | | | | 3,218 | | | | 3,277 | | | | 2,984 | | | | 3,069 | | |

| Net earnings (loss) | | 3,229 | | | | 2,869 | | | | 2,043 | | | | 2,119 | | | | (233 | | ) |

| Basic earnings per share | | $ | 18.59 | | | $ | 16.45 | | | $ | 11.42 | | | $ | 11.19 | | | $ | (1.12 | ) |

| Diluted earnings per share | | 18.49 | | | | 16.34 | | | | 11.32 | | | | 11.06 | | | | (1.12 | | ) |

| Cash dividends declared per common share | | 4.70 | | | | 3.90 | | | | 3.50 | | | | 3.10 | | | | 2.71 | | |

| Year-End Financial Position | | | | | | | | | | | | | | | | | | | | |

| Total assets | | $ | 37,653 | | | $ | 35,128 | | | $ | 25,815 | | | $ | 24,424 | | | $ | 26,545 | |

| Notes payable to banks and long-term debt | | 14,400 | | | | 15,266 | | | | 7,070 | | | | 6,496 | | | | 5,901 | | |

| Other long-term obligations(1) | | 7,309 | | | | 6,505 | | | | 7,667 | | | | 7,059 | | | | 7,520 | | |

| Financial Metrics | | | | | | | | | | | | | | | | | | | | |

| Net cash provided by operating activities | | $ | 3,827 | | | $ | 2,613 | | | $ | 2,813 | | | $ | 2,162 | | | $ | 2,593 | |

| Free cash flow(2) | | 2,578 | | | | 1,685 | | | | 1,893 | | | | 1,691 | | | | 2,032 | | |

| Other Information | | | | | | | | | | | | | | | | | | | | |

| Company-sponsored research and development expenses | | $ | 764 | | | $ | 639 | | | $ | 705 | | | $ | 712 | | | $ | 569 | |

| Total backlog(4) | | 53,500 | | | | 42,629 | | | | 45,339 | | | | 35,923 | | | | 38,199 | | |

| Square footage at year-end (in thousands) | | 53,283 | | | | 35,379 | | | | 34,112 | | | | 34,392 | | | | 34,264 | | |

| Number of employees at year-end | | 85,000 | | | | 70,000 | | | | 67,000 | | | | 65,000 | | | | 64,300 | | |

| | |

| --- | --- |

| (1) | Other long-term obligations include pension and OPB plan liabilities, unrecognized tax benefits, deferred compensation, environmental liabilities, deferred tax liabilities and other long-term obligations. |

| | |

| --- | --- |

| (2) | Free cash flow is a non-GAAP measure defined as net cash provided by operating activities less capital expenditures, and may not be defined and calculated by other companies in the same manner. We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and share 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 accounting principles generally accepted in the United States of America (“GAAP” or “FAS”). See “Liquidity and Capital Resources” – “Free Cash Flow” in Management’s Discussion and Analysis of Financial Conditions and Results of Operations (MD&A) for more information on this measure, including a reconciliation of free cash flow to net cash provided by operating activities. |

| | |

| --- | --- |

| (3) | Years prior to 2016 do not reflect the effects from our January 1, 2018 adoption of ASC Topic 606. |

| | |

| --- | --- |

| (4) | We applied the ASC Topic 606 transition practical expedient related to remaining performance obligations for reporting periods presented before the date of initial application. As such, years prior to 2017 have not been restated for the adoption of ASC Topic 606. For comparative purposes, we have recast our backlog as of December 31, 2017 to reflect the impact of ASC Topic 606. |

| | |

| --- | --- |

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, 2018 and 2017, and 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, 2018, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 30, 2019 expressed an unqualified opinion on the Company’s internal control over financial reporting, which excludes Northrop Grumman Innovation Systems.

Change in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company elected during 2018 to change its method of accounting for recognizing pension and other postretirement benefit plans actuarial gains and losses.

Also discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers due to the adoption of the new revenue standard during 2018.

The Company adopted both changes using the full retrospective approach.

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.

| | |

| --- | --- |

| | |

| /s/ | Deloitte & Touche LLP |

| | McLean, Virginia |

| | January 30, 2019 |

| | We have served as the Company’s auditor since 1975. |

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NORTHROP GRUMMAN CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | |

| | | Year Ended December 31 | | | | | | | | | | |

| $ in millions, except per share amounts | | 2018 | | | | 2017 | | | | 2016 | | |

| Sales | | | | | | | | | | | | |

| Product | | $ | 20,469 | | | $ | 16,364 | | | $ | 15,080 | |

| Service | | 9,626 | | | | 9,640 | | | | 9,626 | | |

DIRECTORS

Information about our Directors will be incorporated herein by reference to the Proxy Statement for the 2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission (SEC) within 120 days after the end of the company’s fiscal year.

EXECUTIVE OFFICERS

Our executive officers as of January 30, 2019, are listed below, along with their ages on that date, positions and offices held with the company, and principal occupations and employment, focused primarily on the past five years.

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

| Name | | Age | | | Office Held | | Since | | Recent Business Experience |

| Kathy J. Warden | | 47 | | | Chief Executive Officer and President | | 2019 | | President and Chief Operating Officer (2018); Corporate Vice President and President, Mission Systems Sector (2016-2017); Corporate Vice President and President, Former Information Systems Sector (2013-2015) |

| Wesley G. Bush | | 57 | | | Chairman | | 2019 | | Chairman and Chief Executive Officer (2018); Chairman, Chief Executive Officer and President (2011-2017) |

| Ann M. Addison | | 57 | | | Corporate Vice President and Chief Human Resources Officer | | 2019 | | Corporate Vice President (2018); Executive Vice President and Chief Human Resources Officer, Leidos (2016-2018); Vice President, Human Resources, Lockheed Martin (2010-2016) |

| Patrick M. Antkowiak | | 58 | | | Corporate Vice President and Chief Strategy and Technology Officer | | 2019 | | Corporate Vice President and Chief Technology Officer (2014-2019);Vice President and General Manager, Advanced Concepts and Technologies Division, Former Electronic Systems Sector (2010-2014) |

| Kenneth L. Bedingfield | | 46 | | | Corporate Vice President and Chief Financial Officer | | 2015 | | Vice President, Finance (2014-2015); Vice President, Business Management and Chief Financial Officer, Aerospace Systems Sector (2013-2014) |

| Mark A. Caylor | | 54 | | | Corporate Vice President and President, Mission Systems Sector | | 2018 | | Corporate Vice President and President, Enterprise Services and Chief Strategy Officer (2014-2017); Corporate Vice President and President, Enterprise Shared Services (2013-2014) |

| Sheila C. Cheston | | 60 | | | Corporate Vice President and General Counsel | | 2010 | | |

| Michael A. Hardesty | | 47 | | | Corporate Vice President, Controller, and Chief Accounting Officer | | 2013 | | |

| Christopher T. Jones | | 54 | | | Corporate Vice President and President, Technology Services Sector | | 2016 | | Corporate Vice President and President, Former Technical Services Sector (2013-2015) |

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NORTHROP GRUMMAN CORPORATION

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

| Name | | Age | | | Office Held | | Since | | Recent Business Experience |

| Lesley A. Kalan | | 45 | | | Corporate Vice President, Government Relations | | 2018 | | Vice President, Legislative Affairs (2010-2017) |

| Blake E. Larson | | 59 | | | Corporate Vice President and President, Innovation Systems Sector | | 2018 | | Chief Operating Officer, Orbital ATK, Inc. (2015-2018); Senior Vice President and President, Aerospace Group, Alliant Techsystems, Inc. (2010-2015) |

| Janis G. Pamiljans | | 58 | | | Corporate Vice President and President, Aerospace Systems Sector | | 2017 | | Vice President and General Manager, Strategic Systems Division, Aerospace Systems Sector (2015-2017); Vice President and General Manager, Unmanned Systems (now Autonomous Systems), Aerospace Systems Sector (2012-2014) |

| Denise M. Peppard | | 62 | | | Corporate Vice President | | 2019 | | Corporate Vice President and Chief Human Resources Officer (2011-2018) |

| David T. Perry | | 54 | | | Corporate Vice President and Chief Global Business Officer | | 2019 | | Corporate Vice President and Chief Global Business Development Officer (2012-2019) |

| Shawn N. Purvis | | 45 | | | Corporate Vice President and President of Enterprise Services | | 2018 | | Vice President and Chief Information Officer (2016-2017); Vice President and General Manager, Cyber Division, Former Information Systems Sector (2014-2016); Vice President and Business Manager, Integrated Intelligence Systems Business Unit, Former Information Systems Sector (2012-2014) |

| Lucy C. Ryan | | 45 | | | Corporate Vice President, Communications | | 2019 | | Vice President, Enterprise Communications (2018); Director of Communications, General Dynamics (2010-2018) |

AUDIT COMMITTEE FINANCIAL EXPERT

The information as to the Audit Committee and the Audit Committee Financial Expert will be incorporated herein by reference to the Proxy Statement for the 2019 Annual Meeting of Shareholders.

CODE OF ETHICS

We have adopted Standards of Business Conduct for all of our employees, including the principal executive officer, principal financial officer and principal accounting officer.

The Standards of Business Conduct can be found on our internet website at www.northropgrumman.com under “Investor Relations – Corporate Governance – Overview.” A copy of the Standards of Business Conduct is available to any stockholder who requests it by writing to: Northrop Grumman Corporation, c/o Office of the Secretary, 2980 Fairview Park Drive, Falls Church, VA 22042.

We disclose amendments to provisions of our Standards of Business Conduct by posting amendments on our website.

Waivers of the provisions of our Standards of Business Conduct that apply to our directors and executive officers are disclosed in a Current Report on Form 8-K.

The website and information contained on it or incorporated in it are not intended to be incorporated in this report on Form 10-K or other filings with the SEC.

OTHER DISCLOSURES

Other disclosures required by this Item will be incorporated herein by reference to the Proxy Statement for the 2019 Annual Meeting of Shareholders.