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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 24, 2024 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit 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 and risk 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 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

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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

Our auditing procedures related to the cost and revenue estimates for these development contracts included the following, among others:

• We tested the effectiveness of controls over the estimates of total costs and revenues on such contracts, including development costs and any related award or incentive fee estimates for the relevant performance obligations.

• We selected certain long-term contracts for testing and performed the following procedures:

–Evaluated whether the recognition of revenue over time on such contracts was appropriate based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation.

–Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods and services were highly interdependent and interrelated.

–Tested management’s determination of the transaction price, including any award or incentive fees, based on the consideration expected to be received in accordance with the rights and obligations established under the contracts and any contractual modifications.

–Evaluated the estimates of total cost and revenue for the performance obligation by:

▪Conducting inquiries of relevant program teams regarding any challenges related to the program.

▪Comparing costs incurred to date to the costs management estimated to be incurred to date.

▪Evaluating management’s ability to achieve the estimates of cost and revenue by performing corroborating inquiries with the Company’s program and business management, and testing management’s process used to develop the estimates based on their work plans, engineering specifications, program labor, and supplier contracts. This includes management’s process to identify macroeconomic impacts to certain programs, which could include forecasted cost impacts and assumptions on the ability to recover those costs.

▪Evaluating selected changes to the estimates of costs and obtaining supporting documentation on timing and amounts of these changes in estimates.

–Tested the mathematical accuracy of management’s calculation of revenue recognized during the period for the performance obligations.

Income Taxes - Uncertain Tax Positions - Refer to Notes 1 and 7 to the financial statements

Critical Audit Matter Description

The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Uncertain tax positions reflect the Company’s expected treatment of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim, which have not been reflected in measuring income tax expense or taxes payable for financial reporting purposes. Until these positions are sustained by the taxing authorities or the statute of limitations concerning such issues lapses, the Company does not generally recognize the tax benefits resulting from such positions and reports the tax effects as a liability for uncertain tax positions in its consolidated statements of financial position. The Company has recognized increased uncertain tax positions in recent years

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principally related to state apportionment, the methods of accounting associated with the timing of revenue recognition and related costs, and the 2017 Tax Act. Until the matters are resolved, the outcome is inherently uncertain.

Auditing certain assumptions associated with the Company’s uncertain tax positions involved especially challenging judgments given the complexity and inherent subjectivity involved in evaluating the potential outcomes of these matters.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to certain assumptions used in determining uncertain tax positions included the following, among others:

• We tested the effectiveness of controls relating to the identification and completeness of, and recognition for, uncertain tax positions, including management’s controls over the underlying key assumptions and inputs used to derive the estimates.

• With the assistance of our income tax specialists, we selected specific uncertain tax positions for testing and performed the following procedures:

–Inquired of the Company’s tax department, financial reporting department, and other personnel directly involved in the development of the estimates.

–Obtained supporting documentation and evaluated how the Company supported the position, including the assumptions and estimates used for measurement, and how the taxing authorities have historically challenged the tax position, if applicable.

–Evaluated whether the uncertain tax position met the “more likely than not” recognition threshold.

–Evaluated the appropriateness and consistency of the methodologies and assumptions used by management when developing these estimates.

• We tested the mathematical accuracy of management’s calculations.

/s/			Deloitte & Touche LLP
			McLean, Virginia
			January 24, 2024
			We have served as the Company’s auditor since 1975.

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CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

						Year Ended December 31
$ in millions, except per share amounts						2023						2022						2021
Sales
Product						$	30,897					$	28,522					$	27,868
Service						8,393						8,080						7,799
Total sales						39,290						36,602						35,667
Operating costs and expenses
Product						26,226						22,761						22,309
Service						6,513						6,367						6,090
General and administrative expenses						4,014						3,873						3,597
Total operating costs and expenses						36,753						33,001						31,996
Gain on sale of business						—						—						1,980
Operating income						2,537						3,601						5,651
Other (expense) income
Interest expense						(545)						(506)						(556)
Non-operating FAS pension benefit						530						1,505						1,469
Mark-to-market pension and OPB (expense) benefit						(422)						1,232						2,355
Other, net						246						4						19
Earnings before income taxes						2,346						5,836						8,938
Federal and foreign income tax expense						290						940						1,933
Net earnings						$	2,056					$	4,896					$	7,005
Basic earnings per share						$	13.57					$	31.61					$	43.70
Weighted-average common shares outstanding, in millions						151.5						154.9						160.3
Diluted earnings per share						$	13.53					$	31.47					$	43.54
Weighted-average diluted shares outstanding, in millions						152.0						155.6						160.9
Net earnings (from above)						$	2,056					$	4,896					$	7,005
Other comprehensive income (loss), net of tax
Change in cumulative translation adjustment						23						(16)						(7)
Change in other, net						2						6						(8)
Other comprehensive income (loss), net of tax						25						(10)						(15)
Comprehensive income						$	2,081					$	4,886					$	6,990

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

						December 31
$ in millions, except par value						2023						2022
Assets
Cash and cash equivalents						$	3,109					$	2,577
Accounts receivable, net						1,454						1,511
Unbilled receivables, net						5,693						5,983
Inventoried costs, net						1,109						978
Prepaid expenses and other current assets						2,341						1,439
Total current assets						13,706						12,488
Property, plant and equipment, net of accumulated depreciation of $7,964 for 2023 and $7,258 for 2022						9,653						8,800
Operating lease right-of-use assets						1,818						1,811
Goodwill						17,517						17,516
Intangible assets, net						305						384
Deferred tax assets						1,020						162
Other non-current assets						2,525						2,594
Total assets						$	46,544					$	43,755
Liabilities
Trade accounts payable						$	2,110					$	2,587
Accrued employee compensation						2,251						2,057
Advance payments and billings in excess of costs incurred						4,193						3,609
Other current liabilities						3,388						3,334
Total current liabilities						11,942						11,587
Long-term debt, net of current portion of $70 for 2023 and $1,072 for 2022						13,786						11,805
Pension and other postretirement benefit plan liabilities						1,290						1,188
Operating lease liabilities						1,892						1,824
Other non-current liabilities						2,839						2,039
Total liabilities						31,749						28,443
Commitments and contingencies (Note 12)
Shareholders’ equity
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding						—						—
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2023—150,109,271 and 2022—153,157,924						150						153
Paid-in capital						—						—
Retained earnings						14,773						15,312
Accumulated other comprehensive loss						(128)						(153)
Total shareholders’ equity						14,795						15,312
Total liabilities and shareholders’ equity						$	46,544					$	43,755

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

						Year Ended December 31
$ in millions						2023						2022						2021
Operating activities
Net earnings						$	2,056					$	4,896					$	7,005
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization						1,338						1,342						1,239
Mark-to-market pension and OPB expense (benefit)						422						(1,232)						(2,355)
Stock-based compensation						87						99						94
Deferred income taxes						(988)						(321)						603
Gain on sale of business						—						—						(1,980)
B-21 charge						1,559						—						—
Net periodic pension and OPB income						(308)						(1,193)						(1,091)
Pension and OPB contributions						(139)						(136)						(141)
Changes in assets and liabilities:
Accounts receivable, net						54						(44)						(10)
Unbilled receivables, net						247						(646)						(414)
Inventoried costs, net						(220)						(205)						(52)
Prepaid expenses and other assets						(86)						2						66
Accounts payable and other liabilities						519						572						376
Income taxes payable, net						(658)						(279)						215
Other, net						(8)						46						12
Net cash provided by operating activities						3,875						2,901						3,567
Investing activities
Divestiture of IT services business						—						—						3,400
Capital expenditures						(1,775)						(1,435)						(1,415)
Proceeds from sale of equipment to a customer						—						155						84
Proceeds from sale of minority investments						197						—						—
Other, net						(4)						39						(11)
Net cash (used in) provided by investing activities						(1,582)						(1,241)						2,058
Financing activities
Net proceeds from issuance of long-term debt						1,995						—						—
Payments of long-term debt						(1,050)						—						(2,236)
Common stock repurchases						(1,500)						(1,504)						(3,705)
Cash dividends paid						(1,116)						(1,052)						(983)
Payments of employee taxes withheld from share-based awards						(52)						(50)						(34)
Other, net						(38)						(7)						(44)
Net cash used in financing activities						(1,761)						(2,613)						(7,002)
Increase (decrease) in cash and cash equivalents						532						(953)						(1,377)
Cash and cash equivalents, beginning of year						2,577						3,530						4,907
Cash and cash equivalents, end of year						$	3,109					$	2,577					$	3,530

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

						Year Ended December 31
$ in millions, except per share amounts						2023						2022						2021
Common stock
Beginning of year						$	153					$	156					$	167
Common stock repurchased						(3)						(4)						(11)
Shares issued for employee stock awards and options						—						1						—
End of year						150						153						156
Paid-in capital
Beginning of year						—						—						58
Common stock repurchased						—						—						(60)
Stock compensation						—						—						2
End of year						—						—						—
Retained earnings
Beginning of year						15,312						12,913						10,482
Common stock repurchased						(1,519)						(1,497)						(3,645)
Net earnings						2,056						4,896						7,005
Dividends declared						(1,114)						(1,052)						(989)
Stock compensation						38						52						60
End of year						14,773						15,312						12,913
Accumulated other comprehensive loss
Beginning of year						(153)						(143)						(128)
Other comprehensive income (loss), net of tax						25						(10)						(15)
End of year						(128)						(153)						(143)
Total shareholders’ equity						$	14,795					$	15,312					$	12,926
Cash dividends declared per share						$	7.34					$	6.76					$	6.16

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Northrop Grumman Corporation is a leading global aerospace and defense technology company. We deliver a broad range of products, services and solutions to U.S. and international customers, and principally to the U.S. Department of Defense and intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity.

The company is a leading provider of space systems, military aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and breakthrough technologies, such as advanced computing, microelectronics and cyber. We are focused on competing and winning programs that enable continued growth, performing on our commitments and affordably delivering capability our customers need. With the investments we've made in advanced technologies, combined with our talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet our customers' needs today and in the future.

Principles of Consolidation

The consolidated financial statements include the accounts of Northrop Grumman and its subsidiaries and joint ventures or other investments for which we consolidate the financial results. Intercompany accounts, transactions and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method.

Basis of Presentation

During the first quarter of 2023, we changed the presentation of the components of other comprehensive income (loss), net of tax in the consolidated statement of earnings and comprehensive income. Prior period amounts have been recast to conform to current period presentation. This change in presentation had no impact on our previously reported comprehensive income in total.

Accounting Estimates

The company’s consolidated financial statements are prepared in conformity with U.S. GAAP. The preparation thereof requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.

Revenue Recognition

The majority of our sales are derived from long-term contracts with the U.S. government for the development or production of goods, the provision of services, or a combination of both. The company classifies sales as product or service based on the predominant attributes of each performance obligation.

The company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the company provides multiple distinct goods or services to a customer, most commonly when a contract covers multiple phases of the product life cycle (e.g., development, production, sustainment, etc.). In those cases, the company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not considered to be separate performance obligations. Assets recognized from the costs to obtain or fulfill a contract are not material.

The company recognizes revenue as control is transferred to the customer, either over time or at a point in time. In general, our U.S. government contracts contain termination for convenience and/or other clauses that generally provide the customer rights to goods produced and/or in-process. Similarly, our non-U.S. government contracts generally contain contractual termination clauses or entitle the company to payment for work performed to date for goods and services that do not have an alternative use. For most of our contracts, control is effectively transferred during the period of performance, so we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion). The company believes this represents the most appropriate

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measurement towards satisfaction of its performance obligations. Revenue for contracts in which the control of goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon delivery).

Contracts are often modified for changes in contract specifications or requirements, which may result in scope and/or price changes. Most of the company’s contract modifications are for goods or services that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative EAC adjustment.

Contract Estimates

Use of the cost-to-cost method requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. The company estimates profit on these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes that profit as costs are incurred. Significant judgment is used to estimate total sales and cost at completion.

Contract sales may include estimates of variable consideration, including cost or performance incentives (such as award and incentive fees), un-priced change orders, REAs and contract claims. Variable consideration is included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled.

At the request of the National Aeronautics and Space Administration (NASA), Space Systems submitted an engineering change proposal (ECP) during the fourth quarter of 2023 for scope increases and other aspects of the Habitation and Logistics Outpost (HALO) contract largely stemming from evolving Lunar Gateway architecture and mission requirements. The ECP addresses both work performed and work expected to be performed by the company resulting from scope changes previously approved by NASA, as well as changes NASA has requested the company to propose but has not yet directed the company to perform. The company has begun negotiating with NASA on these various changes and other aspects of the HALO contract. The company’s 2023 results include $100 million of unfavorable EAC adjustments on the HALO contract and reflect our current best estimate of the outcome of the ECP negotiations assuming the terms of the current contract; however, if the outcome is less favorable than what we have assumed, it could have an adverse effect on our financial position, results of operations and/or cash flows.

We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative EAC adjustments represent the cumulative effect of the changes on current and prior periods; sales and operating margins in future periods are recognized as if the revised estimates had been used since contract inception. If it is determined that a loss is expected to result on an individual performance obligation, the entire amount of the estimable future loss, including an allocation of G&A costs, is charged against income in the period the loss is identified.

B-21 Low-Rate Initial Production Options

In 2015, the U.S. Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for engineering, manufacturing, and design (EMD) and five low-rate initial production (LRIP) options in varying quantities. The EMD phase of the program is largely cost type and began at contract award. The LRIP options are largely fixed price and are expected to be awarded and executed through approximately the end of the decade. During the fourth quarter of 2023, the B-21 program entered flight testing and the company received an award for the first LRIP lot.

We previously disclosed it was reasonably possible one or more of the LRIP options could be performed at a loss principally due to the company’s estimate of the impact macroeconomic factors may have on our cost to complete the LRIP options, as well as ongoing discussions with our suppliers and our customer. During the fourth quarter of 2023, we again reviewed our estimated profitability on the LRIP phase of the program, and we now believe it is probable each of the first five LRIP lots will be performed at a loss. The loss is largely driven by a change in our assumptions regarding funding to mitigate the impact of macroeconomic disruptions on the LRIP phase of the program and higher projected manufacturing costs that reflect recent supplier negotiations and our experience in completing the first aircraft.

The projected loss across the five LRIP lots, which we recognized during the fourth quarter of 2023, is $1.56 billion. The loss comprises a $143 million unfavorable EAC adjustment for the first LRIP lot and a $1.37 billion loss contingency accrual and $45 million reduction of inventoried costs for the unexercised LRIP lots. As of December 31, 2023, $631 million of the loss contingency accrual is included in Other current liabilities and $740 million is included in Other non-current liabilities in the consolidated statement of financial position.

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

Net EAC Adjustments

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

			Year Ended December 31
$ in millions, except per share data			2023						2022						2021
Revenue			$	298					$	447					$	568
Operating income			84						360						527
Net earnings(1)			66						284						416
Diluted earnings per share(1)			0.43						1.83						2.59

(1)Based on a 21% federal statutory tax rate.

EAC adjustments on a single performance obligation can have a significant effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. During the fourth quarter of 2023, we recorded a $143 million unfavorable EAC adjustment on the first LRIP lot of the B-21 program at Aeronautics Systems as described above. During 2023, we recorded $100 million of unfavorable EAC adjustments on the HALO program at Space Systems largely due to cost growth stemming from evolving Lunar Gateway architecture and mission requirements combined with macroeconomic challenges. During 2022, we recorded $133 million of favorable EAC adjustments on the EMD phase of the B-21 program at Aeronautics Systems. During 2021, we recorded $135 million of unfavorable EAC adjustments on the F-35 program at Aeronautics Systems. No other such adjustments were significant to the financial statements during the years ended December 31, 2023, 2022 and 2021.

Backlog

Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent to the company’s remaining performance obligations at the end of each period. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and IDIQ contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded.

Company backlog as of December 31, 2023 was $84.2 billion. Of our December 31, 2023 backlog, we expect to recognize approximately 40 percent as revenue over the next 12 months and 65 percent as revenue over the next 24 months, with the remainder to be recognized thereafter.

Subsequent Event – In January 2024, the company received a termination for convenience in our restricted Space business. The company expects to reduce backlog by approximately $2 billion during the first quarter of 2024 related to the termination.

Contract Assets and Liabilities

For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.

Contract assets are equivalent to and reflected as Unbilled receivables in the consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Unbilled receivables are classified as current assets and include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts. Accumulated contract costs in unbilled receivables include costs such as direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. Unbilled receivables also include certain estimates of variable consideration described above. These contract assets are not considered a significant financing component of the company’s contracts as the payment terms are intended to protect the customer in the event the company does not perform on its obligations under the contract.

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Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the consolidated statements of financial position. Certain customers make advance payments prior to the company’s satisfaction of its obligations on the contract. These amounts are recorded as contract liabilities until such obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements.

Net contract assets are as follows:

$ in millions			December 31, 2023						December 31, 2022			$ Change			% Change
Unbilled receivables, net			$	5,693					$	5,983		$	(290)		(5)		%
Advance payments and amounts in excess of costs incurred			(4,193)						(3,609)			(584)			16		%
Net contract assets			$	1,500					$	2,374		$	(874)		(37)		%

The change in the balances of the company’s contract assets and liabilities primarily results from timing differences between revenue recognition and customer billings and/or payments. Net contract assets as of December 31, 2023 decreased 37 percent from the prior year, primarily due to decreases in net contracts assets at Space Systems, Missions Systems and Aeronautics Systems.

The amount of revenue recognized for the years ended December 31, 2023, 2022 and 2021 that was included in the contract liability balance at the beginning of each year was $3.1 billion, $2.4 billion and $2.0 billion, respectively.

Disaggregation of Revenue

See Note 16 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

General and Administrative Expenses

In accordance with applicable FAR and CAS requirements, most general management and corporate expenses incurred at the segment and corporate locations are considered allowable and allocable costs to our U.S. government contracts. Allowable and allocable G&A costs, including independent research and development (IR&D) and bid and proposal (B&P) costs, are allocated on a systematic basis to contracts in progress and are included as a component of total estimated contract costs.

Research and Development

Company-sponsored research and development activities primarily include efforts related to government programs. Company-sponsored IR&D expenses totaled $1.2 billion, $1.2 billion and $1.1 billion in 2023, 2022 and 2021, respectively, which represented 3.0 percent, 3.3 percent and 3.2 percent of total sales, respectively. Customer-funded research and development activities are charged directly to the related contracts.

Income Taxes

Provisions for federal and foreign income taxes are calculated on reported earnings before income taxes based on current tax law and include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently payable because certain items of income and expense are recognized in different periods for financial reporting purposes than for income tax purposes. The company recognizes federal and foreign interest accrued related to unrecognized tax benefits in income tax expense. Federal tax penalties are also recognized as a component of income tax expense.

In accordance with applicable FAR and CAS requirements, current state and local income and franchise taxes are generally considered allowable and allocable costs to our U.S. government contracts and are, therefore, recorded in operating costs and expenses. The company generally recognizes changes in deferred state taxes and unrecognized state tax benefits in unallocated corporate expenses.

Uncertain tax positions reflect the company’s expected treatment of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim. Until these positions are sustained by the taxing authorities or the statute of limitations concerning such issues lapses, the company does not generally recognize the tax benefits resulting from such positions and reports the tax effects as a liability for uncertain tax positions in its consolidated statements of financial position.

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Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash in banks and highly liquid instruments with original maturities of three months or less, primarily consisting of bank time deposits and investments in institutional money market funds. Cash in bank accounts often exceeds federally insured limits.

Fair Value of Financial Instruments

The company measures the fair value of its financial instruments using observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions.

These two types of inputs create the following fair value hierarchy:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 - Significant inputs to the valuation model are unobservable.

The company holds a portfolio of marketable securities to partially fund non-qualified employee benefit plans. A portion of these securities are held in common/collective trust funds and are measured at fair value using NAV per share as a practical expedient. Marketable securities accounted for as trading are recorded at fair value on a recurring basis and are included in Other non-current assets in the consolidated statements of financial position. Changes in unrealized gains and losses on trading securities are included in Other, net in the consolidated statements of earnings and comprehensive income. Investments in held-to-maturity instruments with original maturities greater than three months are recorded at amortized cost.

Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair value on a recurring basis. Changes in the fair value of derivative financial instruments that are designated as fair value hedges are recorded in Other, net in the consolidated statements of earnings and comprehensive income, while changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recorded as a component of other comprehensive income until settlement. For derivative financial instruments not designated as hedging instruments, gains or losses resulting from changes in the fair value are reported in Other, net in the consolidated statements of earnings and comprehensive income.

The company uses derivative financial instruments to manage its exposure to foreign currency exchange risk related to receipts from customers and payments to suppliers denominated in foreign currencies (i.e., foreign currency forward contracts). For foreign currency forward contracts, where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties’ credit risks.

The company does not use derivative financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments. Credit risk related to derivative financial instruments is considered minimal and is managed through the use of multiple counterparties with high credit standards and periodic settlements of positions, as well as by entering into master netting agreements with most of our counterparties.

Inventoried Costs

Inventoried costs generally comprise costs associated with unsatisfied performance obligations on contracts accounted for using point in time revenue recognition, costs incurred in excess of existing contract requirements that are probable of recovery and other accrued contract costs that are expected to be recoverable when allocated to specific contracts. Product inventory primarily consists of raw materials and is stated at the lower of cost or net realizable value, generally using the average cost method.

Inventoried costs include direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. G&A included in Inventoried costs, net was $65 million and $59 million as of December 31, 2023 and 2022, respectively. Inventoried costs are classified as current assets and include amounts related to contracts having production cycles longer than one year due to the long-cycle nature of our business.

Cash Surrender Value of Life Insurance Policies

The company maintains whole life insurance policies on a group of executives, which are recorded at their cash surrender value as determined by the insurance carrier. The company also has split-dollar life insurance policies on former officers and executives from acquired businesses, which are recorded at the lesser of their cash surrender value or premiums paid. These policies are utilized as a partial funding source for deferred compensation and other

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non-qualified employee retirement plans. As of December 31, 2023 and 2022, the carrying values associated with these policies were $399 million and $367 million, respectively, and are recorded in Other non-current assets in the consolidated statements of financial position.

Property, Plant and Equipment

Property, plant and equipment (PP&E) are depreciated over the estimated useful lives of individual assets. Machinery and other equipment is primarily depreciated using declining-balance methods. The other asset categories are generally depreciated using the straight-line method. Depreciation expense is generally an allowable and allocable cost in accordance with applicable FAR and CAS requirements and is recorded in the same segment where the related assets are held. However, the additional depreciation expense related to the step-up in fair value of PP&E acquired through business combinations is recorded in unallocated corporate expense within operating income as such depreciation is not allocable to government contracts and not considered part of management’s evaluation of segment operating performance. Major classes of PP&E and their useful lives are as follows:

												December 31
Useful life in years, $ in millions						Useful Life						2023						2022
Land and land improvements						Up to 40(1)						$	742					$	741
Buildings and improvements						Up to 45						3,605						3,272
Machinery and other equipment						Up to 20						9,641						8,774
Capitalized software costs						3-5						553						524
Leasehold improvements						Lease Term(2)						3,076						2,747
Property, plant and equipment, at cost												17,617						16,058
Accumulated depreciation												(7,964)						(7,258)
Property, plant and equipment, net												$	9,653					$	8,800

(1)Land is not a depreciable asset.

(2)Leasehold improvements are depreciated over the shorter of the useful life of the asset or lease term.

During the fourth quarter of 2020, the company completed a sale of equipment to a customer on a restricted Aeronautics Systems program for $444 million. The company previously intended to use the equipment for internal purposes so we recognized the acquisition costs as capital expenditures and included the equipment in PP&E. As we regularly sell this type of equipment to customers in the ordinary course of business, we recorded the sale as a revenue transaction and included the net book value of the equipment in Operating costs and expenses. Although we generally classify proceeds from revenue transactions as cash inflows from operating activities, we recognized the proceeds from this transaction as cash inflows from investing activities, consistent with our prior recognition of the cost to acquire the equipment as capital expenditures. The company received cash payments of $155 million and $84 million related to the equipment sale during 2022 and 2021, respectively, and included it in Proceeds from sale of equipment to a customer in the consolidated statements of cash flows. The company received no cash payments in 2023 related to the equipment sale.

During the year ended December 31, 2022, the company acquired $46 million of internal use software through long-term financing directly with the supplier. The software was recorded in PP&E as a non-cash investing activity and the related liability was recorded in long-term debt as a non-cash financing activity. During the years ended December 31, 2023 and 2022, the company received lease incentives for landlord funded leasehold improvements of $55 million and $96 million, respectively, related to Space Systems real estate leases, which were recorded in PP&E and included in non-cash investing activities.

On December 28, 2022 the company acquired certain leased land in exchange for company-owned land, which had been used previously for production-related activities at Space Systems. The exchange was accounted for as a nonmonetary transaction, and the acquired land, valued at approximately $155 million, was recorded in PP&E as a non-cash investing activity. The transaction resulted in a $96 million gain, which was reflected in operating costs and expenses in the consolidated statements of earnings and comprehensive income.

Non-cash investing activities also include capital expenditures incurred but not yet paid of $75 million, $113 million and $91 million as of December 31, 2023, 2022 and 2021, respectively.

Sale of Minority Investment

In July 2023, the company sold its minority investment in an Australian business for AUD $235 million (the equivalent of $157 million upon settlement). The sale resulted in a pre-tax gain of $97 million, which is reflected in

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Other, net on the consolidated statements of earnings and comprehensive income for the year ended December 31, 2023. Proceeds from the sale are included in investing activities on the consolidated statement of cash flows for the year ended December 31, 2023.

Goodwill and Other Purchased Intangible Assets

Goodwill and other purchased intangible asset balances are included in the identifiable assets of their assigned business segment. However, the company includes the amortization of other purchased intangible assets in unallocated corporate expense within operating income as such amortization is not allocable to government contracts and not considered part of management’s evaluation of segment operating performance. The company’s customer-related intangible assets are generally amortized over their respective useful lives based on the pattern in which the future economic benefits of the intangible assets are expected to be consumed. Other intangible assets are generally amortized on a straight-line basis over their estimated useful lives.

Leases

The company leases certain buildings, land and equipment. At contract inception, we determine whether a contract is or contains a lease and whether the lease should be classified as an operating or finance lease. Operating lease balances are included in Operating lease right-of-use assets, Other current liabilities, and Operating lease liabilities in our consolidated statements of financial position.

The company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. Many of our leases include renewal options aligned with our contract terms. We define the initial lease term to include renewal options determined to be reasonably certain. We do not recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. We elected the practical expedient to not separate lease components from nonlease components and applied that practical expedient to all material classes of leased assets.

Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays or rent escalation clauses. For tenant improvement incentives received, if the incentive is determined to be a leasehold improvement owned by the lessee, the company generally records the incentives as a reduction to the right-of-use asset, which reduces rent expense over the lease term. For rent holidays and rent escalation clauses during the lease term, the company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation for intended use.

Finance leases are not material to our consolidated financial statements and the company is not a lessor in any material arrangements. We do not have any material restrictions or covenants in our lease agreements, sale-leaseback transactions, land easements or residual value guarantees.

Litigation, Commitments and Contingencies

We accrue for litigation, commitments and contingencies when management, after considering the facts and circumstances of each matter as then known to management, has determined it is probable a liability will be found to have been incurred and the amount of the loss can be reasonably estimated. When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, the low end of the range is recorded. Legal fees are generally expensed as incurred. Due to the inherent uncertainties surrounding gain contingencies, we generally do not recognize potential gains until realized.

Environmental Costs

We accrue for environmental liabilities when management determines that, based on the facts and circumstances known to the company, it is probable the company will incur costs to address environmental impacts and the costs are reasonably estimable. When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, we record the low end of the range. The company typically projects environmental costs for up to 30 years, records environmental liabilities on an undiscounted basis, and excludes asset retirement obligations and certain legal costs. At sites involving multiple parties, we accrue environmental liabilities based upon our expected share of liability, taking into account the financial viability of other liable parties.

Retirement Benefits

The company sponsors various defined benefit pension plans and defined contribution retirement plans covering substantially all of its employees. In most cases, our defined contribution plans provide for a company match of

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employee contributions. The company also provides postretirement benefits other than pensions to eligible retirees and qualifying dependents, consisting principally of health care and life insurance benefits.

The liabilities, unamortized prior service credits and annual income or expense of the company’s defined benefit pension and OPB plans are determined using methodologies that involve several actuarial assumptions.

Because U.S. government regulations provide for the costs of pension and OPB plans to be charged to our contracts in accordance with applicable FAR and CAS requirements, we calculate retiree benefit plan costs under both FAS and CAS methods. While both FAS and CAS recognize a normal service cost component in measuring periodic pension cost, there are differences in the way the components of annual pension costs are calculated under each method. Measuring plan obligations under FAS and CAS includes different assumptions and models, such as in estimating returns on plan assets, calculating interest expense and the periods over which gains/losses related to pension assets and actuarial changes are recognized. As a result, annual retiree benefit plan expense amounts for FAS are different from the amounts for CAS in any given reporting period even though the ultimate cost of providing benefits over the life of the plans is the same under either method. CAS retiree benefit plan costs are charged to contracts and are included in segment operating income, and the difference between the service cost component of FAS expense and total CAS expense (the “FAS/CAS operating adjustment”) is recorded in operating income at the consolidated company level. Not all net periodic pension expense is recognized in net earnings in the year incurred because it is allocated as production costs and a portion remains in inventory at the end of any given reporting period.

Actuarial gains and losses are immediately recognized in net periodic benefit cost for FAS through MTM (expense) benefit upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. Prior service credits are recognized as a component of Accumulated other comprehensive loss and amortized into earnings in future periods.

Stock Compensation

The company’s stock compensation plans are classified as equity plans. Compensation expense for stock awards is measured at the grant date based on the fair value of the award and is recognized over the vesting period (generally three years), net of estimated forfeitures. The company issues stock awards in the form of restricted performance stock rights and restricted stock rights. The fair value of stock awards and performance stock awards is determined based on the closing market price of the company’s common stock on the grant date. The fair value of market-based stock awards is determined at the grant date using a Monte Carlo simulation model. For purposes of measuring compensation expense for performance awards, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. At each reporting date, the number of shares used to calculate compensation expense and diluted earnings per share is adjusted to reflect the number ultimately expected to vest.

Accumulated Other Comprehensive Loss

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

						December 31
$ in millions						2023						2022
Cumulative translation adjustment						$	(138)					$	(161)
Other, net						10						8
Total accumulated other comprehensive loss						$	(128)					$	(153)

Related Party Transactions

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

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Accounting Standards Updates

On November 27, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Among other new disclosure requirements, ASU 2023-07 requires companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker. ASU 2023-07 will be effective for annual periods beginning on January 1, 2024 and interim periods beginning on January 1, 2025. ASU 2023-07 must be applied retrospectively to all prior periods presented in the financial statements. We are evaluating the disclosure impact of ASU 2023-07; however, the standard will not have an impact on the company’s consolidated financial position, results of operations and/ or cash flows.

On December 14, 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. ASU 2023-09 will be effective for annual periods beginning January 1, 2025 and will be applied on a prospective basis with the option to apply the standard retrospectively. We are evaluating the disclosure impact of ASU 2023-09; however, the standard will not have an impact on the company’s consolidated financial position, results of operations and/or cash flows.

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

2. DISPOSITIONS

Disposition of IT and Mission Support Services Business

Effective January 30, 2021, we completed the IT services divestiture for $3.4 billion in cash and recorded a pre-tax gain of $2.0 billion. The IT and mission support services business was comprised of the majority of the former Information Solutions and Services (IS&S) division of Defense Systems (excluding the Vinnell Arabia business); select cyber, intelligence and missions support programs, which were part of the former Cyber and Intelligence Mission Solutions (CIMS) division of Mission Systems; and the former Space Technical Services business unit of Space Systems. Operating results include sales and operating income for the IT and mission support services business prior to the Divestiture date; therefore, no sales and operating income were recognized for this business during the years ended December 31, 2023 and 2022. The company recorded sales of $162 million and pre-tax profit of $20 million for the IT and mission support services business during the year ended December 31, 2021.

3. EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK

Basic Earnings Per Share

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

Diluted Earnings Per Share

Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 0.5 million, 0.7 million and 0.6 million shares for the years ended December 31, 2023, 2022 and 2021, respectively.

Share Repurchases

Share Repurchase Programs

On December 4, 2018, the company’s board of directors authorized a share repurchase program of up to $3.0 billion in share repurchases of the company’s common stock (the “2018 Repurchase Program”). Repurchases under the 2018 Repurchase Program commenced in March 2020 and were completed in October 2021.

On January 25, 2021, the company’s board of directors authorized a new share repurchase program of up to an additional $3.0 billion in share repurchases of the company’s common stock (the “2021 Repurchase Program”). Repurchases under the 2021 Repurchase Program commenced in October 2021 and were completed in April 2023.

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On January 24, 2022, the company’s board of directors authorized a new share repurchase program of up to an additional $2.0 billion in share repurchases of the company’s common stock (the “2022 Repurchase Program”). Repurchases under the 2022 Repurchase Program commenced in April 2023 upon completion of the 2021 Repurchase Program. As of December 31, 2023, repurchases under the 2022 Repurchase Program totaled $0.9 billion; $1.1 billion remained under this share repurchase authorization. By its terms, the 2022 Repurchase Program will expire when we have used all authorized funds for repurchases.

On December 6, 2023, the company’s board of directors authorized a new share repurchase program of up to an additional $2.5 billion in share repurchases of the company’s common stock (the “2023 Repurchase Program”). Repurchases under the 2023 Repurchase Program will commence upon completion of the 2022 Repurchase Program and will expire when we have used all authorized funds for repurchases. As of December 31, 2023, there have been no repurchases under the 2023 Repurchase Program and the company’s total outstanding share repurchase authorization was $3.6 billion.

Accelerated Share Repurchase Agreements

During the first quarter of 2021, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC (Goldman Sachs) to repurchase $2.0 billion of the company’s common stock as part of the 2018 Repurchase Program. Under the agreement, we made a payment of $2.0 billion to Goldman Sachs and received an initial delivery of 5.9 million shares valued at $1.7 billion that were immediately canceled by the company. The remaining balance of $300 million was settled on June 1, 2021 with a final delivery of 0.2 million shares from Goldman Sachs. The final average purchase price was $327.29 per share.

During the fourth quarter of 2021, the company entered into an ASR agreement with Goldman Sachs to repurchase $500 million of the company’s common stock as part of the 2021 Repurchase Program. Under the agreement, we made a payment of $500 million to Goldman Sachs and received an initial delivery of 1.2 million shares valued at $425 million that were immediately canceled by the company. The remaining balance of $75 million was settled on February 1, 2022 with a final delivery of 0.1 million shares from Goldman Sachs. The final average purchase price was $374.79 per share.

During the first quarter of 2023, the company entered into an ASR agreement with Bank of America, N.A. (Bank of America) to repurchase $500 million of the company’s common stock as part of the 2021 and 2022 Repurchase Programs. Under the agreement, we made a payment of $500 million to Bank of America and received an initial delivery of 0.9 million shares valued at $400 million that were immediately canceled by the company. The remaining balance of $100 million was settled on April 27, 2023 with a final delivery of 0.2 million shares from Bank of America. The final average purchase price was $458.28 per share.

Share repurchases take place from time to time, subject to market and regulatory conditions and management’s discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs.

The table below summarizes the company’s share repurchases to date under the authorizations described above:

Repurchase Program Authorization Date						Amount Authorized (in millions)						Total Shares Retired (in millions)						Average Price Per Share(1)						Date Completed						Shares Repurchased (in millions)
Year Ended December 31
2023						2022						2021
December 4, 2018						$	3,000					8.9						$	337.18					October 2021						—						—						8.4
January 25, 2021						$	3,000					7.0						$	431.05					April 2023						1.4						3.3						2.2
January 24, 2022						$	2,000					1.9						$	454.03											1.9						—						—
December 6, 2023						$	2,500					—						$	—											—						—						—
																														3.3						3.3						10.6

(1)As a part of the 2023 Repurchase Program, the board of directors approved that the purchases under this program, and the authorization remaining under the 2022 program, be exclusive of brokerage commissions. Commissions paid are included for the 2018 and 2021 Repurchase Programs.

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Dividends on Common Stock

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

In May 2022, the company increased the quarterly common stock dividend 10 percent to $1.73 per share from the previous amount of $1.57 per share.

In May 2021, the company increased the quarterly common stock dividend 8 percent to $1.57 per share from the previous amount of $1.45 per share.

4. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net represent amounts billed and due from customers. Substantially all accounts receivable at December 31, 2023 are expected to be collected in 2024. The company does not believe it has significant exposure to credit risk as the majority of our accounts receivable are due from the U.S. government either as the ultimate customer or in connection with foreign military sales.

Accounts receivable, net consisted of the following:

						December 31
$ in millions						2023						2022
Due from U.S. government (1)						$	1,184					$	1,215
Due from international and other customers						276						304
Accounts receivable, gross						1,460						1,519
Allowance for expected credit losses						(6)						(8)
Accounts receivable, net						$	1,454					$	1,511

(1)Includes receivables due from the U.S. government associated with foreign military sales, which are contracted with and paid by the U.S. government.

5. UNBILLED RECEIVABLES, NET

Unbilled receivables, net represent revenue recognized under the cost-to-cost method that exceeds amounts billed to customers. A large majority of the company’s unbilled receivables at December 31, 2023 are expected to be billed and collected in 2024. Progress and performance-based payments are reflected as an offset to the related unbilled receivable balances.

Unbilled receivables, net consisted of the following:

						December 31
$ in millions						2023						2022
Due from U.S. government (1)
Unbilled receivables						$	23,655					$	23,304
Progress and performance-based payments received						(18,321)						(17,664)
Total due from U.S. government						5,334						5,640
Due from international and other customers
Unbilled receivables						1,720						1,822
Progress and performance-based payments received						(1,344)						(1,460)
Total due from international and other customers						376						362
Unbilled receivables, net of progress and performance-based payments received						5,710						6,002
Allowance for expected credit losses						(17)						(19)
Unbilled receivables, net						$	5,693					$	5,983

(1)Includes unbilled receivables due from the U.S. government associated with foreign military sales, which are contracted with and paid by the U.S. government.

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6. INVENTORIED COSTS, NET

Inventoried costs are principally associated with contracts where the U.S. government is the primary customer, therefore the company does not believe it has significant exposure to recoverability risk related to these amounts. Inventoried costs associated with our commercial businesses, while less significant in total, are subject to a greater level of recoverability risk. The company recorded write-downs of commercial business inventory at Space Systems for which its cost exceeded net realizable value of $43 million and $45 million during the years ended December 31, 2023 and 2022, respectively. As discussed in Note 1, the company recognized a $45 million reduction of inventoried costs related to the B-21 program at Aeronautics Systems during the year ended December 31, 2023.

Inventoried costs, net consisted of the following:

						December 31
$ in millions						2023						2022
Contracts in process						$	647					$	574
Product inventory:
Raw materials						338						325
Work in process						72						31
Finished goods						52						48
Total product inventory						$	462					$	404
Inventoried costs, net						$	1,109					$	978

7. INCOME TAXES

Federal and foreign income tax expense consisted of the following:

						Year Ended December 31
$ in millions						2023						2022						2021
Federal income tax expense:
Current						$	949					$	1,289					$	1,398
Deferred						(670)						(353)						518
Total federal income tax expense						279						936						1,916
Foreign income tax expense:
Current						15						3						6
Deferred						(4)						1						11
Total foreign income tax expense						11						4						17
Total federal and foreign income tax expense						$	290					$	940					$	1,933

Earnings before income taxes associated with the company’s foreign operations are not material in the periods presented.

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Income tax expense differs from the amount computed by multiplying earnings before income taxes by the statutory federal income tax rate due to the following:

						Year Ended December 31
$ in millions						2023												2022												2021
Income tax expense at statutory rate						$	493					21.0		%				$	1,226					21.0		%				$	1,877					21.0		%
Research credit						(210)						(8.9)						(177)						(3.0)						(192)						(2.2)
Foreign derived intangible income						(63)						(2.7)						(66)						(1.1)						(50)						(0.6)
IT services divestiture nondeductible goodwill						—						—						—						—						250						2.8
Settlements with taxing authorities						(1)						—						(86)						(1.5)						—						—
Net interest expense						69						2.9						22						0.4						17						0.2
Other, net						2						0.1						21						0.3						31						0.4
Total federal and foreign income taxes						$	290					12.4		%				$	940					16.1		%				$	1,933					21.6		%

The 2023 ETR decreased to 12.4 percent from 16.1 percent in 2022 primarily due to lower earnings before income taxes as a result of the B-21 charge and MTM expense, which collectively reduced the 2023 ETR by 3.8 percentage points. The 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points.

The 2022 ETR decreased to 16.1 percent from 21.6 percent in 2021 primarily due to an $86 million benefit resulting from the resolution of the IRS examination of certain legacy OATK tax returns, as well as additional federal income taxes in the prior year resulting from the IT services divestiture. The company’s 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points; however, the MTM benefit in 2021 did not significantly impact the 2021 ETR.

Income tax payments, net of refunds received, were $1.2 billion, $1.5 billion and $1.3 billion for the years ended December 31, 2023, 2022 and 2021, respectively. Taxes receivable, which are included in Prepaid expenses and other current assets in the consolidated statements of financial position, were $1.5 billion and $850 million as of December 31, 2023 and 2022, respectively.

Uncertain Tax Positions

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2018-2020 federal tax returns are currently under Internal Revenue Service (IRS) examination. During the second quarter of 2023, the company entered into an agreed Revenue Agent’s Report (“RAR”) for certain matters related to the company’s 2014-2017 federal income tax returns, resulting in a $90 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the agreed RAR related to the company’s 2014-2017 federal income tax returns and refund claims related to its 2007-2016 federal tax returns are currently under review by the IRS Appeals Office.

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

Tax returns for open tax years related to state and foreign jurisdictions remain subject to examination. As state income taxes are generally considered allowable and allocable costs, any individual or aggregate state examination impacts are not expected to have a material impact on our financial results. Amounts currently subject to examination related to foreign jurisdictions are not material.

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The change in unrecognized tax benefits during 2023, 2022 and 2021, excluding interest, is as follows:

						December 31
$ in millions						2023						2022						2021
Unrecognized tax benefits at beginning of the year						$	1,663					$	1,630					$	1,481
Additions based on tax positions related to the current year						276						262						355
Additions for tax positions of prior years						254						6						47
Reductions for tax positions of prior years						(9)						(124)						(251)
Settlements with taxing authorities						(189)						(110)						(1)
Other, net						(1)						(1)						(1)
Net change in unrecognized tax benefits						331						33						149
Unrecognized tax benefits at end of the year						$	1,994					$	1,663					$	1,630

Our 2023 increase in unrecognized tax benefits was primarily related to our methods of accounting associated with the timing of revenue recognition and related costs and the 2017 Tax Cuts and Jobs Act, which includes related final revenue recognition regulations issued in December 2020 under IRC Section 451(b) and procedural guidance issued in August 2021. As of December 31, 2023, we have approximately $2.0 billion in unrecognized tax benefits, including $843 million related to our position on IRC Section 451(b). If these matters, including our position on IRC Section 451(b), are unfavorably resolved, there could be a material impact on our future cash flows. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may increase by approximately $120 million.

Our current unrecognized tax benefits, which are included in Other current liabilities in the consolidated statements of financial position, were $964 million and $728 million as of December 31, 2023 and 2022, respectively, with the remainder of our unrecognized tax benefits included within Other non-current liabilities. These liabilities include $305 million and $216 million of accrued interest and penalties as of December 31, 2023 and 2022, respectively. If the income tax benefits from these tax positions are ultimately realized, $848 million of federal and foreign tax benefits would reduce the company’s ETR.

Net interest expense within the company’s federal, foreign and state income tax provisions was $62 million, $29 million, and $25 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Net deferred tax assets and liabilities are classified as non-current in the consolidated statements of financial position.

The tax effects of temporary differences and carryforwards that gave rise to year-end deferred federal, state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows:

						December 31
$ in millions						2023						2022
Deferred Tax Assets
Retiree benefits						$	115					$	117
Capitalized research and experimental expenditures						3,380						1,671
Accrued employee compensation						400						378
Provisions for accrued liabilities						509						65
Inventory						279						484
Stock-based compensation						35						37
Operating lease liabilities						575						556
Tax credits						557						464
Other						215						144
Gross deferred tax assets						6,065						3,916
Less: valuation allowance						(517)						(428)
Net deferred tax assets						5,548						3,488
Deferred Tax Liabilities
Goodwill						534						534
Purchased intangibles						83						98
Property, plant and equipment, net						805						854
Operating lease right-of-use assets						563						545
Contract accounting differences						2,437						1,348
Other						106						79
Deferred tax liabilities						4,528						3,458
Total net deferred tax assets						$	1,020					$	30

Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods. The company believes it is more-likely-than-not our net deferred tax assets will be realized.

At December 31, 2023, the company has available tax credits and unused net operating losses of $615 million and $358 million, respectively, that may be applied against future taxable income. The majority of tax credits and net operating losses expire in 2024 through 2046, however, some may be carried forward indefinitely. Due to the uncertainty of the realization of the tax credits and net operating losses, the company has recorded valuation allowances of $344 million and $46 million, respectively, as of December 31, 2023.

Undistributed Foreign Earnings

As of December 31, 2023, the company has accumulated undistributed earnings generated by our foreign subsidiaries and most have been taxed in the U.S. We intend to indefinitely reinvest these earnings, as well as future earnings from our foreign subsidiaries to fund our international operations. In addition, we expect future U.S. cash generation will be sufficient to meet future U.S. cash needs.

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8. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

Goodwill

Changes in the carrying amounts of goodwill for the years ended December 31, 2022 and 2023, were as follows:

$ in millions						Aeronautics Systems						Defense Systems						Mission Systems						Space Systems						Total
Balance as of December 31, 2021						$	3,467					$	3,412					$	5,881					$	4,755					$	17,515
Other (1)						—						1						—						—						1
Balance as of December 31, 2022						$	3,467					$	3,413					$	5,881					$	4,755					$	17,516
Other (1)						—						1						—						—						1
Balance as of December 31, 2023						$	3,467					$	3,414					$	5,881					$	4,755					$	17,517

(1)Other consists primarily of adjustments for foreign currency translation.

At December 31, 2023 and 2022, accumulated goodwill impairment losses totaled $417 million and $153 million at Aeronautics Systems and Space Systems, respectively.

Other Purchased Intangible Assets

Net customer-related and other intangible assets are as follows:

						December 31
$ in millions						2023						2022
Gross customer-related and other intangible assets						$	3,365					$	3,364
Less accumulated amortization						(3,060)						(2,980)
Net customer-related and other intangible assets						$	305					$	384

Amortization expense for 2023, 2022 and 2021, was $80 million, $197 million and $204 million, respectively. As of December 31, 2023, the expected future amortization of purchased intangibles for each of the next five years is as follows:

$ in millions
2024						$	57
2025						45
2026						42
2027						31
2028						31

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the financial assets and liabilities the company records at fair value on a recurring basis identified by the level of inputs used to determine fair value. See Note 1 for the definitions of these levels and for further information on our financial instruments.

						December 31, 2023																								December 31, 2022
$ in millions						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Financial Assets
Marketable securities						$	321					$	1					$	8					$	330					$	310					$	1					$	8					$	319
Marketable securities valued using NAV																								9																								13
Total marketable securities						321						1						8						339						310						1						8						332
Derivatives						—						5						—						5						—						7						—						7

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The notional value of the company’s foreign currency forward contracts at December 31, 2023 and 2022 was $286 million and $221 million, respectively. The portion of notional value designated as a cash flow hedge at December 31, 2023 and 2022 was $162 million and $87 million, respectively.

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

There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2023 and 2022.

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

10. DEBT

Commercial Paper

The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $2.5 billion. There were no commercial paper borrowings outstanding at December 31, 2023 and December 31, 2022, respectively.

Credit Facility

The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $2.5 billion (the “2022 Credit Agreement”) that matures in August 2027. The revolving credit facility established under the 2022 Credit Agreement is intended to support the company’s commercial paper program and other general corporate purposes. Commercial paper borrowings reduce the amount available for borrowing under the 2022 Credit Agreement. At December 31, 2023, there were no borrowings outstanding under this facility.

The 2022 Credit Agreement contains generally customary terms and conditions, including covenants restricting the company’s ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake other fundamental changes and incur liens. The company also cannot permit the ratio of its debt to capitalization (as set forth in the credit agreement) to exceed 65 percent. At December 31, 2023, the company was in compliance with all covenants under its credit agreement.

Unsecured Senior Notes

Issuance of Senior Notes In February 2023, the company issued $2.0 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases, and working capital, as follows:

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

• $1.0 billion of 4.95% senior notes due 2053 (the “2053 Notes”).

We refer to the 2033 Notes and the 2053 Notes, together, as the “notes.” Interest on the notes is payable semi-annually in arrears. The notes are generally subject to redemption, in whole or in part, at the company’s discretion at any time, or from time to time, prior to maturity at a redemption price equal to the greater of 100% of the principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest.

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

In March 2021, the company repaid $700 million of 3.50 percent unsecured notes upon maturity.

In March 2021, the company redeemed $1.5 billion of 2.55 percent unsecured notes due October 2022. The company recorded a pre-tax charge of $54 million principally related to the premium paid on the redemption, which was recorded in Other, net in the consolidated statements of earnings and comprehensive income.

Debt Exchange On September 2, 2021, the company completed an exchange offer to eligible holders of the outstanding notes of our direct wholly owned subsidiary, Northrop Grumman Systems Corporation (“NGSC”), maturing through 2036. An aggregate principal amount of $422 million of the NGSC notes was exchanged for $422 million of unregistered Northrop Grumman Corporation notes (the “Unregistered Notes”) with the same interest rates and maturity dates as the NGSC notes exchanged.

On June 15, 2022, the company completed a registered exchange offer pursuant to which the company exchanged an aggregate principal amount of $414 million of the Unregistered Notes for $414 million of new notes registered under the Securities Act of 1933, as amended, (the “Registered Notes”) with the same interest rates and maturity dates as the Unregistered Notes.

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Because the debt instruments were not substantially different in either of the exchange offers, both exchanges were treated as debt modifications for accounting purposes with no gain or loss recognized.

Long-term debt consists of the following:

$ in millions												December 31
2023						2022
Fixed-rate notes and debentures, maturing in						Interest rate
2023						3.25%						$	—					$	1,050
2025						2.93%						1,500						1,500
2026						7.75% - 7.88%						527						527
2027						3.20%						750						750
2028						3.25%						2,000						2,000
2030						4.40%						750						750
2031						7.75%						466						466
2033						4.70%						1,000						—
2040						5.05% - 5.15%						800						800
2043						4.75%						950						950
2045						3.85%						600						600
2047						4.03%						2,250						2,250
2050						5.25%						1,000						1,000
2053						4.95%						1,000						—
Other						Various						332						293
Debt issuance costs												(69)						(59)
Total long-term debt												13,856						12,877
Less: current portion(1)												70						1,072
Long-term debt, net of current portion												$	13,786					$	11,805

(1) The current portion of long-term debt is recorded in Other current liabilities in the consolidated statements of financial position.

The estimated fair value of long-term debt was $13.4 billion and $12.1 billion as of December 31, 2023 and 2022, respectively. We calculated the fair value of long-term debt using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements.

Indentures underlying long-term debt issued by the company or its subsidiaries contain various restrictions with respect to the issuer, including one or more restrictions relating to limitations on liens, sale-leaseback arrangements and funded debt of subsidiaries. The majority of these fixed rate notes and debentures are subject to redemption at the company’s discretion at any time prior to maturity in whole or in part at the principal amount plus any make-whole premium and accrued and unpaid interest. Interest on these fixed rate notes and debentures are payable semi-annually in arrears.

Total interest payments, net of interest received and capitalized, were $437 million, $474 million and $570 million for the years ended December 31, 2023, 2022 and 2021, respectively. The company capitalized interest expense of $95 million, $53 million and $17 million during the years ended December 31, 2023, 2022 and 2021, respectively.

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Maturities of long-term debt as of December 31, 2023, are as follows:

$ in millions
Year Ending December 31
2024			$	70
2025			1,582
2026			530
2027			754
2028			2,043
Thereafter			8,963
Total principal payments			13,942
Unamortized premium on long-term debt, net of discount			(17)
Debt issuance costs			(69)
Total long-term debt			$	13,856

11. INVESTIGATIONS, CLAIMS AND LITIGATION

For over 25 years, the company has worked closely with the United States Navy, the United States Environmental Protection Agency, the New York State Department of Environmental Conservation, the New York State Department of Health and other federal, state and local governmental authorities, to address environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. We have incurred, and expect to continue to incur, as included in Note 12, substantial remediation costs related to these Bethpage environmental conditions. It is also possible that applicable remediation standards and other requirements to which we are subject may continue to change, and that our costs may increase materially. In 2022, we resolved several disputes and regulatory proceedings concerning the scope and allocation of remediation responsibilities and costs related to this site. The company continues to be involved in related disputes, none of which are material individually or in the aggregate. We are also a party to various individual lawsuits and a putative class action in the Eastern District of New York alleging personal injury and property damage related to the legacy Bethpage environmental conditions. The court has stayed the filed individual lawsuits, pending its decision on class certification. We are also a party, and may become a party, to other lawsuits brought by or against insurance carriers, and by other individual plaintiffs and/or putative classes, as well as other parties. We cannot at this time predict or reasonably estimate the potential cumulative outcomes or ranges of possible liability of these Bethpage lawsuits.

The company received from the U.S. Department of Justice (DOJ) a criminal subpoena on December 9, 2022, and a civil investigative demand on February 2, 2023, both seeking information regarding financial and cost accounting and controls that appears focused on the interest rate assumptions the company used to determine our CAS pension expense, which we discuss in Note 12 below. The company is engaging with the government and responding to the requests. We cannot at this point predict the outcome of these matters.

The company is a party to various other investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s consolidated financial position as of December 31, 2023, or its annual results of operations and/or cash flows.

12. COMMITMENTS AND CONTINGENCIES

U.S. Government Cost Claims and Contingencies

From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available. The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its consolidated financial position as of December 31, 2023, or its annual results of operations and/or cash flows.

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In 2019, the Defense Contract Management Agency (DCMA) raised questions about an interest rate assumption used by the company to determine our CAS pension expense. On June 1, 2020, DCMA provided written notice that the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS. We submitted a formal response on July 31, 2020, which we believed demonstrates the appropriateness of the assumptions used. On November 24, 2020, DCMA replied to the company’s response, disagreeing with our position and requesting additional input, which we provided on February 22, 2021. We have continued to exchange correspondence and engage with DCMA on this matter, including responding to requests for and providing additional information. As noted in Note 11 above, the company received from the DOJ a criminal subpoena on December 9, 2022, and a CID on February 2, 2023, both seeking information that appears related to the interest rate assumptions at issue in our discussions with DCMA. The company is engaging with the government and responding to the requests. We cannot at this point predict the outcome of these matters. As previously described, the sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of the DCMA matter could have a material adverse effect on our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range of any potential loss.

Environmental Matters

The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of December 31, 2023 and 2022:

$ in millions						Accrued Costs(1)(2)						Reasonably Possible Future Costs in Excess of Accrued Costs(2)						Deferred Costs(3)
December 31, 2023						$	584					$	387					$	518
December 31, 2022						565						353						486

(1)As of December 31, 2023, $223 million is recorded in Other current liabilities and $361 million is recorded in Other non-current liabilities.

(2)Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.

(3)As of December 31, 2023, $206 million is deferred in Prepaid expenses and other current assets and $312 million is deferred in Other non-current assets. These amounts are evaluated for recoverability on a routine basis.

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

Financial Arrangements

In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At December 31, 2023, there were $411 million of stand-by letters of credit and guarantees and $263 million of surety bonds outstanding.

Indemnifications

The company has provided indemnifications for certain environmental, income tax and other potential liabilities in connection with certain of its divestitures. The settlement of these liabilities is not expected to have a material adverse effect on the company’s consolidated financial position as of December 31, 2023, or its annual results of operations and/or cash flows.

13. RETIREMENT BENEFITS

Plan Descriptions

U.S. Defined Benefit Pension Plans – The company sponsors several defined benefit pension plans in the U.S. Pension benefits for most participants are based on years of service, age and compensation. It is our policy to fund at

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least the minimum amount required for qualified plans, using actuarial cost methods and assumptions acceptable under U.S. government regulations, by making payments into benefit trusts separate from the company.

U.S. Defined Contribution Plans – The company also sponsors defined contribution plans covering the majority of its employees, including certain employees covered under collective bargaining agreements. Company contributions vary depending on date of hire, with a majority of employees being eligible for employer matching of employee contributions. Based on date of hire, certain employees are eligible to receive a company non-elective contribution or an enhanced matching contribution in lieu of a defined benefit pension plan benefit. The company’s contributions to these defined contribution plans for the years ended December 31, 2023, 2022 and 2021, were $634 million, $558 million and $588 million, respectively.

Non-U.S. Benefit Plans – The company sponsors several benefit plans for non-U.S. employees. These plans are designed to provide benefits appropriate to local practice and in accordance with local regulations. Some of these plans are funded using benefit trusts separate from the company.

Medical and Life Benefits – The company funds a portion of the costs for certain health care and life insurance benefits for a substantial number of its active and retired employees. In addition to a company and employee cost-sharing feature, the health plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, conformance to a schedule of reasonable fees, the use of managed care providers and coordination of benefits with other plans. The plans also provide for a Medicare carve-out. The company reserves the right to amend or terminate the plans at any time.

Certain covered employees and dependents are eligible to participate in plans upon retirement if they meet specified age and years of service requirements. The company provides subsidies to reimburse certain retirees for a portion of the cost of individual Medicare-supplemental coverage purchased directly by the retiree through a private insurance exchange. The company has capped the amount of its contributions for substantially all of its remaining postretirement medical and life benefit plans. In addition, after January 1, 2005 (or earlier at some businesses), newly hired employees are not eligible for subsidized postretirement medical and life benefits.

Summary Plan Results

The cost to the company of its retirement benefit plans is shown in the following table:

						Year Ended December 31
						Pension Benefits																		Medical and Life Benefits
$ in millions						2023						2022						2021						2023						2022						2021
Components of net periodic benefit cost (benefit)
Service cost						$	236					$	367					$	414					$	5					$	9					$	16
Interest cost						1,568						1,136						1,054						67						47						53
Expected return on plan assets						(2,098)						(2,641)						(2,512)						(85)						(110)						(105)
Amortization of prior service credit						—						—						(9)						(1)						(1)						(1)
Mark-to-market expense (benefit)						442						(1,262)						(1,921)						(20)						30						(434)
Other						—						—						(1)						—						—						—
Net periodic benefit cost (benefit)						$	148					$	(2,400)					$	(2,975)					$	(34)					$	(25)					$	(471)

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The table below summarizes the components of changes in unamortized prior service credit (cost) for the years ended December 31, 2021, 2022 and 2023:

$ in millions						Pension Benefits						Medical and Life Benefits						Total
Changes in unamortized prior service credit (cost)
Amortization of prior service credit (cost)						$	9					$	1					$	10
Tax expense						(2)						—						(2)
Change in unamortized prior service credit (cost) – 2021						7						1						8
Amortization of prior service credit (cost)						—						1						1
Tax expense						—						—						—
Change in unamortized prior service credit (cost) – 2022						—						1						1
Amortization of prior service credit (cost)						—						1						1
Tax expense						—						—						—
Change in unamortized prior service credit (cost) – 2023						$	—					$	1					$	1

The following table sets forth the funded status and amounts recognized in the consolidated statements of financial position for the company’s defined benefit retirement plans. Pension benefits data includes the qualified plans, foreign plans and U.S. unfunded non-qualified plans for benefits provided to directors, officers and certain employees. The company uses a December 31 measurement date for its plans.

						Pension Benefits												Medical and Life Benefits
$ in millions						2023						2022						2023						2022
Plan Assets
Fair value of plan assets at beginning of year						$	28,920					$	36,236					$	1,226					$	1,588
Net gain (loss) on plan assets						3,104						(5,422)						146						(257)
Employer contributions						105						101						34						35
Participant contributions						6						7						27						24
Benefits paid						(1,894)						(1,973)						(159)						(164)
Other						10						(29)						—						—
Fair value of plan assets at end of year						30,251						28,920						1,274						1,226
Projected Benefit Obligation
Projected benefit obligation at beginning of year						29,067						38,888						1,264						1,685
Service cost						236						367						5						9
Interest cost						1,568						1,136						67						47
Participant contributions						6						7						27						24
Actuarial loss (gain)						1,447						(9,325)						42						(337)
Benefits paid						(1,894)						(1,973)						(159)						(164)
Other						13						(33)						—						—
Projected benefit obligation at end of year						30,443						29,067						1,246						1,264
Funded status						$	(192)					$	(147)					$	28					$	(38)

The increase in the fair value of our plan assets for the year ended December 31, 2023 was principally driven by net plan asset returns of 11.1 percent, partially offset by $2.1 billion of benefit payments. The increase in our projected benefit obligation for the year ended December 31, 2023, was primarily driven by $1.6 billion of interest cost and a 39 basis point decrease in the discount rate from year end 2022, partially offset by $2.1 billion of benefit payments.

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						Pension Benefits												Medical and Life Benefits
$ in millions						2023						2022						2023						2022
Classification of amounts recognized in the consolidated statements of financial position
Non-current assets						$	1,042					$	982					$	289					$	240
Current liability						(178)						(177)						(27)						(42)
Non-current liability						(1,056)						(952)						(234)						(236)

The accumulated benefit obligation for all defined benefit pension plans was $30.1 billion and $28.8 billion at December 31, 2023 and 2022, respectively.

Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows:

						December 31
$ in millions						2023						2022
Projected benefit obligation						$	1,152					$	1,126
Accumulated benefit obligation						1,143						1,117
Fair value of plan assets						3						2

Plan Assumptions

On a weighted-average basis, the following assumptions were used to determine benefit obligations at December 31 of each year and net periodic benefit cost for the following year:

						Pension Benefits																		Medical and Life Benefits
						2023						2022						2021						2023						2022						2021
Discount rate						5.15		%				5.54		%				2.98		%				5.20		%				5.57		%				2.93		%
Expected long-term return on plan assets						7.50		%				7.50		%				7.50		%				7.12		%				7.23		%				7.19		%
Initial cash balance crediting rate assumed for the next year						4.02		%				3.96		%				2.25		%
Rate to which the cash balance crediting rate is assumed to increase/decrease (the ultimate rate)						4.02		%				3.88		%				2.25		%
Year that the cash balance crediting rate reaches the ultimate rate						2029						2028						2027
Rate of compensation increase						3.00		%				3.00		%				3.00		%
Initial health care cost trend rate assumed for the next year																								6.20		%				6.50		%				5.30		%
Rate to which the health care cost trend rate is assumed to decline (the ultimate trend rate)																								5.00		%				5.00		%				5.00		%
Year that the health care cost trend rate reaches the ultimate trend rate																								2028						2028						2023

Plan Assets and Investment Policy

Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. Liability studies are conducted on a regular basis to provide guidance in setting investment goals with an objective to balance risk. Risk targets are established and monitored against acceptable ranges.

Our investment policies and procedures are designed to ensure the plans’ investments are in compliance with ERISA. Guidelines are established defining permitted investments within each asset class. Derivatives are used for transitioning assets, asset class rebalancing, managing currency risk and for management of fixed-income and alternative investments.

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For the majority of the plans’ assets, the investment policies require that the asset allocation be maintained within the following ranges as of December 31, 2023:

						Asset Allocation Ranges
Cash and cash equivalents						0% - 12%
Global public equities						21% - 41%
Fixed-income securities						35% - 55%
Alternative investments						12% - 32%

The table below provides the fair values of the company’s pension and Voluntary Employees’ Beneficiary Association (VEBA) trust plan assets at December 31, 2023 and 2022, by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category. See Note 1 for the definitions of these levels. Certain investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient are not required to be categorized in the fair value hierarchy table. The total fair value of these investments is included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in the funded status table. As of December 31, 2023 and 2022, there were no investments expected to be sold at a value materially different than NAV.

						Level 1												Level 2												Level 3												Total
$ in millions						2023						2022						2023						2022						2023						2022						2023						2022
Asset category
Cash and cash equivalents						$	85					$	115					$	830					$	1,076																	$	915					$	1,191
U.S. equities						1,712						2,138						1						1																		1,713						2,139
International equities						1,506						1,784																														1,506						1,784
Fixed-income securities
U.S. Treasuries						—						22						3,890						2,977																		3,890						2,999
U.S. Government Agency																		124						145																		124						145
Non-U.S. Government																		176						172																		176						172
Corporate debt						74						28						4,432						4,717																		4,506						4,745
Asset backed																		436						353																		436						353
High yield debt						13						12						20						19																		33						31
Bank loans																		15						13																		15						13
Other assets						64												43						2						$	2					$	2					109						4
Investments valued using NAV as a practical expedient
U.S. equities																																										1,294						1,043
International equities																																										3,972						3,904
Fixed-income funds																																										4,057						2,569
Hedge funds																																										38						44
Opportunistic investments																																										3,176						2,983
Private equity funds																																										3,466						3,299
Real estate funds																																										2,123						2,753
Payables, net																																										(24)						(25)
Fair value of plan assets at the end of the year						$	3,454					$	4,099					$	9,967					$	9,475					$	2					$	2					$	31,525					$	30,146

There were no transfers of plan assets into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2023 and 2022.

Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers. Cash and cash equivalents are predominantly held in money market or short-term investment funds. U.S. and

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NORTHROP GRUMMAN CORPORATION

international equities consist primarily of common stocks and institutional common trust funds. Investments in certain equity securities, which include domestic and international securities and registered investment companies, and exchange-traded funds with fixed income strategies are valued at the last reported sales or quoted price on the last business day of the reporting period. Fair values for certain fixed-income securities, which are not exchange-traded, are valued using third-party pricing services.

Other assets include derivative assets with a fair value of $172 million and $71 million, derivative liabilities with a fair value of $101 million and $117 million, and net notional amounts of $4.9 billion and $3.2 billion, as of December 31, 2023 and 2022, respectively. Derivative instruments may include exchange traded futures contracts, interest rate swaps, options on futures and swaps, currency contracts, total return swaps and credit default swaps. Notional amounts do not quantify risk or represent assets or liabilities of the pension and VEBA trusts, but are used in the calculation of cash settlement under the contracts. The volume of derivative activity is commensurate with the amounts disclosed at year-end. Certain derivative financial instruments within the pension trust are subject to master netting agreements with certain counterparties.

Investments in certain equity and fixed-income funds, which include common/collective trust funds, and alternative investments, including hedge funds, opportunistic investments, private equity funds and real estate funds, are valued based on the NAV derived by the investment managers, as a practical expedient, and are described further below.

U.S. and International equities: Generally, redemption periods are daily, monthly or quarterly with a notice requirement less than 90 days. As of December 31, 2023 and 2022, there were no unfunded commitments.

Fixed-income funds: Generally, redemption periods are daily, monthly or quarterly with a notice requirement of two days. As of December 31, 2023 and 2022 there were no unfunded commitments.

Hedge funds: Consist of closed-end funds with a 5-10 year life as well as funds that allow redemption requests subject to the liquidity limitations of the underlying investments. As of December 31, 2023 and 2022, unfunded commitments were $6 million.

Opportunistic investments: Primarily held in partnerships with a 5-10 year life. As of December 31, 2023 and 2022, unfunded commitments were $1.6 billion and $1.5 billion, respectively.

Private equity funds: The term of each fund is typically 10 or more years and the fund’s investors do not have an option to redeem their interest in the fund. As of December 31, 2023 and 2022, unfunded commitments were $1.9 billion and $2.0 billion, respectively.

Real estate funds: Consist primarily of open-end funds that generally allow investors to redeem their interests in the funds. Certain closed-end real estate funds have terms of 10 or more years. As of December 31, 2023 and 2022, unfunded commitments were $28 million and $44 million, respectively.

For the years ended December 31, 2023 and 2022, the defined benefit pension and VEBA trusts did not hold any Northrop Grumman common stock.

Benefit Payments

The following table reflects estimated future benefit payments for the next ten years, based upon the same assumptions used to measure the benefit obligation, and includes expected future employee service, as of December 31, 2023:

$ in millions						Pension Plans						Medical and Life Plans						Total
Year Ending December 31
2024						$	2,012					$	134					$	2,146
2025						2,058						137						2,195
2026						2,095						131						2,226
2027						2,129						107						2,236
2028						2,151						103						2,254
2029 through 2033						10,820						455						11,275

In 2024, the company expects to contribute the required minimum funding of approximately $99 million to its pension plans and approximately $35 million to its medical and life benefit plans. During the year ended December 31, 2023, the company made no discretionary pension contributions.

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14. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS

Stock Compensation Plans

At December 31, 2023, the company had stock-based compensation awards outstanding under the following shareholder-approved plans: the 2011 Long-Term Incentive Stock Plan (2011 Plan), applicable to employees and non-employee directors, and the 1993 Stock Plan for Non-Employee Directors (1993 SPND).

Employee Plans – In May 2015, the company’s shareholders approved amendments to the 2011 Plan. These amendments provided that shares issued under the plan would be counted against the aggregate share limit on a one-for-one basis. As amended, 5.1 million shares plus 2.4 million of newly authorized shares were available for issuance under the 2011 Plan; as of December 31, 2023, 4.4 million shares remain available for issuance.

The 2011 Plan provides for the following equity awards: stock options, stock appreciation rights (SARs) and stock awards. Under the 2011 Plan, no SARs have been granted and there are no outstanding stock options. Stock awards include restricted performance stock rights (RPSR) and restricted stock rights (RSR). RPSRs generally vest and are paid following the completion of a three-year performance period, based primarily on achievement of certain performance metrics determined by the Board. RSRs generally vest 100% after three years. Each includes dividend equivalents, which are paid concurrently with the RPSR or RSR. The terms of equity awards granted under the 2011 Plan provide for accelerated vesting, and in some instances forfeiture, of all or a portion of an award upon termination of employment.

Non-Employee Director Plans – Awards to non-employee directors are made pursuant to the Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors under the 2011 Plan (the Director Program), which was amended and restated effective January 1, 2016. Under the amended Director Program, each non-employee director is awarded an annual equity grant in the form of Automatic Stock Units, which vest on the one-year anniversary of the grant date. Directors may elect to have all or any portion of their Automatic Stock Units paid on (A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from service as a member of the Board, or (B) on the vesting date.

Directors also may elect to defer to a later year all or a portion of their remaining cash retainer or committee retainer fees into a stock unit account as Elective Stock Units or in alternative investment options. Elective Stock Units are awarded on a quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the Board. Stock units awarded under the Director Program are paid out in an equivalent number of shares of Northrop Grumman common stock. Directors are credited with dividend equivalents in connection with the accumulated stock units until the shares of common stock relating to such stock units are issued.

Compensation Expense

Stock-based compensation expense for the years ended December 31, 2023, 2022 and 2021 was $87 million, $99 million and $94 million, respectively. The related tax benefits (deficiencies) for stock-based compensation for the years ended December 31, 2023, 2022 and 2021 were $9 million, $10 million and $(2) million, respectively.

At December 31, 2023, there was $96 million of unrecognized compensation expense related to unvested stock awards granted under the company’s stock-based compensation plans. These amounts are expected to be charged to expense over a weighted-average period of 1.3 years.

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NORTHROP GRUMMAN CORPORATION

Stock Awards

Stock award activity for the years ended December 31, 2021, 2022 and 2023, is presented in the table below. Vested awards do not include any adjustments to reflect the final performance measure for issued shares.

						Stock Awards (in thousands)						Weighted- Average Grant Date Fair Value Per Share						Weighted- Average Remaining Contractual Term (in years)
Outstanding at January 1, 2021						603						$	311					1.4
Granted						304						296
Vested						(269)						286
Forfeited						(58)						318
Outstanding at December 31, 2021						580						$	314					1.4
Granted						238						397
Vested						(226)						327
Forfeited						(31)						320
Outstanding at December 31, 2022						561						$	344					1.4
Granted						216						478
Vested						(249)						315
Forfeited						(29)						373
Outstanding at December 31, 2023						499						$	417					1.3

The majority of our stock awards are granted annually during the first quarter.

The grant date fair value of shares issued in settlement of fully vested stock awards was $99 million, $93 million and $103 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Cash Awards

The company grants certain employees cash units (CUs) and cash performance units (CPUs). Depending on actual performance against financial objectives, recipients of CPUs earn between 0 and 200 percent of the original grant. The following table presents the minimum and maximum aggregate payout amounts related to those cash awards granted for the periods presented:

						Year Ended December 31
$ in millions						2023			2022			2021
Minimum aggregate payout amount						$	34		$	32		$	31
Maximum aggregate payout amount						192			183			178

The majority of our cash awards are granted annually during the first quarter. CUs typically vest and settle in cash on the third anniversary of the grant date, while CPUs generally vest and pay out in cash based primarily on the achievement of certain performance metrics over a three-year period. At December 31, 2023, there was $116 million of unrecognized compensation expense related to cash awards.

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NORTHROP GRUMMAN CORPORATION

15. LEASES

Total Lease Cost

Total lease cost is included in Product and Service costs in the consolidated statement of earnings and comprehensive income and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:

						Year Ended December 31
$ in millions						2023						2022						2021
Operating lease cost						$	358					$	332					$	315
Variable lease cost						48						35						31
Short-term lease cost						69						51						80
Total lease cost						$	475					$	418					$	426

Supplemental Balance Sheet Information

Supplemental operating lease balance sheet information consists of the following:

						Year Ended December 31
$ in millions						2023						2022
Operating lease right-of-use assets						$	1,818					$	1,811
Other current liabilities						300						299
Operating lease liabilities						1,892						1,824
Total operating lease liabilities						$	2,192					$	2,123

Other Supplemental Information

Other supplemental operating lease information consists of the following:

						Year Ended December 31
$ in millions						2023						2022
Cash paid for amounts included in the measurement of operating lease liabilities						$	341					$	316
Right-of-use assets obtained in exchange for new lease liabilities						314						438
Weighted average remaining lease term						11.0 years						11.2 years
Weighted average discount rate						3.9		%				3.4		%

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Maturities of Lease Liabilities

Maturities of operating lease liabilities as of December 31, 2023 are as follows:

$ in millions
Year Ending December 31
2024						$	363
2025						354
2026						307
2027						252
2028						222
Thereafter						1,235
Total lease payments						2,733
Less: imputed interest						(541)
Present value of operating lease liabilities						$	2,192

As of December 31, 2023, we have approximately $270 million in rental commitments for real estate leases that have not yet commenced. These leases are expected to commence in 2024 and 2025 with lease terms of 5 to 20 years.

16. SEGMENT INFORMATION

The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.

The following table presents sales and operating income by segment:

						Year Ended December 31
$ in millions						2023						2022						2021
Sales
Aeronautics Systems						$	10,786					$	10,531					$	11,259
Defense Systems						5,862						5,579						5,776
Mission Systems						10,895						10,396						10,134
Space Systems						13,946						12,275						10,608
Intersegment eliminations						(2,199)						(2,179)						(2,110)
Total sales						39,290						36,602						35,667
Operating income
Aeronautics Systems						(473)						1,116						1,093
Defense Systems						710						664						696
Mission Systems						1,609						1,618						1,579
Space Systems						1,212						1,158						1,121
Intersegment eliminations						(298)						(303)						(272)
Total segment operating income						2,760						4,253						4,217
FAS/CAS operating adjustment						(82)						(200)						130
Unallocated corporate (expense) income						(141)						(452)						1,304
Total operating income						$	2,537					$	3,601					$	5,651
Other (expense) income
Interest expense						(545)						(506)						(556)
Non-operating FAS pension benefit						530						1,505						1,469
Mark-to-market pension and OPB (expense) benefit						(422)						1,232						2,355
Other, net						246						4						19
Earnings before income taxes						$	2,346					$	5,836					$	8,938

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FAS/CAS Operating Adjustment

For financial statement purposes, we account for our employee pension plans in accordance with FAS. However, the cost of these plans is charged to our contracts in accordance with applicable FAR and CAS requirements. The FAS/CAS operating adjustment reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income.

Unallocated Corporate (Expense) Income

Unallocated corporate (expense) income includes the portion of corporate costs not considered allowable or allocable under applicable FAR and CAS requirements, and therefore not allocated to the segments, such as changes in deferred state income taxes and a portion of management and administration, legal, environmental, compensation, retiree benefits, advertising and other corporate unallowable costs. Unallocated corporate (expense) income also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of PP&E acquired through business combinations, as well as certain compensation and other costs.

During the first quarter of 2021, the $2.0 billion pre-tax gain on the sale of our IT services business and $192 million of unallowable state taxes and transaction costs associated with the divestiture were recorded in Unallocated corporate (expense) income.

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NORTHROP GRUMMAN CORPORATION

Disaggregation of Revenue

Sales by Customer Type			Year Ended December 31
			2023									2022									2021
$ in millions			$			%****(3)						$			%(3)						$			%(3)
Aeronautics Systems
U.S. government(1)			$	9,132		85		%				$	8,930		85		%				$	9,631		85		%
International(2)			1,379			13		%				1,344			13		%				1,421			13		%
Other customers			35			—		%				18			—		%				18			—		%
Intersegment sales			240			2		%				239			2		%				189			2		%
Aeronautics Systems sales			10,786			100		%				10,531			100		%				11,259			100		%
Defense Systems
U.S. government(1)			3,497			60		%				3,344			61		%				3,595			62		%
International(2)			1,491			25		%				1,358			24		%				1,317			23		%
Other customers			76			1		%				71			1		%				75			1		%
Intersegment sales			798			14		%				806			14		%				789			14		%
Defense Systems sales			5,862			100		%				5,579			100		%				5,776			100		%
Mission Systems
U.S. government(1)			7,999			73		%				7,471			72		%				7,223			71		%
International(2)			1,757			16		%				1,809			17		%				1,846			18		%
Other customers			85			1		%				101			1		%				72			1		%
Intersegment sales			1,054			10		%				1,015			10		%				993			10		%
Mission Systems sales			10,895			100		%				10,396			100		%				10,134			100		%
Space Systems
U.S. government(1)			13,254			95		%				11,578			94		%				9,885			93		%
International(2)			278			2		%				337			3		%				398			4		%
Other customers			307			2		%				241			2		%				186			2		%
Intersegment sales			107			1		%				119			1		%				139			1		%
Space Systems sales			13,946			100		%				12,275			100		%				10,608			100		%
Total
U.S. government(1)			33,882			86		%				31,323			86		%				30,334			85		%
International(2)			4,905			13		%				4,848			13		%				4,982			14		%
Other customers			503			1		%				431			1		%				351			1		%
Total Sales			$	39,290		100		%				$	36,602		100		%				$	35,667		100		%

(1)Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.

(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.

(3) Percentages calculated based on total segment sales.

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NORTHROP GRUMMAN CORPORATION

Sales by Contract Type			Year Ended December 31
			2023									2022									2021
$ in millions			$			%****(1)						$			%(1)						$			%(1)
Aeronautics Systems
Cost-type			$	5,235		50		%				$	5,013		49		%				$	5,419		49		%
Fixed-price			5,311			50		%				5,279			51		%				5,651			51		%
Intersegment sales			240									239									189
Aeronautics Systems sales			10,786									10,531									11,259
Defense Systems
Cost-type			1,591			31		%				1,497			31		%				1,739			35		%
Fixed-price			3,473			69		%				3,276			69		%				3,248			65		%
Intersegment sales			798									806									789
Defense Systems sales			5,862									5,579									5,776
Mission Systems
Cost-type			4,116			42		%				3,622			39		%				3,139			34		%
Fixed-price			5,725			58		%				5,759			61		%				6,002			66		%
Intersegment sales			1,054									1,015									993
Mission Systems sales			10,895									10,396									10,134
Space Systems
Cost-type			10,037			73		%				8,579			71		%				7,731			74		%
Fixed-price			3,802			27		%				3,577			29		%				2,738			26		%
Intersegment sales			107									119									139
Space Systems sales			13,946									12,275									10,608
Total
Cost-type			20,979			53		%				18,711			51		%				18,028			51		%
Fixed-price			18,311			47		%				17,891			49		%				17,639			49		%
Total Sales			$	39,290								$	36,602								$	35,667

(1)Percentages calculated based on external customer sales.

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Sales by Geographic Region			Year Ended December 31
			2023									2022									2021
$ in millions			$			%****(2)						$			%(2)						$			%(2)
Aeronautics Systems
United States			$	9,167		87		%				$	8,948		87		%				$	9,649		87		%
Asia/Pacific			607			6		%				708			7		%				896			8		%
Europe			736			7		%				585			6		%				461			4		%
All other(1)			36			—		%				51			—		%				64			1		%
Intersegment sales			240									239									189
Aeronautics Systems sales			10,786									10,531									11,259
Defense Systems
United States			3,573			71		%				3,415			71		%				3,670			74		%
Asia/Pacific			419			8		%				454			10		%				465			9		%
Europe			601			12		%				477			10		%				314			6		%
All other(1)			471			9		%				427			9		%				538			11		%
Intersegment sales			798									806									789
Defense Systems sales			5,862									5,579									5,776
Mission Systems
United States			8,084			82		%				7,572			81		%				7,295			80		%
Asia/Pacific			460			5		%				531			6		%				518			6		%
Europe			959			10		%				977			10		%				1,004			10		%
All other(1)			338			3		%				301			3		%				324			4		%
Intersegment sales			1,054									1,015									993
Mission Systems sales			10,895									10,396									10,134
Space Systems
United States			13,561			98		%				11,819			97		%				10,071			96		%
Asia/Pacific			82			1		%				109			1		%				60			1		%
Europe			159			1		%				213			2		%				328			3		%
All other(1)			37			—		%				15			—		%				10			—		%
Intersegment sales			107									119									139
Space Systems sales			13,946									12,275									10,608
Total
United States			34,385			88		%				31,754			87		%				30,685			86		%
Asia/Pacific			1,568			4		%				1,802			5		%				1,939			5		%
Europe			2,455			6		%				2,252			6		%				2,107			6		%
All other(1)			882			2		%				794			2		%				936			3		%
Total Sales			$	39,290								$	36,602								$	35,667

(1)All other is principally comprised of the Middle East.

(2)Percentages calculated based on external customer sales.

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NORTHROP GRUMMAN CORPORATION

Intersegment Sales and Operating Income

Sales between segments are recorded at values that include intercompany operating income for the performing segment based on that segment’s estimated average operating margin rate for external sales. Such intercompany operating income is eliminated in consolidation, so that the company’s total sales and total operating income reflect only those transactions with external customers. See Note 1 for additional information.

The following table presents intersegment sales and operating income:

						Year Ended December 31
$ in millions						2023												2022												2021
						Sales			Operating Income									Sales			Operating Income									Sales			Operating Income
Intersegment sales and operating income
Aeronautics Systems						$	240					$	22					$	239					$	27					$	189					$	19
Defense Systems						798						97						806						95						789						89
Mission Systems						1,054						167						1,015						167						993						150
Space Systems						107						12						119						14						139						14
Total						$	2,199					$	298					$	2,179					$	303					$	2,110					$	272

Capital Expenditures and Depreciation and Amortization

The following table presents capital expenditures and depreciation and amortization by segment:

						Year Ended December 31
$ in millions						2023						2022						2021						2023						2022						2021
						Capital Expenditures																		Depreciation and Amortization
Aeronautics Systems						$	504					$	490					$	465					$	384					$	322					$	266
Defense Systems						111						110						133						107						101						91
Mission Systems						288						248						236						246						242						233
Space Systems						798						529						530						447						396						344
Corporate(1)						74						58						51						154						281						305
Total						$	1,775					$	1,435					$	1,415					$	1,338					$	1,342					$	1,239

(1)Corporate amounts include the amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of PP&E acquired through business combinations as they are not considered part of management’s evaluation of segment operating performance.

AssetsOur chief operating decision maker does not use assets by segment to evaluate segment performance or allocate resources. Therefore, we do not disclose assets by segment.

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NORTHROP GRUMMAN CORPORATION