Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Northrop Grumman Corporation

Falls Church, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of December 31, 2025 and 2024, 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, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, 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, 2025, 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 26, 2026 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

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

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit and risk committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Estimates of Revenue and Cost at Completion for Select Long-Term Contracts - Refer to Note 1 to the financial statements

Critical Audit Matter Description

As further described in Note 1 to the financial statements, the Company recognizes revenue as control is transferred to the customer, which for long-term contracts is generally over-time using the cost-to-cost method (cost incurred relative to total cost estimated at completion). Use of the cost-to-cost-method requires the Company to make reasonable estimates regarding the revenue and costs associated with the design, manufacture and delivery of their products or services. The Company estimates profit on these contracts as the difference between total estimated revenue and total estimated costs at completion and recognizes that profit as costs are incurred. If it is determined

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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. We analyzed the Company’s contract portfolio to identify contracts that we believe had elevated financial or performance risk. For those contracts identified, the evaluation of one or more of the assumptions used to recognize revenue required extensive audit effort due to the complexity of the contracts and a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

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

  • We tested the design and operating effectiveness of controls over the significant assumptions and judgments underlying the estimates of revenues and costs to completion associated with these long-term contracts.

  • Based on the risk characteristic identified on an individual contract, we evaluated certain revenue and cost assumptions by:

–Reading the underlying contract and any amendments or modifications to understand the contractual requirements and performance obligations.

–Assessing the timing of recognition of any incentive fees or award fees based on contract terms and relevant historical trends.

–Evaluating management’s ability to achieve the estimates of remaining revenue and costs by performing inquiries with the Company’s program and business management regarding their basis of estimates including work plans, engineering specifications, program labor and suppliers, challenges or opportunities related to the program, actual performance to date compared to plan, and any recent correspondence between the Company and the customer on changes, or expected changes, in scope or contractual terms.

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

–Testing the accuracy and completeness of the information used in developing estimates, as well as the mathematical accuracy of management’s calculation of revenue recognized during the period for the performance obligations.

/s/Deloitte & Touche LLP
McLean, Virginia
January 26, 2026
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 amounts202520242023
Sales
Product$33,741$32,726$30,897
Service8,2138,3078,393
Total sales41,95441,03339,290
Operating costs and expenses
Product27,28026,18826,226
Service6,3616,4836,513
General and administrative expenses4,0333,9924,014
Total operating costs and expenses37,67436,66336,753
Gain on sale of business231——
Operating income4,5114,3702,537
Other (expense) income
Interest expense(665)(621)(545)
Non-operating FAS pension benefit541656530
Mark-to-market pension and OPB benefit (expense)527443(422)
Other, net154168246
Earnings before income taxes5,0685,0162,346
Federal and foreign income tax expense886842290
Net earnings$4,182$4,174$2,056
Basic earnings per share$29.14$28.39$13.57
Weighted-average common shares outstanding, in millions143.5147.0151.5
Diluted earnings per share$29.08$28.34$13.53
Weighted-average diluted shares outstanding, in millions143.8147.3152.0
Net earnings (from above)$4,182$4,174$2,056
Other comprehensive income (loss), net of tax
Change in cumulative translation adjustment9(2)23
Change in other, net17(22)2
Other comprehensive income (loss), net of tax26(24)25
Comprehensive income$4,208$4,150$2,081

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 value20252024
Assets
Cash and cash equivalents$4,403$4,353
Accounts receivable, net1,3751,272
Unbilled receivables, net6,5445,908
Inventoried costs, net1,3091,455
Prepaid expenses and other current assets1,6561,286
Total current assets15,28714,274
Property, plant and equipment, net of accumulated depreciation of $9,648 for 2025 and $8,733 for 202410,97210,536
Operating lease right-of-use assets1,8591,770
Goodwill17,43717,512
Deferred tax assets1,0511,599
Pension and other postretirement benefit plan assets3,1672,184
Other non-current assets1,6041,484
Total assets$51,377$49,359
Liabilities
Trade accounts payable$3,240$2,599
Accrued employee compensation2,3092,271
Advance payments and billings in excess of costs incurred4,0864,070
Other current liabilities4,2475,188
Total current liabilities13,88214,128
Long-term debt, net of current portion of $534 for 2025 and $1,582 for 202415,16214,692
Pension and other postretirement benefit plan liabilities1,1101,120
Operating lease liabilities1,8571,798
Other non-current liabilities2,6922,331
Total liabilities34,70334,069
Commitments and contingencies (Note 11)
Shareholders’ equity
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding——
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2025—141,997,194 and 2024—144,952,026142145
Paid-in capital——
Retained earnings16,65815,297
Accumulated other comprehensive loss(126)(152)
Total shareholders’ equity16,67415,290
Total liabilities and shareholders’ equity$51,377$49,359

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 millions202520242023
Operating activities
Net earnings$4,182$4,174$2,056
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization1,4721,3701,338
Stock-based compensation11910187
Deferred income taxes548(582)(988)
B-21 loss provisions477—1,559
Gain on sale of business(231)——
Mark-to-market pension and OPB (benefit) expense(527)(443)422
Net periodic pension and OPB income(346)(438)(308)
Pension and OPB contributions(130)(129)(139)
Changes in assets and liabilities:
Accounts receivable, net(108)18254
Unbilled receivables, net(754)(215)247
Inventoried costs, net97(358)(220)
Prepaid expenses and other assets835(86)
Trade accounts payable646485(469)
Advance payments and billings in excess of costs incurred19(123)587
Other liabilities(212)(875)401
Income taxes payable, net(559)1,143(658)
Other operating activities5661(8)
Net cash provided by operating activities4,7574,3883,875
Investing activities
Capital expenditures(1,450)(1,767)(1,775)
Divestiture of training services business333——
Proceeds from sale of minority investments——197
Other investing activities(38)18(4)
Net cash used in investing activities(1,155)(1,749)(1,582)
Financing activities
Net proceeds from issuance of long-term debt9982,4951,995
Payments of long-term debt(1,500)—(1,050)
Common stock repurchases(1,624)(2,514)(1,500)
Cash dividends paid(1,293)(1,186)(1,116)
Payments of employee taxes withheld from share-based awards(39)(58)(52)
Other financing activities(94)(132)(38)
Net cash used in financing activities(3,552)(1,395)(1,761)
Increase in cash and cash equivalents501,244532
Cash and cash equivalents, beginning of year4,3533,1092,577
Cash and cash equivalents, end of period$4,403$4,353$3,109

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 amounts202520242023
Common stock
Beginning of year$145$150$153
Common stock repurchased(3)(5)(3)
End of year142145150
Paid-in capital
Beginning of year———
End of year———
Retained earnings
Beginning of year15,29714,77315,312
Common stock repurchased(1,610)(2,510)(1,519)
Net earnings4,1824,1742,056
Dividends declared(1,294)(1,185)(1,114)
Stock compensation834538
End of year16,65815,29714,773
Accumulated other comprehensive loss
Beginning of year(152)(128)(153)
Other comprehensive income (loss), net of tax26(24)25
End of year(126)(152)(128)
Total shareholders’ equity$16,674$15,290$14,795
Cash dividends declared per share$8.99$8.05$7.34

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 War and intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity.

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

Principles of Consolidation and Reporting

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

The financial statements are prepared in conformity with U.S. GAAP and in accordance with the rules of the SEC. The financial statements include adjustments of a normal recurring nature considered necessary by management for a fair presentation of the company’s consolidated financial position, results of operations and cash flows. For classification of certain current assets and liabilities, we consider the duration of our customer contracts when defining our operating cycle, which is generally longer than one year.

During the fourth quarter of 2025, we modified our presentation of the changes in liabilities in the operating cash flow section of the consolidated statement of cash flows by disaggregating Accounts payable and other liabilities into three separate line items: Accounts payable, Advance payments and billings in excess of costs incurred, and Other liabilities. Prior period amounts have been conformed to current period presentation. The modified presentation does not impact previously reported cash provided by operating activities.

Effective January 1, 2025, the company realigned the Strike and Surveillance Aircraft Solutions (SSAS) business unit from Defense Systems to Aeronautics Systems. This realignment is reflected in the financial information contained in this report.

On May 24, 2025 (the “Divestiture date”), the company completed its previously announced sale of substantially all of the Immersive Mission Solutions (IMS) operating unit of Defense Systems (the “training services” business or “divestiture”) for $333 million in cash and recorded a pre-tax gain on sale of $231 million. IMS is a provider of mission training and satellite ground network communications software for U.S. government customers. Operating results include sales and operating income for the training services business prior to the Divestiture date.

Accounting Estimates

Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.

Revenue Recognition

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

The company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the company provides multiple distinct goods or services

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

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

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

B-21 Program During the fourth quarter of 2023, we recognized a projected loss of $1.56 billion across the five LRIP options of the B-21 program. During the first quarter of 2025, we recognized an additional $477 million loss across the five LRIP options. As of December 31, 2025, the remaining loss accrual on the B-21 program totaled $1.3 billion, which is included in Other current liabilities.

Net EAC Adjustments

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

Year Ended December 31
$ in millions, except per share data202520242023
Revenue$534$396$298
Operating income20935084
Net earnings(1)16527766
Diluted earnings per share(1)1.151.880.43

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

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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 years ended December 31, 2025, 2024 and 2023, the company recorded the following significant EAC adjustments:

2025 – The company recorded unfavorable EAC adjustments of $226 million and $122 million on the first and second LRIP lots of the B-21 program at Aeronautics Systems. As previously disclosed, the $122 million adjustment was largely offset by a reduction in our loss contingency accrual on the remaining LRIP lots due to a contract restructure that occurred during the third quarter of 2025. The company also recorded a $76 million favorable EAC adjustment on the engineering and manufacturing development (EMD) phase of the Sentinel program at Defense System and a $68 million favorable EAC adjustment in the restricted advanced microelectronics portfolio at Mission Systems.

2024 – The company recorded a $39 million favorable EAC adjustment on the HALO program at Space Systems.

2023 – The company recorded a $143 million unfavorable EAC adjustment on the first LRIP lot of the B-21 program at Aeronautics Systems and $100 million of unfavorable EAC adjustments on the HALO program at Space Systems.

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, 2025 was $95.7 billion and reflects a $150 million reduction to backlog in connection with the training services divestiture during the second quarter of 2025. Of our December 31, 2025 backlog, we expect to recognize approximately 35 percent as revenue over the next 12 months and 60 percent as revenue over the next 24 months, with the remainder to be recognized thereafter.

Contract Assets and Liabilities

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

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

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

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Net contract assets are as follows:

$ in millionsDecember 31, 2025December 31, 2024$ Change% Change
Unbilled receivables, net$6,544$5,908$63611%
Advance payments and amounts in excess of costs incurred(4,086)(4,070)(16)—%
Net contract assets$2,458$1,838$62034%

Changes in the company’s contract assets and liabilities primarily result from timing differences between revenue recognition and customer billings and/or payments. Net contract assets as of December 31, 2025 increased 34 percent from the prior year, primarily due to increases in unbilled receivables driven by the timing of deliveries and achievement of billing milestones on certain programs at Defense Systems.

The amount of revenue recognized for the years ended December 31, 2025, 2024 and 2023 that was included in the contract liability balance at the beginning of each year was $3.3 billion, $3.6 billion and $3.1 billion, respectively.

Disaggregation of Revenue

See Note 15 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

General and Administrative Expenses

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

Research and Development

Company-sponsored research and development activities primarily include efforts related to government programs. Company-sponsored IR&D expenses totaled $1.1 billion, $1.1 billion and $1.2 billion in 2025, 2024 and 2023, respectively, which represented 2.6 percent, 2.7 percent and 3.0 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 expense within operating income.

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

Cash and Cash Equivalents

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

Fair Value of Financial Instruments

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

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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 including investments to partially fund non-qualified employee benefit plans as well as investments in companies that are advancing or developing technologies applicable to our business. 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 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 marketable 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 the hedged transaction is recognized in earnings. For derivative financial instruments not designated as hedging instruments, gains or losses resulting from changes in the fair value are reported in Other, net in the consolidated statements of earnings and comprehensive income.

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

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

Inventoried Costs

The company records inventoried costs at the lower of cost or net realizable value. Inventoried costs are categorized into raw materials, work in process, and finished goods. Raw materials are recognized using the average cost method and are generally included in contract cost when allocated to specific contracts. Work in process primarily consists of a) costs associated with specific anticipated contracts or costs incurred in excess of existing contract requirements, which are probable of recovery, and b) costs associated with unsatisfied performance obligations on contracts accounted for using point in time revenue recognition. Finished goods primarily consists of inventory maintained in support of sustainment contracts.

Inventoried costs include direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. G&A included in Inventoried costs, net was $89 million and $100 million as of December 31, 2025 and 2024, respectively. Inventoried costs are classified as current assets and include amounts related to contracts having production cycles longer than one year due to the long-cycle nature of our business.

Cash Surrender Value of Life Insurance Policies

The company maintains whole life and split-dollar life insurance policies primarily on former officers and executives. Whole life insurance policies are recorded at their cash surrender value as determined by the insurance carrier, and split-dollar life insurance policies are recorded at the lesser of their cash surrender value or premiums paid. These policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. As of December 31, 2025 and 2024, the carrying values associated with these policies were $447 million and $416 million, respectively, and are recorded in Other non-current assets in the consolidated statements of financial position.

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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. Substantially all of the company’s long-lived assets are located in the U.S.

Major classes of PP&E and their useful lives are as follows:

December 31
Useful life in years, $ in millionsUseful Life20252024
Land and land improvementsUp to 40(1)$792$782
Buildings and improvementsUp to 454,2784,031
Machinery and other equipmentUp to 3010,93110,389
Capitalized software costs3-71,068779
Leasehold improvementsLease Term(2)3,5513,288
Property, plant and equipment, at cost20,62019,269
Accumulated depreciation(9,648)(8,733)
Property, plant and equipment, net$10,972$10,536

(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 year ended December 31, 2023, the company received lease incentives for landlord funded leasehold improvements of $55 million related to Space Systems real estate leases, which were recorded in PP&E and included in non-cash investing activities.

Non-cash investing activities also include capital expenditures incurred but not yet paid of $280 million, $242 million and $75 million as of December 31, 2025, 2024 and 2023, respectively.

Sale of Minority Investment

In July 2023, the company sold its minority investment in an Australian business for AUD $235 million (the equivalent of $157 million upon settlement). The sale resulted in a pre-tax gain of $97 million, which is reflected in Other, net on the consolidated statements of earnings and comprehensive income for the year ended December 31, 2023. Proceeds from the sale are included in investing activities on the consolidated statement of cash flows for the year ended December 31, 2023.

Goodwill and Other Purchased Intangible Assets

Goodwill and other purchased intangible asset balances are included in the identifiable assets of their assigned business segment. Goodwill is presented on a separate line in the consolidated statements of financial position; other purchased intangible assets are included in Other non-current assets. 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

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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 incentives are determined to be leasehold improvements owned by the company, we generally record the incentives as a reduction to the right-of-use asset, which reduces rent expense over the lease term. For rent holidays and rent escalation clauses during the lease term, the company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation for intended use.

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

Litigation, Commitments and Contingencies

We accrue for litigation, commitments and contingencies when management, after considering the facts and circumstances of each matter known to management, has determined it is probable the company will incur a liability and the amount of the loss is reasonably estimable. 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 accrued. 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, after considering the facts and circumstances of each matter known to management, has determined 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, the low end of the range is accrued. The company typically projects environmental costs for up to 30 years, records environmental liabilities on an undiscounted basis, and excludes asset retirement obligations and certain legal costs. At sites involving multiple parties, we accrue environmental liabilities based upon our expected share of liability, considering the financial viability of other liable parties. For the portion of environmental liabilities the company expects to be recoverable through overhead charges on U.S. government contracts, the company records a deferred asset until amounts are charged to contracts.

Retirement Benefits

The company sponsors various defined benefit pension plans and defined contribution retirement plans covering substantially all employees. In most cases, our defined contribution plans provide for a company match of employee contributions. The company also provides postretirement benefits other than pensions to eligible retirees and qualifying dependents, consisting principally of health care and life insurance benefits. The liabilities, unamortized prior service credits and annual income or expense of the company’s defined benefit pension and OPB plans are determined using methodologies that involve several actuarial assumptions.

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

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Actuarial gains and losses are immediately recognized in net periodic benefit cost for FAS through MTM benefit (expense) upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. In general, 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. 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. 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 market-based awards, the expense is generally based on the fair value as of the grant date with no adjustments for the number of shares ultimately expected to vest. 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 millions20252024
Cumulative translation adjustment$(131)$(140)
Other, net5(12)
Total accumulated other comprehensive loss$(126)$(152)

Related Party Transactions

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

Accounting Standards Updates

On December 14, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. We adopted the standard and applied the disclosure requirements on a prospective basis effective for the year ended December 31, 2025. Adoption of ASU 2023-09 did not have an impact on the company’s consolidated financial position, results of operations or cash flows.

On November 4, 2024, the FASB issued ASU No. 2024-03 Disaggregation of Income Statement Expenses (Subtopic 220-40). ASU 2024-03 requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 will be effective for annual periods beginning January 1, 2027 and interim periods beginning January 1, 2028 and will be applied on a prospective basis with the option to apply the standard retrospectively. We are evaluating the disclosure impact of ASU 2024-03; however, the standard will not have an impact on the company’s consolidated financial position, results of operations or cash flows.

On September 18, 2025, the FASB issued ASU No. 2025-06 Targeted Improvements to the Accounting for Internal-Use Software (Subtopic 350-40). ASU 2025-06 removes references to prescriptive and sequential software development stages, requiring companies to capitalize internal-use software costs when management commits to funding the software project and it is probable the project will be completed. ASU 2025-06 will be effective for annual and interim periods beginning January 1, 2028, and can be applied on a prospective, modified prospective, or retrospective basis. We are currently evaluating the potential impact of ASU 2025-06 on the company’s consolidated financial position, results of operations and cash flows.

On December 8, 2025, the FASB issued ASU No. 2025-11 Interim Reporting (Topic 270): Narrow-Scope Improvements. ASU 2025-11 clarifies the applicability of Topic 270 and the form and content of interim financial statements. In addition, ASU 2025-11 requires entities to disclose material events occurring since the last annual reporting period. ASU 2025-11 will be effective for interim periods beginning January 1, 2028, and can be applied

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on a prospective or retrospective basis. We are evaluating the disclosure impact of ASU 2025-11; however, the standard will not have an impact on the company’s consolidated financial position, results of operations or cash flows.

Other accounting standards updates adopted and/or issued, but not effective until after December 31, 2025, are not expected to have a material effect on the company’s consolidated financial position, results of operations and/or cash flows.

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

Basic Earnings Per Share

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

Diluted Earnings Per Share

Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 0.3 million, 0.3 million and 0.5 million shares for the years ended December 31, 2025, 2024 and 2023, respectively.

Share Repurchases

Share Repurchase Programs

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

On January 24, 2022, the company’s board of directors authorized a new share repurchase program of up to an additional $2.0 billion in share repurchases of the company’s common stock (the “2022 Repurchase Program”). Repurchases under the 2022 Repurchase Program commenced in April 2023 and were completed in February 2024.

On December 6, 2023, the company’s board of directors authorized a new share repurchase program of up to an additional $2.5 billion in share repurchases of the company’s common stock (the “2023 Repurchase Program”). Repurchases under the 2023 Repurchase Program commenced in February 2024 and were completed in September 2025.

On December 11, 2024, the company’s board of directors authorized a new share repurchase program of up to an additional $3.0 billion in share repurchases of the company’s common stock (the “2024 Repurchase Program”). Repurchases under the 2024 Repurchase Program commenced in September 2025 upon completion of the 2023 Repurchase Program. As of December 31, 2025, repurchases under the 2024 Repurchase Program totaled $0.5 billion; $2.5 billion remained under this share repurchase authorization. By its terms, the 2024 Repurchase Program will expire when we have used all authorized funds for repurchases.

Accelerated Share Repurchase Agreements

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

During the first quarter of 2024, the company entered into an ASR agreement with Morgan Stanley & Co. LLC (Morgan Stanley) to repurchase $1.0 billion of the company’s common stock as part of the 2022 Repurchase Program. Under the agreement, we made a payment of $1.0 billion to Morgan Stanley and received an initial delivery of 1.8 million shares valued at $800 million that were immediately canceled by the company. The remaining balance of $200 million was settled on May 1, 2024 with a final delivery of 0.4 million shares from Morgan Stanley. The final average purchase price was $455.73 per share.

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

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

Repurchase Program Authorization DateAmount Authorized (in millions)Total Shares Retired (in millions)Average Price Per Share(1)Date CompletedShares Repurchased (in millions)
Year Ended December 31
202520242023
January 25, 2021$3,0007.0$431.05April 2023——1.4
January 24, 2022(2)$2,0004.4$455.01February 2024—2.51.9
December 6, 2023$2,5005.2$482.41September 20252.32.9—
December 11, 2024$3,0000.8$575.310.8——
3.15.43.3

(1)Beginning with the 2022 Repurchase Program, the board of directors has approved that the purchases and authorizations under our repurchase programs be exclusive of brokerage commissions and other costs of execution, including taxes. Commissions paid are included for the 2021 Repurchase Program.

(2)The 2022 Repurchase Program completed in February 2024; however, it included the $1.0 billion ASR for which the final delivery of shares was outstanding at the end of the first quarter of 2024. On May 1, 2024, the company received a final delivery of 0.4 million shares for that ASR, which are included in the 2022 Repurchase Program authorization.

Dividends on Common Stock

In May 2025, the company increased the quarterly common stock dividend 12 percent to $2.31 per share from the previous amount of $2.06 per share.

In May 2024, the company increased the quarterly common stock dividend 10 percent to $2.06 per share from the previous amount of $1.87 per share.

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

3. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net represent amounts billed and due from customers. Substantially all accounts receivable at December 31, 2025 are expected to be collected in 2026. 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 millions20252024
Due from U.S. government (1)$1,018$951
Due from international and other customers362326
Accounts receivable, gross1,3801,277
Allowance for expected credit losses(5)(5)
Accounts receivable, net$1,375$1,272

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

4. UNBILLED RECEIVABLES, NET

Unbilled receivables, net represent revenue recognized under the cost-to-cost method that exceeds amounts billed to customers. A large majority of the company’s unbilled receivables at December 31, 2025 are expected to be billed and collected in 2026. Progress and performance-based payments are reflected as an offset to the related unbilled receivable balances.

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Unbilled receivables, net consisted of the following:

December 31
$ in millions20252024
Due from U.S. government (1)
Unbilled receivables$23,730$22,871
Progress and performance-based payments received(17,674)(17,300)
Total due from U.S. government6,0565,571
Due from international and other customers
Unbilled receivables1,0541,108
Progress and performance-based payments received(557)(757)
Total due from international and other customers497351
Unbilled receivables, net of progress and performance-based payments received6,5535,922
Allowance for expected credit losses(9)(14)
Unbilled receivables, net$6,544$5,908

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

5. INVENTORIED COSTS, NET

Inventoried costs, net are principally associated with contracts where the U.S. government is the primary customer, therefore the company does not believe it has significant exposure to recoverability risk related to these amounts. Inventoried costs associated with our commercial businesses, while less significant in total, are subject to a greater level of recoverability risk.

Inventoried costs, net consisted of the following:

December 31
$ in millions20252024
Raw materials$306$293
Work in process9451,118
Finished goods5844
Inventoried costs, net$1,309$1,455

Inventoried costs, net decreased $146 million, or 10 percent, largely due to the liquidation of costs, which were previously incurred and inventoried for specific anticipated contracts, upon receipt of those contract awards.

6. INCOME TAXES

In July 2025, the One Big Beautiful Bill Act (OBBBA) was enacted. Key income tax-related provisions of the OBBBA include the repeal of mandatory capitalization of research and development expenditures under Internal Revenue Code (IRC) Section 174 (reinstating full expensing beginning in 2025), extension of bonus depreciation, and revisions to international tax regimes. The company recognized the income tax effects of the OBBBA in its 2025 financial statements, including an increase of $319 million to taxes receivable and a decrease of $387 million to deferred tax assets as of December 31, 2025. As part of enactment of the OBBBA, the company became subject to the corporate alternative minimum tax (CAMT) and recorded CAMT credit carryforwards of $187 million during 2025. These CAMT credit carryforwards do not expire and may be used to offset future regular U.S. federal income tax liabilities. Given the company’s future taxable income projections, CAMT did not impact the company’s quarterly or annual effective tax rates during 2025.

As described in Note 1, effective for the year ended December 31, 2025, we adopted ASU 2023-09 and applied the disclosure requirements on a prospective basis. In accordance with prospective application, we did not recast prior period disclosures.

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Federal and Foreign Income Tax ExpenseFederal and foreign income tax expense consisted of the following:

Year Ended December 31
$ in millions202520242023
Federal income tax expense:
Current$298$628$949
Deferred555204(670)
Total federal income tax expense853832279
Foreign income tax expense:
Current221315
Deferred11(3)(4)
Total foreign income tax expense331011
Total federal and foreign income taxes$886$842$290

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

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

$ in millionsYear Ended December 31, 2025
U.S. federal statutory tax rate$1,06421.0%
Foreign tax effects150.3
Enactment of new tax laws——
Effect of cross-border tax laws:
Foreign derived intangible income, net of reserve(49)(1.0)
Other1—
Tax credits:
Research and development, net of reserve(242)(4.7)
Other(2)—
Changes in valuation allowances——
Nontaxable or nondeductible items110.2
Changes in unrecognized tax benefits:
Net interest expense691.4
Other170.3
Other adjustments2—
Total federal and foreign income taxes$88617.5%
Year ended December 31
$ in millions20242023
Income tax expense at statutory rate$1,05321.0%$49321.0%
Research credit(361)(7.2)(210)(8.9)
Foreign derived intangible income130.3(63)(2.7)
Net interest expense1452.9692.9
Other, net(8)(0.2)10.1
Total federal and foreign income taxes$84216.8%$29012.4%

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2025 income tax expense increased $44 million, or 5 percent, due to a higher ETR and higher earnings before income taxes. The 2025 ETR increased to 17.5 percent from 16.8 percent in 2024 primarily due to a net reduction in tax reserves in the prior year, lower research credits principally due to enactment of the OBBBA, and additional income tax expense related to nondeductible goodwill in the divested training services business. These increases were partially offset by lower interest expense on unrecognized tax benefits. The MTM benefit in both 2025 and 2024 increased each respective year’s ETR by 0.4 percentage points.

2024 income tax expense increased $552 million, or 190 percent, due to higher earnings before income taxes and a higher ETR. The 2024 ETR increased to 16.8 percent from 12.4 percent in 2023 primarily due to the impact of the prior year B-21 loss provision and the MTM adjustment on our ETR. The 2024 MTM benefit increased the 2024 ETR by 0.4 percentage points, whereas the prior year B-21 loss provision and MTM expense collectively reduced the 2023 ETR by 3.8 percentage points. The 2024 ETR also reflects a net reduction in tax reserves largely due to a federal court decision in 2024, partially offset by higher interest expense on unrecognized tax benefits.

Net interest expense within the company’s federal, foreign and state income tax provisions was $106 million, $164 million and $62 million for the years ended December 31, 2025, 2024, and 2023, respectively.

The Organization for Economic Co-operation and Development issued Pillar Two model rules for a global minimum tax of 15% effective January 1, 2024. Pillar Two had no impact on our 2025 or 2024 ETR, and we do not currently expect Pillar Two to significantly impact our ETR going forward.

Income Taxes PaidIncome taxes paid, net of refunds received, consisted of the following:

$ in millionsYear Ended December 31, 2025
Federal$412
State and local
California151
Other150
Foreign18
Income taxes paid, net of refunds received$731

Income tax payments, net of refunds received, were $880 million and $1.2 billion for the years ended December 31, 2024 and 2023, respectively.

Taxes receivable, which are included in Prepaid expenses and other current assets in the consolidated statements of financial position, were $924 million and $517 million as of December 31, 2025 and 2024, respectively.

Uncertain Tax Positions

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. During the fourth quarter of 2024, the company entered into an agreed Revenue Agent’s Report (“RAR”) for certain matters related to the company’s 2018-2020 federal income tax returns, largely related to our methods of accounting associated with the timing of revenue recognition and related costs under IRC Section 451(b), resulting in a $766 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the agreed RAR related to the company’s 2018-2020 federal tax returns are currently under Internal Revenue Service (IRS) examination.

During the second quarter of 2023, the company entered into an agreed RAR for certain matters related to the company’s 2014-2017 federal income tax returns, resulting in a $90 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the agreed RAR related to the company’s 2014-2017 federal income tax returns and refund claims related to its 2007-2016 federal tax returns are currently under review by the IRS Appeals Office.

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

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

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impacts are not expected to have a material impact on our financial results. Amounts currently subject to examination related to foreign jurisdictions are not material.

The company’s unrecognized tax benefits, excluding accrued interest and penalties of $514 million, $373 million and $305 million as of December 31, 2025, 2024 and 2023, respectively, are presented below:

December 31
$ in millions202520242023
Unrecognized tax benefits at beginning of the year$1,447$1,994$1,663
Additions based on tax positions related to the current year133236276
Additions for tax positions of prior years12590254
Reductions for tax positions of prior years(15)(106)(9)
Settlements with taxing authorities(2)(766)(189)
Decreases from lapse in statutes of limitations(48)(1)(1)
Net change in unrecognized tax benefits193(547)331
Unrecognized tax benefits at end of the year$1,640$1,447$1,994

The 2025 increase in unrecognized tax benefits was primarily related to additional reserves on current year tax positions related to research credits and state apportionment.

If the income tax benefits from these tax positions are ultimately realized, $1.0 billion of federal and foreign tax benefits (and related interest and penalties) would reduce the company’s ETR.

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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 millions20252024
Deferred Tax Assets
Capitalized research and experimental expenditures$3,473$4,816
Accrued employee compensation378386
Provisions for accrued liabilities488468
Inventory1136
Stock-based compensation4537
Operating lease liabilities569557
Tax credits829562
Other301241
Gross deferred tax assets6,0947,103
Less: valuation allowance(582)(526)
Net deferred tax assets5,5126,577
Deferred Tax Liabilities
Retiree benefits409153
Goodwill535534
Purchased intangibles5869
Property, plant and equipment, net983827
Operating lease right-of-use assets582554
Contract accounting differences1,7602,714
Other134127
Deferred tax liabilities4,4614,978
Total net deferred tax assets$1,051$1,599

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, 2025, in addition to the $187 million of CAMT credits noted above, the company has available tax credits and unused net operating losses of $717 million and $584 million, respectively, that may be applied against future taxable income. The majority of tax credits expire between 2026 and 2047, while some may be carried forward indefinitely. Most net operating losses may also 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 $358 million and $62 million, respectively, as of December 31, 2025.

Undistributed Foreign Earnings

As of December 31, 2025, 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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7. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

Goodwill

Changes in the carrying amounts of goodwill for the years ended December 31, 2024 and 2025, were as follows:

$ in millionsAeronautics SystemsDefense SystemsMission SystemsSpace SystemsTotal
Balance as of December 31, 2023$3,974$3,722$5,881$3,940$17,517
Other (1)—(5)——(5)
Balance as of December 31, 2024$3,974$3,717$5,881$3,940$17,512
Divestiture of training services business—(80)——(80)
Other (1)—5——5
Balance as of December 31, 2025$3,974$3,642$5,881$3,940$17,437

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

At December 31, 2025 and 2024, accumulated goodwill impairment losses totaled $417 million at Aeronautics Systems, $121 million at Space Systems, and $32 million at Defense Systems.

Other Purchased Intangible Assets

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

December 31
$ in millions20252024
Gross customer-related and other intangible assets$3,372$3,371
Less accumulated amortization(3,164)(3,117)
Net customer-related and other intangible assets$208$254

Amortization expense for 2025, 2024 and 2023, was $45 million, $57 million and $80 million, respectively. As of December 31, 2025, the expected future amortization of purchased intangibles for each of the next five years is as follows:

$ in millions
2026$42
202731
202831
202931
203031

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

December 31, 2025December 31, 2024
$ in millionsLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Financial Assets
Marketable securities$454$—$24$478$325$—$14$339
Marketable securities valued using NAV58
Total marketable securities454—24483325—14347
Derivatives—2—2—(11)—(11)

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During the third quarter of 2025, the company transferred $50 million of securities from Level 3 to Level 1 in connection with the initial public offering (“IPO”) of a company in which we hold an investment. As of December 31, 2025, the company’s investment was valued at $68 million. The company is prohibited from selling this investment until the first quarter of 2026. There were no other transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2025 and 2024.

Unrealized gains and losses from marketable securities, which are reflected in Other, net on the consolidated statement of earnings and comprehensive income, were $45 million for the year ended December 31, 2025. Unrealized gains and losses from marketable securities were not material for the years ended December 31, 2024 and 2023.

The notional value of the company’s foreign currency forward contracts at December 31, 2025 and 2024 was $308 million and $399 million, respectively. The portion of notional value designated as a cash flow hedge at December 31, 2025 and 2024 was $167 million and $273 million, respectively.

The derivative fair values and related unrealized gains/losses at December 31, 2025 and 2024 were not material.

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

9. DEBT

Commercial Paper

The company maintains a commercial paper program that serves as a source of short-term financing. In September 2025, the company amended its commercial paper program to increase its capacity to issue unsecured commercial paper notes from $2.5 billion to $3.0 billion. There were no commercial paper borrowings outstanding at December 31, 2025 and December 31, 2024, respectively.

Credit Facility

In September 2025, the company entered into a new five-year senior unsecured revolving credit facility in an aggregate principal amount of $3.0 billion (the “2025 Credit Agreement”). The 2025 Credit Agreement replaced the company’s prior five-year, $2.5 billion revolving credit facility entered into in August 2022. The revolving credit facility established under the 2025 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 2025 Credit Agreement. At December 31, 2025, there were no borrowings outstanding under this facility.

The 2025 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, 2025, the company was in compliance with all covenants under its credit agreement.

Unsecured Senior Notes

Issuance of Senior Notes In May 2025, the company issued $1.0 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases, and working capital, as follows:

  • $500 million of 4.65% senior notes due 2030 (the “2030 Notes”) and

  • $500 million of 5.25% senior notes due 2035 (the “2035 Notes”).

In January 2024, the company issued $2.5 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases, and working capital, as follows:

  • $500 million of 4.60% senior notes due 2029 (the “2029 Notes”),

  • $850 million of 4.90% senior notes due 2034 (the “2034 Notes”), and

  • $1.15 billion of 5.20% senior notes due 2054 (the “2054 Notes”).

We refer to the 2029 Notes, 2030 Notes, 2034 Notes, 2035 Notes, and 2054 Notes, together, as the “notes.” Interest on the notes is payable semi-annually in arrears. The notes are generally subject to redemption, in whole or in part, at the company’s discretion at any time, or from time to time, prior to maturity at a redemption price equal to the greater of 100% of the principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest.

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Repayments of Senior Notes In January 2025, the company repaid $1.5 billion of 2.93 percent unsecured senior notes upon maturity.

Long-term debt consists of the following:

$ in millionsDecember 31
20252024
Fixed-rate notes and debentures, maturing inInterest rate
20252.93%$—$1,500
20267.75% - 7.88%527527
20273.20%750750
20283.25%2,0002,000
20294.60%500500
20304.40% - 4.65%1,250750
20317.75%466466
20334.70%1,0001,000
20344.90%850850
20355.25%500—
20405.05% - 5.15%800800
20434.75%950950
20453.85%600600
20474.03%2,2502,250
20505.25%1,0001,000
20534.95%1,0001,000
20545.20%1,1501,150
OtherVarious184264
Debt issuance costs(81)(83)
Total long-term debt15,69616,274
Less: current portion(1)5341,582
Long-term debt, net of current portion$15,162$14,692

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

The estimated fair value of long-term debt was $15.1 billion and $15.3 billion as of December 31, 2025 and 2024, 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 $588 million, $475 million and $437 million for the years ended December 31, 2025, 2024 and 2023, respectively. The company capitalized interest expense of $100 million, $113 million and $95 million during the years ended December 31, 2025, 2024 and 2023, respectively.

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Maturities of long-term debt as of December 31, 2025, are as follows:

$ in millions
Year Ending December 31
2026$534
2027755
20282,044
2029592
20301,252
Thereafter10,621
Total principal payments15,798
Unamortized premium on long-term debt, net of discount(21)
Debt issuance costs(81)
Total long-term debt$15,696

10. INVESTIGATIONS, CLAIMS AND LITIGATION

For over 25 years, the company has worked closely with the United States Navy, the United States Environmental Protection Agency, the New York State Department of Environmental Conservation, the New York State Department of Health and other federal, state and local governmental authorities, to address environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. We have incurred, and expect to continue to incur, as included in Note 11, substantial remediation costs related to these Bethpage environmental conditions, including potential costs relating to unanticipated developments such as new discoveries of potential contaminants. It is also possible that applicable remediation standards and other requirements to which we are subject may continue to change, and that our costs may increase materially. In 2022, we resolved several disputes and regulatory proceedings concerning the scope and allocation of remediation responsibilities and costs related to this site and we continue remediation consistent with agreements through which those disputes were resolved. The company continues to be involved in other remediation-related disputes, none of which are material individually or in the aggregate. We are also a party to various individual lawsuits and a putative class action in the Eastern District of New York alleging personal injury and property damage related to the legacy Bethpage environmental conditions (the “Bethpage EDNY cases”). The court has stayed the filed individual lawsuits, pending its decision on class certification. Although the court has ordered supplemental briefing on pending class certification and expert motions in the putative class action, the parties remain engaged in a mediation. We are also a party, and may become a party, to other lawsuits brought by or against insurance carriers, and by other individual plaintiffs and/or putative classes, as well as other parties. We cannot at this time predict or reasonably estimate the potential outcomes or ranges of possible liability of the Bethpage EDNY cases.

The company received from the U.S. Department of Justice (DOJ) a criminal subpoena on December 9, 2022, and a civil investigative demand (CID) on February 2, 2023, both seeking information regarding financial and cost accounting and controls focused on the interest rate assumptions the company used to determine our U.S. Government Cost Accounting Standards (CAS) pension expense, which we discuss in Note 11 below. The company has responded to requests and expects to continue to engage with the government as these matters progress. 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, 2025, or its annual results of operations and/or cash flows.

11. COMMITMENTS AND CONTINGENCIES

U.S. Government Cost Claims and Contingencies

From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government

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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, 2025, or its annual results of operations and/or cash flows.

In 2019, the Defense Contract Management Agency (DCMA) raised questions about an interest rate assumption used by the company to determine our CAS pension expense. On June 1, 2020, DCMA provided written notice that the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS. We submitted a formal response on July 31, 2020, which we believed demonstrates the appropriateness of the assumptions used. On November 24, 2020, DCMA replied to the company’s response, disagreeing with our position and requesting additional input, which we provided on February 22, 2021. We subsequently continued to exchange correspondence and engage with DCMA on this matter, including responding to requests for and providing additional information. On February 15, 2024, DCMA sent to the company a Contracting Officer’s determination of noncompliance with CAS, which is an interim, non-final determination, and the parties engaged in discussions. In addition, as noted in Note 10 above, the company received from the DOJ a criminal subpoena on December 9, 2022 and a CID on February 2, 2023, both seeking information related to the interest rate assumptions at issue in our discussions with DCMA. The company has responded to requests and expects to continue to engage with the government as these matters progress. We cannot at this point predict the outcome of these matters. The sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of these matters 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 of accrued and deferred costs associated with the company’s environmental remediation liabilities as of December 31, 2025 and 2024:

December 31
$ in millions20252024
Accrued costs(1)$547$546
Deferred costs(2)502507

(1)As of December 31, 2025, $204 million is recorded in Other current liabilities and $343 million is recorded in Other non-current liabilities in the consolidated statements of financial position. Estimated remediation costs are not discounted to present value.

(2)The company defers the portion of environmental remediation costs we expect to be recoverable through overhead charges on U.S. government contracts. As of December 31, 2025, $189 million is deferred in Prepaid expenses and other current assets and $313 million is deferred in Other non-current assets in the consolidated statements of financial position. These amounts are routinely evaluated for recoverability.

Reasonably possible future costs in excess of accrued costs were $380 million and $377 million as of December 31, 2025 and 2024, respectively. Reasonably possible remediation costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts. However, the recoverability of these costs is expected to be similar in proportion to the recoverability of the company’s accrued costs.

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, 2025, 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, 2025, there were $595 million of stand-by letters of credit and guarantees and $271 million of surety bonds outstanding.

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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, 2025, or its annual results of operations and/or cash flows.

12. RETIREMENT BENEFITS

Plan Descriptions

U.S. Defined Benefit Pension Plans – The company sponsors several defined benefit pension plans in the U.S. Pension benefits for most participants are based on years of service, age and compensation. It is our policy to fund at least the minimum amount required for qualified plans, using actuarial cost methods and assumptions acceptable under U.S. government regulations, by making payments into benefit trusts separate from the company.

U.S. Defined Contribution Plans – The company also sponsors defined contribution plans covering the majority of its employees, including certain employees covered under collective bargaining agreements. Company contributions vary depending on date of hire, with a majority of employees being eligible for employer matching of employee contributions. Based on date of hire, certain employees are eligible to receive a company non-elective contribution or an enhanced matching contribution in lieu of a defined benefit pension plan benefit. The company’s contributions to these defined contribution plans for the years ended December 31, 2025, 2024 and 2023, were $669 million, $657 million and $634 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 coverage purchased directly by the retiree through a private insurance exchange. The company has capped the amount of its contributions for substantially all its remaining postretirement medical and life benefit plans. In addition, after January 1, 2005 (or earlier at some businesses), newly hired employees are not eligible for subsidized postretirement medical and life benefits.

Summary Plan Results

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

Year Ended December 31
Pension BenefitsMedical and Life Benefits
$ in millions202520242023202520242023
Components of net periodic benefit cost (benefit)
Service cost$217$239$236$4$4$5
Interest cost1,6121,5261,568626267
Expected return on plan assets(2,159)(2,197)(2,098)(85)(87)(85)
Amortization of prior service credit———(3)—(1)
Mark-to-market (benefit) expense(514)(450)442(13)7(20)
Other615————
Net periodic benefit cost (benefit)$(838)$(867)$148$(35)$(14)$(34)

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The table below summarizes the changes in unamortized prior service credit for the years ended December 31, 2023, 2024 and 2025:

$ in millionsPension BenefitsMedical and Life BenefitsTotal
Changes in unamortized prior service credit
Amortization of prior service credit$—$1$1
Tax expense———
Decrease (increase) in unamortized prior service credit – 2023—11
(Increase) decrease in prior service credit—(12)(12)
Amortization of prior service credit———
Tax expense—33
(Increase) decrease in unamortized prior service credit – 2024—(9)(9)
Amortization of prior service credit—33
Tax expense—(1)(1)
Decrease (increase) in unamortized prior service credit – 2025$—$2$2

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 BenefitsMedical and Life Benefits
$ in millions2025202420252024
Plan Assets
Fair value of plan assets at beginning of year$29,769$30,251$1,237$1,274
Net gain on plan assets3,2441,35812961
Employer contributions99963133
Participant contributions96226
Benefits paid(2,000)(1,942)(117)(157)
Other10———
Fair value of plan assets at end of year31,13129,7691,2821,237
Projected Benefit Obligation
Projected benefit obligation at beginning of year28,99230,4431,1501,246
Service cost21723944
Interest cost1,6121,5266262
Participant contributions96226
Actuarial loss (gain)578(1,295)31(19)
Benefits paid(2,000)(1,942)(117)(157)
Other2015—(12)
Projected benefit obligation at end of year29,42828,9921,1321,150
Funded status$1,703$777$150$87

The increase in the fair value of plan assets for the year ended December 31, 2025 was primarily driven by net returns on pension plan assets of 11.3 percent, partially offset by $2.1 billion of benefit payments. The increase in our projected benefit obligation for the year ended December 31, 2025, was primarily driven by $1.7 billion of interest cost and a 15 basis point decrease in the pension discount rate from year-end 2024, partially offset by $2.1 billion of benefit payments.

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Pension BenefitsMedical and Life Benefits
$ in millions2025202420252024
Classification of amounts recognized in the consolidated statements of financial position
Non-current assets$2,774$1,851$393$333
Current liability(181)(177)(23)(23)
Non-current liability(890)(897)(220)(223)

The accumulated benefit obligation for all defined benefit pension plans was $29.1 billion and $28.7 billion at December 31, 2025 and 2024, respectively. Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows:

December 31
$ in millions20252024
Projected benefit obligation$1,074$1,076
Accumulated benefit obligation1,0611,066
Fair value of plan assets33

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 BenefitsMedical and Life Benefits
202520242023202520242023
Discount rate5.58%5.73%5.15%5.41%5.69%5.20%
Expected long-term return on plan assets7.50%7.50%7.50%7.10%7.08%7.12%
Initial cash balance crediting rate assumed for the next year4.84%4.78%4.02%
Rate to which the cash balance crediting rate is assumed to increase/decrease (the ultimate rate)5.26%4.90%4.02%
Year that the cash balance crediting rate reaches the ultimate rate203120302029
Rate of compensation increase3.00%3.00%3.00%
Initial health care cost trend rate assumed for the next year6.50%5.90%6.20%
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 rate203120282028

Plan Assets and Investment Policy

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

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

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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, 2025:

Asset Allocation Ranges
Cash and cash equivalents0% - 12%
Global public equities18% - 38%
Fixed-income securities35% - 55%
Alternative investments8% - 46%

The table below provides the fair values of the company’s pension and Voluntary Employees’ Beneficiary Association (VEBA) trust plan assets at December 31, 2025 and 2024, 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, 2025 and 2024, there were no investments expected to be sold at a value materially different than NAV.

Level 1Level 2Level 3Total
$ in millions20252024202520242025202420252024
Asset category
Cash and cash equivalents$147$223$1,066$751$1,213$974
U.S. equities1,7191,8241,7191,824
International equities1,5631,5701,5631,570
Fixed-income securities
U.S. Treasuries—174,0083,5204,0083,537
U.S. Government Agency1309713097
Non-U.S. Government11429282430283
Corporate debt135793,8503,6643,9853,743
Asset backed1,7591,3011,7591,301
High-yield debt81212202032
Bank loans17161716
Derivatives and other assets(23)(55)8099$2$25946
Investments valued using NAV as a practical expedient
U.S. equities1,6591,486
International equities4,2924,071
Fixed-income funds3,6643,559
Private equity funds2,9503,521
Real estate funds1,5601,860
Other alternatives4,0943,627
Payables, net(709)(541)
Fair value of plan assets at the end of the year$3,550$3,671$11,351$9,750$2$2$32,413$31,006

There were no transfers of plan assets into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2025 and 2024.

Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers. Cash and cash equivalents are predominantly held in money market or short-term investment funds. U.S. and international equities consist primarily of common stocks and institutional common trust funds. Investments in certain equity securities, which include domestic and international securities and registered investment companies,

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and exchange-traded funds with fixed income strategies are valued at the last reported sales or quoted price on the last business day of the reporting period. Fair values for certain fixed-income securities, which are not exchange-traded, are valued using third-party pricing services.

Derivatives and other assets include derivative assets with a fair value of $113 million and $107 million, derivative liabilities with a fair value of $103 million and $123 million, and net notional amounts of $12.4 billion and $9.2 billion, as of December 31, 2025 and 2024, respectively. Derivative instruments may include exchange traded futures contracts, interest rate swaps, options on futures and swaps, currency contracts, total return swaps and credit default swaps. Notional amounts do not quantify risk or represent assets or liabilities of the pension and VEBA trusts, but are used in the calculation of cash settlement under the contracts. Certain derivative financial instruments within the pension trust are subject to master netting agreements with certain counterparties.

Investments in certain equity and fixed-income funds, which include common/collective trust funds, and alternative investments 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, 2025 and 2024, 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, 2025 and 2024 there were no unfunded commitments.

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, 2025 and 2024, unfunded commitments were $1.2 billion and $1.6 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, 2025 and 2024, unfunded commitments were $124 million and $24 million, respectively.

Other alternatives: 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, 2025 and 2024, unfunded commitments were $3.0 billion and $2.0 billion, respectively.

At December 31, 2025 and 2024, the defined benefit pension trust held $0 and $1 million, respectively, of Northrop Grumman common stock. At December 31, 2025 and 2024, the VEBA trust 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, 2025:

$ in millionsPension PlansMedical and Life PlansTotal
Year Ending December 31
2026$2,092$111$2,203
20272,1361112,247
20282,1641102,274
20292,1851072,292
20302,2011042,305
2031 through 203510,89445311,347

In 2026, the company expects to contribute the required minimum funding of approximately $97 million to its pension plans and approximately $34 million to its medical and life benefit plans. During the year ended December 31, 2025, the company made no discretionary pension contributions.

13. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS

Stock Compensation Plans

At December 31, 2025, the company had stock-based compensation awards outstanding under the following shareholder-approved plans: the 2024 Long-Term Incentive Stock Plan (2024 Plan) and the 2011 Long-Term

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Incentive Stock Plan (2011 Plan), both applicable to employees and non-employee directors, and the 1993 Stock Plan for Non-Employee Directors (1993 SPND).

Employee Plans – On May 15, 2024, the company’s shareholders approved the company’s new 2024 Plan, which replaced the 2011 Plan. The 2024 Plan authorized 5.75 million new shares (less the number of shares subject to any new awards under the 2011 Plan between March 1 and May 15, 2024). Under the terms of the 2024 Plan, in the event outstanding awards under the 2011 Plan expire or terminate without being exercised or paid, as the case may be, such forfeited shares will become available for award under the 2024 Plan and increase the authorization. As of December 31, 2025, 5.5 million shares remain available for issuance under the 2024 Plan.

The 2011 Plan provided for and the 2024 Plan provides for the following equity awards: stock options, stock appreciation rights (SARs) and stock awards. Under the 2011 Plan and 2024 Plan, no SARs have been granted and there are no outstanding stock options. Stock awards include restricted performance stock rights (RPSR) and restricted stock rights (RSR). RPSRs generally vest and are paid following the completion of a three-year performance period, based primarily on achievement of certain performance metrics determined by the Board. RSRs generally vest 100% after three years. Each includes dividend equivalents, which are paid concurrently with the RPSR or RSR. The terms of equity awards granted under the 2011 Plan and 2024 Plan provide for accelerated vesting, and in some instances forfeiture, of all or a portion of an award upon termination of employment.

Non-Employee Director Plans – Awards to non-employee directors are made pursuant to the Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors (the Director Program). The Director Program was amended and restated effective January 1, 2016 (the Amended Director Program). The Director Program was again amended and restated effective May 15, 2024, consistent with the shareholder-approved 2024 Plan (the Restated Director Program). Under the Restated Director Program, each non-employee director is awarded an annual equity grant in the form of Automatic Stock Units, which vest on the one-year anniversary of the annual shareholder meeting. Directors may elect to have all or any portion of their Automatic Stock Units paid on (A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from service as a member of the Board, or (B) on the vesting date.

Directors also may elect to defer to a later year all or a portion of their remaining cash retainer or committee retainer fees into a stock unit account as Elective Stock Units or in alternative investment options. Elective Stock Units are awarded on a quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the Board. Stock units awarded under the Amended Director Program and Restated Director Program are paid out in an equivalent number of shares of Northrop Grumman common stock. Directors are credited with dividend equivalents 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, 2025, 2024 and 2023 was $119 million, $101 million and $87 million, respectively. The related tax benefits for stock-based compensation for the years ended December 31, 2025, 2024 and 2023 were $1 million, $15 million and $9 million, respectively.

At December 31, 2025, there was $100 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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Stock Awards

Stock award activity for the years ended December 31, 2023, 2024 and 2025, 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 ShareWeighted- Average Remaining Contractual Term (in years)
Outstanding at January 1, 2023561$3441.4
Granted216478
Vested(249)315
Forfeited(29)373
Outstanding at December 31, 2023499$4171.3
Granted238465
Vested(221)366
Forfeited(47)450
Outstanding at December 31, 2024469$4621.4
Granted231463
Vested(195)456
Forfeited(59)469
Outstanding at December 31, 2025446$4641.4

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

The grant date fair value of shares issued in settlement of fully vested stock awards was $99 million, $86 million and $99 million during the years ended December 31, 2025, 2024 and 2023, 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 millions202520242023
Minimum aggregate payout amount$35$35$34
Maximum aggregate payout amount199200192

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, 2025, there was $121 million of unrecognized compensation expense related to cash awards.

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14. LEASES

Total Lease Cost

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

Year Ended December 31
$ in millions202520242023
Operating lease cost$363$370$358
Variable lease cost1024948
Short-term lease cost475169
Total lease cost$512$470$475

Supplemental Balance Sheet Information

Supplemental operating lease balance sheet information consists of the following:

Year Ended December 31
$ in millions20252024
Operating lease right-of-use assets$1,859$1,770
Other current liabilities331324
Operating lease liabilities1,8571,798
Total operating lease liabilities$2,188$2,122

Other Supplemental Information

Other supplemental operating lease information consists of the following:

Year Ended December 31
$ in millions20252024
Cash paid for amounts included in the measurement of operating lease liabilities$386$373
Right-of-use assets obtained in exchange for new lease liabilities400272
Weighted average remaining lease term10.1 years10.4 years
Weighted average discount rate4.3%4.0%

Maturities of Lease Liabilities

Maturities of operating lease liabilities as of December 31, 2025 are as follows:

$ in millions
Year Ending December 31
2026$401
2027364
2028320
2029286
2030237
Thereafter1,095
Total lease payments2,703
Less: imputed interest(515)
Present value of operating lease liabilities$2,188

As of December 31, 2025, we have approximately $1.3 billion in rental commitments for real estate leases that have not yet commenced. These leases are expected to commence in 2026 and 2027 with lease terms of 4 to 26 years.

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15. SEGMENT INFORMATION

The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. We generally organize our segments based on the nature of products and services offered.

The company’s chief operating decision maker (“CODM”) is the Chair, Chief Executive Officer and President. The CODM is responsible for allocating resources and assessing performance of the consolidated enterprise and operating sectors. The profitability measure the CODM uses to assess segment performance and allocate resources is segment operating income (and related margin rate, calculated as segment operating income divided by sales) by comparing historical, actual, and forecasted amounts on a regular basis.

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The following table presents sales, operating costs and expenses, and operating income by segment:

Year Ended December 31
$ in millions202520242023
Aeronautics Systems
Sales$12,992$12,396$11,164
Operating costs and expenses:
Product9,3408,3839,053
Service2,6872,6582,399
Intersegment152119128
Aeronautics Systems operating income (loss)8131,236(416)
Defense Systems
Sales8,0027,3997,185
Operating costs and expenses:
Product5,6825,1694,708
Service1,2631,3651,659
Intersegment186149134
Defense Systems operating income871716684
Mission Systems
Sales12,50611,39910,895
Operating costs and expenses:
Product7,6087,0006,669
Service1,8611,8051,730
Intersegment1,210996887
Mission Systems operating income1,8271,5981,609
Space Systems
Sales10,77111,73111,873
Operating costs and expenses:
Product7,8278,7118,844
Service1,3091,3981,468
Intersegment452368431
Space Systems operating income1,1831,2541,130
Intersegment profit eliminations(317)(260)(247)
Total segment operating income4,3774,5442,760
FAS/CAS operating adjustment25840(82)
Unallocated corporate expense(124)(214)(141)
Total operating income$4,511$4,370$2,537
Other (expense) income
Interest expense(665)(621)(545)
Non-operating FAS pension benefit541656530
Mark-to-market pension and OPB benefit (expense)527443(422)
Other, net154168246
Earnings before income taxes$5,068$5,016$2,346

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.

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Unallocated Corporate Expense

Unallocated corporate expense 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 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 second quarter of 2025, the $231 million pre-tax gain on the sale of our training services business and $19 million of unallowable state taxes and transaction costs associated with the divestiture were recorded in Unallocated corporate expense.

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Disaggregation of Revenue

Sales by Customer TypeYear Ended December 31
202520242023
$ in millions$%****(3)$%(3)$%(3)
Aeronautics Systems
U.S. government(1)$10,46982%$10,36485%$9,37985%
International(2)2,32518%1,87815%1,61115%
Other customers31—%22—%35—%
Intersegment sales167132139
Aeronautics Systems sales12,99212,39611,164
Defense Systems
U.S. government(1)6,37782%6,05684%5,69981%
International(2)1,33717%1,10115%1,25918%
Other customers781%711%761%
Intersegment sales210171151
Defense Systems sales8,0027,3997,185
Mission Systems
U.S. government(1)8,82780%8,32281%7,99981%
International(2)2,12519%1,80918%1,75718%
Other customers1201%911%851%
Intersegment sales1,4341,1771,054
Mission Systems sales12,50611,39910,895
Space Systems
U.S. government(1)9,51093%10,69494%10,80595%
International(2)2032%2122%2782%
Other customers5525%4134%3073%
Intersegment sales506412483
Space Systems sales10,77111,73111,873
Total
U.S. government(1)35,18384%35,43687%33,88286%
International(2)5,99014%5,00012%4,90513%
Other customers7812%5971%5031%
Total Sales$41,954$41,033$39,290

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

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

(3) Percentages calculated based on external customer sales.

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Sales by Contract TypeYear Ended December 31
202520242023
$ in millions$%****(1)$%(1)$%(1)
Aeronautics Systems
Cost-type$5,84346%$5,50045%$5,35849%
Fixed-price6,98254%6,76455%5,66751%
Intersegment sales167132139
Aeronautics Systems sales12,99212,39611,164
Defense Systems
Cost-type4,11753%3,87554%3,86855%
Fixed-price3,67547%3,35346%3,16645%
Intersegment sales210171151
Defense Systems sales8,0027,3997,185
Mission Systems
Cost-type5,01245%4,58945%4,11642%
Fixed-price6,06055%5,63355%5,72558%
Intersegment sales1,4341,1771,054
Mission Systems sales12,50611,39910,895
Space Systems
Cost-type5,97258%7,00062%7,63767%
Fixed-price4,29342%4,31938%3,75333%
Intersegment sales506412483
Space Systems sales10,77111,73111,873
Total
Cost-type20,94450%20,96451%20,97953%
Fixed-price21,01050%20,06949%18,31147%
Total Sales$41,954$41,033$39,290

(1)Percentages calculated based on external customer sales.

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Sales by Geographic Region(1)Year Ended December 31
202520242023
$ in millions$%****(3)$%(3)$%(3)
Aeronautics Systems
United States$10,50082%$10,38685%$9,41485%
Asia/Pacific9207%7446%7127%
Europe1,32010%1,0979%8638%
Other geographic regions(2)851%37—%36—%
Intersegment sales167132139
Aeronautics Systems sales12,99212,39611,164
Defense Systems
United States6,45583%6,12785%5,77582%
Asia/Pacific3745%2944%3144%
Europe75610%6168%4747%
Other geographic regions(2)2072%1913%4717%
Intersegment sales210171151
Defense Systems sales8,0027,3997,185
Mission Systems
United States8,94781%8,41382%8,08482%
Asia/Pacific5505%4725%4605%
Europe1,12110%99010%95910%
Other geographic regions(2)4544%3473%3383%
Intersegment sales1,4341,1771,054
Mission Systems sales12,50611,39910,895
Space Systems
United States10,06298%11,10798%11,11298%
Asia/Pacific751%421%821%
Europe891%1341%1591%
Other geographic regions(2)39—%36—%37—%
Intersegment sales506412483
Space Systems sales10,77111,73111,873
Total
United States35,96486%36,03388%34,38588%
Asia/Pacific1,9194%1,5524%1,5684%
Europe3,2868%2,8377%2,4556%
Other geographic regions(2)7852%6111%8822%
Total Sales$41,954$41,033$39,290

(1)Sales are attributed to countries based on the ultimate customer’s location. No country other than the United States represents greater than 10% of total company sales.

(2)Other geographic regions are principally comprised of the Middle East.

(3)Percentages calculated based on external customer sales.

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Segment Sales

The following table presents sales for each of our reportable segments and total intersegment eliminations:

Year Ended December 31
$ in millions202520242023
Sales
Aeronautics Systems$12,992$12,396$11,164
Defense Systems8,0027,3997,185
Mission Systems12,50611,39910,895
Space Systems10,77111,73111,873
Intersegment eliminations(2,317)(1,892)(1,827)
Total sales$41,954$41,033$39,290

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 millions202520242023
SalesOperating IncomeSalesOperating IncomeSalesOperating Income
Intersegment sales and operating income
Aeronautics Systems$167$15$132$13$139$11
Defense Systems210241712215117
Mission Systems1,4342241,1771811,054167
Space Systems506544124448352
Total$2,317$317$1,892$260$1,827$247

Capital Expenditures and Depreciation and Amortization

The following table presents capital expenditures and depreciation and amortization for each of our reportable segments and for Corporate:

Year Ended December 31
$ in millions202520242023202520242023
Capital ExpendituresDepreciation and Amortization
Aeronautics Systems$477$600$510$383$385$390
Defense Systems110135158176175178
Mission Systems312314288278255246
Space Systems403652745367362370
Corporate(1)1486674268193154
Total$1,450$1,767$1,775$1,472$1,370$1,338

(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 CODM 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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