NORTHROP GRUMMAN CORP /DE/

Northrop Grumman Corporation is a leading global aerospace and defense technology company that delivers a broad range of products, services and solutions to U.S. and international customers, principally to the U.S. Department of War and intelligence community. 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.

The company competes with many companies in the defense, intelligence and federal civil markets, including The Boeing Company, General Dynamics Corporation, L3Harris Technologies, Inc., Lockheed Martin Corporation, and RTX Corporation, as well as, increasingly, new entrants and startups. Key characteristics of the industry include long operating cycles and intense competition, which is evident through the number of competitors bidding on program opportunities and the number of competitor protests of U.S. government procurement awards.

The company generates the majority of its business from long-term contracts with the U.S. government for development, production and support activities. Revenue is generally recognized over time using the cost-to-cost method. The company's largest customer is the U.S. government, which accounted for 84 percent of sales during the year ended December 31, 2025 ¹. Sales to the U.S. government accounted for 87 percent and 86 percent of sales during the years ended December 31, 2024 and 2023, respectively ².

Aeronautics Systems is a leader in the design, development, production, integration, sustainment and modernization of military aircraft systems. Major products include strategic long-range strike aircraft; tactical fighter and air dominance aircraft; airborne battle management and command and control systems; and uncrewed autonomous aircraft systems. Key programs include the B-21 Raider, B-2 Spirit, E-130J Phoenix II, F-35, F/A-18, E-2D Advanced Hawkeye, MQ-4C Triton, and RQ-4 Global Hawk. Approximately 40 percent of this business is performed through restricted programs ³. For the year ended December 31, 2025, Aeronautics Systems reported sales of $12.992 billion ⁴ and operating income of $813 million ⁵.

Defense Systems is a leader in the design, engineering, development, integration and production of strategic deterrent systems, advanced tactical weapons, and missile defense solutions. Major products and services include strategic missiles; integrated, all-domain command and control systems; precision strike weapons; advanced propulsion; high-performance gun systems; ammunition; and precision munitions. Key programs include Sentinel, Integrated Battle Command System (IBCS), Guided Multiple Launch Rocket System (GMLRS), Advanced Anti-Radiation Guided Missile (AARGM), Stand-In Attack Weapon (SiAW), and Hypersonic Attack Cruise Missile (HACM). Less than 5 percent of this business is performed through restricted programs ⁶. For the year ended December 31, 2025, Defense Systems reported sales of $8.002 billion ⁷ and operating income of $871 million ⁸. Mission Systems is a leader in advanced mission solutions and multifunction systems. Major products and services include radar, electro-optical/infrared and acoustic sensors; C4ISR systems; electronic warfare systems; advanced communications and network systems; advanced microelectronics; navigation and positioning sensors; and maritime power, propulsion and payload launch systems. Key programs include LAIRCM, F-35 fire control radar and Distributed Aperture System, Scalable Agile Beam Radar (SABR), Ground/Air Task Oriented Radar (G/ATOR), Surface Electronic Warfare Improvement Program (SEWIP) Block III, and power generation and propulsion systems for Virginia and Columbia class submarines. Approximately 30 percent of this business is performed through restricted programs ⁹. For the year ended December 31, 2025, Mission Systems reported sales of $12.506 billion ¹⁰ and operating income of $1.827 billion ¹¹. Space Systems is a leader in delivering end-to-end mission solutions through the design, development, integration, production and operation of space, missile defense, and launch systems. Major products include satellites and spacecraft systems, subsystems, sensors and payloads; ground systems; missile defense systems and interceptors; and launch vehicles and related propulsion systems. Key programs include GEM 63 and GEM 63XL solid rocket boosters, Space Development Agency (SDA) Tracking and Transport layers, Glide Phase Interceptor (GPI), Cygnus spacecraft, Habitation and Logistics Outpost (HALO) module, Next-Generation Overhead Persistent Infrared (Next-Gen OPIR) program, and solid rocket motors for NASA's Space Launch System (SLS). Approximately 45 percent of this business is performed through restricted programs ¹². For the year ended December 31, 2025, Space Systems reported sales of $10.771 billion ¹³ and operating income of $1.183 billion ¹⁴.

On May 24, 2025, the company completed the sale of substantially all of the Immersive Mission Solutions (IMS) operating unit of Defense Systems for $333 million in cash and recorded a pre-tax gain on sale of $231 million ¹⁵. During the first quarter of 2025, the company recognized an additional $477 million loss across the five LRIP options of the B-21 program ¹⁶. In May 2025, the company issued $1.0 billion of unsecured senior notes for general corporate purposes ¹⁷. In January 2025, the company repaid $1.5 billion of 2.93 percent unsecured senior notes upon maturity ¹⁸. During the year ended December 31, 2025, the company repurchased 3.1 million shares of common stock ¹⁹. 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 ²⁰. As of December 31, 2025, total backlog was $95.7 billion as compared with $91.5 billion at December 31, 2024 ²¹.

For the year ended December 31, 2025, total sales were $41.954 billion, compared to $41.033 billion in 2024 and $39.290 billion in 2023 ²². Operating income was $4.511 billion in 2025, compared to $4.370 billion in 2024 and $2.537 billion in 2023 ²³. Net earnings were $4.182 billion in 2025, compared to $4.174 billion in 2024 and $2.056 billion in 2023 ²⁴. Diluted earnings per share were $29.08 in 2025, compared to $28.34 in 2024 and $13.53 in 2023 ²⁵. Net cash provided by operating activities was $4.757 billion in 2025, compared to $4.388 billion in 2024 and $3.875 billion in 2023 ²⁶.

The company believes the current global security environment, characterized by significant national security threats to the U.S. and its allies, continues to highlight the need for strong deterrence and robust defense capabilities. The company believes its capabilities, particularly in space, C4ISR, air and missile defense, battle management, advanced weapons, strategic deterrence, survivable aircraft and mission systems should help its customers in the U.S. and globally defend against current and future threats and, as a result, continue to position it for long-term profitable business growth. The company is in discussions with the U.S. Air Force regarding the potential for an accelerated production rate on the B-21 program, and while the ultimate outcome remains uncertain, the company currently expects any agreement to accelerate production rate would require future investment by the company to expand production capacity along with the opportunity to earn improved returns on the LRIP and NTE phases of the program.

The company is focused on competing and winning programs that enable continued growth, performing on its commitments and affordably delivering capability its customers need. With the investments made in advanced technologies, combined with its talented workforce and digital transformation capabilities, the company believes it is well positioned to meet its customers' needs today and in the future. The company is also focused on the efficient conversion of operating income into cash to provide for the company's material cash requirements, including working capital needs, satisfaction of contractual commitments, investment in its business through capital expenditures, funding of its pension and OPB plans, and shareholder returns.

The company's operating margin rate for 2025 was 10.8 percent, compared to 10.6 percent in 2024 and 6.5 percent in 2023 ²⁷. The 2025 FAS/CAS operating adjustment reflects higher CAS pension expense largely driven by plan asset returns in prior years and changes in certain CAS actuarial assumptions as of December 31, 2024. The company's segment operating margin rate decreased to 10.4 percent in 2025 from 11.1 percent in 2024, primarily due to the B-21 loss provision at Aeronautics Systems, partially offset by higher operating margin rates at Defense Systems, Mission Systems and Space Systems ²⁸.

The company continues to work to address challenges to its business caused by the macroeconomic environment. The company has seen progress in the supply chain as on-time deliveries and quality continue to improve. In remaining areas of pressure, the company is proactively working with its suppliers to help meet its contract commitments. The company's differentiated culture and workforce was a factor in its ability to hire approximately 7,500 new employees in 2025, and as of December 31, 2025, the company has approximately 95,000 employees ²⁹.

Company-sponsored independent research and development expenses totaled $1.1 billion in 2025, $1.1 billion in 2024 and $1.2 billion in 2023, which represented 2.6 percent, 2.7 percent and 3.0 percent of total sales, respectively ³⁰. Capital expenditures were $1.450 billion in 2025, compared to $1.767 billion in 2024 and $1.775 billion in 2023 ³¹. As of December 31, 2025, repurchases under the 2024 Repurchase Program totaled $0.5 billion; $2.5 billion remained under this share repurchase authorization ³². Cash dividends declared per share were $8.99 in 2025, compared to $8.05 in 2024 and $7.34 in 2023 ³³.

The global macroeconomic environment has experienced challenges, including inflationary pressures; widespread delays and disruptions in supply chains; business slowdowns or shutdowns; workforce challenges and labor shortfalls; and market volatility. These macroeconomic factors can and have contributed, and could continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for limited resources. Economic tensions and changes in international trade policies, including, for example, the widespread tariffs announced since last year by the U.S. on its major trading partners, higher tariffs on imported goods and materials and actions taken in response, could also further impact the global market for defense products, services and solutions.

The U.S. continues to face an uncertain and evolving political, budget and regulatory environment. The company anticipates that issues related to budgetary priorities, defense spending levels and the debt ceiling will continue to be subjects of considerable debate, with a potentially significant impact on its programs and the company. On October 1, 2025, the U.S. Government entered a shutdown, which ended on November 12, 2025. The federal government is currently operating under a continuing resolution that extends funding for most agencies until January 30, 2026. Government operations under an extended continuing resolution or a government shutdown could have adverse impacts on the company's programs and new starts, in particular, and the U.S. Government's ability to make timely payments.

The company depends heavily on a single customer, the U.S. government, for a substantial portion of its business, from which it derived 84 percent of its sales in 2025 ³⁴. Significant delays or reductions in appropriations for its programs or U.S. government funding more broadly, including a prolonged continuing resolution, government shutdown or breach of the debt ceiling, can negatively impact its business. The company uses estimates when accounting for contracts, and contract cost growth or changes in estimated contract revenues and costs can affect its profitability; in 2025, approximately half of its sales were derived from fixed-price contracts ³⁵, which tend to have more financial risk than cost-type contracts. The company faces significant cyber and other security threats, and while it has experienced cybersecurity incidents in the past, to date none have materially affected the company. The company's international business exposes it to additional risks, including risks related to geopolitical and economic factors, laws and regulations; sales to customers outside the U.S. are an important component of its business and strategy. Business investments and/or recorded goodwill and other long-lived assets may become impaired; goodwill accounts for approximately 34 percent of the company's total assets as of December 31, 2025 ³⁶.

Management's message emphasizes that the company is focused on competing and winning programs that enable continued growth, performing on its commitments and affordably delivering capability its customers need. Management believes that with the investments made in advanced technologies, combined with its talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet its customers' needs today and in the future. The strategic priorities emphasized for the period ahead include competing and winning programs that enable continued growth, performing on commitments, and affordably delivering capability customers need.