0001133421-20-000020.txt : 20200429 0001133421-20-000020.hdr.sgml : 20200429 20200429064533 ACCESSION NUMBER: 0001133421-20-000020 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 114 CONFORMED PERIOD OF REPORT: 20200429 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20200429 DATE AS OF CHANGE: 20200429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHROP GRUMMAN CORP /DE/ CENTRAL INDEX KEY: 0001133421 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 800640649 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16411 FILM NUMBER: 20827248 BUSINESS ADDRESS: STREET 1: 2980 FAIRVIEW PARK DRIVE STREET 2: C/O NORTHROP GRUMMAN CORP CITY: FALLS CHURCH STATE: VA ZIP: 22042 BUSINESS PHONE: 703-280-2900 MAIL ADDRESS: STREET 1: 2980 FAIRVIEW PARK DRIVE STREET 2: C/O NORTHROP GRUMMAN CORP CITY: FALLS CHURCH STATE: VA ZIP: 22042 FORMER COMPANY: FORMER CONFORMED NAME: NNG INC DATE OF NAME CHANGE: 20010129 8-K 1 noc-12312019x8xk.htm 8-K Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 29, 2020
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
1-16411
 
80-0640649
(State or Other Jurisdiction
of Incorporation or Organization)
 
(Commission File Number)
 
(IRS Employer
Identification Number)

2980 Fairview Park Drive, Falls Church, VA 22042
(Address of principal executive offices)(Zip Code)

(703) 280-2900
(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
NOC
New York Stock Exchange

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company 

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





ITEM 8.01. Other Events.
Northrop Grumman Corporation (“we” or the “company”) is filing this Current Report on Form 8-K to recast the presentation of its consolidated financial statements that were filed on January 30, 2020 with the Securities and Exchange Commission (“SEC”) in the company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) to reflect the changes in the company’s organizational structure and reportable segments that are described immediately below. This Form 8-K recasts disclosures in certain portions of the 2019 Form 10-K to reflect these changes in each of the periods presented.
At December 31, 2019, the company was aligned in four operating sectors: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services. Effective January 1, 2020, the company reorganized its sectors to better align the company’s broad portfolio to serve its customers’ needs. The four new sectors are: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.
The company’s financial statements and other disclosures included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “First Quarter 2020 Form 10-Q”) reflect this new reporting structure. The company is including in this Form 8-K the following items from the 2019 Form 10-K and revising necessary portions of the disclosures contained in these items, for each of the periods presented, to reflect this change in the company’s organizational structure and reportable segments: Business (Item 1), Properties (Item 2), Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) and Financial Statements and Supplementary Data (Item 8, solely to reflect changes in Notes 1, 2, 8 and 16 to the consolidated financial statements).
Except for the segment changes described above, this Form 8-K does not modify or update disclosures as presented in the 2019 Form 10-K and does not reflect any changes, events or activities occurring after the date of the filing of the 2019 Form 10-K. Therefore, this Form 8-K should be read in conjunction with the 2019 Form 10-K and the company’s filings made with the SEC subsequent to the filing of the 2019 Form 10-K, including the First Quarter 2020 Form 10-Q.
ITEM 9.01. Financial Statements and Exhibits.
 
 
 
 
 
(d)
 
Exhibits
 
 
 
 
Exhibit 23 Consent of Independent Registered Public Accounting Firm*
 
 
Exhibit 99.1 Item 1: Business*
 
 
Exhibit 99.2 Item 2: Properties*
 
 
Exhibit 99.3 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations*
 
 
Exhibit 99.4 Item 8: Financial Statements and Supplementary Data*
 
 
 
 
 
* filed herewith

-1-



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NORTHROP GRUMMAN CORPORATION
 
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ Jennifer C. McGarey
 
 
 
 
 
 
(Signature)
Jennifer C. McGarey
Corporate Vice President and Secretary

Date: April 29, 2020

-2-



Exhibit Index
 
 
 
 
Exhibit No.
 
Exhibit 101 — Northrop Grumman Corporation Current Report on Form 8-K dated April 29, 2020, formatted in XBRL (Extensible Business Reporting Language): Cover Page. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 



-3-
EX-23 2 noc-12312019xex23.htm EXHIBIT 23 Exhibit


EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 033-59815, 033-59853, 333-67266, 333-100179, 333-107734, 333-121104, 333-125120, 333-127317, and 333-175798 on Form S-8; and Registration Statement No. 333-237504 on Form S-3; of our report dated January 29, 2020 (April 28, 2020 as to the reclassification of segment information as described in Notes 1, 2, 8 and 16), relating to the financial statements of Northrop Grumman Corporation and subsidiaries, appearing in this Current Report on Form 8-K of Northrop Grumman Corporation dated April 29, 2020.


/s/ Deloitte & Touche LLP
McLean, Virginia
April 28, 2020


-4-
EX-99.1 3 noc-12312019xexx991ite.htm EXHIBIT 99.1 Exhibit

NORTHROP GRUMMAN CORPORATION

EXHIBIT 99.1
PART I
Item 1. Business
HISTORY AND ORGANIZATION
History
Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global security company. We offer a broad portfolio of capabilities and technologies that enable us to deliver innovative platforms, systems and solutions for applications that range from undersea to outer space and into cyberspace. We provide capabilities in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); space; strike; and logistics and modernization. We participate in many high-priority defense and government programs in the United States (U.S.) and abroad. We conduct most of our business with the U.S. government, principally the Department of Defense (DoD) and intelligence community. We also conduct business with foreign, state and local governments, as well as commercial customers. For a discussion of risks associated with our operations, see “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K.
The company originally was formed in Hawthorne, California, in 1939, as Northrop Aircraft Incorporated and was reincorporated in Delaware in 1985, as Northrop Corporation. Northrop Corporation was a principal developer of flying wing technology, including the B-2 Spirit bomber. The company developed into one of the largest defense contractors in the world through a series of acquisitions, as well as organic growth. In 1994, we acquired Grumman Corporation (Grumman), after which time the company was renamed Northrop Grumman Corporation. Grumman was a premier military aircraft systems integrator and builder of the Lunar Module that first delivered humans to the surface of the moon. In 1996, we acquired the defense and electronics businesses of Westinghouse Electric Corporation, a world leader in the development and production of sophisticated radar and other electronic systems for the nation’s defense, civil aviation, and other U.S. and international applications. In 2001, we acquired Litton Industries, Inc., a global electronics and information technology company, and one of the nation’s leading full service shipbuilders. Also in 2001, we acquired Newport News Shipbuilding Inc., a leading designer and builder of nuclear-powered aircraft carriers and submarines. In 2002, we acquired TRW Inc., a leading developer of military and civil space systems and payloads, as well as a leading global integrator of complex, mission-enabling systems and services. In 2011, we completed the spin-off to our shareholders of Huntington Ingalls Industries, Inc. (HII). HII operates our former Shipbuilding business, comprised largely of a part of Litton Industries and Newport News Shipbuilding.
On June 6, 2018 (the “Merger date”), the company completed its acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”). On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc., which we established as a new, fourth business sector (“Innovation Systems”). The operating results of legacy Innovation Systems subsequent to the Merger date have been included in the company’s consolidated results of operations and are reflected in the Space Systems, Defense Systems and Aeronautics Systems sectors. See Note 2 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for further information regarding the acquisition of Orbital ATK.
Organization
At December 31, 2019, the company was aligned in four operating sectors, which also comprised our reportable segments: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services.
Subsequent Realignment – Effective January 1, 2020, the company reorganized its sectors to better align the company’s broad portfolio to serve its customers’ needs. The four new sectors are: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. This realignment is reflected in the business descriptions below and in the accompanying financial information contained in this report.
AERONAUTICS SYSTEMS
Aeronautics Systems, headquartered in Palmdale, California, is a leader in the design, development, integration and production of autonomous and manned aircraft systems used for battle management, strike and intelligence, surveillance and reconnaissance (ISR). Aeronautics Systems' primary customers are the U.S. Air Force, the U.S. Navy, other U.S. government agencies and foreign governments. The sector is reported in two business areas that reflect our core capabilities: Autonomous Systems and Manned Aircraft.
Autonomous Systems – designs, develops, manufactures, integrates and sustains autonomous aircraft systems for strategic and tactical ISR missions. Strategic ISR programs include high-altitude long-endurance (HALE) systems,

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NORTHROP GRUMMAN CORPORATION

such as Global Hawk, which provides near real-time high resolution imagery of land masses for theater awareness; Triton, which provides real-time ISR over vast ocean and coastal regions for maritime domain awareness; and the North Atlantic Treaty Organization (NATO) Alliance Ground Surveillance (AGS) system for multinational theater operations. Tactical ISR programs include Fire Scout, a ship-based vertical take-off and landing (VTOL) system that provides situational awareness for maritime forces and precision targeting support; and the Firebird product line, which is available in manned, autonomous and optionally-piloted configurations, and provides flexibility through open architecture and plug-and-play mission payload integration.
Manned Aircraft – designs, develops, manufactures and integrates strategic long-range strike aircraft systems, tactical fighter aircraft and airborne battle management systems. Long-range strike aircraft programs include the B-21 Raider long-range strike bomber and modernization and sustainment services for the B-2 Spirit bomber. Tactical fighter aircraft programs include the design, development, manufacture and integration of F-35 Lightning II center fuselage and F/A-18 Super Hornet center/aft fuselage sections. Airborne battle management programs include the E-2D Advanced Hawkeye and E-8C Joint Surveillance Target Attack Radar System (JSTARS).
DEFENSE SYSTEMS
Defense Systems, headquartered in McLean, Virginia is a leader in the design, development, production, integration, sustainment and modernization of weapon and mission systems for U.S. military and civilian agency customers, and a broad range of international customers. Major products and services include integrated battle management command systems, weapons systems, mission system sustainment and modernization, information technology services and intelligence operations. The sector is reported in two business areas that reflect our core capabilities: Battle Management & Missile Systems, and Mission Readiness.
Battle Management & Missile Systems – designs, develops and integrates multi-domain command and control (C2) and weapons systems, including munitions and missiles. The business provides integration and interoperability of net-enabled battle management, sensors, targeting and surveillance systems, as well as air and missile defense C2 systems. It also develops and produces precision strike weapons; advanced propulsion, including high speed air-breathing systems; and high-performance gun systems and precision munitions. Competencies include system and software development; integration of weapon systems; tactical missile and component development and production; and production of advanced fuzes, munitions and defense electronics. Key programs include the Integrated Air and Missile Defense Battle Command System (IBCS) for the U.S. Army and Poland; Counter Rocket, Artillery and Mortar (C-RAM); Distributed Mission Operations Network (DMON); the U.S. Navy’s Advanced Anti-Radiation Guided Missile (AARGM); Precision Guidance Kit (PGK); and the Mission Command Training Program (MCTP).
Mission Readiness provides full life cycle service and support for software, weapons systems and aircraft, and logistics support, sustainment, operations and modernization for air, sea and ground systems. It also provides full life cycle development, modernization and sustainment of information systems; security services including information and cyber operations; and intelligence analysis and support. Competencies include aircraft, electronics and software sustainment and engineering; electronic subsystems modernization; weapon systems logistics support; cyber; data analytics and decision support tools; and IT infrastructure including cloud. Key programs include the Social Security Administration Information Technology Support Services Contract (SSA-ITSSC); Counter Threat Messaging (CTM) for Joint Services; restricted intelligence operations; Program Systems Product Directorate (PSPD) for Department of Homeland Security; Consular Systems Modernization (CSM) for Department of State; AAQ-24 and APN-241 sensor sustainment; and system sustainment and operations support for the B-2 Spirit bomber, E-8C JSTARS surveillance aircraft, KC-30A multi-role tanker, C-27J transport, UK E-3D Airborne Early Warning and Control System, Global Hawk, Triton, and F-35.
MISSION SYSTEMS
Mission Systems, headquartered in Linthicum, Maryland, is a leader in advanced mission solutions and multifunction systems, primarily for the U.S. and ally defense and intelligence community customers. Major products and services include C4ISR systems; radar, electro-optical/infrared (EO/IR) and acoustic sensors; electronic warfare systems; cyber solutions; intelligence processing systems; navigation; and submarine power, propulsion and payload launch systems. The sector is reported in four business areas that reflect our core capabilities: Airborne Sensors & Networks; Cyber & Intelligence Mission Solutions; Maritime/Land Systems & Sensors; and Navigation, Targeting & Survivability.
Airborne Sensors & Networks delivers products, systems and services that support airborne platforms with advanced communications and network systems; multi-function radio frequency (RF) and EO/IR systems; and radar, electronic warfare and situational awareness mission systems. Competencies include fire control, surveillance and

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early warning and control radar systems; electronic attack and electronic support systems; software defined radios and network gateways, communications and counter-communications systems; and multi-sensor processing. Key programs include Airborne Early Warning & Control (AEW&C) and air-to-ground sensors; Battlefield Airborne Communications Node (BACN); F-35 fire control radar, Distributed Aperture System (DAS), and Communications, Navigation and Identification (CNI) integrated avionics system; LONGBOW Fire Control Radar (FCR); Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW); Scalable Agile Beam Radar (SABR); and restricted programs.
Cyber & Intelligence Mission Solutions – delivers products, systems and services that support full-spectrum cyber solutions, secure processing, transformational computing, advanced technology development, Signals Intelligence (SIGINT) mission systems and enterprise integration of multi-intelligence mission data across all domains. Competencies include cyber mission management; large-scale cyber solutions for national security applications; cyber survivability; ground software systems; SIGINT sensors and processing; and geospatial intelligence and data fusion, specializing in the collection, processing and exploitation of data. Key programs include exploitation and cyber programs; Enhanced Solutions for the Information Technology Enterprise (E-SITE); the Enterprise Application Managed Services (EAMS) program; the Unified Platform System Coordinator program; the Airborne Signals Intelligence Payload (ASIP); and restricted programs.
Maritime/Land Systems & Sensors – delivers products, systems and services that enable maritime and ground platform mission capabilities via sensors, targeting and surveillance systems; electronic warfare systems; mission module integration; power, propulsion and control systems; and missile launchers. Competencies include ground and maritime radar systems; nuclear ship propulsion and power generation systems; shipboard missile and encapsulated payload launch systems; integrated bridge systems; unmanned maritime vehicles; high-resolution undersea sensors; deep-sea packaging; and mission integration. Key programs include the Surface Electronic Warfare Improvement Program (SEWIP) Block III; Ground/Air Task Oriented Radar (G/ATOR); submarine power, propulsion, launch and sensing systems for Ohio, Virginia and Columbia class submarines; AQS-24B Minehunting System; Littoral Combat Ship Mission Module Integration; DDG Modernization; Offshore Patrol Cutter; and restricted programs associated with the maritime operating domain.
Navigation, Targeting & Survivability – delivers products, systems and services that support aircraft platforms with targeting, self-protection and situational awareness mission systems; and provides embedded navigation and positioning sensors for a range of platforms including ships, aircraft, spacecraft and weapons. Competencies include EO/IR and RF self-protection; targeting and surveillance systems; digitized cockpits; and inertial navigation systems. Key programs include the LITENING Advanced Targeting Pod; Large Aircraft and Common Infrared Countermeasures (LAIRCM, DoN LAIRCM, CIRCM) systems; APR-39 DV(2) and EV(2) Radar Warning Receiver programs; the Embedded Global Positioning System (GPS)/Inertial Navigation Systems-Modernization (EGI-M) program; the UH-60V Black Hawk integrated mission equipment package; and restricted programs.
SPACE SYSTEMS
Space Systems, headquartered in Dulles, Virginia, is a leader in delivering end-to-end mission solutions through the design, development, integration, production and operation of space, launch and strategic missile systems for national security, civil government, commercial and international customers. Major products include satellites and payloads; ground systems; launch vehicles and related propulsion systems; missile defense systems and targets; and strategic missiles. The sector is reported in two business areas that reflect our core capabilities: Launch & Strategic Missiles, and Space.
Launch & Strategic Missiles – designs, develops, manufactures and integrates small- and medium-class space launch vehicles to place satellites into earth orbit and escape trajectories; missile defense systems and target vehicles; and suborbital launch vehicles that place payloads into a variety of high-altitude trajectories. Competencies include strategic missile sustainment as well as the production of medium- and large-class rocket propulsion systems for human and cargo launch vehicles, hypersonic boosters and missile defense interceptors. Key programs include missile defense systems and interceptor boosters for the Missile Defense Agency's (MDA) Ground-based Midcourse Defense (GMD) system; the Antares rocket used in the execution of our Commercial Resupply Services (CRS) contracts with NASA; the development and production of solid rocket motors for the National Aeronautics and Space Administration’s (NASA) Space Launch System (SLS) heavy lift vehicle; medium-class solid rocket motors for the U.S. Navy's Trident II Fleet Ballistic Missile program; Ground Based Strategic Deterrent (GBSD) Technology Maturation and Risk Reduction (TMRR) program; and the Intercontinental Ballistic Missile (ICBM) Ground Subsystem Support Contract (GSSC).

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NORTHROP GRUMMAN CORPORATION

Space – designs, develops, manufactures and integrates spacecraft systems, subsystems, sensors, payloads and ground systems to deliver mission capability to national security, science and environmental, communications, on-orbit servicing, and human-rated space systems for earth orbit and deep-space exploration missions. Much of this business is performed through restricted programs. Key unrestricted programs include the Cygnus spacecraft used in the execution of our CRS contracts with NASA; Advanced Extremely High Frequency (AEHF) and Enhanced Polar System (EPS) payloads providing survivable, protected communications to U.S. forces; Next-Generation Overhead Persistent Infrared Program (OPIR) satellites and payloads providing data for missile defense; and the James Webb Space Telescope (JWST), a large infrared telescope being built for NASA that will be deployed in space to study the origins of the universe.
SELECTED FINANCIAL DATA
For a summary of selected consolidated financial information, see “Selected Financial Data” in Part II, Item 6 of the 2019 Form 10-K.
CUSTOMER CONCENTRATION
Our largest customer is the U.S. government. Sales to the U.S. government accounted for 83 percent, 82 percent and 85 percent of sales during the years ended December 31, 2019, 2018 and 2017, respectively. For further information on sales by customer type, contract type and geographic region, see Note 16 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K. No single program accounted for more than ten percent of total sales during any period presented. See “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K for further discussion regarding risks related to customer concentration.
COMPETITIVE CONDITIONS
We compete with many companies in the defense, intelligence and federal civil markets. BAE Systems, Boeing, Booz Allen Hamilton, General Dynamics, L3Harris Technologies, Leidos, Leonardo, Lockheed Martin, Raytheon and Thales are some of our primary competitors. Key characteristics of our industry include long operating cycles and intense competition, which is evident through the number of competitors bidding on program opportunities and the number of bid protests (competitor protests of U.S. government procurement awards).
It is common in the defense industry for work on major programs to be shared among a number of companies. A company competing to be a prime contractor may, upon ultimate award of the contract to another competitor, become a subcontractor to the ultimate prime contracting company. It is not unusual to compete for a contract award with a peer company and, simultaneously, perform as a supplier to or a customer of that same competitor on other contracts, or vice versa.
SEASONALITY
No material portion of our business is considered to be seasonal.
BACKLOG
At December 31, 2019, total backlog, which is equivalent to the company’s remaining performance obligations, was $64.8 billion as compared with $53.5 billion at December 31, 2018. For further information, see “Backlog” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) in Part II, Item 7 of Exhibit 99.3 of this Form 8-K and Note 1 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K.
INTELLECTUAL PROPERTY
We routinely apply for and own a number of U.S. and foreign patents related to the technologies we develop. We also develop and protect intellectual property as trade secrets. In addition to owning a large portfolio of proprietary intellectual property, we license some intellectual property rights to third parties and we license or otherwise obtain access to intellectual property from third parties. The U.S. government typically holds licenses to patents developed in the performance of U.S. government contracts and may use or authorize others to use the inventions covered by these patents for certain purposes. See “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K for further discussion regarding risks related to intellectual property.
RAW MATERIALS
We have not experienced significant delays in the supply or availability of raw materials, nor have we experienced a significant price increase for raw materials. See “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K for further discussion regarding risks related to raw materials.

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NORTHROP GRUMMAN CORPORATION

EMPLOYEE RELATIONS
We believe that we maintain good relations with our approximately 90,000 employees. Approximately 5,000 are covered by 17 collective agreements in the U.S., of which we negotiated two renewals and one new agreement in 2019 and expect to negotiate six renewals in 2020. See “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K for further discussion regarding risks related to employee relations.
REGULATORY MATTERS
Government Contract Security Restrictions
We are prohibited by the U.S. government from publicly discussing the details of certain classified programs. These programs are generally referred to as “restricted” in this Form 8-K and the 2019 Form 10-K. The consolidated financial statements and financial information in this Form 8-K and the 2019 Form 10-K reflect the operating results of our entire company, including restricted programs.
Contracts
We generate the majority of our business from long-term contracts with the U.S. government for development, production and support activities. Unless otherwise specified in a contract, allowable and allocable costs are billed to contracts with the U.S. government pursuant to the Federal Acquisition Regulation (FAR) and U.S. government Cost Accounting Standards (CAS). Examples of costs incurred by us and not billed to the U.S. government in accordance with the FAR and CAS include, but are not limited to, certain legal costs, charitable donations, advertising costs, interest expense and unallowable employee compensation costs.
We monitor our contracts on a regular basis for compliance with our policies and procedures and applicable government laws and regulations. In addition, costs incurred and allocated to contracts with the U.S. government are routinely audited by the Defense Contract Audit Agency (DCAA).
Our long-term contracts typically fall into one of two contract types:
Cost-type contracts – Cost-type contracts include cost plus fixed fee, cost plus award fee and cost plus incentive fee contracts. Cost-type contracts generally provide for reimbursement of a contractor’s allowable costs incurred plus fee. As a result, cost-type contracts have less financial risk associated with unanticipated cost growth but generally provide lower profit margins than fixed-price contracts. Cost-type contracts typically require that the contractor use its best efforts to accomplish the scope of the work within some specified time and stated dollar limitation. Fees on cost-type contracts can be fixed in terms of dollar value or can be variable due to award and incentive fees, which are generally based on performance criteria such as cost, schedule, quality and/or technical performance. Award fees are determined and earned based on customer evaluation of the company’s performance against contractual criteria. Incentive fees are generally based on cost or schedule and provide for an initially negotiated fee to be adjusted later, based on the relationship of total allowable costs to total target costs or as schedule milestones are met. Award and incentive fees are 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.
Fixed-price contracts – Firm fixed-price contracts include a specified scope of work for a price that is a pre-determined, negotiated amount and not generally subject to adjustment regardless of costs incurred by the contractor, absent changes in scope by the customer. As a result, fixed-price contracts have more financial risk associated with unanticipated cost growth, but generally provide the opportunity for higher profit margins than cost-type contracts. Certain fixed-price incentive fee contracts provide for reimbursement of the contractor’s allowable costs plus a fee up to a cost ceiling amount, typically through a cost-sharing ratio that affects profitability. These contracts effectively become firm fixed-price contracts once the cost-share ceiling is reached. Time-and-materials contracts are considered fixed-price contracts as they specify a fixed hourly rate for each labor hour charged.
Profit margins on our contracts may vary materially depending on, among other things, the contract type, contract phase (e.g., development, low-rate production or mature production), negotiated fee arrangements, achievement of performance objectives, and cost, schedule and technical performance.
See Note 1 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K and “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K for further information regarding our contracts and Note 16 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for sales by contract type.

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NORTHROP GRUMMAN CORPORATION

The following table summarizes sales for the year ended December 31, 2019, recognized by contract type and customer category:
$ in millions
 
U.S.
Government(1)
 
International(2)
 
Other Customers
 
Total
 
Percentage
of Total Sales
Cost-type contracts
 
$
15,720

 
$
683

 
$
76

 
$
16,479

 
49
%
Fixed-price contracts
 
12,214

 
4,471

 
677

 
17,362

 
51
%
Total sales
 
$
27,934

 
$
5,154

 
$
753

 
$
33,841

 
100
%
(1) 
Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.  
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.
Environmental
Our operations are subject to and affected by federal, state, local and foreign laws, regulations and enforcement actions relating to protection of the environment. In 2015, we announced our 2020 environmental sustainability goals: to reduce absolute greenhouse gas emissions by 30 percent from 2010 levels; to reduce potable water use by 20 percent from 2014 levels; and to achieve a 70 percent solid waste diversion rate (away from landfills).
We have incurred and expect to continue to incur capital and operating costs to comply with applicable environmental laws and regulations and to achieve our environmental sustainability commitments. See “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K and Notes 1 and 12 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for further information regarding environmental matters.
EXECUTIVE OFFICERS
See “Directors, Executive Officers and Corporate Governance” in Part III, Item 10 of the 2019 Form 10-K for information about our executive officers.
AVAILABLE INFORMATION
Our principal executive offices are located at 2980 Fairview Park Drive, Falls Church, Virginia 22042. Our telephone number is (703) 280-2900 and our home page is www.northropgrumman.com.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statement for the annual shareholders’ meeting, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with the U.S. Securities and Exchange Commission (SEC). You can learn more about us by reviewing our SEC filings on the investor relations page of our website.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including Northrop Grumman Corporation.
References to our website and the SEC’s website in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, such websites. Such information should not be considered a part of this report, unless otherwise expressly incorporated by reference in this report.

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EX-99.2 4 noc-12312019xexx992ite.htm EXHIBIT 99.2 Exhibit

NORTHROP GRUMMAN CORPORATION

EXHIBIT 99.2
Item 2. Properties
At December 31, 2019, we had approximately 54 million square feet of floor space at 545 separate locations, primarily in the U.S., for manufacturing, warehousing, research and testing, administration and various other uses.
At December 31, 2019, we leased to third parties approximately 304,000 square feet of our owned and leased facilities.
At December 31, 2019, we had major operations at the following locations:
Aeronautics Systems
El Segundo, Mojave, Palmdale, Redondo Beach and San Diego, CA; Melbourne and St. Augustine, FL; Iuka and Moss Point, MS; Beavercreek, OH; Oklahoma City, OK; and Clearfield, UT.
Defense Systems
Huntsville, AL; Mesa and Sierra Vista, AZ; Los Angeles, CA; Warner Robins, GA; Lake Charles, LA; Baltimore, Cumberland and Elkton, MD; Elk River and Plymouth, MN; Independence, MO; Fort Worth, TX; Herndon, McLean, Radford and Richmond, VA; and Keyser, WV. Locations outside the U.S. include Australia.
Mission Systems
McClellan, San Diego, Sunnyvale and Woodland Hills, CA; Apopka, FL; Rolling Meadows, IL; Annapolis, Annapolis Junction, Elkridge, Halethorpe, Linthicum and Sykesville, MD; Bethpage and Williamsville, NY; Cincinnati, OH; Salt Lake City, UT; and Chantilly, Charlottesville and Fairfax, VA. Locations outside the U.S. include France, Germany, Italy and the United Kingdom.
Space Systems
Huntsville, AL; Chandler, Gilbert and Tempe, AZ; Azusa, Carson, Goleta, Los Angeles, Manhattan Beach, Oxnard, Redondo Beach and San Diego, CA; Aurora and Colorado Springs, CO; Devens, MA; Beltsville, MD; Eden Prairie, MN; Brigham City, Clearfield, Magna, Ogden, Salt Lake City and Tremonton, UT; and Dulles and Sterling, VA.
Corporate
Falls Church and Lebanon, VA and Irving, TX.
The following is a summary of our floor space at December 31, 2019:
Square feet (in thousands)
 
Owned
 
Leased
 
U.S. Government
Owned/Leased
 
Total
Aeronautics Systems
 
3,415

 
6,153

 
3,255

 
12,823

Defense Systems
 
1,364

 
4,685

 
4,767

 
10,816

Mission Systems
 
7,935

 
4,468

 

 
12,403

Space Systems
 
9,349

 
6,662

 
621

 
16,632

Corporate
 
614

 
492

 

 
1,106

Total
 
22,677

 
22,460

 
8,643

 
53,780

We maintain our properties in good operating condition and believe the productive capacity of our properties is adequate to meet current contractual requirements and those for the foreseeable future.


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EX-99.3 5 noc-12312019xexx993ite.htm EXHIBIT 99.3 Exhibit

NORTHROP GRUMMAN CORPORATION

EXHIBIT 99.3
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Current Report on Form 8-K, our 2019 Form 10-K and the information we are incorporating by reference contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “anticipate,” “intend,” “may,” “could,” “should,” “plan,” “project,” “forecast,” “believe,” “estimate,” “outlook,” “trends,” “goals” and similar expressions generally identify these forward-looking statements. Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or cash flows. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified under “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K and other important factors disclosed in this report and from time to time in our other filings with the SEC. They include:
our dependence on the U.S. government for a substantial portion of our business
significant delays or reductions in appropriations for our programs, and U.S. government funding and program support more broadly
investigations, claims, disputes, enforcement actions, litigation and/or other legal proceedings
the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs
our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulations
the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation and our ability to do business
cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners
the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials and components
changes in procurement and other laws, regulations, contract terms and practices applicable to our industry, findings by the U.S. government as to our compliance with such requirements, and changes in our customers’ business practices globally
increased competition within our markets and bid protests
the ability to maintain a qualified workforce with the required security clearances and requisite skills
our ability to meet performance obligations under our contracts, including obligations that require innovative design capabilities, are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control
environmental matters, including unforeseen environmental costs and government and third party claims
natural disasters
the adequacy and availability of our insurance coverage, customer indemnifications or other liability protections
products and services we provide related to hazardous and high risk operations, including the production and use of such products, which subject us to various environmental, regulatory, financial, reputational and other risks
the future investment performance of plan assets, changes in actuarial assumptions associated with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our pension and postretirement benefit obligations
our ability appropriately to exploit and/or protect intellectual property rights

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our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers
unanticipated changes in our tax provisions or exposure to additional tax liabilities
changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets
We urge you to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this report is first filed or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following discussion should be read along with the financial statements included in Part II, Item 8 of Exhibit 99.4 of this Form 8-K. Except as recast in this Form 8-K to reflect changes in the company's organizational structure and reportable segments, the following discussion should also be read along with Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2018, which provides additional information on comparisons of years 2018 and 2017.
Acquisition of Orbital ATK
On June 6, 2018 (the “Merger Date”), the company completed its previously announced acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”). On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc. We established Innovation Systems as a new, fourth business sector. The operating results of legacy Innovation Systems subsequent to the Merger Date have been included in the company’s consolidated results of operations and are reflected in the Space Systems, Defense Systems and Aeronautics Systems sectors. See Note 2 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for further information regarding the acquisition of Orbital ATK.
In June 2018, the U.S. Federal Trade Commission (FTC) issued a Decision and Order enabling the acquisition to proceed and providing for solid rocket motors to be available on a non-discriminatory basis under certain circumstances and processes. The company has taken and continues to take robust actions to help ensure compliance with the terms of the Order. Similarly, the Compliance Officer, appointed under the Order, and the FTC have taken and continue to take various actions to oversee compliance. In October 2019, the company received a civil investigative demand from the FTC requesting certain information relating to a potential issue of the company’s compliance with the Order in connection with a pending strategic missile competition. The company has provided information in response to the request. We believe the company has been and continues to be in full compliance with the Order, but we cannot predict any potential impact on the procurement.
Global Security and Economic Environment
The U.S. and its allies continue to face a global security environment of heightened tensions and instability, threats from state and non-state actors as well as terrorist organizations, emerging nuclear tensions, diverse regional security concerns and political instability. Global threats persist across all domains, from undersea to space to cyber. The market for defense products, services and solutions globally is driven by these complex and evolving security challenges, considered in the broader context of political and socioeconomic priorities.
The global geopolitical and economic environments also continue to be impacted by uncertainty. Geopolitical relationships are changing and global economic growth is expected to remain in the low single digits in 2020, reflecting the impact of and uncertainty surrounding geopolitical tensions globally and financial market volatility. The global economy may also be affected by Britain’s anticipated exit from the European Union, the full impact of which is not known at this time. Additionally, economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements, could impact the global market for defense products, services and solutions.
U.S. Political and Economic Environment
The U.S. continues to face an uncertain political environment and substantial fiscal and economic challenges, which affect funding for discretionary and non-discretionary budgets. The Budget Control Act of 2011 (BCA) mandated spending caps for all federal discretionary spending across a ten-year period (FY 2012 through FY 2021), including

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NORTHROP GRUMMAN CORPORATION

specific limits for defense and non-defense spending. In prior years, these spending caps have been revised by separate bills for specific fiscal years.
In 2019, the President proposed an FY 2020 budget requesting $750 billion for national security. The President’s budget request addresses various capabilities highlighted in the U.S. National Security Strategy, the National Defense Strategy and the Missile Defense Review. On August 2, 2019, the Bipartisan Budget Act of 2019 was enacted, increasing spending caps under the Budget Control Act (BCA) for FY 2020 and FY 2021, the final two fiscal years covered by the BCA, and suspending the debt ceiling through July 31, 2021. On December 20, 2019, FY 2020 appropriations for all federal agencies were enacted, representing a 3 percent increase from FY 2019. We believe our capabilities, particularly in space, missiles, missile defense, hypersonics, counter-hypersonics, low observable technology and cyber will allow us to continue to profitably grow our business in support of our customers’ needs.
The political environment, federal budget and debt ceiling are expected to continue to be the subject of considerable debate, which could have significant impacts on defense spending broadly and the company’s programs in particular.
For further information on the risks we face from the current political and economic environment, see “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K.
Operating Performance Assessment and Reporting
We manage and assess our business based on our performance on contracts and programs (typically larger contracts or two or more closely-related contracts). We recognize sales from our portfolio of long-term contracts as control is transferred to the customer, primarily over time on a cost-to-cost basis (cost incurred relative to costs estimated at completion). As a result, sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts. Due to Federal Acquisition Regulation (FAR) rules that govern our U.S. government business and related Cost Accounting Standards (CAS), most types of costs are allocable to U.S. government contracts. As such, we do not focus on individual cost groupings (such as manufacturing, engineering and design labor, subcontractor, material, overhead and general and administrative (G&A) costs), as much as we do on total contract cost, which is the key driver of our sales and operating income.
In evaluating our operating performance, we look primarily at changes in sales and operating income. Where applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between products and services. Changes in sales are generally described in terms of volume, while changes in margin rates are generally described in terms of performance and/or contract mix. For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability. Contract mix generally refers to changes in the ratio of contract type and/or life cycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).
CONSOLIDATED OPERATING RESULTS
For purposes of the operating results discussion below, we assess our performance using certain financial measures that are not calculated in accordance with GAAP. These non-GAAP financial measures exclude Mark-to-market pension and OPB (“MTM”) (expense) benefit and related tax impacts, and are described as MTM-adjusted net earnings and MTM-adjusted diluted earnings per share. These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the company’s underlying financial performance by presenting the company’s operating results before the non-operational impact of pension and OPB actuarial gains and losses. These measures are also consistent with how management views the underlying performance of the business as the impact of MTM accounting is not considered in management’s assessment of the company’s operating performance or in its determination of incentive compensation awards. We reconcile these non-GAAP financial measures to their most directly comparable GAAP financial measures below. These non-GAAP measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.

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NORTHROP GRUMMAN CORPORATION

Selected financial highlights are presented in the table below:
 
Year Ended December 31
 
% Change in
$ in millions, except per share amounts
2019
 
2018
 
2017
 
2019
 
2018
Sales
$
33,841

 
$
30,095

 
$
26,004

 
12
 %
 
16
 %
Operating costs and expenses
29,872

 
26,315

 
22,786

 
14
 %
 
15
 %
Operating costs and expenses as a % of sales
88.3
%
 
87.4
%
 
87.6
%
 
 
 
 
Operating income
3,969

 
3,780

 
3,218

 
5
 %
 
17
 %
Operating margin rate
11.7
%
 
12.6
%
 
12.4
%
 
 
 
 
Mark-to-market pension and OPB (expense) benefit
(1,800
)
 
(655
)
 
536

 
175
 %
 
NM

Federal and foreign income tax expense
300

 
513

 
1,360

 
(42
)%
 
(62
)%
Effective income tax rate
11.8
%
 
13.7
%
 
32.2
%
 
 
 
 
Net earnings
2,248

 
3,229

 
2,869

 
(30
)%
 
13
 %
Diluted earnings per share
13.22

 
18.49

 
16.34

 
(29
)%
 
13
 %
Sales
2019 sales increased $3.7 billion, as compared with 2018, due to higher volume at all four sectors, including a $2.6 billion increase due to a full year of sales from legacy Innovation Systems businesses.
2018 sales increased $4.1 billion, as compared with 2017, due to higher volume at all four sectors, including $3.1 billion of sales subsequent to the Merger date from legacy Innovation Systems businesses.
See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 16 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments.
Operating Income and Margin Rate
2019 operating income increased $189 million, or 5 percent, as compared with 2018, primarily due to a $462 million increase in segment operating income, including a $315 million increase due to a full year of operating income from legacy Innovation Systems businesses. This was partially offset by a $148 million decrease in the net FAS (service)/CAS pension adjustment and a $125 million increase in unallocated corporate expense, all of which are further discussed in “Segment Operating Results.” Operating margin rate declined to 11.7 percent from 12.6 percent due to the pension and unallocated corporate expense items noted above, partially offset by a higher segment operating margin rate, as described in “Segment Operating Results.”
2019 G&A costs as a percentage of sales decreased to 9.7 percent from 10.0 percent in 2018, primarily due to higher sales as well as cost management, including cost synergies realized in connection with the 2018 acquisition of Orbital ATK.
2018 operating income increased $562 million, or 17 percent, as compared with 2017, primarily due to a $544 million increase in segment operating income, including the addition of $342 million of operating income from legacy Innovation Systems businesses, and a $42 million decrease in unallocated corporate expense, partially offset by a $25 million decrease in our net FAS (service)/CAS pension adjustment, all of which are further discussed in “Segment Operating Results.” Lower operating costs and expenses as a percentage of sales increased our operating margin rate to 12.6 percent from 12.4 percent in the prior year period and was principally driven by a higher segment operating margin rate, as described in “Segment Operating Results,” and the previously noted decrease in unallocated corporate expense, partially offset by the decrease in our net FAS (service)/CAS pension adjustment.
2018 G&A costs as a percentage of sales decreased to 10.0 percent from 10.4 percent in 2017, principally due to higher sales volume.
For further information regarding product and service operating costs and expenses, see “Product and Service Analysis” below.

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NORTHROP GRUMMAN CORPORATION

Mark-to-Market Pension and OPB (Expense) Benefit
The primary components of pre-tax MTM (expense) benefit are presented in the table below:
 
Year Ended December 31
$ in millions
2019
 
2018
 
2017
Actuarial (losses) gains on projected benefit obligation
$
(4,866
)
 
$
2,772

 
$
(1,570
)
Actuarial gains (losses) on plan assets
3,066

 
(3,426
)
 
2,119

Other

 
(1
)
 
(13
)
MTM (expense) benefit
$
(1,800
)
 
$
(655
)
 
$
536

2019 MTM expense of $1.8 billion was primarily driven by a 92 basis point decrease in the discount rate from year end 2018 as well as a change in our mortality assumptions, partially offset by actual net plan asset returns of approximately 19.1 percent compared to our 8.0 percent asset return assumption.
Federal and Foreign Income Taxes
The 2019 effective tax rate decreased to 11.8 percent from 13.7 percent in 2018. MTM expense reduced the 2019 effective tax rate by 3.7 percentage points and the 2018 effective tax rate by 1.1 percentage points. See Note 7 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for additional information.
Net Earnings
The table below reconciles net earnings to MTM-adjusted net earnings:
 
Year Ended December 31
 
% Change in
$ in millions
2019
 
2018
 
2017
 
2019
 
2018
Net earnings
$
2,248

 
$
3,229

 
$
2,869

 
(30
)%
 
13
%
MTM expense (benefit)
1,800

 
655

 
(536
)
 
175
 %
 
NM

MTM-related deferred state tax (benefit) expense(1)
(81
)
 
(29
)
 
24

 
179
 %
 
NM

Federal tax (benefit) expense of items above(2)
(361
)
 
(131
)
 
108

 
176
 %
 
NM

MTM expense (benefit), net of tax
1,358

 
495

 
(404
)
 
174
 %
 
NM

MTM-adjusted net earnings
$
3,606

 
$
3,724

 
$
2,465

 
(3
)%
 
51
%
(1) 
Deferred state taxes are recorded in unallocated corporate expense within operating income.  
(2) 
Based on a 21% federal statutory tax rate.  
Net earnings decreased $981 million in 2019 principally due to an $863 million increase in our MTM expense, net of tax. Excluding these impacts, MTM-adjusted net earnings decreased by $118 million, or 3 percent, primarily due to a $397 million decrease in the total net FAS/CAS pension adjustment and $170 million of higher intangible asset amortization and PP&E step-up depreciation. These decreases were partially offset by $462 million of higher segment operating income.

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NORTHROP GRUMMAN CORPORATION

Diluted Earnings Per Share
The table below reconciles diluted earnings per share to MTM-adjusted diluted earnings per share:
 
Year Ended December 31
 
% Change in
 
2019
 
2018
 
2017
 
2019
 
2018
Diluted earnings per share
$
13.22

 
$
18.49

 
$
16.34

 
(29
)%
 
13
%
MTM expense (benefit) per share
10.59

 
3.76

 
(3.06
)
 
182
 %
 
NM

MTM-related deferred state tax (benefit) expense per share(1)
(0.48
)
 
(0.17
)
 
0.14

 
182
 %
 
NM

Federal tax (benefit) expense of items above per share(2)
(2.12
)
 
(0.75
)
 
0.62

 
183
 %
 
NM

MTM expense (benefit) per share, net of tax
7.99

 
2.84

 
(2.30
)
 
181
 %
 
NM

MTM-adjusted diluted earnings per share
$
21.21

 
$
21.33

 
$
14.04

 
(1
)%
 
52
%
(1) 
Deferred state taxes are recorded in unallocated corporate expense within operating income.
(2) 
Based on a 21% federal statutory tax rate.
Diluted earnings per share decreased $5.27, or 29 percent, principally due to a $5.15 reduction associated with our MTM expense, net of tax. Excluding these impacts, MTM-adjusted diluted earnings per share decreased $0.12, or 1 percent, reflecting a 3 percent decrease in MTM-adjusted net earnings and a 3 percent decrease in weighted-average diluted shares outstanding.
SEGMENT OPERATING RESULTS
Basis of Presentation
At December 31, 2019, the company was aligned in four operating sectors: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services. Effective January 1, 2020, the company reorganized its sectors to better align the company’s broad portfolio to serve its customers’ needs. The four new operating sectors, which also comprise our reportable segments, are: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. The operating results for all periods presented have been recast to reflect this realignment and include sales and operating income from legacy Innovation Systems businesses subsequent to the Merger date. For a more complete description of each segment’s products and services, see “Business” in Part I, Item 1 of Exhibit 99.1 of this Form 8-K.
We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities:
Aeronautics Systems
 
Defense Systems
 
Mission Systems
 
Space Systems
Autonomous Systems
 
Battle Management & Missile Systems
 
Airborne Sensors & Networks
 
Launch & Strategic Missiles
Manned Aircraft
 
Mission Readiness
 
Cyber & Intelligence Mission Solutions
 
Space
 
 
 
 
Maritime/Land Systems & Sensors
 
 
 
 
 
 
Navigation, Targeting & Survivability
 
 
This section discusses segment sales, operating income and operating margin rates. A reconciliation of segment operating income to total operating income is provided below.

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NORTHROP GRUMMAN CORPORATION

Segment Operating Income and Margin Rate
Segment operating income, as reconciled in the table below, and segment operating margin rate (segment operating income divided by sales) are non-GAAP (accounting principles generally accepted in the United States of America) measures that reflect total earnings from our four segments, including allocated pension expense we have recognized under FAR and CAS, and excluding FAS pension expense and unallocated corporate items (certain corporate-level expenses, which are not considered allowable or allocable under applicable CAS or FAR, and costs not considered part of management’s evaluation of segment operating performance). These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the financial performance and operational trends of our sectors. These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.
 
Year Ended December 31
 
% Change in
$ in millions
2019
 
2018
 
2017
 
2019
 
2018
Segment operating income
$
3,909

 
$
3,447

 
$
2,903

 
13
 %
 
19
 %
Segment operating margin rate
11.6
%
 
11.5
%
 
11.2
%
 
 
 
 
CAS pension expense
832

 
1,017

 
1,026

 
(18
)%
 
(1
)%
Less: FAS (service) pension expense
(367
)
 
(404
)
 
(388
)
 
(9
)%
 
4
 %
Net FAS (service)/CAS pension adjustment
465

 
613

 
638

 
(24
)%
 
(4
)%
Intangible asset amortization and PP&E step-up depreciation
(390
)
 
(220
)
 

 
NM

 
NM

MTM-related deferred state tax benefit (expense)(1)
81

 
29

 
(24
)
 
179
 %
 
NM

Other unallocated corporate expense
(96
)
 
(89
)
 
(299
)
 
8
 %
 
(70
)%
Unallocated corporate expense
(405
)
 
(280
)
 
(323
)
 
45
 %
 
(13
)%
Total operating income
$
3,969

 
$
3,780

 
$
3,218

 
5
 %
 
17
 %
(1) 
Represents the deferred state tax impact of MTM (expense) benefit, which is recorded in unallocated corporate expense consistent with other changes in deferred state taxes.
Segment Operating Income and Margin Rate
2019 segment operating income increased $462 million, or 13 percent, as compared with 2018, due to higher operating income at all four sectors, including a $315 million increase due to a full year of operating income from legacy Innovation Systems businesses. Segment operating margin rate of 11.6 percent was comparable to the prior year.
2018 segment operating income increased $544 million, or 19 percent, as compared with 2017, due to higher operating income at all four sectors, including the addition of $342 million of operating income from legacy Innovation Systems businesses. The higher operating income includes $69 million of favorable EAC adjustments on multiple restricted programs at Aeronautics Systems. Segment operating margin rate increased to 11.5 percent from 11.2 percent in 2017 principally due to a higher segment margin rate at Aeronautics Systems.
Net FAS (service)/CAS Pension Adjustment
The decrease in our 2019 net FAS (service)/CAS pension adjustment, as compared with 2018, is primarily due to lower CAS expense largely as a result of changes in actuarial assumptions as of December 31, 2018, partially offset by a full year of CAS expense from legacy Innovation Systems.
The decrease in our 2018 net FAS (service)/CAS pension adjustment, as compared with 2017, is primarily due to lower CAS expense for legacy Northrop Grumman resulting from higher assets returns in 2017 and a change in the legacy Northrop Grumman mortality assumption as of December 31, 2017, which more than offset the additional net FAS (service)/CAS pension adjustment from the addition of legacy Innovation Systems.
Unallocated Corporate Expense
The increase in 2019 unallocated corporate expense is primarily due to the absence in 2019 of a $223 million benefit recognized for the finalization of certain prior year cost claims, as well as $170 million of higher intangible asset amortization and PP&E step-up depreciation. This increase was partially offset by $140 million of lower deferred state taxes and an $89 million benefit recognized in 2019 related to the favorable resolution of a cost accounting litigation matter.

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NORTHROP GRUMMAN CORPORATION

Net Estimate-At-Completion (EAC) Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below:
 
Year Ended December 31
$ in millions
2019
 
2018
 
2017
Favorable EAC adjustments
$
1,040

 
$
1,019

 
$
717

Unfavorable EAC adjustments
(560
)
 
(442
)
 
(357
)
Net EAC adjustments
$
480

 
$
577

 
$
360

Net EAC adjustments by segment are presented in the table below:
 
Year Ended December 31
$ in millions
2019
 
2018
 
2017
Aeronautics Systems(1)
$
143

 
$
271

 
$
113

Defense Systems(1)
99

 
75

 
17

Mission Systems
189

 
172

 
89

Space Systems(1)
63

 
73

 
154

Eliminations
(14
)
 
(14
)
 
(13
)
Net EAC adjustments
$
480

 
$
577

 
$
360

(1) 
Amounts reflect EAC adjustments after the percent complete on legacy Innovation Systems contracts was reset to zero as of the Merger date.
For purposes of the discussion in the remainder of this Segment Operating Results section, references to operating income and operating margin rate reflect segment operating income and segment operating margin rate, respectively.
AERONAUTICS SYSTEMS
 
Year Ended December 31
 
% Change in
$ in millions
2019
 
2018
 
2017
 
2019
 
2018
Sales
$
11,116

 
$
10,293

 
$
9,040

 
8
%
 
14
%
Operating income
1,170

 
1,107

 
848

 
6
%
 
31
%
Operating margin rate
10.5
%
 
10.8
%
 
9.4
%
 
 
 
 
Sales
2019 sales increased $823 million, or 8 percent, as compared with 2018, due in large part to higher volume on restricted programs. In addition, Manned Aircraft sales reflect a $188 million increase due to a full year of sales on legacy Innovation Systems Aerospace Structures programs, as well as a higher rate of F-35 production activity and higher volume on the E-2 program. Autonomous Systems sales include higher Global Hawk volume and lower NATO AGS volume as that program nears completion.
2018 sales increased $1.3 billion, or 14 percent, as compared with 2017, due to higher volume in both business areas, principally on Manned Aircraft programs. Manned Aircraft sales were driven by higher restricted and F-35 volume, as well as $274 million of sales on legacy Innovation Systems Aerospace Structures programs subsequent to the Merger date. Autonomous Systems sales reflect higher volume on several programs, including Triton, partially offset by lower Global Hawk volume.
Operating Income
2019 operating income increased $63 million, or 6 percent, as compared with 2018, due to higher sales. 2019 operating margin rate decreased to 10.5 percent from 10.8 percent principally due to lower net favorable EAC adjustments.
2018 operating income increased $259 million, or 31 percent, as compared with 2017, primarily due to higher sales and a higher operating margin rate. Operating margin rate increased to 10.8 percent from 9.4 percent principally due to improved performance, including $69 million of favorable EAC adjustments on multiple restricted programs.

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NORTHROP GRUMMAN CORPORATION

DEFENSE SYSTEMS
 
Year Ended December 31
 
% Change in
$ in millions
2019
 
2018
 
2017
 
2019
 
2018
Sales
$
7,495

 
$
6,612

 
5,479

 
13
%
 
21
%
Operating income
781

 
690

 
534

 
13
%
 
29
%
Operating margin rate
10.4
%
 
10.4
%
 
9.7
%
 
 
 
 
Sales
2019 sales increased $883 million, or 13 percent, as compared with 2018, due to higher Battle Management & Missile Systems sales, partially offset by lower volume on Mission Readiness programs. Battle Management & Missile Systems sales reflect a $1.1 billion increase due to a full year of sales on legacy Innovation Systems Weapon Systems programs. Mission Readiness sales declined principally due to the 2018 completions of a state and local services contract and the JRDC program.
2018 sales increased $1.1 billion, or 21 percent, as compared with 2017, due to higher Battle Management & Missile Systems sales, partially offset by lower volume on Mission Readiness programs. Battle Management & Missile Systems sales include $1.4 billion of sales on legacy Innovation Systems Weapon Systems programs subsequent to the Merger date and higher volume on the Integrated Air and Missile Defense Battle Command System program. Mission Readiness sales decreased primarily due to the completions of several large programs, including KC-10 and JRDC, partially offset by higher volume on the Special Electronic Mission Aircraft program.
Operating Income
2019 operating income increased $91 million, or 13 percent, as compared with 2018, due to higher sales. Operating margin rate was comparable to the prior year and reflects a favorable adjustment on a logistics and modernization sustainment program, offset by lower performance on information solutions and services programs.
2018 operating income increased $156 million, or 29 percent, as compared with 2017, due to higher sales and a higher operating margin rate. Operating margin rate increased to 10.4 percent from 9.7 percent primarily due to the close-out of a state and local services contract.
MISSION SYSTEMS
 
Year Ended December 31
 
% Change in
$ in millions
2019
 
2018
 
2017
 
2019
 
2018
Sales
$
9,410

 
$
8,949

 
$
8,460

 
5
%
 
6
%
Operating income
1,382

 
1,215

 
1,157

 
14
%
 
5
%
Operating margin rate
14.7
%
 
13.6
%
 
13.7
%
 
 
 
 
Sales
2019 sales increased $461 million, or 5 percent, as compared with 2018, principally due to higher volume on Airborne Sensors & Networks and Maritime/Land Systems & Sensors programs. Airborne Sensors & Networks sales increased principally due to higher volume on airborne radar, F-35 and restricted programs, partially offset by lower volume on communications programs. Maritime/Land Systems & Sensors sales increased principally due to higher volume on marine systems and international programs.
2018 sales increased $489 million, or 6 percent, as compared with 2017, principally due to higher volume on Airborne Sensors & Networks and Navigation, Targeting & Survivability programs. Airborne Sensors & Networks sales increased principally due to higher volume on restricted, airborne electronic warfare and F-35 programs. Navigation, Targeting & Survivability sales increased principally due to higher volume on self-protection and infrared countermeasures programs.
Operating Income
2019 operating income increased $167 million, or 14 percent, as compared with 2018, due to a higher operating margin rate and higher sales. Operating margin rate increased to 14.7 percent from 13.6 percent primarily due to improved performance on Maritime/Land Systems & Sensors and Airborne Sensors & Networks programs.
2018 operating income increased $58 million, or 5 percent, as compared with 2017, due to higher sales. Operating margin rate was comparable with the prior year period.

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NORTHROP GRUMMAN CORPORATION

SPACE SYSTEMS
 
Year Ended December 31
 
% Change in
$ in millions
2019
 
2018
 
2017
 
2019
 
2018
Sales
$
7,425

 
$
5,845

 
$
4,719

 
27
%
 
24
%
Operating income
781

 
635

 
578

 
23
%
 
10
%
Operating margin rate
10.5
%
 
10.9
%
 
12.2
%
 
 
 
 
Sales
2019 sales increased $1.6 billion, or 27 percent, as compared with 2018, including a $1.4 billion increase due to a full year of sales on legacy Innovation Systems programs. In addition, Space sales reflect higher volume on Next Generation Overhead Persistent Infrared (Next Gen OPIR) programs and the James Webb Space Telescope (JWST).
2018 sales increased $1.1 billion or 24 percent, as compared with 2017, primarily due to $1.5 billion of sales on legacy Innovation Systems programs subsequent to the Merger date and higher Ground Based Strategic Deterrent Technology Maturation Risk Reduction volume. Space sales reflect ramp-down on a restricted ISR program and lower JWST volume.
Operating Income
2019 operating income increased $146 million, or 23 percent, as compared with 2018, due to higher sales. Operating margin rate decreased to 10.5 percent from 10.9 percent primarily due to lower net favorable EAC adjustments.
2018 operating income increased $57 million, or 10 percent, as compared with 2017, due to higher sales. Operating margin rate decreased to 10.9 percent from 12.2 percent primarily due to a $56 million favorable EAC adjustment recorded on a restricted program in 2017.

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NORTHROP GRUMMAN CORPORATION

PRODUCT AND SERVICE ANALYSIS
The following table presents product and service sales and operating costs and expenses by segment:
 
 
Year Ended December 31
$ in millions
 
2019
 
2018
 
2017
Segment Information:
 
Sales
 
Operating Costs and Expenses
 
Sales
 
Operating Costs and Expenses
 
Sales
 
Operating Costs and Expenses
Aeronautics Systems
 
 
 
 
 
 
 
 
 
 
 
 
Product
 
$
9,387

 
$
8,444

 
$
8,665

 
$
7,749

 
$
7,388

 
$
6,715

Service
 
1,626

 
1,409

 
1,555

 
1,372

 
1,606

 
1,436

Intersegment eliminations
 
103

 
93

 
73

 
65

 
46

 
41

Total Aeronautics Systems
 
11,116

 
9,946

 
10,293

 
9,186

 
9,040

 
8,192

Defense Systems
 
 
 
 
 
 
 
 
 
 
 
 
Product
 
2,784

 
2,577

 
1,703

 
1,523

 
370

 
323

Service
 
4,020

 
3,520

 
4,159

 
3,723

 
4,135

 
3,745

Intersegment eliminations
 
691

 
617

 
750

 
676

 
974

 
877

Total Defense Systems
 
7,495

 
6,714

 
6,612

 
5,922

 
5,479

 
4,945

Mission Systems
 
 
 
 
 
 
 
 
 
 
 
 
Product
 
6,022

 
5,091

 
5,790

 
5,013

 
5,388

 
4,642

Service
 
2,660

 
2,322

 
2,441

 
2,118

 
2,434

 
2,129

Intersegment eliminations
 
728

 
615

 
718

 
603

 
638

 
532

Total Mission Systems
 
9,410

 
8,028

 
8,949

 
7,734

 
8,460

 
7,303

Space Systems
 
 
 
 
 
 
 
 
 
 
 
 
Product
 
5,659

 
5,031

 
4,311

 
3,805

 
3,218

 
2,784

Service
 
1,683

 
1,538

 
1,471

 
1,345

 
1,465

 
1,327

Intersegment eliminations
 
83

 
75

 
63

 
60

 
36

 
30

Total Space Systems
 
7,425

 
6,644

 
5,845

 
5,210

 
4,719

 
4,141

Segment Totals
 
 
 
 
 
 
 
 
 
 
 
 
Total Product
 
$
23,852

 
$
21,143

 
$
20,469

 
$
18,090

 
$
16,364

 
$
14,464

Total Service
 
9,989

 
8,789

 
9,626

 
8,558

 
9,640

 
8,637

Total Segment(1)
 
$
33,841

 
$
29,932

 
$
30,095

 
$
26,648

 
$
26,004

 
$
23,101

(1) 
A reconciliation of segment operating income to total operating income is included in “Segment Operating Results.”
Product Sales and Costs
2019 product sales increased $3.4 billion, or 17 percent, as compared with 2018, and reflects a $2.4 billion increase due to a full year of product sales on legacy Innovation Systems programs. In addition, Aeronautics Systems product sales reflect higher volume on restricted and F-35 programs and Space Systems product sales reflect higher volume on Next Gen OPIR.
2019 product costs increased $3.1 billion, or 17 percent, as compared with 2018, consistent with the higher product sales described above.
2018 product sales increased $4.1 billion, or 25 percent, as compared with 2017, primarily due to the addition of $2.8 billion of product sales subsequent to the Merger date on legacy Innovation Systems programs and higher restricted and F-35 volume at Aeronautics Systems.
2018 product costs increased $3.6 billion, or 25 percent, as compared with 2017, consistent with the higher product sales described above.
Service Sales and Costs
2019 service sales increased $363 million, or 4 percent, as compared with 2018, and reflects a $265 million increase due to a full year of service sales on legacy Innovation Systems programs and higher service sales at Mission Systems, partially offset by lower service sales at Defense Systems principally due to program completions.

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NORTHROP GRUMMAN CORPORATION

2019 service costs increased $231 million, or 3 percent, as compared to 2018, consistent with the higher service sales described above and reflects improved margin rates at Defense Systems and Aeronautics Systems.
2018 service sales were comparable with 2017. Lower service sales at Space Systems and Defense Systems principally due to the completion of several programs, were offset by the addition of $374 million of service sales subsequent to the Merger date on legacy Innovation Systems programs.
2018 service costs were comparable with 2017, consistent with service sales described above.
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 indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time the option or IDIQ task order is exercised or awarded. Backlog is converted into sales as costs are incurred or deliveries are made.
Backlog consisted of the following at December 31, 2019 and 2018:
 
 
2019
 
2018
 
 
$ in millions
 
Funded
 
Unfunded
 
Total
Backlog
 
Total
Backlog
 
% Change in 2019
Aeronautics Systems
 
$
10,454

 
$
15,567

 
$
26,021

 
$
20,991

 
24
%
Defense Systems
 
6,443

 
2,038

 
8,481

 
7,181

 
18
%
Mission Systems
 
9,032

 
5,194

 
14,226

 
12,069

 
18
%
Space Systems
 
4,348

 
11,764

 
16,112

 
13,259

 
22
%
Total backlog
 
$
30,277

 
$
34,563

 
$
64,840

 
$
53,500

 
21
%

LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize shareholder value through cash deployment activities. In addition to our cash position, we use various financial measures to assist in capital deployment decision-making, including cash provided by operating activities and free cash flow, a non-GAAP measure described in more detail below.
As of December 31, 2019, we had cash and cash equivalents of $2.2 billion; approximately $269 million was held outside of the U.S. by foreign subsidiaries. Cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets, if needed, are expected to be sufficient to fund our operations for at least the next 12 months. Capital expenditure commitments were $790 million at December 31, 2019, and are expected to be paid with cash on hand.
Operating Cash Flow
The table below summarizes key components of cash flow provided by operating activities:
 
 
Year Ended December 31
$ in millions
 
2019
 
2018
 
2017
Net earnings
 
$
2,248

 
$
3,229

 
$
2,869

Non-cash items(1)
 
2,683

 
1,775

 
1,018

Changes in assets and liabilities:
 
 
 
 
 
 
Trade working capital
 
128

 
(65
)
 
(285
)
Retiree benefits, excluding MTM (expense) benefit
 
(703
)
 
(1,083
)
 
(946
)
Other, net
 
(59
)
 
(29
)
 
(43
)
Net cash provided by operating activities
 
$
4,297

 
$
3,827

 
$
2,613

(1) 
Includes depreciation and amortization, MTM (expense) benefit, non-cash lease expense, stock based compensation expense and deferred income taxes.
2019 cash provided by operating activities increased $470 million, as compared with 2018, principally due to improved trade working capital and lower pension contributions.

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NORTHROP GRUMMAN CORPORATION

2018 cash provided by operating activities increased $1.2 billion, as compared with 2017, principally due to higher net earnings, including the addition of legacy Innovation Systems businesses, and improved trade working capital performance.
Free Cash Flow
Free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by operating activities less capital expenditures, and may not be defined and calculated by other companies in the same manner. We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and share repurchases. This non-GAAP measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP.
The table below reconciles net cash provided by operating activities to free cash flow:
 
 
Year Ended December 31
 
% Change in
$ in millions
 
2019
 
2018
 
2017
 
2019
 
2018
Net cash provided by operating activities
 
$
4,297

 
$
3,827

 
$
2,613

 
12
%
 
46
%
Less: capital expenditures
 
(1,264
)
 
(1,249
)
 
(928
)
 
1
%
 
35
%
Free cash flow
 
$
3,033

 
$
2,578

 
$
1,685

 
18
%
 
53
%
2019 free cash flow increased $455 million, as compared with 2018, principally driven by an increase in net cash provided by operating activities.
2018 free cash flow increased $893 million, as compared with 2017, principally driven by the increase in net cash provided by operating activities described above, partially offset by the inclusion of capital expenditures from legacy Innovation Systems and higher capital expenditures at Aeronautics Systems and Space Systems.
Investing Cash Flow
2019 net cash used in investing activities decreased to $1.2 billion from $8.9 billion principally due to $7.7 billion paid in 2018 for the acquisition of Orbital ATK, net of cash acquired.
Financing Cash Flow
2019 net cash used in financing activities decreased to $2.4 billion from $4.6 billion principally due to lower debt and credit facility repayments of $2.1 billion and lower share repurchases, partially offset by net repayments of commercial paper in 2019 as compared to net borrowings in 2018.
Share Repurchases See Note 3 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for further information on our share repurchase programs.
Commercial Paper, Credit Facilities and Unsecured Senior Notes See Note 10 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for further information on our commercial paper, credit facilities and unsecured senior notes.
Financial Arrangements See Note 12 to the consolidated financial statements in Part II, Item 8 of Exhibit 99.4 of this Form 8-K for further information on our use of standby letters of credit and guarantees.
Other Sources of Capital We believe we can obtain additional capital, if necessary for long-term liquidity, from such sources as the public or private capital markets, the sale of assets, sale and leaseback of operating assets, and leasing rather than purchasing new assets. We have an effective shelf registration statement on file with the SEC, which allows us to access capital in a timely manner.

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NORTHROP GRUMMAN CORPORATION

Contractual Obligations
At December 31, 2019, we had contractual commitments to repay debt with interest, make payments under operating leases, settle obligations related to agreements to purchase goods and services and make payments on various other liabilities. Payments due under these obligations and commitments, and the estimated timing of those payments, are as follows:
$ in millions
 
Total
 
2020
 
2021- 2022
 
2023- 2024
 
2025 and beyond
Long-term debt
 
$
13,945

 
$
1,110

 
$
2,247

 
$
1,056

 
$
9,532

Interest payments on long-term debt
 
6,632

 
524

 
956

 
830

 
4,322

Operating leases
 
1,992

 
300

 
486