AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-3: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 6/6 · 28/10/2026
Moat63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 3/4 · Existing advanced-aircraft and sustainment responsibilities, restricted work and specialized cleared-personnel requirements demonstrate incumbent capabilities and access barriers. Additional restricted-program awards support current relevance. Switching costs are inferred from these responsibilities; exclusive rights and superiority over named peers are not established.
durability · 2/4 · B-21's 2015 award and expected LRIP execution through approximately decade-end demonstrate a long program cycle, while September awards support continuing demand. Government termination rights and the historical restricted-Space cancellation show that persistence and future profit remain conditional rather than guaranteed.
customer dependency · 3/4 · Production, modernization and sustainment responsibilities, further Sentinel authorization and additional F-35 and E-2 awards support strong program-specific customer dependence. This is indirect operating evidence of reliance on incumbent capabilities; it does not quantify replacement costs or establish that government customers cannot change suppliers.
erosion resilience · 2/4 · Backlog rose from $95.7 billion at December 2025 to $109.6 billion in September 2026, supporting continued competitiveness. Realized supplier impacts, cumulative B-21 losses and an actual historical cancellation temper that evidence. Procurement reform has increased competitive participation, although further economic harm remains a risk rather than an established outcome.
Pricing power44
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 1/4 · Approximately $2.0 billion of cumulative B-21 LRIP losses demonstrate weak realized price-versus-cost economics on that phase, consistent with largely fixed-price terms. Achieved Sentinel incentives provide a positive counterexample. These outcomes support a numerical assessment but do not isolate companywide selling-price changes from costs, volume or mix.
retention · 3/4 · Ongoing sustainment responsibilities and additional Sentinel, F-35, E-2 and restricted-program awards demonstrate repeat demand. September backlog further supports continuing customer engagement. Retention is assessed indirectly from operating evidence, rather than a renewal rate; termination rights and completed F/A-18 deliveries limit extrapolation.
margin resilience · 2/4 · Year-to-date September 2026 segment margin improved to 11.2% from 10.1%, while third-quarter margin was 12.1% versus 12.3%, with the comparison affected by a prior-year favorable adjustment. Cost reimbursement protects some economics, but B-21 loss provisions demonstrate vulnerability. The mixed record does not establish broad pricing power.
contractual freedom · 1/4 · Fixed-price contracts generally lock in negotiated prices despite contractor cost growth, absent customer changes. Cost-type work reimburses allowable costs plus fees, offering protection rather than unilateral pricing discretion. Government termination rights and exclusion of anticipated future profit further constrain control over terms and value capture.
Predictability100
5 consecutive published annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 2.02
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 1.27
- observedAnnualPeriods
- 5.00
Financial strength44
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, an original issuer-reported unadjusted EBIT reconciled to net income, income tax and signed net interest, or reported pretax profit plus reported gross interest expense. Reported EBIT is distinct from GAAP operating income and gross interest. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 46.48
- netDebtEbitGrade
- 49.93
- interestCoverageGrade
- 52.58
- currentRatioGrade
- 28.10
- Debt / FCF (x)
- 4.75
- Net debt / operating income (x)
- 2.50
- Interest coverage (x)
- 6.78
- Current ratio (x)
- 1.10
Capital allocation84
Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income, an original issuer-reported unadjusted EBIT reconciled to net income, income tax and signed net interest, or EBIT calculated from reported pretax profit plus reported gross interest expense; the issuer-reported EBIT is distinct from GAAP operating income and gross interest; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. ROIC remains undefined for nonpositive invested capital; the explicit asset-return alternative does not change the ROIC chart. Missing financial inputs alone never trigger an alternative. Does not establish acquisition quality or buyback timing.
- 3-year pre-tax operating return (%)
- 14.28
- 3-year average dilution (%)
- -2.52
- 3-year average SBC / revenue (%)
- 0.25
- cashConversionGrade
- 77.10
Management50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Reported 2025 operating cash flow of approximately $4.8 billion supported $2.9 billion of distributions. First-half 2026 operating cash outflow of $376 million and $469 million of capital expenditures coincided with sharply reduced repurchases and $527 million of debt payments. This shows responsive allocation, but investment returns and complete nine-month flows remain unestablished.
incentive alignment · 2/4 · Actual multiyear awards use cash flow, ROIC and relative returns, alongside ownership and holding requirements. The approved CEO grant extends performance measurement through 2031. Restricted-program metric caps weaken accountability, while ownership compliance includes executives merely on track. These are adopted arrangements, with future payouts and vesting still contingent.
execution · 2/4 · Further Sentinel authorization, achieved incentives, new awards and improved year-to-date segment margins demonstrate progress through indirect operating evidence. Approximately $2.0 billion of cumulative B-21 LRIP losses, supplier impacts and Sentinel's breach review show material weaknesses. Continued awards therefore support a mixed execution assessment rather than exceptional delivery performance.
governance · 2/4 · Disclosed independent committees, a lead independent director and shareholder rights provide formal safeguards. Combined chair, CEO and president roles remain after shareholders rejected an independent-chair proposal. The criminal inquiry closed, while civil and DCMA matters remain unresolved; those inquiries do not establish misconduct or independently prove oversight effectiveness.
Evidence
Air Force B-21 Raider long-range strike aircraft that define sixth-generation technologies; •Modernization and sustainment services for the B-2 Spirit stealth aircraft; •Development and production of the E-130J Phoenix II nuclear command, control and communications (NC3) aircraft for the U.S.
2025 Form 10-K; filed 2026-01-27; Aeronautics Systems program responsibilities · Filed 27/01/2026
•Global system sustainment and operations support for the F-35, B-2, F/A-18, E-2, E-3, A-10, North Atlantic Treaty Organization (NATO) Alliance Ground Surveillance (AGS), Triton, Global Hawk, and restricted programs.
2025 Form 10-K; filed 2026-01-27; aircraft sustainment and operations support · Filed 27/01/2026
Air Force. These efforts, which included requirements and design maturation, risk reduction activities, and evaluation of options to accelerate fielding of initial capability, have resulted in further definition and authorization of elements of the program execution plan, resulting in a $7.6 billion increase in program backlog.
June 2026 Form 10-Q; filed 2026-07-21; Sentinel execution-plan authorization and backlog · Filed 21/07/2026
Backlog totaled $109.6 billion. Significant third quarter new awards include $4.6 billion for restricted programs (primarily at Aeronautics Systems, Space Systems, and Mission Systems), $2.0 billion for Sentinel, $1.4 billion for Virginia Class submarines, $1.3 billion for F-35 at Aeronautics Systems, and $1.0 billion for E-2.
September 2026 Form 10-Q; filed 2026-10-20; backlog and significant third-quarter awards · Filed 20/10/2026
B-21 Program
In 2015, the U.S. Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for EMD and five low-rate initial production (LRIP) options for a baseline total of 21 aircraft.
September 2026 Form 10-Q; filed 2026-10-20; B-21 original award and baseline contract scope · Filed 20/10/2026
The LRIP options are largely fixed price and are expected to continue to be awarded and executed through approximately the end of the decade.
September 2026 Form 10-Q; filed 2026-10-20; B-21 LRIP contract type and expected execution period · Filed 20/10/2026
COMPETITIVE CONDITIONS
We compete 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.
2025 Form 10-K; filed 2026-01-27; named competitors and new entrants · Filed 27/01/2026
government’s continued emphasis on reforming its acquisition processes, including procuring commercial products and services and utilizing non-Federal Acquisition Regulation-based procurement methods, such as Other Transaction Authority (OTA) agreements and other contract types, has facilitated, and may continue to facilitate, participation by new and emerging market entrants, which has increased and may in the future further increase competition for the programs we pursue, which could result in reduced contract opportunities, increased pricing pressure, and/or demands to accept less favorable terms.
2025 Form 10-K; filed 2026-01-27; procurement reform and increased competition · Filed 27/01/2026
The U.S. government has the ability to terminate contracts, in whole or in part, for its convenience or for default of contract terms.
2025 Form 10-K; filed 2026-01-27; government termination rights · Filed 27/01/2026
In the event of termination for convenience, contractors are generally protected by provisions covering reimbursement for costs incurred and profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned.
2025 Form 10-K; filed 2026-01-27; termination-for-convenience reimbursement and excluded future profit · Filed 27/01/2026
These increases were partially offset by lower sales on other restricted programs and a $106 million decrease on F/A-18 as final production deliveries were completed.
2025 Form 10-K; filed 2026-01-27; restricted-program sales reductions and completion of F/A-18 production deliveries · Filed 27/01/2026
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 typically subject to adjustment regardless of costs incurred by the contractor, absent changes by the customer.
2025 Form 10-K; filed 2026-01-27; negotiated fixed-price contract adjustment limitations · Filed 27/01/2026
We have previously recognized and disclosed cumulative losses of approximately $2.0 billion on the LRIP phase of the program.
September 2026 Form 10-Q; filed 2026-10-20; cumulative B-21 LRIP losses · Filed 20/10/2026
Northrop Corporation was a principal developer of flying wing technology, including the B-2 Spirit stealth aircraft.
2025 Form 10-K; filed 2026-01-27; flying-wing technology and B-2 development history · Filed 27/01/2026
Approximately 40 percent of this business is performed through restricted programs.
2025 Form 10-K; filed 2026-01-27; restricted-program share of Aeronautics Systems business · Filed 27/01/2026
Our operating results and growth opportunities are heavily dependent upon our ability to attract and retain sufficient qualified personnel who are or can reasonably obtain requisite security clearances and program access, who have the requisite skills in multiple areas, including science, technology, engineering and math, and who share our values and are able to operate effectively consistent with our culture.
2025 Form 10-K; filed 2026-01-27; specialized personnel, security-clearance and program-access requirements · Filed 27/01/2026
We continue to face increased competition for talent with traditional defense companies, new entrants in our markets and commercial companies, globally, with increasing wage rates and, in some cases, greater flexibility around working conditions.
2025 Form 10-K; filed 2026-01-27; increased talent competition and wage rates · Filed 27/01/2026
Disruptions, performance problems or other issues with our suppliers, including unanticipated cost growth, failure to meet regulatory or contractual requirements, and/or unethical or illegal behavior, or a misalignment between our contractual obligations to our customers and our agreements with our suppliers, have had and may continue to have various adverse impacts on the company, including on our ability to meet our commitments to customers and financial expectations.
2025 Form 10-K; filed 2026-01-27; realized supplier-related adverse impacts · Filed 27/01/2026
We also reviewed our estimated profitability on the program and recognized a favorable earnings adjustment related to our recent achievement of certain contract incentives.
June 2026 Form 10-Q; filed 2026-07-21; favorable Sentinel earnings adjustment from achieved contract incentives · Filed 21/07/2026
Cost-type contracts generally provide for reimbursement of a contractor’s allowable costs incurred plus fee.
2025 Form 10-K; filed 2026-01-27; reimbursement of allowable costs plus fee · Filed 27/01/2026
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.
2025 Form 10-K; filed 2026-01-27; cost-type contract risk protection and margin trade-off · Filed 27/01/2026
Third quarter 2026 segment operating margin rate of 12.1 percent reflects strong program performance and higher operating margin rates at Aeronautics Systems and Space Systems.
September 2026 Form 10-Q; filed 2026-10-20; third-quarter segment operating margin and program performance · Filed 20/10/2026
Segment operating margin rate decreased from 12.3 percent in the third quarter of 2025 principally due to a prior year $68 million favorable EAC adjustment in the restricted advanced microelectronics portfolio at Mission Systems.
September 2026 Form 10-Q; filed 2026-10-20; third-quarter margin comparison and prior-year favorable EAC adjustment · Filed 20/10/2026
Segment operating margin rate increased to 11.2 percent from 10.1 percent primarily due to a higher operating margin rate at Aeronautics Systems and Mission Systems, partially offset by a lower operating margin rate at Defense Systems and Space Systems.
September 2026 Form 10-Q; filed 2026-10-20; year-to-date segment margin comparison · Filed 20/10/2026
Operating Income 2025 operating income decreased $423 million and operating margin rate decreased to 6.3 percent primarily due to a $477 million loss provision recorded on the LRIP phase of the B-21 program in the first quarter of 2025.
2025 Form 10-K; filed 2026-01-27; Aeronautics operating-income decline and B-21 loss provision · Filed 27/01/2026
BACKLOG
At December 31, 2025, total backlog, which is equivalent to the company’s remaining performance obligations, was $95.7 billion as compared with $91.5 billion at December 31, 2024.
2025 Form 10-K; filed 2026-01-27; year-end backlog and remaining-performance-obligation definition · Filed 27/01/2026
Ending the year with a record backlog of $95.7 billion, we generated approximately $4.8 billion in operating cash flow and $3.3 billion in free cash flow*, reflecting an increase of 8 percent and 26 percent, respectively.
2026 proxy statement; filed 2026-04-03; reported 2025 operating cash flow and free cash flow, the latter identified as non-GAAP · Filed 03/04/2026
Cash returned to shareholders through share repurchases and dividends totaled $2.9 billion in 2025 and $3.7 billion in 2024.
2025 Form 10-K; filed 2026-01-27; cash returned through dividends and repurchases · Filed 27/01/2026
-2- Table of Contents NORTHROP GRUMMAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 $ in millions 2026 2025 Operating activities Net earnings $ 1,969 $ 1,655 Adjustments to reconcile to net cash used in operating activities: Depreciation and amortization 739 687 Stock-based compensation 49 40 Deferred income taxes 453 (114) B-21 loss provision — 477 Gain on sale of business — (231) Net periodic pension and OPB income (240) (169) Pension and OPB contributions (63) (62) Changes in assets and liabilities: Accounts receivable, net (936) (929) Unbilled receivables, net (860) (1,343) Inventoried costs, net (118) (102) Prepaid expenses and other assets 141 21 Trade accounts payable (345) (2) Advance payments and billings in excess of costs incurred (263) (70) Other liabilities (836) (420) Income taxes payable, net (38) (145) Other operating activities (28) 10 Net cash used in operating activities (376) (697) Investing activities Capital expenditures (469) (487) Proceeds from sale of investment 107 — Divestiture of training services business — 333 Other investing activities (2) (37) Net cash used in investing activities (364) (191) Financing activities Net proceeds from issuance of long-term debt — 998 Payments of long-term debt (527) (1,500) Net borrowings on commercial paper — 566 Common stock repurchases (68) (891) Cash dividends paid (684) (634) Payments of employee taxes withheld from share-based awards (58) (38) Other financing activities (19) (67) Net cash used in financing activities (1,356) (1,566) Decrease in cash and cash equivalents (2,096) (2,454) Cash and cash equivalents, beginning of year 4,403 4,353 Cash and cash equivalents, end of period $ 2,307 $ 1,899 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
June 2026 Form 10-Q; filed 2026-07-21; six-month cash-flow statement, spending, financing and shareholder distributions · Filed 21/07/2026
At September 30, 2026, we had $3.7 billion in cash and cash equivalents.
September 2026 Form 10-Q; filed 2026-10-20; period-end cash and cash equivalents · Filed 20/10/2026
Examples include: •Double-trigger provisions for change in control situations, and no excise tax gross-ups for payments upon termination after a change in control; •A recoupment policy applicable to performance based or time-based long-term cash and equity incentive compensation payments; •Stock ownership guidelines of 7x base salary for the CEO and 3x base salary for other NEOs, and stock holding requirements of three years from the date paid for 50% of all net after-tax shares received; and •Prohibitions on hedging or pledging of Company stock.
2026 proxy statement; filed 2026-04-03; ownership, holding, recoupment and anti-hedging provisions · Filed 03/04/2026
As of December 31, 2025, all NEOs were in compliance with the ownership guidelines or on track to meet the requirement by the end of the five-year period referenced above.
2026 proxy statement; filed 2026-04-03; NEO ownership-guideline compliance or progress as of 2025-12-31 · Filed 03/04/2026
•Awarded Restricted Performance Stock Rights ("RPSR") for the performance period 2026-2028 and approved the metrics for such RPSR awards (and their relative weightings), which will be measured in terms of cumulative free cash flow** (1/3); return on invested capital** (1/3); and relative total shareholder return specifically related to the S&P 500 (1/3).
February 2026 Form 8-K; filed 2026-02-13; awarded 2026–2028 performance stock rights and approved metrics · Filed 13/02/2026
** For segment operating income, cumulative free cash flow and return on invested capital, results for a restricted program will be favorably and/or unfavorably capped within a specific range aligned with plan expectations.
February 2026 Form 8-K; filed 2026-02-13; restricted-program caps for compensation performance measures · Filed 13/02/2026
(e) On August 19, 2026, the independent members of the Board of Directors of Northrop Grumman Corporation (the “Company”) approved a one-time grant of performance-based equity to Kathy J.
August 2026 Form 8-K; filed 2026-08-21; independent directors' approval of one-time CEO equity grant on 2026-08-19 · Filed 21/08/2026
A range from 0% to 150% of the target 35,910 Market Stock Units (“MSUs”) may be earned based on the Company’s absolute stock price appreciation or depreciation over a performance period ending December 31, 2031, with 0% payout if more than 25% depreciation and 150% payout if 50% or more appreciation.
August 2026 Form 8-K; filed 2026-08-21; CEO market-stock-unit target, payout range and performance period · Filed 21/08/2026
To earn a target award, the stock price must appreciate by at least 10%.
August 2026 Form 8-K; filed 2026-08-21; stock-price appreciation required for target award · Filed 21/08/2026
In July 2024, the Sentinel program was certified for continuation by the DoW upon completion of the Nunn-McCurdy breach review.
June 2026 Form 10-Q; filed 2026-07-21; Sentinel continuation following July 2024 Nunn-McCurdy breach review · Filed 21/07/2026
The Board consists entirely of independent directors, other than Ms.
2026 proxy statement; filed 2026-04-03; board independence disclosure, opening passage · Filed 03/04/2026
Warden, and continues to exercise a comprehensive, independent oversight function, with fully independent Board committees and a strong Lead Independent Director with clearly articulated responsibilities.
2026 proxy statement; filed 2026-04-03; board independence disclosure, continuation and independent committees · Filed 03/04/2026
Warden
Chair, Chief Executive Officer and President, Northrop Grumman Corporation
54
07/2018
Mark A.
2026 proxy statement; filed 2026-04-03; combined chair, CEO and president roles · Filed 03/04/2026
Proxy access
Right to call special meeting at 15% threshold
Right to act by written consent
No supermajority voting requirements
2026 proxy statement; filed 2026-04-03; disclosed shareholder rights · Filed 03/04/2026
Shareholder Proposal
Proposal 4
The shareholders did not approve the shareholder proposal to provide for an independent board chair.
May 2026 Form 8-K; filed 2026-05-21; rejection of independent-board-chair proposal · Filed 21/05/2026
On May 20, 2026, DOJ confirmed that, based on the information it had learned to date, the Criminal Division closed its inquiry into this matter.
September 2026 Form 10-Q; filed 2026-10-20; closure of DOJ criminal inquiry on 2026-05-20 · Filed 20/10/2026
The company continues to engage with the government in relation to the CID and the DCMA inquiry.
September 2026 Form 10-Q; filed 2026-10-20; continuing civil investigative demand and DCMA inquiry · Filed 20/10/2026
We cannot at this point predict the outcome of these remaining matters.
September 2026 Form 10-Q; filed 2026-10-20; uncertainty over remaining inquiry outcomes · Filed 20/10/2026
Subsequent Event – In January 2024, the company received a termination for convenience in our restricted Space business.
2023 Form 10-K; filed 2024-01-25; January 2024 restricted-Space termination for convenience · Filed 25/01/2024
The company expects to reduce backlog by approximately $2 billion during the first quarter of 2024 related to the termination.
2023 Form 10-K; filed 2024-01-25; expected backlog reduction associated with restricted-Space termination · Filed 25/01/2024
