NORTHROP GRUMMAN CORP DE

For purposes of the operating results discussion below, we assess our performance using certain financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”).

Mark-to-market adjusted net earnings (MTM-adjusted net earnings) and MTM-adjusted earnings per share (MTM-adjusted EPS) exclude MTM pension and OPB benefit/(expense) and related tax impacts, which are generally only recognized during the fourth quarter. 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.

Selected financial highlights are presented in the table below:

Sales

2024 sales increased $1.7 billion, or 4 percent, due to a 12 percent growth in sales at Aeronautics Systems and higher sales at Mission Systems and Defense Systems, partially offset by lower sales at Space Systems largely driven by a reduction of $595 million associated with wind-down of work on the restricted space and NGI programs, as previously disclosed. 2024 sales reflect continued strong demand for our products and services.

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See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 15 to the consolidated financial statements 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

2024 operating income increased $1.8 billion, or 72 percent, primarily due to higher operating income at Aeronautics Systems, largely driven by the prior year $1.56 billion charge on the B-21 program, as well as higher operating income at Space Systems and Defense Systems. 2024 operating income also increased due to a $122 million increase in the FAS/CAS operating adjustment, partially offset by $73 million of higher unallocated corporate expense, largely due to a $127 million increase in deferred state taxes related to the MTM benefit (expense) and prior year B-21 charge and $25 million of lower intangible amortization and PP&E step-up depreciation. 2024 operating margin rate increased to 10.6 percent from 6.5 percent reflecting the items above.

2024 G&A costs as a percentage of sales decreased to 9.7 percent from 10.2 percent primarily due to higher sales.

For further information regarding product and service operating costs and expenses, see “Product and Service Analysis” below.

Mark-to-Market Pension and OPB Benefit/Expense

The primary components of pre-tax MTM benefit (expense) are presented in the table below:

The 2024 MTM benefit of $443 million was primarily driven by a 58 basis point increase in the discount rate from year end 2023, partially offset by actual net plan asset returns of 4.7 percent compared to our 7.5 percent asset return assumption.

Federal and Foreign Income Taxes

The 2024 effective tax rate (ETR) increased to 16.8 percent from 12.4 percent in 2023 primarily due to the impact of the prior year B-21 charge and the MTM adjustment on our ETR. The 2024 MTM benefit increased the 2024 ETR by 0.4 percentage points, whereas the prior year B-21 charge and MTM expense collectively reduced the 2023 ETR by 3.8 percentage points. The 2024 ETR also reflects a net reduction in tax reserves largely due to a recent federal court decision, partially offset by higher interest expense on unrecognized tax benefits. See Note 6 to the consolidated financial statements for additional information.

Net Earnings

The table below reconciles net earnings to MTM-adjusted net earnings:

(1)The deferred state tax impact in each period was calculated using the company’s blended state tax rate of 5.25 percent and is included in Unallocated corporate expense within operating income.

(2)The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM benefit (expense) and applying the 21 percent federal statutory rate.

2024 net earnings increased $2.1 billion, or 103 percent, primarily due to $1.8 billion of higher operating income, an $865 million increase in our MTM benefit (expense), and a $126 million increase in the non-operating FAS pension benefit. These increases were partially offset by a $552 million increase in income tax expense, a $97 million gain

-31- recognized in the prior year upon the sale of our minority investment in an Australian business, and $76 million of higher interest expense on our long-term debt.

Diluted Earnings Per Share

The table below reconciles diluted earnings per share to MTM-adjusted EPS:

(1)The deferred state tax impact in each period was calculated using the company’s blended state tax rate of 5.25 percent and is included in Unallocated corporate expense within operating income.

(2)The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM benefit (expense) and applying the 21 percent federal statutory rate.

2024 diluted earnings per share increased $14.81, or 109 percent, reflecting the 103 percent increase in net earnings described above and a 3 percent reduction in weighted-average diluted shares outstanding.