2020 - Northrop Grumman

1 2020 Annual ReportNORTHROP Grumman 2020 ANNUAL REPORTS elected Financial Highlights*Non-GAAP financial metric. For more information, including a definition, reconciliation to the most directly comparable GAAP measure and why we believe this measure may be useful to investors, please refer to Use of Non-GAAP Financial Measures at the back of this Annual ( $ in millions )$33,841$36,799$30,095191820 Operating Income( $ in millions )$3,969$4,065$3,780191820$ $ $ (MTM) -Adjusted Diluted EPS*1820$ $ $ DividendsDeclared(Per Common Share)$4,297$4,305$3,827191820 Cash Provided by Operating Activities ($ In Millions)$3,128$3,683$2,764191820 Adjusted Free Cash Flow* ($ in millions) Northrop Grumman 2020 ANNUAL REPORTDear Fellow ShareholdersOur company delivered outstanding results in 2020.

2 Our extraordinary team of nearly 100,000 employees worked together with resilience, focus and agility to deliver on our strategy and to support each other and our communities. Together with our suppliers and partners, we operated through the global pandemic, delivered for our customers and won new business that strengthened the foundation for our future. We began 2020 operating in a new sector structure that further aligned our unique capabilities in space, missiles, advanced weapons, mission systems and aeronautics with our customers priority investment areas. Our new sectors accelerated our ability to rapidly identify and deliver the technologies, products and services that our customers need, and helped us pursue new opportunities.

3 In addition, as a result of this alignment, we captured additional revenue synergies from the Orbital ATK acquisition, and continued to identify operating health and safety of our employees, customers and supply chain remained our highest priority as the global pandemic emerged in early 2020. Many members of our team, particularly those working on classified national security activities and on our manufacturing lines, continued to work in our facilities. We quickly adopted enhanced safety protocols to help ensure our employees safety while continuing to deliver for our customers. We also quickly and seamlessly pivoted to support a large number of employees who were able to work remotely. We recognized that our supply chain needed unprecedented support, and we responded by surveying our suppliers to understand their issues and needs, and advancing progress payments and accelerating payments to critical small and mid-sized suppliers.

4 As a result of these actions and the dedication of our employees, our 2020 results were not significantly impacted by COVID-19. While Northrop Grumman continued to operate effectively throughout 2020, our employees and communities were impacted and we responded with additional new benefits and charitable programs aimed specifically at providing relief in areas such as food insecurity, healthcare and student access to technology. Northrop Grumman and the Northrop Grumman Foundation supported our communities this year with nearly $34 million in direct donations and employee matching donations. PAGE 2 Northrop Grumman 2020 ANNUAL REPORT2020 Financial Performance Sales rose 9 percent and operating income increased 2 percent.

5 All four of our businesses generated higher sales and operating profit, contributing to a 5 percent increase in our segment operating income*. Space Systems was the growth leader achieving an 18 percent sales increase. In addition to performing well on our current portfolio of programs, we added nearly $53 billion in new business to our backlog. Total backlog increased 25 percent to a record $81 billion at the end of the year. Space Systems also led this growth trend by more than doubling its backlog including winning the Air Force s $ billion Ground Based Strategic Deterrent (GBSD) engineering and manufacturing development award. Northrop Grumman will lead a nationwide GBSD team in modernizing the nation s aging intercontinental ballistic missile system.

6 GBSD adds another multi-decade, multibillion dollar franchise program to our portfolio, strengthening our foundation for continued profitable growth. Our strong execution in 2020 included robust cash flows that enabled us to support our suppliers and continue value-creating capital deployment. Cash from operations totaled $ billion after a $750 million voluntary contribution to our pension plans, and our adjusted free cash flow* totaled $ billion. We invested $ billion in capital expenditures and $ billion in research and development to continue to drive innovation and affordability for our customers. Technology and innovation provide differentiation in Northrop Grumman solutions. As our growing backlog shows, our investments in our business are helping to drive our competitive advantage.

7 After investing in the business and strengthening our balance sheet, we also distributed $ billion to our shareholders through share repurchases and dividends. We increased our dividend by approximately 10 percent in 2020, our 17th consecutive annual dividend increase. We continue to take actions aimed at improving our portfolio. In December, we announced the divestiture of our IT services business for $ billion. This latest portfolio-shaping decision sharpens the focus on our growing core businesses where technology and innovation are key differentiators. The proceeds from this sale, along with substantial cash on our balance sheet, will enable continued investment in our business, deleveraging of our balance sheet and return of cash to shareholders through share repurchases and Strong, Sustainable Culture Our record of financial performance results is built on our inclusive culture and shared values.

8 Through leading environmental, social and governance (ESG) practices and a contemporary governance structure, we maintain the highest levels of ethics and integrity, which are central to ensuring we act in the best interests of our stakeholders. Our enduring commitment to diversity, equity and inclusion are fundamental to our culture and helps us to deliver strong and sustainable company performance. We continue to take proactive steps to create a more equitable workplace and to champion diversity and inclusion. To ensure accountability, we include diversity and inclusion as a key metric in our quarterly performance scorecard that is shared with all employees. PAGE 3 Northrop Grumman 2020 ANNUAL REPORT* Non-GAAP financial metric.

9 For more information, including a definition, reconciliation to the most directly comparable GAAP measure and why we believe this measure may be useful to investors, please refer to Use of Non-GAAP Financial Measures at the back of this Annual are very proud of our ESG record and our high marks in many environmental and social rankings, including: DiversityInc named us one of their Top 50 Companies for Diversity for the 11th year in a row We were named as one of Equileap s top 25 companies on the S&P 500 for gender equality We were included on the 2020 Best of the Best Top Supplier Diversity Programs by Veterans magazine For the fifth consecutive year, we were included in the Dow Jones Sustainability Index for North America We maintained our leadership score in CDP s 2020 climate change program for the ninth consecutive year Our culture is reflective of who we are, and we will continue to drive positive change in our company and want to thank our team for their dedication, determination and performance at a time that challenged the world.

10 We are defining possible every day at Northrop Grumman , and we are very proud of our role in making this world a safer and better look to the future with hope, confident in our ability to take full advantage of our portfolio and our tremendous potential. We will continue to strengthen our culture for our employees, deliver for our customers, support our suppliers and communities, and drive long-term value creation for our shareholders. Sincerely, Kathy Warden Chairman, Chief Executive Officer and President PAGE 3 Northrop Grumman 2020 ANNUAL REPORTE lected Officers (As of March 1, 2021)Kathy J. WardenChairman, Chief Executive Officer and PresidentAnn M. AddisonCorporate Vice President and Chief Human Resources OfficerMark A.