UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________ 
FORM 10-K
_____________________ 

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the fiscal year ended December 31, 2013 
or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from             to            Commission file number 1-16411
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE	 	80-0640649	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
Identification Number)	
2980 Fairview Park Drive, Falls Church, Virginia 22042 (703) 280-2900
(Address and telephone number of principal executive offices)
Securities registered pursuant to section 12(b) of the Act:

Title of each class	 	Name of each exchange on which registered	
Common Stock, $1 par value	 	New York Stock Exchange	
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

   Yes x	  	   No *	
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes *	  	No x	
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x	  	No *	
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x	  	No *	
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	  	Accelerated filer *	  	Non-accelerated filer *	  	Smaller reporting company   *	
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes *	  	No x	
As of June 28, 2013, the aggregate market value of the common stock (based upon the closing price of the stock on the New York Stock Exchange) of the registrant held by non-affiliates was approximately $19.1 billion.
As of January 30, 2014, 216,737,248 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Northrop Grumman Corporation’s Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for the 2014 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

NORTHROP GRUMMAN CORPORATION

 TABLE OF CONTENTS

 	 	 	
 	 	Page	
 	PART I	 	
Item 1.	Business	1	
Item 1A.	Risk Factors	8	
Item 1B.	Unresolved Staff Comments	18	
Item 2.	Properties	19	
Item 3.	Legal Proceedings	19	
Item 4.	Mine Safety Disclosures	20	
 	 	 	
 	PART II	 	
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21	
Item 6.	Selected Financial Data	24	
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25	
 	Overview	25	
 	Consolidated Operating Results	27	
 	Segment Operating Results	29	
 	Product and Service Analysis	32	
 	Backlog	34	
 	Liquidity and Capital Resources	34	
 	Critical Accounting Policies, Estimates, and Judgments	37	
 	Other Matters	41	
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	42	
Item 8.	Financial Statements and Supplementary Data	43	
 	Report of Independent Registered Public Accounting Firm	43	
 	Consolidated Statements of Earnings and Comprehensive Income	44	
 	Consolidated Statements of Financial Position	45	
 	Consolidated Statements of Cash Flows	46	
 	Consolidated Statements of Changes in Shareholders' Equity	48	
 	Notes to Consolidated Financial Statements	49	
 	1. Summary of Significant Accounting Policies	49	
 	2. Earnings Per Share, Share Repurchases and Dividends on Common Stock	54	
 	3. Business Dispositions	55	
 	4. Segment Information	56	
 	5. Accounts Receivable, Net	58	
 	6. Inventoried Costs, Net	59	
 	7. Income Taxes	59	
 	8. Goodwill and Other Purchased Intangible Assets	61	
 	9. Fair Value of Financial Instruments	62	

i

 	
 	 	 	
 	 	Page	
 	10. Long-term Debt	63	
 	11. Investigations, Claims and Litigation	65	
 	12. Commitments and Contingencies	66	
 	13. Retirement Benefits	67	
 	14. Stock Compensation Plans and Other Compensation Arrangements	74	
 	15. Unaudited Selected Quarterly Data	77	
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	78	
Item 9A.	Controls and Procedures	78	
Item 9B.	Other Information	78	
 	Management's Report on Internal Control over Financial Reporting	79	
 	Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	80	
 	 	 	
 	PART III	 	
Item 10.	Directors, Executive Officers, and Corporate Governance	81	
Item 11.	Executive Compensation	82	
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	83	
Item 13.	Certain Relationships and Related Transactions, and Director Independence	83	
Item 14.	Principal Accountant Fees and Services	83	
 	 	 	
 	PART IV	 	
Item 15.	Exhibits and Financial Statement Schedules	84	
 	Signatures	92	

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NORTHROP GRUMMAN CORPORATION

                        

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 provide innovative systems, products and solutions in unmanned systems; cybersecurity; command, control, communications and computers (C4) intelligence, surveillance, and reconnaissance (C4ISR); and logistics and modernization to government and commercial customers worldwide through our four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. We participate in many high-priority defense and government services programs in the United States (U.S.) and abroad. We offer a broad portfolio of capabilities and technologies that enable us to deliver innovative systems and solutions for applications that range from undersea to outer space and into cyberspace. 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 local, state, and foreign governments and domestic and international commercial customers. For a discussion of risks associated with our operations, see Risk Factors in Part I, Item 1A.
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 Aircraft Incorporated was a principal developer of the flying wing technology, including the B-2 Stealth 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 men to the surface of the moon. In 1996, we acquired the defense and electronics businesses of Westinghouse Electric Corporation (Westinghouse), a world leader in the development and production of sophisticated radar and other electronic systems for the nation’s defense, civil aviation, and other international and domestic applications. In 2001, we acquired Litton Industries, a global electronics and information technology company, and one of the nation's leading full service shipbuilders. In 2002, we acquired TRW Inc. (TRW), a leading developer of military and civil space systems and satellite payloads, as well as a leading global integrator of complex, mission-enabling systems and services.
Effective as of March 31, 2011, the company completed the spin-off to its shareholders of Huntington Ingalls Industries, Inc. (HII). HII operates our former Shipbuilding business, which was acquired in 2001, through the acquisition of Newport News Shipbuilding and a portion of the Litton acquisition. As a result of the spin-off, assets, liabilities and results of operations for the former Shipbuilding segment have been reclassified as discontinued operations for all periods presented. See Note 3 to our consolidated financial statements in Part II, Item 8 for further information.
Organization
From time to time, we acquire or dispose of businesses and realign contracts, programs or business areas among and within our operating segments, such as where they possess similar customers, expertise, and capabilities. Internal realignments are designed to more fully leverage existing capabilities and enhance development and delivery of products and services. The operating results for all periods presented have been revised to reflect these changes made through December 31, 2013. We are currently aligned into four operating segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. See Note 4 to our consolidated financial statements in Part II, Item 8 for further information.
AEROSPACE SYSTEMS
Aerospace Systems, headquartered in Redondo Beach, California, is a leader in the design, development, integration and production of manned aircraft, unmanned systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems. Aerospace Systems' customers, primarily U.S. government agencies, use these systems in mission areas including intelligence, surveillance and reconnaissance (ISR), communications, battle management, strike operations, electronic warfare, earth observation, satellite communications, space science and space exploration. The segment consists of four business areas: Unmanned Systems, Military Aircraft Systems, Space Systems, and Strategic Programs & Technology.
Unmanned Systems - designs, develops, manufactures, and integrates ISR unmanned systems for tactical and strategic systems. Key ISR programs include the RQ-4 Global Hawk reconnaissance system, a proven high-altitude long-endurance system providing near real-time high resolution imagery of large geographical areas; the Triton

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aircraft system providing real-time ISR over vast ocean and coastal regions; the trans-Atlantic NATO Alliance Ground Surveillance system for multinational theater operations, peacekeeping missions, and disaster relief efforts; the Fire Scout aircraft system providing unprecedented situational awareness and precision targeting support; and the Navy Unmanned Combat Air System for the demonstration unmanned combat air vehicle for carrier based operations.
Military Aircraft Systems - designs, develops, manufactures, and integrates airborne C4ISR, electronic warfare mission systems, and long range strike and tactical aircraft systems. Key airborne C4ISR programs include the E-2D Advanced Hawkeye and Joint Surveillance Target Attack Radar System (JSTARS). Electronic warfare includes the EA-18G Growler and EA-6B Prowler airborne electronic attack weapon systems in addition to the design, development, and integration of laser weapon systems for air, sea, and ground platforms. This business area also designed, developed and manufactured the B-2 Spirit bomber and now provides sustainment and upgrade services for the B-2, the nation's most advanced long range strike aircraft system. Tactical aircraft includes the design, development, manufacture and integration of F/A-18 aft sections and F-35 center sections.
Space Systems - designs, develops, manufactures, and integrates spacecraft systems, subsystems, sensors and communications payloads in support of space science and C4ISR. Key programs include 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; Advanced Extremely High Frequency (AEHF) payloads providing survivable, protected communications to U.S. forces; and restricted programs.
Strategic Programs & Technology - creates and matures advanced technologies and innovative concepts to provide affordable solutions addressing current and future customer needs. The Strategic Programs & Technology business area maintains a broad portfolio of contracts ranging from development of components to prototypes to initial operational systems across the air, land and space domains.
ELECTRONIC SYSTEMS
Electronic Systems, headquartered in Linthicum, Maryland, is a leader in the design, development, manufacture and support of solutions for sensing, understanding, anticipating and controlling the operating environment for our global military, civil and commercial customers. Electronic Systems provides a variety of defense electronics and systems, airborne fire control radars, situational awareness systems, early warning systems, airspace management systems, navigation systems, communications systems, marine power and propulsion systems, space systems and logistics services. The segment consists of three business areas: Intelligence, Surveillance, Reconnaissance & Targeting Systems, Land & Self Protection Systems, and Navigation & Maritime Systems.
Intelligence, Surveillance, Reconnaissance & Targeting Systems - delivers products and services for space satellite applications, airborne and ground-based surveillance, multi-sensor processing, analysis and dissemination for combat units and national agencies, both domestic and international. These systems provide battle space awareness, missile defense, command and control, combat avionics (fire control radars, multi-function apertures and pods), airborne electro-optical/infrared (EO/IR) targeting systems and postal automation systems. Key programs include airborne fire control radars such as the Scalable Agile Beam Radar (SABR), which provides affordable Active Electronically Scanned Array (AESA) capabilities for domestic and international fighters; the F-35 fire control radar, a multi-function AESA radar for the U.S. Armed Forces and a large number of international partners; EO/IR systems such as the LITENING targeting pod and the Distributed Aperture System (DAS), a 360 degree spherical situational awareness system; airborne surveillance radars such as the Multirole Electronically Scanned Array (MESA) for Airborne Early Warning & Control (AEW&C), which provides air-to-air and air-to-surface coverage; and space systems such as the Space-Based Infrared System (SBIRS), which provides data for missile surveillance, missile defense, technical intelligence and battlespace characterization.
Land & Self Protection Systems - delivers products, systems and services that support ground-based, helicopter and fixed wing platforms (manned and unmanned) with sensor and protection systems. A major product line of this business area consists of systems that perform threat detection and countermeasures that defeat infrared and radio frequency (RF) guided missile and tracking systems. This business area also provides integrated electronic warfare capability, communications and intelligence systems, unattended ground sensors, automatic test equipment, advanced threat simulators, ground-based air defense and multi-function radars, situational awareness systems and laser/electro-optical systems. Key programs include the Ground/Air Task Oriented Radar (G/ATOR), which is a ground-based multi-mission radar designed to detect and track a wide variety of threats; the TPS-78 ground-based radar, which provides air defense and air surveillance for the global market; the Large Aircraft Infrared Countermeasures (LAIRCM), which is an infrared countermeasure system designed to protect aircraft against man-

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portable (shoulder-launched) infrared-guided surface-to-air missiles; and the AN/APR-39, which provides rapid identification and continuous radar threat warning for today's complex battlefields.
Navigation & Maritime Systems - delivers products and services to domestic and international defense, civil and commercial customers supporting smart navigation, shipboard radar surveillance, ship control, machinery control and integrated combat management systems for naval surface ships; high-resolution undersea sensors for mine hunting, situational awareness and other applications; unmanned marine vehicles; shipboard missile and encapsulated payload launch systems, propulsion and power generation systems, nuclear reactor instrumentation and control and acoustic sensors for submarines and aircraft carriers; inertial navigation systems for all domains (air, land, sea, and space); and embedded Global Positioning Systems. Key programs include the AN/SPQ-9B Anti-Ship Missile Defense radar, which provides the US Navy’s cruisers and destroyers with situational awareness and contact information from aircraft, cruise missiles, surface vessels and periscope detection; inertial navigation and positioning products for a range of platforms including ships, aircraft, spacecraft and weapons systems.
In addition to the product and service lines discussed above, our Electronic Systems segment also includes an Advanced Concepts & Technologies Division (AC&TD), which develops next-generation systems to position the segment in key developing markets. AC&TD focuses on understanding customer mission needs; conceiving affordable, innovative and open solutions; and demonstrating the readiness and effectiveness of Electronic Systems' products. AC&TD focuses on the following enterprise-wide and cross cutting technology development thrust areas: RF systems; EO/IR systems; multi-function systems; modular open systems architectural approaches and designs; precision navigation and timing capabilities; and secure and trusted solutions.
INFORMATION SYSTEMS
Information Systems, headquartered in McLean, Virginia, is a leading global provider of advanced solutions for the DoD, national intelligence, federal civilian and state agencies, commercial and international customers. Products and services focus on the fields of command and control (C2), communications, cybersecurity, air and missile defense, intelligence processing, civil security, health information technology, government support systems and systems engineering and integration.
Within C4ISR, we are a major end-to-end provider of net-enabled C2, net-enabled Battle Management, communications and network gateway systems, mission-enabling solutions and decision superiority. Our systems are installed in operational and command centers world-wide and across DoD services, joint commands and the international security community. We also deliver intelligence-related systems and services to the U.S. Government in several mission areas including Signals Intelligence (SIGINT) systems, geospatial intelligence and multi-source intelligence data fusion.
Cybersecurity offerings span intelligence, defense, federal, civilian, state and international customers, providing dynamic cyber defense and specialized cyber systems and services in support of critical government missions. Applications are predominantly for high end intelligence and defense missions, but also include health, homeland security, public safety, civil, financial and commercial applications. Most intelligence community programs are restricted. Defense and civil cybersecurity customers include the DoD, intelligence community, Department of Homeland Security, Centers for Disease Control and select state and international agencies.
The segment consists of four business areas: Cyber Solutions, Defense Systems, Federal & Defense Technologies, and Intelligence Systems.
Cyber Solutions - provides cyber defense, exploitation and full spectrum solutions that address cybersecurity threats, cyber mission management, cross function/agency cyber management and special cyber systems that target our nation’s adversaries.
Defense Systems - is a major end-to-end provider of net-enabled C2, communications, networks and gateways, decision support systems, command center integration, combat support systems and critical infrastructure protection systems.
Federal & Defense Technologies - is an integrator of air and missile defense systems and a major provider of net-enabled Battle Management C4 systems, defense enterprise information technology (IT) and civilian IT solutions.
Intelligence Systems - is focused on the delivery of intelligence-related systems and services in airborne reconnaissance, SIGINT, geospatial and multi-source data fusion.
Key programs include the Joint National Integration Center Research and Development Contract (JRDC), which supports the technical infrastructure, modeling and simulation, test and evaluation, and management of the Missile Defense Agency network at multiple sites; the Battlefield Airborne Communications Node (BACN), a high-altitude,

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airborne communications and information gateway system that provides situational awareness and C2 coordination between warfighters and commanders; and the Consolidated Afloat Networks and Enterprise Services (CANES) program, which consolidates US Navy C4 intelligence, computing and network infrastructure for ships, submarines and shore C2 facilities.
TECHNICAL SERVICES
Technical Services, headquartered in Herndon, Virginia, is a leader in innovative and affordable logistics, modernization and sustainment support and also provides an array of other advanced technology and engineering services, including space, missile defense, nuclear security, training and simulation. The segment consists of three business areas: Integrated Logistics and Modernization, Defense and Government Services, and Training Solutions.
Integrated Logistics and Modernization - provides complete life cycle support and weapon system sustainment and modernization products and services, and provides direct support to warfighters while delivering aircraft and subsystem maintenance, repair and overhaul (MRO). Competencies include aircraft and electronics sustaining engineering, supply chain management services, manned and unmanned weapons systems deployed logistics support, field services and on-going maintenance and technical assistance, and delivering rapid response in support of global customers. Key programs include KC-10 Contractor Logistics Support (CLS), which provides total weapons systems CLS to the Air Force for the entire fleet of 59 KC-10 aircraft; UK Airborne Warning and Control System (AWACS), which provides through life management of the UK Royal Air Force fleet of E-3D AWACS aircraft; and AAQ24 Large Aircraft Infrared Counter Measures (LAIRCM), which provides repair, testing, component spare procurement, logistics, and data collection related to directional infrared counter measures systems used on multiple fixed and rotary wing aircraft.
Defense and Government Services - provides sustainment and modernization of tactical vehicles, high technology and engineering services in the areas of nuclear security, space and launch services, civil engineering and military range-sensor-instrumentation operations. Key programs include Intercontinental Ballistic Missile (ICBM) Systems, which provides systems engineering and integration for the land-based leg of the United States nuclear deterrent force; Fort Irwin Logistics Services Support; and Combined Tactical Training Ranges (CTTR), which provides engineering, operations and maintenance support to facilitate a live and virtual multi-service aircrew tactical training requirement as defined by the Fleet Response Training Plan (FRTP).
Training Solutions - provides realistic and comprehensive training through live, virtual and constructive domains, ranging from senior military leadership to warfighters, for both U.S. and international peacekeeping forces. The business area designs and develops future conflict training scenarios and provides warfighters and allies with live, virtual and constructive training programs. The business area has supported the training of America’s senior battlefield commanders for every major contingency beginning with Gulf War I through operations today. The business area also offers innovative and diverse training applications ranging from battle command to professional military education. Key programs include the Saudi Arabian National Guard (SANG), which provides equipment fielding, training and maintenance, simulator training and operations, tactical exercise development, logistics and operations support and English language training to the Saudi Arabian National Guard; the Joint Coalition Warfighting Center (JWFC), which designs and executes distributed joint and multinational exercises and training events, joint doctrine development and joint training analysis for the Joint and Coalition Warfighting Center; and the Mission Command Training Program (MCTP), the Army's premier leadership and staff training exercise program at the tactical and operational level.
SELECTED FINANCIAL DATA AND SEGMENT OPERATING RESULTS
For a more complete understanding of our business, see Selected Financial Data in Part II, Item 6. For a more complete understanding of our segment financial information, see Segment Operating Results in Part II, Item 7, and Note 4 to the consolidated financial statements in Part II, Item 8.
CUSTOMER CONCENTRATION
Our primary customer is the U.S. Government. Revenue from the U.S. Government (which excludes foreign military sales - a method to sell U.S. defense equipment and services to foreign governments through the DoD) accounted for 86 percent or more of total revenues in each of the years ended December 31, 2013, 2012 and 2011. International sales (which include foreign military sales) accounted for $2.5 billion, $2.1 billion and $2.1 billion, or 10 percent, 8 percent and 8 percent, of total revenue for the years ended December 31, 2013, 2012 and 2011, respectively. No single program accounted for more than ten percent of total revenue during any period presented. See Risk Factors in Part I, Item 1A.

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COMPETITIVE CONDITIONS
We compete with many companies in the defense, intelligence and federal markets. Airbus Group, BAE Systems, Boeing, Booz Allen Hamilton, Finmeccanica, General Dynamics, L-3 Communications, Leidos, 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 bid protests (competitor protests of U.S. government procurement awards) and the number of competitors bidding on program opportunities.
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 for 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
Total backlog includes 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. For multi-year service contracts with non-U.S. Government customers having no stated contract values, backlog includes only the amounts committed by the customer. Backlog is converted into sales as costs are incurred or deliveries are made. At December 31, 2013, total backlog was $37.0 billion, compared with $40.8 billion at the end of 2012. Of the backlog at December 31, 2013, approximately $19.6 billion is expected to be converted into sales in 2014. For backlog by segment, see Backlog in Part II, Item 7.
RESEARCH AND DEVELOPMENT
Our research and development activities primarily include independent research and development (IR&D) efforts related to U.S. Government programs. Company-sponsored IR&D efforts are included in general and administrative expenses and are generally allocated to U.S. Government contracts, while customer-sponsored research and development efforts are charged directly to the related contracts. Company-sponsored IR&D expenses totaled $507 million, $520 million and $543 million in 2013, 2012 and 2011, respectively. See Note 1 to the consolidated financial statements in Part II, Item 8.
PATENTS
We routinely apply for and own a number of U.S. and foreign patents related to the products and services we provide. In addition to owning a large portfolio of proprietary intellectual property, we license some intellectual property rights to and from third parties. The U.S. Government generally 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. Although these intellectual property rights are important to the operation of our business, no existing patent, license or other intellectual property right is of such importance that its loss or termination would, in our opinion, have a material adverse effect on our financial position, annual results of operations and/or cash flows. See Risk Factors in Part I, Item 1A.
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, that would have a material adverse effect on our financial position, annual results of operations and/or cash flows. See Risk Factors in Part I, Item 1A and Overview in Part II, Item 7.
EMPLOYEE RELATIONS
We believe that we maintain good relations with our 65,300 employees, of which approximately 3,300 are covered by 16 collective bargaining agreements. We negotiated renewals of three of our collective bargaining agreements in 2013 and expect to negotiate renewals of two of our collective bargaining agreements in 2014. These negotiations did not have a material adverse effect on our financial position, annual results of operations and/or cash flows. For risks associated with collective bargaining agreements, see Risk Factors in Part I, Item 1A.

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REGULATORY MATTERS
Government Contract Regulation
Our businesses are affected by numerous laws and regulations, including those relating to the award, administration and performance of U.S. Government contracts. The U.S. Government generally has the ability to terminate our contracts, in whole or in part, without prior notice, for convenience or for default based on performance. If a U.S. Government contract were to be terminated for convenience, we generally would be protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned had the contract been completed. Termination resulting from our default may expose us to liability and could have a material adverse effect on our ability to compete for other contracts. The U.S. Government also has the ability to stop work under a contract for a limited period of time for its convenience. In the event of a stop work order, we generally would be protected by provisions covering reimbursement for costs incurred on the contract to date and for costs associated with the temporary stoppage of work on the contract. However, such temporary stoppages and delays could introduce inefficiencies for which we may not be able to negotiate full recovery from the U.S. Government, and could ultimately result in termination for convenience or reduced future orders on certain contracts. Additionally, we may be required to continue to perform for some period of time on certain of our U.S. Government contracts, even if the U.S. Government is unable to make timely payments. See Risk Factors in Part I, Item 1A.
Certain programs with the U.S. Government that are prohibited by the customer from being publicly discussed in detail are referred to as “restricted” in this Form 10-K. The consolidated financial statements and financial information in this Form 10-K reflect the operating results of our entire company, including such restricted programs under accounting principles generally accepted in the United States of America (GAAP).
Contracts
We generate the majority of our business from long-term contracts with the U.S. Government for development, production, and support activities. Due to the long-term nature of our contracts with the U.S. Government and the products and services covered by these contracts, we generally recognize revenue using the percentage of completion method of accounting. Under the percentage of completion method of accounting, revenues are generally recognized as costs are incurred (cost-to-cost method) or as units are delivered (units-of-delivery method). Unless otherwise specified in a contract, allowable and allocable costs are billed to contracts with the U.S. Government under the requirements of the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) regulations. Examples of costs incurred by us and not billed to the U.S. Government in accordance with the requirements of the FAR and CAS regulations include, but are not limited to, lobbying costs, certain legal costs, charitable donations, advertising costs and interest expense. Our long-term contracts typically fall into one of two broad categories:
Cost-type contracts – Cost-type contracts include cost plus fixed fee, award fee, and incentive fee contracts. Cost-type contracts provide for reimbursement of the contractor’s allowable costs incurred plus a fee. Cost-type contracts generally require that the contractor use its best efforts to accomplish the scope of the work within some specified time and some stated dollar limitation. Fees on cost-type contracts can be fixed in terms of dollar value or percentage of costs. Award and incentive fees are based on performance criteria such as cost, schedule, quality, and technical performance. Award fees are determined and earned based on customer evaluation of the company's performance against negotiated criteria, and are intended to provide motivation for excellence in contract performance. Incentive fees that are based on cost provide for an initially negotiated fee to be adjusted later, typically using a formula to measure performance against the associated criteria, based on the relationship of total allowable costs to total target costs. Award and incentive fees that can reasonably be estimated and are deemed reasonably assured are recorded over the performance period of the contract.
Fixed-price contracts – A firm fixed-price contract is a contract in which the specified scope of work is agreed to 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. Certain fixed-price incentive fee contracts provide for reimbursement of the contractor’s allowable costs plus a fee up to a ceiling amount, typically through a cost-sharing limit that affects profitability. These types of fixed-price incentive fee contracts effectively become firm fixed-price contracts once the cost-share limit is reached. Time-and-materials contracts are considered fixed-price contracts as they specify a fixed hourly rate for each labor hour charged.

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The following table summarizes sales for the year ended December 31, 2013, recognized by contract type and customer:

($ in millions)	 	U.S.
Government	 	Other
Customers(1)	 	Total	 	Percent
of Total	
Cost-type contracts	 	       $	12,523	
 	 	         $	476	
 	 	       $	12,999	
 	 	53	%	
Fixed-price contracts	 	8,755	
 	 	2,907	
 	 	11,662	
 	 	47	%	
Total sales	 	       $	21,278	
 	 	         $	3,383	
 	 	       $	24,661	
 	 	100	%	
 	 	
(1)	Other customer sales include foreign military sales.	
Profit margins may vary materially depending on, among other things, the negotiated contract fee arrangements, the achievement of performance objectives and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.
We monitor our policies and procedures with respect to our contracts on a regular basis to enhance consistent application under similar terms and conditions, as well as compliance with all applicable government regulations and laws. In addition, costs incurred and allocated to contracts with the U.S. Government are routinely audited by the Defense Contract Audit Agency.
Environmental
Our manufacturing operations are subject to and affected by federal, state, foreign, and local laws and regulations relating to the protection of the environment. The estimated cost to complete remediation is accrued when it is probable that the company will incur costs to address environmental impacts and the costs are estimable. To assess the potential impact on the company’s financial statements, management estimates the range of reasonably possible remediation costs that could be incurred by the company, taking into account the facts currently available to the company regarding each site, as well as the current state of technology and prior experience. These estimates are reviewed periodically and adjusted to reflect changes in facts and circumstances. See Risk Factors in Part I, Item 1A, as well as Note 12 to the consolidated financial statements in Part II, Item 8.
In 2009, we established a goal of reducing our greenhouse gas emissions over a five-year period through December 31, 2014. In 2010, we established goals for water usage and solid waste generation. We have exceeded our goal for the reduction of greenhouse gas emissions and are on track to achieve our goals on water usage and solid waste generation.
We have incurred and expect to continue to incur capital and operating costs to comply with applicable environmental laws and regulations and satisfy green initiatives, including our goals. At this time, these costs have not had, and we do not expect that these costs will have, a material adverse effect on our consolidated financial position, annual results of operations and/or cash flows.
EXECUTIVE OFFICERS
See Part III, Item 10, 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 on the Internet 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 Web site as soon as reasonably practicable after we file them with the Securities and Exchange Commission (SEC). You can learn more about us by reviewing our SEC filings on the investor relations page of our Web site.
The SEC also maintains a Web site at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including Northrop Grumman Corporation. You may also obtain these materials at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
References to our Web site and the SEC’s Web site 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

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through, such Web sites. Such information should not be considered a part of this report, unless otherwise expressly incorporated by reference in this report.
Item 1A. Risk Factors
Our consolidated financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control, that may cause actual performance to differ materially from historical or projected future performance. We urge you to consider carefully the risk factors described below in evaluating the information contained in this report as the outcome of one or more of these risks could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	We depend heavily on a single customer, the U.S. Government, for a substantial portion of our business. Changes in this customer’s priorities and spending could have a material adverse effect on our financial position, results of operations and/or cash flows.	
Our primary customer is the U.S. Government, from which we derived more than 86 percent of our total revenues during each of the past several years. The U.S. Government is implementing significant reductions in government spending and other significant program changes. We cannot predict the impact on existing, follow-on, replacement or future programs from potential changes in priorities due to changes in defense spending levels, military strategy and planning and/or changes in social-political priorities. A shift in government priorities to programs in which we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset by other programs and opportunities, could have a material adverse effect on our financial position, results of operations and/or cash flows.
The U.S. Government generally has the ability to terminate contracts, in whole or in part, without prior notice, for its convenience or for default based on performance. In the event of termination for the U.S. Government’s convenience, contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned had the contract been completed. Termination by the U.S. Government of a contract due to our default could require us to pay for re-procurement costs in excess of the original contract price, net of the value of work accepted from the original contract, as well as other damages. Termination of a contract due to our default could have a material adverse effect on our financial position, results of operations and/or cash flows and could have a material adverse effect on our ability to compete for other contracts.
The U.S. Government also has the ability to stop work under a contract for a limited period of time for its convenience. It is possible that the U.S. Government could invoke this ability across a limited or broad number of contracts in this challenging fiscal environment. In the event of a stop work order, contractors are generally protected by provisions covering reimbursement for costs incurred on the contract to date and for costs associated with the temporary stoppage of work on the contract. However, such temporary stoppages and delays could introduce inefficiencies for which we may not be able to negotiate full recovery from the U.S. Government, and could ultimately result in termination for convenience or reduced future orders on certain contracts. In this challenging environment, our business and industry could face terminations, change orders and stop work orders, which depending on their volume could further delay and jeopardize the ability to recover costs.
 	 	
▪	Significant delays or reductions in appropriations for our programs and U.S. Government funding more broadly may negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations and/or cash flows.	
U.S. Government programs are subject to annual congressional budget authorization and appropriation processes. For many programs, Congress appropriates funds on a fiscal year basis even though the program performance period may extend over several years. Consequently, programs are often partially funded initially and additional funds are committed only as Congress makes further appropriations. If we incur costs in excess of funds obligated on a contract, we may be at risk for reimbursement of those costs unless and until additional funds are obligated to the contract. We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the annual budget process ultimately approved by Congress or in separate supplemental appropriations or continuing resolutions, as applicable. The impact, severity and duration of the current U.S. economic situation and plans adopted by the U.S. Government, along with pressures on, and uncertainty surrounding, the federal budget and the permissible federal debt limit, could adversely affect the funding for individual programs and delay purchasing or payment decisions by our customers. In the event government funding for our significant programs becomes unavailable, or is reduced or delayed, our contract or subcontract

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under such programs may be terminated or adjusted by the U.S. Government or the prime contractor, which could have a material adverse effect on our financial position, results of operations and/or cash flows.
Part I of the Budget Control Act of 2011 (Budget Control Act) provided for a reduction in planned defense budgets of at least $487 billion over a ten year period. Part II mandated substantial additional reductions through a process known as "sequestration," which took effect March 1, 2013, and resulted in approximately $40 billion of additional reductions to the FY 2013 defense budget.
In March 2013, the President signed into law the Consolidated and Further Continuing Appropriations Act (2013) which included specific appropriations for our major federal customers, including the DoD, subject to further reductions or sequestration under the Budget Control Act.  
In October 2013, Congress passed a continuing resolution to fund the government through January 15, 2014 (subsequently extended through January 18, 2014), and suspended the statutory limit on the amount of permissible federal debt (the debt ceiling) through February 7, 2014.

In December 2013, Congress passed the National Defense Authorization Act (NDAA) for FY 2014. Congress also passed, and the President signed into law, the Bipartisan Budget Act of 2013, which set discretionary spending levels for FY 2014 and FY 2015. The legislation provides for additional budget funding of approximately $63 billion over FY 2014 and FY 2015. The additional funding is expected to alleviate some budget cuts that would otherwise have been instituted through sequestration in FY 2014 and FY 2015, with approximately $45 billion (generally split equally between defense and non-defense spending) applied to FY 2014.

On January 16, 2014, Congress passed the Consolidated Appropriations Act of 2014, providing for federal spending levels consistent with the Bipartisan Budget Act of 2013. The President signed the legislation into law on January 17, 2014. The discretionary spending levels for FY 2014 total approximately $1.1 trillion, of which the defense spending level is $572 billion, comprised of $487 billion in base defense and $85 billion in overseas contingency operations (OCO) funds. 
The President's budget request for FY 2015 is currently due to Congress in February 2014. Congressional appropriation and authorization of spending for FY 2015 and beyond, including defense spending, and the application of sequestration remain marked by significant debate and an uncertain schedule. Congress and the Administration also continue to debate the debt ceiling, among other fiscal issues, as they negotiate plans for long-term national fiscal policy. The outcome of these debates could have a significant impact on defense spending broadly and the company's programs in particular.  
If the existing debt ceiling is not raised, we may be required to continue to perform for some period of time on certain of our U.S. Government contracts even if the U.S. Government is unable to make timely payments. A debt ceiling breach could, among other impacts, have significant near and long-term consequences for our company, our employees, our suppliers and the defense industry. It could negatively affect the U.S. Government's timely payment of our billings, result in delayed cash collections and have a material adverse effect on our financial position, results of operations and/or cash flows.  
The budget environment, including sequestration as currently mandated, remain a significant long-term risk. Considerable uncertainty exists regarding how future budget and program decisions will unfold and what challenges budget reductions will present for the defense industry. We believe continued budget pressures will have serious negative consequences for the security of our country, the defense industrial base, including Northrop Grumman, and the customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base. Although it is difficult to determine specific impacts, we expect that over the longer term, the budget environment may result in lower awards, revenues, profits and cash flows from our U.S. Government contracts. Members of Congress continue to discuss various options to address sequestration in future budget planning, but we cannot predict the outcome of these efforts. It is likely budget and program decisions made in this environment will have long-term impacts on our company and the entire defense industry.
Long term funding for certain programs in which we participate may be reduced, delayed or cancelled. In addition, budget cuts could adversely affect the viability of our subcontractors and suppliers, and our employee base. While we believe that our business is well-positioned in areas that the Department of Defense (DoD) has indicated are areas of focus for future defense spending, the long-term impact of the Budget Control Act, other defense spending cuts, and the ongoing fiscal debates remain uncertain and our business and industry could be materially adversely affected.

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▪	As a U.S. Government contractor, we are subject to various procurement and other laws and regulations and could be adversely affected by changes in such laws and regulations or any negative findings from a U.S. Government audit or investigation.	
U.S. Government contractors must comply with many significant procurement regulations and other specific legal requirements. These regulations and requirements, although customary in government contracts, increase our performance and compliance costs and are regularly evolving. New laws, regulations or procurement requirements or changes to current ones (including, for example, regulations related to allowability of compensation costs, counterfeit parts, specialty metals and conflict minerals), can increase our costs and risks and reduce our profitability.
We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. Government and its agencies, such as the Defense Contract Audit Agency (DCAA), Defense Contract Management Agency (DCMA) and the DoD Inspector General. These agencies review performance under our contracts, our cost structure and our compliance with applicable laws, regulations and standards, as well as the adequacy of, and our compliance with, our internal control systems and policies. Costs ultimately found to be unallowable or improperly allocated to a specific contract will not be reimbursed or must be refunded if already reimbursed. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties, sanctions, forfeiture of profits or suspension or debarment. Whether or not illegal activities are alleged, the U.S. Government also has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us.
We are from time to time subject to U.S. Government investigations relating to our operations. We also are subject to and expected to perform in compliance with a vast array of federal laws, including but not limited to the Truth in Negotiations Act, the False Claims Act, the Procurement Integrity Act, Cost Accounting Standards (CAS), Federal Acquisition Regulation (FAR), the International Traffic in Arms Regulations promulgated under the Arms Export Control Act, the Close the Contractor Fraud Loophole Act and the Foreign Corrupt Practices Act. If we are found to have violated the law, or are found not to have acted responsibly as defined by the law, we may be subject to reductions of the value of contracts; contract modifications or termination; the loss of export privileges; the assessment of penalties, fines, or compensatory, treble or other damages; or suspension or debarment, any of which could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	Our international business exposes us to additional risks.	
Sales to customers outside the U.S. are an increasingly important component of our strategy. Our international business is subject to numerous political and economic factors, legal requirements, cross-cultural considerations and other risks associated with doing business in foreign countries. These risks differ in some respects from those associated with our U.S. business and our exposure to such risks may increase if our international business continues to grow as we anticipate.
Our international business is subject to both U.S. and foreign laws and regulations, including, without limitation, regulations relating to import-export controls, technology transfer restrictions, repatriation of earnings, data protection, investment, exchange controls, the Foreign Corrupt Practices Act and other anti-corruption laws, the anti-boycott provisions of the U.S. Export Administration Act, labor and employment, taxes, security restrictions and intellectual property. Failure by us, our employees, or others working on our behalf to comply with these laws and regulations could result in administrative, civil, or criminal liabilities, including suspension or debarment from government contracts or suspension of our export privileges, which could have a material adverse effect on our financial position, results of operations and/or cash flows.
Changes in regulations, political environments or security risks may affect our ability to conduct business in international markets. Our international business may also be impacted by changes in foreign national priorities and government budgets and may be further impacted by global economic conditions and fluctuations in foreign currency exchange rates. In addition, our international contracts may include industrial cooperation agreements requiring specific in-country purchases, investments, manufacturing agreements or other financial obligations, known as offset obligations, and provide for significant penalties if we fail to meet such requirements.
The services and products we provide internationally, including those provided by subcontractors, are sometimes in countries with unstable governments and/or developing legal systems, in areas of military conflict or at military installations. This increases the risk of an incident resulting in harm or loss of life to our employees, subcontractors or other third parties or damage to our products. It also exposes the company to additional financial, contractual and legal risks.

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We maintain insurance and take other steps to mitigate the risk and potential liabilities related to our international operations, but these steps may not be adequate to prevent loss or to cover resulting claims and liabilities, and we may be forced to bear substantial costs. In addition, any accidents or incidents that occur in connection with our international operations could result in negative publicity, which could adversely affect our reputation and make it more difficult for us to compete for future contracts or attract and retain employees or result in the loss of existing and future contracts. The impact of these factors is difficult to predict, but one or more of them could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	We are subject to various claims and litigation that could ultimately be resolved against us.	
The size, nature and complexity of our business make us highly susceptible to claims and litigation. We are and may become subject to various administrative, civil or criminal litigation, environmental claims, income tax matters, compliance matters, claims and investigations, which could divert financial and management resources and result in fines, penalties, compensatory, treble or other damages or non-monetary relief. Government regulations also provide that certain allegations against a contractor may lead to suspension or debarment from government contracts or suspension of export privileges for the company or one or more of its components. Suspension or debarment could have a material adverse effect on the company because of our reliance on government contracts and authorizations. Investigations, claims or litigation, if ultimately resolved against us, could have a material adverse effect on our financial position, results of operations and/or cash flows. Any investigation, claim, or litigation, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.
 	 	
▪	Our reputation and our ability to do business may be impacted by the improper conduct of employees, agents or business partners.	
We have implemented extensive policies, procedures, training and other compliance controls to prevent misconduct by employees, agents or others working on our behalf that would violate the applicable laws of the jurisdictions in which we operate, including laws governing improper payments to government officials, the protection of export controlled or classified information, cost accounting and billing, competition and data privacy. However, we cannot ensure that we will prevent all such misconduct committed by our employees, agents or others working on our behalf, and the risk of improper conduct may be expected to increase in the current environment and as we expand globally. Such improper actions could subject us to administrative, civil or criminal investigations and monetary and non-monetary penalties, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	Competition within our markets and an increase in bid protests may reduce our revenues and market share.	
We operate in highly competitive markets and our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities or be willing to accept more risk or lower profitability in competing for contracts. We have seen, and anticipate we will continue to see, increased competition in some of our core markets, especially as a result of the reduction in budgets for many U.S. Government agencies, fewer new program starts and an increased focus on affordability. Changes in U.S. defense spending may limit certain future market opportunities. We are facing increasing competition in our domestic and international markets from U.S., foreign and multinational firms. Additionally, some customers, including the DoD, may turn to commercial contractors, rather than traditional defense contractors, for information technology and other support work, or may utilize small business contractors or determine to source work internally rather than hiring a contractor. If we are unable to continue to compete successfully against our current or future competitors, we will experience declines in revenues and market share, which would negatively impact our financial position, results of operations and/or cash flows.
We also are seeing an increasing number of bid protests from unsuccessful bidders on new program awards. Bid protests could result in significant expense to the company, contract modifications or the award decision being overturned and loss of the contract award. Even where a bid protest does not result in the loss of an award, the resolution can extend the time until the contract activity can begin, and delay earnings.
 	 	
▪	Our future success depends, in part, on our ability to develop new products and new technologies and maintain technologies, facilities, equipment and a qualified workforce to meet the needs of our customers.	
Many of the markets in which we operate are characterized by rapidly changing technologies. The product, program and service needs of our customers change and evolve regularly. Our success in the competitive defense industry depends upon our ability to develop and market our products and services and our ability to provide the people,

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technologies, facilities, equipment and financial capacity needed to deliver those products and services with maximum efficiency. If we fail to maintain our competitive position, we could lose a significant amount of future business to our competitors, which would have a material adverse effect on our ability to generate favorable financial results and maintain market share.
Our operating results are heavily dependent upon our ability to attract and retain sufficient personnel with requisite skills and/or security clearances. If qualified personnel become scarce or difficult to attract or retain in our industry for compensation-related or other reasons, we could experience higher labor, recruiting or training costs in order to attract and retain necessary employees. Failure to maintain a qualified workforce would result in significant difficulty in performing under our contracts.
Approximately 3,300 of our 65,300 employees are covered by an aggregate of 16 collective bargaining agreements, and we expect to negotiate renewals of two of our collective bargaining agreements in 2014. Collective bargaining agreements generally expire after three to five years, and are subject to renegotiation upon expiration. If we experience difficulties with renewals and renegotiations of existing collective bargaining agreements, we could incur additional expenses and may be subject to work stoppages. Any such expenses or delays could adversely affect programs served by employees who are covered by collective bargaining agreements.
 	 	
▪	Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our profitability and future prospects.	
We design, develop and manufacture technologically advanced and innovative products and services, which are applied by our customers in a variety of environments. Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and intellectual property rights, labor, inability to achieve learning curve assumptions, manufacturing materials or components could prevent us from meeting requirements.
In addition, our products cannot be tested and proven in all situations and are otherwise subject to unforeseen problems. Examples of unforeseen problems that could negatively affect revenue and profitability include loss on launch of spacecraft, premature failure of products that cannot be accessed for repair or replacement, problems with quality and workmanship, country of origin, delivery of subcontractor components or services and degradation of product performance. These failures could result, either directly or indirectly, in loss of life or property. Among the factors that may affect revenue and profitability could be inaccurate cost estimates, design issues, unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to unforeseen problems, loss of follow-on work, and, in the case of certain contracts, repayment to the government customer of contract cost and fee payments we previously received.
Certain contracts, primarily involving space satellite systems, contain provisions that entitle the customer to recover fees in the event of partial or complete failure of the system upon launch or subsequent deployment for less than a specified period of time. Under such terms, we could be required to forfeit fees previously recognized and/or collected. We have not experienced any material losses in the last decade in connection with such contract performance incentive provisions. However, if we were to experience launch failures or complete satellite system failures in the future, for example, such events could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	Contract cost growth on fixed-price and other contracts that do not result in increased contract value exposes us to reduced profitability and the potential loss of future business.	
Our operating income is adversely affected when we incur certain contract costs or certain increases in contract costs that cannot be billed to customers. This cost growth can occur if estimates to complete increase or initial estimates used for calculating the contract cost were incorrect. The cost estimation process requires significant judgment and expertise. Reasons for cost growth may include unavailability or reduced productivity of labor, the nature and complexity of the work to be performed, technical or quality issues, the costs, timeliness and availability of materials and components, issues with significant subcontractors (availability, performance, quality, financial strength), the effect of any delays in performance, availability and timing of funding from the customer, the effect of any changes in law or regulation, and natural or environmental disasters. Further, items affecting our contract value may include the inability to recover any claims included in the estimates to complete. A significant change in estimates on one or more programs could have a material adverse effect on our financial position, results of operations and/or cash flows.

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Our risk varies with the type of contract. Due to their nature, fixed-price contracts inherently have more risk than cost type contracts. In 2013, approximately 47 percent of our annual revenues were derived from fixed-price contracts. We typically enter into fixed-price contracts where costs can be more reasonably estimated based on experience. In addition, our contracts contain provisions relating to cost controls and audit rights. If the terms specified in our contracts are not met, our profitability may be reduced and we may incur a loss. Fixed-price development work comprises a small portion of our fixed-price contracts. This type of work is inherently more uncertain as to future events than production contracts, and, as a result, there is typically more variability in estimates of the costs to complete the development stage. As work progresses through the development stage into production, the risks associated with estimating the total costs of the contract are typically reduced. While management uses its best judgment to estimate costs associated with fixed-price development contracts, future events could result in either upward or downward adjustments to those estimates.
Other contracts are also subject to risk, for example, under a fixed-price incentive contract, the allowable costs incurred by the contractor are paid up to a ceiling, which can affect profitability. Further, under a cost type contract, the allowable costs incurred by the contractor are also subject to reimbursement plus a fee. We often enter into cost type contracts for development programs with complex design and technical challenges. These cost type programs typically have award or incentive fees that are subject to uncertainty and may be earned over extended periods or towards the end of the contract. In these cases, the associated financial risks are primarily in recognizing profit, which ultimately may not be earned, or program cancellation if cost, schedule, or technical performance issues arise.
 	 	
▪	We use estimates when accounting for contracts. Changes in estimates could affect our profitability and our overall financial position.	
When agreeing to contractual terms, we make assumptions and projections about future conditions and events, many of which extend over long periods. These assumptions and projections assess the cost, productivity and availability of labor, future levels of business base, complexity of the work to be performed, cost and availability of materials and components, impact of potential delays in performance and timing of product deliveries. Contract accounting requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenues and costs at completion is complicated and subject to many variables. Incentives, awards or penalties related to performance on contracts are considered in estimating revenue and profit rates when there is sufficient information to assess anticipated performance. Suppliers’ assertions are also assessed and considered in estimating costs and profitability.
Because of the significance of the judgment and estimation processes described above, it is possible that materially different amounts could be obtained if different assumptions were used or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates could have a material adverse effect upon the profitability of one or more of the affected contracts and on our overall financial position, results of operations and/or cash flows. See Critical Accounting Policies, Estimates, and Judgments in Part II, Item 7.
 	 	
▪	Our business could be negatively impacted by security threats, including physical and cybersecurity threats, and other disruptions.	
As a defense contractor, we face various cyber and other security threats, including attempts to gain unauthorized access to sensitive information and networks; threats to the safety of our directors, officers and employees; threats to the security of our facilities and infrastructure; and threats from terrorist acts. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient. These threats could lead to losses of sensitive information or capabilities, harm to personnel or infrastructure, and/or damage to our reputation. They could have a material adverse effect on our financial position, results of operations and/or cash flows.
Cybersecurity threats are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, disruption or denial of service attacks, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information (ours or that of our customers or partners), and corruption of data, networks or systems. These events, if not prevented or effectively mitigated, could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability. They could have a material adverse effect on our financial position, results of operations and/or cash flows.
We provide cyber and information technology systems, products and services to various customers (government and commercial) and other third parties who also face these types of cybersecurity threats. Our systems, products and

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services may themselves be subject to cybersecurity threats and/or they may not be able to detect or deter such threats to our customers, or effectively to mitigate resulting losses. These losses could adversely affect our customers and our company. They could result in damage to our reputation, loss of business and potential liability, any one of which could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	Changes to business practices for U.S. Government contractors could have a significant adverse effect on current programs, potential new awards and the processes by which procurements are awarded and managed.	
Our industry has experienced, and we expect it will continue to experience, significant changes to business practices as a result of, among other items, an increased focus on affordability, efficiencies, recovery of costs and a reprioritization of available defense funds to key areas for future defense spending. The DoD continues to adjust its procurement practices, requirements criteria and source selection methodology in its ongoing efforts to reduce costs, gain efficiencies and enhance program management and control. Further, the DCMA/DCAA have implemented cost recovery/cost savings initiatives designed to prioritize efforts to recover costs. As a result of certain of these initiatives, we have experienced and may continue to experience an increased number of audits and/or a lengthened period of time required to close open audits. More recently, the thresholds for certain allowable costs, including compensation costs, have been significantly reduced; others are being challenged, debated and, in certain cases, modified. Significant changes to the thresholds for allowable costs could adversely affect our financial position, results of operations and/or cash flows.
These efforts have had, and we expect them to continue to have, a significant impact on the contracting environment in which we do business. In connection with these cost reduction initiatives, the U.S. Government is also pursuing alternatives to shift additional responsibility and performance risks to the contractor. While the impact to our business as a result of these changes remains uncertain, our business and industry could be materially adversely affected.
 	 	
▪	Our earnings and profitability depend, in part, on subcontractor performance as well as raw material and component availability and pricing. Adverse capital and credit market conditions may affect our suppliers' ability to perform.	
We rely on other companies to provide raw materials and major components and subsystems for our products and to produce hardware elements and sub-assemblies, provide intellectual property, and perform some of the services we provide to our customers. Disruptions or performance problems caused by our subcontractors and suppliers could have an adverse effect on our ability to meet our commitments to customers.
Our ability to perform our obligations on time as a prime contractor could be adversely affected if one or more of our subcontractors or suppliers were unable to provide the agreed-upon products or materials or perform the agreed-upon services in a timely and cost-effective manner. Changes in economic conditions, including changes in defense budgets or credit availability, could adversely affect the financial stability of our subcontractors and suppliers and/or their ability to perform. The inability of our suppliers to perform could also result in the need for us to transition to alternate suppliers, which could result in significant incremental cost and delay or the need for us to provide other supplemental means to support our existing suppliers.
Our costs may increase over the term of our contracts. Through cost escalation provisions contained in some of our U.S. Government contracts, we may be protected from increases in certain costs to the extent the increases in our costs are in line with the escalation provisions in those contracts. However, the difference in basis between our actual costs and these escalation provisions may expose us to cost growth even with these provisions. A significant delay in supply deliveries of our key raw materials, components or intellectual property required in our production processes could have a material adverse effect on our financial position, results of operations and/or cash flows.
In connection with our government contracts, we are required to procure certain materials, components and parts from supply sources approved by the customer. There are currently several components for which there may only be one supplier. If a sole source supplier cannot meet our needs, we may be unable to find a suitable alternative. Consistent with the industry’s efforts, our procurement practices are intended to reduce the likelihood of our procurement of conflict materials or counterfeit or unauthorized parts or materials. In some circumstances, we must rely on certifications from our subcontractors and suppliers regarding their compliance with applicable laws and regulations regarding the parts or materials we procure. If certifications received from our subcontractors or suppliers are inaccurate, if we are unable to procure needed materials, components or parts, or if the parts we procure are counterfeit or not authorized, it could have a material adverse effect on our financial position, results of operations and/or cash flows.

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Changes in economic conditions, as well as changes in the defense budget, can adversely affect the ability of our subcontractors and suppliers to perform and further increase this risk.
 	 	
▪	Changes in future business conditions could cause business investments and/or recorded goodwill and other long-lived assets to become impaired, resulting in substantial losses and write-downs that would reduce our operating income.	
Goodwill accounts for approximately half of our total assets. We test goodwill amounts for impairment at least annually and consider whether an interim test is required if we believe potential impairment exists. The annual impairment test is based on several factors requiring judgment. We face continued uncertainty in our business environment due to the substantial fiscal and economic challenges facing the U.S. Government, our primary customer, including the impact of reductions to the defense budget and issues surrounding the national debt ceiling. If our contracts are cancelled, modified or terminated as a result of the resolution of these issues or otherwise, our revenues, profits and cash flows could be substantially lower than our current projections. In addition, market-based inputs to the calculations in the impairment test, such as weighted average cost of capital and terminal value (based on market comparisons) could be negatively impacted. Such circumstances may result in an impairment of our goodwill. Further, the carrying values of our reporting units are significantly influenced by a number of factors including the discount rate used to determine our net pension liability. Therefore, the impact of changes in the discount rate on our pension liability could result in an impairment of goodwill absent any changes discussed above. We continue to monitor the recoverability of the carrying value of our goodwill and other long-lived assets. Significant write-offs of goodwill or other long-lived assets could have an adverse impact on our financial condition or results of operations.
As part of our overall strategy, we may, from time to time, acquire an interest in a business. Even after careful integration efforts, actual operating results may vary significantly from initial estimates and we may experience unforeseen issues that adversely affect the value of our goodwill or other long-lived assets.
 	 	
▪	Unforeseen environmental costs could have a material adverse effect on our financial position, results of operations and/or cash flows.	
Our operations are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. In addition, we could be affected by future laws or regulations, including those imposed in response to climate change concerns and other actions. Compliance with current and future environmental laws and regulations currently requires, and is expected to continue to require, significant operating and capital costs.
Environmental laws and regulations provide for substantial fines and criminal sanctions for violations. These laws and regulations may limit our operations or require the installation of costly pollution control equipment or operational changes to limit pollution emissions or discharges and/or decrease the likelihood of accidental hazardous substance releases. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations related to the cleanup of pollutants previously released into the environment. In addition, if we were found to be in violation of the Federal Clean Air Act or the Clean Water Act, the facility or facilities involved in the violation could be placed by the Environmental Protection Agency (EPA) on the “Excluded Parties List” maintained by the General Services Administration. The listing could continue until the EPA concludes that the cause of the violation has been corrected. Because listed facilities generally cannot be used in performing any U.S. Government contract until the violation is corrected, if we were listed on the Excluded Parties List it could have a material adverse effect on our financial position, results of operations and/or cash flows.
The adoption of new laws and regulations, stricter enforcement of existing laws and regulations, imposition of new cleanup requirements, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, sanctions or penalties, could negatively impact our ability to recover such costs under previously priced contracts or financial insolvency of other responsible parties could cause us to incur costs in the future that could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	We may be unable adequately to protect our intellectual property rights, which could affect our ability to compete.	
We own many U.S. and foreign patents, trademarks, copyrights, and other forms of intellectual property, and we license certain intellectual property rights to and from third parties. The U.S. Government generally holds licenses to certain intellectual property that we develop in performance of government contracts, and it may use or authorize others to use certain such intellectual property, typically for government purposes. More recently, we believe the U.S. Government has asserted or sought to obtain more extensive rights in intellectual property. The U.S. Government's efforts could result in a decrease in our ability to control the use of certain of our intellectual property

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NORTHROP GRUMMAN CORPORATION

rights in a government contracting environment. Our intellectual property is also subject to challenge, invalidation, misappropriation or circumvention by third parties.
We also rely significantly upon proprietary technology, information, processes and know-how that are not protected by patents. We seek to protect this information through trade secret or confidentiality agreements with our employees, consultants, subcontractors and other parties, as well as through other measures. These agreements and other measures may not provide adequate protection for our unpatented proprietary information. In the event of an infringement of our intellectual property rights, a breach of a confidentiality agreement or divulgence of proprietary information, we may not have adequate legal remedies to maintain our intellectual property. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from other aspects of our business. In addition, our trade secrets may otherwise become known or be independently developed by competitors. In some instances, we have licensed the proprietary intellectual property of others, but we may be unable in the future to secure the necessary licenses to use such intellectual property on commercially reasonable terms. If we are unable adequately to protect our intellectual property rights, against claims by the U.S. Government or others, our business could be adversely affected. Moreover, the laws concerning intellectual property rights vary among countries and the protection provided to our intellectual property by these laws and foreign courts may not be the same as the remedies available under U.S. law.
 	 	
▪	Our business is subject to disruption caused by natural disasters and environmental disasters that could adversely affect our profitability and our overall financial position.	
We have significant operations located in regions that may be exposed to earthquakes, damaging storms and other natural disasters. Our business also may be subject to environmental disasters. Although preventative measures may help to mitigate damage, the damage and disruption resulting from natural and environmental disasters may be significant. If insurance or other risk transfer mechanisms are unavailable or insufficient to recover all costs, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
Our subcontractors and suppliers are also subject to natural and environmental disasters that could affect their ability to deliver or perform under a contract. Performance failures by our subcontractors due to natural and environmental disasters may adversely affect our ability to perform our obligations on the prime contract. Damages or other costs that may not be fully recoverable from the subcontractor or from the customer could reduce our profitability or result in a termination of the prime contract, which could have an adverse effect on our ability to compete for future contracts.
Natural and environmental disasters could also disrupt our workforce, electrical and other power distribution networks, including computer and internet operation and accessibility, and the critical industrial infrastructure needed for normal business operations. These disruptions could cause adverse effects on our profitability and performance.
 	 	
▪	Our insurance coverage, customer indemnifications or other liability protections may be inadequate to cover all of our significant risks or our insurers may deny coverage of or be unable to pay for material losses we incur, which could adversely affect our profitability and overall financial position.	
We endeavor to obtain insurance agreements from financially solid, highly rated counterparties in established markets to cover significant risks and liabilities (including, for example, natural disasters and product liability). Not every risk or liability can be insured, and, for risks that are insurable, the policy limits and terms of coverage reasonably obtainable in the market may not be sufficient to cover all actual losses or liabilities incurred. Even if insurance coverage is available, we may not be able to obtain it at a price or on terms acceptable to us.
Disputes with insurance carriers over policy terms or the insolvency of one or more of our insurers may significantly affect the amount or timing of cash flows and, if litigation over coverage terms with the insurer becomes necessary, an outcome unfavorable to us may have a material adverse effect on our financial position, results of operations and/or cash flows.
In some circumstances we may be entitled to certain legal protections or indemnifications from our customers through contractual provisions, laws, regulations or otherwise. However, these protections are not always available, are typically subject to certain terms or limitations and may not be sufficient to cover all losses or liabilities incurred.

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▪	Anticipated benefits of mergers, acquisitions, joint ventures, spin-offs or strategic alliances may not be realized.	
As part of our overall strategy, we may, from time to time, merge with or acquire businesses, dispose of or spin-off businesses, form joint ventures or create strategic alliances. Whether we realize the anticipated benefits from these transactions depends, in part, upon the integration between the businesses involved, the performance of the underlying products, capabilities or technologies, the adequacy of the due diligence, the management of the operations and market conditions following these transactions. Accordingly, our financial results could be adversely affected by unanticipated performance issues, transaction-related charges, liabilities, amortization of expenses related to intangibles, charges for impairment of long-lived assets, guarantees, partner performance and indemnifications. Divestitures may result in continued financial involvement in the divested business, such as through guarantees, indemnifications, or other financial arrangements, following the transaction. Although we have established procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful.
 	 	
▪	Pension and medical expenses associated with our retirement benefit plans may fluctuate significantly depending upon changes in actuarial assumptions, future investment performance of plan assets, future health care costs and legislative or other regulatory actions.	
A substantial portion of our current and retired employee population is covered by pension and other post-retirement benefit plans, the costs of which are dependent upon various assumptions, including estimates of rates of return on benefit plan assets, discount rates for future payment obligations, rates of future cost growth and trends for future costs. In addition, funding requirements for benefit obligations of our pension and other post-retirement benefit plans are subject to legislative and other government regulatory actions. Variances from these estimates could have a material adverse effect on our financial position, results of operations and/or cash flows.
Additionally, due to government regulations, pension plan cost recoveries under our U.S. Government contracts occur in different periods from when those pension costs are recognized for financial statement purposes or when pension funding is made. These timing differences could have a material adverse effect on our cash flows. The cost accounting rules have been revised in order to partially harmonize the measurement and period of assignment of defined benefit pension plan costs allocable to U.S. Government contracts and the minimum required contribution under the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Pension Protection Act (PPA) of 2006. These rules better align, but do not eliminate, mismatches between ERISA funding requirements and CAS pension costs for U.S. Government CAS covered contracts.
 	 	
▪	Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our profitability and cash flow.	
We are subject to income taxes in the U.S. and many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Furthermore, changes in applicable domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain sales or the deductibility of certain expenses, thereby affecting our income tax expense and profitability. Deferred tax assets are required to be measured at the statutory tax rate currently in effect; therefore a change in the U.S. corporate tax rate would result in a remeasurement of our net deferred tax assets through the income tax provision. The final determination of any tax audits or related litigation could be materially different from our historical income tax provisions and accruals. Additionally, changes in our tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in our overall profitability, changes in tax legislation, changes in the valuation of deferred tax assets and liabilities, changes in differences between financial reporting income and taxable income, the results of audits and the examination of previously filed tax returns by taxing authorities and continuing assessments of our tax exposures could impact our tax liabilities and significantly affect our financial position, results of operations and/or cash flows.
 	 	
▪	Our nuclear-related operations subject us to various environmental, regulatory, financial and other risks.	
Our nuclear-related operations subject us to various risks, including potential liabilities relating to harmful effects on the environment and human health that may result from nuclear-related operations and the storage, handling and disposal of radioactive materials. We are also subject to reputational harm and potential liabilities arising out of a nuclear incident, whether or not it is within our control. The U.S. Government and prime contractors sometimes provide certain indemnity and other protection under certain of our government related contracts pursuant to, or in connection with, Public Law 85-804 and the Price-Anderson Nuclear Industries Indemnity Act for certain nuclear-related risks. If there was a nuclear incident and that indemnity or other protection (especially in connection with a

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commercial contract) was not available to cover our losses and liabilities, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	If all or any portion of the spin-off of our former Shipbuilding business or certain internal transactions undertaken in anticipation of the spin-off transaction are determined to be taxable for U.S. federal income tax purposes, we and our shareholders that are subject to U.S. federal income tax may incur significant U.S. federal income tax liabilities.	
In connection with the spin-off of our former Shipbuilding business, we received a letter ruling from the IRS and an opinion of counsel confirming that we and our shareholders would not recognize any taxable income, gain or loss for U.S. federal income tax purposes as a result of the merger, the internal reorganization or the distribution, except that our shareholders who receive cash in lieu of fractional shares would recognize gain or loss with respect to such cash. The ruling and the opinion relied on certain facts, assumptions, representations and undertakings from us and HII regarding the past and future conduct of the companies’ respective businesses and other matters.
We are not aware of any facts or circumstances that would cause any of the factual statements or representations in the IRS ruling or the opinion to be incomplete or untrue at the time of the spin-off transaction. Nevertheless, if the IRS determines that any of the factual statements or representations that the IRS ruling or the opinion was based on were incomplete or untrue, or if certain facts or circumstances upon which the IRS ruling or the opinion was based were materially different from those at the time of the spin-off, we and our shareholders may not be able to rely on the IRS ruling or the opinion of counsel and could be subject to significant tax liabilities, which could have a material adverse effect on our financial position, results of operations and/or cash flows.
 	 	
▪	The spin-off of our former Shipbuilding business may expose us to potential claims and liabilities.	
In connection with the spin-off transaction, we entered into a number of agreements with HII setting forth certain rights and obligations of the parties after the separation. For example, under the Separation and Distribution Agreement, from and after the spin-off transaction, each of HII and Northrop Grumman is generally responsible for the debts, liabilities and other obligations related to the business or businesses that it owns and operates following the consummation of the spin-off. It is possible that a court would disregard the allocation agreed to between us and HII, and require that we assume responsibility for certain obligations allocated to HII (for example, tax and/or environmental liabilities), particularly if HII were to refuse or were unable to pay or perform such obligations.
In addition, third parties could seek to hold us responsible for any of the liabilities or obligations for which HII has agreed to be responsible and/or to indemnify us, directly or indirectly. The indemnity related rights we have under our agreements with HII may not be sufficient to protect us against such liabilities. Even if we ultimately succeed in recovering from HII or the U.S. Government any amounts for which we are held liable, we may be required to record these losses ourselves until such time as the indemnity contribution is paid. In addition, certain indemnities that we may be required to provide HII are not subject to a cap, may be significant, and could negatively impact our business. These risks could negatively affect our business and could have a material adverse effect on our financial position, results of operations, and/or cash flows.
Item 1B. Unresolved Staff Comments
None.
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Form 10-K and the information we are incorporating by reference contain statements, other than statements of historical fact, that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “intend,” “may,” “could,” “plan,” “project,” “forecast,” “believe,” “estimate,” “outlook,” “anticipate,” “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 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 and other important factors disclosed in this report and from time to time in our other filings with the SEC.
You are urged 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

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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.
Item 2. Properties
At December 31, 2013, we owned or leased approximately 35 million square feet of floor space at approximately 502 separate locations, primarily in the U.S., for manufacturing, warehousing, research and testing, administration and various other uses. At December 31, 2013, we leased to third parties approximately 307,000 square feet of our owned and leased facilities, and had vacant floor space of approximately 604,000 square feet.
At December 31, 2013, we had major operations at the following locations:
AEROSPACE SYSTEMS
Carson, El Segundo, Manhattan Beach, Mojave, Palmdale, Redondo Beach and San Diego, CA; Melbourne and St. Augustine, FL; Devens, MA; Moss Point, MS; and Bethpage, NY.
ELECTRONIC SYSTEMS
Azusa, Sunnyvale and Woodland Hills, CA; Apopka, FL; Rolling Meadows, IL; Annapolis, Elkridge, Halethorpe, Linthicum and Sykesville, MD; Williamsville, NY; Cincinnati, OH; Salt Lake City, UT; and Charlottesville, VA. Locations outside the U.S. include France, Germany and Italy.
INFORMATION SYSTEMS
Huntsville, AL; Carson, McClellan, Redondo Beach, San Diego and San Jose, CA; Aurora and Colorado Springs CO; Annapolis Junction, MD; Bellevue, NE; Beavercreek, OH; and Chantilly, Chester, Fairfax, Herndon, McLean and Richmond, VA.
TECHNICAL SERVICES
Sierra Vista, AZ; Warner Robins, GA; Lake Charles, LA; Hill Air Force Base, UT; and Herndon, VA.
CORPORATE
Falls Church and Lebanon, VA; and Irving, TX.
The following is a summary of our floor space at December 31, 2013:

Square feet (in thousands)	 	Owned	 	Leased	 	U.S. Government
Owned/Leased	 	Total	
Aerospace Systems	 	6,338	
 	 	5,410	
 	 	1,930	
 	 	13,678	
 	
Electronic Systems	 	8,217	
 	 	2,680	
 	 	—	
 	 	10,897	
 	
Information Systems	 	658	
 	 	6,082	
 	 	—	
 	 	6,740	
 	
Technical Services	 	145	
 	 	1,818	
 	 	1	
 	 	1,964	
 	
Corporate	 	657	
 	 	564	
 	 	—	
 	 	1,221	
 	
Total	 	16,015	
 	 	16,554	
 	 	1,931	
 	 	34,500	
 	
We maintain our properties in good operating condition and believe that the productive capacity of our properties is adequate to meet current contractual requirements and those for the foreseeable future.
Item 3. Legal Proceedings
We have provided information about certain legal proceedings in which we are involved in Note 11 to the consolidated financial statements in Part II, Item 8.
We are a party to various investigations, lawsuits, claims and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. These types of matters could result in fines; penalties; compensatory, treble or other damages; or non-monetary relief. U.S. Government regulations also provide that certain allegations against a contractor may lead to suspension or debarment from future U.S. Government contracts or suspension of export privileges for the company or one or more of its components. Suspension or debarment could have a material adverse effect on the company because of the company's reliance on government contracts and authorizations. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based on information available to us to date and other than as noted in Note 11 to the consolidated financial statements, we do not believe that the outcome of any matter pending against the company

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is likely to have a material adverse effect on the company's consolidated financial position as of December 31, 2013, its annual results of operations and/or cash flows. For further information on the risks we face from existing and future investigations, lawsuits, claims and other legal proceedings, please see Risk Factors in Part I, Item 1A.
Item 4. Mine Safety Disclosures
No information is required in response to this item.

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PART II 
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
COMMON STOCK
We have 800,000,000 shares authorized at a $1 par value per share, of which 217,599,230 shares and 239,209,812 shares were outstanding as of December 31, 2013 and 2012, respectively.
PREFERRED STOCK
We have 10,000,000 shares authorized at a $1 par value per share, of which no shares were issued and outstanding as of December 31, 2013 and 2012.
MARKET INFORMATION
Our common stock is listed on the New York Stock Exchange and trades under the symbol NOC.
The following table sets forth, for the periods indicated, the high and low sale prices of our common stock as reported in the consolidated reporting system for the New York Stock Exchange Composite Transactions.

 	 	2013	 	2012	
January to March	 	 $64.20 to $70.21	 	  $57.31 to $62.31	
April to June	 	 69.13 to  84.34	 	   56.59 to  65.78	
July to September	 	 81.74  to 99.10	 	   61.86  to 70.20	
October to December	 	  92.51  to 116.19	 	   62.80  to  71.25	
HOLDERS
The approximate number of common stockholders was 27,914 as of January 30, 2014.
DIVIDENDS
Quarterly dividends per common share for the most recent two years are as follows:

 	 	2013	 	2012	
January to March	 	$0.55	 	$0.50	
April to June	 	  0.61	 	  0.55	
July to September	 	  0.61	 	  0.55	
October to December	 	  0.61	 	  0.55	
Total	 	$2.38	 	$2.15	

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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFLIATED PURCHASERS
The table below summarizes our repurchases of common stock during the three months ended December 31, 2013: 

Period	Number
of Shares
Purchased(1)	 	Average 
Price
Paid per
Share(2)	 	Numbers of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs	 	Approximate Dollar
Value of Shares that
May Yet Be
Purchased under the
Plans or Programs
($ in millions)	
October	2,548,724	
 	 	
 	$ 97.38	
 	 	2,548,724	
 	 	
 	$3,556	
 	
November	1,827,800	
 	 	109.38	
 	 	1,827,800	
 	 	3,356	
 	
December	2,249,602	
 	 	111.57	
 	 	2,249,602	
 	 	3,105	
 	
Total	6,626,126	
 	 	
 	$105.51	
 	 	6,626,126	
 	 	
 	$3,105	

(1)	On May 15, 2013, the company's board of directors authorized a share repurchase program of up to $4.0 billion of the company’s common stock. Repurchases under this program commenced in September 2013 upon the completion of the company's 2010 repurchase program. As of December 31, 2013, repurchases under the program totaled $895 million, and $3.1 billion remained under this share repurchase authorization. The repurchase program is expected to expire when we have used all authorized funds for repurchase.	
 	 	
(2)	Includes commissions paid.	
Share repurchases take place from time to time, subject to market conditions and management's discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and has not made any purchases of common stock other than in connection with these publicly announced repurchase program authorizations. 
In connection with the spin-off of our former shipbuilding business, we obtained a Private Letter Ruling from the Internal Revenue Service (IRS) that generally limited our share repurchases to approximately 88 million shares within two years of the spin-off. The limitation expired on March 31, 2013. During this two year period, we repurchased approximately 67 million shares of our common stock.

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STOCK PERFORMANCE GRAPH
Comparison of Cumulative Five Year Total Return
Among Northrop Grumman Corporation, the S&P 500 Index,
and the S&P Aerospace & Defense Index

(1)	Assumes $100 invested at the close of business on December 31, 2008, in Northrop Grumman Corporation common stock, Standard & Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index.	
 	 	
(2)	The cumulative total return assumes reinvestment of dividends. In March 2011, we completed the spin-off of Huntington Ingalls Industries, Inc. (HII). Our shareholders received one share of HII common stock for every six shares of our common stock held on the record date. The effect of the spin-off is reflected in the cumulative total return as a reinvested dividend.	
 	 	
(3)	The S&P Aerospace & Defense Index is comprised of The Boeing Company, General Dynamics Corporation, Honeywell International Inc., L-3 Communications, Lockheed Martin Corporation, Northrop Grumman Corporation, Precision Castparts Corporation, Raytheon Company, Rockwell Collins, Inc., Textron, Inc. and United Technologies Corporation.	
 	 	
(4)	The total return is weighted according to market capitalization of each company at the beginning of each year.	
 	 	
(5)	This graph is not deemed to be "filed" with the U.S. Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities and Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.	
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
For a description of securities authorized under our equity compensation plans, see Note 14 to our consolidated financial statements in Part II, Item 8.

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Item 6. Selected Financial Data
The data presented in the following table is derived from the audited consolidated financial statements and other information, all adjusted to reflect the effects of discontinued operations. See also Other Matters – Business Dispositions in Part II, Item 7.
Selected Financial Data

 	 	Year Ended December 31	
$ in millions, except per share amounts	 	2013	 	2012	 	2011	 	2010	 	2009	
Sales	 	 	 	 	 	 	 	 	 	 	
U.S. Government	 	$	21,278	
 	 	$	22,268	
 	 	$	23,432	
 	 	$	25,061	
 	 	$	24,423	
 	
Other customers(1)	 	3,383	
 	 	2,950	
 	 	2,980	
 	 	3,082	
 	 	3,227	
 	
Total sales	 	24,661	
 	 	25,218	
 	 	26,412	
 	 	28,143	
 	 	27,650	
 	
Operating income	 	3,123	
 	 	3,130	
 	 	3,276	
 	 	2,827	
 	 	2,274	
 	
Earnings from continuing operations	 	1,952	
 	 	1,978	
 	 	2,086	
 	 	1,904	
 	 	1,434	
 	
Basic earnings per share, from continuing operations	 	$	8.50	
 	 	$	7.96	
 	 	$	7.54	
 	 	$	6.41	
 	 	$	4.49	
 	
Diluted earnings per share, from continuing operations	 	8.35	
 	 	7.81	
 	 	7.41	
 	 	6.32	
 	 	4.44	
 	
Cash dividends declared per common share	 	2.38	
 	 	2.15	
 	 	1.97	
 	 	1.84	
 	 	1.69	
 	
Year-End Financial Position	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	26,381	
 	 	$	26,543	
 	 	$	25,411	
 	 	$	31,410	
 	 	$	30,297	
 	
Notes payable to banks and long-term debt	 	5,930	
 	 	3,935	
 	 	3,948	
 	 	4,724	
 	 	4,011	
 	
Total long-term obligations(2)	 	9,946	
 	 	10,973	
 	 	8,940	
 	 	7,947	
 	 	8,959	
 	
Financial Metrics	 	 	 	 	 	 	 	 	 	 	
Cash provided by continuing operations	 	$	2,483	
 	 	$	2,640	
 	 	$	2,347	
 	 	$	2,056	
 	 	$	1,995	
 	
Free cash flow from continuing operations(3)	 	2,119	
 	 	2,309	
 	 	1,855	
 	 	1,471	
 	 	1,454	
 	
Other Information	 	 	 	 	 	 	 	 	 	 	
Company-sponsored research and development expenses	 	$	507	
 	 	$	520	
 	 	$	543	
 	 	$	580	
 	 	$	588	
 	
Total backlog	 	37,033	
 	 	40,809	
 	 	39,515	
 	 	46,842	
 	 	48,741	
 	
Square footage at year-end (in thousands)	 	34,500	
 	 	35,053	
 	 	37,397	
 	 	38,218	
 	 	37,990	
 	
Number of employees at year-end	 	65,300	
 	 	68,100	
 	 	72,500	
 	 	79,600	
 	 	81,800	

(1)	Other customer sales includes foreign military sales.	
 	 	
(2)	Total long-term obligations includes the long-term portions of debt, pension and other post-retirement benefit plan liabilities, deferred compensation, unrecognized tax benefits, environmental liabilities and other long-term obligations.	
 	 	
(3)	Free cash flow from continuing operations is a non-GAAP financial measure and is calculated as cash provided by continuing operations less capital expenditures. See Liquidity and Capital Resources – Free Cash Flow from Continuing Operations in Part II, Item 7 for more information on this measure.	

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Political and Economic Environment
The U.S. Government continues to face substantial fiscal and economic challenges, which affect funding for its discretionary and non-discretionary budgets. Part I of the Budget Control Act of 2011 (Budget Control Act) provided for a reduction in planned defense budgets by at least $487 billion over a ten year period, and the fiscal year (FY) 2013 impacts were incorporated in the U.S. Government's FY 2013 budget. Part II mandated substantial additional reductions, through a process known as “sequestration,” which took effect March 1, 2013, and resulted in approximately $40 billion of additional reductions to the FY 2013 defense budget. 
In March 2013, the President signed into law the Consolidated and Further Continuing Appropriations Act (2013) which included specific appropriations for our major federal customers, including the DoD, subject to further reductions or sequestration under the Budget Control Act.  
In October 2013, Congress passed a continuing resolution to fund the government through January 15, 2014 (subsequently extended through January 18, 2014), and suspended the statutory limit on the amount of permissible federal debt (the debt ceiling) through February 7, 2014.

In December 2013, Congress passed the National Defense Authorization Act (NDAA) for FY 2014. Congress also passed, and the President signed into law, the Bipartisan Budget Act of 2013, which set discretionary spending levels for FY 2014 and FY 2015. The legislation provides for additional budget funding of approximately $63 billion over FY 2014 and FY 2015. The additional funding is expected to alleviate some budget cuts that would otherwise have been instituted through sequestration in FY 2014 and FY 2015, with approximately $45 billion (generally split equally between defense and non-defense spending) applied to FY 2014.  
On January 16, 2014, Congress passed the Consolidated Appropriations Act of 2014, providing for federal spending levels consistent with the Bipartisan Budget Act of 2013. The President signed the legislation into law on January 17, 2014. The discretionary spending levels for FY 2014 total approximately $1.1 trillion, of which the defense spending level is $572 billion, comprised of $487 billion in base defense and $85 billion in overseas contingency operations (OCO) funds. 
The President's budget request for FY 2015 is currently due to Congress in February 2014. Congressional appropriation and authorization of spending for FY 2015 and beyond, including defense spending, and the application of sequestration remain marked by significant debate and an uncertain schedule. Congress and the Administration also continue to debate the debt ceiling, among other fiscal issues, as they negotiate plans for long-term national fiscal policy. The outcome of these debates could have a significant impact on defense spending broadly and the company's programs in particular.  
If the existing debt ceiling is not raised, we may be required to continue to perform for some period of time on certain of our U.S. Government contracts even if the U.S. Government is unable to make timely payments. A debt ceiling breach could, among other impacts, have significant near and long-term consequences for our company, our employees, our suppliers and the defense industry. It could negatively affect the U.S. Government's timely payment of our billings, result in delayed cash collections and have a material adverse effect on our financial position, results of operations and/or cash flows.  
The budget environment, including sequestration as currently mandated, remain a significant long-term risk. Considerable uncertainty exists regarding how future budget and program decisions will unfold and what challenges budget reductions will present for the defense industry. We believe continued budget pressures will have serious negative consequences for the security of our country, the defense industrial base, including Northrop Grumman, and the customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base. Although it is difficult to determine specific impacts, we expect that over the longer term, the budget environment may result in lower awards, revenues, profits and cash flows from our U.S. Government contracts. Members of Congress continue to discuss various options to address sequestration in future budget planning, but we cannot predict the outcome of these efforts. It is likely budget and program decisions made in this environment will have long-term impacts on our company and the entire defense industry.  
Faced with continued budget uncertainty and continued threats to national security, the DoD is reviewing the roles and structure of the U.S. military. In January 2012, the DoD announced a new defense strategy intended to guide its priorities and budgeting decisions. The strategy calls for the U.S. military to project power globally and operate effectively in all domains, including cyberspace, and places particular emphasis on Asia Pacific as an area of strategic focus. In March 2013, the Secretary of Defense directed senior Pentagon officials to conduct a

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comprehensive strategic review of the DoD strategy, including examination of the choices underlying the strategy, force posture, investments and institutional management in light of the budgetary and strategic environment. The DoD briefed the results of this review in late July 2013 and provided some broad indications of the choices being weighed. In examining budget constraints within a sequestration environment over the next decade, the DoD determined reductions in personnel, compensation and benefits, force structure, and modernization likely would be necessary. On force planning, the review broadly outlined several options, some that favor current capacity and others that emphasize future investments. The DoD has stated that while the review demonstrated various alternatives, decisions are still being finalized. Program and budget deliberations for the FY 2015 defense plan, currently scheduled for delivery to Congress in February 2014, are ongoing within the DoD. The next Quadrennial Defense Review is scheduled to be completed and delivered to Congress in 2014. These various strategic reviews, as well as budget plans, proposed by the Administration and considered by Congress, may impact future funding for the company's programs.
We believe spending on recapitalization, modernization and maintenance of defense, intelligence, and homeland security assets will continue to be a national priority. Future defense spending is expected to include the development and procurement of new manned and unmanned military platforms and systems, along with advanced electronics and software to enhance the capabilities of existing individual systems and provide real-time integration of surveillance, information management, strike and battle management platforms. We expect significant new competitive opportunities to include long range strike, missile defense, command and control, network communications, enhanced situational awareness, satellite systems, restricted programs, cybersecurity, technical services and information technology, as well as numerous homeland security programs.
The company believes it has additional international opportunities (direct and foreign military sales), beyond those realized today, to sell its products and services outside the U.S. market, particularly in the domains of unmanned systems, cyber, C4ISR, logistics and manned military aircraft. The Administration is addressing and supporting export control reforms that could enhance our ability to take advantage of these opportunities. The company is dedicating additional resources to expanding its international sales with emphases on Australia, the Middle East, Asia and Europe, through both organic growth and acquisitions. To the extent these efforts are successful, increases in international awards, revenues, profits and cash flows may offset, or partially offset, potential declines resulting from the U.S. political and economic environment described above.
See Risk Factors located in Part I, Item 1A for a more complete description of risks we face.
Operating Performance Assessment and Reporting
We manage and assess our business based on our performance on contracts and programs (two or more closely-related contracts), with consideration given to the Critical Accounting Policies, Estimates and Judgments described later in this section. Sales on our portfolio of long-term contracts is primarily recognized using the cost-to-cost method of percentage of completion accounting, but in some cases the units-of-delivery method of percentage of completion accounting. As a result, sales tend to fluctuate in concert with costs across our large portfolio of contracts. Due to Federal Acquisition Regulation (FAR) rules that govern our business, most types of costs are allowable, and we do not focus on individual cost groupings (such as manufacturing, engineering and design labor costs, subcontractor costs, material costs, overhead costs, and general and administrative costs), as much as we do on total contract cost, which is the key driver of our sales and operating income.
Our contract management process involves the use of contract estimates-at-completion (EACs) that are generally prepared and evaluated on a bottoms-up basis at least annually and reviewed on a quarterly basis over the contract's period of performance. These EACs include an estimated contract operating margin based initially on the contract award amount, adjusted to reflect estimated risks related to contract performance. These risks typically include technical risk, schedule risk and performance risk based on our evaluation of the contract effort. Similarly, the EACs may include identified opportunities for operating margin rate improvement. Over the contract's period of performance, our program management organizations perform evaluations of contract performance and adjust the contract revenue and cost estimates to reflect the latest reliable information available.
Our business and program management organizations are comprised of skilled professional managers whose objective is to satisfy the customer's expectations, deliver high quality products and services, and manage contract cost risks and opportunities to achieve an appropriate operating margin rate on the contract. Our comprehensive business and contract management process is a coordinated process involving personnel with expertise from various disciplines including engineering, production control, contracts, cost management, mission assurance and quality, finance and supply chain, among others. As part of this overall contract management function, personnel monitor compliance with our critical accounting policies related to contract accounting and compliance with U.S.

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Government regulations. Contract operating income and period-to-period contract operating margin rates are adjusted over the contract's period of performance to reflect the latest estimated revenue and cost for the contract, including changes in the risks and opportunities affecting the contract. Such adjustments are accounted for under the cumulative catch-up method of accounting and may have a favorable or unfavorable effect on operating income depending upon the specific conditions affecting each contract.
In evaluating our operating performance, we look primarily at changes in sales and operating income, including the effects of meaningful changes in operating income as a result of changes in contract estimates. 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 first focuses on our four segments before distinguishing between products and services. Changes in sales are generally described in terms of volume, deliveries or other indicators of sales activity, and contract mix. For purposes of this discussion, volume generally refers to increases or decreases in cost or sales from production/service activity levels or delivery rates. Performance refers to changes in contract margin rates for the period, primarily related to the changes in estimates referred to above.
CONSOLIDATED OPERATING RESULTS
Selected financial highlights, excluding the results of discontinued operations, are presented in the table below:

 	Year Ended December 31	
$ in millions, except per share amounts	2013	 	2012	 	2011	
Sales	$24,661	
 	 	
 	$25,218	
 	 	
 	$26,412	
 	
Operating costs and expenses	21,538	
 	 	22,088	
 	 	23,136	
 	
Operating income	3,123	
 	 	3,130	
 	 	3,276	
 	
Operating margin rate	12.7	%	 	12.4	%	 	12.4	%	
Federal and foreign income tax expense	
 	$ 911	
 	 	
 	$ 987	
 	 	
 	$ 997	
 	
Effective income tax rate	31.8	%	 	33.3	%	 	32.3	%	
Diluted earnings per share	
 	$ 8.35	
 	 	
 	$ 7.81	
 	 	
 	$ 7.52	
 	
Cash provided by continuing operations	
 	$ 2,483	
 	 	
 	$ 2,640	
 	 	
 	$ 2,347	
 	
Sales
Sales for 2013 decreased $557 million, or 2 percent, as compared with 2012. Sales for 2012 decreased $1.2 billion, or 5 percent, as compared with 2011.
The table below shows the variances in segment sales from the respective prior years:

 	Variance from Prior Year	
$ in millions	2013	 	2012	
Aerospace Systems	
 	$ 37	
 	 	0	%	 	
 	$ 13	
 	 	0	%	
Electronic Systems	199	
 	 	3	%	 	(422	)	 	(6	%)	
Information Systems	(760	)	 	(10	%)	 	(565	)	 	(7	%)	
Technical Services	(176	)	 	(6	%)	 	(174	)	 	(5	%)	
Intersegment sales elimination	143	
 	 	(7	%)	 	(46	)	 	2	%	
Total sales variance	
 	($557	)	 	(2	%)	 	
 	($1,194	)	 	(5	%)	
For further information by segment refer to Segment Operating Results below, and for product and service detail, refer to the Product and Service Analysis section that follows Segment Operating Results.
Operating Costs and Expenses
Operating costs and expenses are primarily comprised of labor, material, subcontractor and overhead costs, and are generally allocated to contracts as incurred. In accordance with industry practice and the regulations that govern cost accounting requirements for government contracts, most general management and corporate expenses incurred at the segment and corporate locations are considered allowable and allocable costs. Allowable and allocable general and administrative costs are allocated on a systematic basis to contracts in progress.

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Operating costs and expenses comprise the following:

 	Year Ended December 31	
$ in millions	2013	 	2012	 	2011	
Product and service costs	
 	$19,282	
 	 	
 	$19,638	
 	 	
 	$20,786	
 	
General and administrative expenses	2,256	
 	 	2,450	
 	 	2,350	
 	
Operating costs and expenses	
 	$21,538	
 	 	
 	$22,088	
 	 	
 	$23,136	
 	
2013 – Product and service costs for 2013 decreased $356 million, or 2 percent, as compared with 2012, consistent with the change in sales. General and administrative expenses as a percentage of total sales decreased to 9.1 percent in 2013, from 9.7 percent in 2012; the decrease reflects lower indirect costs principally related to cost reduction initiatives at Information Systems, as well as lower bid and proposal expenses.
2012 – Product and service costs for 2012 decreased $1.1 billion, or 6 percent, as compared with 2011. The primary driver of the reduction in product and service costs was reduced volume at Electronic Systems, Information Systems and Technical Services. General and administrative expenses as a percentage of total sales increased to 9.7 percent in 2012, from 8.9 percent in 2011; the increase includes the impact of lower sales, higher indirect costs related to compensation accruals and cost classification changes to standardize cost accounting practices at one of our segments, as well as higher bid and proposal expenses.
For the product and service costs detail, see the Product and Service Analysis section that follows Segment Operating Results.
Operating Income
We define operating income as sales less operating costs and expenses, which includes general and administrative expenses. Changes in estimated contract operating income at completion, resulting from changes in estimated sales, operating costs and expenses, are recorded using the cumulative catch-up method of accounting. The aggregate effects of these changes in our estimated costs at completion, across our portfolio of contracts, can have a significant effect on our reported sales and operating income in each of our reporting periods. Cumulative catch-up adjustments are presented in the table below:

 	Year Ended December 31	
$ in millions	2013	 	2012	 	2011	
Favorable adjustments	
 	$1,044	
 	 	
 	$1,270	
 	 	
 	$1,123	
 	
Unfavorable adjustments	(291	)	 	(285	)	 	(385	)	
Net favorable adjustments	
 	$ 753	
 	 	
 	$ 985	
 	 	
 	$ 738	
 	
Federal and Foreign Income Taxes
2013 – The effective tax rate on earnings from continuing operations for 2013 was 31.8 percent, as compared with 33.3 percent in 2012. The company's lower effective tax rate for 2013 includes a $37 million benefit for the American Taxpayer Relief Act, enacted in January 2013, which reinstated research tax credits for 2012 and 2013, and a $21 million benefit for higher section 199 manufacturing deductions than in the prior year.
2012 – The effective tax rate on earnings from continuing operations for 2012 was 33.3 percent, as compared with 32.3 percent in 2011. The higher effective tax rate reflects the change in net tax benefits related to the absence of research tax credits, which expired at the end of 2011. Although the American Taxpayer Relief Act of 2012 extended the research tax credit through 2013, it was not enacted until January 2013.
Diluted Earnings Per Share
2013 – Diluted earnings per share for 2013 increased by $0.54, or 7 percent, as compared with 2012. The higher diluted earnings per share is primarily due to the benefit of 2012 and 2013 share repurchases.
2012 – Diluted earnings per share for 2012 increased by $0.29, or 4 percent, as compared with 2011. The higher diluted earnings per share reflects the benefit of 2011 and 2012 share repurchases and higher segment operating income, partially offset by lower earnings reflecting the lower net Financial Accounting Standards/Cost Accounting Standards (FAS/CAS) pension adjustment.

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Cash Provided by Continuing Operations
2013 – Net cash provided by continuing operations for 2013 decreased by $157 million, or 6 percent, as compared with 2012, principally due to higher voluntary pension contributions in 2013, partially offset by changes in trade working capital. In 2013, we contributed $579 million to our pension plans, of which $500 million was voluntarily pre-funded, as compared with $367 million in 2012, of which $300 million was voluntarily pre-funded.
2012 – Net cash provided by continuing operations for 2012 increased by $293 million, or 12 percent, as compared with 2011, principally driven by lower pension contributions, partially offset by higher income taxes paid. In 2012, we voluntarily pre-funded our pension plans by $300 million, as compared to $1.0 billion in 2011.
SEGMENT OPERATING RESULTS
Basis of Presentation
We are aligned in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. This section discusses segment sales, operating income and operating margin rates. The reconciliation of segment sales to total sales is provided in Note 4 to the consolidated financial statements in Part II, Item 8, with the difference being intersegment sales eliminations. For purposes of the discussion in this Segment Operating Results section, references to operating income and operating income margin rate reflect segment operating income and segment operating margin rate.
For a more complete description of each segment’s products and services, see the business descriptions in Part I, Item 1.
Segment Operating Income
Segment operating income, as reconciled below, is a non-GAAP measure and is used by management as an internal measure for financial performance of our operating segments. Segment operating income is defined as operating income less certain corporate-level expenses that are not considered allowable or allocable under applicable CAS or FAR and net FAS/CAS pension differences.

 	Year Ended December 31	
$ in millions	2013	 	2012	 	2011	
Segment operating income	
 	$3,080	
 	 	
 	$3,176	
 	 	
 	$3,055	
 	
Segment operating margin rate	12.5	%	 	12.6	%	 	11.6	%	
2013 - Segment operating income for 2013 decreased by $96 million, or 3 percent, as compared with 2012. The decrease in segment operating income was principally due to lower sales. The decrease in operating margin rate reflects lower net favorable adjustments in 2013, partially offset by higher contract margin rates across our portfolio resulting from several factors, including the continuing effect of prior net favorable adjustments.
2012 - Segment operating income for 2012 increased by $121 million, or 4 percent, as compared with 2011, due to a number of factors including improved performance, particularly at Electronic Systems. The improved performance reflects mitigation of contract risks and cost reduction initiatives, as well as portfolio shaping efforts. The increase in segment operating margin rate reflects this improved segment performance on lower sales.
The table below reconciles segment operating income to total operating income:

 	Year Ended December 31	
$ in millions	2013	 	2012	 	2011	
Segment operating income	
 	$3,080	
 	 	
 	$3,176	
 	 	
 	$3,055	
 	
     FAS pension expense in accordance with GAAP	(374	)	 	(374	)	 	(238	)	
     Pension expense in accordance with CAS	542	
 	 	506	
 	 	638	
 	
Net FAS/CAS pension adjustment	168	
 	 	132	
 	 	400	
 	
Unallocated corporate expenses	(119	)	 	(168	)	 	(166	)	
Other	(6	)	 	(10	)	 	(13	)	
Total operating income	
 	$3,123	
 	 	
 	$3,130	
 	 	
 	$3,276	
 	
For financial statement purposes, we account for our employee pension plans in accordance with GAAP under FAS. We charge the costs of these plans to our contracts in accordance with the FAR and the related CAS that govern such

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plans. The net FAS/CAS pension adjustment is pension expense determined in accordance with GAAP less pension expense charged to contracts and included in segment operating income. The increase in net FAS/CAS pension adjustment during 2013 reflects an update for actual demographic experience as of January 1, 2013, which resulted in an increase to the company's 2013 CAS pension expense. 
Unallocated corporate expenses generally include the portion of corporate expenses, other than FAS pension costs, not considered allowable or allocable under applicable CAS and FAR rules, and therefore not allocated to the segments, such as a portion of management and administration, legal, environmental, certain compensation and retiree benefits, and other expenses. The decrease in unallocated corporate expenses for 2013, as compared to 2012, is primarily due to lower year-over-year provisions for disallowed costs and litigation matters and the favorable settlement of overhead claims, partially offset by changes in deferred tax assets due to lower blended state income tax rates.
AEROSPACE SYSTEMS

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Sales	 	
 	$10,014	
 	 	
 	$9,977	
 	 	
 	$9,964	
 	
Operating income	 	1,215	
 	 	1,218	
 	 	1,217	
 	
Operating margin rate	 	12.1	%	 	12.2	%	 	12.2	%	
2013 - Aerospace Systems sales for 2013 were slightly higher than 2012, due to higher volume on manned military aircraft programs, offset by lower volume on unmanned and space programs. The increase in manned military aircraft programs reflects higher sales of $107 million from increased deliveries on the F-35 program, as well as higher volume on the B-2 and E-2D Advanced Hawkeye programs, partially offset by lower volume on various other programs. The decrease for unmanned programs reflects lower sales of $295 million on the Global Hawk program largely due to ramp-down on sustainment, support and logistics contracts, partially offset by higher sales of $187 million on the NATO Alliance Ground Surveillance (AGS) program resulting from ramp-up activities. The decrease in space programs reflects lower volume for restricted programs due to ramp-down activities, and higher volume on the James Webb Space Telescope (JWST) and Advanced Extremely High Frequency (AEHF) programs.
Operating income and operating margin rate for 2013 were comparable to 2012. Operating income and operating margin rate also reflect the impact of a forward loss recognized on a restricted program, which was offset by the continuing effect of higher contract margin rates across the segment principally related to prior net favorable adjustments.
2012 - Aerospace Systems sales for 2012 were comparable to 2011. Sales of unmanned systems increased approximately $280 million, primarily related to ramping up on the NATO AGS and Fire Scout programs. Additionally, there was higher volume of approximately $200 million on the F-35 program due to deliveries on LRIP 5, the first F-35 contract accounted for under the units-of-delivery method. These increases were offset by the termination of a weather satellite program, which reduced sales by approximately $175 million, as well as lower sales on the Joint Surveillance Target Attack Radar System (JSTARS), F/A-18 and certain restricted space programs.
Operating income and operating margin rate for 2012 were comparable to 2011. The operating income and operating margin rate reflect approximately $90 million lower operating income from the F/A-18 program's lower volume and transition from the multi-year 2 contract to the lower margin multi-year 3 contract, principally offset by performance improvements in space systems and higher operating margin rates and volume on sales of unmanned systems.
ELECTRONIC SYSTEMS

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Sales	 	
 	$7,149	
 	 	
 	$6,950	
 	 	
 	$7,372	
 	
Operating income	 	1,226	
 	 	1,187	
 	 	1,070	
 	
Operating margin rate	 	17.1	%	 	17.1	%	 	14.5	%	
2013 - Electronic Systems sales for 2013 increased $199 million, or 3 percent, as compared with 2012. The increase was due to higher sales on international programs of $244 million and space programs, partially offset by lower

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sales on navigation and maritime systems programs of $132 million due to decreased deliveries, as well as lower volume on laser systems programs associated with in-theater force reductions.
Operating income for 2013 increased $39 million, or 3 percent, as compared with 2012, consistent with the higher sales volume described above. Operating margin rate was comparable with 2012, and reflects higher margin rates on our current portfolio of programs, a reduction in net favorable adjustments and the reversal of a $26 million non-programmatic risk reserve.
2012 - Electronic Systems sales for 2012 decreased $422 million, or 6 percent, as compared with 2011. The decrease was largely due to lower volume of approximately $160 million on infrared countermeasures sales and approximately $250 million lower postal automation sales, including approximately $150 million from our decision to de-emphasize our U.S. postal automation business. These declines, as well as declines due to troop draw down and reduced overseas contingency operations funding, were partially offset by approximately $190 million higher volume on space programs.
Operating income for 2012 increased $117 million, or 11 percent, as compared with 2011. Operating margin rate increased to 17.1 percent in 2012 from 14.5 percent in 2011. The higher operating income and operating margin rate reflect approximately $160 million of additional performance improvements over 2011, primarily on several combat avionics programs. These performance improvements include the effect of unfavorable adjustments of approximately $50 million on a domestic postal automation program in the prior year that did not recur in 2012.
INFORMATION SYSTEMS

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Sales	 	
 	$6,596	
 	 	
 	$7,356	
 	 	
 	$7,921	
 	
Operating income	 	633	
 	 	761	
 	 	766	
 	
Operating margin rate	 	9.6	%	 	10.3	%	 	9.7	%	
2013 - Information Systems sales for 2013 decreased $760 million, or 10 percent, as compared with 2012. The sales decline includes a $98 million impact for the transfer of intercompany efforts to our corporate shared services organization. Excluding the transfer, 2013 sales declined 9 percent due to lower funding levels, including the impacts of sequestration, and lower volume for programs impacted by in-theater force reductions and contract completions.
Operating income for 2013 decreased $128 million, or 17 percent, as compared with 2012. Operating margin rate decreased to 9.6 percent in 2013 from 10.3 percent in 2012. Lower operating income and operating margin rate were primarily due to the lower sales volume described above and a $73 million reduction in net favorable adjustments compared with the prior year.
2012 - Information Systems sales for 2012 decreased $565 million, or 7 percent, as compared with 2011, with no single program driving a significant portion. The decline in sales reflects the termination or wind-down on a number of programs, including the Joint Tactical Radio Systems Airborne, Maritime and Fixed (JTRS AMF), Installation Kits (I-KITS), Enterprise Network Management (ENM) and F-22 programs, partially offset by higher volume of approximately $110 million on the Encore II Information Technology support program, as well as higher volume on the Air and Space Operations Center, Enterprise System Development, and Ground Combat Vehicle programs. Further reducing sales was lower volume on restricted programs, as well as the sale of the County of San Diego IT outsourcing contract and the sale of Park Air Norway, which together reduced sales by approximately $100 million, as compared to 2011.
Operating income for 2012 decreased $5 million, or 1 percent, as compared with 2011. Operating margin rate increased to 10.3 percent in 2012 from 9.7 percent in 2011. The higher operating margin rate is primarily driven by performance improvements across a number of contracts, which largely offset the impact of lower volume on operating income.

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TECHNICAL SERVICES

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Sales	 	
 	$2,843	
 	 	
 	$3,019	
 	 	
 	$3,193	
 	
Operating income	 	262	
 	 	268	
 	 	260	
 	
Operating margin rate	 	9.2	%	 	8.9	%	 	8.1	%	
2013 - Technical Services sales for 2013 decreased $176 million, or 6 percent, as compared with 2012. The decrease was primarily due to lower sales of $127 million on the Intercontinental Ballistic Missile (ICBM) and integrated logistics and modernization programs, as well as portfolio shaping efforts.
Operating income for 2013 decreased $6 million, or 2 percent, as compared with 2012. Operating margin rate increased to 9.2 percent in 2013 from 8.9 percent in 2012. Lower operating income was driven by the lower sales volume described above, partially offset by higher operating margin rate primarily due to improved performance across a number of programs.
2012 - Technical Services sales for 2012 decreased $174 million, or 5 percent, as compared with 2011. The decrease was primarily due to reduced volume from portfolio shaping of approximately $70 million as we focused our operations into core areas, lower KC-10 logistics activity of approximately $60 million and lower ICBM logistics and modernization activity of approximately $50 million.
Operating income for 2012 increased $8 million, or 3 percent, as compared with 2011. Operating margin rate increased to 8.9 percent in 2012 from 8.1 percent in 2011. The higher operating income and operating margin rate were primarily due to improved performance on the KC-10 program, partially offset by lower sales volume as described above.
PRODUCT AND SERVICE ANALYSIS

 	Year Ended December 31	
$ in millions	2013	 	2012	 	2011	
Product sales	
 	$14,033	
 	 	
 	$13,838	
 	 	
 	$15,073	
 	
Product costs(1)	10,623	
 	 	10,415	
 	 	11,491	
 	
% of product sales	75.7	%	 	75.3	%	 	76.2	%	
Service sales	
 	$10,628	
 	 	
 	$11,380	
 	 	
 	$11,339	
 	
Service costs(1)	8,659	
 	 	9,223	
 	 	9,295	
 	
% of service sales	81.5	%	 	81.0	%	 	82.0	%	
 	 	
(1)	Product and service costs do not include an allocation of general and administrative expenses.	
2013 - Product costs as a percentage of product sales for 2013 increased 40 basis points, as compared with 2012. The increase is primarily due to lower product operating margins in newly awarded programs at Information Systems.
Service costs as a percentage of service sales for 2013 increased 50 basis points, as compared with 2012. The increase is primarily due to lower service operating margins at Aerospace Systems and Information Systems.
2012 - Product costs as a percentage of product sales for 2012 decreased 90 basis points, as compared with 2011. This improvement reflects higher margins on combat avionics at Electronic Systems.
Service costs as a percentage of service sales for 2012 decreased 100 basis points, as compared with 2011. This improvement reflects higher service margins in all four business segments. The improvement is principally driven by higher margins on certain military aircraft programs at Aerospace Systems and an increase in favorable performance adjustments across a number of programs at Electronic Systems.

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The following table presents product and service sales and operating costs and expenses by segment:

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Segment Information:	 	Sales	 	Costs	 	Sales	 	Costs	 	Sales	 	Costs	
Aerospace Systems	 	 	 	 	 	 	 	 	 	 	 	 	
Product	 	$ 8,210	
 	 	
 	$ 7,197	
 	 	$ 8,729	
 	 	
 	$ 7,704	
 	 	
 	$ 8,701	
 	 	
 	$ 7,622	
 	
Service	 	1,804	
 	 	1,602	
 	 	1,248	
 	 	1,055	
 	 	1,263	
 	 	1,125	
 	
Electronic Systems	 	 	 	 	 	 	 	 	 	 	 	 	
Product	 	5,574	
 	 	4,612	
 	 	5,346	
 	 	4,438	
 	 	6,041	
 	 	5,161	
 	
Service	 	1,575	
 	 	1,311	
 	 	1,604	
 	 	1,325	
 	 	1,331	
 	 	1,141	
 	
Information Systems	 	 	 	 	 	 	 	 	 	 	 	 	
Product	 	990	
 	 	895	
 	 	708	
 	 	606	
 	 	486	
 	 	430	
 	
Service	 	5,606	
 	 	5,068	
 	 	6,648	
 	 	5,989	
 	 	7,435	
 	 	6,725	
 	
Technical Services	 	 	 	 	 	 	 	 	 	 	 	 	
Product	 	210	
 	 	191	
 	 	213	
 	 	196	
 	 	501	
 	 	456	
 	
Service	 	2,633	
 	 	2,390	
 	 	2,806	
 	 	2,555	
 	 	2,692	
 	 	2,477	
 	
Segment Totals	 	 	 	 	 	 	 	 	 	 	 	 	
Total Product	 	$14,984	
 	 	 $ 12,895	
 	 	
 	$14,996	
 	 	
 	$12,944	
 	 	
 	$15,729	
 	 	
 	$13,669	
 	
Total Service	 	11,618	
 	 	10,371	
 	 	12,306	
 	 	10,924	
 	 	12,721	
 	 	11,468	
 	
Intersegment eliminations	 	(1,941	)	 	(1,685	)	 	(2,084	)	 	(1,826	)	 	(2,038	)	 	(1,780	)	
Total Segment(1)	 	$24,661	
 	 	$ 21,581	
 	 	
 	$25,218	
 	 	
 	$22,042	
 	 	
 	$26,412	
 	 	
 	$23,357	

(1)	The reconciliation of segment operating income to total operating income, as well as a discussion of the reconciling items, is included in the Segment Operating Results section above.	
Product Sales and Product Costs
2013 - Product sales for 2013 were comparable with 2012, primarily due to lower product sales at Aerospace Systems, offset by higher product sales at Information Systems and Electronic Systems. The decrease at Aerospace Systems reflects the revision in the classification of certain operations, maintenance, and sustainment contracts from product to service in 2013. The increase at Information Systems was primarily due to newly awarded product contracts and the increase at Electronic Systems was primarily driven by higher volume as described in the Segment Operating Results section above.
Product costs for 2013 were comparable with 2012, primarily due to lower product costs at Aerospace Systems, offset by higher product costs at Information Systems and Electronic Systems. The decrease at Aerospace Systems was consistent with the classification change noted above. The decrease was offset by newly awarded product contracts at Information System and higher sales volume at Electronic Systems, as described above.
2012 - Product sales for 2012 decreased $733 million, or 5 percent, as compared with 2011, primarily due to lower product sales at Electronic Systems and Technical Services, partially offset by higher product sales at Information Systems. The decrease at Electronic Systems primarily relates to lower volume of approximately $90 million in combat avionics and approximately $250 million in domestic and international postal automation programs. The decline at Technical Services was due to the change in classification of the ICBM program from product to service at the beginning of 2012, as the program transitioned from modernization to predominantly sustainment services. The increase at Information Systems was primarily driven by higher intercompany volume.
Product costs for 2012 decreased by $725 million, or 5 percent, as compared with 2011, primarily due to lower sales volume and increased performance improvement adjustments at Electronic Systems and the change in classification of the ICBM program at Technical Services, offset by higher product volume at Information Systems, as described above.
Service Sales and Service Costs
2013 - Service sales for 2013 decreased $688 million, or 6 percent, as compared with 2012, primarily due to lower service sales at Information Systems, partially offset by higher service sales at Aerospace Systems. The decrease at Information Systems is due to lower service sales across a number of programs, as described in the Segment Operating Results section above. The higher service sales at Aerospace Systems reflects the revision in the

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classification from product to service, as described above, and higher volume on certain military aircraft service contracts in 2013.
Service costs for 2013 decreased $553 million, or 5 percent, as compared with 2012, primarily due to lower service volume at Information Systems, partially offset by higher service sales at Aerospace Systems, consistent with the change in service sales described above.
2012 - Service sales for 2012 decreased $415 million, or 3 percent, as compared with 2011, primarily due to lower service sales at Information Systems across a number of programs, partially offset by the transition of the ICBM program from product to service at Technical Services and higher service volume at Electronic Systems.
Service costs for 2012 decreased $544 million, or 5 percent, as compared with 2011, due to lower sales at Information Systems, partially offset by the transition of the ICBM program from product to service at Technical Services, as described above, and higher service volume at Electronic Systems. The service activities at Aerospace Systems and Electronic Systems were performed at higher operating margin rates than in 2011, resulting in service costs decreasing more than service sales.
BACKLOG
Total backlog includes 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. For multi-year service contracts with non-U.S. Government customers having no stated contract values, backlog includes only the amounts committed by the customer. Backlog is converted into sales as costs are incurred or deliveries are made.
Backlog consisted of the following at December 31, 2013 and 2012:

 	 	2013	 	2012	
$ in millions	 	Funded	 	Unfunded	 	Total
Backlog	 	Total
Backlog	
Aerospace Systems	 	  $10,061	
 	 	
 	$ 8,260	
 	 	
 	$18,321	
 	 	
 	$19,594	
 	
Electronic Systems	 	6,992	
 	 	2,045	
 	 	9,037	
 	 	9,471	
 	
Information Systems	 	3,285	
 	 	3,579	
 	 	6,864	
 	 	8,541	
 	
Technical Services	 	2,206	
 	 	605	
 	 	2,811	
 	 	3,203	
 	
Total backlog	 	
 	$22,544	
 	 	
 	$14,489	
 	 	
 	$37,033	
 	 	
 	$40,809	
 	
Approximately $19.6 billion of the $37.0 billion total backlog at December 31, 2013, is expected to be converted into sales in 2014. U.S. Government orders comprised 80 percent of total backlog at the end of 2013. International orders, including foreign military sales, accounted for 14 percent of total backlog at the end of 2013. Domestic commercial backlog represented 6 percent of total backlog at the end of 2013.
New Awards
2013 - The estimated value of contract awards recorded during 2013 was $21.9 billion. On a net basis, awards during 2013 totaled $20.9 billion, reflecting $1.0 billion of adjustments during the first half of the year to reduce Information Systems unfunded backlog principally associated with expired periods of performance on active contracts, including several previously awarded task orders on IDIQ contracts. Significant new awards during 2013 include $2.2 billion for the F-35 program, $1.3 billion for the E-2D Advanced Hawkeye program, $866 million for the AEHF program, $694 million for the B-2 program, and $632 million for the Triton program.
2012 - The estimated value of contract awards recorded during 2012 was $26.5 billion. Significant new awards in 2012 included $1.7 billion for the NATO AGS Unmanned System program, $1.4 billion for the JWST program, $1.3 billion for the F-35 program, $1.2 billion for the E-2D Advanced Hawkeye program, $1.0 billion for international air defense programs and $689 million for the Global Hawk program.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure the most efficient conversion of operating earnings into cash for deployment in our business and to maximize shareholder value. In addition to our cash position, we use various financial measures to assist in capital deployment decision-making, including net cash provided by operating activities, free cash flow, net debt-to-equity and net debt-to-capital. We believe these measures are useful to investors in assessing our financial performance and condition.

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During the second quarter of 2013, the company's board of directors authorized a new share repurchase program of up to $4.0 billion of the company’s common stock. At the same time, the company announced its plan to repurchase shares with the goal of retiring approximately 25 percent of its then outstanding shares (60 million shares) by the end of 2015, market conditions permitting. As of December 31, 2013, we had repurchased 20.8 million shares towards that goal.
During the second quarter of 2013, the company also issued $2.85 billion of unsecured senior notes (the Notes). The company used a portion of the net proceeds to redeem $850 million of unsecured senior notes due in 2014 and 2015 (see Note 10 in Part II, Item 8). The remaining net proceeds from the offering of the Notes will be used for general corporate purposes, including debt repayments, share repurchases, pension plan funding, acquisitions and working capital.
Cash balances and cash generated from continuing operations, supplemented by borrowings under credit facilities and/or in the capital markets, if needed, is expected to be sufficient to fund our operations for at least the next 12 months. As of December 31, 2013, the amount of cash, cash equivalents, and marketable securities held outside of the U.S. by foreign subsidiaries was $597 million. We currently do not anticipate repatriating these balances to fund domestic operations. Capital expenditure commitments were $524 million at December 31, 2013, and are expected to be paid with cash on hand.
The table below summarizes key components of cash flow provided by operating activities from continuing operations:

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
 	
Net earnings	 	
 	$1,952	
 	 	
 	$1,978	
 	 	
 	$2,118	
 	
Net earnings from discontinued operations	 	—	
 	 	—	
 	 	(32	)	
Non-cash items(1)	 	724	
 	 	726	
 	 	1,108	
 	
Retiree benefit funding in excess of expense	 	(281	)	 	(71	)	 	(904	)	
Trade working capital decrease and other	 	88	
 	 	7	
 	 	57	
 	
Cash provided by continuing operations	 	
 	$2,483	
 	 	
 	$2,640	
 	 	
 	$2,347	

(1)	Includes depreciation and amortization, stock based compensation expense and deferred income taxes.	
Free Cash Flow from Continuing Operations
Free cash flow from continuing operations is defined as cash provided by operating activities from continuing operations less capital expenditures. We believe free cash flow from continuing operations is a useful measure for investors to consider as it represents the cash flow the company has available after capital spending to invest for future growth, strengthen the balance sheet and/or return to shareholders through dividends and share repurchases. Free cash flow is a key factor in our planning for and consideration of strategic acquisitions, the payment of dividends and stock repurchases.
Free cash flow from continuing operations is not a measure of financial performance under GAAP, and may not be defined and calculated by other companies in the same manner. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP as indicators of performance.
The table below reconciles cash provided by continuing operations to free cash flow from continuing operations:

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
 	
Cash provided by continuing operations	 	
 	$2,483	
 	 	
 	$2,640	
 	 	
 	$2,347	
 	
Less: Capital expenditures	 	(364	)	 	(331	)	 	(492	)	
Free cash flow provided by continuing operations	 	
 	$2,119	
 	 	
 	$2,309	
 	 	
 	$1,855	
 	
Cash Flows
The following is a discussion of our major operating, investing and financing activities from continuing operations for each of the three years in the period ended December 31, 2013, as classified on the consolidated statements of cash flows in Part II, Item 8.

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Operating Activities
2013 – Cash provided by continuing operations for 2013 decreased $157 million, or 6 percent, as compared with 2012. The decrease was principally driven by higher voluntary pension contributions in 2013, partially offset by changes in trade working capital. In 2013, we contributed $579 million to our pension plans, of which $500 million was voluntarily pre-funded, as compared with $367 million in 2012, of which $300 million was voluntarily pre-funded.
2012 – Cash provided by continuing operations for 2012 increased $293 million, or 12 percent, as compared with 2011, primarily due to lower pension contributions, partially offset by higher income taxes paid. In 2012, we contributed $367 million to our pension plans, of which $300 million was voluntarily pre-funded, as compared with $1.1 billion in 2011, of which $1.0 billion was voluntarily pre-funded.
Investing Activities
2013 – Cash used in investing activities from continuing operations for 2013 increased $262 million, or 312 percent, as compared with 2012, primarily due to $250 million in proceeds from the maturity of short-term investments in 2012.
2012 – Cash used in investing activities from continuing operations for 2012 was $84 million, as compared to the cash provided by investing activities in 2011, reflecting a $1.4 billion contribution received from the spin-off of our former Shipbuilding business in 2011, partially offset by $250 million in proceeds from the maturity of short-term investments in 2012 that were purchased in 2011.
Financing Activities
2013 – Net cash used in financing activities for 2013 decreased $847 million, or 50 percent, as compared with 2012. The decrease was primarily due to the $2.0 billion of net proceeds received from the debt transactions described above, partially offset by higher repurchases of common stock in 2013.
2012 – Net cash used in financing activities for 2012 decreased $1.8 billion, or 51 percent, as compared with 2011, reflecting approximately $980 million lower repurchases of common stock and $768 million of debt repayments in 2011 that did not recur in 2012.
Credit Facilities
In August 2013, the company entered into a new five-year senior unsecured credit facility in an aggregate principal amount of $1.775 billion (the Credit Agreement). The Credit Agreement replaced the company’s prior five-year revolving credit facility in an aggregate principal amount of $1.5 billion entered into on September 8, 2011, and its 364-day revolving credit facility in an aggregate principal amount of $500 million entered into on September 4, 2012.

The Credit Agreement contains customary terms and conditions, including covenants restricting the company's ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake other fundamental changes and incur liens. The company also cannot permit the ratio of its debt to capitalization (as set forth in the Credit Agreement) to exceed 65 percent. The company is in compliance with all covenants under the Credit Agreement. At December 31, 2013, there was no balance outstanding under this facility.
Other Sources and Uses of Capital
Additional 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 Securities and Exchange Commission (SEC), which allows us to access capital in a timely manner.
Financial Arrangements – In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks, and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At December 31, 2013, there were $345 million of stand-by letters of credit and guarantees, and $157 million of surety bonds outstanding.

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Contractual Obligations
The following table presents our contractual obligations as of December 31, 2013, and the estimated timing of future cash payments:

$ in millions	 	Total	 	2014	 	2015- 2016	 	2017- 2018	 	2019 and beyond	
Long-term debt	 	$ 5,928	
 	 	$ 2	
 	 	$ 113	
 	 	$1,056	
 	 	$4,757	
 	
Interest payments on long-term debt	 	3,996	
 	 	285	
 	 	554	
 	 	527	
 	 	2,630	
 	
Operating leases	 	943	
 	 	277	
 	 	408	
 	 	168	
 	 	90	
 	
Purchase obligations(1)	 	7,922	
 	 	4,601	
 	 	2,515	
 	 	654	
 	 	152	
 	
Other long-term liabilities(2)	 	1,153	
 	 	308	
 	 	320	
 	 	131	
 	 	394	
 	
Total contractual obligations	 	
 	$19,942	
 	 	
 	$5,473	
 	 	
 	$3,910	
 	 	
 	$2,536	
 	 	
 	$8,023	

 	 	
(1)	A “purchase obligation” is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. These amounts are primarily comprised of open purchase order commitments to suppliers and subcontractors pertaining to funded contracts.	
 	 	
(2)	Other long-term liabilities primarily consist of total accrued environmental reserves, deferred compensation, and other miscellaneous liabilities, of which $100 million is related to environmental reserves recorded in other current liabilities. It excludes obligations for uncertain tax positions of $272 million, as the timing of such payments, if any, cannot be reasonably estimated.	
The table above also excludes estimated minimum funding requirements for retirement and other post-retirement benefit plans, as set forth by the Employee Retirement Income Security Act (ERISA). For further information about future minimum contributions for these plans, see Note 13 to the consolidated financial statements in Part II, Item 8. Further details regarding long-term debt and operating leases can be found in Notes 10 and 12, respectively, to the consolidated financial statements in Part II, Item 8.
CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGMENTS
Revenue Recognition
We generate the majority of our business from long-term contracts with the U.S. Government for development, production and support activities. We classify contract revenues as product or service depending on the predominant attributes of the underlying contract. We consider the nature of our contracts and the types of products and services provided when determining the proper accounting method for a particular contract.
Due to the long-term nature of our contracts, we generally recognize revenue using the percentage-of-completion method of accounting as work on our contracts progresses, which requires us to make reasonably dependable estimates for the design, manufacture, and delivery of our products and services. Contract revenues may include estimated amounts not contractually agreed to by the customer, including price redetermination, cost or performance incentives (such as award and incentive fees), un-priced change orders, claims, and requests for equitable adjustment. Amounts pertaining to provisions for price redetermination or for cost and/or performance incentives are included in sales when they are reasonably estimable. Our cost estimation process is based on the professional knowledge of our engineers, program managers and financial professionals, and draws on their significant experience and judgment. Such costs are typically incurred over a period of several years, and estimation of these costs requires the use of judgment. Factors considered in estimating the cost of the work to be completed include the availability, productivity and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability and cost of materials, the effect of any delays in performance and the level of indirect cost allocations.
We update our contract estimates at least annually and more frequently as determined by the occurrence of events or changes in circumstances. We generally review and reassess our revenue, cost and profit estimates for each significant contract on a quarterly basis. We recognize changes in estimates using the cumulative catch-up method of accounting. This method recognizes, in the current period, the cumulative effect of the changes on current and prior periods. Revenue and profit on future periods of contract performance are recognized as if the revised estimate had been used since contract inception. If it is determined that a loss will result from the performance of a contract, the entire amount of the estimable future loss is charged against income in the period the loss is identified. Loss

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provisions are first offset against costs that are included in unbilled accounts receivable or inventoried costs, and any remaining amount is reflected in liabilities.
Changes in contract estimates occur for a variety of reasons, including changes in contract scope, estimated revenue, and cost estimates. These changes are often driven by events such as changes in estimated incentive fees, unanticipated risks affecting contract costs, the resolution of risk at lower or higher cost than anticipated, and changes in indirect cost allocations, such as overhead and general and administrative expenses. We employ an extensive contract management process involving several functional organizations and numerous personnel who are skilled at managing contract activities. Changes in estimates are frequent; the company performs on a broad portfolio of long-term contracts, many of which include complex and customized aerospace and electronic equipment and software, that often includes technology at the forefront of science. Significant changes in estimates on a single contract could have a material effect on the company's consolidated financial position or annual results of operations, and where such changes occur, separate disclosure is made of the nature, underlying conditions and financial impact of the change. For the impacts of changes in estimates on our consolidated statement of earnings and comprehensive income, see the Consolidating Operating Results section above and Note 1 to the consolidated financial statements in Part II, Item 8.
Goodwill
Overview – We allocate the purchase price of acquired businesses to the underlying tangible and intangible assets acquired and liabilities assumed based upon their respective fair values, with the excess recorded as goodwill. Such fair value assessments require judgments and estimates that can be affected by contract performance and other factors over time, which may cause final amounts to differ materially from original estimates. Adjustments to the fair value of purchased assets and liabilities after the initial measurement period are recognized in net earnings.
Impairment Testing – In the fourth quarter of 2013, the company changed the date of its annual goodwill impairment test from November 30 to December 31. This change in accounting principle is preferable as it aligns the timing of our annual goodwill impairment test with our year-end financial reporting process. This change did not result in the acceleration, delay or avoidance of an impairment charge. The company applied the change in the annual impairment date retrospectively to January 1, 2011; it is impracticable to objectively determine valuation estimates necessary to apply the change in periods prior to that date. There were no changes in previously reported amounts as a result of retrospectively applying the change in the annual impairment testing date. As a result of this change, during 2013, we performed an annual goodwill impairment test as of November 30 and as of December 31.
The results of our annual goodwill impairment test as of November 30, 2013, and as of December 31, 2013, indicated that the estimated fair value of each reporting unit substantially exceeded its respective carrying value. The prior year's annual goodwill impairment test as of November 30, 2012, indicated one of our reporting units, Information Systems, had a fair value that exceeded carrying value by approximately five percent. Since the prior year, the fair value of Information System has substantially increased principally due to expansion in market valuations. There were no impairment charges recorded in the years ended December 31, 2013, 2012 and 2011.
In addition to performing an annual goodwill impairment test, an interim impairment test may be required if events occur or circumstances change that suggest goodwill may be impaired during an interim period. Such indicators may include, but are not limited to, the loss of significant business, significant decreases in federal government appropriations or other significant adverse changes in industry or market conditions.
When testing goodwill for impairment, we compare the fair values of each of our four reporting units to their respective carrying values. To determine the fair value of our reporting units, we primarily use the income approach based on the cash flows that the reporting unit expects to generate in the future, consistent with our operating plans. This income valuation method requires management to project sales, operating expenses, working capital, capital spending and cash flows for the reporting units over a multi-year period, as well as determine the weighted-average cost of capital (WACC) used as a discount rate and terminal value assumptions.
The WACC takes into account the relative weights of each component of our consolidated capital structure (equity and debt) and represents the expected cost of new capital adjusted as appropriate to consider lower risk profiles associated with longer-term contracts and barriers to market entry. The terminal value assumptions are applied to the final year of the discounted cash flow model. Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Due to the many variables inherent in the estimation of a business’ fair value and the relative size of our recorded goodwill, differences in assumptions may have a material effect on the results of our impairment analysis.

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We also corroborate the fair values determined under the income approach using the market valuation method to estimate the fair value of our reporting units, by utilizing industry multiples (including relevant control premiums) of operating earnings. If the carrying value of a reporting unit exceeds its fair value, we determine the fair value of the reporting unit’s individual assets and liabilities and calculate the implied fair value of goodwill.
Retirement Benefits
Overview – For financial statement purposes, we account for our employee pension and other post-retirement plans in accordance with GAAP. We recognize the funded status of our retirement benefit plans on a plan-by-plan basis, as either an asset or a liability in the consolidated statement of financial position. Unamortized benefit plan costs are recorded as accumulated other comprehensive income/loss within shareholders’ equity, and are then amortized to expense in future periods. Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor. The accounting corridor is a defined range within which amortization of net gains and losses is not required and is equal to 10 percent of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over our average employee future service period of approximately nine years.
We perform an annual review of the assumptions used in determining projected benefit obligations and the fair values of plan assets for our pension plans and other post-retirement benefit plans in consultation with our outside actuaries. In the event we determine changes in the assumptions are warranted, or as a result of plan amendments, future pension and other post-retirement benefit expense could increase or decrease. The principal assumptions that have a significant effect on our consolidated financial position and annual results of operations are the discount rate, cash balance crediting rate, the expected long-term rate of return on plan assets and the estimated fair market value of plan assets.
The company’s 2014 FAS pension expense is expected to be $115 million. The decrease in expected 2014 pension expense of $259 million, as compared to 2013, is primarily due to the increase in the company’s discount rate assumption as of December 31, 2013.
Discount Rate – The discount rate represents the interest rate that is used to determine the present value of future cash flows currently expected to be required to settle our pension and other post-retirement benefit obligations. The discount rate is generally based on the yield of high-quality corporate fixed-income investments. At the end of each year, the discount rate is determined using a portfolio of bonds matching the notional cash outflows related to benefit payments for each significant benefit plan. Taking into consideration the factors noted above, our weighted-average pension composite discount rate was 4.99 percent at December 31, 2013, and 4.12 percent at December 31, 2012.
The effects of hypothetical changes in the discount rate for a single year may not be representative and may be asymmetrical or nonlinear for future years because of the application of the accounting corridor. Holding all other assumptions constant, an increase or decrease of 25 basis points in the December 31, 2013, discount rate assumption would have the following estimated effects on 2013 pension and other post-retirement benefit obligations and 2014 expected pension and other post-retirement expense:

$ increase/(decrease) in millions	25 Basis Point Decrease in Rate	 	25 Basis Point Increase in Rate	
Pension expense	
 	$ 83	
 	 	($ 81	)	
Other post-retirement benefit expense	2	
 	 	(2	)	
Pension obligation	828	
 	 	(792	)	
Other post-retirement benefit obligation	58	
 	 	(55	)	
Cash Balance Crediting Rate - A portion of the company’s pension obligation and resulting pension expense is based on a cash balance formula, where participants’ hypothetical account balances are accumulated over time with pay-based credits and interest. Interest is credited monthly using the 30-Year Treasury bond rate. The interest crediting rate is part of the cash balance formula and independent of actual pension investment earnings. Although current 30-Year Treasury bond rates are near historically low levels, we expect such bond rates to rise in the future. The cash balance crediting rate assumption has been set to its current level of 3.9 percent as of December 31, 2013, growing to 4.7 percent by 2019. Holding all other assumptions constant, an increase or decrease of 25 basis points in the December 31, 2013, cash balance crediting rate assumption would have the following estimated effects on 2013 pension benefit obligations and 2014 expected pension expense:

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$ increase/(decrease) in millions	25 Basis Point Decrease in Rate	 	25 Basis Point Increase in Rate	
Pension expense	(25	)	 	27	
 	
Pension obligation	(115	)	 	121	
 	
Expected Long-Term Rate of Return on Plan Assets – The expected long-term rate of return on plan assets represents the average rate of earnings expected on funds invested. For 2013 and 2012, we assumed an expected long-term rate of return on pension plan assets of 8.0 percent and 8.25 percent, respectively, and assumed an expected long-term rate of return on other post-retirement benefit plan assets of 7.33 percent and 7.44 percent, respectively. For 2014, we have assumed an expected long-term rate of return on plan assets of 8.0 percent on pension plans and 7.45 percent on other post-retirement benefit plans. Holding all other assumptions constant, an increase or decrease of 25 basis points in the December 31, 2013, expected long-term rate of return on plan asset assumption would have the following estimated effects on 2014 pension and other post-retirement expense:

$ increase/(decrease) in millions	25 Basis Point Decrease	 	25 Basis Point Increase	
Pension expense	
 	$59	
 	 	
 	($59	)	
Other post-retirement benefit expense	3	
 	 	(3	)	
Estimated Fair Market Value of Plan Assets – For certain plan assets where the fair market value is not readily determinable, such as real estate, private equity and hedge funds, estimates of fair value are determined using the best information available. Estimated fair values on these plan assets are based on redemption values and net asset values, as well as valuation methodologies that include third party appraisals, comparable transactions, discounted cash flow valuation models and public market data.
Litigation, Commitments and Contingencies
We are subject to a range of claims, investigations, lawsuits, overhead cost claims, environmental matters, income tax matters and administrative proceedings that arise in the ordinary course of business. Estimating liabilities and costs associated with these matters requires judgment based upon the professional knowledge and experience of management and counsel. We determine whether to record a charge to earnings and, if so, what amount based on consideration of the facts and circumstances of each matter as then known to us, including any settlement offers, and our assessment of the probability of liabilities and whether the amount of the loss can be reasonably estimated. When we believe, based on the facts available to us, that a liability is probable and the loss is reasonably estimable, we record our best estimate of the amount of the ultimate loss. When a range of costs is reasonably estimable, but no amount within that range is a better estimate than another, we record what we estimate as the low end of the range. Determinations whether to record a charge and, if so, of what amount, reflect management's assessment regarding what is likely to occur; they do not necessarily reflect what management believes should occur. The ultimate resolution of any such exposure to us may vary materially from earlier estimates as further facts and circumstances develop or become known to us. For further information on the treatment of these contingencies, see Note 1, Note 11 and Note 12 to the consolidated financial statements in Part II, Item 8.
U.S. Government Cost Claims - From time to time, our customers advise us of ordinary course claims and penalties concerning certain potential disallowed costs. When such findings are presented, we engage U.S. Government representatives in discussions to enable us to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect our expected exposure to matters raised by the U.S. Government representatives.
Environmental Accruals - We are subject to environmental laws and regulations in the jurisdictions in which we conduct operations. Factors that could result in changes to the assessment of probability, range of estimated costs, and environmental accruals include: modification of planned remedial actions, increase or decrease in the estimated time required to remediate, discovery of more or less extensive contamination than anticipated, results of efforts to involve other responsible parties, financial capabilities of other responsible parties, changes in laws and regulations or contractual obligations affecting remediation requirements or other obligations, and improvements in remediation technology.

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NORTHROP GRUMMAN CORPORATION

                        

OTHER MATTERS
Accounting Standards Updates
Accounting standards updates effective after December 31, 2013, are not expected to have a material effect on the company’s financial position, annual results of operations and/or cash flows. 
Business Dispositions
There were no material business dispositions in 2013 or 2012; however, in 2011 we completed the spin-off to our shareholders of HII effective March 31, 2011. HII operates the business that was previously the Shipbuilding segment (Shipbuilding) of the company prior to the spin-off. We made a pro rata distribution to our shareholders of one share of HII common stock for every six shares of our common stock held on the record date of March 30, 2011, or 48.8 million shares of HII common stock. There was no gain or loss recognized by the company as a result of the spin-off transaction. In connection with the spin-off, HII issued senior notes and entered into a credit facility with third-party lenders, and HII used a portion of the proceeds of the notes and credit facility to fund a $1.4 billion cash contribution to us. The assets, liabilities and operating results of this business unit are reported as discontinued operations in the consolidated financial statements for all periods presented.
Discontinued Operations – Results of operations for Shipbuilding, and an adjustment to the gain on a previous divestiture, were as follows:

 	 	Year Ended December 31,	
$ in millions	 	2011	
Sales	 	
 	$1,646	
 	
Earnings from discontinued operations	 	59	
 	
Income tax expense	 	(28	)	
Earnings, net of tax	 	31	
 	
Gain on divestiture, net of income tax expense of $1	 	1	
 	
Earnings from discontinued operations, net of tax	 	
 	$ 32	
 	
Off-Balance Sheet Arrangements
As of December 31, 2013, we had no significant off-balance sheet arrangements other than operating leases. For a description of our operating leases, see Note 12 to the consolidated financial statements in Part II, Item 8.

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NORTHROP GRUMMAN CORPORATION

                        

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
EQUITY RISK
We are exposed to market risk with respect to our portfolio of trading and available-for-sale marketable securities with a fair value of $310 million at December 31, 2013. These securities are exposed to market volatilities, changes in price and interest rates.
INTEREST RATE RISK
We are exposed to interest rate risk with respect to our holdings of cash and cash equivalents of $5.2 billion at December 31, 2013, and we are also exposed to interest rate risk on variable-rate short-term credit facilities for which there were no borrowings outstanding at December 31, 2013. At December 31, 2013, we have $5.9 billion of long-term debt, primarily consisting of fixed rate debt, with a fair value of approximately $6.2 billion.
From time to time, we may enter into interest rate swap agreements to manage our exposure to interest rate fluctuations. At December 31, 2013, we have no interest rate swap agreements in effect.
FOREIGN CURRENCY RISK
We are exposed to foreign currency risk with respect to our international operations. We enter into foreign currency forward contracts to manage a portion of the exchange rate risk related to receipts from customers and payments to suppliers denominated in foreign currencies. We do not hold or issue derivative financial instruments for trading purposes. At December 31, 2013, foreign currency forward contracts with a notional amount of $149 million were outstanding.
INFLATION RISK
We have generally been able to anticipate increases in costs when pricing our contracts. Bids for longer-term firm fixed-price contracts typically include assumptions for labor and other cost escalations in amounts that historically have been sufficient to cover cost increases over the period of performance.
A 10 percent change in interest rates or foreign currency exchange rates would not have a material impact to our consolidated financial position, annual results of operations and/or cash flows.

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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Northrop Grumman Corporation
Falls Church, Virginia
We have audited the accompanying consolidated statements of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of earnings and comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Northrop Grumman Corporation and subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2013, based on the criteria established in  Internal Control – Integrated Framework (1992)  issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 3, 2014 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 	 	
/s/	Deloitte & Touche LLP	
 	McLean, Virginia	
 	February 3, 2014	

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NORTHROP GRUMMAN CORPORATION

                        

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Year Ended December 31	
$ in millions, except per share amounts	 	2013	 	2012	 	2011	
Sales	 	 	 	 	 	 	
Product	 	
 	$14,033	
 	 	
 	$13,838	
 	 	$15,073	
 	
Service	 	10,628	
 	 	11,380	
 	 	11,339	
 	
Total sales	 	24,661	
 	 	25,218	
 	 	26,412	
 	
Operating costs and expenses	 	 	 	 	 	 	
Product	 	10,623	
 	 	10,415	
 	 	11,491	
 	
Service	 	8,659	
 	 	9,223	
 	 	9,295	
 	
General and administrative expenses	 	2,256	
 	 	2,450	
 	 	2,350	
 	
Operating income	 	3,123	
 	 	3,130	
 	 	3,276	
 	
Other (expense) income	 	 	 	 	 	 	
Interest expense	 	(257	)	 	(212	)	 	(221	)	
Other, net	 	(3	)	 	47	
 	 	28	
 	
Earnings from continuing operations before income taxes	 	2,863	
 	 	2,965	
 	 	3,083	
 	
Federal and foreign income tax expense	 	911	
 	 	987	
 	 	997	
 	
Earnings from continuing operations	 	1,952	
 	 	1,978	
 	 	2,086	
 	
Earnings from discontinued operations, net of tax	 	—	
 	 	—	
 	 	32	
 	
Net earnings	 	$ 1,952	
 	 	$ 1,978	
 	 	$ 2,118	

Basic earnings per share	 	 	 	 	 	 	
Continuing operations	 	$ 8.50	
 	 	$ 7.96	
 	 	$ 7.54	
 	
Discontinued operations	 	—	
 	 	—	
 	 	0.11	
 	
Basic earnings per share	 	$ 8.50	
 	 	$ 7.96	
 	 	$ 7.65	
 	
Weighted-average common shares outstanding, in millions	 	229.6	
 	 	248.6	
 	 	276.8	

Diluted earnings per share	 	 	 	 	 	 	
Continuing operations	 	$ 8.35	
 	 	$ 7.81	
 	 	$ 7.41	
 	
Discontinued operations	 	—	
 	 	—	
 	 	0.11	
 	
Diluted earnings per share	 	$ 8.35	
 	 	$ 7.81	
 	 	$ 7.52	
 	
Weighted-average diluted shares outstanding, in millions	 	233.9	
 	 	253.4	
 	 	281.6	

Net earnings (from above)	 	$ 1,952	
 	 	$ 1,978	
 	 	$ 2,118	
 	
Other comprehensive income	 	 	 	 	 	 	
Change in unamortized benefit plan costs, net of tax (expense) benefit of ($1,177) in 2013, $860 in 2012 and $823 in 2011	 	1,790	
 	 	(1,303	)	 	(1,249	)	
Change in cumulative translation adjustment	 	14	
 	 	8	
 	 	(4	)	
Change in unrealized loss on marketable securities and cash flow hedges, net of tax benefit of $1 in 2013, $0 in 2012 and $2 in 2011	 	(1	)	 	(2	)	 	(4	)	
Other comprehensive income (loss), net of tax	 	1,803	
 	 	(1,297	)	 	(1,257	)	
Comprehensive income	 	
 	$ 3,755	
 	 	
 	$ 681	
 	 	
 	$ 861	
 	
The accompanying notes are an integral part of these consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

                        

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 

 	 	December 31	
$ in millions	 	2013	 	2012	
Assets	 	 	 	 	
Cash and cash equivalents	 	$ 5,150	
 	 	
 	$ 3,862	
 	
Accounts receivable, net	 	2,685	
 	 	2,858	
 	
Inventoried costs, net	 	698	
 	 	798	
 	
Deferred tax assets	 	605	
 	 	574	
 	
Prepaid expenses and other current assets	 	350	
 	 	300	
 	
Total current assets	 	9,488	
 	 	8,392	
 	
Property, plant and equipment, net of accumulated depreciation of $4,337 in 2013 and $4,146 in 2012	 	2,806	
 	 	2,887	
 	
Goodwill	 	12,438	
 	 	12,431	
 	
Non-current deferred tax assets	 	209	
 	 	1,542	
 	
Other non-current assets	 	1,440	
 	 	1,291	
 	
Total assets	 	$26,381	
 	 	
 	$26,543	

Liabilities	 	 	 	 	
Trade accounts payable	 	$ 1,229	
 	 	
 	$ 1,392	
 	
Accrued employee compensation	 	1,169	
 	 	1,173	
 	
Advance payments and amounts in excess of costs incurred	 	1,722	
 	 	1,759	
 	
Other current liabilities	 	1,695	
 	 	1,732	
 	
Total current liabilities	 	5,815	
 	 	6,056	
 	
Long-term debt, net of current portion of $2 in 2013 and $5 in 2012	 	5,928	
 	 	3,930	
 	
Pension and other post-retirement benefit plan liabilities	 	2,954	
 	 	6,085	
 	
Other non-current liabilities	 	1,064	
 	 	958	
 	
Total liabilities	 	15,761	
 	 	17,029	

Commitments and contingencies (Note 12)	 	

 	

Shareholders’ equity	 	 	 	 	
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding	 	—	
 	 	—	
 	
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2013—217,599,230 and 2012—239,209,812	 	218	
 	 	239	
 	
Paid-in capital	 	848	
 	 	2,924	
 	
Retained earnings	 	12,538	
 	 	11,138	
 	
Accumulated other comprehensive loss	 	(2,984	)	 	(4,787	)	
Total shareholders’ equity	 	10,620	
 	 	9,514	
 	
Total liabilities and shareholders’ equity	 	$26,381	
 	 	$26,543	
 	
The accompanying notes are an integral part of these consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

                        

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Operating activities	 	 	 	 	 	 	
Sources of cash—continuing operations	 	 	 	 	 	 	
Cash received from customers	 	
 	$ 24,631	
 	 	
 	$ 25,364	
 	 	
 	$ 26,431	
 	
Other cash receipts	 	99	
 	 	99	
 	 	149	
 	
Total sources of cash—continuing operations	 	24,730	
 	 	25,463	
 	 	26,580	
 	
Uses of cash—continuing operations	 	 	 	 	 	 	
Cash paid to suppliers and employees	 	(20,473	)	 	(21,074	)	 	(22,059	)	
Pension contributions	 	(579	)	 	(367	)	 	(1,084	)	
Interest paid, net of interest received	 	(234	)	 	(200	)	 	(227	)	
Income taxes paid, net of refunds received	 	(880	)	 	(1,119	)	 	(810	)	
Other cash payments	 	(81	)	 	(63	)	 	(53	)	
Total uses of cash—continuing operations	 	(22,247	)	 	(22,823	)	 	(24,233	)	
Cash provided by continuing operations	 	2,483	
 	 	2,640	
 	 	2,347	
 	
Cash used in discontinued operations	 	—	
 	 	—	
 	 	(232	)	
Net cash provided by operating activities	 	2,483	
 	 	2,640	
 	 	2,115	
 	
Investing activities	 	 	 	 	 	 	
Continuing operations	 	 	 	 	 	 	
Capital expenditures	 	(364	)	 	(331	)	 	(492	)	
Maturities of short-term investments	 	—	
 	 	250	
 	 	200	
 	
Contribution received from the spin-off of shipbuilding business	 	—	
 	 	—	
 	 	1,429	
 	
Purchases of short-term investments	 	—	
 	 	—	
 	 	(450	)	
Other investing activities, net	 	18	
 	 	(3	)	 	56	
 	
Cash (used in) provided by investing activities from continuing operations	 	(346	)	 	(84	)	 	743	
 	
Cash used in investing activities from discontinued operations	 	—	
 	 	—	
 	 	(63	)	
Net cash (used in) provided by investing activities	 	(346	)	 	(84	)	 	680	
 	
Financing activities	 	 	 	 	 	 	
Net proceeds from issuance of long-term debt	 	2,841	
 	 	—	
 	 	—	
 	
Common stock repurchases	 	(2,371	)	 	(1,316	)	 	(2,295	)	
Payments of long-term debt	 	(877	)	 	—	
 	 	(768	)	
Cash dividends paid	 	(545	)	 	(535	)	 	(543	)	
Proceeds from exercises of stock options	 	184	
 	 	188	
 	 	101	
 	
Other financing activities, net	 	(81	)	 	(33	)	 	11	
 	
Net cash used in financing activities	 	(849	)	 	(1,696	)	 	(3,494	)	
Increase (decrease) in cash and cash equivalents	 	1,288	
 	 	860	
 	 	(699	)	
Cash and cash equivalents, beginning of year	 	3,862	
 	 	3,002	
 	 	3,701	
 	
Cash and cash equivalents, end of year	 	
 	$ 5,150	
 	 	
 	$ 3,862	
 	 	
 	$ 3,002	
 	
The accompanying notes are an integral part of these consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

                        

 	 	 	 	 	 	 	 	 	 	
 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Reconciliation of net earnings to net cash provided by operating activities	 	 	 	 	 	 	
Net earnings	 	$1,952	
 	 	$1,978	
 	 	$2,118	
 	
Net earnings from discontinued operations	 	—	
 	 	—	
 	 	(32	)	
Adjustments to reconcile to net cash provided by operating activities:	 	 	 	 	 	 	
Depreciation and amortization	 	495	
 	 	510	
 	 	544	
 	
Stock-based compensation	 	144	
 	 	183	
 	 	140	
 	
Excess tax benefits from stock-based compensation	 	(43	)	 	(45	)	 	(17	)	
Deferred income taxes	 	128	
 	 	78	
 	 	441	
 	
(Increase) decrease in assets:	 	 	 	 	 	 	
Accounts receivable, net	 	171	
 	 	90	
 	 	350	
 	
Inventoried costs, net	 	101	
 	 	46	
 	 	(2	)	
Prepaid expenses and other assets	 	(51	)	 	(65	)	 	16	
 	
Increase (decrease) in liabilities:	 	 	 	 	 	 	
Accounts payable and accruals	 	(169	)	 	23	
 	 	(341	)	
Income taxes payable	 	2	
 	 	(75	)	 	(32	)	
Retiree benefits	 	(281	)	 	(71	)	 	(904	)	
Other, net	 	34	
 	 	(12	)	 	66	
 	
Cash provided by continuing operations	 	2,483	
 	 	2,640	
 	 	2,347	
 	
Cash used in discontinued operations	 	—	
 	 	—	
 	 	(232	)	
Net cash provided by operating activities	 	$2,483	
 	 	$2,640	
 	 	$2,115	
 	
The accompanying notes are an integral part of these consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

                        

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Year Ended December 31	
$ in millions, except per share amounts	 	2013	 	2012	 	2011	
Common stock	 	 	 	 	 	 	
Beginning of year	 	
 	$ 239	
 	 	
 	$ 254	
 	 	
 	$ 291	
 	
Common stock repurchased	 	(27	)	 	(21	)	 	(40	)	
Shares issued for stock awards and options	 	6	
 	 	6	
 	 	3	
 	
End of year	 	218	
 	 	239	
 	 	254	
 	
Paid-in capital	 	 	 	 	 	 	
Beginning of year	 	2,924	
 	 	3,873	
 	 	7,778	
 	
Common stock repurchased	 	(2,345	)	 	(1,310	)	 	(2,264	)	
Stock compensation and options exercised	 	274	
 	 	359	
 	 	236	
 	
Shipbuilding spin-off adjustment	 	(5	)	 	2	
 	 	(1,877	)	
End of year	 	848	
 	 	2,924	
 	 	3,873	
 	
Retained earnings	 	 	 	 	 	 	
Beginning of year	 	11,138	
 	 	9,699	
 	 	8,124	
 	
Net earnings	 	1,952	
 	 	1,978	
 	 	2,118	
 	
Dividends declared	 	(552	)	 	(539	)	 	(543	)	
End of year	 	12,538	
 	 	11,138	
 	 	9,699	
 	
Accumulated other comprehensive loss	 	 	 	 	 	 	
Beginning of year	 	(4,787	)	 	(3,490	)	 	(2,757	)	
Other comprehensive income, net of tax	 	1,803	
 	 	(1,297	)	 	(1,257	)	
Shipbuilding spin-off adjustment	 	—	
 	 	—	
 	 	524	
 	
End of year	 	(2,984	)	 	(4,787	)	 	(3,490	)	
Total shareholders’ equity	 	
 	$10,620	
 	 	
 	$ 9,514	
 	 	
 	$10,336	
 	
Cash dividends declared per share	 	
 	$ 2.38	
 	 	
 	$ 2.15	
 	 	
 	$ 1.97	
 	
The accompanying notes are an integral part of these consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

                        

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global security company providing innovative systems, products and solutions in unmanned systems, cybersecurity, C4ISR, and logistics and modernization to government and commercial customers worldwide through four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. We participate in many high-priority defense and government services programs in the United States (U.S.) and abroad as a prime contractor, principal subcontractor, partner, or preferred supplier. We conduct the majority 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 domestic and international commercial customers.
Principles of Consolidation
The consolidated financial statements include the accounts of Northrop Grumman and its subsidiaries. All material intercompany accounts, transactions, and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method.
Accounting Estimates
The company’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation thereof requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.
Related Party Transactions
For all periods presented, the company had no material related party transactions.
Revenue Recognition
The majority of our business results are derived from long-term contracts with the U.S. Government for the production of goods, the provision of services, or in some cases, a combination of both. In accounting for these contracts, we utilize either the cost-to-cost or the units-of-delivery method of percentage-of-completion accounting. Generally, sales under cost-reimbursement contracts and construction-type contracts that provide for deliveries at lower volume rates per year or a small number of units are accounted for using the cost-to-cost method. Under this method, sales, including estimated profits, are recorded as costs are incurred. Generally, sales under contracts that provide for deliveries at higher volume rates per year or a large number of units are accounted for using the units-of-delivery method. Under this method, sales are recognized as units are delivered to the customer. The company estimates profit on contracts as the difference between total estimated revenue and total estimated cost of a contract at completion and recognizes that profit either as costs are incurred (cost-to-cost) or as units are delivered (units-of-delivery). The company classifies revenue as product or service depending upon the predominant attributes of the contract.
Contract revenues may include estimated amounts not contractually agreed to by the customer, including price redetermination, cost or performance incentives (such as award and incentive fees), un-priced change orders, claims, and requests for equitable adjustment. Amounts pertaining to provisions for price redetermination or for cost and/or performance incentives are included in sales when they are reasonably estimable. Further, as contracts are performed, change orders can be a regular occurrence and may be un-priced until negotiated with the customer. Un-priced change orders are included in revenue when they are probable of recovery in an amount at least equal to the cost. Amounts representing claims (including change orders unapproved as to both scope and price) and requests for equitable adjustment are included in estimated contract revenue only when they are reliably estimable and realization is probable. As of December 31, 2013, the recognized amounts related to claims and requests for equitable adjustment are not material individually or in the aggregate.
The company's U.S. Government contracts generally contain provisions that enable the customer to terminate a contract for default, or for the convenience of the government. If a contract is terminated for default, the contractor may not be entitled to recover any of its costs on partially completed work and may be liable to the government for re-procurement costs of acquiring similar products or services from another contractor, and for certain other damages. Termination of a contract for the convenience of the government may occur when the government

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NORTHROP GRUMMAN CORPORATION

                        

concludes it is in the best interests of the government that the contract be terminated. Under a termination for convenience, the contractor is typically entitled to be paid in accordance with the contract’s terms for costs incurred prior to the effective date of termination, plus a reasonable profit and settlement expenses. At December 31, 2013, the company does not have any contract terminations in process that would have a material effect on our consolidated financial position, annual results of operations and/or cash flows.
Changes in estimates of contract sales, costs, or profits are recognized using the cumulative catch-up method of accounting. This method recognizes, in the current period, the cumulative effect of the changes on current and prior periods. Revenue and profit on future periods of contract performance are recognized as if the revised estimate had been used since contract inception. If it is determined that a loss will result from the performance of a contract, the entire amount of the estimable future loss is charged against income in the period the loss is identifiable. Loss provisions are first offset against costs that are included in unbilled accounts receivable or inventoried costs, and any remaining amount is reflected in liabilities.
Changes in contract estimates occur for a variety of reasons, including changes in contract scope, estimated revenue and cost estimates. These changes are often driven by events such as changes in estimated incentive fees, unanticipated risks affecting contract costs, the resolution of risk at lower or higher cost than anticipated, and changes in indirect cost allocations, such as overhead and general and administrative expenses. We employ an extensive contract management process involving several functional organizations and numerous personnel who are skilled at managing contract activities. Changes in estimates are frequent; the company performs on a broad portfolio of long-term contracts, many of which include complex and customized aerospace and electronic equipment and software, that often include technology at the forefront of science.
Significant changes in estimates on a single contract could have a material effect on the company's consolidated financial position or annual results of operations, and where such changes occur, separate disclosure is made of the nature, underlying conditions and financial impact of the change. Aggregate net changes in contract estimates recognized using the cumulative catch-up method of accounting increased operating income by $753 million ($2.09 per diluted share) in 2013, $985 million ($2.53 per diluted share) in 2012 and $738 million ($1.70 per diluted share) in 2011. No discrete event or adjustments to an individual contract were material to the consolidated statements of earnings and comprehensive income for any of these periods.
General and Administrative Expenses
In accordance with industry practice and regulations that govern the cost accounting requirements for government contracts, most general and administrative expenses incurred at both the segment and corporate locations are considered allowable and allocable costs on government contracts. These costs are allocated to contracts in progress on a systematic basis and are included as a component of total contract costs, including any provision for loss contracts.
Research and Development
Company-sponsored research and development activities primarily include independent research and development (IR&D) efforts related to government programs. Company-sponsored IR&D expenses are included in general and administrative expenses in the consolidated statements of earnings and comprehensive income and are generally allocated to government contracts. Company-sponsored IR&D expenses totaled $507 million, $520 million and $543 million, in 2013, 2012 and 2011, respectively. Expenses for research and development funded by the customer are charged directly to the related contracts.
Environmental Costs
Environmental liabilities are accrued when the company determines that, based on the facts and circumstances known to the company, such amounts are reasonably estimable and it is probable a liability will be found to have been incurred. When only a range of amounts is established and no amount within the range is more probable than another, the low end of the range is recorded. The company typically projects environmental costs for up to 30 years and records environmental liabilities on an undiscounted basis, and does not include legal costs or asset retirement obligations. At sites involving multiple parties, the company accrues environmental liabilities based upon our expected share of liability, taking into account the financial viability of other jointly liable parties. Environmental expenditures are capitalized or expensed, as appropriate. As a portion of environmental remediation costs is expected to be recoverable through overhead charges on government contracts, such amounts are deferred in inventoried costs (current portion) and other non-current assets. Certain capitalized expenditures relate to long-lived improvements in currently operating facilities. The portion of environmental expenditures not expected to be recoverable is expensed. The company does not record insurance recoveries before collection is probable. At

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December 31, 2013 and 2012, the company did not have any accrued receivables related to insurance reimbursements.
Fair Value of Financial Instruments
The company utilizes fair value measurement guidance prescribed by GAAP to value its financial instruments. The guidance includes a definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements.
The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions.
These two types of inputs create the following fair value hierarchy:
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 - Significant inputs to the valuation model are unobservable.
Marketable securities accounted for as trading and available-for-sale are recorded at fair value. For available-for-sale securities, any changes in unrealized gains and losses are reported as a component of other comprehensive income. Changes in unrealized gains and losses on trading securities are included in other, net in the consolidated statements of earnings and comprehensive income. In addition, investments in held-to-maturity instruments with original maturities greater than three months are recorded at amortized cost.
Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair value. Changes in the fair value of derivative financial instruments that qualify and are designated as fair value hedges are recorded in earnings from continuing operations, while the effective portion of the changes in the fair value of derivative financial instruments that qualify and are designated as cash flow hedges are recorded as a component of other comprehensive income. The company may use derivative financial instruments to manage its exposure to interest rate and foreign currency exchange risks and to balance its fixed and variable rate long-term debt portfolio. The company does not use derivative financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions. For derivative financial instruments not designated as cash flow hedging instruments, gains or losses resulting from changes in the fair value are reported in other, net in the consolidated statements of earnings and comprehensive income.
Income Taxes
Provisions for federal and foreign income taxes are calculated on reported financial statement pre-tax income based on current tax law and include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently payable because certain items of income and expense are recognized in different periods for financial reporting purposes than for income tax purposes. The company recognizes federal interest accrued related to unrecognized tax benefits in income tax expense. Federal penalties are recognized as a component of income tax expense. In accordance with industry practice and regulations that govern the cost accounting requirements for government contracts, state and local income and franchise taxes are considered allowable and allocable costs on government contracts and are therefore recorded in operating costs and expenses. The company recognizes state interest accrued related to unrecognized tax benefits in unallowable operating costs and expenses.
Uncertain tax position represents the company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return or claim, that has not been reflected in measuring income tax expense for financial reporting purposes. Until these positions are sustained by the taxing authorities or the statute of limitations concerning such issues lapses, the company does not recognize the tax benefits resulting from such positions and reports the tax effects as a liability for uncertain tax positions in its consolidated statements of financial position.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash in banks and highly liquid instruments with original maturities of three months or less, primarily consisting of bank time deposits and investments in institutional money market

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funds. The company does not invest in high yield or high risk securities. Cash in bank accounts at times may exceed federally insured limits.
Accounts Receivable and Inventoried Costs
Accounts receivable include amounts billed and currently due from customers, as well as amounts currently due but unbilled (primarily related to costs incurred on contracts accounted for under the cost-to-cost method of percentage-of-completion accounting). Accounts receivable also include certain estimated contract change amounts, claims or requests for equitable adjustment in negotiation that are probable of recovery and amounts retained by the customer pending contract completion.
Accumulated contract costs in unbilled accounts receivable and inventoried costs include direct production costs, factory and engineering overhead, production tooling costs, and, for government contracts, allowable general and administrative expenses. According to the provisions of U.S. Government contracts, the customer asserts title to, or a security interest in, inventories related to such contracts as a result of contract advances, performance-based payments, and progress payments. In accordance with industry practice, unbilled accounts receivable and inventoried costs are classified as current assets and include amounts related to contracts having production cycles longer than one year. Payments received in excess of inventoried costs and unbilled accounts receivable amounts on a contract by contract basis are recorded as advance payments and amounts in excess of costs incurred in the consolidated statements of financial position.
Inventoried costs primarily relate to work in process on contracts accounted for under the units-of-delivery method of percentage-of-completion accounting. These costs represent accumulated contract costs less the portion of such costs allocated to delivered items. Product inventory primarily consists of raw materials and is stated at the lower of cost or market, generally using the average cost method.
Property, Plant and Equipment
Property, plant and equipment are depreciated over the estimated useful lives of individual assets. Most of these assets are depreciated using declining-balance methods, with the remainder using the straight-line method. Major classes of property, plant and equipment and their useful lives are as follows:

 	 	 	 	December 31	
Useful life in years, $ in millions	 	Useful Life	 	2013	 	2012	
Land and land improvements	 	   Up to 40(1)	 	
 	$ 373	
 	 	
 	$ 373	
 	
Buildings and improvements	 	Up to 45	 	1,450	
 	 	1,421	
 	
Machinery and other equipment	 	Up to 20	 	4,243	
 	 	4,233	
 	
Capitalized software costs	 	3-5	 	418	
 	 	413	
 	
Leasehold improvements	 	Length of Lease(1)	 	659	
 	 	593	
 	
Property, plant and equipment, at cost	 	 	 	7,143	
 	 	7,033	
 	
Accumulated depreciation	 	 	 	(4,337	)	 	(4,146	)	
Property, plant and equipment, net	 	 	 	
 	$2,806	
 	 	
 	$2,887	

(1)	Land is not a depreciable asset. Leasehold improvements are depreciated over the useful life of the asset if it is shorter than the length of the lease.	
Leases
The company uses its incremental borrowing rate in the assessment of lease classification as capital or operating and defines the initial lease term to include renewal options determined to be reasonably assured. The majority of our leases are operating leases.
Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays, or rent escalation clauses. For tenant improvement incentives, the company records a deferred rent liability and amortizes the deferred rent over the term of the lease as a reduction to rent expense. For rent holidays and rent escalation clauses during the lease term, the company records rental expenses on a straight-line basis over the term of the lease. For purposes of recognizing lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation of intended use.

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Goodwill and Other Purchased Intangible Assets
The company performs impairment tests for goodwill annually or when the company believes a potential impairment exists. When it is determined that impairment has occurred, a charge to operations is recorded. Goodwill and other purchased intangible asset balances are included in the identifiable assets of the business segment to which they have been assigned. Purchased intangible assets are generally amortized on a straight-line basis over their estimated useful lives. In the fourth quarter of 2013, the company changed the date of its annual goodwill impairment test from November 30 to December 31. This change in accounting principle is preferable as it aligns the timing of our annual goodwill impairment test with our year-end financial reporting process. This change did not result in the acceleration, delay or avoidance of an impairment charge. The company applied the change in the annual impairment date retrospectively to January 1, 2011; it is impracticable to objectively determine valuation estimates necessary to apply the change in periods prior to that date. There were no changes in previously reported amounts as a result of retrospectively applying the change in the annual impairment testing date. As a result of this change, during 2013, we performed an annual goodwill impairment test as of November 30 and as of December 31. 
Cash Surrender Value of Life Insurance Policies
The company maintains whole life insurance policies on a group of executives, which are recorded at their cash surrender value as determined by the insurance carrier. The company also has split-dollar life insurance policies on former officers and executives from acquired businesses, which are recorded at the lesser of their cash surrender value or premiums paid. These policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. As of December 31, 2013 and 2012, the carrying values associated with these policies are $287 million and $271 million, respectively, and are recorded in other non-current assets in the consolidated statements of financial position.
Litigation, Commitments and Contingencies
Amounts associated with litigation, commitments, and contingencies are recorded as charges to earnings when management, after taking into consideration the facts and circumstances of each matter as then known to management, including any settlement offers, has determined it is probable a liability will be found to have been incurred and the amount of the loss can be reasonably estimated. When only a range of amounts is established and no amount within the range is more likely than another, the low end of the range is recorded. Legal fees are expensed as incurred.
Retirement Benefits
The company sponsors various pension plans covering substantially all employees. The company also provides post-retirement benefit plans other than pensions, consisting principally of health care and life insurance benefits, to eligible retirees and qualifying dependents. The liabilities, unamortized benefit plan costs and annual income or expense of the company’s pension and other post-retirement benefit plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, the expected long-term rate of return on plan assets, and the cash balance crediting rate. Unamortized benefit plan costs consist primarily of accumulated net after-tax actuarial losses.
Because U.S. Government regulations require that the costs of pension and other post-retirement plans be charged to our contracts with customers in accordance with the Federal Acquisition Regulation and the related CAS (U.S. Government Cost Accounting Standards) that govern such plans, we calculate retiree benefit plan costs under both CAS and FAS (GAAP Financial Accounting Standards) methods. While both FAS and CAS recognize a normal service cost component in measuring periodic pension cost, there are differences in the way the remaining components of annual pension costs are calculated under each method. Measuring plan obligations under FAS and CAS methods utilize different assumptions and models, such as in estimating earnings on plan assets and calculating interest expense. In addition, the periods over which gains/losses related to pension assets and actuarial changes are amortized are different under each FAS/CAS method. As a result, annual retiree benefit plan expense amounts for FAS are different from the amounts for CAS even though the ultimate cost of providing benefits is the same under either method. CAS retiree benefit plan costs are charged to contracts and are included in segment operating income, and the difference between CAS and FAS expense is recorded in operating income at the consolidated company level.
Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor. The accounting corridor is a defined range within which amortization of net gains and losses is not required and is equal to 10 percent of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over our average employee future service period of approximately nine years. The fair values of plan assets are determined based on prevailing market prices or estimated fair value for investments with no available quoted prices. Not all net periodic pension expense is recognized in net earnings in the

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year incurred because it is allocated as production costs and a portion remains in inventory at the end of a reporting period. The company’s funding policy for the qualified pension plans is to contribute, at a minimum, the statutorily required amount to an irrevocable trust.
Stock Compensation
The company’s stock compensation plans are classified as equity plans and compensation expense is recognized over the vesting period (generally three years), net of estimated forfeitures. The company issues stock awards in the form of restricted performance stock rights and restricted stock rights under its existing plans. The fair value of stock awards is determined based on the closing market price of the company’s common stock on the grant date. At each reporting date, the number of shares is adjusted to equal the number ultimately expected to vest.
Foreign Currency Translation
For operations outside the U.S. that have functional currencies other than the U.S. dollar, results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at end-of-period exchange rates. Translation adjustments are generally included as a component of other comprehensive income in the consolidated statements of earnings and comprehensive income.
Accounting Standards Updates
Accounting standards updates effective after December 31, 2013, are not expected to have a material effect on the company’s financial position, annual results of operations and/or cash flows. 
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:

 	 	December 31	
$ in millions	 	2013	 	2012	
Unamortized benefit plan costs, net of tax benefit of $1,972 in 2013 and $3,149 in 2012	 	
 	($3,000	)	 	
 	($4,790	)	
Cumulative translation adjustment	 	18	
 	 	4	
 	
Net unrealized loss on marketable securities and cash flow hedges, net of tax benefit of $1 in 2013 and $0 in 2012	 	(2	)	 	(1	)	
Total accumulated other comprehensive loss	 	
 	($2,984	)	 	
 	($4,787	)	
Unamortized benefit plan costs consist primarily of net after-tax actuarial losses totaling $3.3 billion and $5.1 billion as of December 31, 2013 and 2012, respectively. Net actuarial gains or losses are re-determined annually and principally arise from changes in the rate used to discount our benefit obligations, as well as differences in expected and actual returns on plan assets.
Reclassifications from other comprehensive income to net earnings related to the amortization of benefit plan costs were losses of $319 million, $204 million and $91 million, net of taxes, for the years ended December 31, 2013, 2012 and 2011, respectively. The reclassifications represent the amortization of net actuarial losses and prior service credits for the company's retirement benefit plans, and are included in the computation of net periodic pension cost (See Note 13 for further information).
Reclassifications from other comprehensive income to net earnings, relating to cumulative translation adjustments, marketable securities and effective cash flow hedges for the years ended December 31, 2013, 2012 and 2011, respectively, were not material. Reclassifications for cumulative translation adjustments and marketable securities are recorded in other income, and reclassifications for effective cash flow hedges are recorded in operating income.
2. EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK
Basic Earnings Per Share
Basic earnings per share from both continuing and discontinued operations are calculated by dividing the respective earnings by the weighted-average number of shares of common stock outstanding during each period.
Diluted Earnings Per Share
Diluted earnings per share includes the dilutive effect of awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 4.3 million, 4.8 million and 4.8 million shares for the years ended December 31, 2013, 2012 and 2011, respectively. The weighted-average diluted shares outstanding for the years ended December 31, 2012 and 2011, excludes anti-dilutive stock options to purchase approximately 1.8 million and 2.8 million shares, respectively, because such options have exercise prices in excess of the average

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market price of the company’s common stock during the year. We had no anti-dilutive stock options outstanding for the year ended December 31, 2013.
Share Repurchases
The table below summarizes the company’s share repurchases:

Repurchase Program
Authorization Date	 	Amount
Authorized
(in millions)	 	Total Shares Retired (in millions)	 	Average 
Price
Per Share (2)	 	Date Completed	 	Shares Repurchased
(in millions)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Year Ended December 31	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	2013	 	2012	 	2011	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
June 16, 2010	 	
 	$5,350	
 	 	83.7	 	
 	$ 63.86	
 	 	September 2013	 	18.6	
 	 	20.9	
 	 	40.2	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
May 15, 2013(1)	 	
 	$4,000	
 	 	8.7	 	
 	$103.37	
 	 	 	 	8.7	
 	 	—	
 	 	—	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	27.3	
 	 	20.9	
 	 	40.2	

(1)	On May 15, 2013, the company's board of directors authorized a share repurchase program of up to $4.0 billion of the company’s common stock. Repurchases under this program commenced in September 2013 upon the completion of the company's 2010 repurchase program. As of December 31, 2013, repurchases under the program totaled $895 million, and $3.1 billion remained under this share repurchase authorization. The repurchase program is expected to expire when we have used all authorized funds for repurchase.	
 	 	
(2)	Includes commissions paid.	
Share repurchases take place from time to time, subject to market conditions and management's discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and has not made any purchases of common stock other than in connection with these publicly announced repurchase program authorizations. 
In connection with the spin-off of our former shipbuilding business, we obtained a Private Letter Ruling from the Internal Revenue Service (IRS) that generally limited our share repurchases to approximately 88 million shares within two years of the spin-off. The limitation expired on March 31, 2013. During this two year period, we repurchased approximately 67 million shares of our common stock. 
Dividends on Common Stock
In May 2013, the company increased the quarterly common stock dividend 11 percent to $0.61 per share from the previous amount of $0.55 per share.
In May 2012, the company increased the quarterly common stock dividend 10 percent to $0.55 per share from the previous amount of $0.50 per share.
In May 2011, the company increased the quarterly common stock dividend 6 percent to $0.50 per share from the previous amount of $0.47 per share.
3. BUSINESS DISPOSITIONS
There were no material dispositions in 2013 and 2012.
Huntington Ingalls Industries, Inc. (HII)
Effective March 31, 2011, the company completed the spin-off to its shareholders of HII. HII was formed to operate the company's former shipbuilding business. The company made a pro rata distribution to its shareholders of one share of HII common stock for every six shares of the company’s common stock held on the record date of March 30, 2011, or 48.8 million shares of HII common stock. HII paid a $1.4 billion cash contribution to the company. There was no gain or loss recognized as a result of the spin-off transaction.
Prior to the completion of the spin-off, the company and HII entered into a Separation and Distribution Agreement dated March 29, 2011, and several other agreements that govern the post-separation relationship. These agreements generally provide that each party is responsible for its respective assets, liabilities and obligations following the spin-off, including employee benefits, intellectual property, information technology, insurance and tax-related assets and liabilities.
In connection with the spin-off, the company incurred $28 million of non-deductible transaction costs for the year ended December 31, 2011, which were included in discontinued operations.

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Discontinued Operations
Earnings for the former shipbuilding business and an adjustment to the gain from a previous divestiture, are reported as discontinued operations, as presented in the following table:

 	 	Year Ended December 31,	
$ in millions	 	2011	
Sales	 	
 	$1,646	
 	
Earnings from discontinued operations	 	59	
 	
Income tax expense	 	(28	)	
Earnings, net of tax	 	31	
 	
Gain on divestiture, net of income tax expense of $1	 	1	
 	
Earnings from discontinued operations, net of tax	 	
 	$ 32	
 	
Tax rates on discontinued operations vary from the company’s effective tax rate generally due to the non-deductibility of goodwill for tax purposes and the effects, if any, of capital loss carryforwards.
There were no assets or liabilities related to these discontinued operations included in the consolidated statements of financial position as of December 31, 2013, 2012 or 2011.
4. SEGMENT INFORMATION
The company is aligned into four segments: Aerospace Systems, Electronic Systems, Information Systems, and Technical Services.
The company, from time to time, acquires or disposes of businesses and realigns contracts, programs or business areas among and within its operating segments. Portfolio shaping and internal realignments are designed to more fully leverage existing capabilities and enhance development and delivery of products and services.
U.S. Government Sales
Sales to the U.S. Government include sales from contracts for which Northrop Grumman is the prime contractor, as well as those for which the company is 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. Sales to the U.S. Government amounted to $21.3 billion, $22.3 billion and $23.4 billion, or 86 percent, 88 percent and 89 percent, of total sales for the years ended December 31, 2013, 2012 and 2011, respectively.
International Sales
International sales (which include foreign military sales) amounted to $2.5 billion, $2.1 billion and $2.1 billion, or 10 percent, 8 percent and 8 percent, of total sales for the years ended December 31, 2013, 2012 and 2011, respectively.
Discontinued Operations
The company’s discontinued operations are excluded from the amounts in the following tables.
Assets
Substantially all of the company’s operating assets are located or maintained in the U.S.

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Results of Operations By Segment
The following table presents sales and operating income by segment:

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Sales	 	 	 	 	 	 	
Aerospace Systems	 	
 	$10,014	
 	 	
 	$ 9,977	
 	 	
 	$ 9,964	
 	
Electronic Systems	 	7,149	
 	 	6,950	
 	 	7,372	
 	
Information Systems	 	6,596	
 	 	7,356	
 	 	7,921	
 	
Technical Services	 	2,843	
 	 	3,019	
 	 	3,193	
 	
Intersegment eliminations	 	(1,941	)	 	(2,084	)	 	(2,038	)	
Total sales	 	24,661	
 	 	25,218	
 	 	26,412	
 	
Operating income	 	 	 	 	 	 	
Aerospace Systems	 	1,215	
 	 	1,218	
 	 	1,217	
 	
Electronic Systems	 	1,226	
 	 	1,187	
 	 	1,070	
 	
Information Systems	 	633	
 	 	761	
 	 	766	
 	
Technical Services	 	262	
 	 	268	
 	 	260	
 	
Intersegment eliminations	 	(256	)	 	(258	)	 	(258	)	
Total segment operating income	 	3,080	
 	 	3,176	
 	 	3,055	
 	
Reconciliation to operating income:	 	 	 	 	 	 	
Net FAS/CAS pension adjustment	 	168	
 	 	132	
 	 	400	
 	
Unallocated corporate expenses	 	(119	)	 	(168	)	 	(166	)	
Other	 	(6	)	 	(10	)	 	(13	)	
Total operating income	 	
 	$ 3,123	
 	 	
 	$3,130	
 	 	
 	$ 3,276	
 	
Net FAS/CAS Pension Adjustment
The net FAS/CAS pension adjustment is the difference between pension expense determined in accordance with GAAP and pension expense allocated to the operating segments determined in accordance with CAS. The increase in net FAS/CAS pension adjustment for 2013, as compared to 2012, reflects an update for actual demographic experience as of January 1, 2013, which resulted in an increase to the company's 2013 CAS pension expense. The decrease in the 2012 net FAS/CAS pension adjustment, as compared to 2011, is primarily due to increased GAAP pension expense resulting from amortization of prior year actuarial losses and reduced CAS pension expense resulting from a plan amendment in 2011.
Unallocated Corporate Expenses
Unallocated corporate expenses include the portion of corporate expenses not considered allowable or allocable under applicable CAS regulations and the Federal Acquisition Regulation, and are therefore not allocated to the segments. Such costs consist of a portion of management and administration, legal, environmental, compensation costs, retiree benefits, and certain unallowable costs such as lobbying activities, among others. The decrease in unallocated corporate expenses for 2013, as compared to 2012, is primarily due to lower year-over-year provisions for disallowed costs and litigation matters and the favorable settlement of overhead claims, partially offset by changes in deferred tax assets due to lower blended state income tax rates. 

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Intersegment Sales and Operating Income
Sales between segments are recorded at values that include hypothetical operating income for the performing segment based on that segment’s estimated operating margin rate for external sales. Such hypothetical operating income is eliminated in consolidation. Intersegment sales and operating income before eliminations were as follows:

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
 	 	Sales	Operating
Income	 	Sales	Operating
Income	 	Sales	Operating
Income	
Intersegment sales and operating income	 	 	 	 	 	 	 	 	 	 	 	 	
Aerospace Systems	 	
 	$ 149	
 	 	
 	$ 18	
 	 	
 	$ 171	
 	 	
 	$ 20	
 	 	
 	$ 134	
 	 	 $	18	
 	
Electronic Systems	 	629	
 	 	125	
 	 	607	
 	 	110	
 	 	649	
 	 	131	
 	
Information Systems	 	504	
 	 	63	
 	 	682	
 	 	78	
 	 	687	
 	 	68	
 	
Technical Services	 	659	
 	 	50	
 	 	624	
 	 	50	
 	 	568	
 	 	41	
 	
Total	 	
 	$1,941	
 	 	
 	$256	
 	 	
 	$2,084	
 	 	
 	$258	
 	 	
 	$2,038	
 	 	
 	$258	
 	
Other Financial Information

 	 	December 31	
$ in millions	 	2013	 	2012	
Assets	 	 	 	 	
Aerospace Systems	 	
 	$ 6,490	
 	 	
 	$ 6,657	
 	
Electronic Systems	 	4,400	
 	 	4,551	
 	
Information Systems	 	6,887	
 	 	6,940	
 	
Technical Services	 	1,367	
 	 	1,313	
 	
Segment assets	 	19,144	
 	 	19,461	
 	
Corporate assets (1)	 	7,237	
 	 	7,082	
 	
Total assets	 	
 	$26,381	
 	 	
 	$26,543	

(1)	Corporate assets principally consist of cash and cash equivalents and deferred tax assets.	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Capital Expenditures	 	Depreciation and Amortization	
$ in millions	 	2013	 	2012	 	2011	 	2013	 	2012	 	2011	
Aerospace Systems	 	
 	$198	
 	 	
 	$154	
 	 	
 	$184	
 	 	
 	$210	
 	 	
 	$196	
 	 	
 	$200	
 	
Electronic Systems	 	76	
 	 	84	
 	 	121	
 	 	134	
 	 	139	
 	 	144	
 	
Information Systems	 	27	
 	 	40	
 	 	45	
 	 	81	
 	 	100	
 	 	121	
 	
Technical Services	 	3	
 	 	3	
 	 	1	
 	 	4	
 	 	4	
 	 	4	
 	
Corporate	 	60	
 	 	50	
 	 	141	
 	 	66	
 	 	71	
 	 	75	
 	
Total from continuing operations	 	
 	$364	
 	 	
 	$331	
 	 	
 	$492	
 	 	
 	$495	
 	 	
 	$510	
 	 	
 	$544	
 	
The depreciation and amortization expense above includes amortization of purchased intangible assets, as well as amortization of deferred and other outsourcing costs.
5. ACCOUNTS RECEIVABLE, NET
Unbilled amounts represent sales for which billings have not been presented to customers by period-end. These amounts are usually billed and collected within one year. Substantially all accounts receivable at December 31, 2013, are expected to be collected in 2014. The company does not believe it has significant exposure to credit risk, as accounts receivable and the related unbilled amounts are primarily from contracts where the U.S. Government is the primary customer.

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NORTHROP GRUMMAN CORPORATION

                        

Accounts receivable consisted of the following:

 	 	December 31	
$ in millions	 	2013	 	2012	
Due from U.S. Government	 	 	 	 	
Billed	 	
 	$ 596	
 	 	
 	$ 783	
 	
Unbilled	 	5,801	
 	 	5,284	
 	
Progress and performance-based payments received	 	(4,385	)	 	(3,907	)	
 	 	2,012	
 	 	2,160	
 	
Due from Other Customers (inclusive of foreign military sales)	 	 	 	 	
Billed	 	296	
 	 	325	
 	
Unbilled	 	2,830	
 	 	1,992	
 	
Progress and performance-based payments received	 	(2,384	)	 	(1,559	)	
 	 	742	
 	 	758	
 	
Total accounts receivable	 	2,754	
 	 	2,918	
 	
Allowance for doubtful accounts	 	(69	)	 	(60	)	
Total accounts receivable, net	 	
 	$2,685	
 	 	
 	$2,858	
 	
6. INVENTORIED COSTS, NET
Inventoried costs consisted of the following:

 	 	December 31	
$ in millions	 	2013	 	2012	
Production costs of contracts in process	 	
 	$ 1,342	
 	 	
 	$ 1,593	
 	
General and administrative expenses	 	259	
 	 	262	
 	
 	 	1,601	
 	 	1,855	
 	
Progress and performance-based payments received	 	(1,005	)	 	(1,167	)	
 	 	596	
 	 	688	
 	
Product inventory	 	102	
 	 	110	
 	
Total inventoried costs, net	 	
 	$ 698	
 	 	
 	$ 798	
 	
7. INCOME TAXES
Federal and foreign income tax expense consisted of the following:

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Income Taxes on Continuing Operations	 	 	 	 	 	 	
Currently payable	 	 	 	 	 	 	
Federal income taxes	 	
 	$803	
 	 	
 	$912	
 	 	
 	$592	
 	
Foreign income taxes	 	28	
 	 	15	
 	 	18	
 	
Total federal and foreign income taxes currently payable	 	831	
 	 	927	
 	 	610	
 	
Deferred federal and foreign income taxes	 	80	
 	 	60	
 	 	387	
 	
Total federal and foreign income taxes	 	
 	$911	
 	 	
 	$987	
 	 	
 	$997	
 	
Earnings from foreign continuing operations before income taxes are not material for all periods presented.

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NORTHROP GRUMMAN CORPORATION

                        

Income tax expense differs from the amount computed by multiplying the statutory federal income tax rate times the earnings from continuing operations before income taxes due to the following:

 	 	Year Ended December 31	
$ in millions	 	2013	 	2012	 	2011	
Income tax expense on continuing operations at statutory rate	 	
 	$1,002	
 	 	
 	$1,038	
 	 	
 	$1,079	
 	
Manufacturing deduction	 	(63	)	 	(42	)	 	(32	)	
Research tax credit	 	(37	)	 	—	
 	 	(17	)	
Other, net	 	9	
 	 	(9	)	 	(33	)	
Total federal and foreign income taxes	 	
 	$ 911	
 	 	
 	$ 987	
 	 	
 	$ 997	
 	
The company’s effective tax rate on earnings from continuing operations for the year ended December 31, 2013, was 31.8 percent, as compared with 33.3 percent and 32.3 percent for the years ended December 31, 2012 and 2011, respectively. The American Taxpayer Relief Act, enacted in January 2013, reinstated research tax credits for tax years 2012 and 2013, which the company recognized in 2013.
Uncertain Tax Positions
The company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The IRS is currently conducting an examination of the company's tax returns for the years 2007 through 2011. With respect to the tax years 2007 through 2009, the company has reached a tentative resolution with the IRS subject to final review by the U.S. Congressional Joint Committee on Taxation, which has returned one issue to the IRS examination team for further development. It is reasonably possible that during the next twelve months, we will record a reduction in our unrecognized tax benefits up to $80 million and a reduction of our income tax expense up to $50 million. Open tax years related to state and foreign jurisdictions remain subject to examination, but are not considered material.
Although the company believes that it has adequately provided for all of its tax positions, amounts asserted by taxing authorities in future years could be greater than the company’s accrued positions. Accordingly, additional provisions on income tax related matters could be recorded in the future due to revised estimates, settlement or other resolution of the underlying tax matters.
The change in unrecognized tax benefits during 2013, 2012 and 2011, excluding interest, is as follows:

 	 	December 31	
$ in millions	 	2013	 	2012	 	2011	
Unrecognized tax benefits at beginning of the year	 	
 	$156	
 	 	
 	$118	
 	 	
 	$126	
 	
Additions based on tax positions related to the current year	 	56	
 	 	12	
 	 	11	
 	
Additions for tax positions of prior years	 	44	
 	 	28	
 	 	31	
 	
Other, net	 	(15	)	 	(2	)	 	(50	)	
Net change in unrecognized tax benefits	 	85	
 	 	38	
 	 	(8	)	
Unrecognized tax benefits at end of the year	 	
 	$241	
 	 	
 	$156	
 	 	
 	$118	
 	
These liabilities, along with $31 million of accrued interest and penalties, are included in other non-current liabilities in the consolidated statements of financial position. If the income tax benefits from these tax positions are ultimately realized, $190 million of federal and foreign benefits would reduce the company’s effective tax rate.
Net interest expense within the company's federal, foreign and state income tax provisions were not material for the years ended December 31, 2013, 2012 and 2011.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Such amounts are classified in the consolidated statements of financial position as current or non-current assets or liabilities, based upon the classification of the related assets and liabilities.

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NORTHROP GRUMMAN CORPORATION

                        

The tax effects of significant temporary differences and carryforwards that gave rise to year-end deferred federal, state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows:

 	 	December 31	
$ in millions	 	2013	 	2012	
Deferred Tax Assets	 	 	 	 	
Retirement benefits	 	
 	$1,308	
 	 	
 	$2,710	
 	
Provisions for accrued liabilities	 	646	
 	 	675	
 	
Stock-based compensation	 	109	
 	 	146	
 	
Other	 	144	
 	 	151	
 	
Gross deferred tax assets	 	2,207	
 	 	3,682	
 	
Less valuation allowance	 	(55	)	 	(52	)	
Net deferred tax assets	 	2,152	
 	 	3,630	
 	
Deferred Tax Liabilities	 	 	 	 	
Goodwill	 	806	
 	 	804	
 	
Property, plant, and equipment, net	 	348	
 	 	376	
 	
Contract accounting differences	 	134	
 	 	199	
 	
Other	 	50	
 	 	135	
 	
Gross deferred tax liabilities	 	1,338	
 	 	1,514	
 	
Total net deferred tax assets	 	
 	$ 814	
 	 	
 	$2,116	
 	
Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods. The company believes it is more-likely-than-not all deferred tax assets will be realized, net of any valuation allowances currently established.
At December 31, 2013, the company has available unused net operating losses of $189 million that may be applied against future taxable income, primarily in the United Kingdom that may be used indefinitely. A valuation allowance of $55 million has been recorded against certain deferred tax assets due to the uncertainty of the realization of these net operating losses and other deferred tax assets, principally in foreign jurisdictions.
Undistributed Foreign Earnings
As of December 31, 2013, the company has accumulated undistributed earnings generated by its foreign subsidiaries. No deferred tax liability has been recorded on these earnings since the company intends to permanently reinvest these earnings. Should these earnings be distributed in the form of dividends or otherwise, the distributions would be subject to U.S. federal income tax at the statutory rate of 35 percent, less foreign tax credits available to offset such distributions, if any. In addition, such distributions may be subject to withholding taxes in the various tax jurisdictions.
8. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill
Goodwill and other purchased intangible assets are included in the identifiable assets of the segment to which the operations of the acquired entity have been assigned. Impairment tests are performed at least annually and more often as circumstances require. Any goodwill impairment, as well as the amortization of other purchased intangible assets, is charged against the respective segment’s operating income. Historically, our annual goodwill impairment test has been performed as of November 30. As discussed in Note 1, during the fourth quarter of 2013, the company changed the date of its annual goodwill impairment test from November 30 to December 31. As a result of this change, during 2013, we performed an annual goodwill impairment test as of November 30 and as of December 31. In performing the goodwill impairment tests, the company uses a discounted cash flow approach corroborated by comparative market multiples, where appropriate, to determine the fair value of its businesses. Accumulated goodwill impairment losses at December 31, 2013 and 2012, totaled $570 million at the Aerospace Systems segment.

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NORTHROP GRUMMAN CORPORATION

                        

The changes in the carrying amounts of goodwill for the years ended December 31, 2013 and 2012, were as follows:

$ in millions	 	Aerospace
Systems	 	Electronic
Systems	 	Information
Systems	 	Technical
Services	 	Total	
Balance as of December 31, 2011	 	
 	$3,801	
 	 	
 	$2,400	
 	 	
 	$5,248	
 	 	
 	$925	
 	 	
 	$12,374	
 	
Businesses acquired, sold and other	 	(43	)	 	10	
 	 	39	
 	 	51	
 	 	57	
 	
Balance as of December 31, 2012	 	
 	$3,758	
 	 	
 	$2,410	
 	 	
 	$5,287	
 	 	
 	$976	
 	 	
 	$12,431	
 	
Businesses acquired	 	—	
 	 	—	
 	 	7	
 	 	—	
 	 	7	
 	
Balance as of December 31, 2013	 	
 	$3,758	
 	 	
 	$2,410	
 	 	
 	$5,294	
 	 	
 	$976	
 	 	
 	$12,438	
 	
Purchased Intangible Assets
Net contract, program, and other intangible assets were comprised of the following:

 	 	December 31	
$ in millions	 	2013	 	2012	
Gross contract, program and other intangible assets	 	
 	$ 1,812	
 	 	
 	$ 1,819	
 	
Less accumulated amortization	 	(1,708	)	 	(1,682	)	
Net contract, program and other intangible assets	 	$ 104	
 	 	
 	$ 137	
 	
Amortization expense for 2013, 2012 and 2011, was $26 million, $36 million and $37 million, respectively. The company’s purchased intangible assets are being amortized on a straight-line basis over an aggregate weighted-average period of 21 years and are included in other non-current assets in the consolidated statements of financial position. As of December 31, 2013, the expected future amortization of purchased intangibles for each of the next five years is as follows:

$ in millions	 	 	
Year Ending December 31	 	 	
2014	 	
 	$20	
 	
2015	 	18	
 	
2016	 	12	
 	
2017	 	10	
 	
2018	 	9	
 	
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair value information for those assets and liabilities measured at fair value on a recurring basis:

 	December 31, 2013	December 31, 2012	
$ in millions	Carrying
Value	 	Fair
Value	Carrying
Value	 	Fair
Value	
Financial Assets (Liabilities)	 	 	 	 	 	 	 	 	
Marketable securities	 	 	 	 	 	 	 	 	
Trading	 	
 	$ 308	
 	 	
 	$ 308	
 	 	
 	$ 259	
 	 	
 	$ 259	
 	
Available-for-sale	 	2	
 	 	2	
 	 	3	
 	 	3	
 	
Derivatives	 	(2	)	 	(2	)	 	(1	)	 	(1	)	
Long-term debt, including current portion	 	(5,930	)	 	(6,227	)	 	(3,935	)	 	(4,834	)	
There were no transfers of financial instruments between the three levels of fair value hierarchy during the years ended December 31, 2013 and 2012.
The carrying value of cash and cash equivalents approximate fair value.

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NORTHROP GRUMMAN CORPORATION

                        

Investments in Marketable Securities
The company holds a portfolio of marketable securities to partially fund long-term deferred compensation programs, consisting of equity securities that are classified as either trading or available-for-sale, which can be liquidated without restriction. These assets are recorded at fair value and substantially all of these instruments are valued using Level 1 inputs, with an immaterial amount valued using Level 2 inputs. As of December 31, 2013 and 2012, marketable securities of $310 million and $261 million, respectively, were included in other non-current assets in the consolidated statements of financial position.
Derivative Financial Instruments and Hedging Activities
The company's derivative portfolio consists primarily of foreign currency forward contracts, which are used to manage foreign currency exchange risk related to receipts from customers and payments to suppliers denominated in foreign currencies. The notional values for the company's derivative portfolio at December 31, 2013 and 2012, were $161 million and $164 million, respectively. The portion of the notional values designated as cash flow hedges at December 31, 2013 and 2012, were $77 million and $110 million, respectively.
Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair value. Substantially all of these instruments are valued using Level 2 inputs. Where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value and uses the applicable London Interbank Offered Rate (LIBOR) swap rates.
Unrealized gains or losses on the effective portion of cash flow hedges are reclassified from other comprehensive income to operating income upon the settlement of the underlying transactions. The derivative fair values and related unrealized gains/losses at December 31, 2013 and 2012, were not material. Hedge contracts not designated for hedge accounting and the ineffective portion of cash flow hedges are recorded in other income.
Long-Term Debt
The fair value of long-term debt is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements.
10. LONG-TERM DEBT
Lines of Credit
The company has available uncommitted short term credit lines in the form of money market facilities with several banks. The amount and conditions for borrowing under these credit lines depend on the availability and terms prevailing in the marketplace. No fees or compensating balances are required for these credit facilities.
Credit Facility
In August 2013, the company entered into a new five-year senior unsecured credit facility in an aggregate principal amount of $1.775 billion (the Credit Agreement). The Credit Agreement replaced the company’s prior five-year revolving credit facility in an aggregate principal amount of $1.5 billion entered into on September 8, 2011, and its 364-day revolving credit facility in an aggregate principal amount of $500 million entered into on September 4, 2012.

The Credit Agreement contains customary terms and conditions, including covenants restricting the company's ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake other fundamental changes and incur liens. The company also cannot permit the ratio of its debt to capitalization (as set forth in the Credit Agreement) to exceed 65 percent. The company is in compliance with all covenants under the Credit Agreement. At December 31, 2013, there was no balance outstanding under this facility.

Issuance and Redemption
In May 2013, the company issued $2.85 billion of unsecured senior notes consisting of $850 million due June 1, 2018, with a fixed interest rate of 1.75 percent; $1.05 billion due August 1, 2023, with a fixed interest rate of 3.25 percent; and $950 million due June 1, 2043, with a fixed interest rate of 4.75 percent (collectively, the Notes). Interest on the Notes is payable semi-annually in arrears. The Notes are subject to redemption at the company's discretion at any time, or from time to time, prior to maturity in whole or in part at the greater of the principal amount of the Notes or a "make-whole" amount, plus accrued and unpaid interest. The company used a portion of the net proceeds to fund the redemption of $350 million of the company's 3.70 percent unsecured senior notes due August 1, 2014, and $500 million of 1.85 percent unsecured senior notes due November 15, 2015. The company recorded a pre-tax charge of $30 million principally related to the premiums paid on the redemptions, which was recorded in other, net in the consolidated statements of earnings and comprehensive income.

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NORTHROP GRUMMAN CORPORATION

                        

Long-term debt consists of the following:

$ in millions	 	  	 	December 31	 	
 	 	 	 	2013	 	2012	 	 	 	 	
Fixed-rate notes and debentures, maturing in	 	Interest rate	 	 	 	 	 	 	 	 	
2014	 	3.70%	 	
 	$—	
 	 	
 	$ 350	
 	 	 	 	 	
2015	 	1.85%	 	—	
 	 	500	
 	 	 	 	 	
2016	 	7.75%	 	107	
 	 	107	
 	 	 	 	 	
2018	 	1.75% - 6.75%	 	1,050	
 	 	200	
 	 	 	 	 	
2019	 	5.05%	 	500	
 	 	500	
 	 	 	 	 	
2021	 	3.50%	 	700	
 	 	700	
 	 	 	 	 	
2023	 	3.25%	 	1,050	
 	 	—	
 	 	 	 	 	
2026	 	7.75% - 7.88%	 	527	
 	 	527	
 	 	 	 	 	
2031	 	7.75%	 	466	
 	 	466	
 	 	 	 	 	
2040	 	5.05%	 	300	
 	 	300	
 	 	 	 	 	
2043	 	4.75%	 	950	
 	 	—	
 	 	 	 	 	
Capital leases	 	Various	 	35	
 	 	32	
 	 	 	 	 	
Other	 	Various	 	245	
 	 	253	
 	 	 	 	 	
Total long-term debt	 	 	 	5,930	
 	 	3,935	
 	 	 	 	 	
Less: current portion	 	 	 	2	
 	 	5	
 	 	 	 	 	
Long-term debt, net of current portion	 	 	 	
 	$5,928	
 	 	
 	$3,930	
 	 	 	 	 	
Indentures underlying long-term debt issued by the company or its subsidiaries contain various restrictions with respect to the issuer, including one or more restrictions relating to limitations on liens, sale-leaseback arrangements, and funded debt of subsidiaries. The majority of these fixed rate notes and debentures are subject to redemption at the company’s discretion at any time prior to maturity in whole or in part at the principal amount plus any make-whole premium and accrued and unpaid interest. Interest on these fixed rate notes and debentures are payable semi-annually in arrears.
Maturities of long-term debt as of December 31, 2013, are as follows:

$ in millions	  	
Year Ending December 31	 	
2014	
 	$ 2	
 	
2015	3	
 	
2016	110	
 	
2017	3	
 	
2018	1,053	
 	
Thereafter	4,757	
 	
Total principal payments	5,928	
 	
Unamortized premium on long-term debt, net of discount	2	
 	
Total long-term debt	
 	$5,930	
 	
The premium on long-term debt primarily represents non-cash fair market value adjustments resulting from acquisitions, which are amortized over the life of the related debt.

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NORTHROP GRUMMAN CORPORATION

                        

11. INVESTIGATIONS, CLAIMS AND LITIGATION
Litigation
The company is one of several defendants in litigation brought by the Orange County Water District in Orange County Superior Court in California on December 17, 2004, for alleged contribution to volatile organic chemical contamination of the County's shallow groundwater. The lawsuit includes counts against the defendants for violation of the Orange County Water District Act, the California Super Fund Act, negligence, nuisance, trespass and declaratory relief. Among other things, the lawsuit seeks unspecified damages for the cost of remediation, payment of attorney fees and costs, and punitive damages. Trial on the statutory claims (those based on the Orange County Water District Act, the California Super Fund Act and declaratory relief) concluded on September 25, 2012. On December 11, 2012, the court issued a tentative decision on these claims in favor of the company and the other remaining defendants. On May 10, 2013, the court issued a supplemental tentative decision, which included additional findings supporting its earlier tentative decision in favor of the company and the other remaining defendants on the statutory causes of action tried in 2012. On October 29, 2013, the court incorporated its two tentative decisions into a final decision, which it issued in favor of the defendants on the statutory claims. The court has scheduled an April 22, 2014, hearing on defendants' dispositive motions on the remaining tort causes of action.
On May 4, 2012, the company commenced an action, Northrop Grumman Systems Corp. v. United States, in the U.S. Court of Federal Claims. This lawsuit relates to an approximately $875 million firm fixed price contract awarded to the company in 2007 by the U.S. Postal Service (USPS) for the construction and delivery of flats sequencing systems (FSS) as part of the postal automation program. The FSS have been delivered. The company's lawsuit is based on various theories of liability. The complaint seeks approximately $63 million for unpaid portions of the contract price, and approximately $115 million based on the company's assertions that, through various acts and omissions over the life of the contract, the USPS adversely affected the cost and schedule of performance and materially altered the company's obligations under the contract. The United States responded to the company's complaint with an answer, denying most of the company's claims, and counterclaims, seeking approximately $410 million, less certain amounts outstanding under the contract. The principal counterclaim alleges that the company delayed its performance and caused damages to the USPS because USPS did not realize certain costs savings as early as it had expected. On April 2, 2013, the U.S. Department of Justice informed the company of a False Claims Act complaint relating to the FSS contract that was filed under seal by a relator in June 2011, in the U.S. District Court for the Eastern District of Virginia. On June 3, 2013, the United States filed a Notice informing the Court that the United States had decided not to intervene in this case. On August 26, 2013, the relator filed a corrected First Amended Complaint. The relator alleged that the company violated the False Claims Act in a number of ways with respect to the FSS contract, alleged damage to the USPS in an amount of at least approximately $179 million annually, and sought an unspecified partial refund of the contract purchase price, penalties, attorney's fees and other costs of suit. Damages under the False Claims Act may be trebled upon a finding of liability. The relator also alleged he was improperly discharged in retaliation. On November 22, 2013, the company filed a motion to dismiss the First Amended Complaint. By Order dated December 11, 2013, based on the relator's stipulation, the court dismissed the relator's retaliation claim. By Order dated December 13, 2013, the court dismissed the remaining allegations without prejudice and granted the relator leave to file an Amended Complaint. On January 3, 2014, the relator filed a Second Amended Complaint that, with the exception of the retaliation claim which is now the subject of an arbitration demand, includes the same allegations as the First Amended Complaint. Although the ultimate outcome of this matter, including any possible loss, cannot be predicted or estimated at this time, the company intends vigorously to pursue and defend this matter.
On August 8, 2013, the company received a court-appointed expert's report in litigation pending in the Second Federal Court of the Federal District in Brazil brought by the Brazilian Post and Telegraph Corporation (ECT) a Brazilian state-owned entity, against Solystic SAS (Solystic), a French subsidiary of the company, and two of its consortium partners. In this suit, commenced on December 17, 2004, and relatively inactive for some period of time, ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$111 million (the equivalent of approximately $47 million as of December 31, 2013), plus interest, inflation adjustments, and attorneys’ fees, as authorized by Brazilian law, which amounts could be significant over time. The original suit sought R$89 million (the equivalent of approximately $38 million as of December 31, 2013) in damages. In October 2013, ECT asserted an additional damage claim of R$22 million (the equivalent of approximately $9 million as of December 31, 2013). In its counterclaim, Solystic alleges ECT breached the contract by wrongfully refusing to accept the equipment Solystic had designed and built and seeks damages of approximately €31 million (the equivalent of approximately $43 million as of December 31, 2013), plus interest, inflation adjustments, and attorneys’ fees, as authorized by Brazilian law. The Brazilian court retained an expert to consider certain issues pending before it. On August 8, 2013, the company received a report from the expert, which contains some

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recommended findings relating to liability and the damages calculations put forth by ECT. Some of the expert's findings were favorable to the company and others were favorable to ECT. On November 14, 2013, the court requested the expert to prepare a supplemental report addressing responses filed by the parties in October 2013. At some point after the supplemental report is filed, the court is expected to issue a decision that could accept or reject the expert’s recommended findings.
The company is a party to various investigations, lawsuits, claims and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based on information available to the company to date, and other than with respect to the FSS matters discussed separately above, the company does not believe that the outcome of any matter pending against the company is likely to have a material adverse effect on the company's consolidated financial position as of December 31, 2013, its annual results of operations and/or cash flows.
12. COMMITMENTS AND CONTINGENCIES
Guarantees of Subsidiary Performance Obligations
From time to time in the ordinary course of business, the company guarantees obligations of its subsidiaries under certain contracts. Generally, the company is liable under such an arrangement only if its subsidiary is unable to perform under its contract. Historically, the company has not incurred any substantial liabilities resulting from these guarantees.
In addition, the company’s subsidiaries may enter into joint ventures, teaming and other business arrangements (collectively, Business Arrangements) to support the company’s products and services in domestic and international markets. The company generally strives to limit its exposure under these arrangements to its subsidiary’s investment in the Business Arrangements or to the extent of such subsidiary’s obligations under the applicable contract. In some cases, however, the company may be required to guarantee performance by the Business Arrangements and, in such cases, the company generally obtains cross-indemnification from the other members of the Business Arrangements.
At December 31, 2013, the company is not aware of any existing event of default that would require it to satisfy any of these guarantees.
U.S. Government Cost Claims
From time to time, the company is advised of claims by the U.S. Government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and the U.S. Government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for matters raised by the U.S. Government. Such provisions are reviewed on a quarterly basis using the most recent information available. The company believes it has adequately reserved for disputed amounts that are probable and estimable, and the outcome of any such matters would not have a material adverse effect on its consolidated financial position as of December 31, 2013, or its annual results of operations and/or cash flows.
Environmental Matters
The company has been named a Potentially Responsible Party by the Environmental Protection Agency or similarly designated state or local agencies at certain current or formerly owned or leased sites. The estimated cost to complete remediation has been accrued where the company believes, based on the facts and circumstances known to the company, it is probable the company will incur costs to address environmental impacts. As of December 31, 2013, management estimates that the range of reasonably possible future costs for environmental remediation is between $319 million and $806 million, before considering the amount recoverable through overhead charges on U.S. Government contracts. At December 31, 2013, the amount accrued for probable environmental remediation costs was $338 million, of which $100 million is accrued in other current liabilities and $238 million is accrued in other non-current liabilities. A portion of the environmental remediation costs is expected to be recoverable through overhead charges on U.S. government contracts and, accordingly, such amounts are deferred in inventoried costs and other non-current assets. As of December 31, 2013, $51 million is deferred in inventoried costs and $128 million is deferred in other non-current assets. These amounts are evaluated for recoverability on a routine basis. Although management cannot predict whether new information gained as projects progress, or as changes in facts and circumstances occur, will materially affect the estimated liability accrued, management does not anticipate that future remediation expenditures will have a material adverse effect on the company's consolidated financial position as of December 31, 2013, or its annual results of operations and/or cash flows.

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Financial Arrangements
In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks, and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At December 31, 2013, there were $345 million of stand-by letters of credit and guarantees, and $157 million of surety bonds outstanding.

Indemnifications
The company has retained certain environmental, income tax and other potential liabilities in connection with certain of its divestitures. The settlement of these liabilities is not expected to have a material adverse effect on the company’s consolidated financial position as of December 31, 2013, or its annual results of operations and/or cash flows.
Operating Leases
Rental expense for operating leases, excluding discontinued operations, was $298 million in 2013, $347 million in 2012, and $420 million in 2011. These amounts are net of immaterial amounts of sublease rental income. Minimum rental commitments under long-term non-cancelable operating leases as of December 31, 2013, are payable as follows:

$ in millions	  	
Year Ending December 31	 	
2014	
 	$277	
 	
2015	232	
 	
2016	176	
 	
2017	107	
 	
2018	61	
 	
Thereafter	90	
 	
Total Minimum Lease Payments	
 	$943	
 	
13. RETIREMENT BENEFITS
Plan Descriptions
Defined Benefit Pension Plans – The company sponsors several defined benefit pension plans in the U.S. covering the majority of its employees. Pension benefits for most employees are based on the employee’s years of service, age and compensation. It is the policy of the company to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S. Government regulations, by making payments into benefit trusts separate from the company.
Defined Contribution Plans – The company also sponsors 401(k) defined contribution plans in which most employees are eligible to participate, including certain employees covered under collective bargaining agreements. Company contributions for most plans are based on a cash matching of employee contributions up to 4 percent of compensation. In addition to the 401(k) defined contribution benefit, certain employees hired after June 30, 2008, are eligible to participate in a defined contribution program in lieu of a defined benefit pension plan. The company’s contributions to these defined contribution plans for the years ended December 31, 2013, 2012 and 2011, were $285 million, $293 million and $297 million, respectively.
Non-U.S. Benefit Plans – The company sponsors several benefit plans for non-U.S. employees. These plans are designed to provide benefits appropriate to local practice and in accordance with local regulations. Some of these plans are funded using benefit trusts that are separate from the company.
Medical and Life Benefits – The company provides a portion of the costs for certain health care and life insurance benefits for a substantial number of its active and retired employees. Certain covered employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Qualifying dependents are also eligible for medical coverage. Approximately 62 percent of the company’s current pension retirees participate in the medical plans. The company reserves the right to amend or terminate the plans at any time. The company has capped the amount of its contributions to substantially all of its remaining post retirement medical and life benefit plans.
In addition to a company and employee cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, conformance to a schedule of reasonable fees, the use of

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managed care providers, and coordination of benefits with other plans. The plans also provide for a Medicare carve-out. Subsequent to January 1, 2005 (or earlier at some segments), newly hired employees are not eligible for post retirement medical and life benefits.
Summary Plan Results
The cost to the company of its retirement benefit plans in each of the three years ended December 31 is shown in the following table:

 	 	Year Ended December 31	
 	 	Pension Benefits	 	Medical and
Life Benefits	
$ in millions	 	2013	 	2012	 	2011	 	2013	 	2012	 	2011	
Components of net periodic benefit cost	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	
 	$ 516	
 	 	
 	$ 522	
 	 	
 	$ 520	
 	 	
 	$ 36	
 	 	
 	$ 34	
 	 	
 	$ 32	
 	
Interest cost	 	1,117	
 	 	1,184	
 	 	1,223	
 	 	96	
 	 	109	
 	 	114	
 	
Expected return on plan assets	 	(1,809	)	 	(1,708	)	 	(1,690	)	 	(75	)	 	(68	)	 	(62	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	
Prior service (credit) cost	 	(58	)	 	(58	)	 	23	
 	 	(51	)	 	(51	)	 	(51	)	
Net loss from previous years	 	608	
 	 	427	
 	 	162	
 	 	30	
 	 	21	
 	 	17	
 	
Other	 	—	
 	 	7	
 	 	—	
 	 	—	
 	 	—	
 	 	(6	)	
Net periodic benefit cost	 	
 	$ 374	
 	 	
 	$ 374	
 	 	
 	$ 238	
 	 	
 	$ 36	
 	 	
 	$ 45	
 	 	
 	$ 44	
 	
The table below summarizes the components of changes in unamortized benefit plan costs for the years ended December 31, 2013, 2012 and 2011:

 	Pension	 	Medical and	 	 	
$ in millions	Benefits	 	Life Benefits	 	Total	
Changes in unamortized benefit plan costs	 	 	 	 	 	 	
Change in net actuarial loss	 	
 	$2,687	
 	 	
 	$138	
 	 	
 	$2,825	
 	
Change in prior service cost	 	(608	)	 	6	
 	 	(602	)	
Amortization of:	 	 	 	 	 	 	
Prior service (cost) credit	 	(23	)	 	51	
 	 	28	
 	
Net loss from previous years	 	(162	)	 	(17	)	 	(179	)	
Tax benefit related to above items	 	(752	)	 	(71	)	 	(823	)	
Change in unamortized benefit plan costs – 2011	 	
 	$1,142	
 	 	
 	$107	
 	 	
 	$1,249	
 	
Change in net actuarial loss	 	
 	$2,353	
 	 	
 	$151	
 	 	
 	$2,504	
 	
Change in prior service cost	 	(2	)	 	—	
 	 	(2	)	
Amortization of:	 	 	 	 	 	 	
Prior service credit	 	58	
 	 	51	
 	 	109	
 	
Net loss from previous years	 	(427	)	 	(21	)	 	(448	)	
Tax benefit related to above items	 	(788	)	 	(72	)	 	(860	)	
Change in unamortized benefit plan costs – 2012	 	
 	$1,194	
 	 	
 	$109	
 	 	
 	$1,303	
 	
Change in net actuarial loss	 	
 	($2,158	)	 	
 	($280	)	 	
 	($2,438	)	
Amortization of:	 	 	 	 	 	 	
Prior service credit	 	58	
 	 	51	
 	 	109	
 	
Net loss from previous years	 	(608	)	 	(30	)	 	(638	)	
Tax expense related to above items	 	1,075	
 	 	102	
 	 	1,177	
 	
Change in unamortized benefit plan costs – 2013	 	
 	($1,633	)	 	
 	($157	)	 	
 	($1,790	)	
Unamortized benefit plan costs consist primarily of accumulated actuarial losses totaling $3.3 billion and $5.1 billion, both after tax, as of December 31, 2013 and 2012, respectively. The change in net actuarial loss from pension benefits in 2013 was primarily due to the increase in the discount rate assumption to 4.99 percent at December 31, 2013, from 4.12 percent at December 31, 2012.

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In December 2011, the company adopted certain changes in its defined benefit pension plans designed to enable the company to remain competitive within its marketplace and provide the affordability its customers require. These changes represent modifications to the defined benefits available to employees hired prior to July 1, 2008, who retire beginning after December 31, 2012. As a result of these changes, the company recognized a reduction of approximately $640 million in its projected benefit obligations for the affected employee groups as of December 31, 2011. Due to these changes, certain nonqualified benefit plans experienced curtailments, however the net impact of these curtailment events was not material.

 	 	Pension
Benefits	 	Medical and Life
Benefits	
$ in millions	 	2013	 	2012	 	2013	 	2012	
Amounts recorded in accumulated other comprehensive loss	 	 	 	 	 	 	 	 	
Net actuarial loss	 	($5,291	)	 	
 	($8,057	)	 	($151	)	 	($461	)	
Prior service credit	 	423	
 	 	481	
 	 	47	
 	 	98	
 	
Income tax benefits related to above items	 	1,928	
 	 	3,003	
 	 	44	
 	 	146	
 	
Unamortized benefit plan costs	 	($2,940	)	 	
 	($4,573	)	 	($ 60	)	 	($217	)	

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The following tables set forth the funded status and amounts recognized in the consolidated statements of financial position for the company’s defined benefit pension and retiree health care and life insurance benefit plans. Pension benefits data includes the qualified plans, foreign plans, as well as 11 domestic unfunded non-qualified plans for benefits provided to directors, officers and certain employees. The company uses a December 31 measurement date for all of its plans.

 	 	Pension Benefits	 	Medical and
Life Benefits	
$ in millions	 	2013	 	2012	 	2013	 	2012	
Change in projected benefit obligation	 	 	 	 	 	 	 	 	
Projected benefit obligation at beginning of year	 	$27,746	
 	 	$24,129	
 	 	$2,448	
 	 	$2,235	
 	
Service cost	 	516	
 	 	522	
 	 	36	
 	 	34	
 	
Interest cost	 	1,117	
 	 	1,184	
 	 	96	
 	 	109	
 	
Participant contributions	 	12	
 	 	12	
 	 	77	
 	 	81	
 	
Plan amendments	 	—	
 	 	(1	)	 	—	
 	 	—	
 	
Actuarial (gain) loss	 	(2,063	)	 	3,114	
 	 	(219	)	 	202	
 	
Benefits paid	 	(1,365	)	 	(1,220	)	 	(227	)	 	(227	)	
Other	 	9	
 	 	6	
 	 	13	
 	 	14	
 	
Projected benefit obligation at end of year	 	$25,972	
 	 	$27,746	
 	 	$2,224	
 	 	$2,448	

 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Pension Benefits	 	Medical and
Life Benefits	
$ in millions	 	2013	 	2012	 	2013	 	2012	
Change in plan assets	 	 	 	 	 	 	 	 	
Fair value of plan assets at beginning of year	 	$22,962	
 	 	$21,340	
 	 	$1,062	
 	 	
 	$ 946	
 	
Gain on plan assets	 	1,907	
 	 	2,463	
 	 	137	
 	 	119	
 	
Employer contributions	 	579	
 	 	366	
 	 	114	
 	 	129	
 	
Participant contributions	 	12	
 	 	12	
 	 	77	
 	 	81	
 	
Benefits paid	 	(1,365	)	 	(1,220	)	 	(227	)	 	(227	)	
Other	 	3	
 	 	1	
 	 	12	
 	 	14	
 	
Fair value of plan assets at end of year	 	24,098	
 	 	22,962	
 	 	1,175	
 	 	1,062	
 	
Funded status	 	($ 1,874	)	 	
 	($4,784	)	 	($1,049	)	 	($1,386	)	
Amounts recognized in the Consolidated Statements of Financial Position	 	 	 	 	 	 	 	 	
Non-current assets	 	
 	$ 117	
 	 	
 	$ 7	
 	 	
 	$ 72	
 	 	
 	$ 49	
 	
Current liability	 	(122	)	 	(111	)	 	(36	)	 	(30	)	
Non-current liability	 	(1,869	)	 	(4,680	)	 	(1,085	)	 	(1,405	)	
The following table shows those amounts expected to be recognized in net periodic benefit cost in 2014:

$ in millions	Pension Benefits	 	Medical and
Life Benefits	
Amounts expected to be recognized in 2014 net periodic benefit cost	 	 	 	 	 	
Net actuarial loss	 	$327	
 	 	 	$ 9	
 	
Prior service credit	 	(59	)	 	 	(30	)	
The accumulated benefit obligation for all defined benefit pension plans was $25.7 billion and $27.2 billion at December 31, 2013 and 2012, respectively.

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Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows: 

 	 	December 31	
$ in millions	 	2013	 	2012	
Projected benefit obligation	 	
 	$24,129	
 	 	
 	$27,645	
 	
Accumulated benefit obligation	 	23,830	
 	 	27,146	
 	
Fair value of plan assets	 	22,138	
 	 	22,853	
 	
Plan Assumptions
On a weighted-average basis, the following assumptions were used to determine the benefit obligations and the net periodic benefit cost:

 	 	Pension Benefits  	 	Medical and
Life Benefits	
  	 	2013	 	2012	 	2013	 	2012	
Assumptions used to determine benefit obligation at December 31	 	 	 	 	 	 	 	 	
Discount rate	 	4.99	%	 	4.12	%	 	4.90	%	 	4.02	%	
Initial cash balance crediting rate assumed for the next year	 	3.90	%	 	3.00	%	 	 	 	 	
Rate to which the cash balance crediting rate is assumed to increase (the ultimate rate)	 	4.70	%	 	4.25	%	 	 	 	 	
Year that the cash balance crediting rate reaches the ultimate rate	 	2019	
 	 	2018	
 	 	 	 	 	
Rate of compensation increase	 	3.00	%	 	2.75	%	 	 	 	 	
Initial health care cost trend rate assumed for the next year	 	 	 	 	 	6.50	%	 	7.00	%	
Rate to which the health care cost trend rate is assumed to decline (the ultimate trend rate)	 	 	 	 	 	5.00	%	 	5.00	%	
Year that the health care cost trend rate reaches the ultimate trend rate	 	 	 	 	 	2017	
 	 	2017	
 	
Assumptions used to determine benefit cost for the year ended December 31	 	 	 	 	 	 	 	 	
Discount rate	 	4.12	%	 	5.03	%	 	4.02	%	 	5.02	%	
Initial cash balance crediting rate assumed for the next year	 	3.00	%	 	3.25	%	 	 	 	 	
Rate to which the cash balance crediting rate is assumed to increase (the ultimate rate)	 	4.25	%	 	4.50	%	 	 	 	 	
Year that the cash balance crediting rate reaches the ultimate rate	 	2018	
 	 	2017	
 	 	 	 	 	
Expected long-term return on plan assets	 	8.00	%	 	8.25	%	 	7.33	%	 	7.44	%	
Rate of compensation increase	 	2.75	%	 	2.75	%	 	 	 	 	
Initial health care cost trend rate assumed for the next year	 	 	 	 	 	7.00	%	 	7.50	%	
Rate to which the health care cost trend rate is assumed to decline (the ultimate trend rate)	 	 	 	 	 	5.00	%	 	5.00	%	
Year that the health care cost trend rate reaches the ultimate trend rate	 	 	 	 	 	2017	
 	 	2017	
 	
The discount rate is generally based on the yield of high-quality corporate fixed-income investments. At the end of each year, the discount rate is primarily determined using a portfolio of high-quality bonds matching the notional cash inflows with the expected benefit payments for each significant benefit plan.
Through consultation with investment advisors, expected long-term returns for each of the plans’ strategic asset classes were developed. Several factors were considered, including current market data such as yields/price-earnings ratios, historical market returns over long periods and periodic surveys of investment managers’ expectations. Using policy target allocation percentages and the asset class expected returns, a weighted-average expected return was calculated.
The assumptions used for pension benefits are consistent with those used for retiree medical and life insurance benefits. The long-term rate of return on plan assets used for medical and life benefits is reduced to allow for the impact of tax on expected returns as the earnings of certain Voluntary Employee Beneficiary Association (VEBA) trusts are taxable, unlike the pension trust.

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A one-percentage-point change in the initial through the ultimate health care cost trend rates would have had the following estimated effect on 2013 other post-retirement benefit results:

$ in millions	1-Percentage-
Point Decrease	 	1-Percentage-
Point Increase	
Increase (decrease) from change in health care cost trend rates to	 	 	 	 	 	
Total service and interest cost	 	 $	(5	)	 	 	 $	4	
 	
Other post-retirement benefit liability	 	(81	)	 	 	67	
 	
Plan Assets and Investment Policy
Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. The investment goal is to exceed the assumed rate of return over the long term within reasonable and prudent levels of risk. Liability studies are conducted on a regular basis to provide guidance in setting investment goals with an objective to balance risk. Risk targets are established and monitored against acceptable ranges.
Our investment policies and procedures are designed to ensure the plans’ investments are in compliance with ERISA (Employee Retirement Income Security Act). Guidelines are established defining permitted investments within each asset class. Derivatives are used for transitioning assets, asset class rebalancing, managing currency risk and for management of fixed income and alternative investments.
For the majority of the plans’ assets, the investment policies require that the asset allocation be maintained within the following ranges as of December 31, 2013:

  	 	Asset Allocation Ranges	
Domestic equities	 	10% - 30%	
International equities	 	5% - 25%	
Fixed income securities	 	30% - 50%	
Alternative investments	 	15% - 30%	

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The table below provides the fair values of the company’s pension and VEBA trust plan assets at December 31, 2013, and 2012, by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category (see Note 1 for definition of levels). The significant amount of Level 2 investments in the table results from including in this category investments in pooled funds that contain investments with values based on quoted market prices, but for which the funds are not valued on a quoted market basis, and fixed income securities valued using model-based pricing services.

 	 	Level 1	 	Level 2	 	Level 3	 	Total	
$ in millions	 	2013	 	2012	 	2013	 	2012	 	2013	 	2012	 	2013	 	2012	
Asset category	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents (1)	 	
 	$ 32	
 	 	
 	$ 92	
 	 	
 	$ 1,467	
 	 	
 	$ 1,748	
 	 	 	 	 	 	
 	$ 1,499	
 	 	
 	$ 1,840	
 	
Domestic equities	 	4,163	
 	 	3,657	
 	 	287	
 	 	318	
 	 	2	
 	 	
 	$ 2	
 	 	4,452	
 	 	3,977	
 	
International equities	 	2,473	
 	 	1,700	
 	 	1,741	
 	 	2,319	
 	 	 	 	 	 	4,214	
 	 	4,019	
 	
Fixed income securities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasuries	 	 	 	 	 	1,602	
 	 	1,780	
 	 	 	 	 	 	1,602	
 	 	1,780	
 	
U.S. Government Agency	 	 	 	 	 	974	
 	 	968	
 	 	 	 	 	 	974	
 	 	968	
 	
Non-U.S. Government	 	 	 	 	 	422	
 	 	401	
 	 	 	 	 	 	422	
 	 	401	
 	
Corporate debt	 	 	 	 	 	4,744	
 	 	4,123	
 	 	 	 	 	 	4,744	
 	 	4,123	
 	
Asset backed	 	 	 	 	 	545	
 	 	528	
 	 	4	
 	 	4	
 	 	549	
 	 	532	
 	
High yield debt	 	 	 	 	 	922	
 	 	1,139	
 	 	1	
 	 	28	
 	 	923	
 	 	1,167	
 	
Bank loans	 	 	 	 	 	185	
 	 	223	
 	 	 	 	 	 	185	
 	 	223	
 	
Alternative Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hedge funds	 	 	 	 	 	 	 	 	 	821	
 	 	758	
 	 	821	
 	 	758	
 	
Private equities	 	 	 	 	 	 	 	 	 	2,075	
 	 	1,980	
 	 	2,075	
 	 	1,980	
 	
Real estate	 	 	 	 	 	 	 	 	 	2,767	
 	 	2,256	
 	 	2,767	
 	 	2,256	
 	
Other	 	26	
 	 	(5	)	 	20	
 	 	5	
 	 	  	 	  	 	46	
 	 	—	
 	
Fair value of plan assets at the end of the year	 	
 	$6,694	
 	 	
 	$5,444	
 	 	
 	$12,909	
 	 	
 	$13,552	
 	 	
 	$5,670	
 	 	
 	$5,028	
 	 	
 	$25,273	
 	 	
 	$24,024	

(1)	Cash and cash equivalents are predominantly held in money market funds.	
The changes in the fair value of the pension and VEBA plan trust assets measured using Level 3 significant unobservable inputs during 2013 and 2012, are as follows:

$ in millions	 	Hedge funds and High-yield debt	 	Private equities	 	Real Estate	 	Other	 	Total	
Balance as of December 31, 2011	 	
 	$1,446	
 	 	
 	$2,098	
 	 	
 	$1,788	
 	 	
 	$6	
 	 	
 	$5,338	
 	
Actual return on plan assets:	 	 	 	 	 	 	 	 	 	 	
Unrealized gains (losses), net	 	23	
 	 	(122	)	 	68	
 	 	5	
 	 	(26	)	
Realized gains (losses), net	 	47	
 	 	—	
 	 	—	
 	 	(5	)	 	42	
 	
Purchases	 	—	
 	 	259	
 	 	846	
 	 	—	
 	 	1,105	
 	
Sales	 	(730	)	 	(255	)	 	(446	)	 	—	
 	 	(1,431	)	
Balance as of December 31, 2012	 	
 	$ 786	
 	 	
 	$1,980	
 	 	
 	$2,256	
 	 	
 	$6	
 	 	
 	$5,028	
 	
Actual return on plan assets:	 	 	 	 	 	 	 	 	 	 	
Unrealized gains (losses), net	 	(16	)	 	112	
 	 	262	
 	 	—	
 	 	358	
 	
Realized gains (losses), net	 	43	
 	 	—	
 	 	—	
 	 	—	
 	 	43	
 	
Purchases	 	200	
 	 	666	
 	 	763	
 	 	—	
 	 	1,629	
 	
Sales	 	(191	)	 	(683	)	 	(514	)	 	—	
 	 	(1,388	)	
Balance as of December 31, 2013	 	
 	$ 822	
 	 	
 	$2,075	
 	 	
 	$2,767	
 	 	
 	$6	
 	 	
 	$5,670	
 	
Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers. Domestic and international equities consist primarily of common stocks and institutional common trust

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funds. Investments in common and preferred shares are valued at the last reported sales price of the stock on the last business day of the reporting period. Units in common trust funds and hedge funds are valued based on the redemption price of units owned by the trusts at year-end. Fair value for real estate and private equity partnerships is primarily based on valuation methodologies that include third party appraisals, comparable transactions, discounted cash flow valuation models and public market data.
Non-government fixed income securities are invested across various industry sectors and credit quality ratings. Generally, investment guidelines are written to limit securities, for example, to no more than 5 percent of each trust account, and to exclude the purchase of securities issued by the company. The number of real estate and private equity partnerships is 163 and the unfunded commitments are $899 million and $810 million as of December 31, 2013 and 2012, respectively. For alternative investments that cannot be redeemed, such as limited partnerships, the typical investment term is ten years. For alternative investments that permit redemptions, such redemptions are generally made quarterly and require a 90-day notice. The company is generally unable to determine the final redemption date and amount until the request is processed by the investment fund and therefore categorizes such alternative investments as Level 3 assets.
For the years ended December 31, 2013 and 2012, the defined benefit pension and VEBA trusts did not hold any Northrop Grumman common stock.
Benefit Payments
The following table reflects estimated future benefit payments for the next ten years, based upon the same assumptions used to measure the benefit obligation, and includes expected future employee service, as of December 31, 2013:

$ in millions	 	Pension Plans	 	Medical and
Life Plans	
Year Ending December 31	 	 	 	 	
2014	 	
 	$1,341	
 	 	
 	$148	
 	
2015	 	1,394	
 	 	154	
 	
2016	 	1,446	
 	 	160	
 	
2017	 	1,500	
 	 	165	
 	
2018	 	1,557	
 	 	169	
 	
2019 through 2023	 	8,556	
 	 	860	
 	
In 2014, the company expects to contribute the required minimum funding level of approximately $74 million to its pension plans and approximately $90 million to its other post-retirement benefit plans, with no expected additional voluntary pension contributions. During the years ended December 31, 2013 and 2012, the company made voluntary pension contributions of $500 million and $300 million, respectively.
14. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS
Stock Compensation Plans
At December 31, 2013, Northrop Grumman had stock-based compensation awards outstanding under the following plans: the 2001 Long-Term Incentive Stock Plan (2001 Plan) and the 2011 Long-Term Incentive Stock Plan (2011 Plan), both applicable to employees, and the 1993 Stock Plan for Non-Employee Directors (1993 SPND) and the 1995 Stock Plan for Non-Employee Directors (1995 SPND) as amended. All of these plans were approved by the company’s shareholders. The company has historically issued new shares to satisfy award grants.
Employee Plans – In May 2011, the shareholders of the company approved the company’s new 2011 Plan, which replaced the expired 2001 Plan. The 2011 Plan permit grants to key employees of three general types of stock incentive awards: stock options, stock appreciation rights (SARs), and stock awards. Each stock option grant is made with an exercise price either at the closing price of the stock on the date of grant (market options) or at a premium over the closing price of the stock on the date of grant (premium options). Outstanding stock options granted prior to 2008 generally vest in 25 percent increments over four years from the grant date, and grants outstanding expire ten years after the grant date. Stock options granted after January 1, 2008, vest in 33 percent increments over three years from the grant date, and grants outstanding expire seven years after the grant date. No SARs have been granted under either plan. Stock awards in the form of restricted performance stock rights and restricted stock rights are granted to key employees without payment to the company. The 2011 Plan also provides equity-based award grants to non-employee directors.

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Under the 2011 Plan, the company is authorized to issue or transfer shares of common stock pursuant to the types of awards mentioned above. The 2011 Plan authorized 39.1 million new shares plus 6.9 million shares from the 2001 LTISP that were previously authorized and available to be issued at the date the 2001 Plan expired. Under the terms of the 2011 Plan, in the event that outstanding awards under the 2001 Plan expire or terminate without being exercised or paid, as the case may be, such shares (the Forfeited Shares) will become available for award under the 2011 Plan.
Recipients of restricted performance stock rights earn shares of stock, based on financial metrics determined by the board of directors in accordance with the plan. Depending on whether performance objectives are met, recipients could forfeit up to 100 percent of the original grant or could earn up to 200 percent of the original grant. Restricted performance stock rights and restricted stock rights issued under either plan generally vest after three or four years. Termination of employment can result in forfeiture of some or all of the benefits extended. Shares issued under the 2011 Plan, other than for stock options, stock appreciation rights and the Forfeited Shares, will be counted against the 2011 Plan’s aggregate share limit as 4.5 shares for every one share actually issued in connection with the award; any shares issued for stock options, stock appreciation rights and the Forfeited Shares will be counted against the remaining shares on a one-for-one basis.
As of December 31, 2013, 28 million shares are available for grant under the 2011 Plan.
Non-Employee Director Plans – Under the 2011 Plan, each non-employee director must defer a portion of their compensation into a stock unit account (Automatic Stock Units). The Automatic Stock Units accrued under the 2011 Plan and the 1993 SPND are paid out in the form of common stock at the conclusion of the director's board service, or earlier, as specified by the director, if he or she has five or more years of service. In addition, each director may elect to defer payment of all or a portion of his or her remaining cash retainer or committee retainer fees into a stock unit account (Elective Stock Units). The Elective Stock Units are paid at the conclusion of board service or earlier as specified by the director, regardless of years of service. Directors are credited with dividend equivalents in connection with the accumulated stock units until shares of common stock related to such stock units are issued.  Since all directors are eligible to receive awards under the 2011 LTISP, shares from this plan are available for future director awards following the same share counting limits as described for the employee plans. Awards under the 2011 Plan are made pursuant to the Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors under the 2011 Plan, which sets forth the terms and conditions for the awards of stock units as described above.
The 1995 SPND provided for an annual grant of nonqualified stock options to each non-employee director. Since June 2005, no new grants have been issued under that 1995 SPND. Each grant of stock options under the 1995 SPND was made at the closing market price on the date of the grant and expires ten years from the date of grant. As of December 31, 2013, three non-employee directors held unexercised stock options.
Compensation Expense
Stock-based compensation expense and the related tax benefits for the years ended December 31, 2013, 2012 and 2011, were as follows:

 	Year Ended December 31	
$ in millions	2013	 	2012	 	2011	
Stock-based compensation expense:	 	 	 	 	 	
Stock options	
 	$ 4	
 	 	
 	$ 10	
 	 	
 	$ 14	
 	
Stock awards	140	
 	 	173	
 	 	125	
 	
Total stock-based compensation expense	144	
 	 	183	
 	 	139	
 	
Tax benefits from the exercise of stock options	25	
 	 	26	
 	 	18	
 	
Tax benefits from the issuance of stock awards	16	
 	 	19	
 	 	37	
 	
Total tax benefits recognized for stock-based compensation	
 	$ 41	
 	 	
 	$ 45	
 	 	
 	$ 55	
 	
At December 31, 2013, there was $102 million of unrecognized compensation expense related to unvested awards granted under the company’s stock-based compensation plans, predominantly related to stock awards. These amounts are expected to be charged to expense over a weighted-average period of 1.3 years.

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NORTHROP GRUMMAN CORPORATION

                        

Stock Options
There were no stock options issued in 2013 or 2012. Stock option activity for the year ended December 31, 2013, was as follows:

 	 	Shares
under Option
(in thousands)	 	Weighted-
Average
Exercise
Price	 	Weighted-
Average
Remaining
Contractual
Term	 	Aggregate
Intrinsic
Value
($ in millions)	
Outstanding at January 1, 2013	 	6,271	
 	 	
 	$58	
 	 	2.9 years	 	
 	$66	
 	
Exercised	 	(4,522	)	 	59	
 	 	 	 	 	
Cancelled and forfeited	 	(29	)	 	60	
 	 	 	 	 	
Outstanding at December 31, 2013	 	1,720	
 	 	56	
 	 	2.6 years	 	101	
 	
Vested and expected to vest in the future at December 31, 2013	 	1,716	
 	 	56	
 	 	2.6 years	 	101	
 	
Exercisable at December 31, 2013	 	1,343	
 	 	
 	$55	
 	 	2.2 years	 	
 	$80	
 	
The total intrinsic value of exercised stock options during the years ended December 31, 2013, 2012 and 2011, was $118 million, $97 million and $46 million, respectively. Intrinsic value is measured using the fair market value at the date of exercise (for options exercised) or at December 31, 2013 (for outstanding options), less the applicable exercise price.
Stock Awards
Compensation expense for stock awards is measured at the grant date based on the fair value of the award and is recognized over the vesting period (generally three years). The fair value of stock awards and performance stock awards is determined based on the closing market price of the company’s common stock on the grant date. The fair value of market-based stock awards is determined at the grant date using a Monte Carlo simulation model. For purposes of measuring compensation expense for performance awards, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria.
Stock award activity for the years ended December 31, 2013, 2012 and 2011, is presented in the table below. Vested awards do not include any adjustments to reflect the final performance measure for issued shares.

 	 	Stock
Awards
(in thousands)	 	Weighted-
Average
Grant Date
Fair Value	 	Weighted-
Average
Remaining
Contractual
Term (in years)	
Outstanding at January 1, 2011	 	4,300	
 	 	
 	$53	
 	 	1.5	
Granted	 	1,748	
 	 	63	
 	 	 	
Vested	 	(1,824	)	 	42	
 	 	 	
Forfeited	 	(350	)	 	50	
 	 	 	
Shipbuilding spin-off adjustment	 	(252	)	 	47	
 	 	 	
Outstanding at December 31, 2011	 	3,622	
 	 	
 	$58	
 	 	1.6	
Granted	 	1,860	
 	 	60	
 	 	 	
Vested	 	(1,800	)	 	55	
 	 	 	
Forfeited	 	(204	)	 	59	
 	 	 	
Outstanding at December 31, 2012	 	3,478	
 	 	
 	$61	
 	 	1.6	
Granted	 	1,577	
 	 	64	
 	 	 	
Vested	 	(1,323	)	 	60	
 	 	 	
Forfeited	 	(312	)	 	62	
 	 	 	
Outstanding at December 31, 2013	 	3,420	
 	 	
 	$61	
 	 	1.5	
The company issued 3.4 million, 2.8 million and 1.4 million shares to employees in settlement of fully vested stock awards, which had total fair values at issuance of $226 million, $172 million and $87 million and grant date fair

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values of $105 million, $75 million and $101 million during the years ended December 31, 2013, 2012 and 2011, respectively. The differences between the fair values at issuance and the grant date fair values reflect the effects of the performance adjustments and changes in the fair market value of the company’s common stock.
In 2013, the company granted certain employees 0.5 million restricted stock rights (RSRs) and 1.1 million restricted performance stocks rights (RPSRs) under the company's long-term incentive stock plan, with a grant date aggregate fair value of $101 million. The majority of stock awards were granted on February 20, 2013. The RSRs will typically vest on the third anniversary of the grant date, while the RPSRs will vest and pay out based on the achievement of financial metrics for the three-year period ending December 31, 2015.
In 2014, the company expects to issue to employees approximately 2.5 million shares of common stock with a grant date fair value of $80 million, principally related to the 2011 RPSR awards that vested as of December 31, 2013. The ultimate amount of shares to be paid out is subject to approval by the Compensation Committee of the Board of Directors and may vary from this estimate.
Cash Awards
In 2013, the company granted certain employees cash units (CUs) and cash performance units (CPUs) with a minimum aggregate payout amount of $32 million and a maximum aggregate payout amount of $173 million. The majority of cash awards were granted on February 20, 2013. The CUs will vest and settle in cash on the third anniversary of the grant date, while the CPUs will vest and settle in cash based on the achievement of financial metrics for the three-year period ending December 31, 2015. At December 31, 2013, there was $108 million of unrecognized compensation expense related to cash awards.
15. UNAUDITED SELECTED QUARTERLY DATA
Unaudited quarterly financial results are set forth in the following tables. It is the company’s long-standing practice to establish actual interim closing dates using a “fiscal” calendar, which requires the businesses to close their books on a Friday, in order to normalize the potentially disruptive effects of quarterly close on business processes. The effects of this practice only exist within a reporting year.

2013	 	 	
In millions, except per share amounts	 	1st Qtr	 	2nd Qtr	 	3rd Qtr	 	4th Qtr	
Sales	 	
 	$6,104	
 	 	
 	$6,294	
 	 	
 	$6,106	
 	 	
 	$6,157	
 	
Operating income	 	759	
 	 	806	
 	 	790	
 	 	768	
 	
Net earnings	 	489	
 	 	488	
 	 	497	
 	 	478	

Basic earnings per share	 	2.07	
 	 	2.09	
 	 	2.18	
 	 	2.17	
 	
Diluted earnings per share	 	2.03	
 	 	2.05	
 	 	2.14	
 	 	2.12	

Weighted-average common shares outstanding	 	236.4	
 	 	234.0	
 	 	228.2	
 	 	220.5	
 	
Weighted-average diluted shares outstanding	 	241.0	
 	 	237.5	
 	 	232.6	
 	 	225.2	
 	
Significant 2013 Fourth Quarter Events – In the fourth quarter of 2013, the company repurchased 6.6 million shares of common stock for $699 million.

2012	 	 	
In millions, except per share amounts	 	1st Qtr	 	2nd Qtr	 	3rd Qtr	 	4th Qtr	
Sales	 	
 	$6,198	
 	 	
 	$6,274	
 	 	
 	$6,270	
 	 	
 	$6,476	
 	
Operating income	 	796	
 	 	774	
 	 	736	
 	 	824	
 	
Net earnings	 	506	
 	 	480	
 	 	459	
 	 	533	

Basic earnings per share	 	2.00	
 	 	1.91	
 	 	1.86	
 	 	2.19	
 	
Diluted earnings per share	 	1.96	
 	 	1.88	
 	 	1.82	
 	 	2.14	

Weighted-average common shares outstanding	 	253.1	
 	 	250.8	
 	 	247.2	
 	 	243.4	
 	
Weighted-average diluted shares outstanding	 	258.0	
 	 	254.7	
 	 	252.1	
 	 	248.9	

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Significant 2012 Fourth Quarter Events – In the fourth quarter of 2012, the company repurchased 7.3 million shares of common stock for $487 million.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer (Chairman, Chief Executive Officer and President) and principal financial officer (Corporate Vice President and Chief Financial Officer) have evaluated the company’s disclosure controls and procedures as of December 31, 2013, and have concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (15 USC § 78a et seq) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the fourth quarter of 2013, no change occurred in the company’s internal control over financial reporting that materially affected, or is likely to materially affect, the company’s internal control over financial reporting.
Item 9B. Other Information
None.

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Northrop Grumman Corporation (the company) prepared and is responsible for the consolidated financial statements and all related financial information contained in this Annual Report. This responsibility includes establishing and maintaining effective internal control over financial reporting. The company’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
To comply with the requirements of Section 404 of the Sarbanes–Oxley Act of 2002, the company designed and implemented a structured and comprehensive assessment process to evaluate its internal control over financial reporting across the enterprise. The assessment of the effectiveness of the company’s internal control over financial reporting was based on criteria established in  Internal Control—Integrated Framework (1992)  issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Management regularly monitors its internal control over financial reporting, and actions are taken to correct any deficiencies as they are identified. Based on its assessment, management has concluded that the company’s internal control over financial reporting is effective as of December 31, 2013.
Deloitte & Touche LLP issued an attestation report dated February 3, 2014, concerning the company’s internal control over financial reporting, which is contained in this Annual Report. The company’s consolidated financial statements as of and for the year ended December 31, 2013, have been audited by the independent registered public accounting firm of Deloitte & Touche LLP in accordance with the standards of the Public Company Accounting Oversight Board (United States).

/s/ Wesley G. Bush
Chairman, Chief Executive Officer and President

/s/ James F. Palmer
Corporate Vice President and Chief Financial Officer
February 3, 2014 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Northrop Grumman Corporation
Falls Church, Virginia
We have audited the internal control over financial reporting of Northrop Grumman Corporation and subsidiaries (the “Company”) as of December 31, 2013, based on criteria established in  Internal Control — Integrated Framework (1992)  issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in  Internal Control – Integrated Framework (1992)  issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2013 of the Company and our report dated February 3, 2014 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP
McLean, Virginia
February 3, 2014 

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PART III
Item 10. Directors, Executive Officers, and Corporate Governance
DIRECTORS
Information about our Directors will be incorporated herein by reference to the Proxy Statement for the 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year.
EXECUTIVE OFFICERS
Our executive officers as of February 3, 2014, are listed below, along with their ages on that date, positions and offices with the company, and principal occupations and employment during the past five years.

Name	 	Age	 	Office Held	 	Since	 	Prior Business Experience (Last Five Years)	
Wesley G. Bush	 	52	
 	 	Chairman, Chief Executive Officer and President	 	2010	 	President and Chief Operating Officer (2007-2009); Prior to March 2007, President and Chief Financial Officer (2006-2007); Corporate Vice President and Chief Financial Officer (2005-2006)	
M. Sidney Ashworth	 	62	
 	 	Corporate Vice President, Government Relations	 	2010	 	Vice President of Washington Operations, GE Aviation (2010); Prior to March 2010, Principal, the Ashworth Group (2009-2010); Professional Staff Member , U.S. Senate Committee on Appropriations (1995-2009)	
Michael A. Hardesty	 	42	
 	 	Corporate Vice President, Controller, and Chief Accounting Officer	 	2013	 	Vice President and Chief Financial Officer, Information Systems sector (2011-2013); Vice President, Internal Audit (2010-2011); Vice President and Chief Financial Officer, Enterprise Shared Services (2008-2010)	
Mark A. Caylor	 	49	
 	 	Corporate Vice President and President, Enterprise Shared Services	 	2013	 	Corporate Vice President and Treasurer (2011-2012); Assistant Treasurer (2008-2011); Director, Mergers & Acquisitions (2006-2008)	
Sheila C. Cheston	 	55	
 	 	Corporate Vice President and General Counsel	 	2010	 	Executive Vice President and Director, BAE Systems, Inc. (2009 -2010); Prior to September 2009, Senior Vice President, General Counsel, Secretary and Director, BAE Systems, Inc. (2002-2009)	
Gloria A. Flach	 	55	
 	 	Corporate Vice President and President, Electronic Systems Sector	 	2013	 	Corporate Vice President and President, Enterprise Shared Services (2010-2012); Sector Vice President and General Manager, Targeting Systems Division, Electronic Systems (ES) Sector (2010); Prior to 2010, Sector Vice President and General Manager of Engineering, Manufacturing and Logistics, ES Sector (2009).	
Darryl M. Fraser	 	55	
 	 	Corporate Vice President, Communications	 	2008	 	Sector Vice President of Business Development and Strategic Initiatives, Mission Systems Sector (2007-March 2008)	

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NORTHROP GRUMMAN CORPORATION

                        

 	 	 	 	 	 	 	 	 	 	
Name	 	Age	 	Office Held	 	Since	 	Prior Business Experience (Last Five Years)	
Christopher T. Jones	 	49	
 	 	Corporate Vice President and President, Technical Services	 	2013	 	Vice President and General Manager, Integrated Logistics and Modernization Division, Technical Services Sector (2010-2012); Director of Product Support (2004-2010)	
Linda A. Mills	 	64	
 	 	Corporate Vice President, Operations	 	2013	 	Corporate Vice President and President, Information Systems Sector (2009-2012)	
James F. Palmer	 	64	
 	 	Corporate Vice President and Chief Financial Officer	 	2007	 	Executive Vice President and Chief Financial Officer, Visteon Corporation (2004-2007)	
Denise M. Peppard	 	57	
 	 	Corporate Vice President and Chief Human Resources Officer	 	2011	 	Vice President and Chief Human Resources, Computer Sciences Corporation (2010-2011); Senior Vice President of Human Resources, Wyeth Pharmaceuticals, Inc. (2001-2010)	
David T. Perry	 	49	
 	 	Corporate Vice President and Chief Global Business Development Officer	 	2012	 	Vice President and General Manager of Naval and Marine Systems Division, Electronic Systems Sector (2009-2012); Vice President of Marine Systems, Electronic Systems Sector (2005-2009)	
Thomas E. Vice	 	51	
 	 	Corporate Vice President and President, Aerospace Systems Sector	 	2013	 	Corporate Vice President and President, Technical Services (2010-2012); Sector Vice President and General Manager, Battle Management and Engagement Systems Division, Aerospace Systems Sector (2008-2010)	
Kathy J. Warden	 	42	
 	 	Corporate Vice President and President, Information Systems Sector	 	2013	 	Vice President and General Manager, Cyber Intelligence Division (2011-2012); Vice President, Cyber and SIGINT business unit (2008-2011); Vice President, Intelligence Systems, General Dynamics Corporation (2007-2008)	
AUDIT COMMITTEE FINANCIAL EXPERT
The information as to the Audit Committee and the Audit Committee Financial Expert will be incorporated herein by reference to the Proxy Statement for the 2014 Annual Meeting of Stockholders to be filed within 120 days after the end of the company’s fiscal year.
CODE OF ETHICS
We have adopted Standards of Business Conduct for all of our employees, including the principal executive officer, principal financial officer and principal accounting officer. The Standards of Business Conduct can be found on our internet Web site at www.northropgrumman.com under “Investor Relations – Corporate Governance – Overview.” A copy of the Standards of Business Conduct is available to any stockholder who requests it by writing to: Northrop Grumman Corporation, c/o Office of the Secretary, 2980 Fairview Park Drive, Falls Church, VA 22042.
The Web site and information contained on it or incorporated in it are not intended to be incorporated in this report on Form 10-K or other filings with the Securities and Exchange Commission.
OTHER DISCLOSURES
Other disclosures required by this Item will be incorporated herein by reference to the Proxy Statement for the 2014 Annual Meeting of Stockholders to be filed within 120 days after the end of the company’s fiscal year.
Item 11. Executive Compensation
Information concerning Executive Compensation, including information concerning Compensation Committee Interlocks and Insider Participation and Compensation Committee Report, will be incorporated herein by reference to the Proxy Statement for the 2014 Annual Meeting of Stockholders to be filed within 120 days after the end of the company’s fiscal year.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information as to Securities Authorized for Issuance Under Equity Compensation Plans and Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters will be incorporated herein by reference to the Proxy Statement for the 2014 Annual Meeting of Stockholders to be filed within 120 days after the end of the company’s fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information as to Certain Relationships and Related Transactions and Director Independence will be incorporated herein by reference to the Proxy Statement for the 2014 Annual Meeting of Stockholders to be filed within 120 days after the end of the company’s fiscal year.
Item 14. Principal Accountant Fees and Services
The information as to Principal Accountant Fees and Services will be incorporated herein by reference to the Proxy Statement for the 2014 Annual Meeting of Shareholders to be filed within 120 days after the end of the company’s fiscal year.

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PART IV
Item 15. Exhibits and Financial Statement Schedules
 	 	
(a)	1. Report of Independent Registered Public Accounting Firm	
Financial Statements
Consolidated Statements of Earnings and Comprehensive Income
Consolidated Statements of Financial Position
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All schedules have been omitted because they are not applicable, not required, or the information has been otherwise supplied in the financial statements or notes to the financial statements.
3. Exhibits

 	2(a)	Agreement and Plan of Merger among Titan II, Inc. (formerly Northrop Grumman Corporation), Northrop Grumman Corporation (formerly New P, Inc.) and Titan Merger Sub Inc., dated March 29, 2011 (incorporated by reference to Exhibit 10.1 to Form 8-K filed April 4, 2011)	

 	 	 	
 	2(b)	Separation and Distribution Agreement dated as of March 29, 2011, among Titan II, Inc. (formerly Northrop Grumman Corporation), Northrop Grumman Corporation (formerly New P, Inc.), Huntington Ingalls Industries, Inc., Northrop Grumman Shipbuilding, Inc. and Northrop Grumman Systems Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K filed April 4, 2011)	

 	 	 	
 	3(a)	Amended and Restated Certificate of Incorporation of Northrop Grumman Corporation dated May 29, 2012 (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended June 30, 2012, filed July 24, 2012)	

 	 	 	
 	3(b)	Amended and Restated Bylaws of Northrop Grumman Corporation dated December 17, 2013 (incorporated by reference to Exhibit 3.1 to Form 8-K filed December 23, 2013)	

 	 	 	
 	4(a)	Registration Rights Agreement dated as of January 23, 2001, by and among Northrop Grumman Corporation (now Northrop Grumman Systems Corporation), NNG, Inc. (now Northrop Grumman Corporation) and Unitrin, Inc. (incorporated by reference to Exhibit(d)(6) to Amendment No. 4 to Schedule TO filed January 31, 2001)	

 	 	 	
 	4(b)	Indenture dated as of October 15, 1994, between Northrop Grumman Corporation (now Northrop Grumman Systems Corporation) and The Chase Manhattan Bank (National Association), Trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed October 25, 1994)	

 	 	 	
 	4(c)	First Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation, The Bank of New York Mellon (successor trustee to JPMorgan Chase Bank and The Chase Manhattan Bank, N.A.), Titan II, Inc. (formerly known as Northrop Grumman Corporation), and Titan Holdings II, L.P., to Indenture dated as of October 15, 1994, between Northrop Grumman Corporation (now Northrop Grumman Systems Corporation) and The Chase Manhattan Bank, N.A., Trustee (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(d)	Second Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation, The Bank of New York Mellon (successor trustee to JPMorgan Chase Bank and The Chase Manhattan Bank, N.A.), Titan Holdings II, L.P., and Northrop Grumman Corporation (formerly known as New P, Inc.), to Indenture dated as of October 15, 1994, between Northrop Grumman Corporation (now Northrop Grumman Systems Corporation) and The Chase Manhattan Bank, N.A., Trustee (incorporated by reference to Exhibit 4.2 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

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 	4(e)	Form of Officers’ Certificate (without exhibits) establishing the terms of Northrop Grumman Corporation’s (now Northrop Grumman Systems Corporation’s) 7.75 percent Debentures due 2016 and 7.875 percent Debentures due 2026 (incorporated by reference to Exhibit 4-3 to Form S-4 Registration Statement No. 333-02653 filed April 19, 1996)	

 	 	 	
 	4(f)	Form of Northrop Grumman Corporation’s (now Northrop Grumman Systems Corporation’s) 7.75 percent Debentures due 2016 (incorporated by reference to Exhibit 4-5 to Form S-4 Registration Statement No. 333-02653 filed April 19, 1996)	

 	 	 	
 	4(g)	Form of Northrop Grumman Corporation’s (now Northrop Grumman Systems Corporation’s) 7.875 percent Debentures due 2026 (incorporated by reference to Exhibit 4-6 to Form S-4 Registration Statement No. 333-02653 filed April 19, 1996)	

 	 	 	
 	4(h)	Form of Officers’ Certificate establishing the terms of Northrop Grumman Corporation’s (now Northrop Grumman Systems Corporation’s) 7.75 percent Debentures due 2031 (incorporated by reference to Exhibit 10.9 to Form 8-K filed April 17, 2001)	

 	 	 	
 	4(i)	Indenture dated as of April 13, 1998, between Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation) and The Bank of New York, as trustee, under which its 6.75 percent Senior Debentures due 2018 were issued (incorporated by reference to Exhibit 4.1 to the Form 10-Q of Litton Industries, Inc. for the quarter ended April 30, 1998, filed June 15, 1998)	

 	 	 	
 	4(j)	Supplemental Indenture with respect to Indenture dated April 13, 1998, dated as of April 3, 2001, among Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.5 to Form 10-Q for the quarter ended March 31, 2001, filed May 10, 2001)	

 	 	 	
 	4(k)	Supplemental Indenture with respect to Indenture dated April 13, 1998, dated as of December 20, 2002, among Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4(q) to Form 10-K for the year ended December 31, 2002, filed March 24, 2003)	

 	 	 	
 	4(l)	Third Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York Mellon (formerly known as The Bank of New York) as trustee, Titan II, Inc. (formerly known as Northrop Grumman Corporation), and Titan Holdings II, L.P., to Indenture dated April 13, 1998, between Litton Industries, Inc. and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.3 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(m)	Fourth Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York Mellon (formerly known as The Bank of New York) as trustee, Titan Holdings II, L.P., and Northrop Grumman Corporation (formerly known as New P., Inc.), to Indenture dated April 13, 1998, between Litton Industries, Inc. and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.4 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(n)	Senior Indenture dated as of December 15, 1991, between Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation) and The Bank of New York, as trustee, under which its 7.75 percent and 6.98 percent debentures due 2026 and 2036 were issued, and specimens of such debentures (incorporated by reference to Exhibit 4.1 to the Form 10-Q of Litton Industries, Inc. for the quarter ended April 30, 1996, filed June 11, 1996)	

 	 	 	
 	4(o)	Supplemental Indenture with respect to Indenture dated December 15, 1991, dated as of April 3, 2001, among Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.7 to Form 10-Q for the quarter ended March 31, 2001, filed May 10, 2001)	

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 	4(p)	Supplemental Indenture with respect to Indenture dated December 15, 1991, dated as of December 20, 2002, among Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4(t) to Form 10-K for the year ended December 31, 2002, filed March 24, 2003)	

 	 	 	
 	4(q)	Third Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York Mellon (formerly known as The Bank of New York), as trustee, Titan II, Inc. (formerly known as Northrop Grumman Corporation), and Titan Holdings II, L.P., to Senior Indenture dated December 15, 1991, among Litton Industries, Inc., Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.5 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(r)	Fourth Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York Mellon (formerly known as The Bank of New York) as trustee, Titan Holdings II, L.P., and Northrop Grumman Corporation (formerly known as New P, Inc.), to Senior Indenture dated December 15, 1991, among Litton Industries, Inc., Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.6 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(s)	Indenture between TRW Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation) and Mellon Bank, N.A., as trustee, dated as of May 1, 1986 (incorporated by reference to Exhibit 2 to the Form 8-A Registration Statement of TRW Inc. dated July 3, 1986)	

 	 	 	
 	4(t)	First Supplemental Indenture between TRW Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation) and Mellon Bank, N.A., as trustee, dated as of August 24, 1989 (incorporated by reference to Exhibit 4(b) to Form S-3 Registration Statement No. 33-30350 of TRW Inc.)	

 	 	 	
 	4(u)	Fifth Supplemental Indenture between TRW Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation) and The Chase Manhattan Bank, as successor trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(f) to Form S-4 Registration Statement No. 333-83227 of TRW Inc. filed July 20, 1999)	

 	 	 	
 	4(v)	Ninth Supplemental Indenture dated as of December 31, 2009 among Northrop Grumman Space & Mission Systems Corp. (predecessor–in-interest to Northrop Grumman Systems Corporation); The Bank of New York Mellon, as successor trustee; Northrop Grumman Corporation; and Northrop Grumman Systems Corporation (incorporated by reference to Exhibit 4(p) to Form 10-K for the year ended December 31, 2009, filed February 9, 2010)	

 	 	 	
 	4(w)	Tenth Supplemental Indenture dated as of March 30, 2011, by and among Northrop Grumman Systems Corporation (successor-in-interest to Northrop Grumman Space & Mission Systems Corp. and TRW, Inc.), The Bank of New York Mellon, as successor trustee to JPMorgan Chase Bank and to Mellon Bank, N.A., Titan II Inc. (formerly known as Northrop Grumman Corporation), and Titan Holdings II, L.P., to Indenture between TRW Inc. and Mellon Bank, N.A., as trustee, dated as of May 1, 1986 (incorporated by reference to Exhibit 4.7 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(x)	Eleventh Supplemental Indenture dated as of March 30, 2011, by and among Northrop Grumman Systems Corporation (successor-in-interest to Northrop Grumman Space & Mission Systems Corp. and TRW Inc.), The Bank of New York Mellon, as successor trustee to JPMorgan Chase Bank and to Mellon Bank, N.A., Titan Holdings II, L.P., and Northrop Grumman Corporation (formerly known as New P, Inc.) to Indenture between TRW Inc. and Mellon Bank, N.A., as trustee, dated as of May 1, 1986 (incorporated by reference to Exhibit 4.8 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(y)	Indenture dated as of November 21, 2001, between Northrop Grumman Corporation and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed November 21, 2001)	

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 	4(z)	First Supplemental Indenture dated as of July 30, 2009, between Northrop Grumman Corporation and The Bank of New York Mellon, as successor trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form 8-K filed July 30, 2009)	

 	 	 	
 	4(aa)	Form of Northrop Grumman Corporation’s 5.05 percent Senior Note due 2019 (incorporated by reference to Exhibit 4(c) to Form 8-K filed July 30, 2009)	

 	 	 	
 	4(bb)	Second Supplemental Indenture dated as of November 8, 2010, between Northrop Grumman Corporation and The Bank of New York Mellon, as successor trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form 8-K filed November 8, 2010)	

 	 	 	
 	4(cc)	Form of Northrop Grumman Corporation’s 3.500% Senior Note due 2021 (incorporated by reference to Exhibit 4(a) to Form 8-K filed November 8, 2010)	

 	 	 	
 	4(dd)	Form of Northrop Grumman Corporation’s 5.050% Senior Note due 2040 (incorporated by reference to Exhibit 4(a) to Form 8-K filed November 8, 2010)	

 	 	 	
 	4(ee)	Third Supplemental Indenture dated as of March 30, 2011, by and among Titan II, Inc. (formerly known as Northrop Grumman Corporation), The Bank of New York Mellon, as successor trustee to JPMorgan Chase Bank, and Titan Holdings II, L.P., to Indenture dated as of November 21, 2001 between Northrop Grumman Corporation and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.9 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
 	4(ff)	Fourth Supplemental Indenture dated as of March 30, 2011, by and among Titan Holdings II, L.P., The Bank of New York Mellon, as successor trustee to JPMorgan Chase Bank, and Northrop Grumman Corporation (formerly known as New P., Inc.), to Indenture dated as of November 21, 2001 between Northrop Grumman Corporation and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.10 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011)	

 	 	 	
  	4(gg)	Fifth Supplemental Indenture, dated as of May 31, 2013, between Northrop Grumman Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee, to Indenture dated as of November 21, 2001 (incorporated by reference to Exhibit 4(a) to Form 8-K filed May 31, 2013)	

 	 	 	
 	4(hh)	Form of 1.750% Senior Note due 2018 (incorporated by reference to Exhibit 4(a) to Form 8-K filed May 31, 2013)	

 	 	 	
 	4(ii)	Form of 3.250% Senior Note due 2023 (incorporated by reference to Exhibit 4(a) to Form 8-K filed May 31, 2013)	

 	 	 	
 	4(jj)	Form of 4.750% Senior Note due 2043 (incorporated by reference to Exhibit 4(a) to Form 8-K filed May 31, 2013)	

 	 	 	
 	10(a)	Credit Agreement dated as of August 29, 2013, among Northrop Grumman Corporation, as Borrower; Northrop Grumman Systems Corporation, as Guarantor; the Lenders party thereto; JPMorgan Chase Bank, N.A., as Administrative Agent; an Issuing Bank and a Swingline Lender, and The Royal Bank of Scotland plc, Citibank, N.A., and Wells Fargo Bank, National Association, as Issuing Banks and Syndication Agents (incorporated by reference to Exhibit 10.1 to Form 8-K filed August 30, 2013)	

 	 	 	
 	10(b)	Second Amended and Restated Credit Agreement dated as of September 8, 2011, among Northrop Grumman Corporation, as Borrower; Northrop Grumman Systems Corporation, as Guarantor; the Lenders party thereto; JPMorgan Chase Bank, N.A., as Administrative Agent, an Issuing Bank and a Swingline Lender; and Citibank, N.A., The Royal Bank of Scotland plc and Wells Fargo Bank, National Association, as Syndication Agents (incorporated by reference to Exhibit 10.1 to Form 8-K filed September 13, 2011)	

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 	10(c)	364-Day Credit Agreement dated as of September 4, 2012, among Northrop Grumman Corporation, as Borrower; Northrop Grumman Systems Corporation, as Guarantor; the Lenders party thereto; JPMorgan Chase Bank, N.A., as Administrative Agent; and Citibank, N.A., The Royal Bank of Scotland plc and Wells Fargo Bank, National Association, as Syndication Agents (incorporated by reference to Exhibit 10.1 to Form 8-K filed September 7, 2012)	

 	 	 	
 	10(d)	Form of Guarantee dated as of April 3, 2001, by Northrop Grumman Corporation of the indenture indebtedness issued by Litton Industries, Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation) (incorporated by reference to Exhibit 10.10 to Form 8-K filed April 17, 2001)	

 	 	 	
 	10(e)	Form of Guarantee dated as of April 3, 2001, by Northrop Grumman Corporation of Northrop Grumman Systems Corporation indenture indebtedness (incorporated by reference to Exhibit 10.11 to Form 8-K and filed April 17, 2001)	

 	 	 	
 	10(f)	Form of Guarantee dated as of March 27, 2003, by Northrop Grumman Corporation, as Guarantor, in favor of JP Morgan Chase Bank, as trustee, of certain debt securities issued by the former Northrop Grumman Space & Mission Systems Corp. (predecessor-in-interest to Northrop Grumman Systems Corporation) (incorporated by reference to Exhibit 4.2 to Form 10-Q for the quarter ended March 31, 2003, filed May 14, 2003)	

 	 	 	
 	+10(g)	Consultant Contract dated June 28, 2010 between Ronald D. Sugar and Northrop Grumman Corporation (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2010, filed July 29, 2010)	

 	 	 	
 	+10(h)	Northrop Grumman Corporation 1993 Stock Plan for Non-Employee Directors (as Amended and Restated January 1, 2010) (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2009, filed July 23, 2009)	

 	 	 	
 	+10(i)	Northrop Grumman Corporation Non-Employee Directors Equity Participation Plan (Amended and Restated January 1, 2008) (incorporated by reference to Exhibit 10(q) to Form 10-K for the year ended December 31, 2007, filed February 20, 2008)	

 	 	 	
 	+10(j)	Northrop Grumman 2001 Long-Term Incentive Stock Plan (As amended through December 19, 2007) (incorporated by reference to Exhibit A to the Company’s Proxy Statement on Schedule 14A for the 2008 Annual Meeting of Shareholders filed April 21, 2008)	

(i)	Form of Notice of Non-Qualified Grant of Stock Options and Option Agreement (incorporated by reference to Exhibit 10.5 to Form S-4 Registration Statement No. 333-83672 filed March 4, 2002)	
 	 	
(ii)	Form of Agreement for 2005 Stock Options (officer) (incorporated by reference to Exhibit 10(d)(v) to Form 10-K for the year ended December 31, 2004, filed March 4, 2005)	
 	 	
(iii)	Form of letter from Northrop Grumman Corporation regarding Stock Option Retirement Enhancement (incorporated by reference to Exhibit 10.2 to Form 8-K dated March 14, 2005 and filed March 15, 2005)	
 	 	
(iv)	Form of Agreement for 2006 Stock Options (officer) (incorporated by reference to Exhibit 10(d)(viii) to Form 10-K for the year ended December 31, 2005, filed February 17, 2006)	
 	 	
(v)	Form of Agreement for 2007 Stock Options (officers) (incorporated by reference to Exhibit 10(2)(ii) to Form 10-Q for the quarter ended March 31, 2007, filed April 24, 2007)	
 	 	
(vi)	Form of Agreement for 2008 Stock Options (officer) (incorporated by reference to Exhibit 10(4)(i) to Form 10-Q for the quarter ended March 31, 2008, filed April 24, 2008)	
 	 	
(vii)	Form of Agreement for 2009 Stock Options (incorporated by reference to Exhibit 10.2(i) to Form 10-Q for the quarter ended March 31, 2009, filed April 22, 2009)	
 	 	
(viii)	Form of Agreement for 2010 Restricted Performance Stock Rights (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2010, filed April 28, 2010)	
 	 	
(ix)	Form of Agreement for 2010 Stock Options (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2010, filed April 28, 2010)	
 	 	
(x)	Form of Agreement for 2010 Restricted Stock Rights (incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended March 31, 2010, filed April 28, 2010)	
 	 	
(xi)	Form of Agreement for 2011 Stock Options granted under the Northrop Grumman 2001 Long-Term Incentive Stock Plan (As amended through December 19, 2007) (incorporated by reference to Exhibit 10.1 of Form 8-K filed February 22, 2011)	

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(xii)	Form of Agreement for 2011 Restricted Performance Stock Rights granted under the Northrop Grumman 2001 Long-Term Incentive Stock Plan (As amended through December 19, 2007) (incorporated by reference to Exhibit 10.2 of Form 8-K filed February 22, 2011)	
 	 	
(xvi)	Form of Agreement for 2011 Restricted Stock Rights granted under the Northrop Grumman 2001 Long-Term Incentive Stock Plan (As amended through December 19, 2007) (incorporated by reference to Exhibit 10.3 of Form 8-K filed February 22, 2011)	
 	 	
(xvii)	Terms and Conditions Applicable to Special 2011 Restricted Stock Rights granted to Gary W. Ervin under the Northrop Grumman 2001 Long-Term Incentive Stock Plan (as amended through December 19, 2007) (incorporated by reference to Exhibit 10.4 of Form 8-K filed February 22, 2011)	

 	 	 	
 	+10(k)	Northrop Grumman 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit A to the Company’s Proxy Statement on Schedule 14A for the 2011 Annual Meeting of Shareholders filed April 8, 2011)	
 	 	
(i)	Summary of Non-Employee Director Award Terms Under the 2011 Long-Term Incentive Stock Plan effective December 21, 2011 (incorporated by reference to Exhibit 10(j)(ii) to Form 10-K for the year ended December 31, 2011, filed February 7, 2012)	
 	 	
(ii)	Northrop Grumman Corporation Equity Grant Program for Non-Employee Directors under the Northrop Grumman 2011 Long-Term Incentive Stock Plan, effective January 1, 2012 (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended June 30, 2012, filed July 24, 2012)	
 	 	
(iii)	Grant Certificate Specifying the Terms and Conditions Applicable to 2012 Restricted Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 17, 2012)	
 	 	
(iv)	Grant Certificate Specifying the Terms and Conditions Applicable to 2012 Restricted Performance Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed February 17, 2012)	
 	 	
(v)	Grant Certificate Specifying the Terms and Conditions Applicable to 2013 Restricted Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 21, 2013)	
 	 	
(vi)	Grant Certificate Specifying the Terms and Conditions Applicable to 2013 Restricted Performance Stock Rights Granted Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed February 21, 2013)	
 	 	
(vii)	Grant Certificate Specifying the Terms and Conditions Applicable to Special 2013 Restricted Stock Rights Granted to James F. Palmer Under the 2011 Long-Term Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed September 23, 2013)	

 	 	 	
 	+*10(l)	Northrop Grumman Supplemental Plan 2 (Amended and Restated Effective as of January 1, 2014)	
 	 	
*(i)	Appendix B to the Northrop Grumman Supplemental Plan 2: ERISA Supplemental Program 2 (Amended and Restated Effective as of January 1, 2014)	
 	 	
(ii)	Appendix F to the Northrop Grumman Supplemental Plan 2: CPC Supplemental Executive Retirement Program (Amended and Restated Effective as of January 1, 2012)	
 	 	
(iii)	Appendix G to the Northrop Grumman Supplemental Plan 2: Officers Supplemental Executive Retirement Program (Amended and Restated Effective as of January 1, 2012)	

 	 	 	
 	+*10(m)	Northrop Grumman Supplementary Retirement Income Plan (formerly TRW Supplementary Retirement Income Plan) (Amended and Restated Effective January 1, 2014)	

 	 	 	
 	+*10(n)	Northrop Grumman Electronic Systems Executive Pension Plan (Amended and Restated Effective as of January 1, 2014)	

 	 	 	
 	+10(o)	Severance Plan for Elected and Appointed Officers of Northrop Grumman Corporation (Amended and Restated Effective July 20, 2012) (incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2012, filed October 23, 2012)	

 	 	 	
 	+10(p)	Letter dated May 15, 2013, between the Board of Directors and Wesley G. Bush (incorporated by reference to Exhibit 99.1 to Form 8-K filed May 15, 2013)	

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NORTHROP GRUMMAN CORPORATION

                        

 	 	 	
 	+10(q)	Non-Employee Director Compensation Term Sheet, effective May 15, 2012 (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended June 30, 2012, filed July 24, 2012)	

 	 	 	
 	+10(r)	Form of Indemnification Agreement between Northrop Grumman Corporation and its directors and executive officers (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2012, filed April 24, 2012)	

 	 	 	
 	+10(s)	Northrop Grumman Deferred Compensation Plan (Amended and Restated Effective as of January 1, 2013) (incorporated by reference to Exhibit 10(t) to Form 10-K for the year ended December 31, 2012, filed February 4, 2013)	

 	 	 	
 	+10(t)	The 2002 Incentive Compensation Plan of Northrop Grumman Corporation, As Amended and Restated effective January 1, 2009 (incorporated by reference to Exhibit 10.6 to Form 10-Q for the quarter ended March 31, 2009, filed April 22, 2009)	

 	 	 	
 	+10(u)	Northrop Grumman 2006 Annual Incentive Plan and Incentive Compensation Plan (for Non-Section 162(m) Officers), as amended and restated effective January 1, 2009 (incorporated by reference to Exhibit 10.7 to Form 10-Q for the quarter ended March 31, 2009, filed April 22, 2009)	

 	 	 	
 	+10(v)	Northrop Grumman Savings Excess Plan (Amended and Restated Effective as of October 1, 2013) (incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2013, filed October 23, 2013)	

 	 	 	
 	+10(w)	Northrop Grumman Officers Retirement Account Contribution Plan (Amended and Restated Effective as of October 1, 2013) (incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter ended September 30, 2013, filed October 23, 2013)	

 	 	 	
 	+10(x)	Compensatory Arrangements of Certain Officers (incorporated by reference to Item 5.02(e) of Form 8-K filed February 21, 2013)	

 	 	 	
 	+10(y)	Offering letter dated February 1, 2007 from Northrop Grumman Corporation to James F. Palmer relating to position of Corporate Vice President and Chief Financial Officer (incorporated by reference to Exhibit 10(3) to Form 10-Q for the quarter ended March 31, 2007, filed April 24, 2007), as amended by Amendment to Letter Agreement between Northrop Grumman Corporation and James F. Palmer dated December 17, 2008 (incorporated by reference to Exhibit 10.3 to Form 8-K filed December 19, 2008)	

 	 	 	
 	+10(z)	Northrop Grumman Supplemental Retirement Replacement Plan, as Restated, dated January 1, 2008 between Northrop Grumman Corporation and James F. Palmer (incorporated by reference to Exhibit 10.4 to Form 8-K filed December 19, 2008)	

 	 	 	
 	(i)	First Amendment to the Northrop Grumman Supplemental Retirement Replacement Plan, dated October 25, 2011 (incorporated by reference to Exhibit 10(bb)(i) to Form 10-K for the year ended December 31, 2011, filed February 7, 2012)	

 	 	 	
 	+10(aa)	Northrop Grumman Corporation Special Officer Retiree Medical Plan (Amended and Restated Effective January 1, 2008) (incorporated by reference to Exhibit 10(2) to Form 10-Q for the quarter ended March 31, 2008, filed April 24, 2008)	

 	 	 	
 	+10(bb)	Executive Life Insurance Policy (incorporated by reference to Exhibit 10(gg) to Form 10-K for the year ended December 31, 2004, filed March 4, 2005)	

 	 	 	
 	+10(cc)	Executive Accidental Death, Dismemberment and Plegia Insurance Policy Terms applicable to Executive Officers dated January 1, 2009 (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2009, filed April 22, 2009)	

 	 	 	
 	+10(dd)	Executive Long-Term Disability Insurance Policy as amended by Amendment No. 2 dated June 19, 2008 and effective as of October 4, 2007 (incorporated by reference to Exhibit 10(2) to Form 10-Q for the quarter ended June 30, 2008, filed July 29, 2008)	

-90-

NORTHROP GRUMMAN CORPORATION

                        

 	 	 	
 	+10(ee)	Executive Dental Insurance Policy Group Numbers 5134 and 5135 (incorporated by reference to Exhibit 10(m) to Form 10-K for the year ended December 31, 1995, filed February 22, 1996), as amended by action of the Compensation Committee of the Board of Directors of Northrop Grumman Corporation effective July 1, 2009 (incorporated by reference to Item 5.02(e) of Form 8-K filed May 26, 2009)	

 	 	 	
 	+10(ff)	Group Personal Excess Liability Policy (incorporated by reference to Exhibit 10.15 to Form 10-Q for the quarter ended June 30, 2011, filed July 27, 2011)	

 	 	 	
 	+10(gg)	Letter dated December 16, 2009 from Northrop Grumman Corporation to Wesley G. Bush regarding compensation effective January 1, 2010 (incorporated by reference to Exhibit 10.2 to Form 8-K filed December 21, 2009)	

 	 	 	
 	+10(hh)	Northrop Grumman Corporation 1995 Stock Plan for Non-Employee Directors, as Amended as of May 16, 2007 (incorporated by reference to Exhibit A to the Company’s Proxy Statement on Schedule 14A for the 2007 Meeting of Shareholders filed April 12, 2007)	

 	 	 	
 	+10(ii)	Retirement and Separation Agreement dated July 23, 2012 between Northrop Grumman Systems Corporation and Gary W. Ervin (incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended June 30, 2012, filed July 24, 2012)	

 	 	 	
 	*12(a)	Computation of Ratio of Earnings to Fixed Charges	

 	 	 	
 	*18	Preferability Letter of Independent Registered Public Accounting Firm dated February 3, 2014	

 	 	 	
 	*21	Subsidiaries	

 	 	 	
 	*23	Consent of Independent Registered Public Accounting Firm	

 	 	 	
 	*24	Power of Attorney	

 	 	 	
 	*31.1	Rule 13a-15(e)/15d-15(e) Certification of Wesley G. Bush (Section 302 of the Sarbanes-Oxley Act of 2002)	

 	 	 	
 	*31.2	Rule 13a-15(e)/15d-15(e) Certification of James F. Palmer (Section 302 of the Sarbanes-Oxley Act of 2002)	

 	 	 	
 	**32.1	Certification of Wesley G. Bush pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	

 	 	 	
 	**32.2	Certification of James F. Palmer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	

 	 	 	
 	*101	Northrop Grumman Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language); (i) the Consolidated Statements of Earnings and Comprehensive Income, (ii) Consolidated Statements of Financial Position, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Changes in Shareholders’ Equity, and (v) Notes to Consolidated Financial Statements	

 	 	 	
 	+	Management contract or compensatory plan or arrangement	

 	 	 	
 	*	Filed with this Report	

 	 	 	
 	**	Furnished with this Report	

-91-

NORTHROP GRUMMAN CORPORATION

                        

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 3rd day of February 2014.

 	 	 	
 	NORTHROP GRUMMAN CORPORATION	
 	 	 	
 	By:	/s/ Michael A. Hardesty	
 	 	Michael A. Hardesty	
 	 	Corporate Vice President, Controller, and Chief Accounting Officer	
 	 	(Principal Accounting Officer)	
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the registrant this the 3rd day of February 2014, by the following persons and in the capacities indicated.

Signature	 	Title	
 	 	
Wesley G. Bush*	 	Chairman, Chief Executive Officer and President (Principal Executive Officer), and Director	
 	 	
James F. Palmer*	 	Corporate Vice President and Chief Financial Officer (Principal Financial Officer)	
 	 	
Michael A. Hardesty	 	Corporate Vice President, Controller and Chief Accounting Officer	
 	 	
Victor H. Fazio*	 	Director	
 	 	
Donald E. Felsinger*	 	Director	
 	 	
Stephen E. Frank *	 	Director	
 	 	
Bruce S. Gordon*	 	Director	
 	 	
William H. Hernandez*	 	Director	
 	 	 	
Madeleine A. Kleiner*	 	Director	
 	 	
Karl J. Krapek*	 	Director	
 	 	
Richard B. Myers*	 	Director	
 	 	
Aulana L. Peters*	 	Director	
 	 	
Gary Roughead*	 	Director	
 	 	
Thomas M. Schoewe*	 	Director	
 	 	
Kevin W. Sharer*	 	Director	

 	 	
*By:	/s/ Jennifer C. McGarey	
 	Jennifer C. McGarey	
 	Corporate Vice President and Secretary	
 	Attorney-in-Fact	
 	pursuant to a power of attorney	

-92-

EXHIBIT 10(l)

NORTHROP GRUMMAN
SUPPLEMENTAL PLAN 2
(Amended and Restated Effective as of January 1, 2014)

EXHIBIT 10(l)

TABLE OF CONTENTS

ARTICLE I Definitions	1	
1.01 Affiliated Companies	1	
1.02 Board of Directors	1	
1.03 CIC Plans	1	
1.04 Code	1	
1.05 Company	1	
1.06 Deferred Compensation Plan	1	
1.07 ERISA	1	
1.08 Grandfathered Amounts	1	
1.09 Key Employee	1	
1.10 Participant	2	
1.11 Payment Date	2	
1.12 Pension Plan	2	
1.13 Plan	2	
1.14 Program	2	
1.15 Qualified Plan	2	
1.16 Separation from Service or Separates from Service	2	
1.17 Termination of Employment	3	
ARTICLE II General Provisions	4	
2.01 In General	4	
2.02 Treatment of 2000 Ad Hoc Increases for Retirees	4	
2.03 Forms and Times of Benefit Payments	4	
2.04 Beneficiaries and Spouses	5	
2.05 Mandatory Cashout	5	
2.06 Optional Payment Forms	5	
2.07 Special Tax Distribution	6	
2.08 Amendment and Plan Termination	6	
2.09 Not an Employment Agreement	7	
2.10 Assignment of Benefits	7	
2.11 Nonduplication of Benefits	7	
2.12 Funding	8	
2.13 Construction	8	
2.14 Governing Law	8	
2.15 Actions by Company and Claims Procedures	8	
2.16 Plan Representatives	8	
2.17 Number	8	
ARTICLE III Lump Sum Election	9	
3.01 In General	9	
3.02 Election	9	
3.03 Lump Sum—Retirement Eligible	10	
3.04 Lump Sum—Not Retirement Eligible	11	
3.05 Lump Sums with CIC Severance Plan Election	12	
3.06 Calculation of Lump Sum	12	

i

EXHIBIT 10(l)

 	 	
3.07 Spousal consent	13	
APPENDIX 1 – 2005-2007 TRANSITION RULES	14	
1.01 Election	14	
1.02 2005 Commencements	14	
1.03 2006 and 2007 Commencements	15	
APPENDIX 2 – POST 2007 DISTRIBUTION OF 409A AMOUNTS	16	
2.01 Time of Distribution	16	
2.02 Special Rule for Key Employees	16	
2.03 Forms of Distribution	16	
2.04 Death	16	
2.05 Actuarial Assumptions	17	
2.06 Accelerated Lump Sum Payouts	17	
2.07 Effect of Early Taxation	18	
2.08 Permitted Delays	18	
APPENDIX 3 – COMMITTEES AND APPOINTMENTS	19	

Note: All of the following Appendices are saved as separate documents.
Confidential documents may be requested from Benefits Strategy & Design.

APPENDIX A Northrop Supplemental Retirement Income Program For Senior Executives
APPENDIX B ERISA Supplemental Program 2
APPENDIX C Arthur F. Dauer Program (Confidential)
APPENDIX D Nelson Gibbs, Jr. Program (Confidential)
APPENDIX E Oliver Boileau Program (Confidential)
APPENDIX F CPC Supplemental Executive Retirement Program
APPENDIX G Officers Supplemental Executive Retirement Program
APPENDIX H Robert P. Iorizzo Program
APPENDIX I Officers Supplemental Executive Retirement Program II

ii

EXHIBIT 10(l)

The Northrop Grumman Supplemental Plan 2 (the "Plan") is hereby amended and restated effective as of January 1, 2014. This restatement amends the January 1, 2013 restatement of the Plan and does not include changes that apply to Grandfathered Amounts.

The Plan is intended to comply with Code section 409A and official guidance issued thereunder (except for Grandfathered Amounts). Notwithstanding any other provision of this Plan, this Plan shall be interpreted, operated and administered in a manner consistent with this intention.

ARTICLE I

Definitions

For purposes of the Plan, the following terms, when capitalized, will have the following meanings:
 	 	
1.01	Affiliated Companies. The Company and any other entity related to the Company under the rules of section 414 of the Code. The Affiliated Companies include Northrop Grumman Corporation and its 80%-owned subsidiaries and may include other entities as well.	

1.02	Board of Directors. The Board of Directors of the Company.	

1.03	CIC Plans. Northrop Grumman Corporation Change-In-Control Severance Plan (effective August 1, 1996, as amended) or the Northrop Grumman Corporation March 2000 Change-In-Control Severance Plan.	

1.04	Code. The Internal Revenue Code of 1986, as amended.	

1.05	Company. Northrop Grumman Corporation.	

1.06	Deferred Compensation Plan. The Northrop Grumman Deferred Compensation Plan and the Northrop Grumman Savings Excess Plan.	

1.07	ERISA. The Employee Retirement Income Security Act of 1974, as amended.	

1.08	Grandfathered Amounts. Plan benefits that were earned and vested as of December 31, 2004 within the meaning of Code section 409A and official guidance thereunder.	

1.09	Key Employee    . An employee treated as a "specified employee" under Code section 409A(a)(2)(B)(i) of the Company or the Affiliated Companies (i.e., a key employee (as defined in Code section 416(i) without regard to paragraph (5) thereof)) if the Company's or an Affiliated Company's stock is publicly traded on an established securities market or otherwise. The Company shall determine in	

EXHIBIT 10(l)

accordance with a uniform Company policy which Participants are Key Employees as of each December 31 in accordance with IRS regulations or other guidance under Code section 409A, provided that in determining the compensation of individuals for this purpose, the definition of compensation in Treas. Reg. § 1.415(c)-2(d)(3) shall be used. Such determination shall be effective for the twelve (12) month period commencing on April 1 of the following year.
 	 	
1.10	Participant. Any employee of the Company who is eligible for benefits under a particular Program and has not received full payment under the Program.	

1.11	Payment Date. The 1st of the month coincident with or following the later of (a) the date the Participant attains age 55, or (b) the date the Participant Separates from Service.	

1.12	Pension Plan .	

(a)	The Northrop Grumman Pension Plan (subject to the special effective dates noted below for the following merged plans)	

◦	The Northrop Grumman Retirement Value Plan (effective as of January 1, 2000)	

◦	The Northrop Grumman Commercial Aircraft Division Salaried Retirement Plan (effective as of July 1, 2000)	

◦	The Grumman Pension Plan (effective as of July 1, 2003)	

(b)	The Northrop Grumman Electronic Systems – Space Division Consolidated Pension Plan (effective as of October 22, 2001)	

(c)	The Northrop Grumman Norden Systems Employee Retirement Plan (effective July 1, 2003)	

1.13	Plan. The Northrop Grumman Supplemental Plan 2.	

1.14	Program. One of the eligibility and benefit structures described in the Appendices.	

1.15	Qualified Plan. The Northrop Grumman Pension Plan and Cash Balance Plans (as defined under the Northrop Grumman Pension Plan).	

1.16	Separation from Service or Separates from Service. A "separation from service" within the meaning of Code section 409A.	

- 2 -

EXHIBIT 10(l)

 	 	
1.17	Termination of Employment. Complete termination of employment with the Affiliated Companies.	

(a)	If a Participant leaves one Affiliated Company to go to work for another, he or she will not have a Termination of Employment.	

(b)	A Participant will have a Termination of Employment if he or she leaves the Affiliated Companies because the affiliate he or she works for ceases to be an Affiliated Company because it is sold or spunoff.	

- 3 -

EXHIBIT 10(l)

ARTICLE II

General Provisions
 	 	
2.01	In General. The Plan contains a number of different benefit Programs which are set forth in the Appendices. The Appendices describe the eligibility conditions and the amount of benefits payable under the Programs. The Company, in its sole discretion, will determine all eligibility conditions, make all benefit determinations, and otherwise exercise sole authority to interpret the Plan and Programs.	

2.02	Treatment of 2000 Ad Hoc Increases for Retirees. In no event, however, (1) will this Plan pay any amount of a Participant's retirement benefit, if any, attributable to the “2000 Ad Hoc Increase for Retirees” Appendix added to certain of the Company’s tax-qualified plans pursuant to the Board of Directors resolution adopted May 17, 2000, or (2) will a Participant be entitled to a benefit (or an increased benefit) from or as a result of participation in this Plan under the Board of Directors resolution adopted May 17, 2000.	

2.03	Forms and Times of Benefit Payments. This Section only applies to Grandfathered Amounts. The Company will determine the form and timing of benefit payments in its sole discretion unless particular rules regarding the form and timing of benefit payments are set forth in a Program or where a lump sum election under Article III is applicable.	

(a)	For payments made to supplement those of a particular tax-qualified retirement or savings plan, the Company will only select among the options available under that plan, using the same actuarial adjustments used in that plan, except in cases of lump sums.	

(b)	Whenever the present value of the amount payable under a particular Program does not exceed $10,000, it will be paid in the form of a single lump sum as of the first of the month following Termination of Employment. The lump sum will be calculated using the factors and methodology described in Section 3.06 below (See Section 2.05 for the rule that applies as of January 1, 2008).	

(c)	No payments will commence under this Plan until a Participant has a Termination of Employment, even in cases where benefits have commenced under a qualified retirement plan for Participants over age 70½, or for any other reason.	

See Appendix 1 and Appendix 2 for the rules that apply to other benefits earned under the Plan.

- 4 -

EXHIBIT 10(l)
 	 	
2.04	Beneficiaries and Spouses. This Section only applies to Grandfathered Amounts. If the Company selects a form of payment which includes a survivor benefit, the Participant may make a beneficiary designation, which may be changed at any time prior to commencement of benefits. A beneficiary designation must be in writing and will be effective only when received by the Company.	

(a)	If a Participant is married on the date his or her benefits are scheduled to commence, his or her beneficiary will be his or her spouse unless some other beneficiary is named with spousal consent. Spousal consent, to be effective, must be submitted in writing before benefits commence and must be witnessed by a Plan representative or notary public. No spousal consent is necessary if the Company determines that there is no spouse or that the spouse cannot be found.	

(b)	With respect to Programs designed to supplement tax-qualified retirement or savings plans, the Participant’s spouse will be the spouse as determined under the underlying tax-qualified plan. Otherwise, the Participant’s spouse will be determined by the Company in its sole discretion.	

See Appendix 1 and Appendix 2 for the rules that apply to other benefits earned under the Plan.
 	 	
2.05	Mandatory Cashout. Notwithstanding any other provisions in the Plan, Participants with Grandfathered Amounts who have not commenced payment of such benefits prior to January 1, 2008 will be subject to the following rules:	

(a)	Post-2007 Terminations. Participants who have a Termination of Employment after 2007 will receive a lump sum distribution of the present value of their Grandfathered Amounts under a Program within two months of Termination of Employment (without interest), if such present value is below the Code section 402(g) limit in effect at the Termination of Employment.	

(b)	Pre-2008 Terminations. Participants who had a Termination of Employment before 2008 will receive a lump sum distribution of the present value of their Grandfathered Amounts under a Program within two months of the time they commence payment of their underlying qualified pension plan benefits (without interest), if such present value is below the Code section 402(g) limit in effect at the time such payments commence.	

For purposes of calculating present values under this Section, the actual assumptions and calculation procedures for lump sum distributions under the Northrop Grumman Pension Plan shall be used.
 	 	
2.06	Optional Payment Forms. Participants with Grandfathered Amounts shall be permitted to elect (a) or (b) below:	

- 5 -

EXHIBIT 10(l)
 	 	
(a)	To receive their Grandfathered Amounts in any form of distribution available under the Plan at October 3, 2004, provided that form remains available under the underlying qualified pension plan at the time payment of the Grandfathered Amounts commences. The conversion factors for these distribution forms will be based on the factors or basis in effect under this Plan on October 3, 2004.	

(b)	To receive their Grandfathered Amounts in any life annuity form not included in (a) above but included in the underlying qualified pension plan distribution options at the time payment of the Grandfathered Amounts commences. The conversion factors will be based on the following actuarial assumptions:	

Interest Rate:        6%
 	 	
Mortality Table:	RP-2000 Mortality Table projected 15 years for future standardized cash balance factors	

2.07	Special Tax Distribution. On the date a Participant's retirement benefit is reasonably ascertainable within the meaning of IRS regulations under Code section 3121(v)(2), an amount equal to the Participant's portion of the FICA tax withholding will be distributed in a single lump sum payment. This payment will be based on all benefits under the Plan, including Grandfathered Amounts. This payment will reduce the Participant's future benefit payments under the Plan on an actuarial basis.	

2.08	Amendment and Plan Termination. The Company may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part for any reason. This includes the right to amend or eliminate any of the provisions of the Plan with respect to lump sum distributions, including any lump sum calculation factors, whether or not a Participant has already made a lump sum election. Notwithstanding the foregoing, no amendment or termination of the Plan shall reduce the amount of a Participant's accrued benefit under the Plan as of the date of such amendment or termination.	

No amendment of the Plan shall apply to the Grandfathered Amounts, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent "material modification" to the Grandfathered Amounts.

The Company may, in its sole discretion, seek reimbursement from the Company's tax-qualified plans to the extent this Plan pays tax-qualified plan benefits to which Participants were entitled to or became entitled to under the tax-qualified plans.

- 6 -

EXHIBIT 10(l)
 	 	
2.09	Not an Employment Agreement. Nothing contained in this Plan gives any Participant the right to be retained in the service of the Company, nor does it interfere with the right of the Company to discharge or otherwise deal with Participants without regard to the existence of this Plan.	

2.10	Assignment of Benefits. A Participant, surviving spouse or beneficiary may not, either voluntarily or involuntarily, assign, anticipate, alienate, commute, sell, transfer, pledge or encumber any benefits to which he or she is or may become entitled under the Plan, nor may Plan benefits be subject to attachment or garnishment by any of their creditors or to legal process.	

Notwithstanding the foregoing, all or a portion of a Participant's benefit may be paid to another person as specified in a domestic relations order that the plan administrator determines is qualified (a "Qualified Domestic Relations Order"). For this purpose, a Qualified Domestic Relations Order means a judgment, decree, or order (including the approval of a settlement agreement) which is:

(1)    issued pursuant to a State's domestic relations law;
 	 	
(2)	relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant;	

(3)	creates or recognizes the right of a spouse, former spouse, child or other dependent of the Participant to receive all or a portion of the Participant's benefits under the Plan; and	

(4)	meets such other requirements established by the plan administrator.	

The plan administrator shall determine whether any document received by it is a Qualified Domestic Relations Order. In making this determination, the plan administrator may consider the rules applicable to the "domestic relations orders" under Code section 414(p) and ERISA section 206(d), and such other rules and procedures as it deems relevant.
 	 	
2.11	Nonduplication of Benefits. This Section applies if, despite Section 2.10, with respect to any Participant (or his or her beneficiaries), the Company is required to make payments under this Plan to a person or entity other than the payees described in the Plan. In such a case, any amounts due the Participant (or his or her beneficiaries) under this Plan will be reduced by the actuarial value of the payments required to be made to such other person or entity.	

(a)	Actuarial value will be determined using the factors and methodology described in Section 3.06 below (in the case of lump sums) and using the actuarial assumptions in the underlying Pension Plan in all other cases.	

- 7 -

EXHIBIT 10(l)
 	 	
(b)	In dividing a Participant’s benefit between the Participant and another person or entity, consistent actuarial assumptions and methodologies will be used so that there is no increased actuarial cost to the Company.	

2.12	Funding. Participants have the status of general unsecured creditors of the Company and the Plan constitutes a mere promise by the Company to make benefit payments in the future. The Company may, but need not, fund benefits under the Plan through a trust. If it does so, any trust created by the Company and any assets held by the trust to assist it in meeting its obligations under the Plan will conform to the terms of the model trust, as described in Internal Revenue Service Revenue Procedure 92-64, but only to the extent required by Internal Revenue Service Revenue Procedure 92-65. It is the intention of the Company and Participants that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA.	

Any funding of benefits under this Plan will be in the Company’s sole discretion. The Company may set and amend the terms under which it will fund and may cease to fund at any time.
 	 	
2.13	Construction. The Company shall have full discretion to construe and interpret the terms and provisions of this Plan, to make factual determinations and to remedy possible inconsistencies and omissions. The Company’s interpretations, constructions and remedies shall be final and binding on all parties, including but not limited to the Affiliated Companies and any Participant or beneficiary. The Company shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the Plan.	

2.14	Governing Law. This Plan shall be governed by the law of the Commonwealth of Virginia, except to the extent superseded by federal law.	

2.15	Actions by Company and Claims Procedures    . Any powers exercisable by the Company under the Plan shall be utilized by written resolution adopted by the Board of Directors or its delegate. The Board of Directors may by written resolution delegate any of the Company’s powers under the Plan and any such delegations may provide for subdelegations, also by written resolution.	

The Company's standardized "Northrop Grumman Nonqualified Retirement Plans Claims and Appeals Procedures" shall apply in handling claims and appeals under this Plan.
 	 	
2.16	Plan Representatives. Those authorized to act as Plan representatives will be designated in writing by the Board of Directors or its delegate.	

2.17	Number. The singular, where appearing in this Plan, will be deemed to include the plural, unless the context clearly indicates the contrary.	

- 8 -

EXHIBIT 10(l)

ARTICLE III

Lump Sum Election

This Article only applies with respect to Grandfathered Amounts. See Appendix 1 and Appendix 2 for the distribution rules that apply to other benefits earned under the Plan.
 	 	
3.01	In General. This Article sets forth the rules under which Participants may elect to receive their benefits in a lump sum. Except as provided in Section 3.05, this Article does not apply to employees in cases where benefits under a particular Program are automatically payable in lump sum form under Article II. This Article will not apply if a particular Program so provides.	

3.02	Election. Participants may elect to have their benefits paid in the form of a single lump sum under this Section.	

(a)	An election to take a lump sum may be made at any time during the 60-day period prior to Termination of Employment and covers both—	

(1)	Benefits payable to the Participant during his or her lifetime, and	

(2)	Survivor benefits (if any) payable to the Participant’s beneficiary, including preretirement death benefits (if any) payable to the Participant’s spouse.	

(b)	An election does not become effective until the earlier of:	

(1)	the Participant’s Termination of Employment, or	

(2)	the Participant’s death.	

(c)	Before the election becomes effective, it may be revoked.	

(d)	If a Participant does not have a Termination of Employment within 60 days after making an election, the election will never take effect.	

(e)	An election may only be made once. If it fails to become effective after 60 days or is revoked before becoming effective, it cannot be made again at a later time.	
 	 	
(f)	After a Participant has a Termination of Employment, no election can be made.	

(g)	If a Participant dies before making a lump sum election, his or her spouse may not make a lump sum election with respect to any benefits which may be due the spouse.	

- 9 -

EXHIBIT 10(l)

(h)	Elections to receive a lump sum must be made in writing and must include spousal consent if the Participant is married. Elections and spousal consent must be witnessed by a Plan representative or a notary public.	

3.03	Lump Sum—Retirement Eligible. If a Participant with a valid lump sum election in effect under Section 3.02 has a Termination of Employment after he or she is entitled to commence benefits under the Pension Plans, payments will be made in accordance with this Section.	

(a)	Monthly benefit payments will be made for up to 12 months, commencing the first of the month following Termination of Employment. Payments will be made:	

(1)	in the case of a Participant who is not married on the date benefits are scheduled to commence, based on a straight life annuity for the Participant’s life and ceasing upon the Participant’s death should he or she die before the 12 months elapse, or	

(2)	in the case of a Participant who is married on the date benefits are scheduled to commence, based on a joint and survivor annuity form—	

(A)	with the survivor benefit equal to 50% of the Participant’s benefit;	

(B)	with the Participant’s spouse as the survivor annuitant;	

(C)	determined by using the contingent annuitant option factors used to convert straight life annuities to 50% joint and survivor annuities under the Northrop Grumman Retirement Plan; and	

(D)	with all payments ceasing upon the death of both the Participant and his or her spouse should they die before the 12 months elapse.	

(b)	As of the first of the 13th month, the present value of the remaining benefit payments will be paid in a single lump sum. Payment of the lump sum will be made to the Participant if he or she is still alive, or, if not, to his or her surviving spouse, if any.	

(c)	No lump sum payment will be made if:	

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EXHIBIT 10(l)
 	 	
(1)	The Participant is receiving monthly benefit payments in the form of a straight life annuity and the Participant dies before the time the lump sum payment is due.	

(2)	The Participant is receiving monthly benefit payments in a joint and survivor annuity form and the Participant and his or her spouse both die before the time the lump sum payment is due.	

(d)	A lump sum will be payable to a Participant’s spouse as of the first of the month following the date of the Participant’s death, if:	

(1)	the Participant dies after making a valid lump sum election but prior to commencement of any benefits under this Plan;	

(2)	the Participant is survived by a spouse who is entitled to a preretirement surviving spouse benefit under this Plan; and	

(3)	the spouse survives to the first of the month following the date of the Participant’s death.	

3.04	Lump Sum—Not Retirement Eligible. If a Participant with a valid lump sum election in effect under Section 3.02 has a Termination of Employment before he or she is entitled to commence benefits under the Pension Plans, payments will be made in accordance with this Section.	

(a)	No monthly benefit payments will be made.	

(b)	Following Termination of Employment, a single lump sum payment of the benefit will be made on the first of the month following 12 months after the date of the Participant’s Termination of Employment.	

(c)	A lump sum will be payable to a Participant’s spouse as of the first of the month following the date of the Participant’s death, if:	

(1)	the Participant dies after making a valid lump sum election but prior to commencement of any benefits under this Plan;	

(2)	the Participant is survived by a spouse who is entitled to a preretirement surviving spouse benefit under this Plan; and	

(3)	the spouse survives to the first of the month following the date of the Participant’s death.	

(d)	No lump sum payment will be made if the Participant is unmarried at the time of death and dies before the time the lump sum payment is due.	

- 11 -

EXHIBIT 10(l)
 	 	
3.05	Lump Sums with CIC Severance Plan Election. A Participant who elects lump sum payments of all his or her nonqualified benefits under the CIC Plans is entitled to have his or her benefits paid as a lump sum calculated under the terms of the applicable CIC Plan. Otherwise, benefit payments are governed by the general provisions of this Article, which provide different rules for calculating the amount of lump sum payments.	

3.06	Calculation of Lump Sum .	

(a)	The factors to be used in calculating the lump sum are as follows:	

(1)	Interest: Whichever of the following two rates that produces the smaller lump sum:	

(A)	the discount rate used by the Company for purposes of Statement of Financial Accounting Standards No. 87 of the Financial Accounting Standards Board as disclosed in the Company’s annual report to shareholders for the year end immediately preceding the date of distribution, or	

(B)	the applicable interest rate that would be used to calculate a lump sum value for the benefit under the Pension Plans.	

(2)	Mortality: the applicable mortality table, which would be used to calculate a lump sum value for the benefit under the Pension Plans.	

(3)	Increase in Section 415 Limit: 4% per year.	

(4)	Age: Age rounded to the nearest month on the date the lump sum is payable.	

(5)	Variable Unit Values: Variable Unit Values are presumed not to increase for future periods after the date the lump sum is payable.	

(b)	The annuity to be converted to a lump sum will be the remaining annuity currently payable to the Participant or his or her beneficiary at the time the lump sum is due.	

(1)	For example, assume a Participant is receiving benefit payments in the form of a 50% joint and survivor annuity.	
 	 	
(2)	If the Participant and the survivor annuitant are both still alive at the time the lump sum payment is due, the present value calculation will be based on the remaining benefits that would be paid to both the Participant and the survivor in the annuity form.	

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EXHIBIT 10(l)
 	 	
(3)	If only the survivor is alive, the calculation will be based solely on the remaining 50% survivor benefits that would be paid to the survivor.	

(4)	If only the Participant is alive, the calculation will be based solely on the remaining benefits that would be paid to the Participant.	

(5)	In the case of a Participant who dies prior to commencement of benefits under this Plan so that only a preretirement surviving spouse benefit (if any) is payable, the lump sum will be based solely on the value of the preretirement surviving spouse benefit.	

(c)	In the case of a lump-sum under Section 3.05 (related to lump sums with a CIC Severance Plan election), the lump-sum amount will be calculated as described in that section and the rules of this Section 3.06 are not used.	

3.07	Spousal consent. Spousal consent, as required for elections as described above, need not be obtained if the Company determines that there is no spouse or the spouse cannot be located.	

* * *
IN WITNESS WHEREOF, this Amendment and Restatement is hereby executed by a duly authorized officer on this 13th day of December, 2013.

NORTHROP GRUMMAN CORPORATION

By: /s/ Denise Peppard
Denise Peppard
Corporate Vice President and Chief Human Resources Officer

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EXHIBIT 10(l)

APPENDIX 1 – 2005-2007 TRANSITION RULES
This Appendix 1 provides the distribution rules that apply to the portion of benefits under the Plan subject to Code section 409A for Participants with benefit commencement dates after January 1, 2005 and before January 1, 2008.
 	 	
1.01	Election. Participants scheduled to commence payments during 2005 may elect to receive both pre-2005 benefit accruals and 2005 benefit accruals in any optional form of benefit available under the Plan as of December 31, 2004. Participants electing optional forms of benefits under this provision will commence payments on the Participant's selected benefit commencement date.	
 	 	
1.02	2005 Commencements. Pursuant to IRS Notice 2005-1, Q&A-19 & Q&A-20, Participants commencing payments in 2005 from the Plan may elect a form of distribution from among those available under the Plan on December 31, 2004, and benefit payments shall begin at the time elected by the Participant.	

(a)	Key Employees. A Key Employee Separating from Service on or after July 1, 2005, with Plan distributions subject to Code section 409A scheduled to be paid in 2006 and within six months of his date of Separation from Service, shall have such distributions delayed for six months from the Key Employee's date of Separation from Service. The delayed distributions shall be paid as a single sum with interest at the end of the six month period and Plan distributions will resume as scheduled at such time. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years). Alternatively, the Key Employee may elect under IRS Notice 2005-1, Q&A-20 to have such distributions accelerated and paid in 2005 without the interest adjustment, provided, such election is made in 2005.	
 	 	
(b)	Lump Sum Option. During 2005, a temporary immediate lump sum feature shall be available as follows:	
 	 	
(i)	In order to elect a lump sum payment pursuant to IRS Notice 2005-1, Q&A-20, a Participant must be an elected or appointed officer of the Company and eligible to commence payments under the underlying qualified pension plan on or after June 1, 2005 and on or before December 1, 2005;	
 	 	
(ii)	The lump sum payment shall be made in 2005 as soon as feasible after the election; and	
 	 	
(iii)	Interest and mortality assumptions and methodology for calculating lump sum amount shall be based on the Plan's procedures for calculating lump sums as of December 31, 2004.	

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EXHIBIT 10(l)
 	 	
1.03	2006 and 2007 Commencements. Pursuant to IRS transition relief, for all benefit commencement dates in 2006 and 2007 (provided election is made in 2006 or 2007), distribution of Plan benefits subject to Code section 409A shall begin 12 months after the later of: (a) the Participant's benefit election date, or (b) the underlying qualified pension plan benefit commencement date (as specified in the Participant's benefit election form). Payments delayed during this 12-month period will be paid at the end of the period with interest. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years).	

- 15 -

EXHIBIT 10(l)

APPENDIX 2 – POST 2007
DISTRIBUTION OF 409A AMOUNTS

The provisions of this Appendix 2 shall apply only to the portion of benefits under the Plan that are subject to Code section 409A with benefit commencement dates on or after January 1, 2008. Distribution rules applicable to the Grandfathered Amounts are set forth in Articles II and III, and Appendix 1 addresses distributions of amounts subject to Code section 409A with benefit commencement dates after January 1, 2005 and prior to January 1, 2008.
 	 	
2.01	Time of Distribution. Subject to the special rules provided in this Appendix 2, distributions to a Participant of his vested retirement benefit shall commence as of the Payment Date.	
 	 	
2.02	Special Rule for Key Employees. If a Participant is a Key Employee and age 55 or older at his Separation from Service, distributions to the Participant shall commence on the first day of the seventh month following the date of his Separation from Service (or, if earlier, the date of the Participant's death). Amounts otherwise payable to the Participant during such period of delay shall be accumulated and paid on the first day of the seventh month following the Participant's Separation from Service, along with interest on the delayed payments. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such delay (i.e., the rate may change in the event the delay spans two calendar years).	
 	 	
2.03	Forms of Distribution. Subject to the special rules provided in this Appendix 2, a Participant's vested retirement benefit shall be distributed in the form of a single life annuity. However, a Participant may elect an optional form of benefit up until the date payments commence or such earlier time as provided by the Company. The optional forms of payment are:	
 	 	
(a)	50% joint and survivor annuity	
 	 	
(b)	75% joint and survivor annuity	
 	 	
(c)	100% joint and survivor annuity.	
If a Participant is married on the date his payments commence and elects a joint and survivor annuity, his survivor annuitant will be his spouse unless some other survivor annuitant is named with spousal consent. Spousal consent, to be effective, must be submitted in writing before the date his payments commence, or such earlier time as provided by the Company, and must be witnessed by a Plan representative or notary public. No spousal consent is necessary if the Company determines that there is no spouse or that the spouse cannot be found.

- 16 -

EXHIBIT 10(l)
 	 	
2.04	Death. If a married Participant dies before the Payment Date, a death benefit will be payable to the Participant's spouse commencing 90 days after the Participant's death. The death benefit will be a single life annuity in an amount equal to the survivor portion of a Participant's vested retirement benefit based on a 100% joint and survivor annuity determined on the Participant's date of death. This benefit is also payable to a Participant's domestic partner who is properly registered with the Company in accordance with procedures established by the Company.	
 	 	
2.05	Actuarial Assumptions. Except as provided in Section 2.06 of this Appendix 2, all forms of payment under this Appendix 2 shall be actuarially equivalent life annuity forms of payment, and all conversions from one such form to another shall be based on the following actuarial assumptions:	
 	 	
Interest Rate:	6%	
 	 	
Mortality Table:	RP-2000 Mortality Table projected 15 years for future standardized cash balance factors	
 	 	
2.06	Accelerated Lump Sum Payouts .	
 	 	
(a)	Post-2007 Separations. Notwithstanding the provisions of this Appendix 2, for Participants who Separate from Service on or after January 1, 2008, if the present value of (a) the vested portion of a Participant's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date of his Separation from Service, is less than or equal to $25,000, such benefit amount shall be distributed to the Participant (or his spouse or domestic partner, if applicable) in a lump sum payment. Subject to the special timing rule for Key Employees under Section 2.02 of this Appendix 2, the lump sum payment shall be made within 90 days after the first of the month coincident with or following the date of the Participant's Separation from Service.	
 	 	
(b)	Pre-2008 Separations. Notwithstanding the provisions of this Appendix 2, for Participants who Separate from Service before January 1, 2008, if the present value of (a) the vested portion of a Participant's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date the Participant attains age 55, is less than or equal to $25,000, such benefit amount shall be distributed to the Participant (or his spouse or domestic partner, if applicable) in a lump sum payment within 90 days after the first of the month coincident with or following the date the Participant attains age 55, but no earlier that January 1, 2008.	

- 17 -

EXHIBIT 10(l)
 	 	
(c)	Conflicts of Interest. The present value of a Participant's vested retirement benefit shall also be payable in an immediate lump sum to the extent required under conflict of interest rules for government service and permissible under Code section 409A.	
 	 	
(d)	Present Value Calculation. The conversion of a Participant's retirement benefit into a lump sum payment and the present value calculations under this Section 2.06 of this Appendix 2 shall be based on the actuarial assumptions in effect under the Northrop Grumman Pension Plan for purposes of calculating lump sum amounts, and will be based on the Participant's immediate benefit if the Participant is 55 or older at Separation from Service. Otherwise, the calculation will be based on the benefit amount the Participant will be eligible to receive at age 55.	
 	 	
2.07	Effect of Early Taxation. If a Participant's benefits under the Plan are includible in income pursuant to Code section 409A, the Company shall have the discretion to accelerate the distribution of all or a portion of such includible benefits to the Participant, provided that the Participant shall not be given a direct or indirect election as to whether such discretion is exercised.	
 	 	
2.08	Permitted Delays. Notwithstanding the foregoing, any payment to a Participant under the Plan shall be delayed upon the Company's reasonable anticipation of one or more of the following events:	
 	 	
(a)	The Company's deduction with respect to such payment would be eliminated by application of Code section 162(m); or	
 	 	
(b)	The making of the payment would violate Federal securities laws or other applicable law;	
provided, that any payment delayed pursuant to this Section 2.08 of this Appendix 2 shall be paid in accordance with Code section 409A.

- 18 -

EXHIBIT 10(l)

APPENDIX 3 – COMMITTEES AND APPOINTMENTS
Notwithstanding anything to the contrary in this Plan, effective October 25, 2011, the Chief Executive Officer of Northrop Grumman Corporation shall appoint, and shall have the power to remove, the members of (1) an Administrative Committee that shall have responsibility for administering the Plan (including as such responsibilities are described in Article II of the Plan), other than the "Forfeiture of Benefits" provisions in Sections F.10, G.10 and I.10 of the Plan which Sections shall continue to be administered by the Compensation Committee or its delegate, and (2) an Investment Committee that shall have responsibility for overseeing any rabbi trusts or other informal funding for the Plan.

- 19 -

EXHIBIT 10(l)(i)

APPENDIX B
TO THE NORTHROP GRUMMAN SUPPLEMENTAL PLAN 2
ERISA Supplemental Program 2
(Amended and Restated Effective as of January 1, 2014)

Appendix B to the Northrop Grumman Supplemental Plan 2 (the "Appendix") is hereby amended and restated effective as of January 1, 2014. This restatement amends the October 1, 2013 restatement and does not include changes that apply to Grandfathered Amounts.

Effective October 1, 2013, the Northrop Grumman ERISA Supplemental Plan (the "ERISA Supplemental Plan") was merged into the Appendix. For purposes of the Plan, the ERISA Supplemental Plan shall not be considered part of the Program described in this Appendix, and shall not be a separate Program of the Plan. The Appendix includes Exhibit 1 - Northrop Grumman ERISA Supplemental Plan, which contains the provisions applicable to eligible participants in, and benefits determined pursuant to, the ERISA Supplemental Plan. Accordingly, Exhibit 1 governs all terms of participation in, including without limitation, all benefits, rights and features of individuals covered by, the ERISA Supplemental Plan.
 	 	
B.01	Purpose. The purpose of the Program is:	

(a)	to restore benefits lost under the Pension Plans as a result of the compensation limit in Code section 401(a)(17), or any successor provision; and	

(b)	to include compensation deferred under a Deferred Compensation Plan and deferrals required in connection with participation under the Northrop Grumman Electronic Systems Executive Pension Plan.	

B.02	Eligibility. An employee of the Company, other than Charles H. Noski, is eligible to receive a benefit under this Program if he or she:	

(a)	retires on or after January 1, 1989;	

(b)	has vested in Pension Plan benefits that are reduced because of one or both of the following:	

(1)	the Code section 401(a)(17) limit on compensation; or	

(2)	participation in a Deferred Compensation Plan.	

EXHIBIT 10(l)(i)
 	 	
B.03	Amount of Benefit .	

(a)	The benefit payable under this Program with respect to a Participant who commences benefits during his or her lifetime will equal the amounts described in (1) through (3) below.	

(1)	Cash Balance Piece. Effective for periods after June 30, 2003, a Participant whose retirement benefit is determined under the terms of a Cash Balance Plan is credited under this Program with Benefit Credits (as defined under the Participant's Cash Balance Plan) he or she would have received:	

(A)	but for the restrictions of Code sections 401(a)(17) or 415, as those limits are described by the applicable Cash Balance Plan; and	

(B)	but for the fact the Participant made deferrals to a Deferred Compensation Plan.	
    
For purposes of (B), the Benefit Credits earned are credited in accordance with the terms of the Cash Balance Plan applicable to Eligible Pay in excess of the Social Security Wage Base and any compensation deferred is only treated as compensation for benefit calculation purposes under this Program in the year(s) payment would otherwise have been made and not in the year(s) of actual payment.
 	 	
(2)	Historical and Transition Piece. Effective for periods prior to July 1, 2003 the Participant is credited with the retirement benefit, if any, that would have been payable under the terms of the Pension Plan:	

(A)	but for the restrictions of Code sections 401(a)(17) or 415, as those limits are described by the applicable Pension Plan; and	

(B)	but for the fact that the Participant deferred compensation under either a Deferred Compensation Plan or in connection with the Northrop Grumman Electronic Systems Executive Pension Plan.	
    
For purposes of (B), any compensation deferred is only treated as compensation for benefit calculation purposes under this Program in the year(s) payment would otherwise have been made and not in the year(s) of actual payment.
 	 	
(3)	For Participants whose employment ceases after 2005, all Plan Years after 1996 (not just the last ten) shall be considered in determining the highest three years of eligible pay for purposes of calculating benefit amounts. All benefits resulting from this change in determining the highest three years of eligible pay shall be subject to Code section 409A.	

- 2 -

EXHIBIT 10(l)(i)
 	 	
(b)	The benefit payable under this Program will be reduced by the combined amounts of Pension Plan Benefits and the Northrop Grumman ERISA Supplemental Plan benefits attributable to the applicable Pension Plan.	

(c)	Notwithstanding any other provision of the Program, in accordance with Section G.05, a Participant's total accrued benefits under all plans, programs, and arrangements in which he or she participates, including the benefit accrued under Section B.03, may not exceed 60% of his or her Final Average Salary (as defined in Section G.02(c)), reduced for early retirement using the factors in Section G.09. If this limit is exceeded, the Participant's accrued benefit under Appendix F or G, whichever is applicable, will be reduced first, and the Participant's accrued benefit under this Program will then be reduced to the extent necessary to satisfy the limit.	

(d)	Minimum Normal Retirement Benefits for Designated Participants.	

(1)	"Minimum Normal Retirement Benefits for Designated Participants" are benefits provided only in the Pension Plan appendices (i.e., benefits in excess of the benefits provided by other portions of the Pension Plans).	

(A)	These extra benefits are meant to partially restore benefits lost because of Code section 401(a)(17).	

(B)	Therefore, they are not included in the "retirement benefit" in (a), but they are included for purposes of the offset in (b).	

(2)	Example. An employee is initially entitled to an $85,000 annual benefit under the Pension Plans. The employee would be entitled, but for section 401(a)(17), to a $100,000 annual benefit under the Pension Plans, so that $15,000 is payable under this Program. The Company then adds the minimum normal retirement benefit appendices under the Pension Plans, which are intended to pay all or a portion of the benefits previously payable by this Program under the Pension Plans instead. Assume this results in the employee being entitled to an additional $10,000 annual benefit under the appendices to the Pension Plans, so that the Pension Plans now pay a total of $95,000. This Program restores to the employee only the difference between $100,000 and $95,000, or a $5,000 annual benefit.	

(e)	Benefits under this Program will only be paid to supplement benefit payments actually made from a Pension Plan. If benefits are not payable under a Pension Plan because the Participant has failed to vest or for any other reason, no payments will be made under this Program with respect to such Pension Plan.	

(f)	The following shall not be considered as compensation for purposes of determining the amount of any benefit under the Program:	

- 3 -

EXHIBIT 10(l)(i)
 	 	
(1)	any payment authorized by the Compensation Committee that is (1) calculated pursuant to the method for determining a bonus amount under the Annual Incentive Plan (AIP) for a given year, and (2) paid in lieu of such bonus in the year prior to the year the bonus would otherwise be paid under the AIP, and	

(2)	any award payment under the Northrop Grumman Long-Term Incentive Cash Plan.	

B.04	Preretirement Surviving Spouse Benefit .	

(a)	Preretirement surviving spouse benefits will be payable under this Program on behalf of a Participant if such Participant's surviving spouse is eligible for benefits payable from a Pension Plan.	

(b)	The benefit payable will be:	

(1)	for periods after June 30, 2003, the amount which would have been payable under the Cash Balance Plan:	

(A)	but for the restrictions of Code sections 401(a)(17) and 415 (or any successor sections), as those limits are described by the applicable Cash Balance Plan; and	

(B)	but for the fact that the Participant deferred compensation under a Deferred Compensation Plan (with Benefit Credits determined by reference to amounts exceeding the Social Security Wage Base); and	

(2)	for periods prior to July 1, 2003, the amount which would have been payable under the Pension Plan:	

(A)	but for the restrictions of Code sections 401(a)(17) and 415 (or any successor sections), as those limits are described by the applicable Pension Plan; and	

(B)	but for the fact that the Participant deferred compensation under either a Deferred Compensation Plan or in connection with the Northrop Grumman Electronic Systems Executive Pension Plan.	

(3)	For Participants whose employment ceases after 2005, all Plan Years after 1996 (not just the last ten) shall be considered in determining the highest three years of eligible pay for purposes of calculating benefit amounts. All benefits resulting from this change in determining the highest three years of eligible pay shall be subject to Code section 409A.	

- 4 -

EXHIBIT 10(l)(i)
 	 	
(c)	For purposes of paragraph (b)(2) above, any compensation deferred will only be treated as compensation for benefit calculation purposes under this Program in the year(s) payment would otherwise have been made and not in the year(s) of actual payment.	

(d)	The benefit payable under this Program will be reduced by the combined amounts of the Pension Plan Benefits and the Northrop Grumman Corporation ERISA Supplemental Plan benefits attributable to the applicable Pension Plan.	

(e)	No benefit will be payable under this Program with respect to a spouse after the death of that spouse.	

(f)	The following shall not be considered as compensation for purposes of determining the amount of any benefit under the Program:	

(1)	any payment authorized by the Compensation Committee that is (1) calculated pursuant to the method for determining a bonus amount under the Annual Incentive Plan (AIP) for a given year, and (2) paid in lieu of such bonus in the year prior to the year the bonus would otherwise be paid under the AIP, and	

(2)	any award payment under the Northrop Grumman Long-Term Incentive Cash Plan.	

B.05	Plan Termination. No further benefits may be earned under this Program with respect to a particular Pension Plan after the termination of such Pension Plan.	

B.06	Pension Plan Benefits. For purposes of this Appendix, the term "Pension Plan Benefits" generally means the benefits actually payable to a Participant, spouse, beneficiary or contingent annuitant under a Pension Plan. However, this Program is only intended to remedy pension reductions caused by the operation of section 401(a)(17) and not reductions caused for any other reason. In those instances where pension benefits are reduced for some other reason, the term "Pension Plan Benefits" shall be deemed to mean the benefits that actually would have been payable but for such other reason.	

Examples of such other reasons include, but are not limited to, the following:
 	 	
(a)	A reduction in pension benefits as a result of a distress termination (as described in ERISA § 4041(c) or any comparable successor provision of law) of a Pension Plan. In such a case, the Pension Plan Benefits will be deemed to refer to the payments that would have been made from the Pension Plan had it terminated on a fully funded basis as a standard termination (as described in ERISA § 4041(b) or any comparable successor provision of law).	

(b)	A reduction of accrued benefits as permitted under Code section 412(c)(8), as amended, or any comparable successor provision of law.	

- 5 -

EXHIBIT 10(l)(i)
 	 	
(c)	A reduction of pension benefits as a result of payment of all or a portion of a Participant's benefits to a third party on behalf of or with respect to a Participant.	

B.07	ISA Excess Plan Participants .	

(a)	Background. Effective as of the ISA Eligibility Date, all liabilities for benefits accrued after that date under the Northrop Grumman Integrated Systems & Aerostructures (ISA) Sector ERISA Excess Plan (the "ISA Plan") are transferred to this Plan. This Section describes the treatment of those liabilities (" Transferred Liabilities ") and the Participants to whom those liabilities relate (" Transferred Participants ").	
The "ISA Eligibility Date" is July 1, 2000.
 	 	
(b)	Transferred Participants. This Section B.07 applies only to employees who: (1) were active participants in the ISA Plan as of the day before the ISA Eligibility Date; and (2) accrued a benefit under the terms of the ISA Plan on or after the ISA Eligibility Date.	

(c)	Treatment of Transferred Liabilities. The Transferred Liabilities consist of any post-ISA Eligibility Date accruals under Article III of the ISA Plan. Those liabilities are treated as if they were accrued under Section B.03 of this Plan. Other provisions of this Plan govern as provided below.	

(d)	Distributions. Distributions of benefits attributable to the Transferred Liabilities are generally made under Articles II and III of this Plan.	

(e)	Other Provisions. The Transferred Liabilities and the Transferred Participants are fully subject to Articles I-III and Appendix B of this Plan. The amount of the Transferred Liabilities is, however, determined under Article III of the ISA Plan.	

B.08	Grumman Excess Plan Spinoff .	

(a)	Background. Effective as of the Grumman Spinoff Date, all liabilities for benefits accrued by Transferred Participants under the Northrop Grumman Excess Plan for the Grumman Pension Plan (the "Grumman Plan") were transferred to this Plan. This Section describes the treatment of those liabilities (" Transferred Liabilities ") under this Plan.	
The "Grumman Spinoff Date" is July 1, 2003.
 	 	
(b)	Treatment of Transferred Liabilities. The Transferred Liabilities will generally be treated under the Plan like any other benefits under B.03.	

(c)	Transferred Participants. The "Transferred Participants" are active employees who were eligible to participate in the Grumman Plan as of June 30, 2003. Grumman Plan benefits of individuals who terminated employment before July 1, 2003	

- 6 -

EXHIBIT 10(l)(i)

remain subject to the Grumman Plan, and this Plan assumes no liabilities for those benefits.
 	 	
(d)	Distributions. Distributions of amounts corresponding to the Transferred Liabilities will generally be made under Articles II and III.	

(e)	Other Provisions. The Transferred Liabilities and the Transferred Participants are fully subject to Articles I-III and Appendix B.	

B.09	Liabilities Transferred to HII. Northrop Grumman Corporation distributed its interest in Huntington Ingalls Industries, Inc. ("HII") to its shareholders on March 31, 2011 (the "HII Distribution Date"). Pursuant to an agreement between Northrop Grumman Corporation and HII, on the HII Distribution Date certain employees and former employees of HII ceased to participate in the Program and the liabilities for these participants" benefits under the Program were transferred to HII. On and after the HII Distribution Date, the Company and the Program, and any successors thereto, shall have no further obligation or liability to any such participant with respect to any benefit, amount, or right due under the Program.	

* * *

IN WITNESS WHEREOF, this Plan is hereby executed by a duly authorized officer on this 13th day of December, 2013.

NORTHROP GRUMMAN CORPORATION

By: /s/ Denise Peppard
Denise Peppard
Corporate Vice President and
Chief Human Resources Officer

- 7 -

EXHIBIT 10(l)(i)

EXHIBIT 1
NORTHROP GRUMMAN ERISA SUPPLEMENTAL PLAN

The Northrop Grumman ERISA Supplemental Plan (the “Plan”), formerly known as the Northrop Corporation ERISA Supplemental Plan 1, is hereby amended and restated effective as of January 1, 2014 in this Exhibit 1 to the Appendix B to the Northrop Grumman Supplemental Plan 2 (the "Appendix"). This restatement amends the October 1, 2013 restatement of the Plan and does not include changes that apply to Grandfathered Amounts.

The Plan is intended to comply with Code section 409A and official guidance issued thereunder (except for Grandfathered Amounts). Notwithstanding any other provision of this Plan, this Plan shall be interpreted, operated and administered in a manner consistent with this intention.

Effective October 1, 2013, the Plan was merged into the Appendix. For purposes of the Northrop Grumman Supplemental Plan 2, the Plan shall not be considered part of the Program described in this Appendix, and shall not be a separate Program of the Northrop Grumman Supplemental Plan 2. This Exhibit 1 (including its Appendices A, B and C) contains the provisions of the Appendix applicable to eligible participants in, and benefits determined pursuant to, the Plan. Accordingly, this Exhibit 1 governs all terms of participation in, including without limitation, all benefits, rights and features, of individuals and benefits covered by, this Exhibit. All defined terms in this Exhibit 1 (including, but not limited to the term “Plan”) are defined solely within this Exhibit 1. The terms of the Appendix or of the Northrop Grumman Supplemental Plan 2 are not otherwise applicable to this Exhibit 1 for purposes of determining benefits due hereunder or otherwise.

ARTICLE I
Definitions
For purposes of the Plan, the following terms, when capitalized, will have the following meanings:
 	 	
1.01	Affiliated Companies. The Company and any other entity related to the Company under the rules of section 414 of the Code. The Affiliated Companies include Northrop Grumman Corporation and its 80%-owned subsidiaries and may include other entities as well.	
 	 	
1.02	CIC Plans. Northrop Grumman Corporation Change-In-Control Severance Plan (effective August 1, 1996, as amended) or the Northrop Grumman Corporation March 2000 Change-In-Control Severance Plan.	
 	 	
1.03	Code. The Internal Revenue Code of 1986, as amended.	
 	 	
1.04	Company. The Company as designated in the Pension Plans.	
 	 	
1.05	Grandfathered Amounts. Plan benefits that were earned and vested as of December 31, 2004 within the meaning of Code section 409A and official guidance thereunder.	

EXHIBIT 10(l)(i)
 	 	
1.06	Key Employee    . An employee treated as a "specified employee" under Code section 409A(a)(2)(B)(i) of the Company or the Affiliated Companies (i.e., a key employee (as defined in Code section 416(i) without regard to paragraph (5) thereof)) if the Company's or an Affiliated Company's stock is publicly traded on an established securities market or otherwise. The Company shall determine in accordance with a uniform Company policy which Participants are Key Employees as of each December 31 in accordance with IRS regulations or other guidance under Code section 409A, provided that in determining the compensation of individuals for this purpose, the definition of compensation in Treas. Reg. § 1.415(c)-2(d)(3) shall be used. Such determination shall be effective for the twelve (12) month period commencing on April 1 of the following year.	
 	 	
1.07	Participant. Any employee who (a) is eligible for benefits under one or both Pension Plans, (b) meets the eligibility requirements of Section 2.02 of this Plan and (c) and has not received full payment under the Plan.	
 	 	
1.08	Payment Date. The 1st of the month coincident with or following the later of (a) the date the Participant attains age 55, or (b) the date the Participant Separates from Service.	
 	 	
1.09	Plan. The Northrop Grumman ERISA Supplemental Plan, formerly known as the Northrop Corporation ERISA Supplemental Plan 1.	
 	 	
1.10	Pension Plan Benefits. This term is defined in Section 2.08 of this Plan.	
 	 	
1.11	Pension Plan and Pension Plans. Any of the following:	
(a)    The Northrop Grumman Retirement Plan
(b)    The Northrop Grumman Retirement Plan—Rolling Meadows Site
 	 	
(c)	The Northrop Grumman Retirement Value Plan (effective as of January 1, 2000)	
 	 	
(d)	The Northrop Grumman Electronics Systems – Space Division Salaried Employees’ Pension Plan (effective as of the Aerojet Closing Date)	
 	 	
(e)	The Northrop Grumman Electronics Systems – Space Division Union Employees’ Pension Plan (effective as of the Aerojet Closing Date)	
“Aerojet Closing Date” means the Closing Date specified in the April 19, 2001 Asset Purchase Agreement by and Between Aerojet-General Corporation and Northrop Grumman Systems Corporation.
 	 	
1.12	Separation from Service or Separates from Service. A "separation from service" within the meaning of Code section 409A.	
 	 	
1.13	Termination of Employment. Complete termination of employment with the Affiliated Companies.	
 	 	
(a)	If a Participant leaves one Affiliated Company to go to work for another, he or she will not have a Termination of Employment.	
 	 	
(b)	A Participant will have a Termination of Employment if he or she leaves the Affiliated Companies because the affiliate he or she works for ceases to be an Affiliated Company because it is sold or spunoff.	

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EXHIBIT 10(l)(i)

ARTICLE II
Eligibility for and Amount of Benefits
 	 	
2.01	Purpose. The purpose of this Plan is simply to restore to employees of the Company the benefits they lose under the Pension Plans as a result of the benefit limits in Code section 415, as amended, or any successor section (“section 415”), as the benefit limits are described in the applicable Pension Plan.	
 	 	
2.02	Eligibility. Each Participant is eligible to receive a benefit under this Plan if:	
 	 	
(a)	he or she has vested in benefits under one or more of the Pension Plans;	
 	 	
(b)	he or she has vested benefits reduced because of the application of section 415;	
 	 	
(c)	he or she is not eligible to receive a benefit under the Northrop Corporation Supplemental Retirement Income Program for Senior Executives or any other plan or program which bars an employee from participation in this Plan; and	
 	 	
(d)	he or she is not a “Participant” in the Charles H. Noski Executive Retirement Plan as that term is defined under that plan.	
 	 	
2.03	Amount of Benefit. The benefit payable from the Company under this Plan to a Participant will equal the retirement benefit, if any, which would have been payable to the Participant under the terms of a Pension Plan but for the restrictions of section 415 (as described in the applicable Pension Plan).	
The benefit payable under this Plan will be reduced by the amount of Pension Plan Benefits attributable to the applicable Pension Plan.
Benefits under this Plan will only be paid to supplement benefit payments actually made from a Pension Plan. If benefits are not payable under a Pension Plan because the Participant has failed to vest or for any other reason, no payments will be made under this Plan with respect to such Pension Plan.
In no event, however, (1) will this Plan pay any amount of a Participant's retirement benefit, if any, attributable to the “2000 Ad Hoc Increase for Retirees” Appendix added to certain of the Company’s tax-qualified plans pursuant to the Board of Directors resolution adopted May 17, 2000, or (2) will a Participant be entitled to a benefit (or an increased benefit) from or as a result of participation in this Plan under the Board of Directors resolution adopted May 17, 2000.
The following shall not be considered as compensation for purposes of determining the amount of any benefit under the Plan:
 	 	
(1)	any payment authorized by the Compensation Committee that is (a) calculated pursuant to the method for determining a bonus amount under the Annual Incentive Plan (AIP) for a given year, and (b) paid in lieu of such bonus in the year prior to the year the bonus would otherwise be paid under the AIP, and	
 	 	
(2)	any award payment under the Northrop Grumman Long-Term Incentive Cash Plan.	
 	 	
2.04	Preretirement Surviving Spouse Benefit. This Section only applies to Grandfathered Amounts.	

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EXHIBIT 10(l)(i)

Preretirement surviving spouse benefits will be payable under this Plan on behalf of a Participant if such Participant’s surviving spouse is eligible for preretirement surviving spouse benefits payable from a Pension Plan. The benefit payable will be the amount which would have been payable under the Pension Plan but for the restrictions of section 415 (as described in the applicable Pension Plan).
The benefit payable under this Plan will be reduced by the amount of Pension Plan Benefits attributable to the applicable Pension Plan.
No benefit will be payable under this Plan with respect to a spouse after the death of that spouse.
See Appendix A and Appendix B for the rules that apply to other benefits earned under the Plan.
 	 	
2.05	Forms and Times of Benefit Payments. This Section only applies to Grandfathered Amounts.	
The Company will determine the form and timing of benefit payments in its sole discretion. However, for payments made to supplement those of a particular Pension Plan, the Company will only select among the options available under that Pension Plan, and using the same actuarial adjustments used in that Pension Plan except in cases of lump sums.
Whenever the present value of the amount payable under the Plan does not exceed $10,000, it will be paid in the form of a single lump sum as of the first of the month following Termination of Employment. The lump sum will be calculated using the factors and methodology described in Section 3.08 below. (See Section 2.09 for the rule that applies as of January 1, 2008).
No payments will commence under this Plan until a Participant has a Termination of Employment, even in cases where benefits have commenced under a Pension Plan for Participants over age 70-1/2.
See Appendix A and Appendix B for the rules that apply to other benefits earned under the Plan.
 	 	
2.06	Beneficiaries and Spouses. This Section only applies to Grandfathered Amounts.	
If the Company selects a form of payment which includes a survivor benefit, the Participant may make a beneficiary designation, which may be changed at any time prior to commencement of benefits. A beneficiary designation must be in writing and will be effective only when received by the Company.
If a Participant is married on the date his or her benefits are scheduled to commence, his or her beneficiary will be his or her spouse unless some other beneficiary is named with spousal consent. Spousal consent, to be effective, must be submitted in writing before benefits commence and must be witnessed by a Plan representative or notary public. No spousal consent is necessary if the Company determines that there is no spouse or that the spouse cannot be found.
The Participant’s spouse will be the spouse as determined under the underlying Pension Plan.

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EXHIBIT 10(l)(i)

See Appendix A and Appendix B for the rules that apply to other benefits earned under the Plan.
 	 	
2.07	Plan Termination. No further benefits may be earned under this Plan with respect to a particular Pension Plan after the termination of such Pension Plan.	
 	 	
2.08	Pension Plan Benefits. The term “Pension Plan Benefits” generally means the benefits actually payable to a Participant, spouse, beneficiary or contingent annuitant under a Pension Plan. However, this Plan is only intended to remedy pension reductions caused by the operation of section 415 and not reductions caused for any other reason. In those instances where pension benefits are reduced for some other reason, the term “Pension Plan Benefits” shall be deemed to mean the benefits that would have been actually payable but for such other reason.	
Examples of such other reasons include, but are not limited to, the following:
 	 	
(a)	A reduction in pension benefits as a result of a distress termination (as described in ERISA § 4041(c) or any comparable successor provision of law) of a Pension Plan. In such a case, the Pension Plan Benefits will be deemed to refer to the payments that would have been made from the Pension Plan had it terminated on a fully funded basis as a standard termination (as described in ERISA § 4041(b) or any comparable successor provision of law).	
 	 	
(b)	A reduction of accrued benefits as permitted under Code section 412(c)(8), as amended, or any comparable successor provision of law.	
 	 	
(c)	A reduction of pension benefits as a result of payment of all or a portion of a Participant’s benefits to a third party on behalf of or with respect to a Participant.	
 	 	
2.09	Mandatory Cashout. Notwithstanding any other provisions in the Plan, Participants with Grandfathered Amounts who have not commenced payment of such benefits prior to January 1, 2008 will be subject to the following rules:	

(a)	Post-2007 Terminations. Participants who have a Termination of Employment after 2007 will receive a lump sum distribution of the present value of their Grandfathered Amounts within two months of Termination of Employment (without interest), if such present value is below the Code section 402(g) limit in effect at the Termination of Employment.	

(b)	Pre-2008 Terminations. Participants who had a Termination of Employment before 2008 will receive a lump sum distribution of the present value of their Grandfathered Amounts within two months of the time they commence payment of their underlying qualified pension plan benefits (without interest), if such present value is below the Code section 402(g) limit in effect at the time such payments commence.	

For purposes of calculating present values under this Section, the actual assumptions and calculation procedures for lump sum distributions under the Northrop Grumman Pension Plan shall be used.

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EXHIBIT 10(l)(i)
 	 	
2.10	Optional Payment Forms. Participants with Grandfathered Amounts shall be permitted to elect (a) or (b) below:	

(a)	To receive their Grandfathered Amounts in any form of distribution available under the Plan at October 3, 2004, provided that form remains available under the underlying qualified pension plan at the time payment of the Grandfathered Amounts commences. The conversion factors for these distribution forms will be based on the factors or basis in effect under this Plan on October 3, 2004.	

(b)	To receive their Grandfathered Amounts in any life annuity form not included in (a) above but included in the underlying qualified pension plan distribution options at the time payment of the Grandfathered Amounts commences. The conversion factors will be based on the following actuarial assumptions:	

Interest Rate:        6%
 	 	
Mortality Table:	RP-2000 Mortality Table projected 15 years for future standardized cash balance factors	

2.11	Special Tax Distribution. On the date a Participant's retirement benefit is reasonably ascertainable within the meaning of IRS regulations under Code section 3121(v)(2), an amount equal to the Participant's portion of the FICA tax withholding will be distributed in a single lump sum payment. This payment will be based on all benefits under the Plan, including Grandfathered Amounts. This payment will reduce the Participant's future benefit payments under the Plan on an actuarial basis.	

ARTICLE III
Lump Sum Election
This Article only applies with respect to Grandfathered Amounts. See Appendix A and Appendix B for the distribution rules that apply to other benefits earned under the Plan.
 	 	
3.01	In General. This Article sets forth the rules under which Participants may elect to receive their benefits in a lump sum. Except as provided in Section 3.08, this Article does not apply to active employees (as defined in Section 3.04) in cases where benefits are automatically payable in lump sum form under Article II.	
 	 	
3.02	Retirees Election. Participants and Participants’ beneficiaries already receiving monthly benefits under the Plan at its inception will be given a one-time opportunity to elect a lump sum payout of future benefit payments.	
 	 	
(a)	The election must be made within a 60-day period determined by the Company. Within its discretion, the Company may delay the commencement of the 60-day period in instances where the Company is unable to timely communicate with a particular payee.	
 	 	
(b)	The determination as to whether a payee is already receiving monthly benefits will be made at the beginning of the 60-day period.	

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EXHIBIT 10(l)(i)
 	 	
(c)	An election to take a lump sum must be accompanied by a waiver of the existing retiree medical benefits by those Participants (and their covered spouses or surviving spouses) entitled either to have such benefits entirely paid for by the Company or to receive such benefits as a result of their classification as an employee under Executive Class Code II.	
Following the waiver, waiving Participants (and covered spouses or surviving spouses) will be entitled to the coverage offered to employees who are eligible for Senior Executive Retirement Insurance Benefits in effect as of July 1, 1993.
 	 	
(d)	If the person receiving payments as of the beginning of the 60-day period dies prior to making a lump sum election, his or her beneficiary, if any, may not make the lump sum election.	
 	 	
(e)	Elections to receive a lump sum (and waivers under (c)) must be made in writing and must include spousal consent if the payee (whether the Participant or beneficiary) is married. Elections and spousal consent must be witnessed by a Plan representative or a notary public.	
 	 	
(f)	An election (with spousal consent, where required) to receive the lump sum made at any time during the 60-day period will be irrevocable. If no proper election has been made by the end of the 60-day period, payments will continue unchanged in the monthly form that had previously been applicable.	
 	 	
3.03	Retirees Lump Sum. If a retired Participant or beneficiary makes a valid election under Section 3.02 within the 60-day period, monthly payments will continue in the previously applicable form for 12 months (assuming the payees live that long).	
 	 	
(a)	As of the first of the 13th month, the present value of the remaining benefit payments will be paid in a single lump sum to the Participant, if alive, or, if not, to the beneficiary under the previously applicable form of payment.	
 	 	
(b)	No lump sum payment will be made if:	
 	 	
(1)	The Participant is receiving monthly benefit payments in a form that does not provide for survivor benefits and the Participant dies before the time the lump sum payment is due.	
 	 	
(2)	The Participant is receiving monthly benefit payments in a form that does provide for survivor benefits but the Participant and the beneficiary die before the time the lump sum payment is due.	
 	 	
(c)	The following rules apply where payment is being made in the form of a 10-year certain and continuous life annuity option:	
 	 	
(1)	If the Participant is deceased at the commencement of the 60-day election period, the surviving beneficiary may not make the election if there are less than 13 months left in the 10-year certain period.	
 	 	
(2)	If the Participant elects the lump sum and dies prior to the first of the 13th month:	

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EXHIBIT 10(l)(i)
 	 	
(A)	if the 10-year certain period has already ended, all monthly payments will cease at the Participant’s death and no lump sum payment will be made;	
 	 	
(B)	if the 10-year certain period ends after the Participant’s death and before the beginning of the 13 th  month, monthly payments will end at the end of the 10-year certain period and no lump sum payment will be made; and	
 	 	
(C)	if the 10-year certain period ends after the beginning of the 13th month, monthly payments will continue through the 12 th  month, and a lump sum payment will be made as of the first of the 13 th  month, equal to the present value of the remaining benefit payments.	
 	 	
3.04	Actives Election. Active Participants may elect to have their benefits paid in the form of a single lump sum under this Section.	
 	 	
(a)	A Participant is considered to be “Active” under this Section if he or she is still employed by the Affiliated Companies on or after the beginning of the initial 60-day period referred to in Section 3.02.	
 	 	
(b)	An election to take a lump sum may be made at any time during the 60-day period prior to Termination of Employment and covers both—	
 	 	
(1)	Benefits payable to the Participant during his or her lifetime, and	
 	 	
(2)	Survivor benefits (if any) payable to the Participant’s beneficiary, including preretirement death benefits (if any) payable to the Participant’s spouse.	
 	 	
(c)	An election does not become effective until the earlier of	
 	 	
(1)	the Participant’s Termination of Employment, or	
 	 	
(2)	the Participant’s death.	
Before the election becomes effective, it may be revoked.
If a Participant does not have a Termination of Employment within 60 days after making an election, the election will never take effect.
 	 	
(d)	An election may only be made once. If it fails to become effective after 60 days or is revoked before becoming effective, it cannot be made again at a later time.	
 	 	
(e)	After a Participant has a Termination of Employment, no election can be made.	
 	 	
(f)	If a Participant dies before making a lump sum election, his or her spouse may not make a lump sum election with respect to any benefits which may be due the spouse.	
 	 	
(g)	Elections to receive a lump sum must be made in writing and must include spousal consent if the Participant is married. Elections and spousal consent must be witnessed by a Plan representative or a notary public.	

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EXHIBIT 10(l)(i)
 	 	
3.05	Actives Lump Sum – Retirement Eligible. If a Participant with a valid lump sum election in effect under Section 3.04 has a Termination of Employment after he or she is entitled to commence benefits under the Pension Plans, payments will be made in accordance with this Section.	
 	 	
(a)	Monthly benefit payments will be made for up to 12 months, commencing the first of the month following Termination of Employment. Payments will be made:	
 	 	
(1)	in the case of a Participant who is not married on the date benefits are scheduled to commence, based on a straight life annuity for the Participant’s life and ceasing upon the Participant’s death should he or she die before the 12 months elapse, or	
 	 	
(2)	in the case of a Participant who is married on the date benefits are scheduled to commence, based on a joint and survivor annuity form —	
 	 	
(A)	with the survivor benefit equal to 50% of the Participant’s benefit;	
 	 	
(B)	with the Participant’s spouse as the survivor annuitant;	
 	 	
(C)	determined by using the contingent annuitant option factors used to convert straight life annuities to 50% joint and survivor annuities under the Northrop Retirement Plan; and	
 	 	
(D)	with all payments ceasing upon the death of both the Participant and his or her spouse should they die before the 12 months elapse.	
 	 	
(b)	As of the first of the 13th month, the present value of the remaining benefit payments will be paid in a single lump sum. Payment of the lump sum will be made to the Participant if he or she is still alive, or, if not, to his or her surviving spouse, if any.	
 	 	
(c)	No lump sum payment will be made if:	
 	 	
(1)	The Participant is receiving monthly benefit payments in the form of a straight life annuity and the Participant dies before the time the lump sum payment is due.	
 	 	
(2)	The Participant is receiving monthly benefit payments in a joint and survivor annuity form and the Participant and his or her spouse both die before the time the lump sum payment is due.	
 	 	
(d)	A lump sum will be payable to a Participant’s spouse as of the first of the month following the date of the Participant’s death, if:	
 	 	
(1)	the Participant dies after making a valid lump sum election but prior to commencement of any benefits under this Plan;	
 	 	
(2)	the Participant is survived by a spouse who is entitled to a preretirement surviving spouse benefit under this Plan; and	
 	 	
(3)	the spouse survives to the first of the month following the date of the Participant’s death.	

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EXHIBIT 10(l)(i)
 	 	
3.06	Actives Lump Sum – Not Retirement Eligible. If a Participant with a valid lump sum election in effect under Section 3.04, has a Termination of Employment before he or she is entitled to commence benefits under the Pension Plans, payments will be made in accordance with this Section.	
 	 	
(a)	No monthly benefit payments will be made.	
 	 	
(b)	Following Termination of Employment, a single lump sum payment of the benefit will be made on the first of the month following 12 months after the date of the Participant’s Termination of Employment.	
 	 	
(c)	A lump sum will be payable to a Participant’s spouse as of the first of the month following the date of the Participant’s death, if:	
 	 	
(1)	the Participant dies after making a valid lump sum election but prior to commencement of any benefits under this Plan;	
 	 	
(2)	the Participant is survived by a spouse who is entitled to a preretirement surviving spouse benefit under this Plan; and	
 	 	
(3)	the spouse survives to the first of the month following the date of the Participant’s death.	
 	 	
(d)	No lump sum payment will be made if the Participant is unmarried at the time of death and dies before the time the lump sum payment is due.	
 	 	
3.07	Lump Sums with CIC Severance Plan Election. A Participant who elects lump sum payments of all his or her nonqualified benefits under the CIC Plans is entitled to have his or her benefits paid as a lump sum calculated under the terms of the applicable CIC Plan. Otherwise, benefit payments are governed by the general provisions of this Article, which provide different rules for calculating the amount of lump sum payments.	
 	 	
3.08	Calculation of Lump Sum. The factors to be used in calculating the lump sum are as follows:	
Interest: Whichever of the following two rates that produces the smaller lump sum:
 	 	
(1)	the discount rate used by the Company for purposes of Statement of Financial Accounting Standards No. 87 of the Financial Accounting Standards Board as disclosed in the Company’s annual report to shareholders for the year end immediately preceding the date of distribution, or	
 	 	
(2)	the applicable interest rate that would be used to calculate a lump sum value for the benefit under the Pension Plans.	
Mortality: the applicable mortality table that would be used to calculate a lump sum value for the benefit under the Northrop Grumman Retirement Plan.
Increase in Section 415 Limit: 4% per year.
Age: Age rounded to the nearest month on the date the lump sum is payable.

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EXHIBIT 10(l)(i)

Variable Unit Values: Variable Unit Values are presumed not to increase for future periods after the date the lump sum is payable.
The annuity to be converted to a lump sum will be the remaining annuity currently payable to the Participant or his or her beneficiary at the time the lump sum is due.
For example, assume a Participant is receiving benefit payments in the form of a 50% joint and survivor annuity.
If the Participant and the survivor annuitant are both still alive at the time the lump sum payment is due, the present value calculation will be based on the remaining benefits that would be paid to both the Participant and the survivor in the annuity form.
If only the survivor is alive, the calculation will be based solely on the remaining 50% survivor benefits that would be paid to the survivor.
If only the Participant is alive, the calculation will be based solely on the remaining benefits that would be paid to the Participant.
In the case of a Participant who dies prior to commencement of benefits under this Plan so that only a preretirement surviving spouse benefit (if any) is payable, the lump sum will be based solely on the value of the preretirement surviving spouse benefit.
In the case of a lump-sum under Section 3.07 (related to lump sums with a CIC Severance Plan election), the lump-sum amount will be calculated as described in that section and the rules of this Section 3.08 are not used.
 	 	
3.09	Spousal Consent. Spousal consent, as required for elections as described above, need not be obtained if the Company determines that there is no spouse or the spouse cannot be located.	
ARTICLE IV
Miscellaneous
 	 	
4.01	Amendment and Plan Termination. The Company may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part for any reason. This includes the right to amend or eliminate any of the provisions of the Plan with respect to lump sum distributions, including any lump sum calculation factors, whether or not a Participant has already made a lump sum election. Notwithstanding the foregoing, no amendment or termination of the Plan shall reduce the amount of a Participant's accrued benefit under the Plan as of the date of such amendment or termination.	
No amendment of the Plan shall apply to the Grandfathered Amounts, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent "material modification" to the Grandfathered Amounts.

The Company may, in its sole discretion, seek reimbursement from the Pension Plans to the extent this Plan pays Pension Plan Benefits to which Participants were entitled to or became entitled to under the Pension Plans.

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EXHIBIT 10(l)(i)
 	 	
4.02	Not an Employment Agreement. Nothing contained in this Plan gives any Participant the right to be retained in the service of the Company, nor does it interfere with the right of the Company to discharge or otherwise deal with Participants without regard to the existence of this Plan.	
 	 	
4.03	Assignment of Benefits. A Participant, surviving spouse or beneficiary may not, either voluntarily or involuntarily, assign, anticipate, alienate, commute, sell, transfer, pledge or encumber any benefits to which he or she is or may become entitled under the Plan, nor may Plan benefits be subject to attachment or garnishment by any of their creditors or to legal process.	
Notwithstanding the foregoing, all or a portion of a Participant's benefit may be paid to another person as specified in a domestic relations order that the plan administrator determines is qualified (a "Qualified Domestic Relations Order"). For this purpose, a Qualified Domestic Relations Order means a judgment, decree, or order (including the approval of a settlement agreement) which is:
(1)    issued pursuant to a State's domestic relations law;
 	 	
(2)	relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant;	
 	 	
(3)	creates or recognizes the right of a spouse, former spouse, child or other dependent of the Participant to receive all or a portion of the Participant's benefits under the Plan; and	
 	 	
(4)	meets such other requirements established by the plan administrator.	
The plan administrator shall determine whether any document received by it is a Qualified Domestic Relations Order. In making this determination, the plan administrator may consider the rules applicable to "domestic relations orders" under Code section 414(p) and ERISA section 206(d), and such other rules and procedures as it deems relevant.
 	 	
4.04	Nonduplication of Benefits. This Section applies if, despite Section 4.03, with respect to any Participant (or his or her beneficiaries), the Company is required to make payments under this Plan to a person or entity other than the payees described in the Plan. In such a case, any amounts due the Participant (or his or her beneficiaries) under this Plan will be reduced by the actuarial value of the payments required to be made to such other person or entity.	
Actuarial value will be determined using the factors and methodology described in Section 3.08 above (in the case of lump sums) and using the actuarial assumptions in the underlying Pension Plan in all other cases.
In dividing a Participant’s benefit between the Participant and another person or entity, consistent actuarial assumptions and methodologies will be used so that there is no increased actuarial cost to the Company.
 	 	
4.05	Funding. Participants have the status of general unsecured creditors of the Company and the Plan constitutes a mere promise by the Company to make benefit payments in the future. The Company may, but need not, fund benefits under the Plan through a trust. If	

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EXHIBIT 10(l)(i)

it does so, any trust created by the Company and any assets held by the trust to assist it in meeting its obligations under the Plan will conform to the terms of the model trust, as described in Internal Revenue Service Revenue Procedure 92-64, but only to the extent required by Internal Revenue Service Revenue Procedure 92-65. It is the intention of the Company and Participants that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA.
Any funding of benefits under this Plan will be in the Company’s sole discretion. The Company may set and amend the terms under which it will fund and may cease to fund at any time.
 	 	
4.06	Construction. The Company shall have full discretionary authority to determine eligibility and to construe and interpret the terms of the Plan, including the power to remedy possible ambiguities, inconsistencies or omissions.	
 	 	
4.07	Governing Law. This Plan shall be governed by the law of the Commonwealth of Virginia, except to the extent superseded by federal law.	
 	 	
4.08	Actions By Company and Claims Procedures. Any powers exercisable by the Company under the Plan shall be utilized by written resolution adopted by the Board of Directors or its delegate. The Board may by written resolution delegate any of the Company’s powers under the Plan and any such delegations may provide for subdelegations, also by written resolution.	
The Company's standardized "Northrop Grumman Nonqualified Retirement Plans Claims and Appeals Procedures" shall apply in handling claims and appeals under this Plan.
 	 	
4.09	Plan Representatives. Those authorized to act as Plan representatives will be designated in writing by the Board of Directors or its delegate.	
 	 	
4.10	Number. The singular, where appearing in this Plan, will be deemed to include the plural, unless the context clearly indicates the contrary.	
 	 	
4.11	2001 Reorganization. Effective as of the 2001 Reorganization Date in (d), the corporate structure of Northrop Grumman Corporation and its affiliates was modified. Effective as of the Litton Acquisition Date in (e), Litton Industries, Inc. was acquired and became a subsidiary of the Northrop Grumman Corporation (the “Litton Acquisition”).	
 	 	
(a)	The former Northrop Grumman Corporation was renamed Northrop Grumman Systems Corporation. It became a wholly-owned subsidiary of the new parent of the reorganized controlled group.	
 	 	
(b)	The new parent corporation resulting from the restructuring is called Northrop Grumman Corporation. All references in this Plan to the former Northrop Grumman Corporation and its Board of Directors now refer to the new parent corporation bearing the same name and its Board of Directors.	
 	 	
(c)	As of the 2001 Reorganization Date, the new Northrop Grumman Corporation became the sponsor of this Plan, and its Board of Directors assumed authority over this Plan.	
 	 	
(d)	2001 Reorganization Date. The date as of which the corporate restructuring described in (a) and (b) occurred.	

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EXHIBIT 10(l)(i)
 	 	
(e)	Litton Acquisition Date. The date as of which the conditions for the completion of the Litton Acquisition were satisfied in accordance with the “Amended and Restated Agreement and Plan of Merger Among Northrop Grumman Corporation, Litton Industries, Inc., NNG, Inc., and LII Acquisition Corp.	
 	 	
4.12	Liabilities Transferred to HII. Northrop Grumman Corporation distributed its interest in Huntington Ingalls Industries, Inc. ("HII) to its shareholders on March 31, 2011 (the "HII Distribution Date"). Pursuant to an agreement between Northrop Grumman Corporation and HII, on the HII Distribution Date certain employees and former employees of HII ceased to participate in the Plan and the liabilities for these participants' benefits under the Plan were transferred to HII. On and after the HII Distribution Date, the Company and the Plan, and any successors thereto, shall have no further obligation or liability to any such participant with respect to any benefit, amount, or right due under the Plan.	

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EXHIBIT 10(l)(i)

APPENDIX A TO EXHIBIT 1
2005-2007 TRANSITION RULES
This Appendix A provides the distribution rules that apply to the portion of benefits under the Plan subject to Code section 409A for Participants with benefit commencement dates after January 1, 2005 and before January 1, 2008.
 	 	
A.01	Election. Participants scheduled to commence payments during 2005 may elect to receive both pre-2005 benefit accruals and 2005 benefit accruals in any optional form of benefit available under the Plan as of December 31, 2004. Participants electing optional forms of benefits under this provision will commence payments on the Participant's selected benefit commencement date.	
 	 	
A.02	2005 Commencements. Pursuant to IRS Notice 2005-1, Q&A-19 & Q&A-20, Participants commencing payments in 2005 from the Plan may elect a form of distribution from among those available under the Plan on December 31, 2004, and benefit payments shall begin at the time elected by the Participant.	

(a)	Key Employees. A Key Employee Separating from Service on or after July 1, 2005, with Plan distributions subject to Code section 409A scheduled to be paid in 2006 and within six months of his date of Separation from Service, shall have such distributions delayed for six months from the Key Employee's date of Separation from Service. The delayed distributions shall be paid as a single sum with interest at the end of the six month period and Plan distributions will resume as scheduled at such time. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years). Alternatively, the Key Employee may elect under IRS Notice 2005-1, Q&A-20 to have such distributions accelerated and paid in 2005 without the interest adjustment, provided, such election is made in 2005.	
 	 	
(b)	Lump Sum Option. During 2005, a temporary immediate lump sum feature shall be available as follows:	
 	 	
(i)	In order to elect a lump sum payment pursuant to IRS Notice 2005-1, Q&A-20, a Participant must be an elected or appointed officer of the Company and eligible to commence payments under the underlying qualified pension plan on or after June 1, 2005 and on or before December 1, 2005;	
 	 	
(ii)	The lump sum payment shall be made in 2005 as soon as feasible after the election; and	
 	 	
(iii)	Interest and mortality assumptions and methodology for calculating lump sum amount shall be based on the Plan's procedures for calculating lump sums as of December 31, 2004.	

EXHIBIT 10(l)(i)
 	 	
A.03	2006 and 2007 Commencements. Pursuant to IRS transition relief, for all benefit commencement dates in 2006 and 2007 (provided election is made in 2006 or 2007), distribution of Plan benefits subject to Code section 409A shall begin 12 months after the later of: (a) the Participant's benefit election date, or (b) the underlying qualified pension plan benefit commencement date (as specified in the Participant's benefit election form). Payments delayed during this 12-month period will be paid at the end of the period with interest. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years).	

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APPENDIX B TO EXHIBIT 1

POST 2007 DISTRIBUTION OF 409A AMOUNTS

The provisions of this Appendix B shall apply only to the portion of benefits under the Plan that are subject to Code section 409A with benefit commencement dates on or after January 1, 2008. Distribution rules applicable to the Grandfathered Amounts are set forth in Articles II and III, and Appendix A addresses distributions of amounts subject to Code section 409A with benefit commencement dates after January 1, 2005 and prior to January 1, 2008.
 	 	
B.01	Time of Distribution. Subject to the special rules provided in this Appendix B, distributions to a Participant of his vested retirement benefit shall commence as of the Payment Date.	
 	 	
B.02	Special Rule for Key Employees. If a Participant is a Key Employee and age 55 or older at his Separation from Service, distributions to the Participant shall commence on the first day of the seventh month following the date of his Separation from Service (or, if earlier, the date of the Participant's death). Amounts otherwise payable to the Participant during such period of delay shall be accumulated and paid on the first day of the seventh month following the Participant's Separation from Service, along with interest on the delayed payments. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such delay (i.e., the rate may change in the event the delay spans two calendar years).	
 	 	
B.03	Forms of Distribution. Subject to the special rules provided in this Appendix B, a Participant's vested retirement benefit shall be distributed in the form of a single life annuity. However, a Participant may elect an optional form of benefit up until the date payments commence or such earlier time as provided by the Company. The optional forms of payment are:	
 	 	
(a)	50% joint and survivor annuity	
 	 	
(b)	75% joint and survivor annuity	
 	 	
(c)	100% joint and survivor annuity.	
If a Participant is married on the date his payments commence and elects a joint and survivor annuity, his survivor annuitant will be his spouse unless some other survivor annuitant is named with spousal consent. Spousal consent, to be effective, must be submitted in writing before the date his payments commence, or such earlier time as provided by the Company, and must be witnessed by a Plan representative or notary public. No spousal consent is necessary if the Company determines that there is no spouse or that the spouse cannot be found.
 	 	
B.04	Death. If a married Participant dies before the Payment Date, a death benefit will be payable to the Participant's spouse commencing 90 days after the Participant's death. The death benefit will be a single life annuity in an amount equal to the survivor portion of a Participant's vested retirement benefit based on a 100% joint and survivor annuity determined on the Participant's date of death. This benefit is also payable to a Participant's domestic partner who is properly registered with the Company in accordance with procedures established by the Company.	

 	 	
B.05	Actuarial Assumptions. Except as provided in Section B.06, all forms of payment under this Appendix B shall be actuarially equivalent life annuity forms of payment, and all conversions from one such form to another shall be based on the following actuarial assumptions:	
 	 	
Interest Rate:	6%	
 	 	
Mortality Table:	RP-2000 Mortality Table projected 15 years for future standardized cash balance factors	
 	 	
B.06	Accelerated Lump Sum Payouts .	
 	 	
(a)	Post-2007 Separations. Notwithstanding the provisions of this Appendix B, for Participants who Separate from Service on or after January 1, 2008, if the present value of (a) the vested portion of a Participant's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date of his Separation from Service, is less than or equal to $25,000, such benefit amount shall be distributed to the Participant (or his spouse or domestic partner, if applicable) in a lump sum payment. Subject to the special timing rule for Key Employees under Section B.02, the lump sum payment shall be made within 90 days after the first of the month coincident with or following the date of the Participant's Separation from Service.	
 	 	
(b)	Pre-2008 Separations. Notwithstanding the provisions of this Appendix B, for Participants who Separate from Service before January 1, 2008, if the present value of (a) the vested portion of a Participant's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date the Participant attains age 55, is less than or equal to $25,000, such benefit amount shall be distributed to the Participant (or his spouse or domestic partner, if applicable) in a lump sum payment within 90 days after the first of the month coincident with or following the date the Participant attains age 55, but no earlier that January 1, 2008.	
 	 	
(c)	Conflicts of Interest. The present value of a Participant's vested retirement benefit shall also be payable in an immediate lump sum to the extent required under conflict of interest rules for government service and permissible under Code section 409A.	
 	 	
(d)	Present Value Calculation. The conversion of a Participant's retirement benefit into a lump sum payment and the present value calculations under this Section B.06 shall be based on the actuarial assumptions in effect under the Northrop Grumman Pension Plan for purposes of calculating lump sum amounts, and will be based on the Participant's immediate benefit if the Participant is 55 or older at Separation from Service. Otherwise, the calculation will be based on the benefit amount the Participant will be eligible to receive at age 55.	
 	 	
B.07	Effect of Early Taxation. If a Participant's benefits under the Plan are includible in income pursuant to Code section 409A, the Company shall have the discretion to accelerate the distribution of all or a portion of such includible benefits to the Participant,	

provided that the Participant shall not be given a direct or indirect election as to whether such discretion is exercised.
 	 	
B.08	Permitted Delays. Notwithstanding the foregoing, any payment to a Participant under the Plan shall be delayed upon the Company's reasonable anticipation of one or more of the following events:	
 	 	
(a)	The Company's deduction with respect to such payment would be eliminated by application of Code section 162(m); or	
 	 	
(b)	The making of the payment would violate Federal securities laws or other applicable law;	
provided, that any payment delayed pursuant to this Section B.08 shall be paid in accordance with Code section 409A.

EXHIBIT 10(l)(i)

APPENDIX C TO EXHIBIT 1

COMMITTEES AND APPOINTMENTS
Notwithstanding anything to the contrary in this Plan, effective October 25, 2011, the Chief Executive Officer of Northrop Grumman Corporation shall appoint, and shall have the power to remove, the members of (1) an Administrative Committee that shall have responsibility for administering the Plan (including as such responsibilities are described in Article IV of the Plan) and (2) an Investment Committee that shall have responsibility for overseeing any rabbi trusts or other informal funding for the Plan.

EXHIBIT 10(m)

NORTHROP GRUMMAN SUPPLEMENTARY
RETIREMENT INCOME PLAN

Amended and Restated

Effective January 1, 2014

1.    Purpose.    The purpose of the Northrop Grumman Supplementary Retirement Income Plan (SRIP) is to provide supplemental retirement and death benefits to those:

(i)    employees, including officers, of Northrop Grumman Space & Mission Systems Corp. and its subsidiaries (“NGSMSC”) whose benefits under the Northrop Grumman Space & Mission Systems Corp. Salaried Pension Plan ("SPP") have been limited by virtue of §415 of the Internal Revenue Code of 1986 (“Code”);

(ii)    management and highly-compensated employees of NGSMSC whose benefits under the SPP are limited by Code §401(a)(17);

(iii)    management and highly-compensated employees of NGSMSC whose compensation otherwise included as pensionable earnings received by such individual within the meaning of the SPP could not be so included because such compensation was deferred in accordance with the provisions of the Northrop Grumman Space & Mission Systems Corp. Deferred Compensation Plan or the Northrop Grumman Deferred Compensation Plan (“DC Plan” or DC Plans"); and

(iv)    management and highly-compensated employees of NGSMSC whose compensation otherwise included as “Earnings” under the SPP and service otherwise included as Benefit Service under the SPP would not be so included because of a determination by NGSMSC that such inclusion could violate the regulations under Code §401(a)(4).

The SRIP is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act (“ERISA”) and is designed to provide benefits which mirror the provisions of the SPP but cannot be paid from the SPP because of certain Code limitations.

The SRIP is hereby amended and restated effective as of January 1, 2014, except as otherwise provided. This restatement amends the January 1, 2013 restatement of the SRIP and does not include changes that apply to Grandfathered Amounts (as defined below).

EXHIBIT 10(m)

The SRIP is intended to comply with Code section 409A and official guidance issued thereunder (except for SRIP benefits that were earned and vested as of December 31, 2004 within the meaning of Code section 409A and official guidance thereunder ("Grandfathered Amounts")). Notwithstanding any other provision of the SRIP, the SRIP shall be interpreted, operated and administered in a manner consistent with this intention.

2.    Eligibility.    Employees of NGSMSC covered by the SPP and not otherwise covered by the BDM International, Inc. Defined Contribution Supplemental Executive Retirement Plan (the “BDM DC SERP”) whose base pay and bonus paid in any year (or deferred pursuant to the DC Plan) exceed the limitations of Code §401(a)(17) shall automatically be covered under the SRIP. All SPP participants not otherwise covered by the BDM DC SERP who are eligible to receive benefits from the SPP shall automatically receive a benefit from the SRIP if their benefit cannot be fully provided under the SPP because of the limits under Code §415. In addition, Grandfathered Participants, as defined in Appendix C, shall remain eligible to participate in the SRIP on and after January 1, 2009 and shall continue to accrue benefits as set forth in Appendix C.

The foregoing notwithstanding, effective as of February 28, 2003, individuals who qualify as "TRW Automotive Participants" under the February 28, 2003 Employee Matters Agreement between Northrop Grumman Space & Mission Systems Corp. and TRW Automotive Acquisition Corp. cease to participate in the SRIP, and the SRIP and NGSMSC cease to be liable for TRW Automotive Participants' benefits.

3.    Benefits.    

a.    In General. The amount of the benefit payable under the SRIP shall be equal to the amount which would be payable to or in respect of a participant under the SPP if the limitations identified in §1 above were inapplicable, less the amount of the benefit payable under the SPP, taking into account such limitations. The amount of benefit payable under the SRIP to a participant shall also be reduced to the extent that any other nonqualified plan established by NGSMSC or any other entity affiliated with NGSMSC under Code §414(b) or (c) ("Affiliate") pays benefits to the participant that are attributable to limits imposed upon the SPP other than those identified in §1 above. The benefit payable under the SRIP for those participants who were participants in The BDM Corporation Supplemental Executive Retirement Plan which was merged into the SRIP (the “BDM SERP”) on the close of business on December 31, 1998 (the “Merger Effective Date”) will not be less than the benefit which had accrued under the BDM SERP as of the Merger Effective Date for such participants. Schedule A attached hereto sets forth the relevant provisions of the BDM SERP necessary to calculate such accrued benefits. The benefit payable under the

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EXHIBIT 10(m)

SRIP for the sole participant who was a “Covered Executive” in the Astro Aerospace Corporation Supplemental Executive Retirement Plan (the “Astro SERP”) on the close of business on November 30, 1999 will not be less than the benefit which had accrued under the Astro SERP as of November 30, 1999 for such participant, as determined in accordance with the terms of the Astro SERP as in effect on November 30, 1999 (a copy of which is attached hereto as Schedule B) and the benefit payable to such participant’s spouse under the SRIP shall not be less than the benefit which would have been payable to such spouse under the terms of the Astro SERP had the participant died on November 30, 1999.

b.    Benefit Limit. The amount of the SRIP benefit will be limited as provided below:

i.    A participant’s total accrued benefits under all defined benefit plans, programs, and arrangements maintained by Northrop Grumman Corporation and its affiliates (as determined under Code section 414) in which he or she participates, including the SRIP, may not exceed 60% of his or her Final Average Salary. If this limit is exceeded, the participant’s benefit accrued under the SRIP will be reduced to the extent necessary to satisfy the limit.

(1)    For this purpose, "Final Average Salary" has the meaning provided under Appendix G to the Northrop Grumman Supplemental Plan 2 (the "OSERP").

(2)    The Participant’s Final Average Salary will be reduced for early retirement applying the factors in the OSERP.

(3)    The limit in this subsection may not be exceeded even after the benefits under the SRIP have been enhanced under any change in control agreements or Northrop Grumman Corporation Special Agreements.

c.    Compensation. The following shall not be considered as compensation for purposes of determining the amount of any benefit under the SRIP:

i.    Any payment authorized by the Compensation Committee of Northrop Grumman Corporation that is (i) calculated pursuant to the method for determining a bonus amount under the Northrop Grumman Corporation Annual Incentive Plan (AIP) for a given year, and (ii) paid in lieu of such bonus in the year prior to the year the bonus would otherwise be paid under the AIP, and

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EXHIBIT 10(m)

ii.    Any award payment under the Northrop Grumman Long-Term Incentive Cash Plan.

4.    Payment of Benefits. The distribution rules of this Section 4 only apply to Grandfathered Amounts. See Appendix A and Appendix B for the rules that apply to other benefits earned under the SRIP.

a.    Except as provided below, no benefit is payable from the SRIP, even if the participant has terminated his/her employment, unless a participant has five years of vesting service as defined under the SPP and has attained age fifty-five, provided, however, a benefit will be payable from the SRIP prior to a participant’s attainment of age fifty-five if the participant terminates his or her employment in connection with (i) a special voluntary early retirement program offered under the SPP, the terms of which provide for eligibility prior to age fifty-five, or (ii) a special early commencement option under the SPP, the terms of which provide for commencement of the SPP benefit before age fifty-five.

b.    If a participant who has five or more years of vesting service dies before his/her benefit commencement date under the SPP, the SRIP benefit shall be paid in the same form and shall commence at the same time as a pre-retirement survivor benefit under the SPP.

c.    Except as provided in paragraph g., i., j., or as provided below, any participant in the SPP and the SRIP who is entitled to a vested or deferred vested pension under the SPP shall have his SRIP benefit (i) commence at the same time as his benefit commencement date under the SPP and (ii) paid in the same form and with the same designated joint annuitant, if any, as his form of payment under the SPP unless otherwise provided under the terms of any Qualified Domestic Relations Order (as defined in Section 5) applicable to said participant or unless otherwise determined by the Administrative Committee in its sole discretion. Any such participant who is eligible for the special early commencement option under the SPP may petition the Administrative Committee at any time at least two months prior to his severance from service date under the SPP to change such form of payment into a single sum or annual installments from two to ten years, or any other payment form approved by the Administrative Committee in their or its discretion. If annual installment payments are elected, interest, if any, on such installments shall be determined by the Actuary, subject to approval by the Administrative Committee. If a participant receiving installment payments dies, his remaining installment payments shall be made as scheduled to any properly designated beneficiary, or if none exists, in a single lump sum to the participant's estate.

d.    Except as provided above or in paragraph g., i., or j., payment of benefits under the SRIP shall be made commencing with the January following the date the participant becomes eligible, having terminated his employment

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EXHIBIT 10(m)

with NGSMSC and all Affiliates, for benefits under the SPP; provided, however, that if the participant’s termination of employment is the result of a divestiture of the NGSMSC or Affiliate unit or operation where the participant worked prior to termination of employment and the participant obtains employment with the entity that acquired such unit or operations, then the SRIP benefit shall not be payable until such participant is eligible for and receives (or commences to receive) his SPP benefit (even if the SRIP benefit is less than $5,000).
    
e.    Except as provided above and in paragraph g., i., or j., the automatic form of benefit payable under the Plan shall be, for an unmarried participant, a single life annuity, and, for a married participant, a 50% joint and survivor annuity, with the participant's eligible spouse being the survivor annuitant. Notwithstanding the above, the participant may elect, by notice to the administrator for the SRIP, at any time at least two months prior to the severance from service date under the SPP (the “Severance from Service Date”) to change such form of payment into a single sum or annual installments from two to ten years, or any other payment form approved by the Administrative Committee in its discretion. If annual installment payments are elected, interest, if any, on such installments shall be determined by the Actuary, subject to approval by the Administrative Committee. If a participant receiving installment payments dies, his remaining installment payments shall be made as scheduled to any properly designated beneficiary, or if none exists, in a single lump sum to the participant's estate.

f.    If not rejected by the Administrative Committee at least 14 days prior to the Severance from Service Date, any election of a form of payment or benefit commencement date other than the automatic form and commencement date shall be irrevocable.

g.    If the present value of a participant's interest in the SRIP, determined as of the later of the participant's age 55 or severance from service date under the SPP, is less than an amount which, if converted to a single sum equals $5,000, the benefit shall be paid out in a single sum, either at the same time as his benefit commencement date under the SPP or at another date as determined by the Administrative Committee in its sole discretion. (See paragraph i for the rule that applies as of January 1, 2008.)

h.    Payments to be made pursuant to the SRIP shall be made by NGSMSC, with any appropriate reimbursement being made by subsidiaries of NGSMSC. The SRIP shall be unfunded, and NGSMSC shall not be required to establish any special or separate fund nor to make any other segregation of assets in order to assure the payment of any amounts under the SRIP. Participants of the SRIP shall have the status of general unsecured creditors of NGSMSC and the SRIP constitutes a mere promise by NGSMSC to make benefit payments in the future.

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EXHIBIT 10(m)

i.    Mandatory Cashout. Notwithstanding any other provisions in the SRIP, participants with Grandfathered Amounts who have not commenced payment of such benefits prior to January 1, 2008 will be subject to the following rules:

i.    Post-2007 Terminations. Participants who have a complete termination of employment with NGSMSC and the Affiliates after 2007 will receive a lump sum distribution of the present value of their Grandfathered Amounts within two months of such termination (without interest), if such present value is below the Code section 402(g) limit in effect at the termination.

ii.    Pre-2008 Terminations. Participants who had a complete termination of employment with NGSMSC and the Affiliates before 2008 will receive a lump sum distribution of the present value of their Grandfathered Amounts within two months of the time they commence payment of their underlying qualified pension plan benefits (without interest), if such present value is below the Code section 402(g) limit in effect at the time such payments commence.

j.    Optional Payment Forms. Participants with Grandfathered Amounts shall be permitted to elect i. or ii. below:

i.    To receive their Grandfathered Amounts in any form of distribution available under the SRIP at October 3, 2004, provided that form remains available under the underlying qualified pension plan at the time payment of the Grandfathered Amounts commences. The conversion factors for these distribution forms will be based on the factors or basis in effect under the SRIP on October 3, 2004.

ii.    To receive their Grandfathered Amounts in any life annuity form not included in i. above but included in the underlying qualified pension plan distribution options at the time payment of the Grandfathered Amounts commences. The conversion factors will be based on the following actuarial assumptions:

Interest Rate:        6%
 	 	
Mortality Table:	RP-2000 Mortality Table projected 15 years for future standardized cash balance factors	

k.    Special Tax Distribution. On the date a participant's retirement benefit is reasonably ascertainable within the meaning of IRS regulations under Code section 3121(v)(2), an amount equal to the participant's portion of the FICA

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EXHIBIT 10(m)

tax withholding will be distributed in a single lump sum payment. This payment will be based on all benefits under the SRIP, including Grandfathered Amounts. This payment will reduce the participant's future benefit payments under the SRIP on an actuarial basis.

5.    Non-Alienation of Benefits.  Neither a participant nor any other person shall have any right to sell, assign, transfer, pledge, mortgage or otherwise encumber, in advance of actual receipt, any SRIP benefit. Any such attempted assignment or transfer shall be ineffective; NGSMSC’s sole obligation under the SRIP shall be to pay benefits to the participant, his beneficiary or his estate, as appropriate. No part of any SRIP benefit shall, prior to actual payment, be subject to the payment of any debts, judgments, alimony or separate maintenance owed by a participant or any other person; nor shall any SRIP benefit be transferable by operation of law in the event of a participant’s or any other person’s bankruptcy or insolvency, except as required or permitted by law.

Notwithstanding the foregoing, all or a portion of a participant's benefit may be paid to another person as specified in a domestic relations order that the plan administrator determines is qualified (a "Qualified Domestic Relations Order"). For this purpose, a Qualified Domestic Relations Order means a judgment, decree, or order (including the approval of a settlement agreement) which is:

a.    Issued pursuant to a State's domestic relations law;

b.    Relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the participant;

c.    Creates or recognizes the right of a spouse, former spouse, child or other dependent of the participant to receive all or a portion of the participant's benefits under the SRIP; and

d.    Meets such other requirements established by the plan administrator.

The plan administrator shall determine whether any document received by it is a Qualified Domestic Relations Order. In making this determination, the plan administrator may consider the rules applicable to "domestic relations orders" under Code section 414(p) and ERISA section 206(d), and such other rules and procedures as it deems relevant.

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EXHIBIT 10(m)

6.    Committees.

a.    An Administrative Committee and an Investment Committee (together, the “Committees”), each of one or more persons, shall be appointed by and serve at the pleasure of the board of directors of NGSMSC (the "Board"). The number of members comprising the Committees shall be determined by the Board, which may from time to time vary the number of members. A member of the Committees may resign by delivering a written notice of resignation to the Board. The Board may remove any member by delivering a certified copy of its resolution of removal to such member. Vacancies in the membership of the Committees shall be filled promptly by the Board.

b.    i.    Each Committee shall act at meetings by affirmative vote of a majority of the members of that Committee. Any determination of action of the Committees may be made or taken by a majority of a quorum present at any meeting thereof, or without a meeting, by resolution or written memorandum signed by a majority of the members of the Committees then in office. A member of the Committees shall not vote or act upon any matter which relates solely to himself or herself as a Participant. The Chairman or any other member or members of each Committee designated by the Chairman may execute any certificate or other written direction on behalf of the Committee of which he or she is a member.

ii.    The Board shall appoint a Chairman from among the members of the Administrative Committee and a Secretary who may or may not be a member of the Administrative Committee. The members of the Investment Committee will elect one of their members as Chairman and will appoint a Secretary and any other officers as the Investment Committee may deem necessary. The Committees shall conduct their business according to the provisions of this Article and the rules contained in the current edition of Robert’s Rules of Order or such other rules of order the Committees may deem appropriate. The Committees shall hold meetings from time to time in any convenient location.

c.    The Administrative Committee shall enforce the SRIP in accordance with its terms, shall be charged with the general administration of the Plan, and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:

i.    To construe and interpret the terms and provisions of the SRIP and make all factual determinations;

ii.    To compute and certify to the amount and kind of benefits payable to participants and their beneficiaries;

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EXHIBIT 10(m)

iii.    To maintain all records that may be necessary for the administration of the SRIP;

iv.    To provide for the disclosure of all information and the filing or provision of all reports and statements to participants, beneficiaries or governmental agencies as shall be required by law;

v.    To make and publish such rules for the regulation of the SRIP and procedures for the administration of the SRIP as are not inconsistent with the terms hereof;

vi.    To appoint a plan administrator or any other agent, and to delegate to them such powers and duties in connection with the administration of the SRIP as the Administrative Committee may from time to time prescribe (including the power to subdelegate);

vii.    To exercise powers granted the Administrative Committee under other Sections of the SRIP; and

viii.    To take all actions necessary for the administration of the SRIP, including determining whether to hold or discontinue insurance policies purchased in connection with the SRIP.

d.    The Investment Committee shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:

i.    To oversee the rabbi trust, if any; and

ii.    To appoint agents, and to delegate to them such powers and duties in connection with its duties as the Investment Committee may from time to time prescribe (including the power to subdelegate).

e.    The Administrative Committee shall have full discretion to construe and interpret the terms and provisions of the SRIP, to make factual determinations and to remedy possible inconsistencies and omissions. The Administrative Committee’s interpretations, constructions and remedies shall be final and binding on all parties, including but not limited to the Affiliates and any participant or beneficiary. The Administrative Committee shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the SRIP.

f.    To enable the Committees to perform their functions, the Affiliates adopting the SRIP shall supply full and timely information to the Committees on all matters relating to the compensation of all participants, their death or other

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EXHIBIT 10(m)

events that cause termination of their participation in the SRIP, and such other pertinent facts as the Committees may require.

g.    i.    The members of the Committees shall serve without compensation for their services hereunder.

ii.    Committees are authorized to employ such accounting, consultants or legal counsel as they may deem advisable to assist in the performance of their duties hereunder.

iii.    To the extent permitted by ERISA and applicable state law, NGSMSC shall indemnify and hold harmless the Committees and each member thereof, the Board and any delegate of the Committees who is an employee of the Affiliates against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the SRIP, other than expenses and liabilities arising out of willful misconduct. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by NGSMSC or provided by NGSMSC under any bylaw, agreement or otherwise, as such indemnities are permitted under ERISA and state law.

7.    Claims Procedure.

The standardized "Northrop Grumman Nonqualified Retirement Plans Claims and Appeals Procedures" shall apply in handling claims and appeals under the SRIP.

8.    Amendment and Termination.   NGSMSC may, in its sole discretion, terminate, suspend or amend the SRIP at any time or from time to time, in whole or in part for any reason. This includes the right to amend or eliminate any of the provisions of the SRIP with respect to lump sum distributions, including any lump sum calculation factors, whether or not a participant has already made a lump sum election. Notwithstanding the foregoing, no amendment or termination of the SRIP shall reduce the amount of a participant's accrued benefit under the SRIP as of the date of such amendment or termination.

No amendment of the SRIP shall apply to the Grandfathered Amounts, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a SRIP amendment from resulting in an inadvertent "material modification" to the Grandfathered Amounts.

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EXHIBIT 10(m)

9.    Miscellaneous.    

a.    As used herein, the masculine gender shall include the feminine gender. To the extent that any term is not defined under the SRIP, it shall have the same meaning as defined in the SPP.

b.    Employment rights with NGSMSC shall not be enlarged or affected by the existence of the SRIP.

c.    In case any provision of the SRIP shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions.

d.    The SRIP shall be governed by the laws of the State of Ohio to the extent not preempted by ERISA.

IN WITNESS WHEREOF, this Amendment and Restatement is hereby executed by a duly authorized officer on this 13 th  day of December, 2013.

NORTHROP GRUMMAN CORPORATION

By: /s/ Denise Peppard
Denise Peppard
Corporate Vice President and Chief Human Resources Officer

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EXHIBIT 10(m)

APPENDIX A

2005-2007 TRANSITION RULES

This Appendix A provides the distribution rules that apply to the portion of benefits under the SRIP subject to Code section 409A for participants with benefit commencement dates after January 1, 2005 and before January 1, 2008.

A.1    Election. Participants scheduled to commence payments during 2005 may elect to receive both pre-2005 benefit accruals and 2005 benefit accruals in any optional form of benefit available under the SRIP as of December 31, 2004. Participants electing optional forms of benefits under this provision will commence payments on the participant's selected benefit commencement date.

A.2    2005 Commencements. Pursuant to IRS Notice 2005-1, Q&A-19 & Q&A-20, participants commencing payments in 2005 from the SRIP may elect a form of distribution from among those available under the SRIP on December 31, 2004, and benefit payments shall begin at the time elected by the participant.

a.    Key Employees. A Key Employee Separating from Service on or after July 1, 2005, with SRIP distributions subject to Code section 409A scheduled to be paid in 2006 and within six months of his date of Separation from Service, shall have such distributions delayed for six months from the Key Employee's date of Separation from Service. The delayed distributions shall be paid as a single sum with interest at the end of the six month period and SRIP distributions will resume as scheduled at such time. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years). Alternatively, the Key Employee may elect under IRS Notice 2005-1, Q&A-20 to have such distributions accelerated and paid in 2005 without the interest adjustment, provided, such election is made in 2005.
For purposes of Appendix A and Appendix B, A "Key Employee" is an employee treated as a "specified employee" under Code section 409A(a)(2)(B)(i) of NGSMSC or an Affiliate (i.e., a key employee (as defined in Code section 416(i) without regard to paragraph (5) thereof)) if NGSMSC's or an Affiliate's stock is publicly traded on an established securities market or otherwise. NGSMSC shall determine in accordance with a uniform NGSMSC policy which participants are Key Employees as of each December 31 in accordance with IRS regulations or other guidance under Code section 409A, provided that in determining the compensation of individuals for this purpose, the definition of compensation in Treas. Reg. § 1.415(c)-2(d)(3) shall be used. Such determination shall be effective for the twelve (12) month period commencing on April 1 of the following year.

EXHIBIT 10(m)

For purposes of Appendix A and Appendix B, "Separation from Service" or "Separates from Service" means a "separation from service" within the meaning of Code section 409A.
b.    Lump Sum Option. During 2005, a temporary immediate lump sum feature shall be available as follows:
i.    In order to elect a lump sum payment pursuant to IRS Notice 2005-1, Q&A-20, a participant must be an elected or appointed officer of NGSMSC and eligible to commence payments under the underlying qualified pension plan on or after June 1, 2005 and on or before December 1, 2005;
ii.    The lump sum payment shall be made in 2005 as soon as feasible after the election; and
iii.    Interest and mortality assumptions and methodology for calculating lump sum amount shall be based on the SRIP's procedures for calculating lump sums as of December 31, 2004.
A.3    2006 and 2007 Commencements. Pursuant to IRS transition relief, for all benefit commencement dates in 2006 and 2007 (provided election is made in 2006 or 2007), distribution of SRIP benefits subject to Code section 409A shall begin 12 months after the later of: (a) the participant's benefit election date, or (b) the underlying qualified pension plan benefit commencement date (as specified in the participant's benefit election form). Payments delayed during this 12-month period will be paid at the end of the period with interest. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years).

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EXHIBIT 10(m)

APPENDIX B

POST 2007 DISTRIBUTION OF 409A AMOUNTS

The provisions of this Appendix B shall apply only to the portion of benefits under the SRIP that are subject to Code section 409A with benefit commencement dates on or after January 1, 2008. Distribution rules applicable to the Grandfathered Amounts are set forth in Section 4, and Appendix A addresses distributions of amounts subject to Code section 409A with benefit commencement dates after January 1, 2005 and prior to January 1, 2008.

B.1    Time of Distribution. Subject to the special rules provided in this Appendix B, distributions to a participant of his vested retirement benefit shall commence as of the 1st of the month coincident with or following the later of (a) the date the participant attains age 55, or (b) the date the participant Separates from Service ("Payment Date").

B.2    Special Rule for Key Employees. If a participant is a Key Employee and age 55 or older at his Separation from Service, distributions to the participant shall commence on the first day of the seventh month following the date of his Separation from Service (or, if earlier, the date of the participant's death). Amounts otherwise payable to the participant during such period of delay shall be accumulated and paid on the first day of the seventh month following the participant's Separation from Service, along with interest on the delayed payments. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such delay (i.e., the rate may change in the event the delay spans two calendar years).

B.3    Forms of Distribution. Subject to the special rules provided in this Appendix B, a participant's vested retirement benefit shall be distributed in the form of a single life annuity. However, a participant may elect an optional form of benefit up until the date payments commence or such earlier time as provided by NGSMSC. The optional forms of payment are:
 	 	
a.	50% joint and survivor annuity	

b.	75% joint and survivor annuity	

c.	100% joint and survivor annuity.	

If a participant is married on the date his payments commence and elects a joint and survivor annuity, his survivor annuitant will be his spouse unless some other survivor annuitant is named with spousal consent. Spousal consent, to be effective, must be submitted in writing before the date his payments commence, or such earlier time as provided by NGSMSC, and must be witnessed by a SRIP

EXHIBIT 10(m)

representative or notary public. No spousal consent is necessary if NGSMSC determines that there is no spouse or that the spouse cannot be found.

B.4    Death. If a married participant dies before the Payment Date, a death benefit will be payable to the participant's spouse commencing 90 days after the participant's death. The death benefit will be a single life annuity in an amount equal to the survivor portion of a participant's vested retirement benefit based on a 100% joint and survivor annuity determined on the participant's date of death. This benefit is also payable to a participant's domestic partner who is properly registered with NGSMSC in accordance with procedures established by NGSMSC.

B.5    Actuarial Assumptions. Except as provided in Section B.6, all forms of payment under this Appendix B shall be actuarially equivalent life annuity forms of payment, and all conversions from one such form to another shall be based on the following actuarial assumptions:
 	 	
Interest Rate:	6%	

Mortality Table:	RP-2000 Mortality Table projected 15 years for future standardized cash balance factors	

B.6    Accelerated Lump Sum Payouts.

a.    Post-2007 Separations. Notwithstanding the provisions of this Appendix B, for participants who Separate from Service on or after January 1, 2008, if the present value of (a) the vested portion of a participant's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date of his Separation from Service, is less than or equal to $25,000, such benefit amount shall be distributed to the participant (or his spouse or domestic partner, if applicable) in a lump sum payment. Subject to the special timing rule for Key Employees under Section B.2, the lump sum payment shall be made within 90 days after the first of the month coincident with or following the date of the participant's Separation from Service.

b.    Pre-2008 Separations. Notwithstanding the provisions of this Appendix B, for participants who Separate from Service before January 1, 2008, if the present value of (a) the vested portion of a participant's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date the participant attains age 55, is less than or equal to $25,000, such benefit amount shall be distributed to the participant (or his spouse or domestic partner, if applicable) in a lump sum payment within 90 days after the first of the month coincident with or following the date the participant attains age 55, but no earlier that January 1, 2008.

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EXHIBIT 10(m)

c.    Conflicts of Interest. The present value of a participant's vested retirement benefit shall also be payable in an immediate lump sum to the extent required under conflict of interest rules for government service and permissible under Code section 409A.

d.    Present Value Calculation. The conversion of a participant's retirement benefit into a lump sum payment and the present value calculations under this Section B.6 shall be based on the actuarial assumptions in effect under the Northrop Grumman Pension Plan for purposes of calculating lump sum amounts, and will be based on the participant's immediate benefit if the participant is 55 or older at Separation from Service. Otherwise, the calculation will be based on the benefit amount the participant will be eligible to receive at age 55.

B.7    Effect of Early Taxation. If a participant's benefits under the SRIP are includible in income pursuant to Code section 409A, NGSMSC shall have the discretion to accelerate the distribution of all or a portion of such includible benefits to the participant, provided that the participant shall not be given a direct or indirect election as to whether such discretion is exercised.

B.8    Permitted Delays. Notwithstanding the foregoing, any payment to a participant under the SRIP shall be delayed upon NGSMSC's reasonable anticipation of one or more of the following events:
 	 	
a.	NGSMSC's deduction with respect to such payment would be eliminated by application of Code section 162(m); or	

b.	The making of the payment would violate Federal securities laws or other applicable law;	

provided, that any payment delayed pursuant to this Section B.8 shall be paid in accordance with Code section 409A.

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EXHIBIT 10(m)

APPENDIX C

CUTTING EDGE OPTRONICS TRANSFER

The provisions of this Appendix C are intended to comply with Code section 409A, and to maintain the exempt status of the Grandfathered Amounts accrued by any employees of Cutting Edge Optronics. Each such employee with a Grandfathered Amount is referred to below as a "Grandfathered Participant".

C.1    Transferred Employees. Except for any Grandfathered Participants, the employees of Cutting Edge Optronics that would otherwise have been eligible to participate and accrue benefits under the SRIP prior to 2009 (the "Transferred Employees") shall cease to participate in the SRIP as of January 1, 2009 (the "Transfer Date").

C.2    Transferred Employee Benefits. Any benefits accrued by the Transferred Employees under the SRIP for services prior to the Transfer Date shall be transferred to and payable under the Litton Industries, Inc. Restoration Plan 2 ("LRP 2"). Such benefits will thus no longer be payable under the SRIP.

C.3    Grandfathered Participant Benefits. Each Grandfathered Participant shall remain eligible to participate in the SRIP after 2008. Subject to Section 3(b), the accrued benefits of a Grandfathered Participant under the SRIP shall equal the benefits accrued under the SRIP for services performed prior to 2009, plus the benefits that such Grandfathered Participant would otherwise have accrued and become vested in based on services performed after 2008 had he or she been eligible to participate in the LRP 2.

EXHIBIT 10(m)

APPENDIX D

COMMITTEES AND APPOINTMENTS

Notwithstanding anything to the contrary in this Plan, effective October 25, 2011, the Chief Executive Officer of Northrop Grumman Corporation shall appoint, and shall have the power to remove, the members of (1) an Administrative Committee that shall have responsibility for administering the Plan (including as such responsibilities are described in Section 6 of the Plan) and (2) an Investment Committee that shall have responsibility for overseeing any rabbi trusts or other informal funding for the Plan.

EXHIBIT 10(m)

Schedule A

Article 2

BENEFITS

2.1     Computation of Benefits.

a.Total Benefit Objective.    Total retirement benefits from the Company, coupled with expected Social Security benefits, are designed to provide a level of income during retirement based on the Member’s service and income while with the Company. The Benefit Objective (as determined on or prior to Normal Retirement Date) for a Member who retires on or after his/her Normal Retirement Date with 20 or more years of Benefit Service (Benefit Service accrues to age 65), is 45% of the Member’s Average Annual Compensation for the five highest consecutive plan years of his/her employment with the Company. For Members who retire with less than 20 years of Benefit Service, the Benefit Objective is the amount calculated above reduced by multiplying that amount by a fraction the numerator of which is the number of years of Benefit Service and the denominator of which is 20. The Benefit Objective, as defined above, is intended to be met by unreduced retirement income (without any reductions associated with any payment option) from both the Company’s Retirement Plan and Supplemental Executive Retirement Plan plus the unreduced Social Security Benefit (commencing as late as age 67).

b.Calculation of Benefits Under This Plan.  The benefit payable under this Plan shall be equal to the Benefit Objective as stated in paragraph a. above, reduced, as applicable, by the factors and in accordance with the provisions set forth for such purposes in the Retirement Plan, (i) for commencement prior to Normal Retirement Date, (ii) for election of a form of payment other than life only to the Member, and (iii) upon death, less the Retirement Plan Benefit and the unreduced Social Security Benefit as stated in paragraph a. above. If the benefit payable under this plan according to the preceding sentence plus the Retirement Plan Benefit is less than the Target Benefit Amount, as hereinafter defined, the benefit payable under this Plan shall be equal to the Target Benefit Amount less the Retirement Plan Benefit. The Target Benefit Amount shall mean $90,000, reduced, as applicable, by the factors and in accordance with the provisions set forth for such purposes in the Retirement Plan, (i) for commencement prior to Normal Retirement Date, (ii) for election of a form of payment other than life only to the Member, and (iii) upon death.

2.2    Form of Benefit Payments.

The benefit payable to or on behalf of a Member as determined under Section 2.1 shall be paid in the same form, and to the same beneficiary, if any, as the Member’s benefit under the Retirement Plan.

EXHIBIT 10(m)

2.3    Time of Benefit Payments.
 
Benefits due under this Plan shall be paid coincident with the payment date of benefits under the Retirement Plan.

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EXHIBIT 10(m)

Schedule B

APPENDIX A

ASTRO AEROSPACE CORPORATION
 
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

i

EXHIBIT 10(m)

ASTRO AEROSPACE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

TABLE OF CONTENTS

 	
 	 	
INTRODUCTION	1	
 	 	
ARTICLE I DEFINITIONS	2	
 	 	
ARTICLE II DESIGNATION OF COVERED EXECUTIVES	4	
 	 	
ARTICLE III RETIREMENT BENEFITS	5	
3.01 Retirement Allowance on Normal or Postponed Retirement Date	5	
3.02 Retirement Allowance on Early Retirement Date	5	
3.03 Payment of Retirement Allowance	6	
3.04 Retirement Allowance Payable to Surviving Spouse of a Covered Executive	6	
3.05 Deeming Rule	6	
 	 	
ARTICLE IV TERMINATION OF SERVICE	7	
4.01 Termination Benefits	7	
4.02 Early Commencement of Deferred Retirement Allowance	7	
4.03 Applicable Provisions	7	
 	 	
ARTICLE V DEATH BENEFITS	8	
5.01 Benefits on Covered Executive’s Death Prior to Retirement	8	
5.02 Benefits on a Former Covered Executive’s Death Prior to Retirement	8	
 	 	
ARTICLE VI DISABILITY BENEFITS	10	
6.01 Disabled Covered Executives	10	
6.02 Disability Retirement	10	
6.03 Applicable Provisions	10	
 	 	
ARTICLE VII ADMINISTRATION	11	
 	 	
ARTICLE VIII AMENDMENT OR TERMINATION OF THE PLAN	12	
 	 	
ARTICLE IX CLAIMS REVIEW PROCEDURE	13	
9.01 Denial of Benefits	13	
9.02 Notice	13	

ii

EXHIBIT 10(m)

 	 	
9.03 Appeals Procedure	13	
9.04 Review	13	
 	 	
ARTICLE X GENERAL	14	
10.01 No Employment Rights	14	
10.02 No Claim Against the Company	14	
10.03 Incompetence	14	
10.04 Nonassignability	14	
10.05 Continuance of Payments	14	
10.06 Notice	15	
10.07 Gender and Number	15	
10.08 Corporate Successors	15	
10.09 Unclaimed Benefits	15	
10.10 Withholding; Employment Taxes	15	
10.11 Validity	15	
10.12 Applicable Law	15	

iii

EXHIBIT 10(m)

ASTRO AEROSPACE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
 
INTRODUCTION
 
The purpose of this Supplemental Executive Retirement Plan (the “Plan”) is to provide a further means whereby Astro Aerospace Corporation (the “Corporation”) may afford financial security to a select group of Covered Executives of the Corporation, who render valuable services to the Corporation, constituting an important contribution toward its continued growth and success, by providing for additional future compensation so that such employees may be retained and their productive efforts encouraged, all as provided herein. Retirement Allowances under this Supplemental Executive Retirement Plan are in addition to benefits payable under the Astro Aerospace Corporation Employees’ Pension Plan and any other qualified retirement plan maintained by the Corporation.

EXHIBIT 10(m)

ARTICLE I

DEFINITIONS
 
(a)    “Administrator” means the Corporation which shall be responsible for the administration of this Plan.

(b)    “Astro Pension Plan” means the Astro Aerospace Corporation Employees’ Pension Plan, as amended from time to time.

(c)    “Affiliate” means a member of a controlled group of corporations, within the meaning of section 414(b) of the Internal Revenue Code (“Code”), which includes the Corporation; a trade or business (whether or not incorporated) which is in common control with the Corporation as determined in accordance with section 414(c) of the Code; or any organization which is a member of an affiliated service group, within the meaning of section 414(m) of the Code, which includes the Corporation, and any other organization required to be aggregated with the Corporation pursuant to section 414(o) of the Code.

(d)    “Corporation” means Astro Aerospace Corporation.

(e)    “Covered Executive” means a person who is a member of the Astro Pension Plan and who is designated by the board of directors of the Corporation as being eligible to receive a Retirement Allowance.

(f)    “Covered Service” means, with respect to a Covered Executive, a number of years and completed months equal to his period of “Service” for purposes of the Astro Pension Plan. For purposes of this Plan, “Service”, as defined under the Astro Pension Plan, shall include Service with the Corporation and its Affiliates. Covered Service shall not exceed 35 years.

(g)    “Early Retirement Date” means retirement from employment with Corporation and all Affiliates after attaining age 55 with 10 years of Covered Service.

(h)    “Effective Date” means September 1, 1993.

(i)    “Final Average Earnings” shall have the meaning ascribed under the terms of the Spar Pension Plan except that it will not be subject to the compensation limitation imposed by Internal Revenue Code Section 401(a)(17).

(j)    “Former Covered Executive” means a Covered Executive who is no longer an active Covered Executive of the Plan but who remains entitled to benefits under the Plan and is not yet receiving a Retirement Allowance.

(k)    “Normal Retirement Date” means retirement from employment with Corporation and all Affiliates after attaining age 65.

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EXHIBIT 10(m)

(l)    “Postponed Retirement Date” means the actual retirement date of a Covered Executive who continues employment with the Corporation or any Affiliate beyond Normal Retirement Date.

(m)    “Plan” means the plan to provide Retirement Allowances set forth herein and as amended from time to time, which shall be known as the Astro Aerospace Corporation Supplemental Executive Retirement Plan.

(n)    “Plan Year” means the period January 1 to December 31.

(o)    “Retired Executive” means a Covered Executive or Former Covered Executive who has retired and is receiving a Retirement Allowance under the Plan.

(p)    “Retirement Allowance” means an amount payable to a Covered Executive, a Former Covered Executive or a Spouse under the terms of the Plan.

(q)    “Spar Pension Plan” or “Registered Plan” means the Spar Aerospace Limited Pension Plan for Executive Employees, as amended from time to time.

(r)    “Spar SERP” means the Spar Aerospace Limited Supplemental Executive Retirement Plan.

(s)    “Spouse” means, with respect to a (Former) Covered Executive, that person to whom the (Former) Covered Executive is lawfully married at the relevant time.

(t)    “Total and Permanent Disability” means a physical or mental condition which results in a Covered Executive being eligible to receive disability benefits under the federal Social Security program, or under any formal program of long-term disability insurance provided by the Corporation or its Affiliates.

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EXHIBIT 10(m)

ARTICLE II

DESIGNATION OF COVERED EXECUTIVES
 
The Board of Directors of the Corporation (“Board”) shall, from time to time, in its discretion, designate as Covered Executives, for the purposes of the Plan, individuals who are members of the Astro Pension Plan. Once an individual is designated as a Covered Executive, the Board shall notify such Covered Executive in writing of his designation and shall provide him with a copy of the Plan.

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EXHIBIT 10(m)

ARTICLE III

RETIREMENT BENEFITS

3.01    Retirement Allowance on Normal or Postponed Retirement Date.  A Covered Executive retiring on his Normal Retirement Date or on his Postponed Retirement Date shall be entitled to receive a monthly Retirement Allowance equal to the excess of:
 
     (a)    1/12 x 2% x the Covered Executive’s Final Average Earnings multiplied by his Covered Service; over

(b)    The sum of the monthly benefits payable to the Covered Executive under the Astro Pension Plan and any other qualified retirement plan to the extent such benefits are attributable to contributions of the Corporation or its Affiliates on the Covered Executive’s behalf, excluding employee deferrals and employer matching contributions under the Astro Aerospace Corporation 401(k) Savings Plan (“401(k) Plan”).

The benefits payable or benefits that would be payable under (a) and (b) above shall be determined as follows:

     (i)    under the Astro Pension Plan (or any other defined benefit plan of the Corporation or its Affiliates in which the Covered Executive participates or participated) assuming a straight life annuity form of benefit; and

     (ii)    under any defined contribution plan of the Corporation or its Affiliates in which the Covered Executive participates or participated assuming the Covered Executive’s account balance(s) attributable to contributions by the Corporation or its Affiliates (other than elective salary deferrals, other employee contributions, employer matching contributions and earnings thereon) is paid in the form of a single life annuity beginning on the date the payment of the Retirement Allowance commences.
 
When determining the amount of the Covered Executive’s benefits in any plan, any such benefits paid out prior to the date on which the Retirement Allowance is determined (e.g., hardship withdrawals, payments pursuant to a qualified domestic relations order or other in-service withdrawal) shall be treated as if no such payment was made and shall be included in the calculation of (a) and (b) above in accordance with Section 3.05 herein.

3.02    Retirement Allowance on Early Retirement Date.  A Covered Executive who retires on an Early Retirement Date shall be entitled to receive a Retirement Allowance commencing on his Early Retirement Date calculated in accordance with Section 3.01 provided that:

     (a)    The amounts in Subsection 3.01(a) and 3.01(b) will be reduced to take into account the early receipt of the Retirement Allowance. The reduction will be calculated

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EXHIBIT 10(m)

consistent with the actuarial reduction applied to the benefit under the Astro Pension Plan; and

     (b)    The benefits under the Astro Pension Plan and any other qualified retirement plan of the Corporation or its Affiliates will be determined according to the applicable terms of such plan(s) at the Early Retirement Date.

3.03    Payment of Retirement Allowance.  Retirement Allowances shall be paid on the first day of each month commencing after the Covered Executive’s Normal Retirement Date, Early Retirement Date or Postponed Retirement Date, as the case may be, and, subject to Section 3.04, ceasing with the 360th monthly payment or, if earlier, the payment made coincident with or immediately preceding the death of the Covered Executive.

3.04    Retirement Allowance Payable to Surviving Spouse of a Covered Executive.  If a Covered Executive who has a Spouse at the date payment of his Retirement Allowance commences, dies after retirement but before receiving 360 monthly payments of his Retirement Allowance under the Plan, such Spouse is entitled to receive a monthly amount equal to 66   2/3% of the monthly amount paid to the Covered Executive in the month immediately preceding his date of death from the Plan.

This monthly amount is payable to the Spouse for the balance of the 360 payments or until the death of the Spouse, whichever occurs first.

3.05    Deeming Rule.  If the benefits payable to a Covered Executive or his Spouse under the Astro Pension Plan or any other qualified plan of the Corporation or its Affiliates are (were):

     (i)    commuted at the election of the Covered Executive or his Spouse, or;

(ii)    divided pursuant to a decree, order or judgment of a competent tribunal, or a written separation agreement, relating to a division of property between the Covered Executive and his Spouse or former Spouse in settlement of rights arising out of their marriage or other conjugal relationship, on or after the breakdown of the marriage or other relationship; for the purposes of calculating the amount of the Covered Executive’s or the surviving Spouse’s Retirement Allowance, the benefits payable under such plans shall be deemed to be equal to the amount of the benefit that would have been payable if such election to commute or such division of the benefits under the plans had not been made and payment of such benefits commenced at the same time as the Retirement Allowance.

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EXHIBIT 10(m)

ARTICLE IV

TERMINATION OF SERVICE

4.01    Termination Benefits.  A Covered Executive, who has been a member of the Astro Pension Plan for 24 continuous months and whose employment with the Corporation and its Affiliates is terminated for any reason other than retirement or death prior to his Normal Retirement Date, shall be entitled to a Retirement Allowance commencing, subject to Section 4.02, on his Normal Retirement Date. The Retirement Allowance shall be determined in accordance with section 3.01.

4.02    Early Commencement of Deferred Retirement Allowance.  A Former Covered Executive who is entitled to a Retirement Allowance payable under the terms of Section 4.01 who has elected to receive Early Retirement benefits under the Astro Pension Plan will commence receipt of his Retirement Allowance prior to his Normal Retirement Date coincident with the commencement of benefit payments from the Astro Pension Plan provided that he attained the age of 55 and had ten (10) years of Covered Service on his date of termination. The Retirement Allowance payable from such date shall be reduced to take into account the early receipt of the Retirement Allowance. The reduction will be calculated consistent with the actuarial reduction which would be applied under the Astro Pension Plan for an Early Retirement.

4.03    Applicable Provisions.  The provisions of Section 3.03 and 3.04 apply to Retirement Allowances paid under Article IV, with such wording changes as may be necessary. However, the provisions of Article V shall apply when a Former Covered Executive dies prior to commencement of his Retirement Allowance.

- 7 -

EXHIBIT 10(m)

ARTICLE V

DEATH BENEFITS

5.01    Benefits on Covered Executive’s Death Prior to Retirement.  If a Covered Executive dies prior to commencement of a Retirement Allowance, the person who is his Spouse at the date of his death shall be entitled to a monthly amount equal to the excess of:

     (a)    66 2/3% of the amount in Subsection 3.01(a) of the Plan calculated at the date of the Covered Executive’s death,

less

(b)    an amount, if any, equal to the sum of the monthly survivor benefits from the Astro Pension Plan and any other qualified plan of the Corporation or Affiliate payable to the Spouse in the same month.
 
The actual benefits under the Astro Pension Plan and any other qualified plan of the Corporation or Affiliate will be determined according to the applicable terms of such plan(s) at the date of the Covered Executive’s death and shall not include benefits attributable to the Covered Executive’s salary deferrals or matching contributions and earnings thereon under the 401(k) Plan.
 
Payment of the Spouse’s benefit will commence on the first day of the month following the Covered Executive’s date of death.
 
This monthly amount is payable to the Spouse for 360 monthly payments or until the death of the Spouse, whichever occurs first.
 
5.02    Benefits on a Former Covered Executive’s Death Prior to Retirement.  If a Former Covered Executive dies prior to commencement of a Retirement Allowance, his Spouse at the date of death shall be entitled to receive a Retirement Allowance equal to the Retirement Allowance calculated in accordance with Section 5.01 provided that:

     (a)    The amounts in subsection 3.01 will be reduced to take into account the early receipt of the Retirement Allowance. The reduction will be calculated consistent with the actuarial reduction applied to the benefit under the Astro Pension Plan; and

(b)    The actual benefits under the Astro Pension Plan and any other qualified plan of the Corporation or Affiliate will be determined according to the applicable terms of such plan(s) at the Former Covered Executive’s date of termination of employment with the Corporation and its Affiliates.

- 8 -

EXHIBIT 10(m)

Payment of the Spouse’s benefit will commence on the later of (1) first day of the month following the Former Covered Executive’s date of death, (2) the Annuity Starting Date (as defined under the Astro Pension) elected by the surviving Spouse, or (3) the first date the surviving Spouse receives payment of the death benefit under the Astro Pension Plan.

This monthly amount is payable to the Spouse for 360 monthly payments or until the death of the Spouse, whichever occurs first.

- 9 -

EXHIBIT 10(m)

ARTICLE VI

DISABILITY BENEFITS

6.01    Disabled Covered Executives.  A Covered Executive who is receiving benefits under a long-term disability benefit plan designated by the Corporation shall continue to be a Covered Executive. Such Covered Executive’s Covered Service shall continue to accrue during the covered disability. The Covered Executive’s Final Average Earnings while on disability shall be deemed to be equal to the Final Average Earnings in effect immediately preceding the commencement of the disability.

If the disabled Covered Executive does not return to active employment with the Corporation or any Affiliate, he will be entitled to receive a Retirement Allowance commencing, subject to Section 6.02, on his Normal Retirement Date calculated in accordance with Section 3.01, based on his Final Average Earnings on his date of disability and his Covered Service at his Normal Retirement Date.

6.02    Disability Retirement.  A Covered Executive who, while in the employ of the Corporation or any Affiliate and, prior to his Normal Retirement Date:

(1)    incurs a Total and Permanent Disability;

(2)    does not qualify or ceases to qualify for benefits under any salary continuance or long-term disability benefits plan designated by the Corporation, or any applicable Worker’s Compensation legislation; and

(3)    retires under the Astro Pension Plan;
 
will be entitled to receive a Retirement Allowance coincident with the commencement of the payment of his benefit under the Astro Pension Plan. Such Retirement Allowance shall be equal to the amount calculated in accordance with Section 3.02 based on his Final Average Earnings on his date of disability and his Covered Service at his date of retirement.

6.03    Applicable Provisions.  The provisions of Sections 3.03 and 3.04 apply to Retirement Allowances paid under Article VI, with such wording changes as may be necessary. However, the provisions of Article V shall apply when a disabled Covered Executive dies prior to commencement of his Retirement Allowance.

- 10 -

EXHIBIT 10(m)

ARTICLE VII

ADMINISTRATION
 
The Corporation is the Administrator of the Plan. The Administrator shall be responsible for the general administration of the Plan and shall perform all administrative functions and shall interpret, construe and apply the Plan provisions in accordance with its terms. The Corporation as Administrator may establish, adopt or revise rules and regulations as it deems necessary or advisable for the administration of the Plan. The Corporation may consult with and rely upon the advice of such counsel, actuaries and other advisors as it shall see fit.

- 11 -

EXHIBIT 10(m)

ARTICLE VIII

AMENDMENT OR TERMINATION OF THE PLAN
 
It is the intention of the Corporation in establishing the Plan that it should operate to the indefinite future. The Corporation does however, reserve the sole right to terminate the Plan at any time. The Corporation further reserves the right in its sole discretion to amend the Plan in any respect; provided, however, that no such amendment that reduces the value of the benefits therefore accrued by the Covered Executive shall be effective unless the Covered Executive consents to such amendment in writing.
 
In the event of termination of the Plan, the value of the benefits accrued by the Covered Executive at the time of termination will be determined assuming the Astro Pension Plan and all other qualified retirement plans of the Corporation and it’s Affiliates are terminated at the same time. Any amendment or termination shall be made pursuant to a resolution of the Board of Directors of the Corporation and shall be effective as of the date specified in such resolution.

- 12 -

EXHIBIT 10(m)

ARTICLE IX

CLAIMS REVIEW PROCEDURE

9.01    Denial of Benefits.  If a Retirement Allowance under the Plan is wholly or partially denied, notice of the decision shall be furnished to the Covered or Former Covered Executive or Spouse (claimant) as the case may be by the Administrator within a reasonable period of time after such decision is reached.

9.02    Notice.  Any claimant who is denied a claim for Benefits shall be furnished written notice setting forth:

(a)    the specific reason or reasons for the denial;

(b)    specific reference to the pertinent provision of the Plan upon which the denial is based;

(c)    a description of any additional material or information necessary for the claimant to perfect the claim; and

(d)    an explanation of the claim review procedure under the Plan.

9.03    Appeals Procedure.  In order that a claimant may appeal a denial of a claim, the claimant or the claimant’s duly authorized representative may:

(a)    request a review by written application to the Administrator, or its designate, no later than 60 days after receipt by the claimant of written notification of denial of a claim;

(b)    review pertinent documents; and

(c)    submit issues and comments in writing.

9.04    Review.  A decision on review of a denied claim shall be made not later than 60 days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than 120 days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based.

- 13 -

EXHIBIT 10(m)

ARTICLE X

GENERAL

10.01    No Employment Rights.  Nothing herein shall constitute a contract of continuing employment or in any manner obligate the Corporation to continue the service of a Covered Executive, or obligate a Covered Executive to continue in the service of the Corporation, and nothing herein shall be construed as fixing or regulating the compensation paid to Covered Executive.

10.02    No Claim Against the Company.  Neither a Covered Executive nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of the Corporation whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which the Corporation, in its sole discretion, may set aside in anticipation of a liability hereunder. Any trust which is created in connection with this Plan or any agreement shall provide that the assets of the trust are subject to the claims of the Corporation’s general creditors. A Covered Executive shall have only a Contractual right to the amounts, if any, payable hereunder unsecured by any asset of the Corporation.

10.03    Incompetence.  If the Administrator determines that any person entitled to any payment hereunder is incompetent by reason of any physical or mental disability, and consequently unable to give a valid receipt, the Administrator may cause any payment due to such person to be made to another person for his benefit, without responsibility on the part of the Administrator to follow the application of such funds. Payment made pursuant to this section 10.03 shall operate as a complete discharge of the responsibility of the Administrator.

10.04    Nonassignability.  Neither a Covered Executive nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Covered Executive or any other person, nor be transferable by operation of law in the event of a Covered Executive’s or any other person’s bankruptcy or insolvency.

10.05    Continuance of Payments.  The payment of a Retirement Allowance to a Covered Executive or Former Covered Executive, or to his surviving Spouse, is subject to satisfactory proof of the existence of a Covered Executive or Former Covered Executive, or his surviving Spouse, as the case may be, as may be required from time to time by the Administrator.

- 14 -

EXHIBIT 10(m)

10.06    Notice.  Any notice required or permitted to be given to the Administrator of the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Corporation, directed to the attention of the Administrator. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.

10.07    Gender and Number.  Wherever appropriate herein, the masculine may mean the feminine and the singular may mean the plural or vice versa.

10.08    Corporate Successors.  The Plan shall not be automatically terminated by a transfer or sale of assets of the Corporation or the merger or consolidation of the Corporation into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Article VIII.

10.09    Unclaimed Benefits.  Each Covered Executive shall keep the Corporation informed of his current address and the current address of his Spouse. The Corporation shall not be obligated to search for the whereabouts of any person. If the location of a Covered Executive is not made known to the Corporation within three (3) years after the date on which payment of the Covered Executive’s Retirement Allowance may first be made, payment may be made as though the Covered Executive had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Covered Executive, the Corporation is able to locate any surviving Spouse of the Covered Executive, then the Corporation shall have no further obligation to pay any benefit hereunder to such Covered Executive or surviving Spouse or any other person and such benefit shall be irrevocably forfeited.

10.10    Withholding; Employment Taxes.  To the extent required by the law in effect at the time payments are made, the Corporation shall withhold from payments made hereunder any taxes required to be withheld by the Federal or any state or local government.

10.11    Validity.  In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan.

10.12    Applicable Law.  This Plan shall be governed and construed in accordance with the laws of the State of California.

- 15 -

Exhibit 10(n)

NORTHROP GRUMMAN

ELECTRONIC SYSTEMS EXECUTIVE PENSION PLAN

(Amended and Restated Effective as of January 1, 2014)

Exhibit 10(n)

TABLE OF CONTENTS

 	 	
ARTICLE 1—Introduction	2	
Section 1.01. Introduction	2	
Section 1.02. Effective Date	2	
Section 1.03. Sponsor	2	
Section 1.04. Predecessor Plan	2	
Section 1.05. 2001 Reorganization	2	
 	 	
ARTICLE 2—Definitions	3	
Section 2.01. Affiliated Companies	3	
Section 2.02. Annual Incentive Programs	3	
Section 2.03. Average Annual Compensation	3	
Section 2.04. Board	3	
Section 2.05. Code	3	
Section 2.06. Committee	3	
Section 2.07. Company	3	
Section 2.08. Defined Contribution Plan	3	
Section 2.09. Designated Entity	3	
Section 2.10. ERISA	3	
Section 2.11. ES Pension Plan	3	
Section 2.12. Executive	4	
Section 2.13. Executive Benefit Service	4	
Section 2.14. Executive Pension Base	4	
Section 2.15. Executive Pension Supplement	4	
Section 2.16. Grandfathered Amounts	4	
Section 2.17. Key Employee	4	
Section 2.18. Maximum Contribution	5	
Section 2.19. Participating Company	5	
Section 2.20. Payment Date	5	
Section 2.21. Pension Plan and Pension Plans	5	
Section 2.22. Plan	6	
Section 2.23. Qualified Plan Benefit	6	
Section 2.24. Retirement Eligible	6	
Section 2.25. Separation from Service or Separates from Service	7	
Section 2.26. Westinghouse	7	
Section 2.27. Westinghouse Acquisition	7	
Section 2.28. Westinghouse Plan	7	
 	 	
ARTICLE 3—Qualification for Benefits; Mandatory Retirement	7	
Section 3.01. Qualification for Benefits	7	

Exhibit 10(n)

 	 	
Section 3.02. Mandatory Retirement	8	
Section 3.03. Certain Transfers	8	
 	 	
ARTICLE 4—Calculation of Executive Pension Supplement	9	
Section 4.01. In General	9	
Section 4.02. Amount	9	
 	 	
ARTICLE 5—Death in Active Service	10	
Section 5.01. Eligibility For an Immediate Benefit	10	
Section 5.02. Calculation of Immediate Benefit	10	
Section 5.03. Eligibility For a Deferred Benefit	10	
Section 5.04. Calculation of Deferred Benefit	10	
 	 	
ARTICLE 6—Executive Pension Base	10	
Section 6.01. In General	10	
Section 6.02. Executive Pension Base	10	
Section 6.03. Average Annual Compensation	11	
Section 6.04. Annual Incentive Programs	12	
Section 6.05. Executive Benefit Service	12	
 	 	
ARTICLE 7—Payment of Benefits	13	
Section 7.01. Limitation on Benefits	13	
Section 7.02. Normal Form and Commencement of Benefits	13	
Section 7.03. Guaranteed Benefit	13	
Section 7.04. Guaranteed Surviving Spouse Benefit	13	
Section 7.05. Lump Sum Payments	13	
Section 7.06. Mandatory Cashout	14	
Section 7.07. Optional Payment Forms	14	
Section 7.08. Rehires	15	
Section 7.09. Special Tax Distribution	15	
 	 	
ARTICLE 8—Conditions to Receipt of Executive Pension Supplement	15	
Section 8.01. Non-Competition Condition	15	
Section 8.02. Breach of Condition	15	
Section 8.03. Waiver After 65	15	
 	 	
ARTICLE 9—Administration	16	
Section 9.01. Committee	16	
Section 9.02. Claims Procedures	16	
Section 9.03. Trust	16	
 	 	
ARTICLE 10—Modification or Termination	16	

- ii -

Exhibit 10(n)

 	 	
Section 10.01. Amendment and Plan Termination	16	
 	 	
ARTICLE 11—Miscellaneous	16	
Section 11.01. Benefits Not Assignable	16	
Section 11.02. Facility of Payment	17	
Section 11.03. Committee Rules	17	
Section 11.04. Limitation on Rights	17	
Section 11.05. Benefits Unsecured	18	
Section 11.06. Governing Law	18	
Section 11.07. Severability	18	
Section 11.08. Expanded Benefits	18	
Section 11.09. Plan Costs	18	
Section 11.10. Termination of Participation	18	
Section 11.11. Transfer of Liabilities to HII	18	
 	 	
ARTICLE 12—Change in Control	19	
Section 12.01. Definition	19	
Section 12.02. Vesting and Funding Rules	20	
Section 12.03. Special Retirement Provisions	20	
Section 12.04. Calculation of Present Value	20	
Section 12.05. Calculation of Offset	21	
Section 12.06. Limitation on Amendment, Suspension and Termination	21	
 	 	
APPENDIX A—Executive Buyback	22	
Section A.01. Introduction	22	
Section A.02. Buy Back Offer	22	
Section A.03. One-Time Opportunity	22	
Section A.04. Payment	22	
Section A.05. Refund of Buy Back Payment	22	
Section A.06. Effective Date	23	
 	 	
APPENDIX B—Rehired Executives	24	
Section B.01. Retired Executives Rehired as Executives	24	
Section B.02. Former Executives with Vested Pensions Rehired as Executives	25	
Section B.03. Retired Executives Rehired in Non-Executive Positions	25	
Section B.04. Events That Span Westinghouse Acquisition	26	
Section B.05. Breaks Spanning March 1, 1996	26	
 	 	
APPENDIX C—Coordination With Westinghouse Plan	28	
Section C.01. In General	28	
Section C.02. Pre-Acquisition Benefits	28	
Section C.03. Coordination of Pre and Post-Acquisition Benefits	28	

- iii -

Exhibit 10(n)

 	 	
Section C.04. No Duplication of Benefits	28	
 	 	
APPENDIX D—2005-2007 Transition Rules	29	
Section D.01. Election	29	
Section D.02. 2005 Commencements	29	
Section D.03. 2006 and 2007 Commencements	30	
 	 	
APPENDIX E—Post 2007 Distribution of 409A Amounts	31	
Section E.01.Time of Distribution	31	
Section E.02. Special Rule for Key Employees	31	
Section E.03. Forms of Distribution	31	
Section E.04. Death	31	
Section E.05. Actuarial Assumptions	32	
Section E.06. Accelerated Lump Sum Payouts	32	
Section E.07. Effect of Early Taxation	33	
Section E.08. Permitted Delays	33	
 	 	
APPENDIX F—Committees and Appointments	34	

- iv -

Exhibit 10(n)

NORTHROP GRUMMAN
ELECTRONIC SYSTEMS EXECUTIVE PENSION PLAN
(Amended and Restated Effective as of January 1, 2014)

The Northrop Grumman Electronic Systems Executive Pension Plan (the "Plan") is hereby amended and restated effective as of January 1, 2014, except as otherwise provided. This restatement of the Plan amends the January 1, 2013 restatement and does not include changes that apply to Grandfathered Amounts.

The Plan is intended to comply with Code section 409A and official guidance issued thereunder (except for Grandfathered Amounts). Notwithstanding any other provision of this Plan, this Plan shall be interpreted, operated and administered in a manner consistent with this intention.

Effective as of December 31, 2014, the accrued benefits for all Executives under this Plan shall be frozen. An Executive's benefit under this Plan will be based on his Executive Benefit Service and his Average Annual Compensation as of December 31, 2014, or at such earlier date that the Participant ceases to be eligible for this Plan, less the applicable offsets, determined on December 31, 2014, or such earlier applicable date. An Executive’s service after December 31, 2014 will be considered for purposes of his eligibility, his vesting status, his early retirement eligibility, and calculating the early retirement reductions related to his frozen benefit.

Exhibit 10(n)

ARTICLE 1
Introduction
Section 1.01.    Introduction. The Northrop Grumman Electronic Systems Executive Pension Plan is a supplemental pension plan that provides nonqualified deferred compensation for a select group of management or highly compensated employees.
Section 1.02.    Effective Date. The Plan became effective March 1, 1996.
Section 1.03.    Sponsor. The Plan sponsor is Northrop Grumman Corporation.
Section 1.04.    Predecessor Plan. The Plan was established as a successor to the Westinghouse Executive Pension Plan, maintained by Westinghouse Electric Corporation ("Westinghouse") for the benefit of certain executive employees of the Westinghouse Electronic Systems Group as of February 29, 1996 who became employees of the Northrop Grumman Electronic Sensors & Systems Division as of March 1, 1996 as a result of the Westinghouse Acquisition, and certain other executive employees who may become employed by the Northrop Grumman Electronic Sensors & Systems Division on or after March 1, 1996. The Northrop Grumman Electronic Sensors & Systems Division became the Northrop Grumman Electronic Sensors & Systems Sector effective August 24, 1998.
Section 1.05.    2001 Reorganization. Effective as of the 2001 Reorganization Date in (d), the corporate structure of Northrop Grumman Corporation and its affiliates was modified. Effective as of the Litton Acquisition Date in (e), Litton Industries, Inc. was acquired and became a subsidiary of the Northrop Grumman Corporation (the "Litton Acquisition").
(a)    The former Northrop Grumman Corporation was renamed Northrop Grumman Systems Corporation. It became a wholly-owned subsidiary of the new parent of the reorganized controlled group.
(b)    The new parent corporation resulting from the restructuring is called Northrop Grumman Corporation. All references in this Plan to the former Northrop Grumman Corporation and its Board of Directors now refer to the new parent corporation bearing the same name and its Board of Directors.
(c)     As of the 2001 Reorganization Date, the new Northrop Grumman Corporation became the sponsor of this Plan, and its Board of Directors assumed authority over this Plan.
(d)     2001 Reorganization Date. The date as of which the corporate restructuring described in (a) and (b) occurred.
(e)     Litton Acquisition Date. The date as of which the conditions for the completion of the Litton Acquisition were satisfied in accordance with the Amended and Restated Agreement and Plan of Merger Among Northrop Grumman Corporation, Litton Industries, Inc., NNG, Inc., and LII Acquisition Corp.

- 2 -

Exhibit 10(n)

ARTICLE 2
Definitions
Capitalized terms which are defined in the ES Pension Plan will have the same meanings in this Plan unless otherwise expressly stated. In addition, the following terms when used and capitalized will have the following meanings:
Section 2.01.    Affiliated Companies. The Company and any other entity related to the Company under the rules of section 414 of the Code. The Affiliated Companies include Northrop Grumman Corporation and its 80%-owned subsidiaries and may include other entities as well.
Section 2.02.    Annual Incentive Programs. See Article 6.
Section 2.03.    Average Annual Compensation. See Article 6.
Section 2.04.    Board. Board means the Board of Directors of Northrop Grumman Corporation, or its delegate.
Section 2.05.    Code. The Internal Revenue Code of 1986, as amended, and as it may be amended.
Section 2.06.    Committee. A committee of not less than three members appointed by the Board with responsibility for the general administration of the Plan. The Committee is the "plan administrator" under ERISA.
Section 2.07.    Company. Northrop Grumman Corporation.
Section 2.08.    Defined Contribution Plan. A defined contribution plan within the meaning of ERISA § 3(34), but not including:
(a)     the Northrop Grumman Electronic Systems Savings Program or any similar program of a Participating Company or a Designated Entity or
(b)     any amount received pursuant to a cash or deferred arrangement (as that term is defined in the Code) maintained by a Participating Company or a Designated Entity.
Section 2.09.    Designated Entity. Designated Entity means an Affiliated Company or other entity that has been and is still designated by the Committee as participating in the Plan.
Section 2.10.    ERISA. The Employee Retirement Income Security Act of 1974, as amended, and as it may be amended.
Section 2.11.    ES Pension Plan. The Northrop Grumman Electronic Systems Pension Plan, formerly known as the ESSD Pension Plan.

- 3 -

Exhibit 10(n)

Section 2.12.    Executive. Executive means an individual who satisfies (a) and (b) and is not excluded by (c) or (d):
(a)     An Employee who is employed by ES (or by a Participating Company, Designated Entity, or other Affiliated Company) in a position that is determined by the Company's Chief Executive Officer or Vice President and Chief Human Resources and Administrative Officer to be eligible as an Executive position under this Plan based on the duties and responsibilities of the position.
(b)     The Employee has been notified by the Committee in writing that he or she is eligible for benefits under the Plan.
(c)     No Employee may receive benefits under this Plan if he or she is currently accruing supplemental benefits under any other nonqualified deferred compensation plan, contract, or arrangement maintained by the Affiliated Companies or to which the Affiliated Companies contribute with the exception of the Officers Supplemental Executive Retirement Program under the Northrop Grumman Supplemental Plan 2.
(d)     Notwithstanding any provision of the Plan to the contrary, effective as of July 1, 2003, no Employee will first become eligible to participate in the Plan or otherwise receive credit for service or compensation for purposes of calculating a benefit under the Plan unless the Employee was classified as an Executive eligible to participate in the Plan before that date. Executives that terminate employment and are later rehired into positions that are determined to be eligible as Executive positions under the Plan will be eligible to resume participation in the Plan and will be subject to Appendix B.
Section 2.13.    Executive Benefit Service. See Article 6.
Section 2.14.    Executive Pension Base. See Article 6.
Section 2.15.    Executive Pension Supplement. The pension calculated pursuant to Articles 4 and 5 of this Plan. There will be no Executive Pension Supplement payable if the Executive's Qualified Plan Benefit equals or exceeds his or her Executive Pension Base.
Section 2.16.    Grandfathered Amounts. Plan benefits that were earned and vested as of December 31, 2004 within the meaning of Code section 409A and official guidance thereunder.
Section 2.17.    Key Employee. An employee treated as a "specified employee" under Code section 409A(a)(2)(B)(i) of the Company or the Affiliated Companies (i.e., a key employee (as defined in Code section 416(i) without regard to paragraph (5) thereof)) if the Company's or an Affiliated Company's stock is publicly traded on an established securities market or otherwise. The Company shall determine in accordance with a uniform Company policy which Executives are Key Employees as of each December 31 in accordance with IRS regulations or other guidance under Code section 409A, provided that in determining the compensation of individuals for this purpose, the definition of compensation in Treas. Reg. § 1.415(c)-2(d)(3)

- 4 -

Exhibit 10(n)

shall be used. Such determination shall be effective for the twelve (12) month period commencing on April 1 of the following year.
Section 2.18.    Maximum Contribution. An Employee will be deemed to have made the Maximum Contribution if he or she has made the contributions under (a) and (b), as interpreted under (c):
(a)     During such time as the Employee was eligible to participate in the ES Pension Plan and the Westinghouse Pension Plan, he or she contributed the maximum amount the Employee was permitted to contribute under those plans, and
(b)     During such time as the Employee was employed by a Designated Entity (which includes for this purpose a "Designated Entity" under the Westinghouse Plan during periods before the Westinghouse Acquisition),
(1)     The Employee contributed the maximum amount he or she was permitted to contribute, if any, to that Designated Entity's defined benefit pension or Defined Contribution Plan, if any, and
(2)     The Employee paid to the Company (or to Westinghouse, before the Westinghouse Acquisition) an amount of each of his or her annual incentive compensation awards based on the maximum ES Pension Plan contribution formula (or Westinghouse Pension Plan contribution formula, as appropriate) applied to 50% of his or her awards. This payment is pre-tax and is made by a deferral election entered into prior to the year in which the annual incentive compensation award is determined and paid.
(c)     This Plan is intended as essentially a continuation of the Westinghouse Plan (see Appendix C). Accordingly, this Section is to be interpreted as requiring an Executive to have made the Maximum Contribution not only under this Plan but also under the Westinghouse Plan.
Section 2.19.    Participating Company. Any of the "Participating Companies" under the ES Pension Plan.
Section 2.20.    Payment Date. The 1st of the month coincident with or following the later of (a) the date the Executive attains age 55, or (b) the date the Executive Separates from Service.
Section 2.21.    Pension Plan and Pension Plans. Any of the following:
(a)    The Northrop Grumman Retirement Plan
(b)    The Northrop Grumman Retirement Plan – Rolling Meadows Site
 	 	
(c)	The Northrop Grumman Retirement Value Plan (effective as of January 1, 2000)	
 	 	
(d)	The Northrop Grumman Electronics Systems – Space Division Salaried Employees' Pension Plan (effective as of the Aerojet Closing Date)	

- 5 -

Exhibit 10(n)
 	 	
(e)	The Northrop Grumman Electronics Systems – Space Division Union Employees' Pension Plan (effective as of the Aerojet Closing Date)	
"Aerojet Closing Date" means the Closing Date specified in the April 19, 2001 Asset Purchase Agreement by and Between Aerojet-General Corporation and Northrop Grumman Systems Corporation.
Section 2.22.    Plan. The Northrop Grumman Electronic Systems Executive Pension Plan.
Section 2.23.    Qualified Plan Benefit    .
(a)     The Qualified Plan Benefit is equal to the sum of:
 	 	
(1)	the annual amount of pension the Executive has accrued under the ES Pension Plan and any applicable defined benefit pension plan of a Designated Entity based on Benefit Service accumulated up to the earlier of the Executive's actual retirement date or death;	
 	 	
(2)	the amount the Executive is entitled to receive on a life annuity basis for retirement under any applicable Defined Contribution Plan of a Designated Entity;	
 	 	
(3)	in any case where service included in the Executive's Vesting Service also entitles that Executive to benefits under one or more retirement plans (whether a defined benefit or Defined Contribution Plan or both) of another company, the amount the Executive is entitled to receive on a life annuity basis for retirement from those plans; and	
 	 	
(4)	the amount of any "Qualified Plan Benefits" taken into account under the Westinghouse Plan (or which would have been taken into account, but for the Westinghouse Acquisition) with respect to plans that were not acquired by the Affiliated Companies as part of the Westinghouse Acquisition;	
provided, the method of benefit measurement, in the case of (2), (3) and (4) above, will be on the basis of procedures determined by the Committee on a plan-by-plan basis.
(b)     The Qualified Plan Benefit does not include any early pension retirement supplement.
(c)     The term Qualified Plan Benefit will also include amounts accrued under an excess benefit plan or other similar arrangement in which the Executive is a participant.
Section 2.24.    Retirement Eligible. An Executive is Retirement Eligible if he or she is accruing Vesting Service and:
(a)     has attained age 65 and completed five or more years of Vesting Service;

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Exhibit 10(n)

(b)     has attained age 60 and completed 10 or more years of Vesting Service;
(c)    has attained age 58 and completed 30 or more years of Vesting Service; or
(d)     has satisfied the requirements for an immediate pension under the Special Retirement Benefit provisions of the ES Pension Plan.
Section 2.25.    Separation from Service or Separates from Service. A "separation from service" within the meaning of Code section 409A.
Section 2.26.    Westinghouse. Westinghouse Electric Corporation.
Section 2.27.    Westinghouse Acquisition. The acquisition by Northrop Grumman Corporation of the Electronic Systems Group of Westinghouse effective March 1, 1996.
Section 2.28.    Westinghouse Plan. The Westinghouse Executive Pension Plan, as it existed from time to time.

ARTICLE 3
Qualification for Benefits; Mandatory Retirement
Section 3.01.    Qualification for Benefits. Subject to Article 8 and other applicable provisions of the Plan, if any, each Executive will be entitled to the benefits of this Plan on separation from service from a Participating Company, a Designated Entity, or any other Affiliated Company, provided that such Executive meets the following four conditions:
(a)     He or she has been employed in a position that meets the definition of Executive for five or more continuous years immediately preceding the earlier of the Executive's actual retirement date or the Executive's Normal Retirement Date. For purposes of this five-year requirement (but not for purposes of determining Executive Benefit Service under Section 6.05), the General Manager of ES and the Vice President of Human Resources for ES may determine that one or more years of an Employee's service with an Affiliated Company prior to the Employee's transfer to ES shall be counted as having been in an Executive position.
(b)     He or she has made the Maximum Contribution during each year of Vesting Service from the date he or she first became an Executive until the earliest of his or her date of death, actual retirement date or Normal Retirement Date;
(c)    He or she is a participant in the ES Pension Plan or in the defined benefit plan or Defined Contribution Plan of a Designated Entity, if any;
(d)    He or she is Retirement Eligible on the date of voluntary or involuntary separation from service from a Participating Company or a Designated Entity or, in the case of a Surviving Spouse benefit, satisfies the requirements for benefits under Article 5 of the Plan.

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Exhibit 10(n)

An Executive who meets the following requirements will be treated as "Retirement Eligible" even though not meeting the Plan's definition of this term:
(1)    The Executive is involuntarily terminated without cause, or terminated due to a divestiture of his business unit on or after December 1, 2010,
(2)    The Executive has attained age 53 with 10 or more years of Early Retirement Eligibility Service, or 75 points (age plus Years of Credited Service) at date of termination, and
(3)    The Executive is actively accruing benefits at date of termination and has satisfied both the rule of Section 3.01(a) and the rule of Section 3.01(b) on the date of termination.
Benefits that become payable based on the Executive's termination meeting the three requirements above shall be subject to Code Section 409A and payable in accordance with the terms of Appendix E. Reduction factors will apply in cases where benefit payments commence prior to age 58 (if the Executive has 30 or more years of Vesting Service) or age 60 (if the Executive has 10 - 29 years of Vesting Service). The reduction will be an actuarial one from age 58 or 60 (whichever age applies) to the actual payment commencement date. The reduction factor will be based on the actuarial assumptions used for determining lump sum actuarial equivalents in the Northrop Grumman Cash Balance Plan Program.
Section 3.02.    Mandatory Retirement. Pursuant to this Plan, the Company will be entitled, at its option, to retire any Executive who has attained age 65 and who, for the two-year period immediately before his or her retirement, has participated in this Plan, if such Executive is entitled to an immediate nonforfeitable annual retirement benefit from a pension, profit-sharing, savings or deferred compensation plan, or any combination of such plans, of a Participating Company or any Affiliated Company, which equals, in the aggregate, at least $44,000. The calculation of the $44,000 (or greater) amount will be performed in a manner consistent with 29 U.S.C. § 631(c)(2).
Section 3.03.    Certain Transfers. Except as otherwise provided in (e) below, if an Executive transfers to a position with an Affiliated Company that is not covered by a Participating Company or Designated Entity:
(a)     He or she will immediately cease to accrue Executive Benefit Service.
(b)    He or she will continue to earn Vesting Service (for purposes of the Plan other than Executive Benefit Service) for periods of employment with the Affiliated Company.
(c)     His or her Average Annual Compensation will include earnings as an employee from the Affiliated Company for periods after the transfer until his or her termination of employment with all Affiliated Companies.

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Exhibit 10(n)

(d)     He or she may receive benefits under the Plan if he or she subsequently retires from the Company and satisfies the Plan's eligibility requirements.
(e)     Effective as of July 1, 2003, if an Executive transfers to a position with an Affiliated Company that has been determined by the Company's Chief Executive Officer or Vice President and Chief Human Resources and Administrative Officer to be an eligible position under the Plan, (a)-(d) above will not apply and the Executive will continue to be classified as an active participant for all purposes under the Plan until the Executive's separation from service from all Affiliated Companies.

ARTICLE 4
Calculation of Executive Pension Supplement
Section 4.01.    In General. The Executive Pension Supplement for an Executive who meets the qualifications of Article 3 of the Plan retiring on an Early, Normal or Special Retirement Date will be calculated as described in Section 4.02(a) or (b).
Section 4.02.    Amount.
(a)     If the Executive
(1)     has attained age 60 and completed 10 or more years of Vesting Service,
(2)     has attained age 65, or
(3)     has satisfied the eligibility requirements for an immediate pension under the "Special Retirement Benefit" provisions of the ES Pension Plan,
the Executive Pension Supplement is determined by subtracting the Executive's Qualified Plan Benefit that would be payable if he or she elected a Life Annuity Option (after any reduction for early retirement, if applicable) from his or her Executive Pension Base.
(b)     If the Executive has not met the requirements of paragraph (a) above but has attained age 58 and completed 30 or more years of Vesting Service, the Executive Pension Supplement is determined by subtracting the Executive's Qualified Plan Benefit that would be payable if he or she elected a Life Annuity Option (before any reduction for retirement prior to age 60) from his or her Executive Pension Base.
(c)    If the Executive has not met the requirements of paragraph (a) or (b) above but is deemed to be Retirement Eligible under Section 3.01(d) based on the circumstances of the Executive's termination, the Executive Pension Supplement is determined by subtracting the Executive's Qualified Plan Benefit projected to age 60 as a Life Annuity from his or her Executive Pension Base.

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Exhibit 10(n)

ARTICLE 5
Death in Active Service
Section 5.01.    Eligibility For an Immediate Benefit. If an Executive dies in active service and, on his or her date of death, satisfies the requirements of the "Special Surviving Spouse Benefit" under the ES Pension Plan and satisfied the requirements of Section 3.01(b) and (c) of this Plan at the time of death, a Surviving Spouse benefit will also be payable under this Plan if his or her Executive Pension Base exceeds his or her Qualified Plan Benefit. The requirement of Section 3.01(a) is waived.
Section 5.02.    Calculation of Immediate Benefit. The amount of the immediate Surviving Spouse benefit under Section 5.01 will be the Executive Pension Supplement reduced in the same manner as though the benefit were a "Special Surviving Spouse Benefit" under the ES Pension Plan. For purposes of this Section, the Executive Pension Supplement will be calculated as follows:
(a)     If the Executive had attained age 60 or if the Executive had completed 30 years of Vesting Service, the Executive Pension Supplement would be calculated as described in Section 4.02(a);
(b)     Otherwise, the Executive Pension Supplement would be 80% of the difference between the Executive Pension Base and the unreduced Qualified Plan Benefit.
Section 5.03.    Eligibility For a Deferred Benefit. If an Executive dies in active service who does not satisfy the requirements of Section 5.01 but who satisfies the requirements of the "Surviving Spouse Benefit" under the ES Pension Plan and satisfied the requirements of Section 3.01(b) and (c) of this Plan at the time of death, a Surviving Spouse benefit will also be payable under this Plan if his or her Executive Pension Base exceeds his or her Qualified Plan Benefit. The requirement of Section 3.01(a) is waived.
Section 5.04.    Calculation of Deferred Benefit. The amount of the deferred Surviving Spouse benefit under Section 5.03 will be the Executive Pension Supplement reduced in the same manner as though the benefit were payable under the ES Pension Plan. For purposes of this paragraph, the Executive Pension Supplement will be calculated by subtracting the Executive's Qualified Plan Benefit (before any reductions) from his or her Executive Pension Base.

ARTICLE 6
Executive Pension Base
Section 6.01.    In General. This Article sets forth the rules for determining a Participant's Executive Pension Base.
Section 6.02.    Executive Pension Base. The Executive Pension Base = (a) x (b) x (c) as follows:

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Exhibit 10(n)

(a)     1.47%;
(b)     Average Annual Compensation;
(c)     the number of years of Executive Benefit Service accrued to the earliest of:
(1)     the Executive's actual retirement date, or
(2)     the date of the Executive's death.
Section 6.03.    Average Annual Compensation. Average Annual Compensation = (a) + (b) as follows:
(a)     12 times the average of the five highest of the Executive's December l monthly base salaries during the 10-year period immediately preceding the earliest of:
(1)     the Executive's date of death, or
(2)     the Executive's actual retirement date.
(b)     the average of the Executive's five highest annual incentive compensation awards paid under the Annual Incentive Programs or equivalent annual program or programs during the 10-year period ending with the earliest of:
(1)     the year of the Executive's death, or
(2)     the year of the Executive's actual retirement date.
(c)     No earnings before March 1, 1996 are taken into account under this Article.
(d)    Notwithstanding the foregoing, for Executives terminating employment with the Affiliated Companies after 2004, the averages in subsection (a) and (b) above shall be based on salaries and annual incentive compensation awards paid in 1995 or later and shall not be limited to the 10-year periods described in subsections (a) and (b). All amounts accrued as a result of this change shall be subject to Code section 409A.
(e)     Average Annual Compensation normally includes only pay earned while an Executive. But see Section 3.03.

(f)    The following shall not be considered as compensation for purposes of determining the amount of any benefit under the Plan:

(1)     any payment authorized by the Company's Compensation Committee that is (a) calculated pursuant to the method for determining a bonus amount under the Annual Incentive Programs (AIP) for a given year, and (b) paid in lieu of such bonus in the year prior to the year the bonus would otherwise be paid under the AIP, and

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Exhibit 10(n)

(2)    any award payment under the Northrop Grumman Long-Term Incentive Cash Plan.
Section 6.04.    Annual Incentive Programs. The Annual Incentive Programs are the Timely Awards Program, Management Achievement Plan, the Incentive Compensation Plan, the Incentive Management Achievement Plan and the Performance Achievement Plan of the Company.

Section 6.05.    Executive Benefit Service. An Executive's Executive Benefit Service is determined under (a) or (b) as appropriate, and subject to (c) and (d):
(a)     Executive Benefit Service is an Executive's total years of Vesting Service under the ES Pension Plan if:
(l)     the Executive was making the Maximum Contribution during each of those years; or
(2)     the use of the Executive Buy Back process has been authorized by the Committee and the Executive:
(A)     was making the Maximum Contribution during each of those years after the date he or she first became an Executive and
(B)     has complied with the provisions of the Executive Buy Back process (as set forth in Appendix A) as to those years prior to his or her first becoming an Executive.
(b)     Otherwise, Executive Benefit Service is the Executive's period of Vesting Service during which he or she made the Maximum Contribution.
(c)     No service before March 1, 1996 is taken into account under this Article.
(d)    Notwithstanding the foregoing, for an Executive terminating employment with the Affiliated Companies after 2004, Executive Benefit Service accruals after 2004 equal (1) minus (2) below:
(1)    Elapsed time while the Executive was making the Maximum Contributions, including time purchased under the Executive Buy Back process (as set forth in Appendix A);
(2)    Executive Benefit Service accrued as of December 31, 2004.
All amounts accrued as a result of this change shall be subject to Code section 409A.

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Exhibit 10(n)

ARTICLE 7
Payment of Benefits
Section 7.01.    Limitation on Benefits. No benefits will be payable under this Plan to any Executive whose employment terminates for any reason other than death prior to becoming Retirement Eligible.
Section 7.02.    Normal Form and Commencement of Benefits. This Section only applies to Grandfathered Amounts. The Executive Pension Supplement will be paid for life in monthly installments, each equal to l/12th of the annual amount determined in Article 4 or 5, whichever is applicable.
(a)     The Committee will determine the form and commencement of benefit payments in its sole discretion.
(b)     The Committee will choose among the various forms of payment, other than the lump sum, then available under the ES Pension Plan, subject to the same reductions or other provisions that apply to the elected form of payment under the ES Pension Plan.
(c)     No payments may commence under this Plan until payments to the Executive or Surviving Spouse have commenced under the ES Pension Plan or other tax-qualified defined benefit plan or Defined Contribution Plan maintained by a Participating Company or Designated Entity.
See Appendix D and Appendix E for the rules that apply to other benefits earned under the Plan.
Section 7.03.    Guaranteed Benefit. This Section only applies to Grandfathered Amounts. Regardless of the form of payment elected by the Committee, after the Executive retires and begins receiving an Executive Pension Supplement, a minimum of 60 times the monthly payment he or she would have received on a life annuity basis is guaranteed.
See Appendix D and Appendix E for the rules that apply to other benefits earned under the Plan.
Section 7.04.    Guaranteed Surviving Spouse Benefit. This Section only applies to Grandfathered Amounts. Once a Surviving Spouse Benefit determined under Sections 5.01 and 5.02 has commenced, a minimum of 60 times the monthly benefit payable to the Surviving Spouse is guaranteed. See Appendix D and Appendix E for distribution rules that apply to death benefits that are not Grandfathered Amounts.
Section 7.05.    Lump Sum Payments. This Section only applies to Grandfathered Amounts. An Executive who elects lump sum payments of all his or her nonqualified benefits under the Northrop Grumman Corporation Change-In-Control Severance Plan (effective August 1, 1996, as amended) or the Northrop Grumman Corporation March 2000 Change-In-Control Severance Plan (collectively, the "CIC Plans") is entitled to have his or her Executive Pension Supplement paid as a lump sum calculated under the terms of the applicable CIC Plan.

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Exhibit 10(n)

Otherwise, Executive Pension Supplement payments are governed by the general provisions of this Article, which do not provide for lump sum payments.
Northrop Grumman Corporation may, in its sole discretion, amend or eliminate any provision of the Plan with respect to lump sum distributions at any time. This applies whether or not a Participant has already made a lump sum election.
See Appendix D and Appendix E for the rules that apply to other benefits earned under the Plan.
Section 7.06.    Mandatory Cashout. Notwithstanding any other provisions in the Plan, Executives with Grandfathered Amounts who have not commenced payment of such benefits prior to January 1, 2008 will be subject to the following rules:
(a)    Post-2007 Terminations. Executives who have a complete termination of employment with the Affiliated Companies after 2007 will receive a lump sum distribution of the present value of their Grandfathered Amounts within two months of such termination (without interest), if such present value is below the Code section 402(g) limit in effect at the termination.

(b)    Pre-2008 Terminations. Executives who had a complete termination of employment with the Affiliated Companies before 2008 will receive a lump sum distribution of the present value of their Grandfathered Amounts within two months of the time they commence payment of their underlying qualified pension plan benefits (without interest), if such present value is below the Code section 402(g) limit in effect at the time such payments commence.
For purposes of calculating present values under this Section, the actual assumptions and calculation procedures for lump sum distributions under the Northrop Grumman Pension Plan shall be used.
Section 7.07.    Optional Payment Forms. Executives with Grandfathered Amounts shall be permitted to elect (a) or (b) below:
(a)    To receive their Grandfathered Amounts in any form of distribution available under the Plan at October 3, 2004, provided that form remains available under the underlying qualified pension plan at the time payment of the Grandfathered Amounts commences. The conversion factors for these distribution forms will be based on the factors or basis in effect under this Plan on October 3, 2004.

(b)    To receive their Grandfathered Amounts in any life annuity form not included in (a) above but included in the underlying qualified pension plan distribution options at the time payment of the Grandfathered Amounts commences. The conversion factors will be based on the following actuarial assumptions:

Interest Rate:        6%
 	 	
Mortality Table:	RP-2000 Mortality Table projected 15 years for future standardized cash balance factors	

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Exhibit 10(n)

Section 7.08.    Rehires. In the event that an Executive retires or otherwise ceases to be an Employee of a Participating Company or a Designated Entity and is later rehired by one of those entities, the provisions of Appendix B will apply.
Section 7.09.    Special Tax Distribution. On the date an Executive's retirement benefit is reasonably ascertainable within the meaning of IRS regulations under Code section 3121(v)(2), an amount equal to the Executive's portion of the FICA tax withholding will be distributed in a single lump sum payment. This payment will be based on all benefits under the Plan, including Grandfathered Amounts. This payment will reduce the Executive's future benefit payments under the Plan on an actuarial basis.

ARTICLE 8
Conditions to Receipt of Executive Pension Supplement
Section 8.01.    Non-Competition Condition. Payments of benefits under this Plan to Executives are subject to the condition that the recipient will not compete with the Company.
(a)     Competition for this purpose means engaging directly or indirectly in any business which is at the time competitive with any business, part of a business, or activity then conducted by the Company, any of its subsidiaries or any other corporation, partnership, joint venture or other entity of which the Company directly or indirectly holds a 10% or greater interest (together, the "Affiliated Group") in the area in which such business, part of a business, or activity is then being conducted by the Affiliated Group.
(b)     The condition of this Section may be waived with respect to a recipient but only in writing and only by the Compensation Committee of the Board.
Section 8.02.    Breach of Condition. Breach of the condition contained in Section 8.01 will be deemed to occur immediately upon an Executive's engaging in competitive activity.
(a)     Payments suspended for breach of the condition will not be resumed whether or not the Executive terminates the competitive activity.
(b)     A recipient will be deemed to be engaged in such a business indirectly if he or she is an employee, officer, director, trustee, agent or partner of, or a consultant or advisor to or for, a person, firm, corporation, association, trust or other entity which is engaged in such a business or if he or she owns, directly or indirectly, in excess of 5% of any such firm, corporation, association, trust or other entity.
Section 8.03.    Waiver After 65. The ongoing condition of this Article will not apply to an Executive age 65 or older.

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Exhibit 10(n)

ARTICLE 9
Administration
Section 9.01.    Committee. This Plan will be administered by the Committee. The Committee will have the right to make reasonable rules from time to time regarding the Plan. All such rules will be consistent with the policy provided by this Plan document. The Committee will have full discretion to interpret the Plan, and to resolve ambiguities and inconsistencies. The Committee's interpretations will in all cases be final and not be subject to appeal.
Section 9.02.    Claims Procedures. The Company's standardized "Northrop Grumman Nonqualified Retirement Plans Claims and Appeals Procedures" shall apply in handling claims and appeals under this Plan.
Section 9.03.    Trust. The Board may authorize the establishment of one or more trusts and the appointment of a trustee or trustees ("Trustee") to hold any and all assets of the Plan in trust. The Board may delegate this power to the Committee.

ARTICLE 10
Modification or Termination

Section 10.01.    Amendment and Plan Termination. The Company may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part for any reason. This includes the right to amend or eliminate any of the provisions of the Plan with respect to lump sum distributions, including any lump sum calculation factors, whether or not an Executive has already made a lump sum election. Notwithstanding the foregoing, no amendment or termination of the Plan shall reduce the amount of an Executive's accrued benefit under the Plan as of the date of such amendment or termination.
No amendment of the Plan shall apply to the Grandfathered Amounts, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent "material modification" to the Grandfathered Amounts.

ARTICLE 11
Miscellaneous

Section 11.01. Benefits Not Assignable.
(a)    No Executive, former Executive or Surviving Spouse shall have the right to anticipate, alienate, sell, transfer, assign, pledge, encumber, or otherwise subject to lien any of the benefits provided under this Plan. Such rights may not be subject to the debts, contracts,

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Exhibit 10(n)

liabilities, engagements or torts of the Executive, former Executive or Surviving Spouse of an Executive.
(b)    Notwithstanding the foregoing, all or a portion of an Executive'sPlan benefits may be paid to another person as specified in a domestic relations order that the Committee determines is qualified (a "Qualified Domestic Relations Order"). For this purpose, a Qualified Domestic Relations Order means a judgment, decree, or order (including the approval of a settlement agreement) which is:
(1)    issued pursuant to a State's domestic relations law;
(2)    relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Executive;
(3)    creates or recognizes the right of a spouse, former spouse, child or other dependent of the Executive to receive all or a portion of the Executive's benefits under the Plan; and
(4)    meets such other requirements established by the Committee.
The Committee shall determine whether any document received by it is a Qualified Domestic Relations Order. In making this determination, the Committee may consider the rules applicable to "domestic relations orders" under Code section 414(p) and ERISA section 206(d), and such other rules and procedures as it deems relevant.
Section 11.02. Facility of Payment. If the Committee deems any person entitled to receive any payment under the Plan incapable of receiving it by reason of age, illness, infirmity, mental incompetency or incapacity of any kind, the Committee may, in its discretion, direct that payment be made in any one or more of the following manners:
(a)     Applying the amount directly for the comfort, support and maintenance of the payee;
(b)     Reimbursing any person for any such support supplied by any other person to the payee;
(c)     Paying the amount to a legal representative or guardian or any other person selected by the Committee on behalf of the payee; or
(d)     Depositing the amount in a bank account to the credit of the payee.
Section 11.03. Committee Rules. Payment of benefits will be made in accordance with the rules and procedures of the Committee.
Section 11.04. Limitation on Rights. The Company, in adopting this Plan, will not be held to create or vest in any Executive or any other person any interest, pension or benefits other

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Exhibit 10(n)

than the benefits specifically provided herein, or to confer upon any Executive the right to remain in the service of the Company.
Section 11.05. Benefits Unsecured. Any assets purchased by the Company to provide benefits under this Plan will at all times remain subject to the claims of general creditors of the Company and any Executive, former Executive or Surviving Spouse of an Executive participating in the Plan has only an unsecured promise to pay benefits from the Company.
Section 11.06. Governing Law. To the extent not preempted by federal law, the law of the State of Maryland will govern the construction and administration of the Plan.
Section 11.07. Severability. If any provision of this Plan or its application to any circumstance or person is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons will not be affected thereby.
Section 11.08. Expanded Benefits. The Board or the Compensation Committee of the Board may, from time to time and without notice, by resolution of the Board or of the Compensation Committee of the Board, authorize the payment of benefits or expand the benefits otherwise payable or to be payable to any one or more individuals. Notwithstanding the foregoing, this Section 11.08 shall not apply to any benefits under the Plan that are not Grandfathered Amounts.
Section 11.09. Plan Costs. Benefits payable under the Plan and any expenses in connection therewith will be paid by the Company to the extent they are not available to be paid from any trust fund established by the Company to help defray the costs of providing Plan benefits.
Section 11.10. Termination of Participation. Participation in the Plan will terminate:
(a)     in the case of a nonvested Executive, upon separation from service with a Participating Company or Designated Entity;
(b)     in the case of a vested Executive, when payment of all amounts due with respect to the Executive are paid, or purported to be paid, by the Plan.
Section 11.11. Transfer of Liabilities to HII. Northrop Grumman Corporation distributed its interest in Huntington Ingalls Industries, Inc. ("HII") to its shareholders on March 31, 2011 (the "HII Distribution Date"). Pursuant to an agreement between Northrop Grumman Corporation and HII, on the HII Distribution Date certain employees and former employees of HII ceased to participate in the Plan and the liabilities for these participants' benefits under the Plan were transferred to HII. On and after the HII Distribution Date, the Company and the Plan, and any successors thereto, shall have no further obligation or liability to any such participant with respect to any benefit, amount, or right due under the Plan.

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Exhibit 10(n)

ARTICLE 12
Change in Control

Section 12.01. Definition. The term "Change in Control" means the occurrence of one or more of the following events:
(a)     There will be consummated:
(1)     Any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; or
(2)     Any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or
(b)     The stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or
(c)    (1)     Any person (as such term is defined in section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), corporation or other entity will purchase any common stock of the Company (or securities convertible into Company common stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Company common stock (or securities convertible into Company common stock), the Board will determine that the making of such purchase will not constitute a Change in Control; or
(2)     Any person (as such term is defined in section 13(d) of the Exchange Act), corporation or other entity (other than the Company or any benefit plan sponsored by the Affiliated Companies) will become the "beneficial owner" (as such term is defined in Rule 13d‑3 under the Exchange Act:), directly or indirectly, of securities of the Company representing twenty percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d‑3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board will determine that such person so becoming such beneficial owner will not constitute a Change in Control; or
(d)     At any time during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board will cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period.

- 19 -

Exhibit 10(n)

Section 12.02. Vesting and Funding Rules. Notwithstanding any other provision of the Plan, upon a Change in Control, as defined above, all Executives will be deemed fully vested under this Plan, but only such vesting as to the otherwise applicable five-year service requirement. In addition, upon a Change in Control, but only under circumstances where the successor, surviving or parent company of Northrop Grumman Corporation or the successor plan sponsor or any successor thereto, if any, does not agree to assume the obligation to provide benefits under this Plan as they become due and payable, then an amount sufficient to fund all unpaid benefits and any Surviving Spouse benefits payable under this Plan will be paid immediately by the Company to a Trustee pursuant to a Trust Agreement for the payment of such benefits at the earliest date available in accordance with the provisions of the Plan and on such terms as the committee composed of the Company's Chief Executive Officer, Chief Financial Officer and General Counsel, will deem appropriate (including a direction to the Trustee to pay immediately all benefits that are Grandfathered Amounts on a present value basis and/or such other terms as they may deem appropriate). Notwithstanding this funding, the Company will be obligated to pay benefits to Executives and to Surviving Spouses of Executives to the extent such funding proves to be insufficient. To the extent such funding proves to be more than sufficient, any excess will revert to the Company.
Section 12.03. Special Retirement Provisions. Upon a Change in Control, for any Executive in the Plan who is involuntarily separated and who is not then eligible for a Normal or Special Retirement Pension under the ES Pension Plan, such separation will be deemed to be a separation due to a "Permanent Job Separation", and the Special Retirement Pension provisions under the ES Pension Plan will be used for purposes of determining eligibility and payment of benefits to such Executive under the Plan, provided that distribution of amounts that are not Grandfathered Amounts will still be controlled by Appendix D and Appendix E.
Section 12.04. Calculation of Present Value. The present value of benefits payable by the Trustee will be calculated for specific groups of Executives at the time of the Change in Control as follows:
(a)     The present value of the benefits payable from this Plan to Executives who have retired at the time of the Change in Control (as well as benefits payable from this Plan to any Surviving Spouse of an Executive) will be calculated by using the PBGC immediate discount rate established and in effect for the beginning of the calendar year in which the Change in Control occurs.
(b)     The present value of the benefits payable from this Plan to Executives who are eligible to retire under the terms of this Plan at the time of the Change in Control will be calculated by using the PBGC immediate discount rates established and in effect at the beginning of the calendar year in which the Change in Control occurs, assuming a pension which is immediately payable at the time of the Change in Control.
(c)     The present value of the benefits payable from this Plan to Executives who have completed at least 30 years of service with a Participating Company or a Designated Entity but have not yet attained age 58 at the time of the Change in Control will be calculated by using the

- 20 -

Exhibit 10(n)

PBGC deferred discount rates established and in effect for the beginning of the calendar year in which the Change in Control occurs, assuming a pension which is payable at age 58.
(d)     The present value of benefits payable from this Plan to Executives who have completed at least 10 years of service with a Participating Company or a Designated Entity but less than 30 years of service at the time of the Change in Control, but have not yet attained age 60 at the time of the Change in Control, will be calculated by using the PBGC deferred discount rates established and in effect for the beginning of the calendar year in which the Change in Control occurs, assuming a pension which is payable at age 60.
(e)     The present value of benefits payable from this Plan to Executives who have completed less than 10 years of service with a Participating Company or a Designated Entity at the time of the Change in Control will be calculated by using the PBGC deferred discount rates established and in effect for the beginning of the calendar year in which the Change in Control occurs, assuming a pension which is payable at age 65.
Section 12.05. Calculation of Offset. In calculating the benefit payable to each Executive, any offset for the ES Pension Plan or other plan in which the Executive participates, will be based upon the last official pension file data available, adjusted to the date of any Change in Control by assuming that the most recent salary reflected in the pension file remains constant.
Section 12.06. Limitation on Amendment, Suspension and Termination. Notwithstanding any provision of this Plan, this Plan may not be:
(a)     Amended such that future benefits would be reduced;
(b)     Suspended; or
(c)     Terminated;
as to the further accrual of benefits, for a period of 24 months following a Change in Control; and as to the payment of benefits, at any time prior to the last payment, determined in accordance with the provisions of this Plan, to each Executive, former Executive receiving benefits under the Plan, or eligible spouse.
* * *
IN WITNESS WHEREOF, this Amendment and Restatement is hereby executed by a duly authorized officer on this 13th day of December, 2013.

NORTHROP GRUMMAN CORPORATION

By: _/s/ Denise M. Peppard___________________
Denise Peppard
Corporate Vice President and Chief Human Resources Officer

- 21 -

Exhibit 10(n)

APENDIX A
Executive Buyback

Section A.01.     Introduction. The Executive Buy Back process permits newly eligible Executives to "buy back" past years of Executive Benefit Service under the Plan for periods of time during which they did not make the Maximum Contribution.
    
Section A.02.     Buy Back Offer. If an Employee did not make the Maximum Contribution during each of the years of his or her Vesting Service prior to the time he or she first became an Executive, the Employee will be permitted to pay make-up payments of Maximum Contributions in order to "buy back" his or her non-contributory years of service.
(a)     The make-up payments required are the Maximum Contributions that would have been payable during the 10 years prior to the date he or she first became an Executive (or such lesser period from the date the Employee was employed by a Participating Company or a Designated Entity) plus compounded interest on those amounts.
(b)     This Plan is intended as essentially a continuation of the Westinghouse Plan (see Appendix C). Accordingly, this Section is to be interpreted as requiring an Executive to make up Maximum Contributions not only for his or her periods of participation under this Plan but also Maximum Contributions that would have been due under the Westinghouse Plan. The terms of (a) will be interpreted to include the corresponding terms under the Westinghouse Plan and the 10-year period will include periods before the Westinghouse Acquisition.
Section A.03.     One-Time Opportunity. Upon qualifying as an Executive, an Executive will be offered an Executive Buy Back opportunity at the time he or she first becomes an Executive (or when this Appendix first becomes effective, if later). The actual terms of the Executive Buy Back will be determined from time to time by the Committee. This election will be offered one time to the Executive and his or her decision whether or not to "buy back" will be irrevocable.
Section A.04.     Payment. Executive Buy Back payments are pre-tax and are made from compensation by deferral elections entered into prior to the year in which the compensation is determined and paid. Executive Buy Back payments will not be deposited into the ES Pension Plan trust and will not increase the Executive's Qualified Plan Benefit.
Section A.05.     Refund of Buy Back Payment. If, at some point, an Employee is no longer an Executive or otherwise becomes ineligible to receive an Executive Pension Supplement, any Executive Buy Back payments the Employee has made (including any interest the Employee paid) plus any other amount as defined in Section 2.16(b)(2) in the definition of Maximum Contribution paid by the Employee to the Company will be refunded, with interest at such time as the Employee meets one of the following criteria:
(a)     Termination or retirement from a Participating Company or a Designated Entity; or

- 22 -

Exhibit 10(n)

(b)     Death;
provided, however, no refund will be made if the Employee is an eligible Executive, whether or not the amount of his or her Executive Pension Supplement exceeds zero. All interest rates will be determined at the discretion of the Committee.
Any amounts that are refundable under this Section A.05 that are not Grandfathered Amounts will be paid in a lump sum upon the Executive's Separation from Service, subject to the six-month delay rule in Section E.02.
Section A.06.    Effective Date. The provisions of this Appendix permitting Buy Backs will become effective on a date specified by resolution of the Committee specifically citing this Section.

- 23 -

Exhibit 10(n)

APPENDIX B
Rehired Executives
Section B.01.     Retired Executives Rehired as Executives. If an Executive who retired from a Participating Company or a Designated Entity and who received or is receiving an Executive Pension Supplement as a lump sum or on a monthly basis is rehired in an Executive position by a Participating Company, Designated Entity, or any other Affiliated Company, the following provisions apply:
(a)     Monthly Payments: For an Executive with a monthly Executive Pension Supplement:
(1)     The Plan will suspend all Executive Pension Supplement payments that are Grandfathered Amounts;
(2)     If, but only if, the Executive is Retirement Eligible at the time of subsequent actual retirement:
(A)     Previous years of Vesting Service and Executive Benefit Service accrued prior to the Executive's retirement will be restored; and
(B)     The Executive's Executive Pension Supplement will be recalculated in accordance with the Plan at his or her subsequent actual retirement date as long as the Executive then meets all Plan benefit qualification requirements;
(3)     The Executive, having previously met the requirement of five years of continuous service as an Executive prior to his or her first retirement, need not again meet that requirement;
(4)     The Executive's Average Annual Compensation will be computed without regard to the break in service, using zero for any periods during which the Executive was a retiree;
(5)     If the Executive elected to take a lump sum Qualified Plan Benefit with respect to his or her initial retirement, then in any subsequent calculation of the Executive's Executive Pension Supplement, the Executive's Executive Pension Base will be reduced by both the Executive's Qualified Plan Benefit received at the time of the initial retirement and the Executive's Qualified Plan Benefit accrued from the date of rehire through the date of his or her subsequent retirement.
(6)    If the Executive continued to receive payments that were not Grandfathered Amounts during the period of rehire, an actuarial reduction will apply at his subsequent termination.
(b)     Lump Sums: For an Executive who received a lump sum Executive Pension Supplement and who is Retirement Eligible at the time of subsequent actual retirement:

- 24 -

Exhibit 10(n)

(1)     Previous years of Vesting Service will be restored but not previous years of Executive Benefit Service;
(2)     The Plan will calculate the Executive's additional Executive Pension Supplement at his or her subsequent actual retirement date on the basis of years of service after the rehire in accordance with the Plan as the Executive then meets all Plan benefit qualification requirements;
(3)     The Executive, having previously met the requirement of five years of continuous service as an Executive prior to his or her first retirement, need not again meet that requirement;
(4)     The Executive's Average Annual Compensation will be computed without regard to the break in service, using zero for any periods during which the Executive was a retiree;
(5)     If the Executive elected a monthly Qualified Plan Benefit with respect to his or her initial retirement, then the Executive's Qualified Plan Benefit accrued from the date of rehire through the subsequent date of actual retirement will be subtracted from the Executive's Executive Pension Base in calculating the Executive's additional Executive Pension Supplement at his or her subsequent retirement.

Section B.02.     Former Executives with Vested Pensions Rehired as Executives. If the employment of an Executive of a Participating Company or a Designated Entity who was eligible only for a vested pension under the relevant qualified defined benefit or Defined Contribution Plan, if any, was terminated and the Executive is rehired by a Participating Company, Designated Entity, or any other Affiliated Company, the following provisions apply:
(a)     Previous years of Vesting Service and Executive Benefit Service accrued prior to the Executive's termination of employment will be restored;
(b)     The Executive must meet the requirement of five years of continuous service as an Executive prior to a subsequent actual retirement, counting only years of service after the rehire;
(c)     Only base salary and incentive awards earned after the rehire will be used in computing Average Annual Compensation;
(d)     If the Executive elected to take his or her vested pension as a lump sum, in any calculation of an Executive Pension Supplement at actual retirement, the Executive's Executive Pension Base will be reduced by both the Executive's Qualified Plan Benefit at the time of the initial termination of employment and the Executive's Qualified Plan Benefit accrued from the date of rehire through the date of actual retirement.
Section B.03.     Retired Executives Rehired in Non-Executive Positions. If an Executive who retired from a Participating Company or a Designated Entity and who received or is

- 25 -

Exhibit 10(n)

receiving an Executive Pension Supplement as a lump sum or on a monthly basis is rehired by a Participating Company, Designated Entity, or any other Affiliated Company in a non-Executive position, the following provisions apply:
(a)     For a former Executive who was receiving a monthly Executive Pension Supplement:
(1)     The Plan will suspend all Executive Pension Supplement payments that are Grandfathered Amounts;
(2)     If, but only if, the former Executive is still Retirement Eligible at the time of subsequent actual retirement, the Plan will recommence Executive Pension Supplement payments that were suspended at the time of the Executive's subsequent actual retirement without recalculation of amount;
(3)     At subsequent actual retirement, the former Executive may receive any form of payment of his or her Executive Pension Supplement then permitted under the Plan, as selected by the Committee.
(b)     For a former Executive who received his or her Executive Pension Supplement as a lump sum, no further benefits will be paid by the Plan.
Section B.04.     Events That Span Westinghouse Acquisition. This Plan is intended as essentially a continuation of the Westinghouse Plan (see Appendix C) and this Appendix is to be interpreted accordingly.
(a)     Reductions for payments of Qualified Plan Benefits will be interpreted to include reductions for payments of similar benefits under Westinghouse plans.
(b)     Determination of the form of Qualified Plan Benefits will take into account the form of payments under Westinghouse plans.
(c)     The terms of this Appendix will be interpreted, where appropriate, to include the corresponding terms under the Westinghouse Plan and to take into account events both before and after the Westinghouse Acquisition.
Section B.05.     Breaks Spanning March 1, 1996. There may be Executives who participated in the Westinghouse Plan but because of a break in their service did not become employees of the Affiliated Companies on March 1, 1996 as a result of the Westinghouse Acquisition.     
(a)     Those Executives might be hired later by the Electronic Sensors & Systems Division.
(b)     They will in no case be entitled to service or compensation credits or benefits under this Plan with respect to any service or compensation prior to their first hire by the Electronic Sensors & Systems Division after March 1, 1996. The Executives will not be

- 26 -

Exhibit 10(n)

considered to have previously met the requirement of five years of continuous service as an Executive.

- 27 -

Exhibit 10(n)

APPENDIX C
Coordination With Westinghouse Plan
Section C.01.     In General. As part of the Westinghouse Acquisition, this Plan was established by Northrop Grumman Corporation.
(a)     This Plan is intended to be a continuation of the Westinghouse Plan with only minor changes.
(b)     This Plan assumes remaining liabilities of the Westinghouse Plan with regard to those participants of the Westinghouse Plan who became Employees of the Northrop Grumman controlled group on March 1, 1996 as a result of the Westinghouse Acquisition. Accordingly, benefits earned by Participants of this Plan under the Westinghouse Plan before March 1, 1996 are payable under this Appendix.
(c)     Employees first hired after the Westinghouse Acquisition will therefore not be affected by this Appendix and will have their pension benefits governed entirely by the other Articles and Appendices of this Plan.
Section C.02.     Pre-Acquisition Benefits.
(a)     Except as provided in Sections C.03 and C.04, benefits earned under the Westinghouse Executive Pension Plan are in addition to the benefits which may be earned under Articles 4 and 5.
(b)     The Westinghouse Plan benefits will be calculated taking into account all pertinent facts for determining benefits under the Westinghouse Plan's provisions (including benefits and contributions under Westinghouse plans) as they have existed from time to time.
Section C.03.     Coordination of Pre and Post-Acquisition Benefits. The Plan will be interpreted in light of events before and after the Westinghouse Acquisition to coordinate the calculation of benefits (including service and compensation components, benefits and contributions under Westinghouse plans and rehire provisions) under this Appendix and benefits based on Articles 4 and 5 so that the Plan will function as if it were essentially a continuation of the Westinghouse Plan.
Section C.04.     No Duplication of Benefits. Because this Plan is intended as a continuation of the Westinghouse Plan, this Plan will not pay any benefits already paid or payable by the Westinghouse Plan itself.

- 28 -

Exhibit 10(n)

APPENDIX D
2005-2007 Transition Rules
This Appendix D provides the distribution rules that apply to the portion of benefits under the Plan subject to Code section 409A for Executives with benefit commencement dates after January 1, 2005 and before January 1, 2008.
Section D.01.    Election. Executives scheduled to commence payments during 2005 may elect to receive both pre-2005 benefit accruals and 2005 benefit accruals in any optional form of benefit available under the Plan as of December 31, 2004. Executives electing optional forms of benefits under this provision will commence payments on the Executive's selected benefit commencement date.
Section D.02.    2005 Commencements. Pursuant to IRS Notice 2005-1, Q&A-19 & Q&A-20, Executives commencing payments in 2005 from the Plan may elect a form of distribution from among those available under the Plan on December 31, 2004, and benefit payments shall begin at the time elected by the Executive.
(a)    Key Employees. A Key Employee Separating from Service on or after July 1, 2005, with Plan distributions subject to Code section 409A scheduled to be paid in 2006 and within six months of his date of Separation from Service, shall have such distributions delayed for six months from the Key Employee's date of Separation from Service. The delayed distributions shall be paid as a single sum with interest at the end of the six month period and Plan distributions will resume as scheduled at such time. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years). Alternatively, the Key Employee may elect under IRS Notice 2005-1, Q&A-20 to have such distributions accelerated and paid in 2005 without the interest adjustment, provided, such election is made in 2005.
(b)    Lump Sum Option. During 2005, a temporary immediate lump sum feature shall be available as follows:
(1)    In order to elect a lump sum payment pursuant to IRS Notice 2005-1, Q&A-20, an Executive must be an elected or appointed officer of the Company and eligible to commence payments under the underlying qualified pension plan on or after June 1, 2005 and on or before December 1, 2005;
(2)    The lump sum payment shall be made in 2005 as soon as feasible after the election; and
(3)    Interest and mortality assumptions and methodology for calculating lump sum amount shall be based on the Plan's procedures for calculating lump sums as of December 31, 2004.

- 29 -

Exhibit 10(n)

Section D.03.    2006 and 2007 Commencements. Pursuant to IRS transition relief, for all benefit commencement dates in 2006 and 2007 (provided election is made in 2006 or 2007), distribution of Plan benefits subject to Code section 409A shall begin 12 months after the later of: (a) the Executive's benefit election date, or (b) the underlying qualified pension plan benefit commencement date (as specified in the Executive's benefit election form). Payments delayed during this 12-month period will be paid at the end of the period with interest. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such period (i.e., the rate may change in the event the period spans two calendar years).

- 30 -

Exhibit 10(n)

APPENDIX E
Post 2007 Distribution of 409A Amounts
The provisions of this Appendix E shall apply only to the portion of benefits under the Plan that are subject to Code section 409A with benefit commencement dates on or after January 1, 2008. Distribution rules applicable to the Grandfathered Amounts are set forth in Article VII, and Appendix D addresses distributions of amounts subject to Code section 409A with benefit commencement dates after January 1, 2005 and prior to January 1, 2008
Section E.01.     Time of Distribution. Subject to the special rules provided in this Appendix E, distributions to an Executive of his vested retirement benefit shall commence as of the Payment Date.
Section E.02.    Special Rule for Key Employees. If an Executive is a Key Employee and age 55 or older at his Separation from Service, distributions to the Executive shall commence on the first day of the seventh month following the date of his Separation from Service (or, if earlier, the date of the Executive's death). Amounts otherwise payable to the Executive during such period of delay shall be accumulated and paid on the first day of the seventh month following the Executive's Separation from Service, along with interest on the delayed payments. Interest shall be computed using the retroactive annuity starting date rate in effect under the Northrop Grumman Pension Plan on a month-by-month basis during such delay (i.e., the rate may change in the event the delay spans two calendar years).
Section E.03.    Forms of Distribution. Subject to the special rules provided in this Appendix E, an Executive's vested retirement benefit shall be distributed in the form of a single life annuity. However, an Executive may elect an optional form of benefit up until the date payments commence or such earlier time as provided by the Company. The optional forms of payment are:
(a)    50% joint and survivor annuity
(b)    75% joint and survivor annuity
(c)    100% joint and survivor annuity.
If an Executive is married on the date his payments commence and elects a joint and survivor annuity, his survivor annuitant will be his spouse unless some other survivor annuitant is named with spousal consent. Spousal consent, to be effective, must be submitted in writing before the date his payments commence, or such earlier time as provided by the Company, and must be witnessed by a Plan representative or notary public. No spousal consent is necessary if the Company determines that there is no spouse or that the spouse cannot be found.
Section E.04.    Death. If a married Executive dies before the Payment Date, a death benefit will be payable to the Executive's spouse commencing 90 days after the Executive's death. The death benefit will be a single life annuity in an amount equal to the survivor portion

- 31 -

Exhibit 10(n)

of an Executive's vested retirement benefit based on a 100% joint and survivor annuity determined on the Executive's date of death. This benefit is also payable to an Executive's domestic partner who is properly registered with the Company in accordance with procedures established by the Company.

Section E.05.    Actuarial Assumptions. Except as provided in Section E.06, all forms of payment under this Appendix E shall be actuarially equivalent life annuity forms of payment, and all conversions from one such form to another shall be based on the following actuarial assumptions:
Interest Rate:     6%
Mortality Table: RP-2000 Mortality Table projected 15 years for future standardized cash balance factors
Section E.06.    Accelerated Lump Sum Payouts.
(a)    Post-2007 Separations. Notwithstanding the provisions of this Appendix E, for Executives who Separate from Service on or after January 1, 2008, if the present value of (a) the vested portion of an Executive's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date of his Separation from Service, is less than or equal to $25,000, such benefit amount shall be distributed to the Executive (or his spouse or domestic partner, if applicable) in a lump sum payment. Subject to the special timing rule for Key Employees under Section E.02, the lump sum payment shall be made within 90 days after the first of the month coincident with or following the date of the Executive's Separation from Service.
(b)    Pre-2008 Separations. Notwithstanding the provisions of this Appendix E, for Executives who Separate from Service before January 1, 2008, if the present value of (a) the vested portion of an Executive's retirement benefit and (b) other vested amounts under nonaccount balance plans that are aggregated with the retirement benefit under Code section 409A, determined on the first of the month coincident with or following the date the Executive attains age 55, is less than or equal to $25,000, such benefit amount shall be distributed to the Executive (or his spouse or domestic partner, if applicable) in a lump sum payment within 90 days after the first of the month coincident with or following the date the Executive attains age 55, but no earlier that January 1, 2008.
(c)    Conflicts of Interest. The present value of an Executive's vested retirement benefit shall also be payable in an immediate lump sum to the extent required under conflict of interest rules for government service and permissible under Code section 409A.
(d)    Present Value Calculation. The conversion of an Executive's retirement benefit into a lump sum payment and the present value calculations under this Section E.06 shall be based on the actuarial assumptions in effect under the Northrop Grumman Pension Plan for

- 32 -

Exhibit 10(n)

purposes of calculating lump sum amounts, and will be based on the Executive's immediate benefit if the Executive is 55 or older at Separation from Service. Otherwise, the calculation will be based on the benefit amount the Executive will be eligible to receive at age 55.
Section E.07.    Effect of Early Taxation. If an Executive's benefits under the Plan are includible in income pursuant to Code section 409A, the Company shall have the discretion to accelerate the distribution of all or a portion of such includible benefits to the Executive, provided that the Executive shall not be given a direct or indirect election as to whether such discretion is exercised.
Section E.08.    Permitted Delays. Notwithstanding the foregoing, any payment to an Executive under the Plan shall be delayed upon the Company's reasonable anticipation of one or more of the following events:
(a)    The Company's deduction with respect to such payment would be eliminated by application of Code section 162(m); or    
(b)    The making of the payment would violate Federal securities laws or other applicable law;
provided, that any payment delayed pursuant to this Section E.08 shall be paid in accordance with Code section 409A.

- 33 -

Exhibit 10(n)

APPENDIX F

Committees and Appointments

Notwithstanding anything to the contrary in this Plan, effective as of October 25, 2011, the Chief Executive Officer of Northrop Grumman Corporation shall appoint, and shall have the power to remove, the members of (1) an Administrative Committee that shall have responsibility for administering the Plan (including as such responsibilities are described in Article 9 of the Plan) and (2) an Investment Committee that shall have responsibility for overseeing any rabbi trusts or other informal funding for the Plan.

- 34 -

NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 12(a)
NORTHROP GRUMMAN CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
$ in millions	Year ended December 31	
Earnings:	2013	2012	2011	2010	2009	
Earnings from continuing operations before income taxes	      $	2,863	
 	     $	2,965	
 	      $	3,083	
 	      $	2,366	
 	      $	2,070	
 	
Fixed Charges:	 	 	 	 	 	
Interest expense, including amortization of debt premium	257	
 	212	
 	221	
 	269	
 	269	
 	
Portion of rental expenses on operating leases deemed to be representative of the interest factor	99	
 	116	
 	140	
 	149	
 	167	
 	
Earnings from continuing operations before income taxes and fixed charges	      $	3,219	
 	     $	3,293	
 	      $	3,444	
 	      $	2,784	
 	      $	2,506	
 	
Fixed Charges:	      $	356	
 	     $	328	
 	      $	361	
 	      $	418	
 	      $	436	
 	
Ratio of earnings to fixed charges	9.0	
 	10.0	
 	9.5	
 	6.7	
 	5.7	

  

EXHIBIT 18

February 3, 2014

Northrop Grumman Corporation
2980 Fairview Park Drive
Falls Church, Virginia 22042

Dear Sirs/Madams:

We have audited the financial statements of Northrop Grumman Corporation and subsidiaries as of December 31, 2013 and 2012, and for each of the three years in the period ended December 31, 2013, included in your Annual Report on Form 10-K to the Securities and Exchange Commission and have issued our report thereon dated February 3, 2014, which expresses an unqualified opinion. Note 1 to such financial statements contains a description of your adoption during the year ended December 31, 2013 of a change in the date for the annual goodwill impairment test from November 30 to December 31. In our judgment, such change is to an alternative accounting principle that is preferable under the circumstances.

Yours truly,

/s/ Deloitte & Touche LLP
McLean, Virginia

Exhibit 21

NORTHROP GRUMMAN CORPORATION SUBSIDIARIES
Address for all subsidiaries is:
c/o NORTHROP GRUMMAN CORPORATION
Office of the Secretary
2980 Fairview Park Drive
Falls Church, Virginia 22042

 	
 	 	 	
Name of Subsidiary	Jurisdiction of Incorporation	Ownership Percentage	
Northrop Grumman Systems Corporation	Delaware	100%	

The company has additional subsidiaries, which considered in the aggregate or as a single subsidiary, do not constitute a significant subsidiary.

All the above listed subsidiaries have been consolidated in the company's consolidated financial statements.

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Northrop Grumman Corporation
2980 Fairview Park Drive
Falls Church, Virginia 22042
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 Forms S-8; and Registration Statement No. 333-175818 on Form S-3; of our reports dated February 3, 2014, relating to the financial statements of Northrop Grumman Corporation and the effectiveness of Northrop Grumman Corporation's internal control over financial reporting, appearing in this Annual Report on Form 10-K of Northrop Grumman Corporation for the year ended December 31, 2013.

/s/ Deloitte & Touche LLP
McLean, Virginia
February 3, 2014

Exhibit 24

POWER OF ATTORNEY IN CONNECTION WITH THE
2013 ANNUAL REPORT ON FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of NORTHROP GRUMMAN CORPORATION, a Delaware corporation, does hereby appoint SHEILA C. CHESTON and JENNIFER C. MCGAREY, and each of them as his or her agents and attorneys-in-fact (the “Agents”), in his or her respective name and in the capacity or capacities indicated below, to execute and/or file the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Report”) under the Securities Exchange Act of 1934, as amended (the “Act”), and any one or more amendments to any part of the Report that may be required to be filed under the Act (including the financial statements, schedules and all exhibits and other documents filed therewith or constituting a part thereof) and to any part or all of any amendment(s) to the Report, whether executed and filed by the undersigned or by any of the Agents. Further, each of the undersigned does hereby authorize and direct the Agents to take any and all actions and execute and file any and all documents with the Securities and Exchange Commission (the “Commission”), which they deem necessary or advisable to comply with the Act and the rules and regulations or orders of the Commission adopted or issued pursuant thereto, to the end that the Report shall be properly filed under the Act. Finally, each of the undersigned does hereby ratify each and every act and documents which the Agents may take, execute or file pursuant thereto with the same force and effect as though such action had been taken or such document had been executed or filed by the undersigned, respectively.

This Power of Attorney shall remain in full force and effect until revoked or superseded by written notice filed with the Commission.

IN WITNESS WHEREOF, each of the undersigned has caused this Power of Attorney to be executed as of this 3rd day of February 2014.

 	 	 	 	
/s/ Victor H. Fazio	Director	 	
Victor H. Fazio	 	 	
/s/ Donald E. Felsinger	Director	 	
Donald E. Felsinger	 	 	
/s/ Stephen E. Frank	Director	 	
Stephen E. Frank	 	 	
/s/ Bruce S. Gordon	Director	 	
Bruce S. Gordon	 	 	
/s/ William H. Hernandez	Director	 	
William H. Hernandez	 	 	

 	
 	 	 	 	
/s/ Madeleine A. Kleiner	Director	 	
Madeleine A. Kleiner	 	 	
/s/ Karl J. Krapek	Director	 	
Karl J. Krapek	 	 	
/s/ Richard B. Myers	Director	 	
Richard B. Myers	 	 	
/s/ Aulana L. Peters	Director	 	
Aulana L. Peters	 	 	
/s/ Gary Roughead	Director	 	
Gary Roughead	 	 	
/s/ Thomas M. Schoewe	Director	 	
Thomas M. Schoewe	 	 	
/s/ Kevin W. Sharer	Director	 	
Kevin W. Sharer	 	 	
/s/ Wesley G. Bush	Chairman, Chief Executive Officer and President
(Principal Executive Officer)	 	
Wesley G. Bush	 	 	
/s/ James F. Palmer	Corporate Vice President and Chief Financial Officer
(Principal Financial Officer)	 	
James F. Palmer	 	 	

NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 31.1
CERTIFICATION PURSUANT TO  
RULE 13a-15(e)/15d-15(e) OF THE SECURITIES EXCHANGE ACT OF 1934,  
AS ADOPTED PURSUANT TO 
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 
I, Wesley G. Bush, certify that:
 	 	
1.	I have reviewed this report on Form 10-K of Northrop Grumman Corporation (“company”);	
 	 	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 	 	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;	
 	 	
4.	The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:	
 	 	
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	
c)	Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	
d)	Disclosed in this report any change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and	
 	 	
5.	The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):	
 	 	
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and	
 	 	
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.	

Date: February 3, 2014 

 	
/s/ Wesley G. Bush	
Wesley G. Bush	
Chairman, Chief Executive Officer and President	

NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 31.2
CERTIFICATION PURSUANT TO  
RULE 13a-15(e)/15d-15(e) OF THE SECURITIES EXCHANGE ACT OF 1934,  
AS ADOPTED PURSUANT TO 
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 
I, James F. Palmer, certify that:
 	 	
1.	I have reviewed this report on Form 10-K of Northrop Grumman Corporation (“company”);	
 	 	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 	 	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;	
 	 	
4.	The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:	
 	 	
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	
c)	Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	
d)	Disclosed in this report any change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and	
 	 	
5.	The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):	
 	 	
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and	
 	 	
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.	

Date: February 3, 2014 

 	
/s/ James F. Palmer	
James F. Palmer	
Corporate Vice President and Chief Financial Officer	

NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Northrop Grumman Corporation (the “company”) on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wesley G. Bush, Chairman, Chief Executive Officer and President of the company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 	 	
(1)	The Report fully complies with the requirements of Section 13a-15(e)/15d-15(e) of the Securities Exchange Act of 1934, as amended; and	
 	 	
(2)	
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.	
 
Date: February 3, 2014 

 	
/s/ Wesley G. Bush	
Wesley G. Bush	
Chairman, Chief Executive Officer and President	

NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Northrop Grumman Corporation (the “company”) on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James F. Palmer, Corporate Vice President and Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 	 	
(1)	The Report fully complies with the requirements of Section 13a-15(e)/15d-15(e) of the Securities Exchange Act of 1934, as amended; and	
 	 	
(2)	
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.	
 
Date: February 3, 2014 

 	
/s/ James F. Palmer	
James F. Palmer	
Corporate Vice President and Chief Financial Officer