What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-25 · 145 added, 97 removed, 248 unchanged (49% of the section changed)

13 unchanged sentences

The conflict in Ukraine has increased global tensions and instability, highlighted threats and increased global demand, as well as further disrupted global supply chains.

We continue to not anticipate significant adverse financial impacts directly from the ongoing conflict.

We have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from the ongoing conflict.

We have experienced, and, while difficult to predict, may continue to experience an increase in demand for certain of our goods and services directly and indirectly related to the conflict in Ukraine, either through direct sales or if the U.S.

provides increased military assistance and support to Ukraine.

More recently, hostilities in the Middle East have further heightened global tensions and instability.

Hostilities in the Middle East have further heightened global tensions and instability.

At this time, it is unknown whether hostilities in this region will escalate into an even larger conflict.

2 unchanged sentences

These conflicts may result in increased demand for defense products and services from allies and partner nations, particularly in those areas.

We are actively exploring both opportunities and risks associated with the broader global security environment.

We are actively evaluating both opportunities and risks associated with the broader global security environment.

We believe the current global security environment highlights the significant national security threats to the U.S.

8 unchanged sentences

and market volatility.

The macroeconomic factors have contributed, and we expect will continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers.

NORTHROP GRUMMAN CORPORATION

We continue to work hard to mitigate challenges caused by the macroeconomic environment on our business, including by taking steps to support our suppliers and small businesses and enhancing our workforce through extensive hiring, development and retention efforts.

Direct financial impacts on our business related to the broader macroeconomic environment have begun to subside;

however, pockets of our business continued to be adversely affected by the macroeconomic environment during the first quarter of 2024.

We cannot clearly predict how long these macroeconomic challenges will continue, how they will change over time, or what additional resources will be available, but we expect to see this challenging macroeconomic environment continue to adversely impact the global economy, our customers and suppliers, our industry and our company in 2024.

our company, our suppliers and partners, and our customers.

We continue to work hard to mitigate challenges caused by the macroeconomic environment on our business, including by taking steps to support our suppliers and small business partners.

Although certain pockets of our business were adversely affected by the broader macroeconomic environment during the second quarter of 2024, the overall financial impact on our company has continued to subside.

In addition, increased interest rates, raising the cost of borrowing for governments, could further impact government spending priorities (in the U.S.

11 unchanged sentences

The request included $895 billion for national security, $850 billion of which is for the DoD.

Congress is evaluating the Administration’s budget request as it drafts authorization and appropriations legislation for FY 2025.

On March 23, 2024, the President signed into law the Further Consolidated Appropriations Act for FY 2024, which provides funding for government agencies, including $825 billion for the DoD, through September 30, 2024.

1 unchanged sentence

munitions and additional capacity.

The political environment, federal budget, debt ceiling and regulatory environment are expected to continue to be the subject of considerable debate, especially in light of the ongoing conflicts and heightened global tensions, the inflationary environment and political tensions.

The political environment, federal budget, debt ceiling and regulatory environment, including potential tax reform, are expected to continue to be the subject of considerable debate, especially in light of the ongoing conflicts and heightened global tensions, the inflationary environment and political tensions.

The results of those debates could have material impacts on defense spending broadly and the company’s programs in particular.

We anticipate that the broader macroeconomic environment, with ongoing inflationary pressures, pockets of labor challenges, and supply chain disruption, among other considerations, will continue to play a significant role in the outcome of these debates and, in turn, on our industry and company.

Ground-Based Strategic Deterrent (“GBSD” or “Sentinel”) Program Nunn-McCurdy Breach Review

Due in part to the impact of macroeconomic factors, in January 2024 the customer provided congressional notification that the Sentinel program is currently under a Nunn-McCurdy breach review, which is required when total program cost estimates exceed certain defined thresholds.

This notification, which has been driven primarily by increases in construction and procurement cost projections for the Production and Deployment phases, commenced the process to achieve recertification for continuance of the program and update its baseline cost estimates.

We are currently executing under a cost-type contract for the Engineering and Manufacturing Development phase, and the Production and Deployment phases are yet to be priced and negotiated.

We are continuing to partner with our customer to address this critical mission.

NORTHROP GRUMMAN CORPORATION

CONSOLIDATED OPERATING RESULTS

Selected financial highlights are presented in the table below:

Three Months Ended March 31 %

$ in millions, except per share amounts 2024 2023 Change

Three Months Ended June 30 % Six Months Ended June 30 %

$ in millions, except per share amounts 2024 2023 Change 2024 2023 Change

Sales $ 10,218 $ 9,576 7 % $ 20,351 $ 18,877 8 %

7 unchanged sentences

Diluted earnings per share $ 6.36 $ 5.34 19 % $ 12.69 $ 10.83 17 %

First quarter 2024 sales increased $832 million, or 9 percent, due to higher sales at all four sectors, including 18 percent growth at Aeronautics Systems.

First quarter 2024 sales reflect continued strong demand for our products and services.

Current Quarter

Second quarter 2024 sales increased $642 million, or 7 percent, due to higher sales at all four sectors, including 14 percent growth at Aeronautics Systems.

Second quarter 2024 sales reflect continued strong demand for our products and services.

NORTHROP GRUMMAN CORPORATION

Year to date 2024 sales increased $1.5 billion, or 8 percent, due to higher sales at all four sectors, including 16 percent growth at Aeronautics Systems.

See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail.

1 unchanged sentence

Operating Income and Margin Rate

First quarter 2024 operating income increased $124 million, or 13 percent, and operating margin rate increased to 10.6 percent, primarily due to higher segment operating income and a benefit associated with the FAS/CAS operating adjustment.

First quarter 2024 G&A costs as a percentage of sales decreased to 10.5 percent from 11.2 percent in the prior year period primarily due to higher sales.

Current Quarter

Second quarter 2024 operating income increased $123 million, or 13 percent, primarily due to $49 million of higher segment operating income and $47 million of lower unallocated corporate expense.

Operating margin rate increased to 10.7 percent from 10.1 percent primarily due to lower unallocated corporate expense and a benefit associated with the FAS/CAS operating adjustment.

Second quarter 2024 general and administrative (G&A) costs as a percentage of sales decreased to 10.8 percent from 11.2 percent in the prior year period primarily due to higher sales, which more than offset an increase in our investments for future business opportunities.

Year to date 2024 operating income increased $247 million, or 13 percent, due to $151 million of higher segment operating income, a $54 million increase in the FAS/CAS operating adjustment and $42 million of lower unallocated corporate expense.

Operating margin rate increased to 10.6 percent from 10.1 percent primarily due to a benefit associated with the FAS/CAS operating adjustment and lower unallocated corporate expense.

Year to date 2024 G&A costs as a percentage of sales decreased to 10.6 percent from 11.2 percent in the prior year period primarily due to higher sales, which more than offset an increase in our investments for future business opportunities.

See “Segment Operating Results” below for further information by segment.

1 unchanged sentence

Federal and Foreign Income Taxes

The first quarter 2024 ETR increased to 16.5 percent from 15.6 percent in the prior year period principally due to higher interest expense on unrecognized tax benefits.

Current Quarter

The second quarter 2024 ETR increased to 18.0 percent from 17.7 percent in the prior year period principally due to higher interest expense on unrecognized tax benefits.

The year to date 2024 ETR increased to 17.3 percent from 16.7 percent in the prior year period principally due to higher interest expense on unrecognized tax benefits.

See Note 4 to the financial statements for additional information.

First quarter 2024 net earnings increased $102 million, or 12 percent, primarily due to a 13 percent increase in operating income and a $36 million increase in the non-operating FAS pension benefit, partially offset by a higher effective tax rate.

Current Quarter

Second quarter 2024 net earnings increased $128 million, or 16 percent, primarily due to $123 million of higher operating income and a $34 million increase in the non-operating FAS pension benefit, partially offset by a higher effective tax rate.

Year to date 2024 net earnings increased $230 million, or 14 percent, primarily due to $247 million of higher operating income and a $70 million increase in the non-operating FAS pension benefit, partially offset by $24 million of higher interest expense and a higher effective tax rate.

Diluted Earnings Per Share

First quarter 2024 diluted earnings per share increased 15 percent, reflecting higher net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

Current Quarter

Second quarter 2024 diluted earnings per share increased 19 percent, reflecting a 16 percent increase in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

Year to date 2024 diluted earnings per share increased 17 percent, reflecting a 14 percent increase in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

NORTHROP GRUMMAN CORPORATION

SEGMENT OPERATING RESULTS

2 unchanged sentences

Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.

Subsequent Realignment - Effective July 1, 2024, the company realigned the Strategic Deterrent Systems (SDS) division, which includes the Sentinel program, from Space Systems to Defense Systems.

The realignment is not reflected in the financial information contained in this report;

it will be reflected in the company’s operating results beginning in the third quarter of 2024.

Operating Performance Assessment and Reporting

This section discusses segment sales, operating income and operating margin rates.

1 unchanged sentence

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

NORTHROP GRUMMAN CORPORATION

discussion of results of operations below first focuses on our four segments before distinguishing between products and services.

Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between products and services.

Changes in sales are generally described in terms of volume, while changes in margin rates are generally described in terms of performance and/or contract mix.

1 unchanged sentence

Contract mix generally refers to changes in the ratio of contract type and/or lifecycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).

We periodically record losses and restructure contract terms, conditions and pricing for certain programs.

For additional information on the B-21, Sentinel and HALO programs, please see Note 1 to the financial statements.

Segment Operating Income and Margin Rate

3 unchanged sentences

These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.

Three Months Ended March 31 %

$ in millions 2024 2023 Change

Three Months Ended June 30 % Six Months Ended June 30 %

$ in millions 2024 2023 Change 2024 2023 Change

Operating income $ 1,090 $ 967 13 % $ 2,161 $ 1,914 13 %

3 unchanged sentences

FAS pension service expense 59 59 — % 119 118 1 %

FAS/CAS operating adjustment (6) 21 NM

FAS/CAS operating adjustment (6) 21 NM (12) 42 NM

Intangible asset amortization and PP&E step-up depreciation 24 31 (23) % 49 61 (20) %

Other unallocated corporate expense 14 4 250 %

Other unallocated corporate (income) expense

(7) 33 NM 7 37 (81) %

Unallocated corporate expense 17 64 (73) % 56 98 (43) %

1 unchanged sentence

Segment operating margin rate 10.8 % 11.0 % 10.8 % 10.9 %

First quarter 2024 segment operating income increased $102 million, or 10 percent, primarily due to higher sales.

Segment operating margin rate increased to 10.9 percent and reflects higher operating margin rates at Aeronautics Systems, Defense Systems and Mission Systems, partially offset by a lower operating margin rate at Space Systems.

NORTHROP GRUMMAN CORPORATION

Current Quarter

Second quarter 2024 segment operating income increased $49 million, or 5 percent, primarily due to higher sales.

Segment operating margin rate decreased to 10.8 percent and reflects lower operating margin rates at Mission Systems and Aeronautics Systems, partially offset by higher operating margin rates at Space Systems and Defense Systems.

Year to date 2024 segment operating income increased $151 million, or 7 percent, primarily due to higher sales.

Segment operating margin rate was comparable to the prior year period and reflects a lower operating margin rate at Mission Systems and higher operating margin rates at Defense Systems and Space Systems.

FAS/CAS Operating Adjustment

First quarter 2024 FAS/CAS operating adjustment reflects higher CAS pension expense largely driven by plan asset returns in prior years and changes in certain CAS actuarial assumptions as of December 31, 2023.

Second quarter 2024 and year to date 2024 FAS/CAS operating adjustment reflects higher CAS pension expense largely driven by plan asset returns in prior years and changes in certain CAS actuarial assumptions as of December 31, 2023.

Unallocated Corporate Expense

The increase in unallocated corporate expense is primarily due to changes in deferred state taxes largely related to the deferral of research credits under IRC Section 174.

Current Quarter and Year to Date

The decrease in the second quarter and year to date 2024 unallocated corporate expense is primarily due to a $26 million increase in our estimated recovery of certain environmental remediation costs and a loss recognized in the prior year in connection with the divestiture of a small international subsidiary.

Net EAC Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting.

Net EAC adjustments can have a significant effect on segment operating income;

the aggregate amounts are presented in the table below:

Three Months Ended March 31

Net EAC adjustments can have a significant effect on segment operating income and margin rate.

The aggregate favorable and unfavorable EAC adjustments are presented in the table below:

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2024 2023 2024 2023

2 unchanged sentences

Net EAC adjustments $ 38 $ 76 $ 132 $ 122

NORTHROP GRUMMAN CORPORATION

Net EAC adjustments by segment are presented in the table below:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2024 2023 2024 2023

5 unchanged sentences

Net EAC adjustments $ 38 $ 76 $ 132 $ 122

For purposes of the discussion in the remainder of this Segment Operating Results section, references to operating income and operating margin rate reflect segment operating income and segment operating margin rate, respectively.

AERONAUTICS SYSTEMS

Three Months Ended March 31 %

$ in millions 2024 2023 Change

Three Months Ended June 30 % Six Months Ended June 30 %

$ in millions 2024 2023 Change 2024 2023 Change

Sales $ 2,963 $ 2,595 14 % $ 5,932 $ 5,110 16 %

1 unchanged sentence

Operating margin rate 10.0 % 10.7 % 10.0 % 10.1 %

First quarter 2024 sales increased $454 million, or 18 percent, primarily due to higher volume on restricted programs, a $114 million increase on the F-35 program driven by higher volume on sustainment and production contracts, and higher volume on the E-2, Triton and Global Hawk programs.

The increases on F-35 and restricted programs are due, in part, to material timing in the first quarter.

Current Quarter

NORTHROP GRUMMAN CORPORATION

Second quarter 2024 sales increased $368 million, or 14 percent.

This increase was primarily due to higher restricted sales, a $128 million increase on F-35 sustainment and production work largely driven by the timing of materials, and higher volume on the Triton program.

Year to date 2024 sales increased $822 million, or 16 percent.

This increase was primarily due to higher restricted sales, a $242 million increase on F-35 sustainment and production work largely driven by the timing of materials, and higher volume on the Triton, E-2 and Global Hawk programs.

Operating Income

First quarter 2024 operating income increased $60 million, or 25 percent, due to higher sales and a higher operating margin rate.

Operating margin rate increased to 10.0 percent from 9.4 percent principally due to higher net EAC adjustments largely driven by improved performance and cost efficiencies on certain production programs, including F-35 and F/A-18, which more than offset sales growth on a low margin restricted program.

Current Quarter

Second quarter 2024 operating income increased $17 million, or 6 percent, due to higher sales, partially offset by a lower operating margin rate.

Operating margin rate decreased to 10.0 percent from 10.7 percent principally due to sales growth on a low margin restricted program and lower net EAC adjustments.

The second quarter 2023 operating margin rate reflected particularly strong performance due, in part, to restricted work.

Year to date 2024 operating income increased $77 million, or 15 percent, primarily due to higher sales.

Operating margin rate decreased to 10.0 percent from 10.1 percent principally due to sales growth on low margin restricted programs, partially offset by higher net EAC adjustments largely driven by improved performance and cost efficiencies on the F-35 and F/A-18 production programs.

DEFENSE SYSTEMS

Three Months Ended March 31 %

$ in millions 2024 2023 Change

Three Months Ended June 30 % Six Months Ended June 30 %

$ in millions 2024 2023 Change 2024 2023 Change

Sales $ 1,513 $ 1,420 7 % $ 2,925 $ 2,796 5 %

1 unchanged sentence

Operating margin rate 13.5 % 11.7 % 13.0 % 11.7 %

First quarter 2024 sales increased $36 million, or 3 percent, primarily due to ramp-up on the Stand-in Attack Weapon (SiAW) program and higher volume on Guided Multiple Launch Rocket Systems (GMLRS) and certain military ammunition and cannon systems programs, partially offset by lower volume due to the completion of an international training program.

Current Quarter

Second quarter 2024 sales increased $93 million, or 7 percent, primarily due to ramp-up on certain military ammunition programs, higher volume from the timing of materials and increased order quantities on the Guided Multiple Launch Rocket System (GMLRS), ramp-up on the Stand-in Attack Weapon (SiAW) program and higher volume on the Integrated Battle Command System (IBCS) program.

These increases were partially offset by lower volume due to the completion of an international training program.

Year to date 2024 sales increased $129 million, or 5 percent, primarily due to ramp-up on certain military ammunition programs, higher volume from the timing of materials and increased order quantities on GMLRS, ramp-up on SiAW and higher volume on IBCS.

These increases were partially offset by a $149 million decrease due to the completion of an international training program.

Operating Income

First quarter 2024 operating income increased $17 million, or 11 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 12.5 percent from 11.6 percent principally due to improved performance driven by changes in contract mix and cost efficiencies.

Current Quarter

Second quarter 2024 operating income increased $38 million, or 23 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 13.5 percent from 11.7 percent principally due to higher net EAC adjustments driven by cost efficiencies and improved performance, as well as changes in contract mix.

Year to date 2024 operating income increased $55 million, or 17 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 13.0 percent from 11.7 percent principally due to higher net EAC adjustments driven by cost efficiencies and improved performance, as well as changes in contract mix.

NORTHROP GRUMMAN CORPORATION

MISSION SYSTEMS

Three Months Ended March 31 %

$ in millions 2024 2023 Change

Three Months Ended June 30 % Six Months Ended June 30 %

$ in millions 2024 2023 Change 2024 2023 Change

Sales $ 2,773 $ 2,641 5 % $ 5,432 $ 5,204 4 %

1 unchanged sentence

Operating margin rate 13.0 % 15.2 % 13.6 % 14.6 %

First quarter 2024 sales increased $96 million, or 4 percent, primarily due to higher restricted sales on advanced microelectronics programs, partially offset by lower sales on the Scalable Agile Beam Radar (SABR) program.

Current Quarter

Second quarter 2024 sales increased $132 million, or 5 percent, primarily due to higher volume on restricted advanced microelectronics programs, the timing of materials on marine systems programs, higher volume on the Surface Electronic Warfare Improvement Program (SEWIP) and ramp-up on full-rate production (FRP) awards on the Ground/Air Task Oriented Radar (G/ATOR) program.

These increases were partially offset by lower sales on the F-35 program largely due to timing.

Year to date 2024 sales increased $228 million, or 4 percent, primarily due to higher volume on restricted advanced microelectronics programs, the timing of materials on marine systems programs and FRP ramp-up on G/ATOR.

These increases were partially offset by lower sales on the Scalable Agile Beam Radar (SABR) and F-35 programs.

Operating Income

First quarter 2024 operating income increased $18 million, or 5 percent, due to higher sales and a higher operating margin rate.

Operating margin rate increased to 14.2 percent from 14.0 percent, primarily due to sales growth on higher margin advanced microelectronics programs and a prior year loss related to an unconsolidated joint venture.

These benefits were partially offset by lower net EAC adjustments on certain radar production programs.

Current Quarter

Second quarter 2024 operating income decreased $40 million, or 10 percent, due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 13.0 percent from 15.2 percent primarily due to lower net EAC adjustments on certain airborne radar programs due, in part, to production inefficiencies that have driven higher labor costs, as well as changes in contract mix toward more cost-type content.

Year to date 2024 operating income decreased $22 million, or 3 percent, due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 13.6 percent from 14.6 percent, primarily due to lower net EAC adjustments on certain airborne radar production programs, partially offset by sales growth on higher margin advanced microelectronics programs.

NORTHROP GRUMMAN CORPORATION

SPACE SYSTEMS

Three Months Ended March 31 %

$ in millions 2024 2023 Change

Three Months Ended June 30 % Six Months Ended June 30 %

$ in millions 2024 2023 Change 2024 2023 Change

Sales $ 3,573 $ 3,488 2 % $ 7,228 $ 6,838 6 %

1 unchanged sentence

Operating margin rate 9.1 % 8.1 % 9.1 % 8.7 %

First quarter 2024 sales increased $305 million, or 9 percent, primarily due to a $117 million increase on the Space Development Agency (SDA) Tranche 2 Transport Layer (T2TL) programs and higher volume on restricted programs, Commercial Resupply Services (CRS) missions, hypersonics programs and the Glide Phase Interceptor (GPI) program.

Current Quarter

Second quarter 2024 sales increased $85 million, or 2 percent, primarily due to a $117 million increase on the Space Development Agency (SDA) Tranche 2 Transport Layer (T2TL) programs as they ramp, increased sales on the HALO program and higher materials volume on the GEM 63 program in support of Amazon’s Project Kuiper.

These increases were partially offset by lower restricted sales due to a termination for convenience in our restricted space business during the first quarter of 2024.

Year to date 2024 sales increased $390 million, or 6 percent, primarily due to a $234 million increase on the SDA T2TL programs as they ramp, increased sales on the HALO program, higher volume on hypersonics programs, and higher materials volume on the GEM 63 program in support of Amazon’s Project Kuiper.

These increases were partially offset by lower volume on the Ground-based Midcourse Defense (GMD) program.

Operating Income

First quarter 2024 operating income increased $19 million, or 6 percent, due to higher sales, partially offset by a lower operating margin rate.

Operating margin rate decreased to 9.1 percent from 9.3 percent principally due to a prior year benefit from the sale of a license to a customer, partially offset by an improvement in net EAC adjustments.

Current Quarter

Second quarter 2024 operating income increased $41 million, or 14 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 9.1 percent from 8.1 percent principally due to changes in contract mix and an improvement in net EAC adjustments.

The prior year period included a $15 million write-down of commercial inventory.

Year to date 2024 operating income increased $60 million, or 10 percent, due to higher sales and a higher operating margin rate.

Operating margin rate increased to 9.1 percent from 8.7 percent principally due to an improvement in net EAC adjustments largely driven by the prior year period including a $36 million unfavorable EAC adjustment on the HALO program.

NORTHROP GRUMMAN CORPORATION

1 unchanged sentence

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

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2024 2023 2024 2023

Segment Information:

Sales Operating Costs and Expenses Sales Operating Costs and Expenses

Sales Operating Costs and Expenses Sales Operating Costs and Expenses Sales Operating Costs and Expenses Sales Operating Costs and Expenses

Aeronautics Systems

25 unchanged sentences

Product Sales and Costs

First quarter 2024 product sales increased $831 million, or 11 percent, primarily due to an increase in product sales at all four sectors.

The increase was principally driven by higher volume on restricted programs, F-35 and E-2 at Aeronautics Systems, growth on SDA T2TL and restricted programs at Space Systems, higher volume on the SiAW and GMLRS programs at Defense Systems, and higher restricted sales at Mission Systems.

First quarter 2024 product costs increased $733 million, or 11 percent, consistent with the higher product sales described above.

Service Sales and Costs

First quarter 2024 service sales were comparable to the prior year period and reflect an increase in service sales at Aeronautics Systems driven by higher volume on restricted programs and the Global Hawk program, partially offset by a decrease in service sales at Defense Systems principally due to the completion of an international training program.

First quarter 2024 service costs were comparable to the prior year period, consistent with the service sales described above.

Current Quarter

Second quarter 2024 product sales increased $635 million, or 9 percent, primarily due to an increase in product sales at all four sectors.

The increase was primarily driven by higher volume on restricted programs, F-35 and Triton at Aeronautics Systems, higher volume on certain military ammunition programs, GMLRS, SiAW and IBCS at Defense Systems, sales growth on SDA T2TL and HALO at Space Systems, and higher restricted sales, partially offset by lower F-35 volume, at Mission Systems.

Second quarter 2024 product costs increased $593 million, or 9 percent, consistent with the higher product sales described above.

Year to date 2024 product sales increased $1.5 billion, or 10 percent, primarily due to an increase in product sales at all four sectors.

The increase was principally driven by higher volume on restricted programs, F-35, E-2 and Triton at Aeronautics Systems, sales growth on SDA T2TL and HALO at Space Systems, higher volume on SiAW, certain military ammunition programs, GMLRS and IBCS at Defense Systems, and higher restricted sales, partially offset by lower SABR and F-35 volume, at Mission Systems.

Year to date 2024 product costs increased $1.3 billion, or 10 percent, consistent with the higher product sales described above.

NORTHROP GRUMMAN CORPORATION

Backlog consisted of the following as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

Service Sales and Costs

Current Quarter

Second quarter 2024 service sales were comparable to the prior year period and reflect an increase in service sales at Aeronautics Systems driven by higher volume on restricted programs and Global Hawk, partially offset by a decrease in service sales at Defense Systems principally due to the completion of an international training program.

Second quarter 2024 service costs were comparable to the prior year period, consistent with the service sales described above.

Year to date 2024 service sales were comparable to the prior year period and reflect an increase in service sales at Aeronautics Systems driven by higher volume on restricted programs and Global Hawk, partially offset by a decrease in service sales at Defense Systems principally due to the completion of an international training program.

Year to date 2024 service costs were comparable to the prior year period, consistent with the service sales described above.

Second quarter and year to date 2024 net awards totaled $15.1 billion and $21.6 billion, respectively, and backlog consisted of the following as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

$ in millions Funded Unfunded Total

6 unchanged sentences

Total backlog $ 38,439 $ 44,679 $ 83,118 $ 84,230 (1) %

In January 2024, the company received a termination for convenience in our restricted Space business.

The company reduced unfunded backlog by $1.6 billion during the first quarter of 2024 related to the termination.

First quarter 2024 net awards totaled $6.5 billion and backlog totaled $78.9 billion.

Significant first quarter new awards include $3.1 billion for restricted programs (primarily at Aeronautics Systems, Space Systems, and Mission Systems).

During the first quarter of 2024, the company reduced unfunded backlog by $1.6 billion related to a termination for convenience in our restricted space business.

During the second quarter of 2024, the company reduced unfunded backlog by $0.7 billion related to a termination for convenience on the Next Generation Interceptor (NGI) program at Space Systems.

LIQUIDITY AND CAPITAL RESOURCES

We are focused on the efficient conversion of operating income into cash to provide for the company’s material cash requirements, including working capital needs, satisfaction of contractual commitments, funding of our pension and OPB plans, investment in our business through capital expenditures, and shareholder return through dividend payments and share repurchases.

At March 31, 2024, we had $3.1 billion in cash and cash equivalents.

At June 30, 2024, we had $3.3 billion in cash and cash equivalents.

We expect cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets through our shelf registration with the SEC, if needed, to be sufficient to provide liquidity to the company in the short-term and long-term.

The company has a five-year senior unsecured credit facility in an aggregate principal amount of $2.5 billion, and in April 2024, we renewed our one-year $500 million uncommitted credit facility.

At March 31, 2024, there were no borrowings outstanding under these credit facilities.

At June 30, 2024, there were no borrowings outstanding under these credit facilities.

In January 2024, we issued $2.5 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases and working capital.

4 unchanged sentences

In the meantime, we expect to continue to make additional federal tax payments based on the current Section 174 tax law, which we estimate will reduce our 2024 cash from operations by approximately $350 million.

The impact of Section 174 on our cash from operations depends on the amount of research and development expenditures incurred by the company and whether the IRS issues guidance on the provision which differs from our current interpretation, among other things.

The impact of Section 174 on our cash from operations

NORTHROP GRUMMAN CORPORATION

depends on the amount of research and development expenditures incurred by the company and whether the IRS issues guidance on the provision which differs from our current interpretation, among other things.

Cash Flow Measures

In addition to our cash position, we consider various cash flow measures in capital deployment decision-making, including cash provided by operating activities and free cash flow, a non-GAAP measure described in more detail below.

NORTHROP GRUMMAN CORPORATION

Operating Cash Flow

The table below summarizes key components of cash used in operating activities:

Three Months Ended March 31 %

The table below summarizes key components of cash provided by operating activities:

Six Months Ended June 30 %

$ in millions 2024 2023 Change

4 unchanged sentences

Other, net 16 51 (69) %

Net cash used in operating activities $ (706) $ (702) (1) %

(1) Includes depreciation and amortization, non-cash lease expense, stock based compensation expense, deferred income taxes and net periodic pension and OPB income.

First quarter 2024 net cash used in operating activities was comparable with the prior year period.

Higher net earnings were offset by changes in trade working capital.

The net use of cash during the first quarter is consistent with the company’s historical timing of operating cash flows, which are generally more heavily weighted towards the second half of the year.

Net cash provided by operating activities $ 719 $ 217 231 %

(1) Includes depreciation and amortization, stock based compensation expense, deferred income taxes and net periodic pension and OPB income.

Year to date 2024 net cash provided by operating activities increased $502 million as compared with the same period in 2023 primarily due to higher net earnings and improved trade working capital, largely driven by lower net federal tax payments, partially offset by the timing of billings and cash collections.

Free Cash Flow

2 unchanged sentences

This non-GAAP measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP.

The table below reconciles net cash used in operating activities to free cash flow:

Three Months Ended March 31 %

The table below reconciles net cash provided by operating activities to free cash flow:

Six Months Ended June 30 %

$ in millions 2024 2023 Change

Net cash used in operating activities $ (706) $ (702) (1) %

Net cash provided by operating activities $ 719 $ 217 231 %

Capital expenditures (590) (613) (4) %

Free cash flow $ 129 $ (396) 133 %

First quarter 2024 free cash flow increased $35 million, or 3 percent, as compared with the same period in 2023 principally due to lower capital expenditures.

Year to date 2024 free cash flow increased $525 million, or 133 percent, as compared with the same period in 2023 principally due to higher net cash provided by operating activities.

Investing Cash Flow

First quarter 2024 net cash used in investing activities decreased $40 million as compared with the same period in 2023 principally due to lower capital expenditures largely driven by timing.

Year to date 2024 net cash used in investing activities decreased $22 million, or 4 percent, as compared with the same period in 2023 principally due to lower capital expenditures largely driven by timing.

Financing Cash Flow

First quarter 2024 net cash provided by financing activities was comparable with the prior year period and reflects a $500 million increase in proceeds from long-term debt, partially offset by a $467 million increase in share repurchases.

Year to date 2024 net cash provided by financing activities decreased $1.2 billion, or 97 percent, as compared with the same period in 2023, primarily due to an $821 million increase in share repurchases and a $768 million decrease in borrowings on commercial paper, partially offset by a $500 million increase in proceeds from long-term debt.

Credit Facilities, Commercial Paper and Financial Arrangements - See Note 7 to the financial statements for further information on our credit facilities, commercial paper and our use of standby letters of credit and guarantees.

NORTHROP GRUMMAN CORPORATION

Share Repurchases - See Note 2 to the financial statements for further information on our share repurchase programs.

Long-term Debt - See Note 5 to the financial statements for further information.

NORTHROP GRUMMAN CORPORATION

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

9 unchanged sentences

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 and discussed more fully in the section entitled “Risk Factors” in our 2023 Annual Report on Form 10-K and from time to time in our other filings with the SEC.

These risks and uncertainties are amplified by the global macroeconomic, security and political environments, including inflationary pressures, labor and supply chain challenges, which have caused and will continue to cause significant challenges, instability and uncertainty.

They include:

36 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis