What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-24 compared with 2024-07-25 · 120 added, 118 removed, 275 unchanged (46% of the section changed)

10 unchanged sentences

The market for defense products, services and solutions globally is driven by these complex and evolving security challenges, considered in the broader context of political and socioeconomic circumstances and priorities.

Our operations and financial performance, as well as demand for our products and services, are impacted by global events, including violence and unrest.

Our operations and financial performance, as well as demand for our products and services, are impacted by these events, including global unrest.

The same is true for our suppliers and other business partners.

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 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.

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.

We do not have a significant business presence in the region, and therefore do not anticipate significant adverse financial impacts directly from the current conflict.

More broadly, the ongoing conflicts in Ukraine and the Middle East and threats elsewhere, particularly in the Pacific region, have heightened tensions and highlighted security requirements globally, including in Europe, the Middle East and the Pacific region, as well as the U.S.

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

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

The ongoing conflicts in Ukraine and the escalating hostilities in the Middle East and threats elsewhere, particularly in the Pacific region, have increased global tensions and instability and highlighted security requirements globally, including in Europe, the Middle East and the Pacific region, as well as the U.S.

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

For example, we have experienced, and, while difficult to predict, may continue to experience, an increase in demand for certain of our products and services directly and indirectly related to the conflict in Ukraine.

Sales may occur directly or through the U.S.

if it provides increased military assistance and support to Ukraine.

We have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from the ongoing conflicts in Ukraine or the Middle East.

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

and its allies, and the need for strong deterrence and robust defense capabilities.

We believe our capabilities, particularly in space, C4ISR, missile defense, battle management, advanced weapons, and survivable aircraft and mission systems should help our customers in the U.S.

and its allies, and the need for strong deterrence and robust defense capabilities, and are actively evaluating both opportunities and risks associated with this environment.

We believe our capabilities, particularly in space, C4ISR, missile defense, battle management, advanced weapons, strategic deterrence, and survivable aircraft and mission systems should help our customers in the U.S.

and globally defend against current and future threats and, as a result, continue to allow for long-term profitable business growth.

5 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

These 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.

We continue to work hard to mitigate challenges caused by the macroeconomic environment on our business.

We are seeing positive progress in the supply chain as on-time deliveries and quality have improved.

In remaining areas of pressure, we are proactively working with our suppliers to ensure we meet our contract commitments.

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

NORTHROP GRUMMAN CORPORATION

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.

In addition, although the federal funds interest rate decreased in the third quarter of 2024, an overall increase in interest rates in recent years has raised the cost of borrowing for governments, and if rates were to increase again, it could further impact government spending priorities (in the U.S.

and allied countries, in particular), including their demand for defense products.

3 unchanged sentences

In particular, it is difficult to predict the specific course of future defense budgets.

Current and future requirements related to the conflicts in Ukraine and Israel, threats in the Pacific regions and other security priorities, as well as global inflation, the national debt, and other domestic priorities, among other things, in the U.S.

Current and future requirements related to the conflicts in Ukraine and the Middle East, threats in the Pacific regions and other security priorities, as well as global inflation, the national debt, and other domestic priorities, among other things, in the U.S.

and globally, will continue to impact our customers’ budgets, spending and priorities, and our industry.

4 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.

On April 24, 2024, the President signed into law bills providing $95 billion in supplemental funding for Ukraine, Israel and Indo-Pacific, to include funding for the restock of U.S.

FY 2025 appropriations have not been enacted and, on September 26, 2024, the President signed into law a continuing resolution (CR) to carry forward FY 2024 funding levels into FY 2025 while negotiations continue regarding full-year appropriations.

The CR runs through December 20, 2024.

It remains uncertain when the government will approve final FY 2025 appropriations, and the levels of funding that FY 2025 appropriations will provide.

Government operations under an extended CR could have potential impacts on our programs and new starts, in particular.

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

On April 24, 2024, the President signed into law bills providing $95 billion in supplemental funding for Ukraine, Israel and Indo-Pacific, which include $67 billion in DoD funding for the restock of U.S.

munitions and additional capacity.

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.

1 unchanged sentence

Selected financial highlights are presented in the table below:

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

Three Months Ended September 30 % Nine Months Ended September 30 %

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

8 unchanged sentences

Diluted earnings per share $ 7.00 $ 6.18 13 % $ 19.69 $ 17.00 16 %

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

Current Quarter

Third quarter 2024 sales increased $221 million, or 2 percent, due to higher sales at Mission Systems, Aeronautics Systems and Defense Systems, partially offset by lower sales at Space Systems largely driven by a reduction of $224 million associated with wind-down of our work on the restricted space and NGI programs, as previously disclosed.

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

Year to date 2024 sales increased $1.7 billion, or 6 percent, due to higher sales at all four sectors, including 12 percent growth at Aeronautics Systems.

3 unchanged sentences

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.

Third quarter 2024 operating income increased $104 million, or 10 percent, primarily due to $57 million of higher segment operating income and a $40 million increase in the FAS/CAS operating adjustment.

Operating margin rate increased to 11.2 percent from 10.4 percent primarily due to benefits associated with the FAS/CAS operating adjustment and a higher segment operating margin rate.

Third quarter 2024 general and administrative (G&A) costs as a percentage of sales decreased to 9.9 percent from 10.5 percent in the prior year period primarily due to cost management and higher sales.

Year to date 2024 operating income increased $351 million, or 12 percent, due to $208 million of higher segment operating income, a $94 million increase in the FAS/CAS operating adjustment and $49 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.

Operating margin rate increased to 10.8 percent from 10.2 percent primarily due to benefits 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 10.4 percent from 10.9 percent in the prior year period primarily due to higher sales.

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

2 unchanged sentences

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.

The company’s third quarter 2024 ETR decreased to 13.6 percent from 16.2 percent in the prior year period principally driven by a net reduction in tax reserves largely due to a recent federal court decision, partially offset by higher interest expense on unrecognized tax benefits.

The year to date 2024 ETR decreased to 16.0 percent from 16.5 percent in the prior year period principally driven by a net reduction in tax reserves largely due to a recent federal court decision, partially offset by higher interest expense on unrecognized tax benefits.

See Note 4 to the financial statements for additional information.

NORTHROP GRUMMAN CORPORATION

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.

Third quarter 2024 net earnings increased $89 million, or 9 percent, primarily due to $104 million of higher operating income, a $36 million increase in the non-operating FAS pension benefit and a lower effective tax rate, partially offset by a $97 million gain recognized in the prior year upon the sale of a minority investment.

Year to date 2024 net earnings increased $319 million, or 12 percent, primarily due to $351 million of higher operating income and a $106 million increase in the non-operating FAS pension benefit, partially offset by a $97 million gain recognized in the prior year upon the sale of a minority investment and $44 million of higher interest expense.

Diluted Earnings Per Share

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.

Third quarter 2024 diluted earnings per share increased 13 percent, reflecting a 9 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 16 percent, reflecting a 12 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.

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

This realignment is reflected in the accompanying financial information.

Operating Performance Assessment and Reporting

8 unchanged sentences

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

NORTHROP GRUMMAN CORPORATION

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 June 30 % Six Months Ended June 30 %

Three Months Ended September 30 % Nine Months Ended September 30 %

$ in millions 2024 2023 Change 2024 2023 Change

6 unchanged sentences

Intangible asset amortization and PP&E step-up depreciation 23 31 (26) % 72 92 (22) %

Other unallocated corporate (income) expense

(7) 33 NM 7 37 (81) %

Other unallocated corporate expense

23 22 5 % 30 59 (49) %

Unallocated corporate expense

46 53 (13) % 102 151 (32) %

Segment operating income $ 1,146 $ 1,089 5 % $ 3,351 $ 3,143 7 %

Segment operating margin rate 11.5 % 11.1 % 11.0 % 11.0 %

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.

Third quarter 2024 segment operating income increased $57 million, or 5 percent, primarily due to a higher segment operating margin rate and higher sales.

Segment operating margin rate increased to 11.5 percent and reflects higher operating margin rates at Space Systems and Aeronautics Systems, partially offset by lower operating margin rates at Mission Systems and Defense Systems.

Year to date 2024 segment operating income increased $208 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.

Segment operating margin rate was comparable to the prior year period and reflects a higher operating margin rate at Space Systems, partially offset by a lower operating margin rate at Mission Systems.

FAS/CAS Operating Adjustment

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.

Third 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

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.

Current Quarter

The decrease in third quarter 2024 unallocated corporate expense is primarily due to lower intangible asset amortization and PP&E step-up depreciation.

The decrease in year to date 2024 unallocated corporate expense is primarily due to lower intangible asset amortization and PP&E step-up depreciation 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 and margin rate.

NORTHROP GRUMMAN CORPORATION

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

$ in millions 2024 2023 2024 2023

3 unchanged sentences

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

$ in millions 2024 2023 2024 2023

6 unchanged sentences

AERONAUTICS SYSTEMS

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

Three Months Ended September 30 % Nine Months Ended September 30 %

$ in millions 2024 2023 Change 2024 2023 Change

3 unchanged sentences

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.

Third quarter 2024 sales increased $112 million, or 4 percent, primarily due to higher F-35 production volume largely driven by the timing of materials, increased E-2 fleet sustainment and modernization work, higher Triton LRIP production volume and an increase in Global Hawk sustainment activities.

These increases were partially offset by lower restricted sales.

Year to date 2024 sales increased $934 million, or 12 percent, primarily due to higher restricted sales, a $300 million increase in F-35 production and sustainment volume due, in part, to the timing of materials, a $137 million increase in Triton LRIP production volume, a $129 million increase in E-2 fleet sustainment and modernization work, and higher volume on Global Hawk sustainment activities.

Operating Income

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.

Third quarter 2024 operating income increased $15 million, or 5 percent, due to higher sales and a higher operating margin rate.

Operating margin rate increased to 10.4 percent from 10.2 percent principally due to higher net EAC adjustments, largely driven by improved performance and cost efficiencies on certain mature production programs.

Year to date 2024 operating income increased $92 million, or 12 percent, due to higher sales and increased net EAC adjustments, largely driven by improved performance and cost efficiencies on certain mature production programs, partially offset by sales growth on low margin restricted programs.

NORTHROP GRUMMAN CORPORATION

DEFENSE SYSTEMS

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

Three Months Ended September 30 % Nine Months Ended September 30 %

$ in millions 2024 2023 Change 2024 2023 Change

3 unchanged sentences

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.

Third quarter 2024 sales increased $34 million, or 2 percent, primarily due to higher volume on the Sentinel program, ramp-up on the Stand-in Attack Weapon (SiAW) program and higher volume on certain military ammunition programs.

These increases were partially offset by lower volume due to the completion of an international training program and lower volume on the Special Electronic Mission Aircraft (SEMA) program as that program nears completion.

Year to date 2024 sales increased $169 million, or 3 percent, primarily due to a $115 million increase on certain military ammunition programs, a $112 million increase on the Guided Multiple Launch Rocket System (GMLRS) program driven by the timing of materials and increased order quantities, a $108 million increase on SiAW as the program ramps, and higher volume on the Sentinel program.

These increases were partially offset by a $212 million decrease due to the completion of an international training program and lower volume on the SEMA program as it nears completion.

Operating Income

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

Third quarter 2024 operating income decreased $5 million, or 2 percent, due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 9.4 percent from 9.8 percent principally due to lower net EAC adjustments and changes in contract mix.

Year to date 2024 operating income increased $9 million, or 1 percent, principally due to higher sales.

Operating margin rate was comparable to the prior period.

MISSION SYSTEMS

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

Three Months Ended September 30 % Nine Months Ended September 30 %

$ in millions 2024 2023 Change 2024 2023 Change

3 unchanged sentences

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.

Third quarter 2024 sales increased $195 million, or 7 percent, primarily due to higher volume on restricted advanced microelectronics and technology programs, increased marine systems sales due, in part, to the timing of materials, and higher Ground/Air Task Oriented Radar (G/ATOR) volume due to continued ramp-up on full-rate production (FRP) awards.

Year to date 2024 sales increased $423 million, or 5 percent, primarily due to higher volume on restricted advanced microelectronics and technology 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.

1 unchanged sentence

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.

Third quarter 2024 operating income increased $4 million, or 1 percent, due to higher sales, partially offset by a lower operating margin rate.

Operating margin rate decreased to 13.8 percent from 14.7 percent primarily due to lower net EAC adjustments and changes in contract mix toward more cost-type content.

NORTHROP GRUMMAN CORPORATION

Year to date 2024 operating income decreased $18 million, or 2 percent, due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 13.7 percent from 14.6 percent, primarily due to lower net EAC adjustments on certain airborne radar production 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.

These decreases were partially offset by sales growth on higher margin advanced microelectronics programs.

SPACE SYSTEMS

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

Three Months Ended September 30 % Nine Months Ended September 30 %

$ in millions 2024 2023 Change 2024 2023 Change

3 unchanged sentences

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.

Third quarter 2024 sales decreased $83 million, or 3 percent, primarily due to wind-down of our work on the restricted space and NGI programs, which reduced sales by $224 million.

This reduction was partially offset by a $129 million increase on Space Development Agency (SDA) satellite programs and higher sales across our remaining restricted space portfolio.

Year to date 2024 sales increased $246 million, or 3 percent, primarily due to a $322 million increase on SDA satellite programs, a $123 million increase on HALO, and higher materials volume on the GEM 63 program in support of Amazon’s Project Kuiper.

These increases were partially offset by $365 million of lower sales associated with wind-down of our work on the restricted space and NGI programs.

Lower sales associated with the wind-down of our work on the restricted space program were largely offset by higher sales across our remaining restricted space portfolio.

Operating Income

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.

Third quarter 2024 operating income increased $43 million, or 14 percent, due to a higher operating margin rate, which more than offset lower sales.

Operating margin rate increased to 12.0 percent from 10.2 percent principally due to an improvement in net EAC adjustments, partially offset by a $16 million benefit in the prior year from insurance recoveries in our commercial space business.

Year to date 2024 operating income increased $139 million, or 17 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 10.9 percent from 9.6 percent principally due to an improvement in net EAC adjustments, partially offset by a $16 million benefit in the prior year from insurance recoveries in our commercial space business.

NORTHROP GRUMMAN CORPORATION

1 unchanged sentence

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

$ in millions 2024 2023 2024 2023

29 unchanged sentences

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.

Third quarter 2024 product sales increased $261 million, or 3 percent, primarily due to an increase in product sales at Mission Systems and Defense Systems, partially offset by a decrease in product sales at Space Systems.

The increases were principally due to higher restricted sales at Mission Systems and higher volume on Sentinel, SiAW and certain military ammunition programs at Defense Systems.

The Space Systems decrease was principally due to wind-down of our work on the restricted space and NGI programs, partially offset by higher volume on the SDA T2TL programs at Space Systems.

Third quarter 2024 product costs increased $151 million, or 2 percent, consistent with the higher product sales described above and reflect a higher operating margin rate principally due to higher net EAC adjustments on Space Systems product programs.

NORTHROP GRUMMAN CORPORATION

Year to date 2024 product sales increased $1.7 billion, or 8 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, higher volume on SiAW, certain military ammunition programs and GMLRS at Defense Systems, sales growth on SDA T2TL, HALO and GEM 63 at Space Systems, and higher restricted sales, partially offset by lower SABR and F-35 volume, at Mission Systems.

Year to date 2024 product costs increased $1.5 billion, or 7 percent, consistent with the higher product sales described above and reflect a higher operating margin rate principally due to higher net EAC adjustments on Space Systems product programs.

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

Third quarter 2024 service sales decreased $40 million, or 2 percent, primarily due to a decrease in service sales at Defense Systems principally due to the completion of an international training program and lower volume on SEMA, partially offset by an increase in service sales at Aeronautics Systems driven by higher volume on restricted programs.

Third quarter 2024 service costs increased $13 million, or 1 percent, reflecting a lower operating margin rate principally due to a $16 million prior year benefit for insurance recoveries at Space Systems, changes in contract mix at Defense Systems and lower net EAC adjustments on Mission Systems service programs.

Year to date 2024 service sales decreased $32 million, or 1 percent, primarily due to a decrease in service sales at Defense Systems principally due to the completion of an international training program and lower volume on SEMA, partially offset by an increase in service sales at Aeronautics Systems driven by higher volume on restricted programs and Global Hawk.

Year to date 2024 service costs were comparable with the prior year period reflecting a lower operating margin rate principally due to lower net EAC adjustments on Mission Systems service programs, as well as a $16 million prior year benefit for insurance recoveries at Space Systems.

Backlog consisted of the following as of September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

$ in millions Funded Unfunded Total

6 unchanged sentences

Total backlog $ 39,668 $ 45,132 $ 84,800 $ 84,230 1 %

Third quarter and year to date 2024 net awards totaled $11.7 billion and $33.3 billion, respectively, and backlog totaled $84.8 billion.

Significant third quarter new awards include $2.7 billion for restricted programs (primarily at Mission Systems, Aeronautics Systems, and Space Systems), $1.6 billion for E-2 and $0.7 billion for certain military ammunition programs.

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.

2 unchanged sentences

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

NORTHROP GRUMMAN CORPORATION

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

At September 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.

2 unchanged sentences

Our 2023 cash from operations were reduced by approximately $500 million for federal estimated tax payments we made related to Section 174.

Congress is considering legislation that would defer the amortization requirement to later years, possibly with retroactive effect.

In the future, Congress may consider legislation that would defer the amortization requirement to later years, possibly with retroactive effect.

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

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.

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.

Cash Flow Measures

2 unchanged sentences

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

Six Months Ended June 30 %

Nine Months Ended September 30 %

$ in millions 2024 2023 Change

1 unchanged sentence

Non-cash items (1)

302 474 (36) %

Pension and OPB contributions (93) (108) (14) %

Changes in trade working capital (1,346) (1,469) (8) %

Other, net 16 51 (69) %

Other, net 37 (43) NM

Net cash provided by operating activities $ 1,810 $ 1,445 25 %

5 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.

NORTHROP GRUMMAN CORPORATION

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

Six Months Ended June 30 %

Nine Months Ended September 30 %

$ in millions 2024 2023 Change

4 unchanged sentences

Investing Cash Flow

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.

Year to date 2024 net cash used in investing activities increased $139 million, or 17 percent, as compared with the same period in 2023 principally due to $157 million of proceeds received in the prior year from the sale of a minority investment, partially offset by lower capital expenditures largely driven by timing.

Financing Cash Flow

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.

Year to date 2024 net cash used in financing activities decreased $486 million, or 43 percent, as compared with the same period in 2023, primarily due to $1.05 billion of fewer debt repayments and a $500 million increase in proceeds from long-term debt, partially offset by a $919 million increase in share repurchases and a $53 million increase in dividends paid.

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.

18 unchanged sentences

• significant delays or reductions in payments as a result of or related to a breach of the debt ceiling

NORTHROP GRUMMAN CORPORATION

• the use of estimates when accounting for our contracts and the effect of contract cost growth and our efforts to recover or offset such costs and/or changes in estimated contract costs and revenues, including as a result of inflationary pressures, labor shortages, supply chain challenges and/or other macroeconomic factors, and risks related to management’s judgments and assumptions in estimating and/or projecting contract revenue and performance which may be inaccurate

9 unchanged sentences

Business and Operational Risks

NORTHROP GRUMMAN CORPORATION

• cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners, and changes in related regulations

11 unchanged sentences

• changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets, and other potential future liabilities

NORTHROP GRUMMAN CORPORATION

We urge you to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements.

4 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