What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-22 compared with 2024-10-24 · 155 added, 174 removed, 221 unchanged (60% of the section changed)

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Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global aerospace and defense technology company.

We deliver a broad range of products, services and solutions to United States (U.S.) and international customers, and principally to the U.S Department of Defense (DoD) and intelligence community.

We deliver a broad range of products, services and solutions to U.S.

and international customers, and principally to the U.S Department of Defense (“DoD”) and intelligence community.

Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity.

The company is a leading provider of space systems, advanced aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and breakthrough technologies, such as artificial intelligence, advanced computing and cyber.

The company is a leading provider of space systems, military aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and breakthrough technologies, such as advanced computing, microelectronics and cyber.

We are focused on competing and winning programs that enable continued growth, performing on our commitments and affordably delivering capability our customers need.

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

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.

The conflicts in Ukraine and 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.

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

We continue to monitor developments in these regions, but have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from the conflicts in Ukraine or the Middle East.

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

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and market volatility.

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.

These macroeconomic factors can and have contributed, and could 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 to address challenges caused by the macroeconomic environment on our business.

We have seen 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 help meet our contract commitments.

In addition, an overall increase in interest rates in recent years has raised the cost of borrowing for governments, and if rates further increase, it could impact government spending priorities (in the U.S.

and allied countries, in

NORTHROP GRUMMAN CORPORATION

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.

Economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements, could also further impact the global market for defense products, services and solutions.

particular), including their demand for defense products.

Economic tensions and changes in international trade policies, including, for example, the recent widespread tariffs announced by the U.S.

on its major trading partners, higher tariffs on imported goods and materials, actions taken in response (such as retaliatory tariffs or other trade protectionist measures or the renegotiation of free trade agreements), could also further impact the global market for defense products, services and solutions.

The full impact of these governmental actions on macroeconomic conditions and on our business is uncertain, difficult to predict and depends on a number of factors, including the extent and duration of tariffs, any reversal or temporary suspension of announced tariffs, the availability of exemptions, changes in the amount and scope of tariffs, the imposition of new tariffs and other measures that target countries may take in response to U.S.

trade policies, and possible resulting general inflationary pressures in the global economy.

We are currently evaluating the potential impact on our business, suppliers and customers, but do not believe that the tariffs in effect at this time will have a material adverse effect on our business.

Political, Budget and Regulatory Environment

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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 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.

Current and future requirements related to the conflicts in Ukraine and the Middle East, threats in the Pacific region and other security priorities, as well as the macroeconomic environment, 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.

political environment, including the U.S.

election cycle, may also impact defense budgets and priorities, issues related to the national debt, and government spending more broadly.

political environment may also impact defense budgets and priorities, issues related to the national debt, and government spending more broadly.

We anticipate that issues related to budgetary priorities and defense spending levels, the debt ceiling, and the spending caps imposed by the Fiscal Responsibility Act of 2023 (FRA), particularly with respect to discretionary spending, will continue to be a subject of considerable debate, with a potentially significant impact on our programs and the company.

On March 11, 2024, the Administration released its budget request for FY 2025.

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

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 macroeconomic environment and political tensions.

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

On March 15, 2025, the Full-Year Continuing Appropriations and Extensions Act, 2025 was enacted to continue funding the government through the remainder of FY 2025.

The full-year continuing resolution generally maintains FY 2024 funding levels, but includes an increase of $6 billion in defense spending and a decrease of $13 billion in non-defense spending compared to FY 2024 funding levels.

Government operations under the full-year continuing resolution could have potential impacts on our programs and new starts, in particular.

However, the full-year continuing resolution also provides the DoD with significant flexibility to allocate and spend funds, including authority to initiate new programs if certain requirements are met.

The current Presidential Administration (the Administration) has issued numerous executive orders, including orders that direct executive departments and agencies to put in place a regulatory freeze on pending rules, to effectuate the repeal of any regulation that an agency determines is unlawful and to reform the DoD defense acquisition process.

Some of the Administration’s executive orders are subject to ongoing court challenges.

Implementation of executive orders could adversely affect our business or create a more challenging or costly regulatory, operating and economic environment.

For example, on April 9, 2025, the President signed an executive order entitled Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base.

The executive order directs the Secretary of Defense to submit, within 60 days of the issuance of the executive order, a plan for expediting DoD acquisitions that relies on existing authorities.

The plan, among other things, should include a first preference for commercial solutions and a general preference for Other Transaction Authority procurements.

In addition, the executive order directs the DoD to review all major defense acquisition programs (MDAP).

Any program that is more than 15% behind schedule or over cost based on the current Acquisition Program Baseline, unable to meet key performance parameters, or unaligned with the Secretary of Defense’s mission priorities will be considered for potential cancellation.

Implementation of this executive order, including changes in DoD priorities or regulations and results of the MDAP review, could lead to contract cancellations, disruptions and/or stop work orders, which could have a material adverse effect on our financial position, results of operations and/or cash flows.

In light of the ongoing conflicts and heightened global instability as well as political tensions and related legal challenges, we expect continued uncertainty in the U.S.

political, budget and regulatory environment.

Initiatives to reduce governmental spending, federal budget and debt ceiling action, and U.S.

government policy positions, including trade policy, potential tax reform and DoD policies or priorities, could materially impact defense spending broadly and the company’s programs in particular.

In 2015, the U.S.

Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for engineering and manufacturing development (EMD) and five low-rate initial production (LRIP) options for a baseline total of 21 aircraft.

The EMD phase of the program is largely cost type and began at contract award.

The LRIP options are largely fixed price and are expected to continue to be awarded and executed through

NORTHROP GRUMMAN CORPORATION

approximately the end of the decade.

In addition to the five LRIP options, Northrop Grumman and the U.S.

Air Force have established not to exceed (NTE) pricing for additional aircraft up to unit 40.

The average NTE value for these subsequent lots is above the average unit price of the five LRIP lots, and the NTE lots include an economic price adjustment clause to help protect against certain inflationary pressures.

Final terms, quantity, and pricing for these subsequent lots are not fully negotiated.

During the fourth quarter of 2023, we recognized a projected loss of $1.56 billion across the five LRIP options.

During the first quarter of 2025, we reviewed our estimated profitability on the program and recognized an additional $477 million loss across the five LRIP options.

This additional loss largely relates to higher manufacturing costs primarily resulting from a process change made by the company to enable an accelerated production ramp, as well as increases in the projected cost and quantity of general procurement materials.

The company’s first quarter 2025 results reflect our current best estimate of cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers and our customer.

If our estimated cost to complete the aircraft changes or our assumptions regarding contract performance, quantities, supplier negotiations, or funding to mitigate the impact of macroeconomic disruptions are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Sentinel Program

In 2020, the U.S.

Air Force awarded Northrop Grumman a $13.3 billion contract for the EMD phase of the Sentinel program.

In January 2024, the U.S.

Air Force provided congressional notification that the Sentinel program was under a Nunn-McCurdy breach review, which is required when total program cost estimates exceed certain defined thresholds.

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

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

In July 2024, the Sentinel program was certified for continuation by the DoD upon completion of the Nunn-McCurdy breach review.

In connection with the certification, the DoD directed that the program be restructured, including plans for infrastructure related to the command and launch segment, which was the main driver of the increased cost estimates for the Production and Deployment phases.

We are partnering with our customer to establish a new program baseline as part of the restructuring activities.

During the first quarter of 2025, we reviewed our estimated profitability on the Sentinel program and made no significant changes.

The Sentinel EAC incorporates our best estimate of costs to complete the restructured EMD effort;

however, if the outcome is more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

CONSOLIDATED OPERATING RESULTS

Selected financial highlights are presented in the table below:

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

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

Three Months Ended March 31 %

$ in millions, except per share amounts 2025 2024 Change

Sales $ 9,468 $ 10,133 (7) %

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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.

First quarter 2025 sales decreased $665 million, or 7 percent, driven by lower sales at Space Systems due, in part, to the wind-down of work on certain Space programs, as discussed in our segment operating results below, and lower sales at Aeronautics Systems.

These decreases were partially offset by higher sales at Mission Systems and Defense Systems.

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

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Operating Income and Margin Rate

Current Quarter

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 10.8 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.

First quarter 2025 operating income decreased $498 million, or 46 percent, primarily due to a $477 million loss provision on the B-21 program at Aeronautics Systems and lower operating income at Space Systems and Mission Systems, partially offset by higher operating income at Defense Systems and a $57 million increase in the FAS/CAS operating adjustment.

Operating margin rate declined to 6.1 percent from 10.6 percent primarily due to the B-21 loss provision and a lower operating margin rate at Mission Systems, partially offset by higher operating margin rates at Defense Systems and Space Systems and a $57 million increase in the FAS/CAS operating adjustment.

First quarter 2025 G&A costs as a percentage of sales of 10.6 percent was comparable with the prior year period.

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

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Federal and Foreign Income Taxes

Current Quarter

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.

The first quarter 2025 ETR increased to 16.8 percent from 16.5 percent in the prior year period.

The increase in our ETR was driven by interest expense on unrecognized tax benefits and excess tax benefits for employee share-based compensation, partially offset by research credits.

See Note 4 to the financial statements for additional information.

NORTHROP GRUMMAN CORPORATION

Current Quarter

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.

First quarter 2025 net earnings decreased $463 million, or 49 percent, primarily due to the B-21 loss provision described above as well as a $38 million reduction in the non-operating FAS pension benefit and higher interest expense, partially offset by a $90 million decrease in income tax expense.

Diluted Earnings Per Share

Current Quarter

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.

First quarter 2025 diluted earnings per share decreased 47 percent, reflecting a 49 percent decrease in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

SEGMENT OPERATING RESULTS

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

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.

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

Effective January 1, 2025, the company realigned the SSAS business unit from Defense Systems to Aeronautics Systems.

These realignments are reflected in the financial information contained in this report.

Operating Performance Assessment and Reporting

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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.

NORTHROP GRUMMAN CORPORATION

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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 September 30 % Nine Months Ended September 30 %

$ in millions 2024 2023 Change 2024 2023 Change

Three Months Ended March 31 %

$ in millions 2025 2024 Change

Operating income $ 573 $ 1,071 (46) %

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FAS pension service expense 54 60 (10) %

FAS/CAS operating adjustment (20) 20 NM (32) 62 NM

FAS/CAS operating adjustment (63) (6) 950 %

Intangible asset amortization and PP&E step-up depreciation 21 25 (16) %

Other unallocated corporate expense

23 22 5 % 30 59 (49) %

Unallocated corporate expense

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

Segment operating income $ 568 $ 1,104 (49) %

Segment operating margin rate 6.0 % 10.9 %

Current Quarter

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 higher operating margin rate at Space Systems, partially offset by a lower operating margin rate at Mission Systems.

First quarter 2025 segment operating income decreased $536 million, or 49 percent, primarily due to the $477 million B-21 loss provision described above and lower operating income at Space Systems and Mission Systems, partially offset by higher operating income at Defense Systems.

Segment operating margin rate decreased to 6.0 percent from 10.9 percent, primarily due to the B-21 loss provision and a lower operating margin rate at Mission Systems, partially offset by higher operating margin rates at Defense Systems and Space Systems.

FAS/CAS Operating Adjustment

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.

The first quarter 2025 FAS/CAS operating adjustment increased primarily due to higher CAS pension expense largely driven by plan asset returns in prior years and changes in certain CAS actuarial assumptions as of December 31, 2024.

Unallocated Corporate Expense

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.

The increase in first quarter 2025 unallocated corporate expense is primarily due to higher deferred state tax expense associated with research and development expenditures and the utilization of state tax credit carryforwards.

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 September 30 Nine Months Ended September 30

Three Months Ended March 31

$ in millions 2025 2024

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Net EAC adjustments $ (100) $ 94

NORTHROP GRUMMAN CORPORATION

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

Three Months Ended September 30 Nine Months Ended September 30

Three Months Ended March 31

$ in millions 2025 2024

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AERONAUTICS SYSTEMS

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

$ in millions 2024 2023 Change 2024 2023 Change

Three Months Ended March 31 %

$ in millions 2025 2024 Change

Sales $ 2,814 $ 3,044 (8) %

Operating income 298 283 5 % 890 798 12 %

Operating (loss) income

Operating margin rate (6.5) % 10.1 %

Current Quarter

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.

First quarter 2025 sales decreased $230 million, or 8 percent, primarily due to lower sales on B-21 and other restricted programs, as well as a decrease in F-35 sustainment volume due, in part, to the timing of materials.

Operating Income

Current Quarter

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

First quarter 2025 operating income decreased $489 million and operating margin rate decreased to (6.5) percent primarily due to the previously described $477 million loss provision on the LRIP phase of the B-21 program, inclusive of a $226 million unfavorable EAC adjustment on the first and second LRIP lots.

DEFENSE SYSTEMS

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

$ in millions 2024 2023 Change 2024 2023 Change

Three Months Ended March 31 %

$ in millions 2025 2024 Change

Sales $ 1,805 $ 1,737 4 %

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Operating margin rate 9.9 % 9.0 %

Current Quarter

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.

First quarter 2025 sales increased $68 million, or 4 percent, primarily due to continued ramp-up on the Sentinel program and higher volume on certain military ammunition programs, partially offset by lower sales on the Stand-in Attack Weapon (SiAW) program.

Operating Income

Current Quarter

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.

First quarter 2025 operating income increased $23 million, or 15 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 9.9 percent from 9.0 percent primarily due to higher net EAC adjustments.

MISSION SYSTEMS

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

$ in millions 2024 2023 Change 2024 2023 Change

Three Months Ended March 31 %

$ in millions 2025 2024 Change

Sales $ 2,807 $ 2,659 6 %

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Operating margin rate 12.9 % 14.2 %

Current Quarter

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.

Operating Income

Current Quarter

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.

First quarter 2025 sales increased $148 million, or 6 percent, primarily due to higher sales on the Scalable Agile Beam Radar (SABR) program, ramp-up on electronic warfare self-protection and international ground-based radar

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.

programs, and higher volume on marine systems programs.

These increases were partially offset by lower volume on restricted advanced microelectronics programs.

Operating Income

First quarter 2025 operating income decreased $17 million, or 4 percent, due to a lower operating margin rate, which more than offset higher sales.

Operating margin rate decreased to 12.9 percent from 14.2 percent, primarily due to investments made by the sector in connection with restricted business opportunities and lower volume on restricted advanced microelectronics programs, which more than offset higher net EAC adjustments.

SPACE SYSTEMS

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

$ in millions 2024 2023 Change 2024 2023 Change

Three Months Ended March 31 %

$ in millions 2025 2024 Change

Sales $ 2,568 $ 3,149 (18) %

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Operating margin rate 11.0 % 10.5 %

Current Quarter

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.

First quarter 2025 sales decreased $581 million, or 18 percent, primarily due to wind-down of work on the restricted space and Next Generation Interceptor (NGI) programs, which reduced sales by $228 million, as well as decreases for Commercial Resupply Services (CRS) missions, Space Development Agency (SDA) satellite programs and other restricted space programs.

Operating Income

Current Quarter

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.

First quarter 2025 operating income decreased $47 million, or 14 percent, due to lower sales, partially offset by a higher operating margin rate.

Operating margin rate increased to 11.0 percent from 10.5 percent principally due to higher net EAC adjustments.

NORTHROP GRUMMAN CORPORATION

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

Three Months Ended September 30 Nine Months Ended September 30

Three Months Ended March 31

$ in millions 2025 2024

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

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Product Sales and Costs

Current Quarter

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.

First quarter 2025 product sales decreased $581 million, or 7 percent, primarily due to the previously disclosed wind-down of work on the restricted space and NGI programs and lower sales for CRS missions, SDA satellite programs and other restricted programs at Space Systems, as well as lower sales on B-21 and other restricted programs at Aeronautics Systems.

These decreases were partially offset by ramp-up on Sentinel and higher volume on certain military ammunition programs at Defense Systems as well as higher sales on the SABR program at Mission Systems.

First quarter 2025 product costs decreased $60 million, or 1 percent.

The percentage decline in product costs was lower than the percentage decline in product sales largely due to the $477 million B-21 loss provision at Aeronautics Systems.

Service Sales and Costs

Current Quarter

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

First quarter 2025 service sales decreased $84 million, or 4 percent, primarily due to lower restricted sales at Aeronautics Systems, as well as lower volume on the KC-30 program and completion of certain training programs at Defense Systems.

First quarter 2025 service costs decreased $69 million, or 4 percent, consistent with the lower service sales described above.

NORTHROP GRUMMAN CORPORATION

Backlog consisted of the following as of March 31, 2025 and December 31, 2024:

March 31, 2025 December 31, 2024

$ in millions Funded Unfunded Total

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Total backlog $ 39,942 $ 52,855 $ 92,797 $ 91,468 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.

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.

First quarter 2025 net awards totaled $10.8 billion, and backlog totaled $92.8 billion.

Significant first quarter new awards include $4.6 billion for restricted programs (primarily at Space Systems, Aeronautics Systems and Mission Systems), $1.1 billion for F-35 programs (primarily at Mission Systems and Aeronautics Systems), $0.5 billion for the Integrated Battle Command System (IBCS) program, $0.3 billion for Triton, and $0.3 billion for E-2.

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.

NORTHROP GRUMMAN CORPORATION

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

At March 31, 2025, we had $1.7 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 2025, we renewed our one-year $500 million uncommitted credit facility.

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.

At March 31, 2025, there were no borrowings outstanding under these credit facilities;

however, as of March 31, 2025, we had $1.5 billion in commercial paper outstanding, which reduced the amount available for borrowing under our unsecured credit facility.

IRC Section 174

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to amortize them over five years pursuant to IRC Section 174.

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

Our 2024 cash from operations was reduced by approximately $350 million for federal estimated tax payments we made related to Section 174.

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

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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 provided by operating activities:

Nine Months Ended September 30 %

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

Three Months Ended March 31 %

$ in millions 2025 2024 Change

Net earnings $ 481 $ 944 (49) %

B-21 loss provision

Non-cash items (1)

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Changes in trade working capital (2,734) (1,710) 60 %

Other, net 37 (43) NM

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

Other, net (3) (7) (57) %

Net cash used in operating activities $ (1,565) $ (706) (122) %

(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 $365 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.

First quarter 2025 net cash from operating activities decreased $859 million as compared with the same period in 2024 primarily due to changes in trade working capital largely driven by a comparative increase in vendor payments as well as the timing of billings and collections.

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.

Free Cash Flow

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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:

Nine Months Ended September 30 %

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

Three Months Ended March 31 %

$ in millions 2025 2024 Change

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

Net cash used in operating activities $ (1,565) $ (706) (122) %

Capital expenditures (256) (270) (5) %

Free cash flow $ (1,821) $ (976) (87) %

Year to date 2024 free cash flow increased $386 million, or 82 percent, as compared with the same period in 2023 principally due to higher net cash provided by operating activities.

First quarter 2025 free cash flow decreased $845 million, or 87 percent, as compared with the same period in 2024 principally due to a decrease in net cash from operating activities.

Investing Cash Flow

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.

First quarter 2025 net cash used in investing activities decreased $17 million, or 6 percent, as compared with the same period in 2024 principally due to lower capital expenditures.

Financing Cash Flow

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.

First quarter 2025 net cash used in financing activities was $851 million compared to net cash provided by financing activities of $927 million in the prior year period.

This change is primarily due to a $2.5 billion net decrease in cash from long-term debt and commercial paper financing, partially offset by a $710 million decrease in share repurchases.

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.

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

NORTHROP GRUMMAN CORPORATION

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

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• 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

• continued pressures from macroeconomic trends, including on costs, schedules, performance and ability to meet expectations

• 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, changes in trade policies 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

• increased competition within our markets and bid protests

• continued pressures from macroeconomic trends, including on costs, schedules, performance and ability to meet expectations

Legal and Regulatory Risks

• investigations, claims, disputes, enforcement actions, litigation (including criminal, civil and administrative) and/or other legal proceedings

• the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate, including the impact on our reputation and our ability to do business

• changes in procurement and other laws, SEC, DoD and other rules and regulations, contract terms and practices applicable to our industry, findings by the U.S.

• changes in procurement and other laws, SEC, DoD and other rules and regulations, including changes through executive orders, contract terms and practices applicable to our industry, findings by the U.S.

government as to our compliance with such requirements, more aggressive enforcement of such requirements and changes in our customers’ business practices globally

• environmental matters, including climate change, unforeseen environmental costs and government and third-party claims

• unanticipated changes in our tax provisions or exposure to additional tax liabilities

NORTHROP GRUMMAN CORPORATION

Business and Operational Risks

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

• our ability to attract and retain a qualified, talented and diverse workforce with the necessary security clearances to meet our performance obligations

• the performance and viability of our subcontractors and suppliers and the availability and pricing of raw materials and components, particularly with inflationary pressures, increased costs, shortages in labor and financial resources, supply chain disruptions, and extended material lead times

• impacts related to health epidemics and pandemics and similar outbreaks

• the performance and viability of our subcontractors and suppliers and the availability and pricing of raw materials, chemicals, parts and components, particularly with inflationary pressures, increased costs, shortages in labor and financial resources, supply chain disruptions, and extended material lead times

• our ability to attract and retain a qualified and talented workforce with the necessary security clearances to meet our performance obligations

• our exposure to additional risks as a result of our international business, including risks related to global security, geopolitical and economic factors, misconduct, suppliers, laws and regulations

• natural disasters, epidemics, pandemics and similar outbreaks and other significant disruptions

• our ability to innovate, develop new products and technologies, progress and benefit from digital transformation and maintain technologies to meet the needs of our customers

• natural disasters

• products and services we provide related to hazardous and high risk operations, including the production and use of such products, which subject us to various environmental, regulatory, financial, reputational and other risks

• our ability appropriately to exploit and/or protect intellectual property rights

• our ability appropriately to protect and exploit intellectual property rights

General and Other Risk Factors

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• 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.

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 report is first filed or, in the case of any document incorporated by reference, the date of that document.

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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