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Item 2. Management’s Discussion and Analysis

2025-10-21 compared with 2025-07-22 · 150 added, 138 removed, 331 unchanged (47% of the section changed)

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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.

and international customers, and principally to the U.S Department of War (“DoW”, formerly referred to as the Department of Defense) 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.

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

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.

The conflict in Ukraine and threats elsewhere, particularly in the Middle East and 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 regions.

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

We believe the current global security environment, characterized by significant national security threats to the U.S.

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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 or remain elevated, it could impact government spending priorities (in the U.S.

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

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

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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 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.

Current and future requirements related to the conflict in Ukraine, threats in the Middle East and 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.

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

The full-year continuing resolution provided the DoW with significant flexibility to allocate and spend funds, including authority to initiate new programs if certain requirements were met.

In the second quarter of 2025, the Presidential Administration (the “Administration”) submitted its budget request for FY 2026.

The request includes approximately $1 trillion for national security, approximately $962 billion of which is for the DoD, with $113 billion of such DoD funds included in the reconciliation bill described below.

The budget request for the DoD reflects an increase of 11.8 percent, or $101.6 billion, above FY 2025 enacted levels.

The request includes approximately $1 trillion for national security, approximately $962 billion of which is for the DoW, with $113 billion of such DoW funds included in the reconciliation bill described below.

The budget request for the DoW reflects an increase of 11.8 percent, or $101.6 billion, above FY 2025 enacted levels.

Congress is evaluating the Administration’s budget request as it drafts authorization and appropriations legislation for FY 2026.

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The OBBBA allocates approximately $150 billion in funds for defense spending, including funding for air and missile defense, munitions, shipbuilding and supply chains and other military capabilities, and the appropriated funds will remain available to be obligated until September 30, 2029 and expended through FY 2034.

The OBBBA is expected to result in increased investments by the DoD in defense modernization projects and Pacific region deterrence, among other programs.

The OBBBA is expected to result in increased investments by the DoW in defense modernization projects and Pacific region deterrence, among other programs.

See Note 4 to the financial statements for additional information on key income tax provisions of the OBBBA.

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, to undertake a comprehensive overhaul of the Federal Acquisition Regulation and to reform the DoD defense acquisition process.

Appropriations for FY 2026 were not enacted by September 30, 2025, and on October 1, 2025, the U.S.

Government entered a shutdown, which is ongoing.

Consistent with federal guidelines, we are continuing to perform work on existing contracts funded with appropriations from prior fiscal years.

In addition, we may be expected to continue to perform for some period of time on certain of our U.S.

Government contracts even if the U.S.

Government is unable to make timely payments, for example if funding from prior year appropriations has been exhausted and appropriations legislation or a continuing resolution for FY 2026 has not been enacted.

If a prolonged government shutdown occurs, it could result in program disruptions, limit the U.S.

Government’s ability to progress programs and make timely payments and impact new program starts.

A prolonged shutdown could have significant

NORTHROP GRUMMAN CORPORATION

consequences for our company, our employees, our suppliers and our industry and could result in delayed cash collections and/or have a material adverse effect on our financial position, results of operations and/or cash flows.

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

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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 a plan for expediting DoD

NORTHROP GRUMMAN CORPORATION

acquisitions that relies on existing authorities.

The executive order directs the Secretary of War to submit a plan for expediting DoW acquisitions that relies on existing authorities.

According to the executive order, 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 addition, the executive order directs the DoW 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 War’s mission priorities will be considered for potential cancellation.

Implementation of this executive order, including changes in DoW 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 global security, U.S.

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

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

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

In 2015, the U.S.

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During the first quarter of 2025, we recognized an additional $477 million loss across the five LRIP options.

During the second quarter of 2025, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss.

The company’s second 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.

During the third quarter of 2025, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss.

However, we experienced higher-than-expected costs to produce the EMD flight test aircraft, which increased our estimate to manufacture the LRIP units;

this cost increase was largely offset by a reduction in our expected loss on the remaining LRIP lots due to a contract restructure that occurred during the third quarter of 2025.

The company’s third 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.

If our estimated cost to complete the aircraft changes, if we reach an agreement with the customer regarding an accelerated production rate, or if 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.

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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.

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

NORTHROP GRUMMAN CORPORATION

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.

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

In connection with the certification, the DoW 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.

During the second quarter of 2025, we partnered with the U.S.

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The program restructure will include a revision to the acquisition strategy, joint establishment of a new program baseline, and other critical preparation activities necessary to re-accomplish Milestone B approval.

Based on this preliminary execution framework, we updated our

NORTHROP GRUMMAN CORPORATION

estimated profitability on the program and recognized a $76 million favorable EAC adjustment largely related to our expectations for achieving certain contract incentives.

Based on this preliminary execution framework, we updated our estimated profitability on the program and recognized a $76 million favorable EAC adjustment during the second quarter of 2025 largely related to our expectations for achieving certain contract incentives.

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

If our estimated cost to complete the restructured EMD effort or our expectations for achieving contract incentives are 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

For purposes of the operating results discussion below, we assess our performance using certain financial measures that are not calculated in accordance with GAAP.

Organic sales is defined as total sales excluding sales attributable to the company's training services business.

Organic sales is defined as total sales excluding sales attributable to the company's former training services business.

This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the company’s underlying sales growth as well as in understanding our ongoing business and future sales trends by presenting the company’s sales adjusted for the impact of the divestiture.

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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 2025 2024 Change 2025 2024 Change

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Diluted earnings per share $ 7.67 $ 7.00 10 % $ 19.12 $ 19.69 (3) %

NORTHROP GRUMMAN CORPORATION

The table below reconciles sales to organic sales:

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

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

$ in millions

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Current Quarter

Second quarter 2025 sales increased $133 million, or 1 percent, primarily driven by higher sales at Mission Systems, Defense Systems and Aeronautics Systems, partially offset 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.

Year to date 2025 sales decreased $532 million, or 3 percent, primarily driven by lower sales at Space Systems due, in part, to the wind-down of work on certain Space programs, and lower sales at Aeronautics Systems, partially offset by higher sales at Mission Systems and Defense Systems.

Third quarter 2025 sales increased $427 million, or 4 percent, primarily driven by higher sales at Mission Systems, Defense Systems and Aeronautics Systems, partially offset 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.

Year to date 2025 sales were comparable with the prior year period and reflect higher sales at Mission Systems and Defense Systems, partially offset by lower sales at Space Systems due, in part, to the wind-down of work on certain Space programs.

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

See Note 10 to the financial statements for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments.

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Operating Income and Margin Rate

Current Quarter

Second quarter 2025 operating income increased $335 million, or 31 percent, primarily due to the training services divestiture, including a $231 million gain on sale and $19 million of unallocated corporate expense for unallowable state taxes and transaction costs.

Operating income also increased due to $118 million of higher segment operating income and a $57 million increase in the FAS/CAS operating adjustment, partially offset by a $52 million increase in non-divestiture-related unallocated corporate expense.

Operating margin rate increased to 13.8 percent from 10.7 percent reflecting the items above.

Second quarter 2025 general and administrative (G&A) costs as a percentage of sales decreased to 9.8 percent from 10.8 percent in the prior year period primarily due to cost management and higher sales.

Third quarter 2025 operating income increased $122 million, or 11 percent, primarily due to a $131 million increase in segment operating income.

Operating margin rate increased to 11.9 percent from 11.2 percent principally due to a higher segment operating margin rate.

Third quarter 2025 general and administrative (G&A) costs as a percentage of sales decreased to 9.5 percent from 9.9 percent in the prior year period primarily due to higher sales.

Year to date 2025 operating income decreased $41 million, or 1 percent, due to a $287 million decrease in segment operating income, primarily driven by a $477 million loss provision recorded on the B-21 program at Aeronautics Systems in the first quarter of 2025, and a $128 million increase in non-divestiture-related unallocated corporate expense.

These decreases were partially offset by higher operating income due to the training services divestiture, including a $231 million pre-tax gain on sale and $20 million of unallocated corporate expense for unallowable state taxes and transaction costs, and a $114 million increase in the FAS/CAS operating adjustment.

These decreases were partially offset by higher operating income due to a $231 million pre-tax gain on sale for the training services divestiture and a $161 million increase in the FAS/CAS operating adjustment.

Operating margin rate declined to 10.7 percent from 10.8 percent reflecting the items above.

Year to date 2025 G&A costs as a percentage of sales decreased to 10.2 percent from 10.6 percent in the prior year period primarily due to cost management, partially offset by lower sales.

Year to date 2025 G&A costs as a percentage of sales decreased to 9.9 percent from 10.4 percent in the prior year period primarily due to cost management.

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

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Federal and Foreign Income Taxes

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted.

Key income tax-related provisions of the OBBBA include the repeal of mandatory capitalization of research and development expenditures under IRC Section 174 (reinstating full expensing beginning in 2025), extension of bonus depreciation, and revisions to international tax regimes.

The company recognized the income tax effects of the OBBBA in its third quarter 2025 financial statements.

Current Quarter

Second quarter 2025 income tax expense increased $47 million, or 23 percent, due to higher earnings before income taxes, partially offset by a lower ETR.

The second quarter 2025 ETR decreased to 17.7 percent from 18.0 percent in the prior year period primarily due to lower interest expense on unrecognized tax benefits and higher research credits, partially offset by additional income tax expense related to nondeductible goodwill in the divested training services business.

Year to date 2025 income tax expense decreased $43 million, or 11 percent, due to lower earnings before income taxes, partially offset by a higher ETR.

The year to date 2025 ETR increased to 17.5 percent from 17.3 percent in the prior year period primarily due to additional income tax expense related to nondeductible goodwill in the divested training services business and lower benefits for FDII and employee share-based compensation.

These increases were partially offset by higher research credits and lower interest expense on unrecognized tax benefits.

Third quarter 2025 income tax expense increased $61 million, or 38 percent, due to a higher ETR and higher earnings before income taxes.

The third quarter 2025 ETR increased to 16.9 percent from 13.6 percent primarily due to the prior year ETR reflecting a net reduction in tax reserves largely due to a federal court decision in 2024 as well as a reduction in research credits in the current year due to enactment of the OBBBA, partially offset by lower interest expense on unrecognized tax benefits.

NORTHROP GRUMMAN CORPORATION

Year to date 2025 income tax expense increased $18 million, or 3 percent, due to a higher ETR, which more than offset lower earnings before income taxes.

The year to date 2025 ETR increased to 17.2 percent from 16.0 percent primarily due to the prior year ETR reflecting a net reduction in tax reserves largely due to a federal court decision in 2024 as well as additional income tax expense in the current year related to nondeductible goodwill in the divested training services business, partially offset by lower interest expense on unrecognized tax benefits.

See Note 4 to the financial statements for additional information.

Current Quarter

Second quarter 2025 net earnings increased $234 million, or 25 percent, primarily due to the $335 million increase in operating income described above, partially offset by a $47 million increase in income tax expense, a $30 million reduction in the non-operating FAS pension benefit and higher interest expense.

Year to date 2025 net earnings decreased $229 million, or 12 percent, primarily due to the $163 million decrease in operating income described above, a $68 million reduction in the non-operating FAS pension benefit and higher interest expense, partially offset by a $43 million decrease in income tax expense.

Third quarter 2025 net earnings increased $74 million, or 7 percent, primarily due to the $122 million increase in operating income described above as well as a $62 million increase in returns on marketable securities, partially offset by a $61 million increase in income tax expense and a $32 million reduction in the non-operating FAS pension benefit.

Year to date 2025 net earnings decreased $155 million, or 5 percent, primarily due to a $100 million reduction in the non-operating FAS pension benefit, lower interest income on short-term investments, and the $41 million decrease in operating income described above, partially offset by a $78 million increase in returns on marketable securities.

Diluted Earnings Per Share

Current Quarter

Second quarter 2025 diluted earnings per share increased 28 percent, reflecting a 25 percent increase in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

Third quarter 2025 diluted earnings per share increased 10 percent, reflecting a 7 percent increase in net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.

Year to date 2025 diluted earnings per share decreased 3 percent, reflecting a 5 percent decrease in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

NORTHROP GRUMMAN CORPORATION

SEGMENT OPERATING RESULTS

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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).

NORTHROP GRUMMAN CORPORATION

Segment Operating Income and Margin Rate

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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 June 30 % Six Months Ended June 30 %

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

$ in millions 2025 2024 Change 2025 2024 Change

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— — NM (231) — NM

Training services divestiture - unallowable state taxes and transaction costs

19 — NM 20 — NM

Training services divestiture - unallowable state taxes and transaction costs — 2 NM 20 2 NM

Intangible asset amortization and PP&E step-up depreciation 21 23 (9) % 63 72 (13) %

Other unallocated corporate expense (income)

48 (7) NM 84 7 1,100 %

Unallocated corporate (income) expense

(143) 17 NM (85) 56 NM

Other unallocated corporate expense

81 21 286 % 165 28 489 %

Unallocated corporate expense

102 46 122 % 17 102 (83) %

Segment operating income $ 1,277 $ 1,146 11 % $ 3,064 $ 3,351 (9) %

Segment operating margin rate 12.3 % 11.5 % 10.1 % 11.0 %

NORTHROP GRUMMAN CORPORATION

Current Quarter

Second quarter 2025 segment operating income increased $118 million, or 11 percent, due to higher operating income at Mission Systems, Defense Systems and Aeronautics Systems, partially offset by lower operating income at Space Systems.

Segment operating margin rate increased to 11.8 percent from 10.8 percent, due to higher operating margin rates at all four sectors.

Year to date 2025 segment operating income decreased $418 million, or 19 percent, due to lower operating income at Aeronautics Systems, primarily driven by a $477 million B-21 loss provision in the first quarter of 2025, and lower operating income at Space Systems, partially offset by higher operating income at Defense Systems and Mission Systems.

Segment operating margin rate decreased to 9.0 percent from 10.8 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.

Third quarter 2025 segment operating income increased $131 million, or 11 percent, primarily due to higher operating income at Mission Systems and Defense Systems, partially offset by lower operating income at Space Systems.

Segment operating margin rate increased to 12.3 percent from 11.5 percent due to higher operating margin rates at Mission Systems and Defense Systems, partially offset by lower operating margin rates at Space Systems and Aeronautics Systems.

Year to date 2025 segment operating income decreased $287 million, or 9 percent, due to lower operating income at Aeronautics Systems, primarily driven by a $477 million B-21 loss provision in the first quarter of 2025, and lower operating income at Space Systems, partially offset by higher operating income at Mission Systems and Defense Systems.

Segment operating margin rate decreased to 10.1 percent from 11.0 percent primarily due to the B-21 loss provision, partially offset by higher operating margin rates at Defense Systems and Mission Systems.

FAS/CAS Operating Adjustment

The second quarter 2025 and year to date 2025 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, 2024.

Unallocated Corporate (Income) Expense

The third quarter 2025 and year to date 2025 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, 2024.

Unallocated Corporate Expense

Current Quarter

The change in second quarter 2025 unallocated corporate (income) expense is primarily due to a $231 million gain on the sale of our training services business, partially offset by $19 million of unallowable state taxes and transaction costs associated with the divestiture.

Non-divestiture-related unallocated corporate expense increased primarily due to higher deferred state tax expense associated with research and development expenditures and the utilization of state tax credit carryforwards, as well as the prior year including a $26 million increase in our estimated recovery of certain environmental remediation costs.

The change in year to date 2025 unallocated corporate (income) expense is primarily due to a $231 million gain on the sale of our training services business, partially offset by $20 million of unallowable state taxes and transaction costs associated with the divestiture.

The change in third quarter 2025 unallocated corporate expense is primarily due to higher deferred state tax expense largely related to the repeal of mandatory capitalization of research and development expenditures under IRC Section 174 upon enactment of the OBBBA.

NORTHROP GRUMMAN CORPORATION

The change in year to date 2025 unallocated corporate expense is primarily due to a $231 million gain on the sale of our training services business, partially offset by an $18 million increase in unallowable state taxes and transaction costs associated with the divestiture.

Non-divestiture-related unallocated corporate expense increased primarily due to higher deferred state tax expense largely related to the repeal of mandatory capitalization of research and development expenditures under IRC Section 174, as well as the prior year including a $26 million increase in our estimated recovery of certain environmental remediation costs.

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

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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 2025 2024 2025 2024

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Net EAC adjustments $ 81 $ 136 $ 107 $ 268

NORTHROP GRUMMAN CORPORATION

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 2025 2024 2025 2024

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AERONAUTICS SYSTEMS

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

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

$ in millions 2025 2024 Change 2025 2024 Change

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Current Quarter

Second quarter 2025 sales increased $54 million, or 2 percent, primarily due to higher volume on B-21 and ramp-up on the E-130J TACAMO (“TACAMO”) program, partially offset by lower volume on restricted programs and a decrease on F/A-18 as production nears completion.

Year to date 2025 sales decreased $176 million, or 3 percent, primarily due to lower volume on restricted programs, commercial aerostructures programs and F/A-18 as production nears completion, partially offset by a $116 million increase on TACAMO as that program ramps.

Third quarter 2025 sales increased $181 million, or 6 percent, primarily due to a $110 million increase on the E-130J TACAMO (“TACAMO”) program as it ramps up and a $105 million increase on the F-35 program largely driven by materials volume, partially offset by a decrease on F/A-18 as production nears completion.

Year to date 2025 sales were comparable to the prior year period and reflect a $226 million increase on TACAMO as that program ramps and a $111 million increase on the F-35 program largely driven by materials volume, partially offset by lower sales on restricted programs, commercial aerostructures programs and on F/A-18 as production nears completion.

Operating Income

Current Quarter

Second quarter 2025 operating income increased $9 million, or 3 percent, primarily due to higher sales.

Operating margin rate of 10.3 percent was comparable with the prior year period.

Year to date 2025 operating income decreased $480 million and operating margin rate decreased to 2.3 percent primarily due to the previously described $477 million loss provision recorded on the LRIP phase of the B-21 program in the first quarter of 2025, inclusive of a $226 million unfavorable EAC adjustment on the first and second LRIP lots.

Third quarter 2025 operating income decreased $4 million, or 1 percent, due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 9.7 percent from 10.4 percent, primarily due to lower net contract margin adjustments.

NORTHROP GRUMMAN CORPORATION

Year to date 2025 operating income decreased $484 million and operating margin rate decreased to 4.9 percent primarily due to the previously described $477 million loss provision recorded on the LRIP phase of the B-21 program in the first quarter of 2025.

DEFENSE SYSTEMS

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

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

$ in millions 2025 2024 Change 2025 2024 Change

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Current Quarter

Second quarter 2025 sales increased $132 million, or 7 percent, principally due to higher sales on the Sentinel program and military ammunition programs.

NORTHROP GRUMMAN CORPORATION

Year to date 2025 sales increased $200 million, or 6 percent, principally due to a $145 million increase in sales on the Sentinel program and higher volume on military ammunition programs and the Poland Integrated Battle Command System (IBCS) program.

Third quarter 2025 sales increased $259 million, or 14 percent, primarily due to higher volume on armament programs, including military ammunition programs, increased volume from new awards across the Integrated Battle Command System (IBCS) program portfolio and higher sales on Sentinel.

These increases were partially offset by a $70 million reduction in sales related to the training services divestiture.

Year to date 2025 sales increased $459 million, or 9 percent, primarily due to a $195 million increase in sales on Sentinel, higher volume on armament programs, including a $135 million increase on military ammunition programs, and increased volume from new awards across the IBCS program portfolio.

These increases were partially offset by a $114 million reduction in sales related to the training services divestiture.

Operating Income

Current Quarter

Second quarter 2025 operating income increased $62 million, or 32 percent, primarily due to a higher operating margin rate and higher sales.

Operating margin rate increased to 12.7 percent from 10.3 percent primarily due to higher net EAC adjustments, including a $76 million favorable EAC adjustment on the EMD phase of the Sentinel program largely related to our expectations for achieving certain contract incentives.

Third quarter 2025 operating income increased $74 million, or 46 percent, primarily due to a higher operating margin rate and higher sales.

Operating margin rate increased to 11.4 percent from 8.9 percent principally due to higher net EAC adjustments and changes in mix toward more fixed-price contracts.

Year to date 2025 operating income increased $159 million, or 31 percent, primarily due to a higher operating margin rate and higher sales.

Operating margin rate increased to 11.4 percent from 9.6 percent primarily due to higher net EAC adjustments, including the $76 million favorable EAC adjustment on the Sentinel program described above.

Operating margin rate increased to 11.4 percent from 9.4 percent principally due to higher net EAC adjustments, including a $76 million favorable EAC adjustment on the Sentinel program during the second quarter of 2025.

MISSION SYSTEMS

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

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

$ in millions 2025 2024 Change 2025 2024 Change

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Current Quarter

Second quarter 2025 sales increased $384 million, or 14 percent, primarily due to the timing of a restricted award, which liquidated inventory purchased in advance of the award to support customer schedule, as well as higher volume on marine systems, international ground-based radar, advanced technologies and navigation systems programs.

Year to date 2025 sales increased $532 million, or 10 percent, primarily due to the restricted award timing described above, higher volume on the Scalable Agile Beam Radar (SABR) program and marine systems programs, and ramp-up on international ground-based radar programs.

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

Third quarter 2025 sales increased $270 million, or 10 percent, primarily due to higher sales on restricted advanced microelectronics programs, higher volume on marine systems programs and ramp-up on international ground-based radar programs.

Year to date 2025 sales increased $802 million, or 10 percent, primarily due to the timing of materials on restricted airborne radar programs, higher volume on marine systems programs, ramp-up on international ground-based radar programs and sales growth on the Scalable Agile Beam Radar (SABR) program.

NORTHROP GRUMMAN CORPORATION

Operating Income

Current Quarter

Second quarter 2025 operating income increased $80 million, or 22 percent, due to higher sales and a higher operating margin rate.

Operating margin rate increased to 14.0 percent from 13.0 percent, primarily due to higher net EAC adjustments driven by improved production efficiencies and program performance largely on airborne radar programs.

Year to date 2025 operating income increased $63 million, or 9 percent, primarily due to higher sales.

Operating margin rate decreased to 13.4 percent from 13.6 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.

NORTHROP GRUMMAN CORPORATION

Third quarter 2025 operating income increased $125 million, or 32 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 16.7 percent from 13.8 percent, principally due to higher net EAC adjustments, including a $68 million favorable EAC adjustment in the restricted advanced microelectronics portfolio largely driven by program efficiencies and risk mitigations.

Year to date 2025 operating income increased $188 million, or 17 percent, primarily due to higher sales and a higher operating margin rate.

Operating margin rate increased to 14.5 percent from 13.7 percent, primarily due to higher net EAC adjustments, including the $68 million favorable EAC adjustment in the restricted advanced microelectronics portfolio described above, partially offset by investments made by the sector in connection with restricted business opportunities during the first quarter of 2025 and changes in mix toward more cost-type contracts.

SPACE SYSTEMS

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

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

$ in millions 2025 2024 Change 2025 2024 Change

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Current Quarter

Second quarter 2025 sales decreased $356 million, or 12 percent, primarily due to wind-down of work on the restricted space and Next Generation Interceptor (NGI) programs, which reduced sales by $283 million, as well as lower volume on Space Development Agency (SDA) satellite programs due to the timing of materials.

Year to date 2025 sales decreased $937 million, or 15 percent, primarily due to wind-down of work on the restricted space and NGI programs, which reduced sales by $511 million, as well as decreases for SDA satellite programs, Commercial Resupply Services (CRS) missions and other restricted space programs.

Third quarter 2025 sales decreased $172 million, or 6 percent, primarily due to wind-down of work on the restricted space and Next Generation Interceptor (NGI) programs, which reduced sales by $124 million, as well as lower volume on Space Development Agency (SDA) satellite programs.

These decreases were partially offset by a $100 million increase for Commercial Resupply Services (CRS) missions.

Year to date 2025 sales decreased $1.1 billion, or 12 percent, primarily due to wind-down of work on the restricted space and NGI programs, which reduced sales by $635 million, as well as a $195 million decrease for SDA satellite programs.

The decrease was also driven by lower volume on other restricted space programs and the Space Launch System (SLS) Booster, Next Gen Polar (NGP) and Ground-Based Midcourse Defense (GMD) programs, partially offset by higher volume on GEM 63 as that program ramps.

Operating Income

Current Quarter

Second quarter 2025 operating income decreased $24 million, or 8 percent, primarily due to lower sales, partially offset by a higher operating margin rate.

Operating margin rate increased to 10.6 percent from 10.1 percent principally due to higher net EAC adjustments.

Year to date 2025 operating income decreased $71 million, or 11 percent, due to lower sales, partially offset by a higher operating margin rate.

Operating margin rate increased to 10.8 percent from 10.3 percent principally due to higher net EAC adjustments.

Third quarter 2025 operating income decreased $47 million, or 14 percent, primarily due to a lower operating margin rate and lower sales.

Operating margin rate decreased to 11.0 percent from 12.0 percent principally due to lower net EAC adjustments, including a prior year $39 million favorable EAC adjustment on the Habitation and Logistics Outpost program, partially offset by sales growth on programs with accretive margin rates.

Year to date 2025 operating income decreased $118 million, or 12 percent, due to lower sales.

Operating margin rate of 10.9 percent was comparable with the prior year period.

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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

$ in millions 2025 2024 2025 2024

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Current Quarter

Second quarter 2025 product sales increased $182 million, or 2 percent, primarily due to restricted award timing and higher volume on marine systems and international ground based radar programs at Mission Systems, higher sales on Sentinel and military ammunition programs at Defense Systems, and higher volume on the B-21 and TACAMO programs at Aeronautics Systems.

These increases were partially offset by the wind-down of work on the restricted space and NGI programs at Space Systems.

Second quarter 2025 product costs increased $57 million, or 1 percent, consistent with the higher product sales described above and reflects a higher operating margin rate on product sales at all four sectors.

Third quarter 2025 product sales increased $430 million, or 5 percent, primarily due to higher volume on military ammunition programs, the IBCS program portfolio and Sentinel at Defense Systems, higher sales on restricted advanced microelectronics, marine systems and international ground-based radar programs at Mission Systems, and higher volume on TACAMO and F-35 at Aeronautics Systems.

These increases were partially offset by wind-down of work on the restricted space and NGI programs and lower volume on SDA satellite programs at Space Systems.

Third quarter 2025 product costs increased $347 million, or 5 percent, consistent with the higher product sales described above.

NORTHROP GRUMMAN CORPORATION

Year to date 2025 product sales decreased $399 million, or 2 percent, primarily due to wind-down of work on the restricted space and NGI programs and lower sales for CRS missions and other restricted programs at Space Systems, as well as lower volume on restricted programs at Aeronautics Systems.

These decreases were partially offset by restricted award timing and higher volume on the SABR program at Mission Systems, as well as higher sales on Sentinel and military ammunition programs at Defense Systems.

Year to date 2025 product costs were comparable to the prior year, reflecting a lower operating margin rate principally due to the $477 million loss provision recorded on the B-21 program at Aeronautics Systems in the first quarter of 2025, partially offset by higher net EAC adjustments at Defense Systems largely driven by the Sentinel program.

Year to date 2025 product sales were comparable to the prior year and reflect higher sales on restricted airborne radar, marine systems and international ground-based radar programs at Mission Systems and higher volume on Sentinel, military ammunition programs and the IBCS program portfolio at Defense Systems, partially offset by wind-down of work on the restricted space and NGI programs and lower volume on SDA satellite programs at Space Systems.

Year to date 2025 product costs increased $344 million, or 2 percent, reflecting a lower operating margin rate principally due to the $477 million loss provision recorded on the B-21 program at Aeronautics Systems in the first quarter of 2025, partially offset by higher net EAC adjustments at Defense Systems largely driven by Sentinel.

Service Sales and Costs

Current Quarter

Second quarter 2025 service sales decreased $49 million, or 2 percent, primarily due to lower restricted sales at Aeronautics Systems and the training services divestiture at Defense Systems.

Second quarter 2025 sales from the training services business, which were largely included in service sales, were $40 million as compared to $72 million in the prior year period.

Second quarter 2025 service costs decreased $42 million, or 2 percent, consistent with the lower service sales described above.

Year to date 2025 service sales decreased $133 million, or 3 percent, primarily due to lower restricted sales at Aeronautics Systems and the training services divestiture at Defense Systems.

Year to date 2025 sales from the training services business, which were largely included in service sales, were $112 million as compared to $156 million in the prior year period.

Year to date 2025 service costs decreased $111 million, or 3 percent, consistent with the lower service sales described above.

Backlog consisted of the following as of June 30, 2025 and December 31, 2024:

June 30, 2025 December 31, 2024

Third quarter 2025 service sales were comparable to the prior year and reflect lower restricted sales at Space Systems, partially offset by higher volume on aircraft sustainment services at Aeronautics Systems.

Third quarter 2025 service costs decreased $51 million, or 3 percent, reflecting a higher operating margin rate principally driven by higher net EAC adjustments across Defense Systems and Aeronautics Systems service programs.

Year to date 2025 service sales decreased $136 million, or 2 percent, primarily due to lower service volume at Defense Systems due to the training services divestiture and lower restricted sales at Aeronautics Systems.

Year to date 2025 service costs decreased $162 million, or 3 percent, reflecting a higher operating margin rate principally driven by higher net EAC adjustments across Aeronautics Systems, Mission Systems and Defense Systems service programs.

Backlog consisted of the following as of September 30, 2025 and December 31, 2024:

September 30, 2025 December 31, 2024

$ in millions Funded Unfunded Total

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Total backlog $ 38,966 $ 52,482 $ 91,448 $ 91,468 — %

Second quarter and year to date 2025 net awards totaled $7.4 billion and $18.2 billion, respectively.

Backlog totaled $89.7 billion and reflects a $150 million reduction of backlog in connection with the training services divestiture.

Significant second quarter new awards include $1.8 billion for restricted programs (primarily at Mission Systems, Aeronautics Systems and Space Systems), $0.5 billion for F-35 (primarily at Mission Systems), $0.3 billion for the Guided Multiple Launch Rocket System (GMLRS) program, and $0.2 billion for Triton.

Third quarter and year to date 2025 net awards totaled $12.2 billion and $30.4 billion, respectively.

Backlog totaled $91.4 billion and reflects a $150 million reduction to backlog in connection with the training services divestiture during the second quarter of 2025.

Significant third quarter new awards include $4.5 billion for restricted programs (primarily at Space Systems, Mission Systems and Aeronautics Systems), $1.8 billion for Ground-Based Midcourse Defense Weapon System (GWS), $0.5 billion for F-35 (primarily at Aeronautics Systems and Mission Systems), and $0.4 billion for Virginia Class submarines.

LIQUIDITY AND CAPITAL RESOURCES

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

At June 30, 2025, we had $1.9 billion in cash and cash equivalents.

At September 30, 2025, we had $2.0 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

In September 2025, the company entered into a new five-year senior unsecured revolving credit facility in an aggregate principal amount of $3.0 billion.

The 2025 Credit Agreement replaced the company’s prior five-year, $2.5 billion revolving credit facility entered into in August 2022.

NORTHROP GRUMMAN CORPORATION

aggregate principal amount of $2.5 billion, and in April 2025, we renewed our one-year $500 million uncommitted credit facility.

At June 30, 2025, there were no borrowings outstanding under these credit facilities;

however, as of June 30, 2025, we had $570 million in commercial paper outstanding, which reduced the amount available for borrowing under our unsecured credit facility.

In April 2025, we renewed our one-year $500 million uncommitted credit facility.

At September 30, 2025, there were no borrowings outstanding under these credit facilities.

In May 2025, we issued $1.0 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases, and working capital.

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Operating Cash Flow

The table below summarizes key components of cash (used in) provided by operating activities:

Six Months Ended June 30 %

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

Nine Months Ended September 30 %

$ in millions 2025 2024 Change

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Changes in trade working capital (3,227) (1,346) 140 %

Other, net 10 16 (38) %

Net cash (used in) provided by operating activities $ (697) $ 719 (197) %

Other, net (39) 37 NM

Net cash provided by operating activities $ 860 $ 1,810 (52) %

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

Year to date 2025 net cash used in operating activities was $697 million compared to net cash provided by operating activities of $719 million in the prior year period, primarily due to $1.0 billion of higher net cash taxes, due, in part, to a $500 million federal tax refund received in the prior year, as well as increased trade working capital largely driven by the timing of collections and advance payments.

Year to date 2025 net cash provided by operating activities decreased $950 million as compared with the same period in 2024, primarily due to $1.0 billion of higher net cash taxes, due, in part, to a $500 million federal tax refund received in the prior year.

Higher cash earnings were offset by increased trade working capital largely driven by the timing of collections and advance payments.

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.

The table below reconciles net cash (used in) provided by operating activities to free cash flow:

Six Months Ended June 30 %

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

Nine Months Ended September 30 %

$ in millions 2025 2024 Change

Net cash (used in) provided by operating activities $ (697) $ 719 NM

Net cash provided by operating activities

$ 860 $ 1,810 (52) %

Capital expenditures (788) (951) (17) %

Free cash flow $ (1,184) $ 129 NM

Year to date 2025 free cash flow decreased $1.3 billion as compared with the same period in 2024 principally due to a $1.4 billion increase in net cash used in operating activities, partially offset by a $103 million reduction in capital expenditures.

NORTHROP GRUMMAN CORPORATION

Free cash flow $ 72 $ 859 (92) %

Year to date 2025 free cash flow decreased $787 million as compared with the same period in 2024 due to a $950 million decrease in net cash provided by operating activities, partially offset by a $163 million reduction in capital expenditures.

Investing Cash Flow

Year to date 2025 net cash used in investing activities decreased $460 million, or 48 percent, as compared with the same period in 2024 principally due to $333 million in proceeds from the sale of the training services business as well as lower capital expenditures.

NORTHROP GRUMMAN CORPORATION

Financing Cash Flow

Year to date 2025 net cash used in financing activities was $1.6 billion compared to net cash provided by financing activities of $34 million in the prior year period.

This change is primarily due to a $2.4 billion net decrease in cash from long-term debt and commercial paper financing, partially offset by an $861 million decrease in share repurchases.

Year to date 2025 net cash used in financing activities increased $2.1 billion, or 331 percent, as compared with the same period in 2024, primarily due to a $3.0 billion net decrease in cash from long-term debt, partially offset by a $905 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.

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government funding and program support more broadly, including as a result of a prolonged continuing resolution and/or government shutdown, and/or related to the global security environment or other global events

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

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

• 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

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

NORTHROP GRUMMAN CORPORATION

Legal and Regulatory Risks

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

• 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

• changes in procurement and other laws, SEC, DoW 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

NORTHROP GRUMMAN CORPORATION

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

• 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

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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