What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-21 compared with 2026-04-21 · 173 added, 117 removed, 282 unchanged (51% 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 War (“DoW”) and intelligence community.

and international customers, and principally to the U.S.

Department of War (“DoW”) 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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NORTHROP GRUMMAN CORPORATION

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 to our business caused by the macroeconomic environment.

We have seen progress in the supply chain as on-time deliveries and quality continue to improve.

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

limited resources to address such increased costs and other challenges, for our company, suppliers and partners, and customers.

In addition, if interest rates increase or otherwise fluctuate, it could impact government spending priorities (in the U.S.

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on its major trading partners, higher tariffs on imported goods and materials and 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.

In addition, following the recent U.S.

In addition, following the first quarter 2026 U.S.

Supreme Court decision that invalidated tariffs imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”), the U.S.

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On July 4, 2025, the FY 2025 reconciliation bill titled the One Big Beautiful Bill Act (the “OBBBA”) was enacted.

The OBBBA allocates approximately $150 billion in mandatory defense funding, including funding for air and missile defense, munitions, strategic deterrence, 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 DoW in defense modernization projects and Pacific region deterrence, among other programs.

The OBBBA allocated approximately $150 billion in mandatory defense funding, including funding for air and missile defense, munitions, strategic deterrence, shipbuilding and supply chains and other military capabilities.

The appropriated funds will remain available to be obligated until September 30, 2029 and expended through FY 2034.

Funding from the OBBBA has allowed for increased investments by the DoW in defense modernization projects, homeland missile defense capabilities, and increased production capacity across a number of key programs.

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

On February 3, 2026, annual appropriations to fund a vast majority of the federal government for FY 2026 were enacted.

The legislation finalized 11 of the 12 regular appropriations bills for FY 2026 and includes approximately $859 billion for defense.

The legislation did not fund the Department of Homeland Security (“DHS”), which was instead funded under a continuing resolution through February 13, 2026.

After the DHS continuing resolution expired, the federal government entered a partial shutdown, which remains in effect.

We do not believe that the ongoing partial shutdown will have a material adverse effect on our business.

The Presidential Administration (the “Administration”) has issued numerous executive orders, including orders to undertake a comprehensive overhaul of the Federal Acquisition Regulation, to reform the DoW defense acquisition process and, more recently, to address underperformance and insufficient prioritization of government contracts, insufficient investment in production and production speed and incentive compensation metrics applicable to defense contractors.

On February 3, 2026, annual appropriations to fund a vast majority of the federal government for FY 2026, including approximately $859 billion for defense, were enacted.

Appropriations to partially fund the Department of Homeland Security were enacted on April 30, 2026, with the remaining appropriations enacted on June 10, 2026.

On April 3, 2026, the Trump Administration (the “Administration”) released its FY 2027 budget request.

The request includes $1.45 trillion for defense, with $1.1 trillion in the base budget (discretionary funding) and $350 billion in reconciliation (mandatory) funding.

The total defense budget request reflects an increase of 44% ($441 billion) above the FY 2026 enacted levels (including $153 billion in FY 2026 reconciliation funding).

Congress is evaluating the Administration’s budget request as it drafts authorization and appropriations legislation for FY 2027.

Additionally, the Administration recently transmitted an $88 billion supplemental funding request for FY 2026, of which $67 billion is intended to address the operational costs associated with the Iran conflict and other defense priorities.

There is uncertainty as to when Congress will act on the reconciliation funding and supplemental request.

The Administration has issued numerous executive orders, including orders to undertake a comprehensive overhaul of the Federal Acquisition Regulation, to reform the DoW defense acquisition process and, more recently, to promote the use of fixed price contracts where appropriate and to address underperformance and insufficient prioritization of government contracts, insufficient investment in production and production speed and incentive compensation metrics applicable to defense contractors.

See “Risk factors” for further discussion regarding risks associated with executive orders and regulatory changes.

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

NORTHROP GRUMMAN CORPORATION

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.

political, budget and regulatory environment.

Initiatives to reduce governmental spending, federal budget and debt ceiling action, and further

NORTHROP GRUMMAN CORPORATION

changes in U.S.

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

government policy positions, including trade and foreign 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.

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.

Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for 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 approximately the end of the decade.

We have previously recognized and disclosed cumulative losses of approximately $2.0 billion on the LRIP phase of the program.

Northrop Grumman and the U.S.

Air Force have also established not to exceed (NTE) pricing for two additional lots.

The average value for these NTE 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 the NTE lots are not fully negotiated;

however, the average value for these NTE 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.

During the first quarter of 2026, we reached an agreement with the U.S.

Air Force to expand production capacity for the B-21 program and increase the aircraft production rate.

We currently expect to invest approximately $2.5 billion over a multi-year period to expand production capacity;

We continue to expect to invest approximately $2.5 billion over a multi-year period to expand production capacity;

in return, we have the opportunity to earn improved returns on the LRIP and NTE phases of the program.

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 recognized an additional $477 million loss across the five LRIP options.

During the first quarter of 2026, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss.

However, impacts from the recent agreement with the U.S.

Air Force and higher estimated production costs resulted in a $157 million net unfavorable EAC adjustment on the first four LRIP lots, which was offset by a net reduction in the loss contingency accrual on the remainder of the program.

The company’s first quarter 2026 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 second quarter of 2026, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss.

As we finalized certain details associated with the first quarter 2026 agreement with the U.S.

Air Force described above, certain costs shifted between LRIP lots resulting in favorable EAC adjustments on the first four LRIP lots and an increase in the loss contingency accrual on the remainder of the program.

The company’s second quarter 2026 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, or if our assumptions regarding contract performance, quantities, or supplier negotiations 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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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.

During the first quarter of 2026, 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.

During the second quarter of 2026, we continued to make progress on joint activities with the U.S.

These efforts, which included requirements and design maturation, risk reduction activities, and evaluation of options to accelerate fielding of initial capability, have resulted in further definition and authorization of elements of the program execution plan, resulting in a $7.6 billion increase in program backlog.

We also reviewed our estimated profitability on the program and recognized a favorable earnings adjustment related to our recent achievement of certain contract incentives.

If our estimated cost to complete the restructured EMD effort or our achievement of future contract incentives is more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

NORTHROP GRUMMAN CORPORATION

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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 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.

We reconcile this non-GAAP financial measure to its most directly comparable GAAP financial measure below.

This non-GAAP measure may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.

Selected financial highlights are presented in the table below:

Three Months Ended March 31 %

$ in millions, except per share amounts 2026 2025 Change

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

$ in millions, except per share amounts 2026 2025 Change 2026 2025 Change

Sales $ 10,876 $ 10,351 5 % $ 20,757 $ 19,819 5 %

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Operating costs and expenses as a % of sales 89.9 % 88.5 % 90.0 % 91.1 %

Gain on sale of business — 231 NM — 231 NM

Operating income 1,096 1,425 (23) % 2,085 1,998 4 %

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Diluted earnings per share $ 7.68 $ 8.15 (6) % $ 13.83 $ 11.45 21 %

NORTHROP GRUMMAN CORPORATION

The table below reconciles sales to organic sales:

Three Months Ended March 31 %

$ in millions

2026 2025 Change

Sales $ 9,881 $ 9,468 4 %

Training services sales

Organic sales

$ 9,881 $ 9,396 5 %

First quarter 2026 sales increased $413 million, or 4 percent, due to higher sales of $469 million at Aeronautics Systems, as well as higher sales at Defense Systems and Mission Systems.

These increases were partially offset by $116 million of higher intercompany eliminations and lower sales at Space Systems due to the wind-down of work on the Next Generation Interceptor (NGI) program.

Current Quarter

Second quarter 2026 sales increased $525 million, or 5 percent, driven by higher sales at all four sectors, including a 13 percent increase at Aeronautics Systems.

Year to date 2026 sales increased $938 million, or 5 percent, primarily due to higher sales of $874 million at Aeronautics Systems, $196 million at Defense Systems and $147 million at Mission Systems.

These increases were partially offset by $298 million of higher intercompany eliminations.

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.

NORTHROP GRUMMAN CORPORATION

Operating Income and Margin Rate

First quarter 2026 operating income increased $416 million, or 73 percent, largely driven by the prior year $477 million B-21 loss provision at Aeronautics Systems, partially offset by a $56 million decrease in the FAS/CAS operating adjustment.

Operating margin rate increased to 10.0 percent from 6.1 percent reflecting the items above.

First quarter 2026 G&A costs as a percentage of sales decreased to 9.8 percent from 10.6 percent in the prior year period primarily due to higher sales and cost management.

Current Quarter

Second quarter 2026 operating income decreased $329 million, or 23 percent, primarily driven by the prior year $231 million gain on the training services divestiture, as well as $61 million of lower segment operating income and a $56 million decrease in the FAS/CAS operating adjustment.

Operating margin rate declined to 10.1 percent from 13.8 percent reflecting the items above.

Second quarter 2026 G&A costs as a percentage of sales decreased to 9.4 percent from 9.8 percent in the prior year period primarily due to higher sales.

Year to date 2026 operating income increased $87 million, or 4 percent, primarily due to $443 million of higher segment operating income largely driven by the prior year B-21 loss provision at Aeronautics Systems, partially offset by the prior year $231 million gain on the training services divestiture and a $112 million decrease in the FAS/CAS operating adjustment.

Operating margin rate of 10.0 percent was comparable with the prior year.

Year to date 2026 G&A costs as a percentage of sales decreased to 9.6 percent from 10.2 percent in the prior year period primarily due to higher sales.

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

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Federal and Foreign Income Taxes

First quarter 2026 income tax expense increased $58 million, or 60 percent, due to $452 million of higher earnings before income taxes, partially offset by a lower effective tax rate (ETR).

The first quarter 2026 ETR decreased to 15.0 percent from 16.8 percent primarily due to higher research credits, including a benefit related to CAMT guidance recently issued by the IRS.

Current Quarter

Second quarter 2026 income tax expense decreased $179 million, or 71 percent, due to a lower ETR and $259 million of lower earnings before income taxes.

The second quarter 2026 ETR decreased to 6.3 percent from 17.7 percent principally due to the remeasurement of UTPs given recent developments with the IRS towards resolving our previously filed federal income tax returns and refund claims.

Year to date 2026 income tax expense decreased $121 million, or 35 percent, due to a lower ETR, partially offset by $193 million of higher earnings before income taxes.

The year to date 2026 ETR decreased to 10.4 percent from 17.5 percent primarily due to the remeasurement of UTPs described above, as well as higher research credits, including a benefit related to CAMT guidance recently issued by the IRS.

See Note 4 to the financial statements for additional information.

First quarter 2026 net earnings increased $394 million, or 82 percent, primarily due to the $416 million increase in operating income described above and a $36 million increase in the non-operating FAS pension benefit, partially offset by a $58 million increase in income tax expense.

Current Quarter

Second quarter 2026 net earnings decreased $80 million, or 7 percent, primarily due to the $329 million decrease in operating income described above, partially offset by a $179 million decrease in income tax expense, a $29 million increase in the non-operating FAS pension benefit and a $29 million increase in Other, net largely driven by favorable returns associated with an investment sold during the quarter.

Year to date 2026 net earnings increased $314 million, or 19 percent, primarily due to a $121 million decrease in income tax expense, an $87 million increase in operating income, a $65 million increase in the non-operating FAS pension benefit and a $35 million increase in Other, net largely driven by favorable returns associated with an investment sold during the second quarter.

Diluted Earnings Per Share

First quarter 2026 diluted earnings per share increased $2.82, or 85 percent, reflecting an 82 percent increase in net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.

Current Quarter

Second quarter 2026 diluted earnings per share decreased $0.47, or 6 percent, reflecting a 7 percent decrease in net earnings and a 1 percent reduction in weighted-average diluted shares outstanding.

Year to date 2026 diluted earnings per share increased $2.38, or 21 percent, reflecting a 19 percent increase in net earnings and a 1 percent reduction in weighted-average diluted shares outstanding.

NORTHROP GRUMMAN CORPORATION

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

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

In the operating results discussion below, we present the performance of our Defense Systems sector using organic sales, a financial measure that is not calculated in accordance with GAAP.

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

We reconcile this non-GAAP financial measure to its most directly comparable GAAP financial measure below.

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 March 31 %

$ in millions 2026 2025 Change

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

$ in millions 2026 2025 Change 2026 2025 Change

Operating income $ 1,096 $ 1,425 (23) % $ 2,085 $ 1,998 4 %

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FAS/CAS operating adjustment (7) (63) (89) % (14) (126) (89) %

Gain on sale of business — (231) NM — (231) NM

Training services divestiture – unallowable state taxes and transaction costs — 19 NM — 20 NM

Intangible asset amortization and PP&E step-up depreciation 17 21 (19) % 38 42 (10) %

Other unallocated corporate expense 52 48 8 % 121 84 44 %

Unallocated corporate expense

Unallocated corporate expense (income) 69 (143) NM 159 (85) NM

Segment operating income $ 1,158 $ 1,219 (5) % $ 2,230 $ 1,787 25 %

Segment operating margin rate 10.6 % 11.8 % 10.7 % 9.0 %

First quarter 2026 segment operating income increased $504 million, or 89 percent, primarily due to $488 million of higher operating income at Aeronautics Systems and $72 million of higher operating income at Mission Systems, partially offset by $48 million of lower operating income at Space Systems.

Segment operating margin rate increased to 10.8 percent from 6.0 percent primarily due to a higher operating margin rate at Aeronautics Systems and Mission Systems, partially offset by a lower operating margin rate at Space Systems.

NORTHROP GRUMMAN CORPORATION

Current Quarter

Second quarter 2026 segment operating income decreased $61 million, or 5 percent, primarily due to $97 million of lower operating income at Defense Systems and $44 million of lower operating income at Space Systems, partially offset by $60 million of higher operating income at Mission Systems and $41 million of higher operating income at Aeronautics Systems.

Segment operating margin rate decreased to 10.6 percent from 11.8 percent primarily due to a lower operating margin rate at Defense Systems and Space Systems, partially offset by a higher operating margin rate at Mission Systems.

Year to date 2026 segment operating income increased $443 million, or 25 percent, primarily due to $529 million of higher operating income at Aeronautics Systems and $132 million of higher operating income at Mission Systems, partially offset by $92 million of lower operating income at both Defense Systems and Space Systems.

Segment operating margin rate increased to 10.7 percent from 9.0 percent primarily due to a higher operating margin rate at Aeronautics Systems and Mission Systems, partially offset by a lower operating margin rate at Defense Systems and Space Systems.

FAS/CAS Operating Adjustment

The first quarter 2026 FAS/CAS operating adjustment reflects lower CAS pension expense largely driven by favorable plan asset returns in prior years.

Unallocated Corporate Expense

The increase in first quarter 2026 unallocated corporate expense is primarily due to the resolution of a litigation matter as well as higher deferred state tax expense largely related to the repeal of mandatory capitalization of research and development expenditures under IRC Section 174.

The second quarter 2026 and year to date 2026 FAS/CAS operating adjustment reflects lower CAS pension expense largely driven by favorable plan asset returns in prior years.

Unallocated Corporate Expense (Income)

Current Quarter

The change in second quarter 2026 unallocated corporate expense (income) is primarily driven by the prior year $231 million gain on the training services divestiture and $19 million of unallowable state taxes and transaction costs associated with the divestiture.

The change in year to date 2026 unallocated corporate expense (income) is primarily due to the prior year $231 million gain on the training services divestiture and $20 million of unallowable state taxes and transaction costs associated with the divestiture.

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 March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2026 2025 2026 2025

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

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2026 2025 2026 2025

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Net EAC adjustments $ 94 $ 126 $ 14 $ 26

NORTHROP GRUMMAN CORPORATION

AERONAUTICS SYSTEMS

Three Months Ended March 31 %

$ in millions 2026 2025 Change

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

$ in millions 2026 2025 Change 2026 2025 Change

Sales $ 3,519 $ 3,114 13 % $ 6,802 $ 5,928 15 %

Operating income (loss)

Operating income 362 321 13 % 667 138 383 %

Operating margin rate 10.3 % 10.3 % 9.8 % 2.3 %

First quarter 2026 sales increased $469 million, or 17 percent, primarily due to higher sales on B-21 and other restricted programs as well as increased volume on the E-130J TACAMO program as it ramps up.

Current Quarter

Second quarter 2026 sales increased $405 million, or 13 percent, primarily due to higher volume on B-21 and other restricted programs, a $106 million increase on the E-130J TACAMO (“TACAMO”) program as it ramps up, and higher volume on the B-2, F-35 and E-2 programs.

These increases were partially offset by a decrease on F/A-18 as final production deliveries have completed.

Year to date 2026 sales increased $874 million, or 15 percent, primarily due to higher sales on B-21 and other restricted programs, a $193 million increase on the TACAMO program as it ramps up, as well as higher volume on the B-2 and F-35 programs.

The higher B-21 sales reflect the company’s first quarter 2026 agreement with the U.S.

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Operating Income

First quarter 2026 operating income increased $488 million and operating margin rate increased to 9.3 percent primarily due to the absence of the prior year B-21 loss provision.

Current Quarter

Second quarter 2026 operating income increased $41 million, or 13 percent, due to higher sales.

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

Year to date 2026 operating income increased $529 million, or 383 percent, primarily due to a higher operating margin rate.

Operating margin rate increased to 9.8 percent primarily due to the absence of the prior year B-21 loss provision.

DEFENSE SYSTEMS

Three Months Ended March 31 %

$ in millions 2026 2025 Change

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

$ in millions 2026 2025 Change 2026 2025 Change

Sales $ 2,093 $ 1,991 5 % $ 3,992 $ 3,796 5 %

Training services sales

— (40) — (112)

Organic sales

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Operating margin rate 7.5 % 12.7 % 8.5 % 11.4 %

First quarter 2026 sales increased $94 million, or 5 percent, primarily due to higher volume on Sentinel as that program continues to ramp, as well as higher volume on tactical solid rocket motor programs and across the Integrated Battle Command System (IBCS) portfolio.

Current Quarter

Second quarter 2026 sales increased $102 million, or 5 percent, primarily due to higher volume on Sentinel as the program continues to ramp and higher volume across the Integrated Battle Command System (IBCS) portfolio.

These increases were partially offset by a $40 million reduction in sales related to the divested training services business.

Year to date 2026 sales increased $196 million, or 5 percent, primarily due to a $176 million increase on Sentinel as the program continues to ramp, as well as higher volume on tactical solid rocket motor programs and across the IBCS portfolio.

These increases were partially offset by a $112 million reduction in sales related to the divested training services business as well as lower volume on armament programs, including certain military ammunition programs.

NORTHROP GRUMMAN CORPORATION

Operating Income

First quarter 2026 operating income increased $5 million, or 3 percent, primarily due to higher sales, partially offset by a lower operating margin rate.

Operating margin rate decreased to 9.7 percent from 9.9 percent principally due to lower net EAC adjustments.

Current Quarter

Second quarter 2026 operating income decreased $97 million, or 38 percent, primarily due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 7.5 percent from 12.7 percent primarily due to lower net EAC adjustments, including the absence of a prior year $76 million favorable adjustment on Sentinel.

In the current quarter, we continued to invest in our missile prime business.

We are projecting higher costs to mature production on the Extended Range version of the Advanced Anti-Radiation Guided Missile (AARGM-ER) and to develop and qualify the Stand-in Attack Weapon (SiAW), which resulted in a $68 million unfavorable EAC adjustment on SiAW.

These investments were partially offset by a favorable EAC adjustment on Sentinel related to our recent achievement of certain contract incentives.

Year to date 2026 operating income decreased $92 million, or 21 percent, primarily due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 8.5 percent from 11.4 percent principally due to lower net EAC adjustments, reflecting the SiAW and prior year Sentinel adjustments described above.

MISSION SYSTEMS

Three Months Ended March 31 %

$ in millions 2026 2025 Change

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

$ in millions 2026 2025 Change 2026 2025 Change

Sales $ 3,250 $ 3,157 3 % $ 6,111 $ 5,964 2 %

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Operating margin rate 15.4 % 14.0 % 15.3 % 13.4 %

First quarter 2026 sales increased $54 million, or 2 percent, primarily due to ramp-up on restricted airborne radar programs and higher volume on marine systems programs, partially offset by lower volume on the Scalable Agile Beam Radar program and airborne electronic warfare programs.

Current Quarter

Second quarter 2026 sales increased $93 million, or 3 percent, primarily due to a $130 million increase on marine systems programs, the timing of materials on F-35 and ramp-up on restricted airborne radar programs.

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

Year to date 2026 sales increased $147 million, or 2 percent, primarily due to ramp-up on restricted airborne radar programs, higher sales of $163 million on marine systems programs, and the timing of materials on F-35.

These increases were partially offset by a $106 million decrease on the Scalable Agile Beam Radar program and lower volume on restricted advanced microelectronics programs.

Operating Income

First quarter 2026 operating income increased $72 million, or 20 percent, primarily due to a higher operating margin rate and higher sales.

Operating margin rate increased to 15.1 percent from 12.9 percent, primarily due to prior year investments made by the sector in connection with restricted business opportunities, as well as higher net EAC adjustments in the current year.

Current Quarter

Second quarter 2026 operating income increased $60 million, or 14 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 15.4 percent from 14.0 percent, primarily due to higher net EAC adjustments driven by improved performance.

Year to date 2026 operating income increased $132 million, or 16 percent, due to a higher operating margin rate and higher sales.

Operating margin rate increased to 15.3 percent from 13.4 percent, primarily due to higher net EAC adjustments driven by improved performance, as well as prior year investments made by the sector in connection with restricted business opportunities.

NORTHROP GRUMMAN CORPORATION

SPACE SYSTEMS

Three Months Ended March 31 %

$ in millions 2026 2025 Change

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

$ in millions 2026 2025 Change 2026 2025 Change

Sales $ 2,753 $ 2,646 4 % $ 5,233 $ 5,214 — %

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Operating margin rate 8.6 % 10.6 % 9.0 % 10.8 %

First quarter 2026 sales decreased $88 million, or 3 percent, primarily due to wind-down of work on the NGI program, which reduced sales by $98 million, as well as lower sales on the GEM 63XL program related to the unfavorable EAC adjustment described below.

These decreases were partially offset by higher volume on Space Development Agency satellite programs driven by ramp-up on the Tranche 3 tracking layer award.

Current Quarter

Second quarter 2026 sales increased $107 million, or 4 percent, primarily due to a $139 million increase for Commercial Resupply Service (CRS) missions as well as higher volume on the Glide Phase Interceptor (GPI) and Ground-based Midcourse Defense Weapon System (GMD WS) programs.

These increases were partially offset by lower sales on the Graphite Epoxy Motor (GEM) 63XL program related to the unfavorable EAC adjustment described below and lower volume on the Habitation and Logistics Outpost (HALO) program.

Year to date 2026 sales were comparable to the prior period and reflect a $141 million increase for CRS missions offset by a $139 million decrease on the GEM 63XL program largely related to the unfavorable EAC adjustments described below.

Operating Income

First quarter 2026 operating income decreased $48 million, or 17 percent, due to a lower operating margin rate and lower sales.

Operating margin rate decreased to 9.5 percent from 11.0 percent, largely due to lower net EAC adjustments, including a $71 million unfavorable adjustment on GEM 63XL associated with a launch anomaly that occurred during the first quarter.

Current Quarter

Second quarter 2026 operating income decreased $44 million, or 16 percent, primarily due to a lower operating margin rate, partially offset by higher sales.

Operating margin rate decreased to 8.6 percent from 10.6 percent, primarily due to lower net EAC adjustments, including a $91 million unfavorable adjustment on GEM 63XL largely related to increases in the projected cost to complete the program, partially offset by favorable changes in contract mix.

Year to date 2026 operating income decreased $92 million, or 16 percent, due to a lower operating margin rate.

Operating margin rate decreased to 9.0 percent from 10.8 percent, largely due to lower net EAC adjustments, including $162 million of unfavorable adjustments on GEM 63XL, partially offset by favorable changes in contract mix.

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 March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2026 2025 2026 2025

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

First quarter 2026 product sales increased $437 million, or 6 percent, primarily due to higher sales on B-21 at Aeronautics Systems, as well as higher volume on Sentinel, tactical solid rocket motor programs and across the IBCS portfolio at Defense Systems.

These increases were partially offset by the wind-down of work on the NGI program and lower sales on GEM 63XL at Space Systems.

First quarter 2026 product costs were comparable to the prior year, reflecting a higher operating margin rate principally due to the absence of the prior year B-21 loss provision at Aeronautics Systems and investments made in connection with restricted business opportunities at Mission Systems.

Service Sales and Costs

First quarter 2026 service sales decreased $24 million, or 1 percent, primarily due to lower restricted sales at Space Systems and lower service volume at Defense Systems due to the training services divestiture, partially offset by higher restricted sales at Aeronautics Systems.

First quarter 2026 service costs decreased $74 million, or 4 percent, reflecting a higher operating margin rate principally driven by higher net EAC adjustments on service programs across each of the sectors.

Current Quarter

Second quarter 2026 product sales increased $550 million, or 7 percent, primarily due to higher sales on B-21 and TACAMO at Aeronautics Systems, higher volume on Sentinel and across the IBCS portfolio at Defense Systems, and increased sales for CRS missions, GPI and GMD WS at Space Systems.

Second quarter 2026 product costs increased $630 million, or 9 percent, reflecting a lower operating margin rate primarily due to lower net EAC adjustments on product programs at Defense Systems and Space Systems.

Year to date 2026 product sales increased $987 million, or 6 percent, primarily due to higher sales on B-21 and TACAMO at Aeronautics Systems, as well as higher volume on Sentinel, tactical solid rocket motor programs and across the IBCS portfolio at Defense Systems.

Year to date 2026 product costs increased $613 million, or 4 percent, reflecting a higher operating margin rate principally due to the absence of the prior year B-21 loss provision at Aeronautics Systems, partially offset by lower net EAC adjustments on product programs at Defense Systems and Space Systems.

NORTHROP GRUMMAN CORPORATION

Backlog consisted of the following as of March 31, 2026 and December 31, 2025:

March 31, 2026 December 31, 2025

Service Sales and Costs

Current Quarter

Second quarter 2026 service sales decreased $25 million, or 1 percent, primarily due to lower restricted sales at Space Systems and lower volume on airborne electronic warfare programs at Mission Systems, partially offset by higher restricted sales at Aeronautics Systems.

Second quarter 2026 service costs decreased $44 million, or 2 percent, reflecting a higher operating margin rate principally driven by higher net EAC adjustments on service programs at Aeronautics Systems and higher service margins in our commercial space business at Space Systems.

Year to date 2026 service sales decreased $49 million, or 1 percent, primarily due to lower restricted sales at Space Systems and lower service volume at Defense Systems due to the training services divestiture, partially offset by higher restricted sales at Aeronautics Systems.

Year to date 2026 service costs decreased $118 million, or 3 percent, reflecting a higher operating margin rate principally driven by higher net EAC adjustments on service programs at Aeronautics Systems and Space Systems.

Backlog consisted of the following as of June 30, 2026 and December 31, 2025:

June 30, 2026 December 31, 2025

$ in millions Funded Unfunded Total

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Total backlog $ 45,945 $ 58,747 $ 104,692 $ 95,681 9 %

First quarter 2026 net awards totaled $9.8 billion and backlog totaled $95.6 billion.

Significant first quarter new awards include $4.9 billion for restricted programs (primarily at Aeronautics Systems, Space Systems, and Mission Systems), $0.5 billion for F-35 (primarily at Aeronautics Systems), $0.5 billion for infrared countermeasures programs, and $0.4 billion for Triton.

Second quarter and year to date 2026 net awards totaled $20.0 billion and $29.8 billion, respectively.

Backlog totaled $104.7 billion.

Significant second quarter new awards include $7.6 billion for Sentinel, $4.3 billion for restricted programs (primarily at Aeronautics Systems and Space Systems), $1.0 billion for F-35 (at Aeronautics Systems and Mission Systems), $0.8 billion for Glide Phase Interceptor (GPI), and $0.7 billion for Multi-role Electronically Scanned Array (MESA).

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 returns.

At March 31, 2026, we had $2.1 billion in cash and cash equivalents.

At June 30, 2026, we had $2.3 billion in cash and cash equivalents.

We expect cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets, 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 revolving credit facility in an aggregate principal amount of $3.0 billion, and in April 2026, we renewed our one-year $500 million uncommitted credit facility.

At March 31, 2026, there were no borrowings outstanding under these credit facilities;

however, as of March 31, 2026, we had $500 million in commercial paper outstanding, which reduced the amount available for borrowing under our unsecured revolving credit facility by that amount.

At June 30, 2026, there were no borrowings outstanding under these credit facilities.

Cash Flow Measures

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

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

NORTHROP GRUMMAN CORPORATION

Operating Cash Flow

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

Three Months Ended March 31 %

Six Months Ended June 30 %

$ in millions 2026 2025 Change

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(2,522) (2,446) 3 %

Other, net (457) 141 NM

Other, net 177 94 88 %

Net cash used in operating activities $ (376) $ (697) 46 %

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Prior period amounts and disclosures have been recast to conform to the current period presentation.

First quarter 2026 net cash used in operating activities was comparable with the same period in 2025.

Net cash used in operating activities reflects increases in trade working capital, 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

Free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by or used in operating activities less capital expenditures, and may not be defined and calculated by other companies in the same

NORTHROP GRUMMAN CORPORATION

We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases.

Year to date 2026 net cash used in operating activities decreased $321 million as compared with the same period in 2025, primarily due to lower net cash tax payments.

Adjusted Free Cash Flow

Adjusted free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by or used in operating activities, less capital expenditures, plus proceeds from the sale of equipment to a customer (not otherwise included in net cash provided by or used in operating activities) and the after-tax impact of discretionary pension contributions.

Adjusted free cash flow includes proceeds from the sale of equipment to a customer, if any, as such proceeds were generated in a customer sales transaction.

It also includes the after-tax impact of discretionary pension contributions, if any, for consistency and comparability of financial performance.

This measure may not be defined and calculated by other companies in the same manner.

We use adjusted free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases.

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

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

Three Months Ended March 31 %

During the six months ended June 30, 2026 and 2025, the company received no proceeds from the sale of equipment to a customer and made no discretionary pension contributions.

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

Six Months Ended June 30 %

$ in millions 2026 2025 Change

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Capital expenditures (469) (487) (4) %

Free cash flow $ (1,823) $ (1,821) — %

First quarter 2026 free cash flow was comparable with the prior year period and reflects a $91 million increase in net cash used in operating activities and an $89 million reduction in capital expenditures.

Adjusted free cash flow $ (845) $ (1,184) 29 %

Year to date 2026 adjusted free cash flow increased $339 million, or 29 percent, as compared with the same period in 2025, primarily due to an increase in net cash from operating activities.

Investing Cash Flow

First quarter 2026 net cash used in investing activities decreased $84 million, or 33 percent, as compared with the same period in 2025 principally due to lower capital expenditures.

Year to date 2026 net cash used in investing activities increased $173 million, or 91 percent, as compared with the same period in 2025, principally due to $333 million of proceeds from the training services divestiture in the prior year, partially offset by $107 million of proceeds from the sale of an investment in the current year.

Financing Cash Flow

First quarter 2026 net cash used in financing activities decreased $362 million, or 43 percent, as compared with the same period in 2025, primarily due to a $412 million decrease in share repurchases.

Year to date 2026 net cash used in financing activities decreased $210 million, or 13 percent, as compared with the same period in 2025, primarily due to an $823 million decrease in share repurchases, partially offset by $566 million in net borrowings on commercial paper in the prior year.

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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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

NORTHROP GRUMMAN CORPORATION

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

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

NORTHROP GRUMMAN CORPORATION

Business and Operational Risks

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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

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.

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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