UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2021~~2022


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-16411

NORTHROP GRUMMAN CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		80-0640649
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2980 Fairview Park Drive
Falls Church,	Virginia	22042
(Address of principal executive offices)		(Zip Code)

(703) 280-2900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	NOC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ☒ Accelerated Filer ☐

Non-accelerated Filer ☐ Smaller Reporting Company ☐

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of ~~October~~July 25, ~~2021, 158,537,643~~2022, 154,711,299 shares of common stock were outstanding.

Table of Contents

NORTHROP GRUMMAN CORPORATION

TABLE OF CONTENTS


		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Earnings and Comprehensive Income	1
	Condensed Consolidated Statements of Financial Position	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	4
	Notes to Condensed Consolidated Financial Statements
	1. Basis of Presentation	5
	2. Earnings Per Share, Share Repurchases and Dividends on Common Stock	7
	3. Income Taxes	8
	4. Fair Value of Financial Instruments	9
	5. Investigations, Claims and Litigation	1011
	6. Commitments and Contingencies	1112
	7. Retirement Benefits	1213
	8. Stock Compensation Plans and Other Compensation Arrangements	1314
	9. Segment Information	1415
	Report of Independent Registered Public Accounting Firm	1819
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Overview	1920
	Consolidated Operating Results	2122
	Segment Operating Results	25
	Product and Service Analysis	30
	Backlog	31
	Liquidity and Capital Resources	3231
	Critical Accounting Policies, Estimates and Judgments	33
	Accounting Standards Updates	33
	Forward-Looking Statements and Projections	33
	~~Contractual Obligations~~	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37
	Signatures	3938

Table of Contents

NORTHROP GRUMMAN CORPORATION

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
$ in millions, except per share amounts	$ in millions, except per share amounts	2021		2020		2021		2020		$ in millions, except per share amounts	2022		2021		2022		2021
Sales	Sales									Sales
Product	Product	$	6,845	$	6,667	$	21,060	$	19,325	Product	$	6,779	$	7,193	$	13,620	$	14,215
Service	Service	1,875		2,416		5,968		7,262		Service	2,022		1,958		3,978		4,093
Total sales	Total sales	8,720		9,083		27,028		26,587		Total sales	8,801		9,151		17,598		18,308
Operating costs and expenses	Operating costs and expenses									Operating costs and expenses
Product	Product	5,352		5,346		16,662		15,425		Product	5,281		5,620		10,661		11,310
Service	Service	1,434		1,897		4,649		5,774		Service	1,561		1,488		3,105		3,215
General and administrative expenses	General and administrative expenses	891		855		2,788		2,475		General and administrative expenses	1,005		999		1,981		1,897
Total operating costs and expenses	Total operating costs and expenses	7,677		8,098		24,099		23,674		Total operating costs and expenses	7,847		8,107		15,747		16,422
Gain on sale of business	Gain on sale of business	—		—		1,980		—		Gain on sale of business	—		—		—		1,980
Operating income	Operating income	1,043		985		4,909		2,913		Operating income	954		1,044		1,851		3,866
Other (expense) income	Other (expense) income									Other (expense) income
Interest expense	Interest expense	(132)		(154)		(423)		(433)		Interest expense	(131)		(136)		(264)		(291)
Non-operating FAS pension benefit	Non-operating FAS pension benefit	367		302		1,101		907		Non-operating FAS pension benefit	377		367		753		734

Other, net	Other, net	(3)		34		6		36		Other, net	(50)		27		(46)		9
Earnings before income taxes	Earnings before income taxes	1,275		1,167		5,593		3,423		Earnings before income taxes	1,150		1,302		2,294		4,318
Federal and foreign income tax expense	Federal and foreign income tax expense	212		181		1,298		564		Federal and foreign income tax expense	204		265		393		1,086
Net earnings	Net earnings	$	1,063	$	986	$	4,295	$	2,859	Net earnings	$	946	$	1,037	$	1,901	$	3,232

Basic earnings per share	Basic earnings per share	$	6.65	$	5.91	$	26.63	$	17.11	Basic earnings per share	$	6.09	$	6.44	$	12.21	$	19.95
Weighted-average common shares outstanding, in millions	Weighted-average common shares outstanding, in millions	159.8		166.8		161.3		167.1		Weighted-average common shares outstanding, in millions	155.4		161.0		155.7		162.0
Diluted earnings per share	Diluted earnings per share	$	6.63	$	5.89	$	26.55	$	17.05	Diluted earnings per share	$	6.06	$	6.42	$	12.16	$	19.89
Weighted-average diluted shares outstanding, in millions	Weighted-average diluted shares outstanding, in millions	160.4		167.3		161.8		167.7		Weighted-average diluted shares outstanding, in millions	156.0		161.5		156.3		162.5

Net earnings (from above)	Net earnings (from above)	$	1,063	$	986	$	4,295	$	2,859	Net earnings (from above)	$	946	$	1,037	$	1,901	$	3,232
Other comprehensive loss
Change in unamortized prior service credit, net of tax		(2)		(10)		(6)		(31)
Other comprehensive loss, net of tax										Other comprehensive loss, net of tax
Change in unamortized prior service credit										Change in unamortized prior service credit	—		(2)		(1)		(4)
Change in cumulative translation adjustment and other, net	Change in cumulative translation adjustment and other, net	(6)		6		(6)		7		Change in cumulative translation adjustment and other, net	(13)		1		(15)		—
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	(8)		(4)		(12)		(24)		Other comprehensive loss, net of tax	(13)		(1)		(16)		(4)
Comprehensive income	Comprehensive income	$	1,055	$	982	$	4,283	$	2,835	Comprehensive income	$	933	$	1,036	$	1,885	$	3,228

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)


$ in millions, except par value	$ in millions, except par value	September 30, 2021		December 31, 2020		$ in millions, except par value	June 30, 2022		December 31, 2021
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	4,055	$	4,907	Cash and cash equivalents	$	1,169	$	3,530
Accounts receivable, net	Accounts receivable, net	1,590		1,501		Accounts receivable, net	2,387		1,467
Unbilled receivables, net	Unbilled receivables, net	5,674		5,140		Unbilled receivables, net	6,211		5,492
Inventoried costs, net	Inventoried costs, net	872		759		Inventoried costs, net	909		811
Prepaid expenses and other current assets	Prepaid expenses and other current assets	737		1,402		Prepaid expenses and other current assets	961		1,126
Assets of disposal group held for sale		—		1,635

Total current assets	Total current assets	12,928		15,344		Total current assets	11,637		12,426
Property, plant and equipment, net of accumulated depreciation of $6,811 for 2021 and $6,335 for 2020		7,277		7,071
Property, plant and equipment, net of accumulated depreciation of $7,099 for 2022 and $6,819 for 2021						Property, plant and equipment, net of accumulated depreciation of $7,099 for 2022 and $6,819 for 2021	8,125		7,894
Operating lease right-of-use assets	Operating lease right-of-use assets	1,552		1,533		Operating lease right-of-use assets	1,669		1,655
Goodwill	Goodwill	17,516		17,518		Goodwill	17,518		17,515
Intangible assets, net	Intangible assets, net	629		783		Intangible assets, net	483		578
Deferred tax assets	Deferred tax assets	418		311		Deferred tax assets	239		200
Other non-current assets	Other non-current assets	2,026		1,909		Other non-current assets	2,243		2,311
Total assets	Total assets	$	42,346	$	44,469	Total assets	$	41,914	$	42,579

Liabilities	Liabilities					Liabilities
Trade accounts payable	Trade accounts payable	$	2,184	$	1,806	Trade accounts payable	$	2,098	$	2,197
Accrued employee compensation	Accrued employee compensation	1,811		1,997		Accrued employee compensation	1,741		1,993
Advance payments and billings in excess of costs incurred	Advance payments and billings in excess of costs incurred	2,594		2,517		Advance payments and billings in excess of costs incurred	2,734		3,026
Other current liabilities	Other current liabilities	2,230		3,002		Other current liabilities	2,403		2,314
Liabilities of disposal group held for sale		—		258

Total current liabilities	Total current liabilities	8,819		9,580		Total current liabilities	8,976		9,530
Long-term debt, net of current portion of $6 for 2021 and $742 for 2020		12,774		14,261
Long-term debt, net of current portion of $14 for 2022 and $6 for 2021						Long-term debt, net of current portion of $14 for 2022 and $6 for 2021	12,834		12,777
Pension and other postretirement benefit plan liabilities	Pension and other postretirement benefit plan liabilities	5,667		6,498		Pension and other postretirement benefit plan liabilities	2,692		3,269
Operating lease liabilities	Operating lease liabilities	1,367		1,343		Operating lease liabilities	1,654		1,590

Deferred tax liabilities						Deferred tax liabilities	131		490
Other non-current liabilities	Other non-current liabilities	2,302		2,208		Other non-current liabilities	1,976		1,997
Total liabilities	Total liabilities	30,929		33,890		Total liabilities	28,263		29,653

Commitments and contingencies (Note 6)	Commitments and contingencies (Note 6)	0		0		Commitments and contingencies (Note 6)	0		0

Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2021—158,761,485 and 2020—166,717,179		159		167
Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued and outstanding						Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued and outstanding	—		—
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2022—154,876,753 and 2021—156,284,423						Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2022—154,876,753 and 2021—156,284,423	155		156
Paid-in capital	Paid-in capital	—		58		Paid-in capital	—		—
Retained earnings	Retained earnings	11,398		10,482		Retained earnings	13,655		12,913
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(140)		(128)		Accumulated other comprehensive loss	(159)		(143)
Total shareholders’ equity	Total shareholders’ equity	11,417		10,579		Total shareholders’ equity	13,651		12,926
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	42,346	$	44,469	Total liabilities and shareholders’ equity	$	41,914	$	42,579

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30					Six Months Ended June 30
$ in millions	$ in millions	2021		2020		$ in millions	2022		2021
Operating activities	Operating activities					Operating activities
Net earnings	Net earnings	$	4,295	$	2,859	Net earnings	$	1,901	$	3,232
Adjustments to reconcile to net cash provided by operating activities:
Adjustments to reconcile to net cash (used in) provided by operating activities:						Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and amortization	Depreciation and amortization	908		922		Depreciation and amortization	633		594

Stock-based compensation	Stock-based compensation	71		61		Stock-based compensation	42		40
Deferred income taxes	Deferred income taxes	(105)		369		Deferred income taxes	(399)		(121)
Gain on sale of business	Gain on sale of business	(1,980)		—		Gain on sale of business	—		(1,980)
Net periodic pension and OPB income	Net periodic pension and OPB income	(818)		(612)		Net periodic pension and OPB income	(597)		(546)
Pension and OPB contributions	Pension and OPB contributions	(108)		(100)		Pension and OPB contributions	(71)		(74)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(133)		(632)		Accounts receivable, net	(920)		(453)
Unbilled receivables, net	Unbilled receivables, net	(596)		(386)		Unbilled receivables, net	(719)		(312)
Inventoried costs, net	Inventoried costs, net	(113)		(70)		Inventoried costs, net	(98)		(104)
Prepaid expenses and other assets	Prepaid expenses and other assets	6		(122)		Prepaid expenses and other assets	114		26
Accounts payable and other liabilities	Accounts payable and other liabilities	49		283		Accounts payable and other liabilities	(724)		(202)
Income taxes payable, net	Income taxes payable, net	663		111		Income taxes payable, net	86		881

Other, net	Other, net	(14)		20		Other, net	67		(19)
Net cash provided by operating activities		2,125		2,703
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(685)		962

Investing activities	Investing activities					Investing activities
Divestiture of IT services business	Divestiture of IT services business	3,400		—		Divestiture of IT services business	—		3,400
Capital expenditures	Capital expenditures	(682)		(828)		Capital expenditures	(507)		(435)
Proceeds from sale of equipment to a customer	Proceeds from sale of equipment to a customer	84		—		Proceeds from sale of equipment to a customer	—		56
Other, net	Other, net	(3)		—		Other, net	39		1
Net cash provided by (used in) investing activities		2,799		(828)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(468)		3,022

Financing activities	Financing activities					Financing activities
Net proceeds from issuance of long-term debt		—		2,239

Payments of long-term debt	Payments of long-term debt	(2,236)		(27)		Payments of long-term debt	—		(2,236)
Payments to credit facilities		—		(13)

Common stock repurchases	Common stock repurchases	(2,724)		(490)		Common stock repurchases	(640)		(2,143)
Cash dividends paid	Cash dividends paid	(737)		(711)		Cash dividends paid	(519)		(486)
Payments of employee taxes withheld from share-based awards	Payments of employee taxes withheld from share-based awards	(33)		(66)		Payments of employee taxes withheld from share-based awards	(48)		(31)
Other, net	Other, net	(46)		(57)		Other, net	(1)		(54)
Net cash (used in) provided by financing activities		(5,776)		875
(Decrease) increase in cash and cash equivalents		(852)		2,750
Net cash used in financing activities						Net cash used in financing activities	(1,208)		(4,950)
Decrease in cash and cash equivalents						Decrease in cash and cash equivalents	(2,361)		(966)
Cash and cash equivalents, beginning of year	Cash and cash equivalents, beginning of year	4,907		2,245		Cash and cash equivalents, beginning of year	3,530		4,907
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	4,055	$	4,995	Cash and cash equivalents, end of period	$	1,169	$	3,941

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
$ in millions, except per share amounts	$ in millions, except per share amounts	2021		2020		2021		2020		$ in millions, except per share amounts	2022		2021		2022		2021
Common stock	Common stock									Common stock
Beginning of period	Beginning of period	$	160	$	167	$	167	$	168	Beginning of period	$	156	$	161	$	156	$	167
Common stock repurchased	Common stock repurchased	(1)		—		(8)		(1)		Common stock repurchased	(1)		(1)		(2)		(7)

Shares issued for employee stock awards and options										Shares issued for employee stock awards and options	—		—		1		—
End of period	End of period	159		167		159		167		End of period	155		160		155		160
Paid-in capital	Paid-in capital									Paid-in capital
Beginning of period	Beginning of period	—		10		58		—		Beginning of period	—		8		—		58
Common stock repurchased	Common stock repurchased	—		—		(60)		—		Common stock repurchased	—		(21)		—		(60)
Stock compensation	Stock compensation	—		23		2		33		Stock compensation	—		13		—		2
Other		—		(6)		—		(6)

End of period	End of period	—		27		—		27		End of period	—		—		—		—
Retained earnings	Retained earnings									Retained earnings
Beginning of period	Beginning of period	11,144		9,652		10,482		8,748		Beginning of period	13,277		10,487		12,913		10,482
Common stock repurchased	Common stock repurchased	(587)		—		(2,676)		(479)		Common stock repurchased	(323)		(134)		(638)		(2,089)
Net earnings	Net earnings	1,063		986		4,295		2,859		Net earnings	946		1,037		1,901		3,232
Dividends declared	Dividends declared	(252)		(244)		(741)		(709)		Dividends declared	(270)		(254)		(516)		(489)
Stock compensation	Stock compensation	30		—		38		(36)		Stock compensation	25		8		(5)		8
Other		—		—		—		11

End of period	End of period	11,398		10,394		11,398		10,394		End of period	13,655		11,144		13,655		11,144
Accumulated other comprehensive loss	Accumulated other comprehensive loss									Accumulated other comprehensive loss
Beginning of period	Beginning of period	(132)		(117)		(128)		(97)		Beginning of period	(146)		(131)		(143)		(128)
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	(8)		(4)		(12)		(24)		Other comprehensive loss, net of tax	(13)		(1)		(16)		(4)
End of period	End of period	(140)		(121)		(140)		(121)		End of period	(159)		(132)		(159)		(132)
Total shareholders’ equity	Total shareholders’ equity	$	11,417	$	10,467	$	11,417	$	10,467	Total shareholders’ equity	$	13,651	$	11,172	$	13,651	$	11,172
Cash dividends declared per share	Cash dividends declared per share	$	1.57	$	1.45	$	4.59	$	4.22	Cash dividends declared per share	$	1.73	$	1.57	$	3.30	$	3.02

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. BASIS OF PRESENTATION

Principles of Consolidation and Reporting

These unaudited condensed consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman Corporation and its subsidiaries and joint ventures or other investments for which we consolidate the financial results (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”). Intercompany accounts, transactions and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method.

Effective January 30, 2021 (the “Divestiture date”), we completed the ~~previously announced~~ sale of our IT and mission support services business (the “IT services divestiture”) for $3.4 billion in cash and recorded a pre-tax gain on sale of $2.0 billion. The IT and mission support services business was comprised of the majority of the former Information Solutions and Services (IS&S) division of Defense Systems (excluding ~~our~~the Vinnell Arabia business); select cyber, intelligence and missions support programs, which were part of the former Cyber and Intelligence Mission Solutions (CIMS) division of Mission Systems; and the former Space Technical Services business unit of Space Systems. ~~The assets and liabilities of the IT and mission support services business were classified as held for sale in the consolidated statement of financial position as of December 31, 2020.~~ Operating results include sales and operating income for the IT and mission support services business prior to the Divestiture date. Sales and pre-tax profit for the IT and mission support services business were $162 million ~~for the nine months ended September 30, 2021~~ and ~~$602 million and $1.7 billion for the three and nine months ended September 30, 2020, respectively. Pre-tax profit was~~ $20 million for the ~~nine~~six months ended ~~September~~June 30, 2021, ~~and $69 million and $180 million for the three and nine months ended September 30, 2020,~~ respectively.

These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”) and in accordance with the rules of the Securities and Exchange Commission (SEC) for interim reporting. The financial statements include adjustments of a normal recurring nature considered necessary by management for a fair presentation of the company’s unaudited condensed consolidated financial position, results of operations and cash flows.

~~The results~~Results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the information contained in the company’s ~~2020~~2021 Annual Report on Form 10-K. During the first quarter of 2021, we changed the naming convention for our FAS/CAS pension accounts. The Net FAS (service)/CAS pension adjustment is now referred to as the FAS/CAS operating adjustment and the FAS (non-service) pension benefit is now referred to as the Non-operating FAS pension benefit. This change does not impact any current or previously reported amounts. During the second quarter of 2021, we changed the presentation of the retiree benefits components in the operating cash flow section of the Unaudited condensed consolidated statement of cash flows. Prior period amounts have been conformed to current period presentation and this change does not impact previously reported cash provided by operating activities.

~~The quarterly~~Quarterly information is labeled using a calendar convention; that is, first quarter is consistently labeled as ending on March 31, second quarter as ending on June 30 and third quarter as ending on September 30. It is the company’s long-standing practice to establish actual interim closing dates using a “fiscal” calendar, in which we close our books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes. This practice is only used at interim periods within a reporting year.

Accounting Estimates

Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.

Revenue Recognition

The majority of our sales are derived from long-term contracts with the U.S. government for the development or production of goods, the provision of services, or a combination of both. We recognize revenue as control is transferred to the customer, either over time or at a point in time. For most of our contracts, control is effectively transferred during the period of performance, so we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion). The company believes this represents the most

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appropriate measurement towards satisfaction of our performance obligations. Revenue for contracts in which the control of goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon delivery).

Contract Estimates

Use of the cost-to-cost method requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. The company estimates profit on these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes that profit as costs are incurred. Significant judgment is used to estimate total sales and cost at completion.

Contract sales may include estimates of variable consideration, including cost or performance incentives (such as award and incentive fees), contract claims and requests for equitable adjustment (REAs). Variable consideration is included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled.

We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative estimate-at-completion (EAC) adjustments represent the cumulative effect of the changes on current and prior periods; sales and operating margins in future periods are recognized as if the revised estimates had been used since contract inception. If it is determined that a loss is expected to result on an individual performance obligation, the entire amount of the estimable future loss, including an allocation of general and administrative expense, is charged against income in the period the loss is identified.

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The following table presents the effect of aggregate net EAC adjustments:


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
$ in millions, except per share data	$ in millions, except per share data	2021		2020		2021		2020		$ in millions, except per share data	2022		2021		2022		2021
Revenue	Revenue	$	116	$	124	$	478	$	385	Revenue	$	95	$	160	$	304	$	362
Operating income	Operating income	109		123		453		359		Operating income	92		154		265		344
Net earnings(1)	Net earnings(1)	86		97		358		284		Net earnings(1)	73		122		209		272
Diluted earnings per share(1)	Diluted earnings per share(1)	0.54		0.58		2.21		1.69		Diluted earnings per share(1)	0.47		0.76		1.34		1.67

(1)Based on a 21 percent statutory tax rate.

EAC adjustments on a single performance obligation can have a ~~material~~significant effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. During the ~~third quarter of 2021,~~three months ended March 31, 2022, we recorded a ~~$42~~$67 million ~~unfavorable~~favorable EAC adjustment on the ~~F-35~~engineering, manufacturing and development phase of the B-21 program at Aeronautics Systems ~~due~~largely related to ~~labor-related production inefficiencies largely driven by COVID-19-related impacts on the labor market and employee leave.~~performance incentives. No such adjustments were material to the financial statements during the three months ended ~~September~~June 30, ~~2020.~~2022 and 2021.

Backlog

Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent to the company’s remaining performance obligations at the end of each period. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded.

Company backlog as of ~~September~~June 30, ~~2021~~2022 was ~~$74.8~~$80.0 billion. Of our ~~September~~June 30, ~~2021~~2022 backlog, we expect to recognize approximately 40 percent as revenue over the next 12 months and 60 percent as revenue over the next 24 months, with the remainder to be recognized thereafter.

Contract Assets and Liabilities

For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position. The amount of revenue recognized for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 that was included in the December 31, ~~2020~~

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2021 contract liability ~~balances~~balance was ~~$261~~$466 million and ~~$1.8~~$1.9 billion, respectively. The amount of revenue recognized for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 that was included in the December 31, ~~2019~~2020 contract liability balance was ~~$232~~$482 million and $1.5 billion, respectively.

Disaggregation of Revenue

See Note 9 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

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Property, Plant, and Equipment

InDuring the ~~fourth quarter of 2020,~~six months ended June 30, 2022, the company ~~completed~~acquired $46 million of internal use software through long-term financing directly with the supplier. The software was recorded in PP&E as a ~~sale of equipment to~~non-cash investing activity and the related liability was recorded in long-term debt as a ~~customer on a restricted Aeronautics Systems program.~~non-cash financing activity. During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the company received ~~cash payments~~lease incentives for landlord funded leasehold improvements of ~~$84~~$63 million related to ~~the equipment sale~~a Space Systems real estate lease, which were recorded in PP&E and included it in ~~Proceeds from sale of equipment to a customer in the unaudited condensed consolidated statement of cash flows.~~

non-cash investing activities. Non-cash investing activities also include capital expenditures incurred but not yet paid of ~~$105~~$73 million and ~~$123~~$56 million as of ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows:


$ in millions	$ in millions	September 30, 2021		December 31, 2020		$ in millions	June 30, 2022		December 31, 2021
Unamortized prior service credit, net of tax expense of $1 for 2021 and $3 for 2020		$	4	$	10
Unamortized prior service credit						Unamortized prior service credit	$	1	$	2
Cumulative translation adjustment and other, net	Cumulative translation adjustment and other, net	(144)		(138)		Cumulative translation adjustment and other, net	(160)		(145)
Total accumulated other comprehensive loss	Total accumulated other comprehensive loss	$	(140)	$	(128)	Total accumulated other comprehensive loss	$	(159)	$	(143)

Related Party Transactions

For all periods presented, the company had no material related party transactions.

Accounting Standards Updates

Accounting standards updates adopted and/or issued, but not effective until after ~~September~~June 30, ~~2021,~~2022, are not expected to have a material effect on the company’s unaudited condensed consolidated financial position, annual results of operations and/or cash flows.

2. EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK

Basic Earnings Per Share

We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period.

Diluted Earnings Per Share

Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 0.6 million shares for the three and six months ended June 30, 2022 and 0.5 million shares for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively. The dilutive effect of these securities totaled 0.5 million shares and 0.6 million shares for the three and nine months ended September 30, 2020, respectively.~~2021.

Share Repurchases

On ~~September 16, 2015,~~December 4, 2018, the company’s board of directors authorized a share repurchase program of up to ~~$4.0~~$3.0 billion of the company’s common stock (the ~~“2015~~“2018 Repurchase Program”). Repurchases under the 2018 Repurchase Program commenced in March 2020 and were completed in October 2021.

On ~~December 4, 2018,~~January 25, 2021, the company’s board of directors authorized a share repurchase program of up to an additional $3.0 billion in share repurchases of the company’s common stock (the ~~“2018~~“2021 Repurchase Program”). Repurchases under the ~~2015~~2021 Repurchase Program commenced in ~~March 2016 and were completed in March 2020 at which time~~October 2021 upon the completion of the 2018 Repurchase Program. As of June 30, 2022, repurchases under the ~~2018 Repurchase Program commenced. As of September 30,~~ 2021 ~~repurchases under the 2018~~ Repurchase Program totaled ~~$2.9~~$1.5 billion; ~~$0.1~~$1.5 billion remained under this share repurchase authorization. By its terms, the ~~2018~~2021 Repurchase Program is set to ~~expire when we have used all authorized funds for repurchases.~~

On January 25, 2021, the company’s board of directors authorized a new share repurchase program of up to an additional $3.0 billion in share repurchases of the company’s common stock (the “2021 Repurchase Program”). By its terms, repurchases under the 2021 Repurchase Program will commence upon completion of the 2018 Repurchase Program and will expire when we have used all authorized funds for repurchases.

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On January 24, 2022, the company’s board of directors authorized a new share repurchase program of up to an additional $2.0 billion in share repurchases of the company’s common stock (the “2022 Repurchase Program”). By its terms, repurchases under the 2022 Repurchase Program will commence upon completion of the 2021 Repurchase Program and will expire when we have used all authorized funds for repurchases. As of June 30, 2022, there have been no repurchases under the 2022 Repurchase Program and the company’s total outstanding share repurchase authorization was $3.5 billion.

During the first quarter of 2021, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC (Goldman Sachs) to repurchase $2.0 billion of the company’s common stock as part of the 2018 Repurchase Program. Under the agreement, we made a payment of $2.0 billion to Goldman Sachs and received an initial delivery of 5.9 million shares valued at $1.7 billion that were immediately canceled by the company. The remaining balance of $300 million was settled on June 1, 2021 with a final delivery of 0.2 million shares from Goldman Sachs. The final average purchase price was $327.29 per share.

During the fourth quarter of 2021, the company entered into an ASR agreement with Goldman Sachs to repurchase $500 million of the company’s common stock as part of the 2021 Repurchase Program. Under the agreement, we made a payment of $500 million to Goldman Sachs and received an initial delivery of 1.2 million shares valued at $425 million that were immediately canceled by the company. The remaining balance of $75 million was settled on February 1, 2022 with a final delivery of 0.1 million shares from Goldman Sachs. The final average purchase price was $374.79 per share.

Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs. During the six months ended June 30, 2022, the company repurchased $640 million of its outstanding shares.

The table below summarizes the company’s share repurchases to date under the authorizations described above:


								Shares Repurchased (in millions)									Shares Repurchased (in millions)
Repurchase Program Authorization Date	Repurchase Program Authorization Date	Amount Authorized (in millions)		Total Shares Retired (in millions)	Average Price Per Share(1)		Date Completed	Nine Months Ended September 30		Repurchase Program Authorization Date	Amount Authorized (in millions)		Total Shares Retired (in millions)	Average Price Per Share(1)		Date Completed	Six Months Ended June 30
								2021	2020								2022	2021
September 16, 2015		$	4,000	15.4	$	260.33	March 2020	—	0.9

December 4, 2018	December 4, 2018	$	3,000	8.6	$	335.62		8.1	0.5	December 4, 2018	$	3,000	8.9	$	337.18	October 2021	—	6.5
January 25, 2021	January 25, 2021	$	3,000	—	—			—	—	January 25, 2021	$	3,000	3.8	393.76			1.6	—
January 24, 2022										January 24, 2022	$	2,000	—	—			—	—

(1)Includes commissions paid.

Dividends on Common Stock

In May ~~2021,~~2022, the company increased the quarterly common stock dividend 810 percent to ~~$1.57~~$1.73 per share from the previous amount of ~~$1.45~~$1.57 per share.

3. INCOME TAXES
Three Months Ended September 30 Nine Months Ended September 30
$ in millions 2021 2020 2021 2020
Federal and foreign income tax expense $ 212 $ 181 $ 1,298 $ 564
Effective income tax rate 16.6 % 15.5 % 23.2 % 16.5 %


	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2022			2021			2022			2021
Federal and foreign income tax expense	$	204		$	265		$	393		$	1,086
Effective income tax rate	17.7		%	20.4		%	17.1		%	25.2		%

Current Quarter

The ~~third~~second quarter ~~2021~~2022 effective tax rate (ETR) ~~increased~~decreased to ~~16.6~~17.7 percent from ~~15.5~~20.4 percent in the prior year ~~period primarily due to lower benefits from foreign-derived intangible income (FDII).~~period. The company’s ~~third~~second quarter ~~2021~~2022 ETR includes benefits of ~~$43~~$41 million for research credits and ~~$12~~$15 million for ~~FDII.~~foreign derived intangible income (FDII), which were partially offset by nondeductible losses on certain of the company’s marketable securities. The company’s ~~third~~second quarter ~~2020~~2021 ETR included benefits of ~~$45~~$48 million for research credits and ~~$30~~$10 million for ~~FDII, which reflects additional benefits after final regulations issued in July 2020 clarified Foreign Military Sales qualify for the deduction.~~

~~Year to Date~~

FDII. The ~~year to date~~second quarter 2021 ETR ~~increased to 23.2 percent from 16.5 percent in the prior period primarily due to federal income taxes resulting from the IT services divestiture, including $250 million~~was impacted by a change

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made in tax revenue recognition on certain ~~long-term~~long term contracts, which increased taxable income in years prior to the 2017 Tax Cuts and Jobs Act at a rate above the current statutory ~~rate as well as~~rate.

Year to Date

The year to date 2022 ETR decreased to 17.1 percent from 25.2 percent in the prior year period. The company’s year to date 2022 ETR includes benefits of ~~$142~~$82 million for research credits and ~~$32~~$29 million for FDII. The company’s year to date ~~2020~~2021 ETR included benefits of ~~$135~~$99 million for research credits and ~~$46~~$20 million for FDII.

~~Taxes receivable, which are included~~ The year to date 2021 ETR was impacted by additional federal income taxes resulting from the IT services divestiture, as well as the change in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position, were $123 million as of September 30, 2021 and $792 million as of December 31, 2020.tax revenue recognition on certain contracts described above.

The company has recorded unrecognized tax benefits related to our methods of accounting associated with the timing of revenue recognition and related costs and the 2017 Tax Cuts and Jobs Act, which includes related final revenue recognition regulations issued in December 2020 under IRC Section 451(b) and procedural guidance issued

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in August 2021. As of June 30, 2022, we have approximately $1.7 billion in unrecognized tax benefits, including $458 million related to our position on IRC Section 451(b). If these matters, including our position on IRC Section 451(b), are unfavorably resolved, there could be a material impact on our future cash flows. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may increase by approximately ~~$100~~$120 million.

Our current unrecognized tax benefits, which are included in Other current liabilities in the unaudited condensed consolidated statements of financial position, were $659 million and $590 million as of June 30, 2022 and December 31, 2021, respectively, with the remainder of our unrecognized tax benefits included within Other non-current liabilities.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman ~~2017-2018~~2014-2018 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under Internal Revenue Service (IRS) examination. ~~During~~This quarter, the ~~third quarter of 2021, the company requested an appeal with the IRS for the Northrop Grumman~~company’s 2014-2016 federal income tax returns and refund claims related to its 2007-2016 federal tax ~~returns.~~returns reverted back from IRS Appeals to IRS examination for additional factual review. In addition, legacy Orbital ATK (OATK) federal tax returns for the ~~year~~years ended March 31, 2014 and 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 are currently under ~~appeal~~review by the IRS Appeals Office. It is reasonably possible that within the next twelve months, unrecognized tax benefits claimed in legacy OATK’s 2014 to 2017 tax years may decline by up to $110 million through administrative resolution with ~~the IRS.~~IRS Appeals.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The company holds a portfolio of marketable securities to partially fund non-qualified employee benefit plans. A portion of these securities are held in common/collective trust funds and are measured at fair value using net asset value (NAV) per share as a practical expedient; and therefore are not required to be categorized in the fair value hierarchy table below. Marketable securities are included in Other non-current assets in the unaudited condensed consolidated statements of financial position.

The company’s derivative portfolio consists primarily of foreign currency forward contracts. Where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value ~~and uses the applicable London Interbank Offered Rate (LIBOR) swap rates.~~using internal models based on observable market inputs.

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The following table presents the financial assets and liabilities the company records at fair value on a recurring basis identified by the level of inputs used to determine fair value:


		September 30, 2021						December 31, 2020							June 30, 2022								December 31, 2021
$ in millions	$ in millions	Level 1		Level 2		Total		Level 1		Level 2		Total		$ in millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial Assets	Financial Assets													Financial Assets
Marketable securities	Marketable securities	$	390	$	—	$	390	$	377	$	1	$	378	Marketable securities	$	328	$	—	$	8	$	336	$	393	$	1	$	7	$	401
Marketable securities valued using NAV	Marketable securities valued using NAV					16						18		Marketable securities valued using NAV							14								17
Total marketable securities	Total marketable securities	390		—		406		377		1		396		Total marketable securities	328		—		8		350		393		1		7		418
Derivatives	Derivatives	—		3		3		—		—		—		Derivatives	—		(1)		—		(1)		—		(1)		—		(1)

The notional value of the company’s foreign currency forward contracts at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 was ~~$132~~$114 million and ~~$133~~$120 million, respectively. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, no portion of the notional value was designated as a cash flow hedge.

The derivative fair values and related unrealized gains/losses at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were not material.

There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

The carrying value of cash and cash equivalents and commercial paper approximates fair value.

Long-term Debt

The estimated fair value of long-term debt was ~~$15.2~~$12.8 billion and ~~$18.2~~$15.1 billion as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. We calculated the fair value of long-term debt using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements. The current portion of long-term debt is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.

On September 2, 2021, the company completed an exchange offer to eligible holders of the outstanding notes of our direct wholly owned subsidiary, Northrop Grumman Systems Corporation (“NGSC”) maturing through 2036. An aggregate principal amount of $422 million of the NGSC notes was exchanged for $422 million of unregistered Northrop Grumman Corporation notes (the “Unregistered Notes”) with the same interest rates and maturity dates as the NGSC notes exchanged. Because the debt instruments are not substantially different, the exchange was treated as a debt modification for accounting purposes with no gain or loss recognized.

On June 15, 2022, the company completed a registered exchange offer pursuant to which the company exchanged an aggregate principal amount of $414 million of the Unregistered Notes for $414 million of new notes registered under the Securities Act of 1933, as amended, (the “Registered Notes”) with the same interest rates and maturity dates as the Unregistered Notes.

Because the debt instruments were not substantially different in either of the exchange offers, both exchanges were treated as debt modifications for accounting purposes with no gain or loss recognized.

Repayments of Senior Notes

In March 2021, the company repaid $700 million of 3.50 percent unsecured notes upon maturity.

In March 2021, the company redeemed $1.5 billion of 2.55 percent unsecured notes due October 2022. The company recorded a pre-tax charge of $54 million principally related to the premium paid on the redemption, which

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was recorded in Other, net in the unaudited condensed consolidated statements of earnings and comprehensive income.

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5. INVESTIGATIONS, CLAIMS AND LITIGATION

On May 4, 2012, the company commenced an action, Northrop Grumman Systems Corp. v. United States, in the U.S. Court of Federal Claims. This lawsuit relates to an approximately $875 million firm fixed-price contract awarded to the company in 2007 by the U.S. Postal Service (USPS) for the construction and delivery of flats sequencing systems (FSS) as part of the postal automation program. The FSS were delivered. The company’s lawsuit seeks approximately $63 million for unpaid portions of the contract price, and approximately $115 million based on the company’s assertions that, through various acts and omissions over the life of the contract, the USPS adversely affected the cost and schedule of performance and materially altered the company’s obligations under the contract. The United States responded to the company’s complaint with an answer, denying most of the company’s claims, and counterclaims seeking approximately $410 million, less certain amounts outstanding under the contract. In the course of the litigation, the United States subsequently amended its counterclaim, reducing it to seek approximately $193 million. The principal counterclaim alleges that the company delayed its performance and caused damages to the USPS because USPS did not realize certain costs savings as early as it had expected. On February 3, 2020, after extensive discovery and motions practice, the parties commenced what was expected to be a seven-week trial. ~~The first four weeks of trial concluded, but the court postponed the remaining estimated three weeks as a result of COVID-19-related concerns.~~ After ~~additional~~ COVID-19-related interruptions, trial concluded on March 5, 2021. On October 12, 2021, the parties completed post-trial briefing, ~~absent any further requests or unexpected developments. Although~~and on December 8, 2021 the ~~ultimate outcome of this matter, including any possible loss, cannot be predicted or reasonably estimated at this time,~~court held a post-trial oral argument. On June 27, 2022, the judge issued a decision concluding that the company ~~intends~~was entitled to ~~continue vigorously~~approximately $63 million for unpaid portions of the contract price and $5 million in additional damages, as well as interest, which the company estimates is approximately $15 million (as of June 30, 2022) and such additional interest as may accrue until the date the government makes payment. The judge also concluded that the government was entitled to ~~pursue and defend~~approximately $1 million in off-setting damages. On July 18, 2022, the ~~matter.~~government filed a motion for reconsideration, arguing that the government is entitled to damages of approximately $57 million for particular periods of delay. Ultimately, after the court enters judgment, the parties will also have 60 days to file an appeal.

~~We are~~The company is engaged in remediation activities relating to environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. For over 20 years, ~~we have~~the company has worked closely with the United States Navy, the United States Environmental Protection Agency, the New York State Department of Environmental Conservation (NYSDEC), the New York State Department of Health and other federal, state and local governmental authorities, to address legacy environmental conditions in Bethpage. In December 2019, the State of New York issued an Amended Record of Decision seeking to impose additional remedial requirements beyond measures the company previously had been taking; the State also communicated that it was assessing potential natural resource damages. In December 2020, the parties reached a tentative agreement regarding the steps the company will take to implement the State’s Amended Record of Decision and to resolve certain potential other claims, including for natural resource damages. On September 22, 2021, the State of New York issued for public comment a new consent decree reflecting the agreement. ~~We understand that~~On December 7, 2021, the public comment period closed. On July 13, 2022, the State ~~will next seek~~filed a motion seeking court approval of the consent decree. We have also reached agreements with the Department of Defense and the Bethpage Water District to resolve claims involving these parties. On May 24, 2022, the court approved the agreement with the Bethpage Water District. On July 18, 2022, the government filed a motion seeking court approval of the agreement with the Department of Defense. We are in discussions with the South Farmingdale Water District to explore whether we can also resolve their claims at this stage.

We have incurred, and expect to continue to incur, as included in Note 6, substantial remediation costs related to the legacy Bethpage environmental conditions. ~~Applicable~~It is also possible that applicable remediation, allocation and allowability standards and other requirements to which we are subject may continue to change, and our costs may increase ~~materially~~materially. In addition to disputes and ~~those costs may not be fully recoverable. In addition,~~legal proceedings related to environmental conditions at the site (including remediation, allocation and allowability), we are a party to various individual lawsuits and ~~expect to become~~ a party to additional, legal proceedings and disputes related to remediation, environmental impacts, costs, and the allowability of costs we incur, including with federal and state entities (including the Navy, Defense Contract Management Agency, the State, local municipalities and water districts) and insurance carriers, as well asputative class action ~~and individual plaintiffs~~ alleging personal injury and property damage ~~and seeking both monetary and non-monetary relief. These Bethpage matters could result~~ in ~~additional costs, fines, penalties, sanctions, compensatory or other damages, determinations~~the Eastern District of New York. The filed individual lawsuits have been stayed, pending a court decision on ~~allocation, allowability and coverage, and non-monetary relief.~~class certification. We are ~~in discussions with the Department of Defense~~also a party, and ~~the Bethpage Water District~~may become a party, to ~~explore whether claims involving these parties can be resolved at this stage.~~other lawsuits brought by insurance carriers and other parties. We cannot at this time predict or reasonably estimate the potential cumulative outcomes or ranges of possible liability of these ~~aggregate~~ Bethpage ~~matters.~~lawsuits.

In June 2018, the FTC issued a Decision and Order enabling the company’s acquisition of OATK to proceed and providing generally for the company to continue to make solid rocket motors available to competing missile primes on a non-discriminatory basis. The company has taken and continues to take robust actions to help ensure compliance with the terms of the Order. Similarly, the Compliance Officer, appointed under the Order, and the FTC have taken and continue to take various actions to oversee compliance. In October 2019, the company received a civil investigative demand from the FTC requesting certain information relating to a potential issue regarding the

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company’s compliance with the Order in connection with a then pending missile competition. The company promptly provided information in response to the request. The company has resumed discussions with staff at the FTC regarding our response and their views on compliance issues. We cannot predict the outcome of those discussions, but we do not believe they are likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2022, or its annual results of operations and/or cash flows. We believe the company has been and continues to be in compliance with the Order.

The company is a party to various other investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of ~~September~~June 30, ~~2021,~~2022, or its annual results of operations and/or cash flows.

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6. COMMITMENTS AND CONTINGENCIES

U.S. Government Cost Claims and Contingencies

From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available. The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of ~~September~~June 30, ~~2021,~~2022, or its annual results of operations and/or cash flows.

The U.S. government has raised questions about an interest rate assumption used by the company to determine our CAS pension expense. On June 1, 2020, the government provided written notice that the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS. We submitted a formal response on July 31, 2020, which we believe demonstrates the appropriateness of the assumptions used. On November 24, 2020, the government replied to the company’s response, disagreeing with our position and requesting additional input, which we provided on February 22, ~~2021. We are engaging~~2021 and further discussed with the government. We continue to exchange correspondence and engage with the government on this matter. The sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of this matter could have a material adverse effect on our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range of any potential loss.

Environmental Matters

The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:
$ in millions
Accrued Costs(1)(2)
Reasonably Possible Future Costs in Excess of Accrued Costs(2)
Deferred Costs(3)
September 30, 2021 $ 600 $ 366 $ 514
December 31, 2020 614 346 529


$ in millions	Accrued Costs(1)(2)		Reasonably Possible Future Costs in Excess of Accrued Costs(2)		Deferred Costs(3)
June 30, 2022	$	574	$	363	$	486
December 31, 2021	572		363		486

(1) As of ~~September~~June 30, ~~2021, $235~~2022, $187 million is recorded in Other current liabilities and ~~$365~~$387 million is recorded in Other non-current liabilities.

(2) Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.

(3) As of ~~September~~June 30, ~~2021, $205~~2022, $162 million is deferred in Prepaid expenses and other current assets and ~~$309~~$324 million is deferred in Other non-current assets. These amounts are evaluated for recoverability on a routine basis.

Although management cannot predict whether (i) new information gained as our environmental remediation projects progress, (ii) changes in remediation standards or asother requirements to which we are subject, or (iii) other changes in facts and circumstances ~~occur,~~ will materially affect the estimated liability accrued, ~~except with respect to Bethpage,~~ we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the ~~company’s unaudited condensed consolidated financial position as of September 30, 2021, or its annual results of operations and/or cash flows.~~

With respect to Bethpage, as discussed in Note 5, in December 2019, the State of New York issued an Amended Record of Decision, seeking to impose additional remedial requirements beyond those the company previously had been taking; the State also communicated that it was assessing potential natural resource damages. In December 2020, the parties reached a tentative agreement regarding the steps the company will take to implement the State’s Amended Record of Decision and to resolve certain potential other claims, including for natural resource damages. On September 22, 2021, the State of New York issued for public comment a new consent decree reflecting the agreement. We understand that the State will next seek court approval of the consent decree. As discussed in Note 5, the applicable remediation standards and other requirements to which we are subject may continue to change, our costs may increase materially, and those costs may not be fully recoverable.

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company’s unaudited condensed consolidated financial position as of June 30, 2022, or its annual results of operations and/or cash flows.

Financial Arrangements

In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At ~~September~~June 30, ~~2021,~~2022, there were ~~$476~~$370 million of stand-by letters of credit and guarantees and ~~$69~~$78 million of surety bonds outstanding.

Commercial Paper

The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $2.0 billion. At ~~September~~June 30, ~~2021,~~2022, there were no commercial paper borrowings outstanding.

Credit Facilities

The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $2.0 billion (the “2018 Credit Agreement”) that matures in August 2024 and is intended to support the company’s commercial paper program and other general corporate purposes. Commercial paper borrowings reduce the amount available for borrowing under the 2018 Credit Agreement. At ~~September~~June 30, ~~2021,~~2022, there was no balance outstanding under this facility.

At ~~September~~June 30, ~~2021,~~2022, the company was in compliance with all covenants under its credit agreements.

7. RETIREMENT BENEFITS

The cost to the company of its pension and other postretirement benefit (OPB) plans is shown in the following table:


		Three Months Ended September 30								Nine Months Ended September 30									Three Months Ended June 30								Six Months Ended June 30
		Pension Benefits				OPB				Pension Benefits				OPB					Pension Benefits				OPB				Pension Benefits				OPB
$ in millions	$ in millions	2021		2020		2021		2020		2021		2020		2021		2020		$ in millions	2022		2021		2022		2021		2022		2021		2022		2021
Components of net periodic benefit cost (benefit)	Components of net periodic benefit cost (benefit)																	Components of net periodic benefit cost (benefit)
Service cost	Service cost	$	104	$	102	$	4	$	4	$	311	$	306	$	12	$	13	Service cost	$	92	$	103	$	2	$	4	$	184	$	207	$	4	$	8
Interest cost	Interest cost	263		307		13		17		790		920		40		50		Interest cost	284		264		12		14		568		527		24		27
Expected return on plan assets	Expected return on plan assets	(627)		(594)		(26)		(26)		(1,884)		(1,782)		(79)		(77)		Expected return on plan assets	(661)		(629)		(27)		(27)		(1,321)		(1,257)		(55)		(53)
Amortization of prior service (credit) cost	Amortization of prior service (credit) cost	(3)		(15)		—		1		(7)		(45)		(1)		3		Amortization of prior service (credit) cost	—		(2)		(1)		(1)		—		(4)		(1)		(1)

Net periodic benefit cost (benefit)	Net periodic benefit cost (benefit)	$	(263)	$	(200)	$	(9)	$	(4)	$	(790)	$	(601)	$	(28)	$	(11)	Net periodic benefit cost (benefit)	$	(285)	$	(264)	$	(14)	$	(10)	$	(569)	$	(527)	$	(28)	$	(19)

Employer Contributions

The company sponsors defined benefit pension and OPB plans, as well as defined contribution plans. We fund our defined benefit pension plans annually in a manner consistent with the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006.

Contributions made by the company to its retirement plans are as follows:


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
$ in millions	$ in millions	2021		2020		2021		2020		$ in millions	2022		2021		2022		2021
Defined benefit pension plans	Defined benefit pension plans	$	26	$	24	$	79	$	70	Defined benefit pension plans	$	25	$	26	$	51	$	53
OPB plans	OPB plans	8		7		29		30		OPB plans	10		10		20		21
Defined contribution plans	Defined contribution plans	99		116		476		472		Defined contribution plans	122		111		321		377

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8. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS

Stock Awards

The following table presents the number of restricted stock rights (RSRs) and restricted performance stock rights (RPSRs) granted to employees under the company’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented:


		Nine Months Ended September 30					Six Months Ended June 30
in millions	in millions	2021		2020		in millions	2022		2021
RSRs granted	RSRs granted	0.1		0.1		RSRs granted	0.1		0.1
RPSRs granted	RPSRs granted	0.2		0.2		RPSRs granted	0.2		0.2
Grant date aggregate fair value	Grant date aggregate fair value	$	89	$	91	Grant date aggregate fair value	$	93	$	88

RSRs typically vest on the third anniversary of the grant date, while RPSRs generally vest and pay out based on the achievement of certain performance metrics over a three-year period.

Cash Awards

The following table presents the minimum and maximum aggregate payout amounts related to cash units (CUs) and cash performance units (CPUs) granted to employees in the periods presented:


		Nine Months Ended September 30					Six Months Ended June 30
$ in millions	$ in millions	2021		2020		$ in millions	2022		2021
Minimum aggregate payout amount	Minimum aggregate payout amount	$	31	$	31	Minimum aggregate payout amount	$	32	$	31
Maximum aggregate payout amount	Maximum aggregate payout amount	178		175		Maximum aggregate payout amount	183		178

CUs typically vest and settle in cash on the third anniversary of the grant date, while CPUs generally vest and pay out in cash based on the achievement of certain performance metrics over a three-year period.

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9. SEGMENT INFORMATION

The following table presents sales and operating income by segment:


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
$ in millions	$ in millions	2021		2020		2021		2020		$ in millions	2022		2021		2022		2021
Sales	Sales									Sales
Aeronautics Systems	Aeronautics Systems	$	2,725	$	2,914	$	8,628	$	8,682	Aeronautics Systems	$	2,534	$	2,913	$	5,237	$	5,903
Defense Systems	Defense Systems	1,409		1,859		4,398		5,626		Defense Systems	1,294		1,427		2,577		2,989
Mission Systems	Mission Systems	2,436		2,551		7,613		7,344		Mission Systems	2,516		2,588		5,013		5,177
Space Systems	Space Systems	2,681		2,198		7,950		6,194		Space Systems	2,979		2,748		5,834		5,269
Intersegment eliminations	Intersegment eliminations	(531)		(439)		(1,561)		(1,259)		Intersegment eliminations	(522)		(525)		(1,063)		(1,030)
Total sales	Total sales	8,720		9,083		27,028		26,587		Total sales	8,801		9,151		17,598		18,308
Operating income	Operating income									Operating income
Aeronautics Systems	Aeronautics Systems	265		294		873		867		Aeronautics Systems	258		300		565		608
Defense Systems	Defense Systems	175		217		529		632		Defense Systems	168		177		323		354
Mission Systems	Mission Systems	372		370		1,177		1,070		Mission Systems	413		408		798		805
Space Systems	Space Systems	288		224		865		635		Space Systems	310		301		571		577
Intersegment eliminations	Intersegment eliminations	(65)		(56)		(197)		(157)		Intersegment eliminations	(76)		(69)		(147)		(132)
Total segment operating income	Total segment operating income	1,035		1,049		3,247		3,047		Total segment operating income	1,073		1,117		2,110		2,212
FAS/CAS operating adjustment	FAS/CAS operating adjustment	61		108		98		316		FAS/CAS operating adjustment	(51)		18		(97)		37
Unallocated corporate (expense) income	Unallocated corporate (expense) income	(53)		(172)		1,564		(450)		Unallocated corporate (expense) income	(68)		(91)		(162)		1,617
Total operating income	Total operating income	$	1,043	$	985	$	4,909	$	2,913	Total operating income	$	954	$	1,044	$	1,851	$	3,866

FAS/CAS Operating Adjustment

For financial statement purposes, we account for our employee pension plans in accordance with FAS. However, the cost of these plans is charged to our contracts in accordance with ~~the~~applicable Federal Acquisition Regulation (FAR) and ~~the related~~ U.S. Government Cost Accounting Standards (CAS). requirements. The FAS/CAS operating ~~adjustment, previously referred to as the net FAS (service)/CAS pension~~ adjustment reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income.

Unallocated Corporate (Expense) Income

Unallocated corporate (expense) income includes the portion of corporate costs not considered allowable or allocable under the applicable FAR and CAS ~~or FAR,~~requirements, and therefore not allocated to the segments, such as changes in deferred state income taxes and a portion of management and administration, legal, environmental, compensation, retiree benefits, advertising and other corporate unallowable costs. Unallocated corporate (expense) income also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations, as well as certain compensation and other costs.

During the first quarter of 2021, the $2.0 billion pre-tax gain on the sale of our IT services business and $192 million of unallowable state taxes and transaction costs associated with the divestiture were recorded in Unallocated corporate (expense) income.

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Disaggregation of Revenue


Sales by Customer Type	Sales by Customer Type	Three Months Ended September 30								Nine Months Ended September 30								Sales by Customer Type	Three Months Ended June 30								Six Months Ended June 30
		2021				2020				2021				2020					2022				2021				2022				2021
$ in millions	$ in millions	$		%(3)		$		%(3)		$		%(3)		$		%(3)		$ in millions	$		%(3)		$		%(3)		$		%(3)		$		%(3)
Aeronautics Systems	Aeronautics Systems																	Aeronautics Systems
U.S. government(1)	U.S. government(1)	$	2,312	85	%	$	2,491	85	%	$	7,366	85	%	$	7,329	84	%	U.S. government(1)	$	2,134	84	%	$	2,513	86	%	$	4,426	85	%	$	5,054	86	%
International(2)	International(2)	360		13	%	382		13	%	1,110		13	%	1,233		14	%	International(2)	328		13	%	351		12	%	671		13	%	750		12	%
Other customers	Other customers	5		—	%	11		1	%	15		—	%	35		1	%	Other customers	14		1	%	4		—	%	17		—	%	10		—	%
Intersegment sales	Intersegment sales	48		2	%	30		1	%	137		2	%	85		1	%	Intersegment sales	58		2	%	45		2	%	123		2	%	89		2	%
Aeronautics Systems sales	Aeronautics Systems sales	2,725		100	%	2,914		100	%	8,628		100	%	8,682		100	%	Aeronautics Systems sales	2,534		100	%	2,913		100	%	5,237		100	%	5,903		100	%
Defense Systems	Defense Systems																	Defense Systems
U.S. government(1)	U.S. government(1)	877		62	%	1,264		68	%	2,749		63	%	3,828		68	%	U.S. government(1)	774		61	%	879		62	%	1,549		61	%	1,872		63	%
International(2)	International(2)	316		22	%	307		17	%	1,002		23	%	963		17	%	International(2)	328		25	%	335		23	%	621		24	%	686		22	%
Other customers	Other customers	10		1	%	97		5	%	61		1	%	293		5	%	Other customers	18		1	%	18		1	%	34		1	%	51		2	%
Intersegment sales	Intersegment sales	206		15	%	191		10	%	586		13	%	542		10	%	Intersegment sales	174		13	%	195		14	%	373		14	%	380		13	%
Defense Systems sales	Defense Systems sales	1,409		100	%	1,859		100	%	4,398		100	%	5,626		100	%	Defense Systems sales	1,294		100	%	1,427		100	%	2,577		100	%	2,989		100	%
Mission Systems	Mission Systems																	Mission Systems
U.S. government(1)	U.S. government(1)	1,756		72	%	1,884		74	%	5,491		71	%	5,331		73	%	U.S. government(1)	1,802		72	%	1,901		73	%	3,596		72	%	3,735		72	%
International(2)	International(2)	417		17	%	455		18	%	1,338		18	%	1,406		19	%	International(2)	415		16	%	419		16	%	848		17	%	921		18	%
Other customers	Other customers	19		1	%	19		1	%	49		1	%	54		1	%	Other customers	40		2	%	14		1	%	64		1	%	30		1	%
Intersegment sales	Intersegment sales	244		10	%	193		7	%	735		10	%	553		7	%	Intersegment sales	259		10	%	254		10	%	505		10	%	491		9	%
Mission Systems sales	Mission Systems sales	2,436		100	%	2,551		100	%	7,613		100	%	7,344		100	%	Mission Systems sales	2,516		100	%	2,588		100	%	5,013		100	%	5,177		100	%
Space Systems	Space Systems																	Space Systems
U.S. government(1)	U.S. government(1)	2,507		94	%	2,020		92	%	7,401		93	%	5,734		93	%	U.S. government(1)	2,798		94	%	2,568		93	%	5,506		94	%	4,894		93	%
International(2)	International(2)	92		3	%	99		5	%	301		4	%	237		4	%	International(2)	84		3	%	104		4	%	156		3	%	209		4	%
Other customers	Other customers	49		2	%	54		2	%	145		2	%	144		2	%	Other customers	66		2	%	45		2	%	110		2	%	96		2	%
Intersegment sales	Intersegment sales	33		1	%	25		1	%	103		1	%	79		1	%	Intersegment sales	31		1	%	31		1	%	62		1	%	70		1	%
Space Systems sales	Space Systems sales	2,681		100	%	2,198		100	%	7,950		100	%	6,194		100	%	Space Systems sales	2,979		100	%	2,748		100	%	5,834		100	%	5,269		100	%
Total	Total																	Total
U.S. government(1)	U.S. government(1)	7,452		85	%	7,659		84	%	23,007		85	%	22,222		84	%	U.S. government(1)	7,508		85	%	7,861		86	%	15,077		86	%	15,555		85	%
International(2)	International(2)	1,185		14	%	1,243		14	%	3,751		14	%	3,839		14	%	International(2)	1,155		13	%	1,209		13	%	2,296		13	%	2,566		14	%
Other customers	Other customers	83		1	%	181		2	%	270		1	%	526		2	%	Other customers	138		2	%	81		1	%	225		1	%	187		1	%
Total Sales	Total Sales	$	8,720	100	%	$	9,083	100	%	$	27,028	100	%	$	26,587	100	%	Total Sales	$	8,801	100	%	$	9,151	100	%	$	17,598	100	%	$	18,308	100	%

(1) Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.

(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.

(3) Percentages calculated based on total segment sales.

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Sales by Contract Type Three Months Ended September 30 Nine Months Ended September 30
2021 2020 2021 2020
$ in millions $
%(1)
$
%(1)
$
%(1)
$
%(1)
Aeronautics Systems
Cost-type $ 1,358 51 % $ 1,436 50 % $ 4,110 48 % $ 4,205 49 %
Fixed-price 1,319 49 % 1,448 50 % 4,381 52 % 4,392 51 %
Intersegment sales 48 30 137 85
Aeronautics Systems sales 2,725 2,914 8,628 8,682
Defense Systems
Cost-type 433 36 % 549 33 % 1,376 36 % 1,759 35 %
Fixed-price 770 64 % 1,119 67 % 2,436 64 % 3,325 65 %
Intersegment sales 206 191 586 542
Defense Systems sales 1,409 1,859 4,398 5,626
Mission Systems
Cost-type 746 34 % 948 40 % 2,419 35 % 2,689 40 %
Fixed-price 1,446 66 % 1,410 60 % 4,459 65 % 4,102 60 %
Intersegment sales 244 193 735 553
Mission Systems sales 2,436 2,551 7,613 7,344
Space Systems
Cost-type 1,931 73 % 1,563 72 % 5,800 74 % 4,429 72 %
Fixed-price 717 27 % 610 28 % 2,047 26 % 1,686 28 %
Intersegment sales 33 25 103 79
Space Systems sales 2,681 2,198 7,950 6,194
Total
Cost-type 4,468 51 % 4,496 49 % 13,705 51 % 13,082 49 %
Fixed-price 4,252 49 % 4,587 51 % 13,323 49 % 13,505 51 %
Total Sales $ 8,720 $ 9,083 $ 27,028 $ 26,587

~~(1)Percentages calculated based on external customer sales.~~

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Sales by Geographic Region Three Months Ended September 30 Nine Months Ended September 30
2021 2020 2021 2020
$ in millions $
%(2)
$
%(2)
$
%(2)
$
%(2)
Aeronautics Systems
United States $ 2,317 87 % $ 2,502 87 % $ 7,381 86 % $ 7,364 86 %
Asia/Pacific 239 9 % 217 7 % 722 9 % 626 7 %
Europe 108 4 % 129 5 % 335 4 % 445 5 %
All other(1)
13 — % 36 1 % 53 1 % 162 2 %
Intersegment sales 48 30 137 85
Aeronautics Systems sales 2,725 2,914 8,628 8,682
Defense Systems
United States 887 74 % 1,361 82 % 2,810 74 % 4,121 81 %
Asia/Pacific 107 9 % 103 6 % 336 9 % 292 6 %
Europe 78 6 % 73 4 % 233 6 % 213 4 %
All other(1)
131 11 % 131 8 % 433 11 % 458 9 %
Intersegment sales 206 191 586 542
Defense Systems sales 1,409 1,859 4,398 5,626
Mission Systems
United States 1,775 81 % 1,903 81 % 5,540 81 % 5,385 79 %
Asia/Pacific 114 5 % 122 5 % 372 5 % 489 7 %
Europe 233 11 % 253 11 % 744 11 % 669 10 %
All other(1)
70 3 % 80 3 % 222 3 % 248 4 %
Intersegment sales 244 193 735 553
Mission Systems sales 2,436 2,551 7,613 7,344
Space Systems
United States 2,556 97 % 2,074 96 % 7,546 97 % 5,878 96 %
Asia/Pacific 10 — % 5 — % 39 — % 15 — %
Europe 79 3 % 90 4 % 256 3 % 212 4 %
All other(1)
3 — % 4 — % 6 — % 10 — %
Intersegment sales 33 25 103 79
Space Systems sales 2,681 2,198 7,950 6,194
Total
United States 7,535 87 % 7,840 86 % 23,277 86 % 22,748 86 %
Asia/Pacific 470 5 % 447 5 % 1,469 5 % 1,422 5 %
Europe 498 6 % 545 6 % 1,568 6 % 1,539 6 %
All other(1)
217 2 % 251 3 % 714 3 % 878 3 %
Total Sales $ 8,720 $ 9,083 $ 27,028 $ 26,587


Sales by Contract Type	Three Months Ended June 30								Six Months Ended June 30
	2022				2021				2022				2021
$ in millions	$		%(1)		$		%(1)		$		%(1)		$		%(1)
Aeronautics Systems
Cost-type	$	1,217	49	%	$	1,341	47	%	$	2,493	49	%	$	2,752	47	%
Fixed-price	1,259		51	%	1,527		53	%	2,621		51	%	3,062		53	%
Intersegment sales	58				45				123				89
Aeronautics Systems sales	2,534				2,913				5,237				5,903
Defense Systems
Cost-type	373		33	%	434		35	%	709		32	%	943		36	%
Fixed-price	747		67	%	798		65	%	1,495		68	%	1,666		64	%
Intersegment sales	174				195				373				380
Defense Systems sales	1,294				1,427				2,577				2,989
Mission Systems
Cost-type	875		39	%	808		35	%	1,710		38	%	1,673		36	%
Fixed-price	1,382		61	%	1,526		65	%	2,798		62	%	3,013		64	%
Intersegment sales	259				254				505				491
Mission Systems sales	2,516				2,588				5,013				5,177
Space Systems
Cost-type	2,096		71	%	2,025		75	%	4,079		71	%	3,869		74	%
Fixed-price	852		29	%	692		25	%	1,693		29	%	1,330		26	%
Intersegment sales	31				31				62				70
Space Systems sales	2,979				2,748				5,834				5,269
Total
Cost-type	4,561		52	%	4,608		50	%	8,991		51	%	9,237		50	%
Fixed-price	4,240		48	%	4,543		50	%	8,607		49	%	9,071		50	%
Total Sales	$	8,801			$	9,151			$	17,598			$	18,308

(1)Percentages calculated based on external customer sales.

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Sales by Geographic Region	Three Months Ended June 30								Six Months Ended June 30
	2022				2021				2022				2021
$ in millions	$		%(2)		$		%(2)		$		%(2)		$		%(2)
Aeronautics Systems
United States	$	2,148	87	%	$	2,517	88	%	$	4,443	86	%	$	5,064	87	%
Asia/Pacific	205		8	%	204		7	%	395		8	%	483		8	%
Europe	113		5	%	127		4	%	250		5	%	227		4	%
All other(1)	10		—	%	20		1	%	26		1	%	40		1	%
Intersegment sales	58				45				123				89
Aeronautics Systems sales	2,534				2,913				5,237				5,903
Defense Systems
United States	792		71	%	897		73	%	1,583		72	%	1,923		73	%
Asia/Pacific	123		11	%	126		10	%	228		10	%	229		9	%
Europe	95		8	%	79		6	%	196		9	%	155		6	%
All other(1)	110		10	%	130		11	%	197		9	%	302		12	%
Intersegment sales	174				195				373				380
Defense Systems sales	1,294				1,427				2,577				2,989
Mission Systems
United States	1,842		81	%	1,915		82	%	3,660		81	%	3,765		80	%
Asia/Pacific	137		6	%	98		4	%	276		6	%	258		6	%
Europe	219		10	%	242		11	%	444		10	%	511		11	%
All other(1)	59		3	%	79		3	%	128		3	%	152		3	%
Intersegment sales	259				254				505				491
Mission Systems sales	2,516				2,588				5,013				5,177
Space Systems
United States	2,864		97	%	2,614		97	%	5,616		97	%	4,990		96	%
Asia/Pacific	24		1	%	13		—	%	53		1	%	29		1	%
Europe	56		2	%	89		3	%	96		2	%	177		3	%
All other(1)	4		—	%	1		—	%	7		—	%	3		—	%
Intersegment sales	31				31				62				70
Space Systems sales	2,979				2,748				5,834				5,269
Total
United States	7,646		87	%	7,943		86	%	15,302		87	%	15,742		86	%
Asia/Pacific	489		6	%	441		5	%	952		5	%	999		5	%
Europe	483		5	%	537		6	%	986		6	%	1,070		6	%
All other(1)	183		2	%	230		3	%	358		2	%	497		3	%
Total Sales	$	8,801			$	9,151			$	17,598			$	18,308

(1)All other is principally comprised of the Middle East.

(2)Percentages calculated based on external customer sales.

~~-17-~~-18-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Northrop Grumman Corporation

Falls Church, Virginia

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of ~~September~~June 30, ~~2021,~~2022, and the related condensed consolidated statements of earnings and comprehensive income and changes in shareholders’ equity for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, and of cash flows for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021 and the related notes (collectively referred to as the “interim financial information”). Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries as of December 31, ~~2020,~~2021, and the related consolidated statements of earnings and comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated January ~~27, 2021,~~26, 2022, we expressed an unqualified opinion on those consolidated financial ~~statements, which included an explanatory paragraph regarding the Company’s change in its method of accounting for leases in 2019 due to the adoption of ASC 842,~~ ~~Leases~~.statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, ~~2020,~~2021, is fairly stated, in all material respects, in relation to the audited consolidated statement of financial position from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

~~/s/ Deloitte & Touche LLP~~

~~McLean, Virginia~~

~~October 27, 2021~~


/s/			Deloitte & Touche LLP
			McLean, Virginia
			July 27, 2022

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global aerospace and defense company. We ~~use our~~deliver a broad ~~portfolio~~range of ~~capabilities and technologies to create and deliver innovative platforms, systems~~products, services and solutions in space; manned and autonomous airborne systems, including strike; strategic deterrence systems; hypersonics; missile defense; weapons systems; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); and logistics and modernization. We participate in many high-priority defense and government programs in theto United States (U.S.) and ~~abroad. We conduct most of our business with~~international customers, and principally to the ~~U.S. government, principally the~~U.S Department of Defense (DoD) and intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity.

The company is a leading provider of space systems, advanced aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and breakthrough technologies, such as artificial intelligence, advanced computing and cyber. We ~~also conduct business~~are focused on competing and winning programs that enable continued growth, performing on our commitments and affordably delivering capability our customers need. With the investments we've made in advanced technologies, combined with ~~other governments, including foreign governments,~~our talented workforce and ~~commercial customers.~~digital transformation capabilities, Northrop Grumman is well positioned to meet our customers' needs today and in the future.

The following discussion should be read along with the financial statements included in this Form 10-Q, as well as our ~~2020~~2021 Annual Report on Form 10-K, which provides additional information on our business and the environment in which we operate and our operating results.

~~Divestiture~~Disposition of IT and Mission Support Services Business

COVID-19

~~Coronavirus disease 2019, which was~~In March 2020, the World Health Organization characterized COVID-19 as a global pandemic, and the President declared a national emergency concerning the COVID-19 outbreak. In the more than two years since then, the pandemic (including the first ~~reported in late 2019,~~ and subsequent variants ~~(collectively “COVID-19” or the “pandemic”), have~~of COVID-19) has dramatically impacted the global health and economic environment, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortfalls, supply chain challenges, regulatory challenges, and market volatility. We ~~discuss~~discussed in some detail in our Annual Report on Form 10-K for the fiscal years ended December 31, 2020 and ~~subsequent SEC filings,~~2021, as well as interim Form 10-Qs, the pandemic, its impacts and risks, and actions taken up to the time of each filing. In this Form 10-Q, we provide a further update. We

At a macro level, the number of hospitalizations and deaths, in the U.S. in particular, have generally eased in 2022, as more people are fully vaccinated, and communities have continued to open up. It, of course, remains unclear whether that trajectory will continue, ~~closely~~but there is some reason for optimism. The company continues to work to monitor and address the pandemic and related developments, including the impact on our company, our employees, our customers, our suppliers and our communities. ~~The~~Our goals have been, and continue to be, to lessen the potential adverse impacts, both health and economic, and to continue to position the company ~~continues~~for long-term success. Like the communities in which we operate, our actions have varied, and will continue to ~~consider~~vary, depending on the spread of COVID-19 and ~~be guided by health data~~applicable government requirements, and ~~evolving guidance from~~ the ~~Centers for Disease Control and Prevention (CDC), in particular, as well as other health organizations globally, federal, state and local governmental authorities, and~~needs of our ~~customers, among others.~~ stakeholders.

During the ~~course~~second quarter of ~~this year,~~2022, COVID-19 case rates and the health and economic impacts of the pandemic ~~have~~ fluctuated ~~dramatically~~ in different communities in the U.S. and ~~globally.~~globally, particularly with the spread of new variants. We ~~have~~ continued to see a prolonged impact on the economy, our industry, and our company, with ~~increased challenges for customers and suppliers,~~ongoing labor shortages, ~~(including greater leave-taking),~~ supply chain challenges, and ~~increasing~~ inflation, among other impacts. WeAlthough direct COVID-19-related impacts on our business generally declined this quarter, including in the areas of employee absenteeism and leave-taking, the company’s second quarter 2022 revenue and operating income were reduced by the broader macroeconomic environment, including a tight labor market and extended material lead times, which we expect ~~these and other impacts~~ to ~~continue and they could worsen, depending on~~continue. While we cannot predict the future course of the pandemic, ~~and actions taken in connection with it.~~

In the U.S., the Food and Drug Administration issued emergency use authorization for COVID-19 vaccines and the government began extensive efforts to administer them. The company also has taken various steps to facilitate vaccination access for our employees, in accordance with federal guidance. We have provided paid leave and flexibility for employees to get vaccinated, and strongly encouraged our workforce to take care of themselves and their colleagues. In September 2021, the White House issued an executive order and guidance from the Safer Federal Workforce Task Force broadly requiring many U.S.-based federal contractors to be fully vaccinated by December 8, 2021 (with exceptions including where an employee is legally entitled to an accommodation). Wewe are taking steps to comply with the executive order, guidance, and related contract terms, broadly requiring vaccination among our U.S.-based employees. We are continuing to evaluate these evolving requirements, especially as our customers determine when and how to implement new contractual obligations, but we cannot at this stage predict the variousnot currently assuming significant additional direct COVID-19-related impacts ~~they may have~~ on our workforce, our suppliers, or our company. The Occupational Safety and Health Administration has said it is developing an emergency temporary standard for employers with 100 or more employees to ensure their workers are fully vaccinated or undergo weekly testing. State and local governments are also taking actions related to the pandemic, imposing additional and varying requirements on industry. These evolving government requirements, including regarding a vaccine mandate, along with the broader impacts of the continuing pandemic, could significantly impact our workforce and performance, as well as those of our suppliers,2022 financial results.

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~~NORTHROP GRUMMAN CORPORATION~~

and result in costs that we may not be able to recover fully. The company continues to take robust actions globally to protect the health, safety and well-being of our employees, and to serve our customers with continued performance. We also continue to take steps to support our suppliers, with a particular focus on critical small and midsized business partners, including passing through increased progress payments from the DoD to our suppliers and accelerating payments to certain suppliers.

The company’s third quarter 2021 revenue and operating income were affected by the impact of the COVID-19 pandemic on the company and the broader economic environment, including through a tightened labor market, elevated levels of employee leave, evolving government requirements, and supply chain challenges. These factors could worsen and affect further our ability (and that of our suppliers) to maintain a qualified workforce and to perform fully for our customers (including with respect to cost and schedule), with reduced sales and additional liabilities, losses and costs, that we may not be able to recover fully. Our employees, customers and suppliers, the company, our economy and our global community continue to face both continuing and new or evolving challenges, including related to the vaccine mandate, and we cannot predict how this dynamic situation will evolve or the impact it will have on the company, or our financial position, results of operations and/or cash flows. For further information on the pandemic and the potential impact to the company of COVID-19, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Liquidity and Capital Resources”

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below and “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2020~~2021 Annual Report on Form ~~10-K~~10-K.

Global Security and ~~Quarterly Reports~~Economic Environment

The U.S. and its allies continue to face a global security environment of heightened tensions and instability, threats from state and non-state actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, diverse regional security concerns and political instability. The conflict in Ukraine has increased those tensions and instability, and highlighted threats, as well as disrupted supply chains and added costs. The market for defense products, services and solutions globally is driven by these complex and evolving security challenges, considered in the broader context of political and socioeconomic circumstances and priorities.

Our operations and financial performance, as well as demand for our products and services, are impacted by global events, including violence and unrest. The same is true for our suppliers and other business partners. We continue to experience an increased demand for certain of our goods and services related to the conflict in the Ukraine, in particular, but we have not seen a significant increase to date. We also continue to experience modest disruption to some of our programs and supply chain, including with unanticipated cost growth, as a result of the conflict, particularly with respect to our Commercial Resupply Services contract. We do not have sizable business dealings in Russia or Ukraine, and do not anticipate significant adverse impacts. We are actively monitoring the situation and exploring both opportunities and risks, including measures to mitigate the risk of future disruption and costs to our programs.

The global geopolitical and economic environments also continue to be impacted by uncertainty and stress, and global inflationary pressures. Geopolitical relationships have changed and are continuing to change. Global economic growth is expected to remain in the low single digits in 2022, reflecting, among other things, the continued impact of and uncertainty surrounding geopolitical tensions globally, financial market volatility, inflation and the COVID-19 pandemic. We expect still further impacts related to the conflict in Ukraine and economic sanctions imposed on ~~Form 10-Q.~~Russia. The global economy may also be affected by the residual legal, regulatory and economic impacts of Britain’s exit from the European Union. Rising inflation has led to higher costs of various commodities and supplier products. Increased interest rates, raising the cost of borrowing for the federal government, could impact other spending priorities. Economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements, could also impact the global market for defense products, services and solutions.

U.S. Political and Economic Environment

On ~~May 28, 2021,~~March 15, 2022, the President signed into law the Consolidated Appropriations Act for FY 2022, which provides full-year funding through September 30, including $782 billion for national defense. This represents nearly $30 billion more than the Administration ~~released its~~initially requested for FY 2022, and approximately 6 percent, or $42 billion higher than it was in FY 2021. The Pentagon’s portion of the overall national defense budget ~~request~~is $743 billion. In March 2022, Congress also approved $14 billion in emergency aid to support security, economic, and humanitarian assistance for ~~fiscal year (FY)~~Ukraine and Central European partners. An additional $40 billion in emergency supplemental appropriations was approved by Congress in May 2022. Current and future spending in connection with the conflict in Ukraine and other priorities, global inflation, the national debt and the costs of the pandemic, among other things, will continue to impact our customers’ budgets and priorities, and our industry. We expect the government, our customers and our industry will also continue to face challenges from the macroeconomic environment, including a tight labor market and supply chain disruptions.

The Administration’s current budget for FY 2023 proposes ~~$753~~$813 billion for national defense programs, and ~~$770~~the Pentagon’s portion of the overall defense budget is $773 billion. On July 18, 2022, the Senate Armed Services Committee released its annual defense bill, which authorizes $847 billion in ~~non-defense discretionary funding, and continues to be~~defense spending, an increase over the ~~subject of debate in Congress. The~~ Administration’s budget request includes funding for the American Jobs Plan, a $2.3 trillion infrastructure and economic recovery plan, and the American Families Plan, a $1.8 trillion education and economic support plan. If some or all of these plans are enacted, they may have broader implications for the defense industry, our customers’ budgets and priorities, and the overall economic environment, including the national debt.request. It is difficult to predict the specific course of future defense budgets. However, we believe the ongoing conflict in Ukraine has highlighted some of the national security threats to our nation and our allies, and the need for strong deterrence and a robust defense capability, as well as impacting our political and economic environment. More generally, the threat to U.S. national security remains very substantial and we believe that our capabilities, particularly in space, missiles, missile defense, hypersonics, counter-hypersonics, survivable aircraft and mission systems should help our customers ~~to meet the~~defend against current and future threats and, as a result, continue to allow for long-term profitable ~~growth in our business.~~business growth.

~~FY 2022 appropriations have not been enacted, to date, and, on September 30, 2021, a continuing resolution was enacted, providing funding generally at FY 2021 levels~~The Bipartisan Budget Act of 2019 suspended the debt ceiling through ~~December 3,~~July 31, 2021. The Congress’ FY 2022 deliberations have demonstrated broad support for national security, and in key pieces of legislation, have proposed increased funding for national defense above the Administration’s budget request. It remains uncertain whether and, if so, when the government will approve FY 2022 appropriations, with which programs funded at what levels, and for how long the government will operate under a continuing resolution, with potential impacts on our programs and new starts, in particular.

OnIn October ~~14,~~ 2021, the statutory debt limit was increased by $480 billion and, in December 2021, was further increased by $2.5 trillion, which ~~reportedly allows~~is currently expected to allow the Treasury Department to finance the government through approximately early December 2021. If the debt limit is not lifted, or further increased, and the debt ceiling is breached, there may be significant consequences for our customers and programs, and we may be required to continue to perform for some periodinto 2023.

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Table of ~~time on certain of our U.S. Government contracts even if the U.S. Government is unable to make timely payments.~~Contents

NORTHROP GRUMMAN CORPORATION

The political environment, federal budget and debt ceiling are expected to continue to be the subject of considerable debate, especially in light of the ongoing conflict in Ukraine and the inflationary environment, which could have material impacts on defense spending broadly and the company’s programs in particular.

For further information on the risks we face from the current political and economic environment, see “Risk Factors” in our ~~2020~~2021 Annual Report on Form 10-K.

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~~NORTHROP GRUMMAN CORPORATION~~

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 IT services divestiture. 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 providing an understanding of our ongoing business and future sales trends by presenting the company’s sales before the impact of divestiture activity.

Transaction-adjusted net earnings and transaction-adjusted earnings per share (transaction-adjusted EPS) exclude impacts related to the IT services divestiture, including the gain on sale of the business, associated federal and state income tax expenses, transaction costs, and the make-whole premium for early debt redemption. They also exclude the impact of mark-to-market pension and OPB (“MTM”) ~~expense~~benefit/(expense) and related tax impacts, which are generally only recognized during the fourth quarter. These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the company’s underlying financial performance by presenting the company’s operating results before the non-operational impact of divestiture activity and pension and OPB actuarial gains and losses. These measures are also consistent with how management views the underlying performance of the business as the impact of the IT services divestiture and MTM accounting are not considered in management’s assessment of the company’s operating performance or in its determination of incentive compensation awards.

We reconcile these non-GAAP financial measures to their most directly comparable GAAP financial measures below. These non-GAAP measures 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 September 30						%		Nine Months Ended September 30						%			Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions, except per share amounts	$ in millions, except per share amounts	2021			2020			Change		2021			2020			Change		$ in millions, except per share amounts	2022			2021			Change		2022			2021			Change
Sales	Sales	$	8,720		$	9,083		(4)	%	$	27,028		$	26,587		2	%	Sales	$	8,801		$	9,151		(4)	%	$	17,598		$	18,308		(4)	%
Operating costs and expenses	Operating costs and expenses	7,677			8,098			(5)	%	24,099			23,674			2	%	Operating costs and expenses	7,847			8,107			(3)	%	15,747			16,422			(4)	%
Operating costs and expenses as a % of sales	Operating costs and expenses as a % of sales	88.0		%	89.2		%			89.2		%	89.0		%			Operating costs and expenses as a % of sales	89.2		%	88.6		%			89.5		%	89.7		%
Gain on sale of business	Gain on sale of business	—			—			NM		1,980			—			NM		Gain on sale of business	—			—			—	%	—			1,980			NM
Operating income	Operating income	1,043			985			6	%	4,909			2,913			69	%	Operating income	954			1,044			(9)	%	1,851			3,866			(52)	%
Operating margin rate	Operating margin rate	12.0		%	10.8		%			18.2		%	11.0		%			Operating margin rate	10.8		%	11.4		%			10.5		%	21.1		%
Federal and foreign income tax expense	Federal and foreign income tax expense	212			181			17	%	1,298			564			130	%	Federal and foreign income tax expense	204			265			(23)	%	393			1,086			(64)	%
Effective income tax rate	Effective income tax rate	16.6		%	15.5		%			23.2		%	16.5		%			Effective income tax rate	17.7		%	20.4		%			17.1		%	25.2		%
Net earnings	Net earnings	1,063			986			8	%	4,295			2,859			50	%	Net earnings	946			1,037			(9)	%	1,901			3,232			(41)	%
Diluted earnings per share	Diluted earnings per share	$	6.63		$	5.89		13	%	$	26.55		$	17.05		56	%	Diluted earnings per share	$	6.06		$	6.42		(6)	%	$	12.16		$	19.89		(39)	%

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Sales

The ~~tables~~table below ~~reconcile~~reconciles sales to organic ~~sales:~~sales for the six months ended June 30, 2022. Sales for the three months ended June 30, 2022 and 2021 were not impacted by the sale of the company's IT services business:

Three Months Ended September 30
2021 2020
$ in millions Sales IT services sales Organic
sales Sales IT services sales Organic
sales Organic sales % change
Aeronautics Systems $ 2,725 $ — $ 2,725 $ 2,914 $ — $ 2,914 (6) %
Defense Systems 1,409 — 1,409 1,859 (425) 1,434 (2) %
Mission Systems 2,436 — 2,436 2,551 (133) 2,418 1 %
Space Systems 2,681 — 2,681 2,198 (48) 2,150 25 %
Intersegment eliminations (531) — (531) (439) 4 (435)
Total $ 8,720 $ — $ 8,720 $ 9,083 $ (602) $ 8,481 3 %


		Nine Months Ended September 30													Six Months Ended June 30
			2021						2020										2022						2021
$ in millions	$ in millions		Sales		IT services sales		Organic sales		Sales		IT services sales		Organic sales			Organic sales % change		$ in millions	Sales		IT services sales		Organic sales		Sales		IT services sales		Organic sales		Organic sales % change
Aeronautics Systems	Aeronautics Systems		$	8,628	$	—	$	8,628	$	8,682	$	—	$	8,682		(1)	%	Aeronautics Systems	$	5,237	$	—	$	5,237	$	5,903	$	—	$	5,903	(11)	%
Defense Systems	Defense Systems		4,398		(106)		4,292		5,626		(1,230)		4,396			(2)	%	Defense Systems	2,577		—		2,577		2,989		(106)		2,883		(11)	%
Mission Systems	Mission Systems		7,613		(42)		7,571		7,344		(394)		6,950			9	%	Mission Systems	5,013		—		5,013		5,177		(42)		5,135		(2)	%
Space Systems	Space Systems		7,950		(16)		7,934		6,194		(135)		6,059			31	%	Space Systems	5,834		—		5,834		5,269		(16)		5,253		11	%
Intersegment eliminations	Intersegment eliminations		(1,561)		2		(1,559)		(1,259)		13		(1,246)					Intersegment eliminations	(1,063)		—		(1,063)		(1,030)		2		(1,028)
Total	Total		$	27,028	$	(162)	$	26,866	$	26,587	$	(1,746)	$	24,841		8	%	Total	$	17,598	$	—	$	17,598	$	18,308	$	(162)	$	18,146	(3)	%

Current Quarter

~~Third~~Second quarter ~~2021~~2022 sales decreased ~~$363~~$350 million ~~or 4 percent,~~ due to lower sales at Aeronautics Systems, Defense Systems and ~~Missions Systems, principally due to the impact of the IT services divestiture, and lower sales at Aeronautics~~Mission Systems, partially offset by 228 percent ~~sales~~ growth at Space Systems. ~~Third~~Second quarter ~~2021~~2022 sales ~~were affected by~~reflect continued headwinds from the ~~impact of COVID-19 on the broader economic~~macroeconomic environment, including a tight labor market ~~elevated levels~~and extended material lead times, which are affecting the timing of ~~employee leave, and supply chain challenges. Third quarter 2021 organic sales increased $239 million, or 3 percent.~~sales.

Year to Date

Year to date ~~2021~~2022 sales ~~increased $441~~decreased $710 million ~~or 2 percent, primarily~~ due, in part, to ~~higher~~a $162 million reduction in sales ~~at Space Systems and Mission Systems, partially offset by lower sales at Defense Systems, principally due~~related to ~~the impact of~~ the IT services divestiture. Year to date ~~2021~~2022 organic sales ~~increased $2.0 billion,~~decreased $548 million, or ~~8 percent. As a result of the company using a fiscal calendar convention for interim reporting periods (as described in Note 1~~3 percent, primarily due to ~~the financial statements), year to date 2021~~lower sales at ~~each sector benefited approximately 2~~Aeronautics Systems and Defense Systems, partially offset by 11 percent ~~from three additional working days when compared to the prior year period.~~growth at Space Systems.

See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 9 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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~~NORTHROP GRUMMAN CORPORATION~~

Operating Income and Margin Rate

Current Quarter

~~Third~~Second quarter ~~2021~~2022 operating income ~~increased $58~~decreased $90 million, or 69 percent, primarily due to a $69 million reduction in the FAS/CAS operating adjustment and lower ~~unallocated corporate expense, partially offset by a~~sales. Second quarter 2022 operating margin rate declined to 10.8 percent due to the lower FAS/CAS operating ~~adjustment. Third~~adjustment, partially offset by lower unallocated corporate expense.

Second quarter ~~2021 operating margin rate increased to 12.0 percent reflecting a higher segment operating margin rate in addition to the items above.~~

~~Third quarter 2021~~2022 general and administrative (G&A) costs as a percentage of sales increased to ~~10.2~~11.4 percent from ~~9.4~~10.9 percent in the prior year period primarily due to an increase in investments for future business ~~opportunities as well as the timing of indirect cost recognition during the quarter.~~opportunities.

Year to ~~Date~~date

Year to date ~~2021~~2022 operating income ~~increased~~decreased $2.0 billion, or 6952 percent, primarily due to ~~the IT services divestiture, including the~~a $2.0 billion pre-tax gain on sale and $192 million of unallocated corporate ~~expense for unallowable state taxes and transaction costs.~~expenses recognized in the prior year associated with the IT services divestiture. Operating income also ~~increased~~decreased due to ~~lower non-divestiture-related unallocated corporate expenses and higher segment operating income, partially offset by~~ a ~~lower~~$134 million reduction in the FAS/CAS operating ~~adjustment.~~adjustment and lower sales. Year to date ~~2021~~2022 operating margin rate ~~increased~~declined to ~~18.2~~10.5 percent, ~~reflecting~~largely due to the ~~items above.~~prior year gain on sale of the IT services business.

Year to date ~~2021~~2022 G&A costs as a percentage of sales increased to ~~10.3~~11.3 percent from ~~9.3~~10.4 percent in the prior year period primarily due to an increase in investments for future business ~~opportunities as well as the timing of indirect cost recognition during the year.~~opportunities.

See “Segment Operating Results” below for further information by segment. For information regarding product and service operating costs and expenses, see “Product and Service Analysis” below.

Federal and Foreign Income Taxes

Current Quarter

The ~~third~~second quarter ~~2021 effective tax rate (ETR) increased~~2022 ETR decreased to ~~16.6~~17.7 percent from ~~15.5~~20.4 percent in the prior year ~~period primarily due~~period. The second quarter 2021 ETR was impacted by a change made in tax revenue recognition on certain long term contracts, which increased taxable income in years prior to ~~lower benefits from foreign-derived intangible income. See~~the 2017 Tax Cuts and Jobs Act at a rate above the current statutory rate.See Note 3 to the financial statements for additional information.

~~Year to Date~~

The year to date 2021 ETR increased to 23.2 percent from 16.5 percent in the prior period primarily due to federal income taxes resulting from the IT services divestiture. See Note 3 to the financial statements for additional information.

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NORTHROP GRUMMAN CORPORATION

Year to Date

The year to date 2022 ETR decreased to 17.1 percent from 25.2 percent in the prior year period. The year to date 2021 ETR was impacted by additional federal income taxes resulting from the IT services divestiture, as well as the change in tax revenue recognition on certain contracts described above. See Note 3 to the financial statements for additional information.

Net Earnings

The table below reconciles net earnings to transaction-adjusted net earnings:


		Three Months Ended September 30				%		Nine Months Ended September 30				%			Three Months Ended June 30				%		Six Months Ended June 30				%
$ in millions	$ in millions	2021		2020		Change		2021		2020		Change		$ in millions	2022		2021		Change		2022		2021		Change
Net earnings	Net earnings	$	1,063	$	986	8	%	$	4,295	$	2,859	50	%	Net earnings	$	946	$	1,037	(9)	%	$	1,901	$	3,232	(41)	%
Gain on sale of business	Gain on sale of business	—		—		NM		(1,980)		—		NM		Gain on sale of business	—		—		NM		—		(1,980)		NM
State tax impact1	State tax impact1	—		—		NM		160		—		NM		State tax impact1	—		—		NM		—		160		NM
Transaction costs	Transaction costs	—		—		NM		32		—		NM		Transaction costs	—		—		NM		—		32		NM
Make-whole premium	Make-whole premium	—		—		NM		54		—		NM		Make-whole premium	—		—		NM		—		54		NM
Federal tax impact of items above2	Federal tax impact of items above2	—		—		NM		614		—		NM		Federal tax impact of items above2	—		—		NM		—		614		NM
Adjustment, net of tax		$	—	$	—	NM		$	(1,120)	$	—	NM
Transaction adjustment, net of tax														Transaction adjustment, net of tax	$	—	$	—	NM		$	—	$	(1,120)	NM
Transaction-adjusted net earnings	Transaction-adjusted net earnings	$	1,063	$	986	8	%	$	3,175	$	2,859	11	%	Transaction-adjusted net earnings	$	946	$	1,037	(9)	%	$	1,901	$	2,112	(10)	%

(1)The state tax impact includes $62 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.

(2)The federal tax impact was calculated by applying the 21 percent federal statutory rate to the adjustment items and also includes $250 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.

Current Quarter

~~Third~~Second quarter ~~2021~~2022 net earnings ~~increased $77~~decreased $91 million, or 89 percent, primarily due to ~~an increase in~~the lower operating income described above and $60 million of lower returns on marketable securities related to our non-qualified benefit plans and other non-operating ~~FAS pension benefit and higher operating income,~~assets, partially offset by ~~an increase in income~~a lower effective tax ~~expense.~~rate.

Year to Date

Year to date ~~2021~~2022 net earnings ~~increased $1.4~~decreased $1.3 billion, or 5041 percent, primarily due to a $1.1 billion after-tax decline associated with the IT services divestiture. Transaction-adjusted net earnings ~~increased $316~~decreased $211 million, or 1110 percent, primarily due to ~~higher segment~~the lower operating income described above and ~~an increase in~~$93 million of lower returns on marketable securities related to our non-qualified benefit plans and other non-operating ~~FAS pension benefit,~~assets, partially offset by ~~an increase in income~~a lower effective tax ~~expense.~~rate.

Diluted Earnings Per Share

The table below reconciles diluted earnings per share to transaction-adjusted EPS:


		Three Months Ended September 30				%		Nine Months Ended September 30				%			Three Months Ended June 30				%		Six Months Ended June 30				%
		2021		2020		Change		2021		2020		Change			2022		2021		Change		2022		2021		Change
Diluted EPS	Diluted EPS	$	6.63	$	5.89	13	%	$	26.55	$	17.05	56	%	Diluted EPS	$	6.06	$	6.42	(6)	%	$	12.16	$	19.89	(39)	%
Gain on sale of business per share	Gain on sale of business per share	—		—		NM		(12.24)		—		NM		Gain on sale of business per share	—		—		NM		—		(12.18)		NM
State tax impact per share1	State tax impact per share1	—		—		NM		0.99		—		NM		State tax impact per share1	—		—		NM		—		0.98		NM
Transaction costs per share	Transaction costs per share	—		—		NM		0.20		—		NM		Transaction costs per share	—		—		NM		—		0.20		NM
Make-whole premium per share	Make-whole premium per share	—		—		NM		0.33		—		NM		Make-whole premium per share	—		—		NM		—		0.33		NM
Federal tax impact of line items above per share2	Federal tax impact of line items above per share2	—		—		NM		3.79		—		NM		Federal tax impact of line items above per share2	—		—		NM		—		3.78		NM
Adjustment, net of tax per share		$	—	$	—	NM		$	(6.93)	$	—	NM
Transaction adjustment per share, net of tax														Transaction adjustment per share, net of tax	$	—	$	—	NM		$	—	$	(6.89)	NM
Transaction-adjusted EPS	Transaction-adjusted EPS	$	6.63	$	5.89	13	%	$	19.62	$	17.05	15	%	Transaction-adjusted EPS	$	6.06	$	6.42	(6)	%	$	12.16	$	13.00	(6)	%

(1)The state tax impact includes $62 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.

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NORTHROP GRUMMAN CORPORATION

Current Quarter

~~Third~~Second quarter ~~2021~~2022 diluted earnings per share ~~increased 13~~decreased 6 percent, reflecting ~~an 8~~a 9 percent ~~increase~~decrease in net earnings and a 43 percent reduction in weighted-average diluted shares outstanding.

Year to Date

Year to date ~~2021~~2022 diluted earnings per share ~~increased 56~~decreased 39 percent, principally due to a ~~$6.93 increase~~$6.89 after-tax decrease associated with the IT services divestiture. Transaction-adjusted earnings per share ~~increased $2.57,~~decreased $0.84, or 156 percent, reflecting ~~an 11~~a 10 percent ~~increase~~decrease in transaction-adjusted net earnings and a 4 percent reduction in weighted-average diluted shares outstanding.

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~~NORTHROP GRUMMAN CORPORATION~~

SEGMENT OPERATING RESULTS

Basis of Presentation

The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities:

Aeronautics Systems

Defense Systems

Mission Systems

Space Systems

Autonomous Systems

Battle Management & Missile Systems

Airborne Multifunction Sensors

Launch & Strategic Missiles

Manned Aircraft

Mission Readiness

Maritime/Land Systems & Sensors

Space

Navigation, Targeting & Survivability

Networked Information Solutions

Effective during the first quarter of 2021 within Mission Systems, the businesses of the former Cyber & Intelligence Mission Solutions business area that remained with Northrop Grumman after the IT services divestiture were merged with the Communications business unit and F-35 Communications, Navigation and Identification programs within the former Airborne, Sensors & Networks business area to form the Networked Information Solutions business area. The Airborne Sensors & Networks business area was then renamed the Airborne Multifunction Sensors business area to better reflect its new portfolio. This change had no impact on the segment operating results of Mission Systems as a whole.

This section discusses segment sales, operating income and operating margin rates. In evaluating segment operating performance, we look primarily at changes in sales and operating income. Where applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between products and services. Changes in sales are generally described in terms of volume, while changes in margin rates are generally described in terms of performance and/or contract mix. For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability. 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).

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Segment Operating Income and Margin Rate

Segment operating income, as reconciled in the table below, and segment operating margin rate (segment operating income divided by sales) are non-GAAP ~~(accounting principles generally accepted in the United States of America)~~ measures that reflect ~~total earnings from~~the combined operating income of our four segments ~~including allocated~~less the operating income associated with intersegment sales. Segment operating income includes pension expense ~~we have recognized~~allocated to our sectors under ~~the Federal Acquisition Regulation (FAR)~~FAR and ~~the related U.S. Government Cost Accounting Standards (CAS),~~CAS and ~~excluding~~excludes FAS pension service expense and unallocated corporate items (certain corporate-level expenses, which are not considered allowable or allocable under ~~requirements in the~~ applicable FAR and CAS ~~or FAR,~~requirements, and costs not considered part of management’s evaluation of segment operating performance). These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the financial performance and operational trends of our sectors. These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.


		Three Months Ended September 30						%		Nine Months Ended September 30						%			Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	$ in millions	2021			2020			Change		2021			2020			Change		$ in millions	2022			2021			Change		2022			2021			Change
Segment operating income		$	1,035		$	1,049		(1)	%	$	3,247		$	3,047		7	%
Segment operating margin rate		11.9		%	11.5		%			12.0		%	11.5		%
CAS pension expense		165			210			(21)	%	409			622			(34)	%
Less: FAS pension service expense		(104)			(102)			2	%	(311)			(306)			2	%
FAS/CAS operating adjustment		61			108			(44)	%	98			316			(69)	%
Gain on sale of business		—			—			NM		1,980			—			NM
IT services divestiture – unallowable state taxes and transaction costs		—			—			NM		(192)			—			NM
Intangible asset amortization and PP&E step-up depreciation		(62)			(81)			(23)	%	(191)			(240)			(20)	%

Other unallocated corporate expense		9			(91)			(110)	%	(33)			(210)			(84)	%
Unallocated corporate (expense) income		(53)			(172)			(69)	%	1,564			(450)			(448)	%
Operating income		$	1,043		$	985		6	%	$	4,909		$	2,913		69	%

Operating income																		Operating income	$	954		$	1,044		(9)	%	$	1,851		$	3,866		(52)	%
Reconciliation to segment operating income:																		Reconciliation to segment operating income:
CAS pension expense																		CAS pension expense	$	(41)		$	(121)		(66)	%	$	(87)		$	(244)		(64)	%
FAS pension service expense																		FAS pension service expense	92			103			(11)	%	184			207			(11)	%
FAS/CAS operating adjustment																		FAS/CAS operating adjustment	51			(18)			NM		97			(37)			NM
Gain on sale of business																		Gain on sale of business	—			—			—	%	—			(1,980)			NM
IT services divestiture – unallowable state taxes and transaction costs																		IT services divestiture – unallowable state taxes and transaction costs	—			—			—	%	—			192			NM
Intangible asset amortization and PP&E step-up depreciation																		Intangible asset amortization and PP&E step-up depreciation	61			64			(5)	%	121			129			(6)	%

Other unallocated corporate expense																		Other unallocated corporate expense	7			27			(74)	%	41			42			(2)	%
Unallocated corporate expense (income)																		Unallocated corporate expense (income)	68			91			(25)	%	162			(1,617)			NM
Segment operating income																		Segment operating income	$	1,073		$	1,117		(4)	%	$	2,110		$	2,212		(5)	%
Segment operating margin rate																		Segment operating margin rate	12.2		%	12.2		%			12.0		%	12.1		%

Current Quarter

~~Third~~Second quarter ~~2021~~2022 segment operating income decreased ~~$14~~$44 million, or 14 percent due to lower ~~sales, partially offset by a higher~~sales. Second quarter 2022 segment operating margin ~~rate. Third quarter 2020 segment operating income from the IT services business~~rate was ~~$69 million. Lower operating income at Defense Systems, principally due~~comparable to the ~~impact of the IT services divestiture,~~prior year period and ~~Aeronautics Systems was partially offset by higher operating income at Space Systems. Segment operating margin rate increased to 11.9 percent from 11.5 percent due to~~reflects higher operating margin rates at Mission Systems and Defense Systems, ~~and Space Systems, partially~~ offset by a lower operating margin ~~rate~~rates at Space Systems and Aeronautics Systems.

Year to Date

Year to date ~~2021~~2022 segment operating income ~~increased $200~~decreased $102 million, or 7 percent, due to higher sales and a higher segment operating margin rate. Higher operating income at Space Systems and Mission Systems was partially offset by lower operating income at Defense Systems due to the impact of the IT services divestiture.5 percent. Year to date 2021 segment operating income included $20 million from the IT services business, ~~was $20 million~~ as ~~compared to $180 million in the prior year period. Year to date 2021 segment operating income includes~~well as a ~~first quarter 2021~~ benefit of approximately $100 million due to the impact of lower overhead rates on the company’s fixed price contracts. The lower projected overhead rates were principally driven by a reduction in projected CAS pension costs as well as operational performance at the sectors, which more than offset lower business base dueYear to ~~the IT services divestiture. Segment~~date 2022 segment operating margin rate ~~increased~~decreased to 12.0 percent from ~~11.5~~12.1 percent and reflects a lower operating margin rate at Space Systems, partially offset by higher operating margin rates at ~~all four sectors largely as a result~~each of the ~~items discussed above.~~other sectors.

FAS/CAS Operating Adjustment

~~Third~~Second quarter ~~2021~~2022 and year to date ~~2021~~2022 FAS/CAS operating adjustment decreased primarily due to lower CAS pension expense resulting from favorable plan asset returns in ~~2020~~2021 and changes in certain CAS actuarial assumptions as of December 31, ~~2020. Third~~2021.

Unallocated Corporate Expense (Income)

Current Quarter

The decrease in second quarter ~~2021 CAS pension~~2022 unallocated corporate expense ~~also reflects~~is primarily due to a ~~$44 million benefit from updated demographic information.~~reduction in corporate unallowable costs.

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~~Unallocated Corporate (Expense) Income~~

~~Current Quarter~~

The decrease in third quarter 2021 unallocated corporate expense is due, in part, to a $60 million benefit from insurance settlements related to shareholder litigation involving the former Orbital ATK prior to the company’s acquisition, that was resolved in June 2019. Unallocated corporate expense also decreased due to~~a change in deferred state income taxes related to our methods of timing of revenue recognition and related costs as well as lower intangible asset amortization and PP&E step-up depreciation.~~

Year to Date

The ~~increase~~change in year to date ~~2021~~2022 unallocated corporate ~~(expense) income~~expense (income) is primarily due to athe $2.0 billion pre-tax gain on ~~the~~ sale ~~of our IT services business, partially offset by~~and $192 million of unallowable state taxes and transaction costs recognized in the prior year associated with the IT services divestiture. Unallocated corporate (expense) income also increased due to the current quarter items described above, as well as a net increase in deferred state tax assets related to certain state tax legislation adopted in 2020 that places temporary limitations on tax credits and a change in tax revenue recognition on certain contracts.

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 reported sales and operating income and the aggregate amounts are presented in the table below:


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
$ in millions	$ in millions	2021		2020		2021		2020		$ in millions	2022		2021		2022		2021
Favorable EAC adjustments	Favorable EAC adjustments	$	273	$	271	$	930	$	788	Favorable EAC adjustments	$	317	$	309	$	674	$	657
Unfavorable EAC adjustments	Unfavorable EAC adjustments	(164)		(148)		(477)		(429)		Unfavorable EAC adjustments	(225)		(155)		(409)		(313)
Net EAC adjustments	Net EAC adjustments	$	109	$	123	$	453	$	359	Net EAC adjustments	$	92	$	154	$	265	$	344

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


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
$ in millions	$ in millions	2021		2020		2021		2020		$ in millions	2022		2021		2022		2021
Aeronautics Systems	Aeronautics Systems	$	(2)	$	—	$	67	$	34	Aeronautics Systems	$	(9)	$	32	$	94	$	69
Defense Systems	Defense Systems	37		58		95		119		Defense Systems	50		28		75		58
Mission Systems	Mission Systems	43		58		192		196		Mission Systems	29		61		86		149
Space Systems	Space Systems	33		10		103		15		Space Systems	31		33		23		70
Eliminations	Eliminations	(2)		(3)		(4)		(5)		Eliminations	(9)		—		(13)		(2)
Net EAC adjustments	Net EAC adjustments	$	109	$	123	$	453	$	359	Net EAC adjustments	$	92	$	154	$	265	$	344

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


AERONAUTICS SYSTEMS	AERONAUTICS SYSTEMS	Three Months Ended September 30						%		Nine Months Ended September 30						%		AERONAUTICS SYSTEMS	Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	$ in millions	2021			2020			Change		2021			2020			Change		$ in millions	2022			2021			Change		2022			2021			Change
Sales	Sales	$	2,725		$	2,914		(6)	%	$	8,628		$	8,682		(1)	%	Sales	$	2,534		$	2,913		(13)	%	$	5,237		$	5,903		(11)	%
Operating income	Operating income	265			294			(10)	%	873			867			1	%	Operating income	258			300			(14)	%	565			608			(7)	%
Operating margin rate	Operating margin rate	9.7		%	10.1		%			10.1		%	10.0		%			Operating margin rate	10.2		%	10.3		%			10.8		%	10.3		%

Sales

Current Quarter

~~Third~~Second quarter ~~2021~~2022 sales decreased ~~$189~~$379 million, or 613 percent, due to lower volume in both Manned Aircraft and Autonomous Systems, including restricted programs, F-35, ~~the B-2 Defensive Management Systems Modernization (DMS) program and certain~~ Global Hawk, and the NATO Alliance Ground Surveillance (AGS) program, as Full System Handover occurred early in the second quarter of 2022.

Year to Date

Year to date 2022 sales decreased $666 million, or 11 percent, due to lower volume in both Manned Aircraft and Autonomous Systems, including restricted programs and the E-2, Global Hawk, F-35 and Triton programs.

Operating Income

Current Quarter

Second quarter 2022 operating income decreased $42 million, or 14 percent, primarily due to lower sales. Operating margin rate decreased to 10.2 percent from 10.3 percent primarily due to lower net EAC adjustments, principally associated with restricted work and close-out of an international program, partially offset by a $38 million gain on a property sale.

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Year to Date

Year to date 2021 sales decreased $54 million, or 1 percent, due to lower volume at Autonomous Systems, which was partially offset by higher volume at Manned Aircraft. Lower A350 production activity, and lower volume on B-2 DMS and certain Global Hawk programs, was partially offset by higher volume on E-2 and restricted programs.

~~Operating Income~~

~~Current Quarter~~

~~Third quarter 2021~~2022 operating income decreased ~~$29~~$43 million, or 107 percent, due to lower sales, ~~and~~partially offset by a ~~lower~~higher operating margin rate. Operating margin rate ~~decreased~~increased to ~~9.7~~10.8 percent from ~~10.1~~10.3 percent ~~principally~~primarily due to a ~~$42~~$38 million ~~unfavorable EAC adjustment~~gain on ~~F-35 due to labor-related production inefficiencies largely driven by COVID-19-related impacts on the labor market~~a property sale and ~~employee leave. This was partially offset by~~ higher net favorable EAC adjustments. Higher net favorable EAC adjustments ~~at Autonomous Systems.~~reflect a $67 million favorable EAC adjustment on the engineering, manufacturing and development phase of the B-21 program largely related to performance incentives, partially offset by lower net EAC adjustments associated with other restricted work. Prior year results include the previously described overhead rate benefit to fixed price contracts.


DEFENSE SYSTEMS	Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	2022			2021			Change		2022			2021			Change
Sales	$	1,294		$	1,427		(9)	%	$	2,577		$	2,989		(14)	%
Operating income	168			177			(5)	%	323			354			(9)	%
Operating margin rate	13.0		%	12.4		%			12.5		%	11.8		%

Sales

Current Quarter

Second quarter 2022 sales decreased $133 million, or 9 percent, primarily due to completion of a Joint Services support program, lower scope on an international training program, and wind down of the UKAWACS and JSTARS programs.

Year to Date

Year to date 2021 operating income was consistent with the prior year period and operating margin rate increased to 10.1 percent from 10.0 percent principally due to higher net favorable EAC adjustments, which were largely driven by the first quarter 2021 reduction in overhead rates, partially offset by the unfavorable F-35 adjustment discussed above.

DEFENSE SYSTEMS Three Months Ended September 30 % Nine Months Ended September 30 %
$ in millions 2021 2020 Change 2021 2020 Change
Sales $ 1,409 $ 1,859 (24) % $ 4,398 $ 5,626 (22) %
Operating income 175 217 (19) % 529 632 (16) %
Operating margin rate 12.4 % 11.7 % 12.0 % 11.2 %

~~Sales~~

~~Current Quarter~~

~~Third quarter 2021~~2022 sales decreased ~~$450~~$412 million, or 2414 percent, ~~primarily~~ due, in part, to a $425 million reduction in sales related to the IT services divestiture. Third quarter 2021 organic sales decreased $25 million, or 2 percent, principally due to the close-out of the contract at the Army’s Lake City ammunition plant (Lake City), partially offset by higher volume on several Mission Readiness programs, including the U.S. Customs and Border Protection P-3 (CBP P-3) program.

~~Year to Date~~

Year to date 2021 sales decreased $1.2 billion, or 22 percent, primarily due to a $1.1 billion reduction in sales related to the IT services divestiture. Year to date 2021 organic sales decreased $104 million, or 2 percent, principally due to the close-out of Lake City, partially offset by higher volume on several programs including the Guided Missile Launch Rocket System, Republic of Korea Global Hawk Contractor Logistics Support (ROK Global Hawk CLS), CBP P-3, B-2 sustainment and advanced fuzes.

~~Operating Income~~

~~Current Quarter~~

Third quarter 2021 operating income decreased $42 million, or 19 percent, primarily due to the impact of the IT services divestiture. Operating margin rate increased to 12.4 percent from 11.7 percent and reflects improved performance at Battle Management and Missile Systems due to changes in mix as a result of recent contract completions, partially offset by lower net favorable EAC adjustments.

~~Year to Date~~

Year to date 2021 operating income decreased $103 million, or 16 percent, primarily due to the impact of the IT services divestiture. Operating margin rate increased to 12.0 percent from 11.2 percent primarily due to improved performance at Battle Management and Missile Systems and lower net favorable EAC adjustments as described above.

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MISSION SYSTEMS Three Months Ended September 30 % Nine Months Ended September 30 %
$ in millions 2021 2020 Change 2021 2020 Change
Sales $ 2,436 $ 2,551 (5) % $ 7,613 $ 7,344 4 %
Operating income 372 370 1 % 1,177 1,070 10 %
Operating margin rate 15.3 % 14.5 % 15.5 % 14.6 %

~~Sales~~

~~Current Quarter~~

Third quarter 2021 sales decreased $115 million, or 5 percent, due to a $133 million reduction in sales related to the IT services divestiture. Third quarter 2021 organic sales increased $18 million, or 1 percent. Navigation, Targeting and Survivability sales increased primarily due to higher intercompany volume on the ramp up of the Ground Based Strategic Deterrent (GBSD) program. Maritime/Land Systems and Sensors sales increased principally due to higher volume on land systems, including the Ground/Air Task-Oriented Radar (G/ATOR) program. Networked Information Solutions sales decreased primarily due to lower volume on F-35 and restricted programs, partially offset by higher volume on the Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW) program.

~~Year to Date~~

~~Year to date 2021 sales increased $269 million, or 4 percent, due to higher volume across the sector, partially offset by a $352~~$106 million reduction in sales related to the IT services divestiture. Year to date ~~2021~~2022 organic sales ~~increased $621~~decreased $306 million, or 9 percent. Maritime/Land Systems and Sensors sales increased primarily due to higher volume on land systems, including G/ATOR, and higher marine systems, restricted and international volume. Navigation, Targeting and Survivability sales increased11 percent, principally due to ~~higher intercompany~~lower scope on an international training program, completion of a Joint Services support program, and lower volume on ~~GBSD ramp up as well as higher volume on infrared countermeasures and targeting programs. Airborne Multifunction Sensors sales increased principally due to higher airborne radar volume, including on~~ the Scalable Agile Beam Radar (SABR) program, and higher restricted volume. Networked Information Solutions sales increased principally due to higher volume on electronic warfare programs, including JCREW.Advanced Anti-Radiation Guided Missile (AARGM).

Operating Income

Current Quarter

~~Third~~Second quarter ~~2021~~2022 operating income was consistent with the prior year period and reflects a higher operating margin rate and lower sales. Operating margin rate increased to 15.3 percent from 14.5 percent principally due to improved performance and changes in contract mix toward more fixed-price content, largely as a result of the IT services divestiture, partially offset by lower net favorable EAC adjustments.

~~Year to Date~~

~~Year to date 2021 operating income increased $107~~decreased $9 million, or 105 percent, due to ~~higher~~lower sales, ~~volume and~~partially offset by a higher operating margin rate. Operating margin rate increased to ~~15.5~~13.0 percent from ~~14.6~~12.4 percent ~~and reflects~~primarily due to improved performance ~~the favorable resolution of certain government accounting matters~~ in ~~the second quarter of 2021~~Battle Management and ~~mix changes largely related~~Missile Systems.

Year to ~~the IT services divestiture, as discussed above.~~Date

SPACE SYSTEMS Three Months Ended September 30 % Nine Months Ended September 30 %
$ in millions 2021 2020 Change 2021 2020 Change
Sales $ 2,681 $ 2,198 22 % $ 7,950 $ 6,194 28 %
Operating income 288 224 29 % 865 635 36 %
Operating margin rate 10.7 % 10.2 % 10.9 % 10.3 %

~~Sales~~

~~Current Quarter~~

~~Third quarter 2021 sales increased $483~~Year to date 2022 operating income decreased $31 million, or 229 percent, due, in part, to ~~higher sales in both the Launch & Strategic Missiles and Space business areas, partially offset by~~ a ~~$48~~$14 million reduction in ~~sales~~operating income related to the IT services divestiture. ~~Third quarter 2021~~Lower organic sales volume was partially offset by a higher operating margin rate, which increased ~~$531 million, or 25 percent. Launch & Strategic Missiles sales increased~~to 12.5 percent from 11.8 percent primarily due to ~~ramp-up~~improved performance in Battle Management and Missile Systems.


MISSION SYSTEMS	Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	2022			2021			Change		2022			2021			Change
Sales	$	2,516		$	2,588		(3)	%	$	5,013		$	5,177		(3)	%
Operating income	413			408			1	%	798			805			(1)	%
Operating margin rate	16.4		%	15.8		%			15.9		%	15.5		%

Sales

Current Quarter

Second quarter 2022 sales decreased $72 million, or 3 percent, primarily due to lower volume on ~~development~~Navigation, Targeting and Survivability programs, ~~such as GBSD~~the Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW) program, and airborne radar programs. These decreases were partially offset by an increase in restricted sales in the ~~Next Generation Interceptor (NGI) program. Space sales were driven by~~Networked Information Solutions business area and higher volume on ~~restricted programs.~~Ground/Air Task-Oriented Radar (G/ATOR) and Surface Electronic Warfare Improvement Program (SEWIP).

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Year to Date

Year to date ~~2021~~2022 sales decreased $164 million, or 3 percent, due, in part, to a $42 million reduction in sales related to the IT services divestiture. Year to date 2022 organic sales decreased $122 million, or 2 percent, primarily due to lower volume on Navigation, Targeting and Survivability programs, the JCREW program and airborne radar programs. These decreases were partially offset by an increase in restricted sales in the Networked Information Solutions business area and higher volume on G/ATOR and SEWIP.

Operating Income

Current Quarter

Second quarter 2022 operating income increased $5 million, or 1 percent, due to a higher operating margin rate. Operating margin rate increased to 16.4 percent from 15.8 percent principally due to a $33 million benefit recognized in connection with a contract-related legal matter, partially offset by lower net EAC adjustments at Maritime/Land Systems and Sensors.

Year to Date

Year to date 2022 operating income decreased $7 million, or 1 percent, principally due to lower sales, partially offset by a higher operating margin rate. Operating margin rate increased to 15.9 percent from 15.5 percent principally due to a $33 million benefit recognized in connection with a contract-related legal matter, partially offset by the previously described overhead rate benefit to fixed price contracts in the prior year.


SPACE SYSTEMS	Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	2022			2021			Change		2022			2021			Change
Sales	$	2,979		$	2,748		8	%	$	5,834		$	5,269		11	%
Operating income	310			301			3	%	571			577			(1)	%
Operating margin rate	10.4		%	11.0		%			9.8		%	11.0		%

Sales

Current Quarter

Second quarter 2022 sales increased ~~$1.8 billion,~~$231 million, or 288 percent, primarily due to higher sales in the Launch & Strategic Missiles business area due to ramp-up on development programs, including a $123 million increase on the Next Generation Interceptor (NGI) program and a $95 million increase on the Ground Based Strategic Deterrent (GBSD) program. Sales in the Space business area were comparable with the prior year period and reflect higher volume on restricted programs and the Space Development Agency (SDA) Tranche 1 Transport Layer (T1TL) program, partially offset by lower volume on the James Webb Space Telescope after its successful launch in December 2021.

Year to Date

Year to date 2022 sales increased $565 million, or 11 percent, and includes a $16 million reduction in sales related to the IT services divestiture. Year to date 2022 organic sales increased $581 million, or 11 percent, due to higher sales in both the Launch & Strategic Missiles and Space business ~~areas, partially offset by a $119 million reduction in sales related to the IT services divestiture. Year to date 2021 organic sales increased $1.9 billion, or 31 percent.~~areas. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, ~~such as GBSD~~including a $253 million increase on NGI and ~~NGI, as well as higher volume~~a $212 million increase on ~~hypersonics and Commercial Resupply Services (CRS) programs.~~GBSD. Sales in the Space ~~sales~~business area were driven by higher volume on restricted programs, ~~Artemis~~SDA T1TL, and the ~~Next Generation Overhead Persistent Infrared (Next Gen OPIR) program.~~Commercial Resupply Services program, partially offset by lower volume on the James Webb Space Telescope and other commercial space programs.

Operating Income

Current Quarter

~~Third~~Second quarter ~~2021~~2022 operating income increased ~~$64~~$9 million, or 293 percent, due to higher sales, ~~volume and~~partially offset by a ~~higher~~lower operating margin rate. Operating margin rate ~~increased~~decreased to ~~10.7~~10.4 percent from ~~10.2~~11.0 percent ~~principally~~primarily due to higher ~~net favorable EAC adjustments, which were largely driven by improved performance~~volume on ~~restricted programs.~~early-stage development programs, such as NGI and GBSD.

Year to Date

Year to date ~~2021~~2022 operating income ~~increased $230~~decreased $6 million, or 361 percent, due to ~~higher sales volume and~~ a ~~higher~~lower operating margin ~~rate.~~rate, partially offset by higher sales. Operating margin rate ~~increased~~decreased to ~~10.9~~9.8 percent from ~~10.3~~11.0 percent primarily due to ~~higher~~lower net ~~favorable~~ EAC adjustments ~~which were largely driven by improved performance~~and higher volume on ~~commercial space programs and~~early-stage development programs. Prior year results include the ~~first quarter 2021 reduction in~~previously described overhead ~~rates.~~rate benefit to fixed price contracts.

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PRODUCT AND SERVICE ANALYSIS

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


		Three Months Ended September 30								Nine Months Ended September 30									Three Months Ended June 30								Six Months Ended June 30
$ in millions	$ in millions	2021				2020				2021				2020				$ in millions	2022				2021				2022				2021
Segment Information:	Segment Information:	Sales		Operating Costs and Expenses		Sales		Operating Costs and Expenses		Sales		Operating Costs and Expenses		Sales		Operating Costs and Expenses		Segment Information:	Sales		Operating Costs and Expenses		Sales		Operating Costs and Expenses		Sales		Operating Costs and Expenses		Sales		Operating Costs and Expenses
Aeronautics Systems	Aeronautics Systems																	Aeronautics Systems
Product	Product	$	2,233	$	2,023	$	2,469	$	2,231	$	7,241	$	6,527	$	7,390	$	6,677	Product	$	1,916	$	1,733	$	2,484	$	2,230	$	3,961	$	3,537	$	5,008	$	4,504
Service	Service	444		393		415		362		1,250		1,104		1,207		1,062		Service	560		497		384		342		1,153		1,030		806		711
Intersegment eliminations	Intersegment eliminations	48		44		30		27		137		124		85		76		Intersegment eliminations	58		46		45		41		123		105		89		80
Total Aeronautics Systems	Total Aeronautics Systems	2,725		2,460		2,914		2,620		8,628		7,755		8,682		7,815		Total Aeronautics Systems	2,534		2,276		2,913		2,613		5,237		4,672		5,903		5,295
Defense Systems	Defense Systems																	Defense Systems
Product	Product	618		532		735		661		1,939		1,687		2,258		2,041		Product	598		515		641		560		1,208		1,042		1,321		1,155
Service	Service	585		523		933		812		1,873		1,664		2,826		2,469		Service	522		457		591		517		996		882		1,288		1,141
Intersegment eliminations	Intersegment eliminations	206		179		191		169		586		518		542		484		Intersegment eliminations	174		154		195		173		373		330		380		339
Total Defense Systems	Total Defense Systems	1,409		1,234		1,859		1,642		4,398		3,869		5,626		4,994		Total Defense Systems	1,294		1,126		1,427		1,250		2,577		2,254		2,989		2,635
Mission Systems	Mission Systems																	Mission Systems
Product	Product	1,766		1,498		1,735		1,506		5,300		4,506		4,889		4,168		Product	1,748		1,473		1,774		1,515		3,510		2,982		3,534		3,008
Service	Service	426		354		623		511		1,578		1,302		1,902		1,635		Service	509		412		560		451		998		808		1,152		948
Intersegment eliminations	Intersegment eliminations	244		212		193		164		735		628		553		471		Intersegment eliminations	259		218		254		214		505		425		491		416
Total Mission Systems	Total Mission Systems	2,436		2,064		2,551		2,181		7,613		6,436		7,344		6,274		Total Mission Systems	2,516		2,103		2,588		2,180		5,013		4,215		5,177		4,372
Space Systems	Space Systems																	Space Systems
Product	Product	2,228		1,991		1,728		1,550		6,580		5,865		4,788		4,277		Product	2,517		2,250		2,294		2,045		4,941		4,445		4,352		3,874
Service	Service	420		371		445		401		1,267		1,126		1,327		1,211		Service	431		391		423		374		831		762		847		755
Intersegment eliminations	Intersegment eliminations	33		31		25		23		103		94		79		71		Intersegment eliminations	31		28		31		28		62		56		70		63
Total Space Systems	Total Space Systems	2,681		2,393		2,198		1,974		7,950		7,085		6,194		5,559		Total Space Systems	2,979		2,669		2,748		2,447		5,834		5,263		5,269		4,692
Segment Totals	Segment Totals																	Segment Totals
Total Product	Total Product	$	6,845	$	6,044	$	6,667	$	5,948	$	21,060	$	18,585	$	19,325	$	17,163	Total Product	$	6,779	$	5,971	$	7,193	$	6,350	$	13,620	$	12,006	$	14,215	$	12,541
Total Service	Total Service	1,875		1,641		2,416		2,086		5,968		5,196		7,262		6,377		Total Service	2,022		1,757		1,958		1,684		3,978		3,482		4,093		3,555
Total Segment(1)	Total Segment(1)	$	8,720	$	7,685	$	9,083	$	8,034	$	27,028	$	23,781	$	26,587	$	23,540	Total Segment(1)	$	8,801	$	7,728	$	9,151	$	8,034	$	17,598	$	15,488	$	18,308	$	16,096

(1)A reconciliation of segment operating income to total operating income is included in “Segment Operating Results.”

Product Sales and Costs

Current Quarter

Second quarter 2022 product sales decreased $414 million, or 6 percent, primarily due to a decrease in product sales at Aeronautics Systems, partially offset by an increase in product sales at Space Systems. The decrease at Aeronautics Systems was principally due to lower volume on restricted programs, as well as the F-35, Global Hawk and NATO AGS programs. The increase at Space Systems was driven by ramp-up on development programs including NGI and GBSD.

Second quarter 2022 product costs decreased $379 million, or 6 percent, consistent with the lower product sales.

Year to Date

Year to date 2022 product sales decreased $595 million, or 4 percent, primarily due to a decrease in product sales at Aeronautics Systems, partially offset by an increase in product sales at Space Systems. The decrease at Aeronautics Systems was principally due to lower volume on restricted programs, as well as the E-2, Global Hawk, and F-35 programs. The increase at Space Systems is principally related to ramp-up on development programs including NGI and GBSD, as well as higher volume on restricted space programs.

Year to date 2022 product costs decreased $535 million, or 4 percent, consistent with the lower product sales.

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NORTHROP GRUMMAN CORPORATION

~~Product~~Service Sales and Costs

Current Quarter

~~Third~~Second quarter ~~2021 product~~2022 service sales increased ~~$178~~$64 million, or 3 percent, primarily due to an increase in ~~product~~service sales at ~~Space~~Aeronautics Systems, partially offset by ~~decreases~~a decrease in ~~product~~service sales at ~~Aeronautics Systems and~~ Defense Systems. The increase at ~~Space~~Aeronautics Systems was principally due to ~~ramp-up on GBSD and NGI. The decrease at Aeronautics Systems was driven by lower~~higher service volume on restricted ~~programs and F-35.~~programs. The decrease at Defense Systems was primarily driven by the ~~close-out~~completion of ~~Lake City.~~a Joint Services support program and lower volume on an international training program.

~~Third~~Second quarter ~~2021 product~~2022 service costs increased ~~$96~~$73 million, or 24 percent, ~~consistent with the increase in product~~due to higher service sales, ~~above.~~partially offset by lower margins on Space Systems service programs.

Year to Date

Year to date 2021 product sales increased $1.7 billion, or 9 percent, principally due to an increase in product sales at Space Systems and Mission Systems, partially offset by a decrease at Defense Systems. The increase at Space Systems was primarily driven by higher volume on GBSD, restricted programs, Artemis, Next Gen OPIR and NGI. The increase at Mission Systems was driven by higher volume across the sector. The decrease at Defense Systems was primarily driven by the close-out of Lake City.

~~Year to date 2021 product costs increased $1.4 billion, or 8 percent, consistent with the higher product sales described above.~~

~~Service Sales and Costs~~

~~Current~~ ~~Quarter~~

~~Third quarter 2021~~2022 service sales decreased ~~$541~~$115 million, or 223 percent, primarily due to the IT services ~~divestiture. Third quarter 2020 sales from the IT services business, which were largely included in service sales, were $602 million. The reductions associated with the IT services~~ divestiture ~~were partially offset by higher~~as well as lower volume on ~~the CBP P-3~~an international training program and completion of a Joint Services support program at Defense Systems.

~~Third quarter 2021 service costs decreased $445 million, or 21 percent, consistent with~~ Sales from the ~~lower service sales above.~~

~~Year to Date~~

~~Year to date 2021 service sales decreased $1.3 billion, or 18 percent, primarily due to the IT services divestiture. Year to date 2021 sales from the~~divested IT services business, which were largely included in service sales, were $162 million ~~as compared to $1.7 billion~~ in the prior year period. The ~~reductions associated with the IT services divestiture~~decreases were partially offset by higher service volume on ~~the ROK Global Hawk CLS and CBP P-3~~restricted programs at ~~Defense~~Aeronautics Systems.

Year to date ~~2021~~2022 service costs decreased ~~$1.2 billion,~~$73 million, or 192 percent, ~~consistent with the~~due to lower services sales, ~~described above.~~partially offset by higher margins on Mission Systems service programs.

BACKLOG

Backlog consisted of the following as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		September 30, 2021						December 31, 2020					June 30, 2022						December 31, 2021
$ in millions	$ in millions	Funded		Unfunded		Total Backlog		Total Backlog		% Change in 2021		$ in millions	Funded		Unfunded		Total Backlog		Total Backlog		% Change in 2022
Aeronautics Systems	Aeronautics Systems	$	9,115	$	9,938	$	19,053	$	24,002	(21)	%	Aeronautics Systems	$	9,466	$	10,482	$	19,948	$	18,277	9	%
Defense Systems	Defense Systems	5,786		529		6,315		8,131		(22)	%	Defense Systems	5,522		826		6,348		6,349		—	%
Mission Systems	Mission Systems	9,375		3,942		13,317		13,805		(4)	%	Mission Systems	10,557		4,224		14,781		14,306		3	%
Space Systems	Space Systems	6,003		30,137		36,140		35,031		3	%	Space Systems	8,850		30,054		38,904		37,114		5	%
Total backlog	Total backlog	$	30,279	$	44,546	$	74,825	$	80,969	(8)	%	Total backlog	$	34,395	$	45,586	$	79,981	$	76,046	5	%

New Awards

Second quarter and year to date 2022 net awards totaled $13.0 billion and $21.5 billion, respectively, and backlog totaled $80.0 billion. Significant second quarter new awards include $3.5 billion for F-35 at Aeronautics Systems, largely related to Lots 15-17, $2.2 billion for restricted programs (at Aeronautics Systems, Space Systems and Mission Systems), $2.1 billion for GEM63 solid rocket boosters, largely related to Amazon’s Project Kuiper, and $0.5 billion for Triton.

LIQUIDITY AND CAPITAL RESOURCES

We are focused on the efficient conversion of operating income into cash and 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, 2022, we had $1.2 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

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NORTHROP GRUMMAN CORPORATION

~~New Awards~~

~~Third quarter and year to date 2021 net awards totaled $6.9~~aggregate principal amount of $2.0 billion, and $22.3 billion, respectively, and backlog totaled $74.8 billion. Significant third quarter new awards include $1.8 billion for restricted programs, principally at Space and Mission Systems, $0.9 billion for NASA’s Habitation and Logistics Outpost (HALO) module and $0.5 billion for F-35. In connection with the IT services divestiture, the company reduced backlog by $1.4 billion during the first quarter of 2021 ($1.0 billion at Defense Systems, $0.2 billion at Mission Systems and $0.2 billion at Space Systems).in April 2022, we renewed our one-year $500 million uncommitted credit facility. At June 30, 2022, there was no balance outstanding under these credit facilities.

~~LIQUIDITY AND CAPITAL RESOURCES~~

We endeavor to ensure efficient conversion of operating income into cash and to increase shareholder value through cash deployment activities. In addition to our cash position, we use various financial measures to assist 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.

~~At September 30, 2021, we had $4.1 billion in cash and cash equivalents.~~ Effective January 30, 2021, we completed the IT services divestiture for $3.4 billion cash. Proceeds were primarily used in the first quarter of 2021 for a $2.0 billion accelerated share repurchase and to fund redemption of $1.5 billion of the company’s 2.55 percent unsecured notes due October 2022. ~~In April 2021, we renewed our one-year $500 million uncommitted credit facility.~~

COVID-19 and the CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) established a program with provisions to allow U.S. companies to defer the employer’s portion of social security taxes between March 27, 2020 and December 31, 2020 and pay such taxes in two installments in 2021 and 2022. Our first installment of deferred social security taxes of ~~approximately~~$200 million was paid in the fourth quarter of 2021 and the second installment of $200 million is due in the fourth quarter of ~~2021.~~2022. Under Section 3610, the CARES Act also authorized the government to reimburse qualifying contractors for certain costs of providing paid leave to employees as a result of COVID-19. The company continues to seek, and anticipates continuing to seek, recovery for certain COVID-19-related costs under Section 3610 of the CARES Act and through our contract provisions, though it is unclear how much we will be able to recover. In addition, the U.S. Department of Defense (DoD) has, to date, taken steps to increase the rate for certain progress payments from 80 percent to 90 percent for costs incurred and work performed on relevant ~~contracts.~~contracts; it is unclear what steps the DoD will continue to take.

Internal Revenue Code (IRC) Section 174

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years pursuant to IRC Section 174. Congress is considering, but has not passed, legislation that would defer the amortization requirement to later years. If legislation is not passed and made effective retroactively to January 1, 2022, we estimate the provisions currently in effect will reduce cash from operations for the year ended December 31, 2022 by approximately $1 billion. The actual impact on 2022 cash from operations will depend on if and when Congress passes additional legislation, whether such legislation is made effective retroactively, the amount of research and development expenditures incurred and paid by the company during 2022, and whether the IRS issues guidance on the provision which differs from our current interpretation. We have made federal tax payments of approximately $450 million related to Section 174 during the six months ended June 30, 2022.

Cash ~~and~~Flow Measures

In addition to our cash ~~equivalents and~~position, we consider various cash ~~generated from~~flow measures in capital deployment decision-making, including cash provided by operating activities ~~supplemented by borrowings under credit facilities, commercial paper and/or~~and adjusted free cash flow, a non-GAAP measure described in ~~the capital markets, if needed, are expected to be sufficient to fund our operations for at least the next 12 months.~~more detail below.

Operating Cash Flow

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


		Nine Months Ended September 30			%					Six Months Ended June 30	%
$ in millions	$ in millions		2021		2020		Change		$ in millions		2022		2021		Change
Net earnings	Net earnings		$	4,295	$	2,859	50	%	Net earnings		$	1,901	$	3,232	(41)	%
Gain on sale of business	Gain on sale of business		(1,980)		—		NM		Gain on sale of business		—		(1,980)		NM
Non-cash items(1)	Non-cash items(1)		56		740		(92)	%	Non-cash items(1)		(321)		(33)		873	%

Pension and OPB contributions	Pension and OPB contributions		(108)		(100)		8	%	Pension and OPB contributions		(71)		(74)		(4)	%
Changes in trade working capital	Changes in trade working capital		(124)		(816)		(85)	%	Changes in trade working capital		(2,261)		(164)		1,279	%

Other, net	Other, net		(14)		20		(170)	%	Other, net		67		(19)		(453)	%
Net cash provided by operating activities			$	2,125	$	2,703	(21)	%
Net cash (used in) provided by operating activities									Net cash (used in) provided by operating activities		$	(685)	$	962	(171)	%

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

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Year to date ~~2021~~2022 net cash used in operating activities was $685 million compared to net cash provided by operating activities ~~decreased $578~~of $962 million ~~principally~~in the prior year period. This change reflects increases in trade working capital due, in part, to ~~$588~~unexpected delays in the timing of customer payments near the end of the quarter, which pushed certain cash receipts into the early part of the third quarter. In the second quarter of 2022, the company made $450 million of federal ~~and state taxes paid in connection with~~tax payments related to the current provisions of IRC Section 174. In the second quarter of 2021, the company made $390 million of tax payments related to the IT services divestiture.

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

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pension contributions. Adjusted free cash flow includes proceeds from the sale of equipment to a customer as such proceeds were generated in a customer sales transaction. It also includes the after-tax impact of discretionary pension contributions 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 ~~provided by~~used in operating activities to adjusted free cash flow:


		Nine Months Ended September 30			%					Six Months Ended June 30	%
$ in millions	$ in millions		2021		2020		Change		$ in millions		2022		2021		Change
Net cash provided by operating activities			$	2,125	$	2,703	(21)	%
Net cash (used in) provided by operating activities									Net cash (used in) provided by operating activities		$	(685)	$	962	(171)	%
Capital expenditures	Capital expenditures		(682)		(828)		(18)	%	Capital expenditures		(507)		(435)		17	%
Proceeds from sale of equipment to a customer	Proceeds from sale of equipment to a customer		84		—		NM		Proceeds from sale of equipment to a customer		—		56		NM

Adjusted free cash flow	Adjusted free cash flow		$	1,527	$	1,875	(19)	%	Adjusted free cash flow		$	(1,192)	$	583	(304)	%

Year to date ~~2021~~2022 adjusted free cash flow decreased ~~$348 million~~$1.8 billion, as compared with the same period in 2021, due to ~~lower~~higher net cash ~~provided by~~used in operating activities ~~partially offset by a decrease~~and an increase in capital ~~expenditures and the receipt of additional proceeds from the fourth quarter 2020 sale of equipment to a customer.~~expenditures.

Investing Cash Flow

Year to date ~~2021~~2022 net cash used in investing activities was $468 million compared to net cash provided by investing activities ~~was $2.8~~of $3.0 billion ~~compared to net cash used in investing activities of $828 million~~ in the prior year period, principally due to $3.4 billion in cash received from the sale of our IT services business during the first quarter of 2021.

Financing Cash Flow

Year to date ~~2021~~2022 net cash used in financing activities ~~was $5.8~~decreased $3.7 billion, as compared ~~to net cash provided by financing activities of $875 million~~with the same period in ~~the prior year period,~~2021, principally due to ~~$2.7~~a $2.2 billion ~~of share repurchases, $2.2 billion~~decrease in debt repayments and ~~$737 million of dividends paid~~a $1.5 billion reduction in ~~the current year period as compared to $2.2 billion of net proceeds from the issuance of long-term debt, $490 million of~~ share ~~repurchases and $711 million of dividends paid in the prior year period.~~repurchases.

Credit Facilities, Commercial Paper and Financial Arrangements - See Note 6 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.

Long-term Debt - See Note 4 to the financial statements for further information.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

There have been no material changes to our critical accounting policies, estimates or judgments from those discussed in our ~~2020~~2021 Annual Report on Form 10-K.

ACCOUNTING STANDARDS UPDATES

See Note 1 to our financial statements for further information on accounting standards updates.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

This Form 10-Q and the information we are incorporating by reference contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as ~~“will,~~

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“will,” “expect,” “anticipate,” “intend,” “may,” “could,” “should,” “plan,” “project,” “forecast,” “believe,” “estimate,” “outlook,” “trends,” “goals” and similar expressions generally identify these forward-looking statements. Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or cash flows. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially from those expressed or implied in these

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forward-looking statements include, but are not limited to, those identified and discussed more fully in the section entitled “Risk Factors” in our ~~2020~~2021 Annual Report on Form 10-K and from time to time in our other filings with the Securities and Exchange Commission (SEC). These risks and uncertainties are amplified by the global COVID-19 pandemic and the related effects on the broader economic environment, which have caused and will continue to cause significant challenges, instability and uncertainty. They include:

•~~the impact of the COVID-19 pandemic (or future health epidemics, pandemics or similar outbreaks),~~Industry and the related effects on the broader economic environment, on our business, including our ability to maintain a qualified workforce, the potential for worker absenteeism and leave taking, facility closures, work slowdowns or stoppages, labor shortages, supply chain challenges, evolving and varying government requirements, including related to a vaccine mandate, additional costs and liabilities for which we are not compensated, performance challenges, program delays, our ability to recover costs under contracts, changing government funding and acquisition priorities and processes, changing government payment rules and practices, insurance challenges, and potential impacts on access to capital, the markets and the fair value of our assetsEconomic Risks

•our dependence on the U.S. government for a substantial portion of our business

•significant delays or reductions in appropriations for our programs, and U.S. government funding and program support more broadly,

•~~investigations, claims, disputes, enforcement actions, litigation and/or~~ including related to hostilities and other ~~legal proceedings~~global events

•the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs,

•~~our exposure to additional risks~~ including as a result of labor shortages and/or inflationary pressures

•increased competition within our ~~international business, including risks related to geopolitical~~markets and ~~economic factors, suppliers, laws~~bid protests

Legal and ~~regulations~~Regulatory Risks

•investigations, claims, disputes, enforcement actions, litigation and/or other legal proceedings

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

•~~cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners~~

•~~the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials and components~~

•changes in procurement and other laws, SEC and other regulations, contract terms and practices applicable to our industry, findings by the U.S. government as to our compliance with such requirements, and changes in our customers’ business practices globally

•~~increased competition within our markets~~environmental matters, including unforeseen environmental costs and ~~bid protests~~government and third party claims

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

Business and Operational Risks

•impacts of the COVID-19 pandemic (or future health epidemics, pandemics or similar outbreaks), including potential new variants, case surges or prolonged recovery periods, their effects on the broader environment, and varying related government requirements, on: our business, our ability to maintain a qualified and productive workforce, work slowdowns or stoppages, labor shortages, supply chain and logistics challenges, costs we cannot recover and liabilities for which we are not compensated, performance challenges (including cost and schedule), government funding, changes in government acquisition priorities and processes, government payment rules and practices, insurance challenges, and potential impacts on access to capital, the markets and the fair value of our assets

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

•our ability to attract and retain a qualified workforce with the required security clearances and requisite skills to meet our performance obligations

•the performance and viability of our subcontractors and suppliers and the availability and pricing of raw materials and components

•climate change, its impacts on our company, our operations and our stakeholders (employees, suppliers, customers, shareholders and regulators), and changes in laws, regulations and priorities related to greenhouse gas emissions and other climate change related concerns

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

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•our ability to meet performance obligations under our contracts, including obligations that require innovative design capabilities, are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control

•~~environmental matters, including unforeseen environmental costs and government and third party claims~~

•natural disasters

•~~the adequacy and availability of our insurance coverage, customer indemnifications or other liability protections~~

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

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

•our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers

General and Other Risk Factors

•the adequacy and availability of our insurance coverage, customer indemnifications or other liability protections

•the future investment performance of plan assets, gains or losses associated with changes in valuation of marketable securities related to our non-qualified benefit plans, changes in actuarial assumptions associated with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our pension and postretirement benefit obligations

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

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•~~our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers~~

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

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

~~You are urged~~We urge you to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this report is first filed or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

~~CONTRACTUAL OBLIGATIONS~~

~~There have been no material changes to our contractual obligations from those discussed in our 2020 Annual Report on Form 10-K.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risks from those discussed in our ~~2020~~2021 Annual Report on Form 10-K.

Item 4. Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

Our principal executive officer ~~(Chairman,~~(Chair, Chief Executive Officer and President) and principal financial officer (Corporate Vice President and Chief Financial Officer) have evaluated the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) as of ~~September~~June 30, ~~2021,~~2022, and have concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the three months ended ~~September~~June 30, ~~2021,~~2022, no changes occurred in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We have provided information about certain legal proceedings in which we are involved in Notes 5 and 6 to the financial statements.

We are a party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. These types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms include judgments or convictions and consent or other voluntary decrees or agreements); compensatory, treble or other damages; non-monetary relief or actions; or other liabilities. Government regulations provide that certain allegations against a contractor may lead to suspension or debarment from future government contracts or suspension of export privileges for the company or one or more of its components. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. For additional information on pending matters, please see Notes 5 and 6 to the financial statements, and for further information on the risks we face from existing and future investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, please see “Risk Factors” in our ~~2020~~2021 Annual Report on Form 10-K.

Consistent with SEC Regulation S-K Item 103, we have elected to disclose those environmental proceedings with a governmental entity as a party where the company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more.

Item 1A. Risk Factors

For a discussion of our risk factors please see the section entitled “Risk Factors” in our ~~2020~~2021 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below summarizes our repurchases of common stock during the three months ended ~~September~~June 30, ~~2021.~~2022.

Period Total Number
of Shares
Purchased
Average Price
Paid per
Share(1)
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
under the
Plans or Programs
($ in millions)
July 3, 2021 - July 30, 2021 379,145 $ 363.79 379,145 $ 3,555
July 31, 2021 - August 27, 2021 531,862 363.23 531,862 3,362
August 28, 2021 - October 1, 2021 719,372 356.93 719,372 3,105
Total 1,630,379 $ 360.58 1,630,379 $ 3,105


Period	Total Number of Shares Purchased	Average Price Paid per Share(1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs ($ in millions)
April 2, 2022 - April 29, 2022	187,598	$	456.67	187,598	$	3,732
April 30, 2022 - May 27, 2022	253,224	455.19		253,224		3,617
May 28, 2022 - July 1, 2022	265,638	463.38		265,638		3,494
Total	706,460	$	458.66	706,460	$	3,494

(1)Includes commissions paid.

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

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Item 6. Exhibits


~~2.1~~*+10.1			Agreement and Plan of Merger among Titan II, Inc. (formerly Northrop Grumman Corporation), Northrop Grumman Corporation (formerly New P, Inc.) and Titan Merger Sub Inc., dated March 30, 2011 (incorporated by reference to Exhibit 10.1 to Form 8-K filed April 4, 2011, File No. 001-16411)Non-Employee Director Compensation Term Sheet, effective May 18, 2022

~~2.2~~*+10.2			Separation and Distribution Agreement dated as of March 29, 2011, among Titan II, Inc. (formerly Northrop Grumman Corporation), Northrop Grumman Corporation (formerly New P, Inc.), Huntington Ingalls Industries, Inc., Northrop Grumman Shipbuilding, Inc. and Northrop Grumman Systems Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K filed April 4, 2011, File No. 001-16411)

~~2.3~~			Agreement and Plan of Merger, dated as of September 17, 2017, among Northrop Grumman Corporation, Neptune Merger, Inc. and Orbital ATK, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed September 18, 2017)

~~2.4~~			~~Transaction Agreement,~~Consultant Contract dated as of April ~~28, 2014, among Alliant Techsystems Inc., Vista Spinco Inc., Vista Merger Sub Inc.~~11, 2022 by and ~~Orbital Sciences Corporation (incorporated by reference to Exhibit 2.1 to Alliant Techsystems Inc. (now known as~~between Northrop Grumman ~~Innovation Systems, Inc.) Form 8-K filed May 2, 2014)~~S ystems Corporation and Blake E. Larson

~~4.1~~			Twelfth Supplemental Indenture, dated as of August 25, 2021, to the Indenture dated as of May 1, 1986, by and among Northrop Grumman Systems Corporation, Northrop Grumman Corporation and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed August 27, 2021)

~~4.2~~			Thirteenth Supplemental Indenture, dated as of August 25, 2021, to the Indenture dated as of May 1, 1986, by and among Northrop Grumman Systems Corporation, Northrop Grumman Corporation and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 to Form 8-K filed August 27, 2021)

~~4.3~~			Tenth Supplemental Indenture, dated as of September 2, 2021, between Northrop Grumman Corporation and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, Trustee, to Indenture dated as of November 2, 2001 (incorporated by reference to Exhibit 4.1 to Form 8-K filed September 3, 2021)

~~4.4~~			~~Form of 7.875% Senior Note due 2026 (incorporated by reference to Exhibit A in Exhibit 4.1 to Form 8-K filed September 3, 2021)~~

~~4.5~~			~~Form of 7.750% Senior Note due 2026 (incorporated by reference to Exhibit B in Exhibit 4.1 to Form 8-K filed September 3, 2021)~~

~~4.6~~			~~Form of 6.650% Senior Note due 2028 (incorporated by reference to Exhibit C in Exhibit 4.1 to Form 8-K filed September 3, 2021)~~

~~4.7~~			~~Form of 7.750% Senior Note due 2029 (incorporated by reference to Exhibit D in Exhibit 4.1 to Form 8-K filed September 3, 2021)~~

~~4.8~~			~~Form of 7.750% Senior Note due 20~~31 ~~(incorporated by reference to Exhibit E in Exhibit 4.1 to Form 8-K filed September 3, 2021)~~

~~4.9~~			~~Form of 6.980% Senior Note due 2036 (incorporated by reference to Exhibit F in Exhibit 4.1 to Form 8-K filed September 3, 2021)~~

~~4.10~~			Registration Rights Agreement, dated as of September 2, 2021, between Northrop Grumman Corporation and BofA Securities, Inc., BNP Paribas Securities Corp. and Wells Fargo Securities, LLC, as dealer managers (incorporated by reference to Exhibit 4.8 to Form 8-K filed September 3, 2021)

~~10.1~~			First Amendment to Guarantee, dated as of August 25, 2021, to the Guarantee dated as of March 27, 2003, by and among Northrop Grumman Systems Corporation, Northrop Grumman Corporation and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 10.1 to Form 8-K filed August 27, 2021)

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*15			Letter from Independent Registered Public Accounting Firm

*31.1			Certification of Kathy J. Warden pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.2			Certification of David F. Keffer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

**32.1			Certification of Kathy J. Warden pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

**32.2			Certification of David F. Keffer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*101			Northrop Grumman Corporation Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2021,~~2022, formatted as inline XBRL (Extensible Business Reporting Language): (i) the Cover Page, (ii) Condensed Consolidated Statements of Earnings and Comprehensive Income, (iii) Condensed Consolidated Statements of Financial Position, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Shareholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


+			Management contract or compensatory plan or arrangement

*			Filed with this report

**			Furnished with this report

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


NORTHROP GRUMMAN CORPORATION (Registrant)

By:						/s/ Michael A. Hardesty
						Michael A. Hardesty Corporate Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)

Date: ~~October~~July 27, ~~2021~~2022

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