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 June 30, 2021

or

☐						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 July 26, 2021, 160,109,103 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			10
			6. Commitments and Contingencies			10
			7. Retirement Benefits			12
			8. Stock Compensation Plans and Other Compensation Arrangements			12
			9. Segment Information			13
			Report of Independent Registered Public Accounting Firm			17
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations
			Overview			18
			Consolidated Operating Results			19
			Segment Operating Results			23
			Product and Service Analysis			28
			Backlog			29
			Liquidity and Capital Resources			30
			Critical Accounting Policies, Estimates and Judgments			31
			Accounting Standards Updates			31
			Forward-Looking Statements and Projections			31
			Contractual Obligations			33
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			33
Item 4.			Controls and Procedures			33
			PART II – OTHER INFORMATION
Item 1.			Legal Proceedings			34
Item 1A.			Risk Factors			34
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 6.			Exhibits			35
			Signatures			36

i

---

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 June 30												Six Months Ended June 30
$ in millions, except per share amounts			2021						2020						2021						2020
Sales
Product			$	7,193					$	6,482					$	14,215					$	12,658
Service			1,958						2,402						4,093						4,846
Total sales			9,151						8,884						18,308						17,504
Operating costs and expenses
Product			5,620						5,127						11,310						10,079
Service			1,488						1,931						3,215						3,877
General and administrative expenses			999						832						1,897						1,620
Total operating costs and expenses			8,107						7,890						16,422						15,576
Gain on sale of business			—						—						1,980						—
Operating income			1,044						994						3,866						1,928
Other (expense) income
Interest expense			(136)						(154)						(291)						(279)
Non-operating FAS pension benefit			367						303						734						605
Other, net			27						60						9						2
Earnings before income taxes			1,302						1,203						4,318						2,256
Federal and foreign income tax expense			265						198						1,086						383
Net earnings			$	1,037					$	1,005					$	3,232					$	1,873
Basic earnings per share			$	6.44					$	6.02					$	19.95					$	11.20
Weighted-average common shares outstanding, in millions			161.0						166.9						162.0						167.3
Diluted earnings per share			$	6.42					$	6.01					$	19.89					$	11.16
Weighted-average diluted shares outstanding, in millions			161.5						167.3						162.5						167.9
Net earnings (from above)			$	1,037					$	1,005					$	3,232					$	1,873
Other comprehensive loss
Change in unamortized prior service credit, net of tax			(2)						(11)						(4)						(21)
Change in cumulative translation adjustment and other, net			1						10						—						1
Other comprehensive loss, net of tax			(1)						(1)						(4)						(20)
Comprehensive income			$	1,036					$	1,004					$	3,228					$	1,853

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

-1-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

$ in millions, except par value			June 30, 2021						December 31, 2020
Assets
Cash and cash equivalents			$	3,941					$	4,907
Accounts receivable, net			1,910						1,501
Unbilled receivables, net			5,418						5,140
Inventoried costs, net			863						759
Prepaid expenses and other current assets			630						1,402
Assets of disposal group held for sale			—						1,635
Total current assets			12,762						15,344
Property, plant and equipment, net of accumulated depreciation of $6,640 for 2021 and $6,335 for 2020			7,164						7,071
Operating lease right-of-use assets			1,575						1,533
Goodwill			17,518						17,518
Intangible assets, net			680						783
Deferred tax assets			433						311
Other non-current assets			2,010						1,909
Total assets			$	42,142					$	44,469
Liabilities
Trade accounts payable			$	2,001					$	1,806
Accrued employee compensation			1,746						1,997
Advance payments and billings in excess of costs incurred			2,526						2,517
Other current liabilities			2,318						3,002
Liabilities of disposal group held for sale			—						258
Total current liabilities			8,591						9,580
Long-term debt, net of current portion of $6 for 2021 and $742 for 2020			12,764						14,261
Pension and other postretirement benefit plan liabilities			5,942						6,498
Operating lease liabilities			1,389						1,343
Other non-current liabilities			2,284						2,208
Total liabilities			30,970						33,890
Commitments and contingencies (Note 6)
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—160,384,110 and 2020—166,717,179			160						167
Paid-in capital			—						58
Retained earnings			11,144						10,482
Accumulated other comprehensive loss			(132)						(128)
Total shareholders’ equity			11,172						10,579
Total liabilities and shareholders’ equity			$	42,142					$	44,469

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

-2-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			Six Months Ended June 30
$ in millions			2021						2020
Operating activities
Net earnings			$	3,232					$	1,873
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization			594						605
Stock-based compensation			40						36
Deferred income taxes			(121)						169
Gain on sale of business			(1,980)						—
Net periodic pension and OPB income			(546)						(408)
Pension and OPB contributions			(74)						(69)
Changes in assets and liabilities:
Accounts receivable, net			(453)						(663)
Unbilled receivables, net			(312)						(126)
Inventoried costs, net			(104)						(49)
Prepaid expenses and other assets			26						(16)
Accounts payable and other liabilities			(202)						(374)
Income taxes payable, net			881						330
Other, net			(19)						36
Net cash provided by operating activities			962						1,344
Investing activities
Divestiture of IT services business			3,400						—
Capital expenditures			(435)						(541)
Proceeds from sale of equipment to a customer			56						—
Other, net			1						2
Net cash provided by (used in) investing activities			3,022						(539)
Financing activities
Net proceeds from issuance of long-term debt			—						2,239
Payments of long-term debt			(2,236)						(27)
Payments to credit facilities			—						(13)
Common stock repurchases			(2,143)						(490)
Cash dividends paid			(486)						(469)
Payments of employee taxes withheld from share-based awards			(31)						(64)
Other, net			(54)						(48)
Net cash (used in) provided by financing activities			(4,950)						1,128
(Decrease) increase in cash and cash equivalents			(966)						1,933
Cash and cash equivalents, beginning of year			4,907						2,245
Cash and cash equivalents, end of period			$	3,941					$	4,178

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

-3-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

			Three Months Ended June 30												Six Months Ended June 30
$ in millions, except per share amounts			2021						2020						2021						2020
Common stock
Beginning of period			$	161					$	167					$	167					$	168
Common stock repurchased			(1)						—						(7)						(1)
End of period			160						167						160						167
Paid-in capital
Beginning of period			8						—						58						—
Common stock repurchased			(21)						—						(60)						—
Stock compensation			13						10						2						10
End of period			—						10						—						10
Retained earnings
Beginning of period			10,487						9,011						10,482						8,748
Common stock repurchased			(134)						(131)						(2,089)						(479)
Net earnings			1,037						1,005						3,232						1,873
Dividends declared			(254)						(242)						(489)						(465)
Stock compensation			8						9						8						(36)
Other			—						—						—						11
End of period			11,144						9,652						11,144						9,652
Accumulated other comprehensive loss
Beginning of period			(131)						(116)						(128)						(97)
Other comprehensive loss, net of tax			(1)						(1)						(4)						(20)
End of period			(132)						(117)						(132)						(117)
Total shareholders’ equity			$	11,172					$	9,712					$	11,172					$	9,712
Cash dividends declared per share			$	1.57					$	1.45					$	3.02					$	2.77

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

-4-

---

Table of Contents

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 Information Solutions and Services (IS&S) division of Defense Systems (excluding our Vinnell Arabia business); select cyber, intelligence and missions support programs, which were part of the Cyber and Intelligence Mission Solutions (CIMS) division of Mission Systems; and the 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 for the IT and mission support services business were $162 million for the six months ended June 30, 2021 and $585 million and $1.1 billion for the three and six months ended June 30, 2020, respectively. Pre-tax profit was $20 million for the six months ended June 30, 2021, and $60 million and $111 million for the three and six months ended June 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 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 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 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

-5-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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.

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

			Three Months Ended June 30												Six Months Ended June 30
$ in millions, except per share data			2021						2020						2021						2020
Revenue			$	160					$	125					$	362					$	261
Operating income			154						112						344						236
Net earnings(1)			122						88						272						186
Diluted earnings per share(1)			0.76						0.53						1.67						1.11

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

EAC adjustments on a single performance obligation can have a material effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. No such adjustments were material to the financial statements during the three months ended June 30, 2021 and 2020.

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 June 30, 2021 was $76.6 billion. Of our June 30, 2021 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 six months ended June 30, 2021 that was included in the December 31, 2020 contract liability balances was $482 million and $1.5 billion, respectively. The amount of revenue recognized for the three

-6-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

and six months ended June 30, 2020 that was included in the December 31, 2019 contract liability balance was $442 million and $1.2 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.

Property, Plant, and Equipment

During the fourth quarter of 2020, the company completed a sale of equipment to a customer on a restricted Aeronautics Systems program. The company received cash payments of $56 million related to the equipment sale during the second quarter of 2021, 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 include capital expenditures incurred but not yet paid of $56 million and $99 million as of June 30, 2021 and 2020, respectively.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:

$ in millions			June 30, 2021						December 31, 2020
Unamortized prior service credit, net of tax expense of $2 for 2021 and $3 for 2020			$	6					$	10
Cumulative translation adjustment and other, net			(138)						(138)
Total accumulated other comprehensive loss			$	(132)					$	(128)

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 June 30, 2021, 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 0.5 million shares for the three and six months ended June 30, 2021. The dilutive effect of these securities totaled 0.4 million shares and 0.6 million shares for the three and six months ended June 30, 2020, respectively.

Share Repurchases

On September 16, 2015, the company’s board of directors authorized a share repurchase program of up to $4.0 billion of the company’s common stock (the “2015 Repurchase Program”). On December 4, 2018, 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 Repurchase Program”). Repurchases under the 2015 Repurchase Program commenced in March 2016 and were completed in March 2020 at which time repurchases under the 2018 Repurchase Program commenced. As of June 30, 2021, repurchases under the 2018 Repurchase Program totaled $2.3 billion; $0.7 billion remained under this share repurchase authorization. By its terms, the 2018 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.

-7-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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.

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.

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

																														Shares Repurchased (in millions)
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
September 16, 2015						$	4,000					15.4						$	260.33					March 2020						—						0.9
December 4, 2018						$	3,000					7.0						329.81												6.5						0.5
January 25, 2021						$	3,000					—						—												—						—

(1)Includes commissions paid.

Dividends on Common Stock

In May 2021, the company increased the quarterly common stock dividend 8 percent to $1.57 per share from the previous amount of $1.45 per share.

3.    INCOME TAXES

			Three Months Ended June 30												Six Months Ended June 30
$ in millions			2021						2020						2021						2020
Federal and foreign income tax expense			$	265					$	198					$	1,086					$	383
Effective income tax rate			20.4		%				16.5		%				25.2		%				17.0		%

Current Quarter

The second quarter 2021 effective tax rate (ETR) increased to 20.4 percent from 16.5 percent in the prior year period primarily due to a change made in tax revenue recognition on certain 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. Both periods include $48 million of research credits.

Year to Date

The year to date 2021 ETR increased to 25.2 percent from 17.0 percent in the prior period primarily due to federal income taxes resulting from the IT services divestiture, including $250 million of income tax expense related to $1.2 billion of nondeductible goodwill in the divested business. The company’s year to date 2021 ETR also includes additional tax expense related to the tax revenue recognition change discussed above as well as benefits of $99 million for research credits as compared to $90 million in the prior year period.

Taxes receivable are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position. We had no taxes receivable as of June 30, 2021 and $792 million as of December 31, 2020.

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. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to the final revenue recognition regulations issued in December 2020 under IRC Section 451(b) and future regulatory interpretations of existing tax laws may change. At this time, we cannot reasonably estimate these changes.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2018 federal tax returns and refund claims related to its 2007-2016 federal tax returns are

-8-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

currently under Internal Revenue Service (IRS) examination. In addition, legacy Orbital ATK federal tax returns for the year ended March 31, 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 are currently under appeal with the IRS.

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.

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:

						June 30, 2021																		December 31, 2020
$ in millions						Level 1						Level 2						Total						Level 1						Level 2						Total
Financial Assets
Marketable securities						$	404					$	—					$	404					$	377					$	1					$	378
Marketable securities valued using NAV																		17																		18
Total marketable securities						404						—						421						377						1						396
Derivatives						—						1						1						—						—						—

The notional value of the company’s foreign currency forward contracts at June 30, 2021 and December 31, 2020 was $138 million and $133 million, respectively. At June 30, 2021 and December 31, 2020, no portion of the notional value was designated as a cash flow hedge.

The derivative fair values and related unrealized gains/losses at June 30, 2021 and December 31, 2020 were not material. There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the six months ended June 30, 2021.

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 $15.3 billion and $18.2 billion as of June 30, 2021 and December 31, 2020, 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.

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

-9-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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 and the court scheduled post-trial briefing. Although the ultimate outcome of this matter, including any possible loss, cannot be predicted or reasonably estimated at this time, the company intends vigorously to pursue and defend the matter.

We are 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 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. The State of New York is preparing to file a new consent decree reflecting the agreement and to seek court approval. 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 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. In addition, we are a party to various, 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 as 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 on allocation, allowability and coverage, and non-monetary relief. We cannot at this time predict or reasonably estimate the potential cumulative outcomes or ranges of possible liability of these aggregate Bethpage matters.

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 June 30, 2021, or its annual results of operations and/or cash flows.

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

-10-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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 June 30, 2021, 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 further with the government. 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 June 30, 2021 and December 31, 2020:

$ in millions						Accrued Costs(1)(2)						Reasonably Possible Future Costs in Excess of Accrued Costs(2)						Deferred Costs(3)
June 30, 2021						$	611					$	364					$	525
December 31, 2020						614						346						529

(1) As of June 30, 2021, $250 million is recorded in Other current liabilities and $361 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 June 30, 2021, $221 million is deferred in Prepaid expenses and other current assets and $304 million is deferred in Other non-current assets. These amounts are evaluated for recoverability on a routine basis.

Although management cannot predict whether new information gained as our environmental remediation projects progress, or as 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 June 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. The State of New York is preparing to file a new consent decree reflecting the agreement and to seek court approval. 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.

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 June 30, 2021, there were $499 million of stand-by letters of credit and guarantees and $79 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 June 30, 2021, there were no commercial paper borrowings outstanding.

-11-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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 June 30, 2021, there was no balance outstanding under this facility.

At June 30, 2021, 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 June 30																								Six Months Ended June 30
			Pension Benefits												OPB												Pension Benefits												OPB
$ in millions			2021						2020						2021						2020						2021						2020						2021						2020
Components of net periodic benefit cost (benefit)
Service cost			$	103					$	102					$	4					$	5					$	207					$	204					$	8					$	9
Interest cost			264						306						14						16						527						613						27						33
Expected return on plan assets			(629)						(594)						(27)						(25)						(1,257)						(1,188)						(53)						(51)
Amortization of prior service (credit) cost			(2)						(15)						(1)						1						(4)						(30)						(1)						2
Net periodic benefit cost (benefit)			$	(264)					$	(201)					$	(10)					$	(3)					$	(527)					$	(401)					$	(19)					$	(7)

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 June 30												Six Months Ended June 30
$ in millions			2021						2020						2021						2020
Defined benefit pension plans			$	26					$	26					$	53					$	46
OPB plans			10						11						21						23
Defined contribution plans			111						100						377						356

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:

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

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.

-12-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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:

						Six Months Ended June 30
$ in millions						2021						2020
Minimum aggregate payout amount						$	31					$	31
Maximum aggregate payout amount						178						175

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.

9.    SEGMENT INFORMATION

The following table presents sales and operating income by segment:

			Three Months Ended June 30												Six Months Ended June 30
$ in millions			2021						2020						2021						2020
Sales
Aeronautics Systems			$	2,913					$	2,925					$	5,903					$	5,768
Defense Systems			1,427						1,886						2,989						3,767
Mission Systems			2,588						2,446						5,177						4,793
Space Systems			2,748						2,048						5,269						3,996
Intersegment eliminations			(525)						(421)						(1,030)						(820)
Total sales			9,151						8,884						18,308						17,504
Operating income
Aeronautics Systems			300						310						608						573
Defense Systems			177						217						354						415
Mission Systems			408						347						805						700
Space Systems			301						209						577						411
Intersegment eliminations			(69)						(52)						(132)						(101)
Total segment operating income			1,117						1,031						2,212						1,998
FAS/CAS operating adjustment			18						103						37						208
Unallocated corporate (expense) income			(91)						(140)						1,617						(278)
Total operating income			$	1,044					$	994					$	3,866					$	1,928

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 Federal Acquisition Regulation (FAR) and the related U.S. Government Cost Accounting Standards (CAS). 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 applicable CAS or FAR, and therefore not allocated to the segments, such as 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.

-13-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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.

Disaggregation of Revenue

Sales by Customer Type			Three Months Ended June 30																		Six Months Ended June 30
			2021									2020									2021									2020
$ in millions			$			%(3)						$			%(3)						$			%(3)						$			%(3)
Aeronautics Systems
U.S. government(1)			$	2,513		86		%				$	2,477		85		%				$	5,054		86		%				$	4,838		84		%
International(2)			351			12		%				407			14		%				750			12		%				851			15		%
Other customers			4			—		%				12			—		%				10			—		%				24			—		%
Intersegment sales			45			2		%				29			1		%				89			2		%				55			1		%
Aeronautics Systems sales			2,913			100		%				2,925			100		%				5,903			100		%				5,768			100		%
Defense Systems
U.S. government(1)			879			62		%				1,305			69		%				1,872			63		%				2,564			68		%
International(2)			335			23		%				316			17		%				686			22		%				656			18		%
Other customers			18			1		%				85			4		%				51			2		%				196			5		%
Intersegment sales			195			14		%				180			10		%				380			13		%				351			9		%
Defense Systems sales			1,427			100		%				1,886			100		%				2,989			100		%				3,767			100		%
Mission Systems
U.S. government(1)			1,901			73		%				1,776			73		%				3,735			72		%				3,447			72		%
International(2)			419			16		%				468			19		%				921			18		%				951			20		%
Other customers			14			1		%				18			1		%				30			1		%				35			1		%
Intersegment sales			254			10		%				184			7		%				491			9		%				360			7		%
Mission Systems sales			2,588			100		%				2,446			100		%				5,177			100		%				4,793			100		%
Space Systems
U.S. government(1)			2,568			93		%				1,911			93		%				4,894			93		%				3,714			93		%
International(2)			104			4		%				70			4		%				209			4		%				138			3		%
Other customers			45			2		%				39			2		%				96			2		%				90			3		%
Intersegment sales			31			1		%				28			1		%				70			1		%				54			1		%
Space Systems sales			2,748			100		%				2,048			100		%				5,269			100		%				3,996			100		%
Total
U.S. government(1)			7,861			86		%				7,469			84		%				15,555			85		%				14,563			83		%
International(2)			1,209			13		%				1,261			14		%				2,566			14		%				2,596			15		%
Other customers			81			1		%				154			2		%				187			1		%				345			2		%
Total Sales			$	9,151		100		%				$	8,884		100		%				$	18,308		100		%				$	17,504		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.

-14-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Sales by Contract Type			Three Months Ended June 30																		Six Months Ended June 30
			2021									2020									2021									2020
$ in millions			$			%(1)						$			%(1)						$			%(1)						$			%(1)
Aeronautics Systems
Cost-type			$	1,341		47		%				$	1,426		49		%				$	2,752		47		%				$	2,769		48		%
Fixed-price			1,527			53		%				1,470			51		%				3,062			53		%				2,944			52		%
Intersegment sales			45									29									89									55
Aeronautics Systems sales			2,913									2,925									5,903									5,768
Defense Systems
Cost-type			434			35		%				582			34		%				943			36		%				1,210			35		%
Fixed-price			798			65		%				1,124			66		%				1,666			64		%				2,206			65		%
Intersegment sales			195									180									380									351
Defense Systems sales			1,427									1,886									2,989									3,767
Mission Systems
Cost-type			808			35		%				895			40		%				1,673			36		%				1,741			39		%
Fixed-price			1,526			65		%				1,367			60		%				3,013			64		%				2,692			61		%
Intersegment sales			254									184									491									360
Mission Systems sales			2,588									2,446									5,177									4,793
Space Systems
Cost-type			2,025			75		%				1,468			73		%				3,869			74		%				2,866			73		%
Fixed-price			692			25		%				552			27		%				1,330			26		%				1,076			27		%
Intersegment sales			31									28									70									54
Space Systems sales			2,748									2,048									5,269									3,996
Total
Cost-type			4,608			50		%				4,371			49		%				9,237			50		%				8,586			49		%
Fixed-price			4,543			50		%				4,513			51		%				9,071			50		%				8,918			51		%
Total Sales			$	9,151								$	8,884								$	18,308								$	17,504

(1)Percentages calculated based on external customer sales.

-15-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Sales by Geographic Region			Three Months Ended June 30																		Six Months Ended June 30
			2021									2020									2021									2020
$ in millions			$			%(2)						$			%(2)						$			%(2)						$			%(2)
Aeronautics Systems
United States			$	2,517		88		%				$	2,489		86		%				$	5,064		87		%				$	4,862		85		%
Asia/Pacific			204			7		%				202			7		%				483			8		%				409			7		%
Europe			127			4		%				150			5		%				227			4		%				316			6		%
All other(1)			20			1		%				55			2		%				40			1		%				126			2		%
Intersegment sales			45									29									89									55
Aeronautics Systems sales			2,913									2,925									5,903									5,768
Defense Systems
United States			897			73		%				1,390			82		%				1,923			73		%				2,760			81		%
Asia/Pacific			126			10		%				107			6		%				229			9		%				189			5		%
Europe			79			6		%				70			4		%				155			6		%				140			4		%
All other(1)			130			11		%				139			8		%				302			12		%				327			10		%
Intersegment sales			195									180									380									351
Defense Systems sales			1,427									1,886									2,989									3,767
Mission Systems
United States			1,915			82		%				1,794			79		%				3,765			80		%				3,482			79		%
Asia/Pacific			98			4		%				191			9		%				258			6		%				367			8		%
Europe			242			11		%				191			9		%				511			11		%				416			9		%
All other(1)			79			3		%				86			3		%				152			3		%				168			4		%
Intersegment sales			254									184									491									360
Mission Systems sales			2,588									2,446									5,177									4,793
Space Systems
United States			2,614			97		%				1,950			97		%				4,990			96		%				3,804			97		%
Asia/Pacific			13			—		%				5			—		%				29			1		%				10			—		%
Europe			89			3		%				63			3		%				177			3		%				122			3		%
All other(1)			1			—		%				2			—		%				3			—		%				6			—		%
Intersegment sales			31									28									70									54
Space Systems sales			2,748									2,048									5,269									3,996
Total
United States			7,943			86		%				7,623			86		%				15,742			86		%				14,908			85		%
Asia/Pacific			441			5		%				505			6		%				999			5		%				975			6		%
Europe			537			6		%				474			5		%				1,070			6		%				994			6		%
All other(1)			230			3		%				282			3		%				497			3		%				627			3		%
Total Sales			$	9,151								$	8,884								$	18,308								$	17,504

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

(2)Percentages calculated based on external customer sales.

-16-

---

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 June 30, 2021, and the related condensed consolidated statements of earnings and comprehensive income and changes in shareholders’ equity for the three-month and six-month periods ended June 30, 2021 and 2020, and of cash flows for the six-month periods ended June 30, 2021 and 2020, 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, 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, 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. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2020, 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

July 28, 2021

-17-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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 broad portfolio of capabilities and technologies to create and deliver innovative platforms, systems 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 the United States (U.S.) and abroad. We conduct most of our business with the U.S. government, principally the Department of Defense (DoD) and intelligence community. We also conduct business with foreign, state and local governments, as well as commercial customers.

The following discussion should be read along with the financial statements included in this Form 10-Q, as well as our 2020 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 of IT and Mission Support Services Business

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 Information Solutions and Services (IS&S) division of Defense Systems (excluding our Vinnell Arabia business); select cyber, intelligence and missions support programs, which were part of the Cyber and Intelligence Mission Solutions (CIMS) division of Mission Systems; and the Space Technical Services business unit of Space Systems. Operating results include sales and operating income for the IT and mission support services business prior to the Divestiture date.

COVID-19

Coronavirus disease 2019 (“COVID-19”) was first reported in late 2019 and has since dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, government challenges and market volatility. We discuss in some detail in our Annual Report on Form 10-K the pandemic, its impacts and risks, and actions taken up to the time of filing. In this Form 10-Q, we provide an update. We continue closely to monitor and address the developments, including the impact on our company, our employees, our customers, our suppliers and our communities. The company continues to consider health data and guidance from the Centers for Disease Control and Prevention (CDC), other health organizations, federal, state and local governmental authorities, and our customers, among others. During the first half of 2021, COVID-19 case rates and the health and economic impacts of the pandemic increased and decreased in different communities in the U.S. and globally. In the U.S., the Food and Drug Administration (FDA) 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 access for our employees, in accordance with federal guidelines and state and local vaccination plans. We have provided paid leave and flexibility for employees to get vaccinated. During the second quarter of 2021, we began a phased transition back to our facilities for most employees who have been working remotely. 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 second quarter 2021 revenue and operating income were not significantly impacted by COVID-19. However, our employees, suppliers and customers, the company and our global community continue to face challenges and we cannot predict how this dynamic situation will evolve or the impact it will have on the company. For further information on the pandemic and the potential impact to the company of COVID-19, see “Liquidity and Capital Resources” below and “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K.

U.S. Political and Economic Environment

On May 28, 2021, the Administration released its budget request for fiscal year 2022. The budget proposes $753 billion for national defense programs and $770 billion in non-defense discretionary funding. The Congress is expected to continue to debate the defense budget. If not agreed, the government may be required to operate under a continuing resolution into fiscal year 2022, which could impact our programs and new starts, in particular. The Administration’s budget request includes funding for the American Jobs Plan, a $2.3 trillion infrastructure and

-18-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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. It is difficult to predict the specific course of future defense budgets. However, the threat to 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 threats and, as a result, continue to allow for long-term profitable growth in our business.

We understand that the government expects the debt ceiling will be breached around the end of July 2021 and the Treasury Department will then begin taking “extraordinary measures” to finance the government. If the debt ceiling is breached, we may be required to continue to perform for some period of time on certain of our U.S. Government contracts even if the U.S. Government is unable to make timely payments.

The political environment, federal budget and debt ceiling are expected to continue to be the subject of considerable debate, 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 Annual Report on Form 10-K.

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 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 June 30												%						Six Months Ended June 30												%
$ in millions, except per share amounts			2021						2020						Change						2021						2020						Change
Sales			$	9,151					$	8,884					3		%				$	18,308					$	17,504					5		%
Operating costs and expenses			8,107						7,890						3		%				16,422						15,576						5		%
Operating costs and expenses as a % of sales			88.6		%				88.8		%										89.7		%				89.0		%
Gain on sale of business			—						—						NM						1,980						—						NM
Operating income			1,044						994						5		%				3,866						1,928						101		%
Operating margin rate			11.4		%				11.2		%										21.1		%				11.0		%
Federal and foreign income tax expense			265						198						34		%				1,086						383						184		%
Effective income tax rate			20.4		%				16.5		%										25.2		%				17.0		%
Net earnings			1,037						1,005						3		%				3,232						1,873						73		%
Diluted earnings per share			$	6.42					$	6.01					7		%				$	19.89					$	11.16					78		%

-19-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Sales

The tables below reconcile sales to organic sales:

															Three Months Ended June 30
																					2021												2020
$ in millions																					Sales			IT services sales			Organic sales						Sales			IT services sales			Organic sales						Organic sales % change
Aeronautics Systems																					$	2,913		$	—		$	2,913					$	2,925		$	—		$	2,925					—		%
Defense Systems																					1,427			—			1,427						1,886			(416)			1,470						(3)		%
Mission Systems																					2,588			—			2,588						2,446			(131)			2,315						12		%
Space Systems																					2,748			—			2,748						2,048			(43)			2,005						37		%
Intersegment eliminations																					(525)			—			(525)						(421)			5			(416)
Total																					$	9,151		$	—		$	9,151					$	8,884		$	(585)		$	8,299					10		%

															Six Months Ended June 30
																					2021												2020
$ in millions																					Sales			IT services sales			Organic sales						Sales			IT services sales			Organic sales						Organic sales % change
Aeronautics Systems																					$	5,903		$	—		$	5,903					$	5,768		$	—		$	5,768					2		%
Defense Systems																					2,989			(106)			2,883						3,767			(805)			2,962						(3)		%
Mission Systems																					5,177			(42)			5,135						4,793			(261)			4,532						13		%
Space Systems																					5,269			(16)			5,253						3,996			(87)			3,909						34		%
Intersegment eliminations																					(1,030)			2			(1,028)						(820)			9			(811)
Total																					$	18,308		$	(162)		$	18,146					$	17,504		$	(1,144)		$	16,360					11		%

Current Quarter

Second quarter 2021 sales increased $267 million, or 3 percent, primarily due to higher sales at Space Systems and Mission Systems, partially offset by lower sales at Defense Systems principally due to the impact of the IT services divestiture. Second quarter 2021 organic sales increased $852 million, or 10 percent.

Year to Date

Year to date 2021 sales increased $804 million, or 5 percent, due to higher sales at Space Systems, Mission Systems and Aeronautics systems, partially offset by lower sales at Defense Systems principally due to the impact of the IT services divestiture. Year to date 2021 organic sales increased $1.8 billion, or 11 percent. As a result of the company using a fiscal calendar convention for interim reporting periods (as described in Note 1 to the financial statements), year to date 2021 sales at each sector benefited approximately 2 percent from three additional working days when compared to the prior year period.

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.

-20-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Operating Income and Margin Rate

Current Quarter

Second quarter 2021 operating income increased $50 million, or 5 percent, due to higher segment operating income and lower unallocated corporate expense, partially offset by a lower FAS/CAS operating adjustment. Second quarter 2021 operating margin rate increased to 11.4 percent reflecting a higher segment operating margin rate in addition to the items above.

Second quarter 2021 general and administrative (G&A) costs as a percentage of sales increased to 10.9 percent from 9.4 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 quarter.

Year to Date

Year to date 2021 operating income increased $1.9 billion, or 101 percent, primarily due to the IT services divestiture, including the $2.0 billion pre-tax gain on sale and $192 million of unallocated corporate expense for unallowable state taxes and transaction costs. Operating income also increased due to higher segment operating income and lower non-divestiture-related unallocated corporate expenses, partially offset by a lower FAS/CAS operating adjustment. Year to date 2021 operating margin rate increased to 21.1 percent reflecting the items above.

Year to date 2021 G&A costs as a percentage of sales increased to 10.4 percent from 9.3 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.

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 second quarter 2021 effective tax rate (ETR) increased to 20.4 percent from 16.5 percent in the prior year period primarily due to a change made in tax revenue recognition on certain 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. See Note 3 to the financial statements for additional information.

Year to Date

The year to date 2021 ETR increased to 25.2 percent from 17.0 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.

-21-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Net Earnings

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

			Three Months Ended June 30												%			Six Months Ended June 30												%
$ in millions			2021						2020						Change			2021						2020						Change
Net earnings			$	1,037					$	1,005					3		%	$	3,232					$	1,873					73		%
Gain on sale of business			—						—						NM			(1,980)						—						NM
State tax impact1			—						—						NM			160						—						NM
Transaction costs			—						—						NM			32						—						NM
Make-whole premium			—						—						NM			54						—						NM
Federal tax impact of items above2			—						—						NM			614						—						NM
Adjustment, net of tax			$	—					$	—					NM			$	(1,120)					$	—					NM
Transaction-adjusted net earnings			$	1,037					$	1,005					3		%	$	2,112					$	1,873					13		%

(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

Second quarter 2021 net earnings increased $32 million, or 3 percent, primarily due to higher operating income and an increase in non-operating FAS pension benefit, partially offset by an increase in income tax expense.

Year to Date

Year to date 2021 net earnings increased $1.4 billion, or 73 percent, primarily due to the IT services divestiture. Transaction-adjusted net earnings increased $239 million or 13 percent, primarily due to higher operating income and an increase in non-operating FAS pension benefit, partially offset by an increase in income tax expense.

Diluted Earnings Per Share

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

			Three Months Ended June 30												%			Six Months Ended June 30												%
			2021						2020						Change			2021						2020						Change
Diluted EPS			$	6.42					$	6.01					7		%	$	19.89					$	11.16					78		%
Gain on sale of business per share			—						—						NM			(12.18)						—						NM
State tax impact per share1			—						—						NM			0.98						—						NM
Transaction costs per share			—						—						NM			0.20						—						NM
Make-whole premium per share			—						—						NM			0.33						—						NM
Federal tax impact of line items above per share2			—						—						NM			3.78						—						NM
Adjustment, net of tax per share			$	—					$	—					NM			$	(6.89)					$	—					NM
Transaction-adjusted EPS			$	6.42					$	6.01					7		%	$	13.00					$	11.16					16		%

(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

Second quarter 2021 diluted earnings per share increased 7 percent, reflecting a 3 percent increase in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

Year to Date

Year to date 2021 diluted earnings per share increased 78 percent, principally due to a $6.89 increase associated with the IT services divestiture. Transaction-adjusted earnings per share increased $1.84, or 16 percent, reflecting a 13 percent increase in transaction-adjusted net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

-22-

---

Table of Contents

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).

-23-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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 our four segments, including allocated pension expense we have recognized under the Federal Acquisition Regulation (FAR) and the related U.S. Government Cost Accounting Standards (CAS), and excluding FAS pension service expense and unallocated corporate items (certain corporate-level expenses, which are not considered allowable or allocable under applicable CAS or FAR, 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 June 30												%						Six Months Ended June 30												%
$ in millions			2021						2020						Change						2021						2020						Change
Segment operating income			$	1,117					$	1,031					8		%				$	2,212					$	1,998					11		%
Segment operating margin rate			12.2		%				11.6		%										12.1		%				11.4		%
CAS pension expense			121						205						(41)		%				244						412						(41)		%
Less: FAS pension service expense			(103)						(102)						1		%				(207)						(204)						1		%
FAS/CAS operating adjustment			18						103						(83)		%				37						208						(82)		%
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			(64)						(77)						(17)		%				(129)						(159)						(19)		%
Other unallocated corporate expense			(27)						(63)						(57)		%				(42)						(119)						(65)		%
Unallocated corporate (expense) income			(91)						(140)						(35)		%				1,617						(278)						(682)		%
Operating income			$	1,044					$	994					5		%				$	3,866					$	1,928					101		%

Current Quarter

Second quarter 2021 segment operating income increased $86 million, or 8 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, principally due to the impact of the IT services divestiture, and Aeronautics Systems. Second quarter 2020 segment operating income from the IT services business was $60 million. Segment operating margin rate increased to 12.2 percent from 11.6 percent due to higher operating margin rates at Mission Systems, Defense Systems and Space Systems, partially offset by a lower operating margin rate at Aeronautics Systems.

Year to Date

Year to date 2021 segment operating income increased $214 million, or 11 percent, due to higher sales and a higher segment operating margin rate. Higher operating income at Space Systems, Mission Systems and Aeronautics Systems was partially offset by lower operating income at Defense Systems, due to the impact of the IT services divestiture. Year to date 2021 segment operating income from the IT services business was $20 million as compared to $111 million in the prior year period. Year to date 2021 segment operating income includes 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 due to the IT services divestiture. Segment operating margin rate increased to 12.1 percent from 11.4 percent and reflects higher operating margin rates at all four sectors largely as a result of the items discussed above.

FAS/CAS Operating Adjustment

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

-24-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Unallocated Corporate (Expense) Income

Current Quarter

The decrease in second quarter 2021 unallocated corporate (expense) income is primarily due to the deferred state tax impact of a change in tax revenue recognition on certain contracts, as well as lower intangible asset amortization and PP&E step-up depreciation.

Year to Date

The increase in year to date 2021 unallocated corporate (expense) income is primarily due to a $2.0 billion pre-tax gain on the sale of our IT services business, partially offset by $192 million of unallowable state taxes and transaction costs associated with the divestiture. Unallocated corporate (expense) income also increased due to a net increase in deferred state tax assets principally resulting from certain state tax legislation adopted in 2020 that places temporary limitations on tax credits and a change in tax revenue recognition on certain contracts, as well as lower intangible asset amortization and PP&E step-up depreciation.

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 June 30												Six Months Ended June 30
$ in millions			2021						2020						2021						2020
Favorable EAC adjustments			$	309					$	241					$	657					$	517
Unfavorable EAC adjustments			(155)						(129)						(313)						(281)
Net EAC adjustments			$	154					$	112					$	344					$	236

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

			Three Months Ended June 30												Six Months Ended June 30
$ in millions			2021						2020						2021						2020
Aeronautics Systems			$	32					$	22					$	69					$	34
Defense Systems			28						39						58						61
Mission Systems			61						59						149						138
Space Systems			33						(7)						70						5
Eliminations			—						(1)						(2)						(2)
Net EAC adjustments			$	154					$	112					$	344					$	236

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			Three Months Ended June 30												%						Six Months Ended June 30												%
$ in millions			2021						2020						Change						2021						2020						Change
Sales			$	2,913					$	2,925					—		%				$	5,903					$	5,768					2		%
Operating income			300						310						(3)		%				608						573						6		%
Operating margin rate			10.3		%				10.6		%										10.3		%				9.9		%

Sales

Current Quarter

Second quarter 2021 sales were comparable to the prior year period. Higher restricted and E-2 production volume was offset by a reduction in A350 production activity and lower volume on the B-2 Defensive Management Systems Modernization (DMS) program as well as certain Global Hawk programs as they near completion.

Year to Date

Year to date 2021 sales increased $135 million, or 2 percent, due to higher volume on restricted programs and the E-2 and F-35 production programs. These increases more than offset lower volume on A350 production activity and B-2 DMS as well as certain Global Hawk programs as they near completion.

-25-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Operating Income

Current Quarter

Second quarter 2021 operating income decreased $10 million, or 3 percent, due to a lower operating margin rate. Operating margin rate decreased to 10.3 percent from 10.6 percent principally due to a $21 million benefit recognized in the prior period in connection with the resolution of a government accounting matter, partially offset by higher net favorable EAC adjustments.

Year to Date

Year to date 2021 operating income increased $35 million, or 6 percent, due to a higher operating margin rate and higher sales. Operating margin rate increased to 10.3 percent from 9.9 percent principally due to higher net favorable EAC adjustments, which were largely driven by the previously described first quarter 2021 reduction in overhead rates.

DEFENSE SYSTEMS			Three Months Ended June 30												%						Six Months Ended June 30												%
$ in millions			2021						2020						Change						2021						2020						Change
Sales			$	1,427					$	1,886					(24)		%				$	2,989					$	3,767					(21)		%
Operating income			177						217						(18)		%				354						415						(15)		%
Operating margin rate			12.4		%				11.5		%										11.8		%				11.0		%

Sales

Current Quarter

Second quarter 2021 sales decreased $459 million, or 24 percent, primarily due to a $416 million reduction in sales related to the IT services divestiture. Second quarter 2021 organic sales decreased $43 million, or 3 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 the Guided Missile Launch Rocket System (GMLRS) program, Republic of Korea Global Hawk Contractor Logistics Support (ROK Global Hawk CLS) program and production ramp-up on advanced fuze programs.

Year to Date

Year to date 2021 sales decreased $778 million, or 21 percent, primarily due to a $699 million reduction in sales related to the IT services divestiture. Year to date 2021 organic sales decreased $79 million, or 3 percent, principally due to the close-out of Lake City, partially offset by higher volume on several programs including GMLRS, RoK Global Hawk CLS, advanced fuzes, B-2 sustainment and the Advanced Anti-Radiation Guided Missile program.

Operating Income

Current Quarter

Second quarter 2021 operating income decreased $40 million, or 18 percent, primarily due to the impact of the IT services divestiture. Operating margin rate increased to 12.4 percent from 11.5 percent and reflects improved performance at Battle Management and Missile Systems due, in part, to changes in mix as a result of recent contract completions.

Year to Date

Year to date 2021 operating income decreased $61 million, or 15 percent, primarily due to the impact of the IT services divestiture. Operating margin rate increased to 11.8 percent from 11.0 percent primarily due to improved performance at Battle Management and Missile Systems due to the items discussed above.

MISSION SYSTEMS			Three Months Ended June 30												%						Six Months Ended June 30												%
$ in millions			2021						2020						Change						2021						2020						Change
Sales			$	2,588					$	2,446					6		%				$	5,177					$	4,793					8		%
Operating income			408						347						18		%				805						700						15		%
Operating margin rate			15.8		%				14.2		%										15.5		%				14.6		%

-26-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Sales

Current Quarter

Second quarter 2021 sales increased $142 million, or 6 percent, due to higher volume across the sector, partially offset by a $131 million reduction in sales related to the IT services divestiture. Second quarter 2021 organic sales increased $273 million, or 12 percent. Maritime/Land Systems and Sensors sales increased primarily due to higher volume on land systems, including the Ground/Air Task-Oriented Radar (G/ATOR) program, and higher marine systems and international volume. Navigation, Targeting and Survivability sales increased primarily due to higher intercompany volume on the Ground Based Strategic Deterrent (GBSD) program. Airborne Multifunction Sensors sales increased principally due to higher airborne radar volume, including the Scalable Agile Beam Radar (SABR) and Multi-role Electronically Scanned Array (MESA) programs. Networked Information Solutions sales increased primarily due to higher volume on electronic warfare programs, including the Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW) program.

Year to Date

Year to date 2021 sales increased $384 million, or 8 percent, due to higher volume across the sector, partially offset by a $219 million reduction in sales related to the IT services divestiture. Year to date 2021 organic sales increased $603 million, or 13 percent. Maritime/Land Systems and Sensors sales increased primarily due to higher volume on land systems, including G/ATOR, and higher marine systems and restricted volume. Airborne Multifunction Sensors sales increased principally due to higher airborne radar volume, including SABR and MESA, and higher restricted volume. Navigation, Targeting and Survivability sales increased primarily due to higher intercompany volume on GBSD as well as higher volume on targeting, infrared countermeasures and navigation programs. Networked Information Solutions sales increased primarily due to higher volume on electronic warfare programs, including JCREW.

Operating Income

Current Quarter

Second quarter 2021 operating income increased $61 million, or 18 percent, due to higher sales volume and a higher operating margin rate. Operating margin rate increased to 15.8 percent from 14.2 percent principally due to the favorable resolution of certain government accounting matters and changes in contract mix toward more fixed-price content, largely as a result of the IT services divestiture.

Year to Date

Year to date 2021 operating income increased $105 million, or 15 percent, due to higher sales volume and a higher operating margin rate. Operating margin rate increased to 15.5 percent from 14.6 percent and reflects a benefit for the previously described first quarter 2021 reduction in overhead rates as well as the matters discussed above.

SPACE SYSTEMS			Three Months Ended June 30												%						Six Months Ended June 30												%
$ in millions			2021						2020						Change						2021						2020						Change
Sales			$	2,748					$	2,048					34		%				$	5,269					$	3,996					32		%
Operating income			301						209						44		%				577						411						40		%
Operating margin rate			11.0		%				10.2		%										11.0		%				10.3		%

Sales

Current Quarter

Second quarter 2021 sales increased $700 million, or 34 percent, primarily due to higher sales in both the Launch & Strategic Missiles and Space business areas, partially offset by a $43 million reduction in sales related to the IT services divestiture. Second quarter 2021 organic sales increased $743 million, or 37 percent. Launch & Strategic Missiles sales increased primarily due to ramp-up on GBSD and the Next Generation Interceptor (NGI) program as well as higher volume on Commercial Resupply Service (CRS) missions and hypersonics programs. Space sales were driven by higher volume on restricted programs, Artemis and the Next Generation Overhead Persistent Infrared (Next Gen OPIR) program.

-27-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Year to Date

Year to date 2021 sales increased $1.27 billion, or 32 percent, primarily due to higher sales in both the Launch & Strategic Missiles and Space business areas, partially offset by a $71 million reduction in sales related to the IT services divestiture. Year to date 2021 organic sales increased $1.34 billion, or 34 percent. Launch & Strategic Missiles sales increased primarily due to ramp-up on GBSD and NGI as well as higher volume on hypersonics and CRS programs. Space sales were driven by higher volume on restricted programs, Artemis and the Next Gen OPIR program.

Operating Income

Current Quarter

Second quarter 2021 operating income increased $92 million, or 44 percent, due to higher sales volume and a higher operating margin rate. Operating margin rate increased to 11.0 percent from 10.2 percent principally due to higher net favorable EAC adjustments on commercial space programs.

Year to Date

Year to date 2021 operating income increased $166 million, or 40 percent, due to higher sales volume and a higher operating margin rate. Operating margin rate increased to 11.0 percent from 10.3 percent primarily due to higher net favorable EAC adjustments, which were largely driven by improved performance on commercial space programs as well as the previously described reduction in overhead rates.

PRODUCT AND SERVICE ANALYSIS

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

			Three Months Ended June 30															Six Months Ended June 30
$ in millions			2021						2020									2021						2020
Segment Information:			Sales			Operating Costs and Expenses			Sales			Operating Costs and Expenses						Sales			Operating Costs and Expenses			Sales			Operating Costs and Expenses
Aeronautics Systems
Product			$	2,484		$	2,230		$	2,512		$	2,247					$	5,008		$	4,504		$	4,921		$	4,446
Service			384			342			384			342						806			711			792			700
Intersegment eliminations			45			41			29			26						89			80			55			49
Total Aeronautics Systems			2,913			2,613			2,925			2,615						5,903			5,295			5,768			5,195
Defense Systems
Product			641			560			753			676						1,321			1,155			1,523			1,380
Service			591			517			953			831						1,288			1,141			1,893			1,657
Intersegment eliminations			195			173			180			162						380			339			351			315
Total Defense Systems			1,427			1,250			1,886			1,669						2,989			2,635			3,767			3,352
Mission Systems
Product			1,774			1,515			1,646			1,388						3,534			3,008			3,154			2,662
Service			560			451			616			554						1,152			948			1,279			1,124
Intersegment eliminations			254			214			184			157						491			416			360			307
Total Mission Systems			2,588			2,180			2,446			2,099						5,177			4,372			4,793			4,093
Space Systems
Product			2,294			2,045			1,571			1,402						4,352			3,874			3,060			2,727
Service			423			374			449			413						847			755			882			810
Intersegment eliminations			31			28			28			24						70			63			54			48
Total Space Systems			2,748			2,447			2,048			1,839						5,269			4,692			3,996			3,585
Segment Totals
Total Product			$	7,193		$	6,350		$	6,482		$	5,713					$	14,215		$	12,541		$	12,658		$	11,215
Total Service			1,958			1,684			2,402			2,140						4,093			3,555			4,846			4,291
Total Segment(1)			$	9,151		$	8,034		$	8,884		$	7,853					$	18,308		$	16,096		$	17,504		$	15,506

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

-28-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Product Sales and Costs

Current Quarter

Second quarter 2021 product sales increased $711 million, or 11 percent, primarily due to higher volume on the GBSD, restricted, Artemis, Next Gen OPIR and NGI programs at Space Systems.

Second quarter 2021 product costs increased $637 million, or 11 percent, consistent with the higher product sales described above.

Year to Date

Year to date 2021 product sales increased $1.6 billion, or 12 percent, principally due to increases 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 the GBSD, restricted, Artemis, Next Gen OPIR and NGI programs. 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 $1.3 billion, or 12 percent, consistent with the higher product sales described above.

Service Sales and Costs

Current Quarter

Second quarter 2021 service sales decreased $444 million, or 18 percent, primarily due to the IT services divestiture. Second quarter 2020 sales from the IT services business, which were largely included in service sales, were $585 million. The reductions associated with the IT services divestiture were partially offset by higher service volume on several programs at Defense Systems and Mission Systems.

Second quarter 2021 service costs decreased $456 million, or 21 percent, consistent with the lower service sales described above and reflect higher net favorable EAC adjustments on Mission Systems service programs.

Year to Date

Year to date 2021 service sales decreased $753 million, or 16 percent, primarily due to the IT services divestiture. Year to date 2021 sales from the IT services business, which were largely included in service sales, were $162 million as compared to $1.1 billion in the prior year period. The reductions associated with the IT services divestiture were partially offset by higher service volume on several programs at Defense Systems and Mission Systems.

Year to date 2021 service costs decreased $736 million, or 17 percent, consistent with the lower services sales described above.

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. Backlog is converted into sales as costs are incurred or deliveries are made.

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

						June 30, 2021																		December 31, 2020
$ in millions						Funded						Unfunded						Total Backlog						Total Backlog						% Change in 2021
Aeronautics Systems						$	10,635					$	10,325					$	20,960					$	24,002					(13)		%
Defense Systems						5,988						683						6,671						8,131						(18)		%
Mission Systems						10,032						3,337						13,369						13,805						(3)		%
Space Systems						6,449						29,197						35,646						35,031						2		%
Total backlog						$	33,104					$	43,542					$	76,646					$	80,969					(5)		%

New Awards

Second quarter and year to date 2021 net awards totaled $6.5 billion and $15.4 billion, respectively, and backlog totaled $76.6 billion. Significant second quarter new awards include $1.7 billion for restricted programs, $0.4 billion

-29-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

for F-35, $0.3 billion for GMLRS, $0.3 billion for E-2 and $0.2 billion for Global Hawk. 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).

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 June 30, 2021, we had $3.9 billion in cash and cash equivalents. Effective January 30, 2021, we completed the IT services divestiture for $3.4 billion in 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.

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 is due in the fourth quarter of 2021. 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.

Cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets, if needed, are expected to be sufficient to fund our operations for at least the next 12 months.

Operating Cash Flow

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

															Six Months Ended June 30												%
$ in millions																					2021						2020						Change
Net earnings																					$	3,232					$	1,873					73		%
Gain on sale of business																					(1,980)						—						NM
Non-cash items(1)																					(33)						402						(108)		%
Pension and OPB contributions																					(74)						(69)						7		%
Changes in trade working capital																					(164)						(898)						(82)		%
Other, net																					(19)						36						(153)		%
Net cash provided by operating activities																					$	962					$	1,344					(28)		%

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

Year to date 2021 cash provided by operating activities decreased $382 million principally due to $390 million of federal and state taxes paid in connection with 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 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

-30-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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 operating activities to adjusted free cash flow:

															Six Months Ended June 30												%
$ in millions																					2021						2020						Change
Net cash provided by operating activities																					$	962					$	1,344					(28)		%
Capital expenditures																					(435)						(541)						(20)		%
Proceeds from sale of equipment to a customer																					56						—						NM
Adjusted free cash flow																					$	583					$	803					(27)		%

Year to date 2021 adjusted free cash flow decreased $220 million due to lower net cash provided by operating activities, partially offset by a decrease in capital expenditures and the receipt of additional proceeds from the fourth quarter 2020 sale of equipment to a customer.

Investing Cash Flow

Year to date 2021 net cash provided by investing activities was $3.0 billion compared to net cash used in investing activities of $539 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 net cash used in financing activities was $5.0 billion compared to net cash provided by financing activities of $1.1 billion in the prior year period, principally due to $2.2 billion in debt repayments, $2.1 billion of share repurchases and $486 million of dividends paid 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 $469 million of dividends paid in the prior year period.

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 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,” “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 forward-looking statements include, but are not limited to, those identified and discussed more fully in the section entitled “Risk Factors” in our 2020 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

-31-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

pandemic, which has caused and will continue to cause significant challenges, instability and uncertainty. They include:

•the impact of the COVID-19 outbreak or future epidemics on our business, including the potential for worker absenteeism, facility closures, work slowdowns or stoppages, supply chain disruptions, additional costs and liabilities, 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 assets

•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 other legal proceedings

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

•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, 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 and bid protests

•the ability to maintain a qualified workforce with the required security clearances and requisite skills

•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

•health epidemics, pandemics and similar outbreaks

•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

•the future investment performance of plan assets, 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

•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

-32-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. 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 Annual Report on Form 10-K.

Item 4.    Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

Our principal executive officer (Chairman, 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 June 30, 2021, 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 June 30, 2021, 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.

-33-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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 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 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 June 30, 2021.

Period			Total Number of Shares Purchased						Average Price Paid per Share(1)(2)						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 3, 2021 - April 30, 2021			—						$	—					—						$			4,149
May 1, 2021 - May 28, 2021			179,356						NM(2)						179,356									3,849
May 29, 2021 - July 2, 2021			422,270						370.15						422,270									3,693
Total			601,626						NM(2)						601,626						$			3,693

(1)Includes commissions paid.

(2)During the first quarter of 2021, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC, which was completed on June 1, 2021. Pursuant to the terms of the ASR, a total of approximately 6.1 million shares of our common stock were repurchased with an average final purchase price of $327.29 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.

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

-34-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Item 6. Exhibits

2.1			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)
2.2			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, dated as of April 28, 2014, among Alliant Techsystems Inc., Vista Spinco Inc., Vista Merger Sub Inc. and Orbital Sciences Corporation (incorporated by reference to Exhibit 2.1 to Alliant Techsystems Inc. (now known as Northrop Grumman Innovation Systems, Inc.) Form 8-K filed May 2, 2014)
*10.1			Non-Employee Director Compensation Term Sheet, effective May 19, 2021
*+10.2			Northrop Grumman 2006 Annual Incentive Plan and Incentive Compensation Plan, as amended and restated, effective January 1, 2022
*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 June 30, 2021, formatted in 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

-35-

---

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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: July 28, 2021

-36-