NOC 10-K & 10-Q changes, risk factors and insider trading

Our consolidated financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control, that may cause actual performance to differ materially from historical or projected future performance. We encourage you to consider carefully the risk factors described below in evaluating the information contained in this reportreport, as the outcome of one or more of these risks could have a material adverse effect on our financial position, results of operations and/or cash flows. Certain of the risk factors described below include references to past events as examples. You should not view those examples, or the absence of other examples, as a representation as to whether or not the events, factors or contingencies described in our risk factors have or have not occurred. Instead, the disclosures in this section reflect our beliefs and opinions as to the factors, events or contingencies that could materially and adversely affect us in the future.

•We depend heavily on a single customer, the U.S. government, for a substantial portion of our business. Changes in this customer’s strategies, prioritiespriorities, preferences and spending could have a material adverse effect on our financial position, results of operations and/or cash flows.

Our primary customer is the U.S. government, from which we derived 8784 percent of our sales in 2024;2025. weWe have a number of large programs with the U.S. Department of the Air Force,DoW, in particular. The U.S. government has the ability to delay, modify or cancel ongoing competitions, procurements and programs, as well as toand change its future acquisition strategy.strategies. We cannot predict the impact on existing, follow-on, replacement or future programs from potentialPotential changes in the threat and global security environment,environment; defense spending levels,levels; government and budgetary priorities,priorities; political leadership,leadership; procurement laws, practices and strategy,strategy; inflation and other macroeconomic trends,trends; military strategystrategy, including changes in DoW priorities, preferences or regulations; or broader changes in social, economic, security or political demands and priorities.priorities could adversely affect existing, follow-on, replacement or future programs. Such impacts could include contract cancellations, modifications, disruptions and/or stop work orders, any of which could have a material adverse effect on our financial position, results of operations and/or cash flows.

The U.S. government has the ability to terminate contracts, in whole or in part, for its convenience or for default basedof oncontract performance.terms. In the event of termination for convenience, contractors are generally protected by provisions covering reimbursement for costs incurred and profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned. However, to the extent insufficient funds have been appropriated by the U.S. government to cover such costs,government, the U.S. government may assert that it is not required to provide additional funding for such costs. In the event of termination due to default, contractors may be required to pay damages, including paying for re-procurement costs in excess of the original contract price, net of the value of work accepted from the original contract, as well as other damages.contract. Termination due to our default (or that of a teammate) could have a material adverse effect on our reputation, our ability to compete for other contracts and our financial position, results of operations and/or cash flows.

The U.S. government also has the ability to stop work under a contract for a limited period of time for its convenience. The U.S. government has invokedstopped work in the past and could invokestop this abilitywork across a limited or broad number of contracts. In the event of a stop work order, contractors are typically protected by provisions covering reimbursement for costs incurred to the date of the order and for costs associated with the temporary stoppage of work plus a reasonable fee. However, such temporary stoppages often introduce inefficiencies and result in financial and other damages for which contractors may not be able to negotiateobtain full recovery. In some cases, they have also ultimately resulted and could result in termination of a contract for convenience or reduced future orders.

U.S. government programs are subject to annual congressional budget authorization and appropriation processes. For many programs, Congress appropriates funds annually even though the program performance period may extend over several years. Programs are often partially funded initially, with additional funds committed onlyincrementally over time as Congress makes further appropriations. When we or our subcontractors incur costs in excess of funds obligated on a contract, we are generally at risk for reimbursement unless and until additional funds are obligated to the contract. We cannot predict what funding will ultimately be approved for individual programs. In addition, pressures on, as well as laws and plans relating to the federal budget, potentialcertain changes in priorities and defense spending, the timing and substance of the appropriations process, use of continuing resolutions (withwhich may carry restrictions, e.g.,including on new contractcontracts and program starts) and the federal debt limit (including a breach of the federal debt ceiling), have adversely affected and could in the future adversely affect the amount and timing of funding for individual programs and delay purchasing or payments by our customers. In the event government funding for our significant programs is reduced, delayed or unavailable, or orders are reduced, our contracts or subcontracts, or competitions for such programsprograms, have at times been, and in the future may be, terminated or changed.changed, including a reduction in orders.

The U.S. continues to face a changing geopolitical environment, along with substantial fiscal, economiceconomic, political and security challenges, which affect funding and budgetary priorities. The budget and macroeconomic environment, global security environment, political instability, and uncertainty surrounding the appropriations processes and the debt ceiling, remain significant short and long-term risks.risks for our business. See “Overview” in MD&A. In addition, high deficit levels and high debt servicing costs could drive cuts to federal spending. Considerable uncertainty exists regarding how future budget and program decisions will unfold. If annual appropriations bills are not timely enacted, the U.S. government may continue to operate under a continuing resolution (potentially of extended duration), restricting new contract or program starts, presenting resource allocation challenges and placing limitations on budgets. We also have faced, and may facein the future face, a prolonged government shutdown. A prolonged government shutdown that could lead to program cancellations, disruptions and/or stop work orders and could limit the U.S. government’s ability to progress programs and make timely payments. ASuch prolongeda shutdown could also limit our ability to perform on our contracts and/or successfully compete forfor, be awarded and/or begin new work. If the statutory debt limit is not increased adequately, we could be obligated to work without receiving timely payments, and a prolonged breach could have far-reaching adverse consequences. If the macroeconomic environment deteriorates, including due to rising inflation or other causes, we could experience labor and supply chain challenges and increased costs and existing or anticipated appropriated and contracted funds may not be sufficient to cover costs incurred on existing or future programs.

Contract accounting requires judgment, including in assessing risks, estimating contract revenues and costs, and predicting future performance. Given the size and nature of our many contracts, estimating total revenues and costs at completion is complex and subject to many variables. When there is sufficient information to assess expected future performance, we consider performance relatedperformance-related incentives, awards and penaltiespenalties, inas estimatingwell revenueas and profit rates. Suppliers’the expected performance,performance of our suppliers and the availability and costscost of labor, materials and components,components arein alsoestimating considered.contract revenue and profitability.

Our operating income can be adversely affected when estimated contract costs increase, especially without comparable increases in revenue. There are many reasons estimated contract costs can increase, including inflation, labor challenges, supply chain challenges, andshortages of raw materials, market and exchange rate volatility;volatility, delays or limitations in customer funding;funding, design or other development challenges;challenges, production challenges (including from technical or quality issues and other performance concerns);, inability to realize learning curves or otherexpected cost savings;savings, changes in laws or regulations;regulations, actions necessary for long-term customer satisfaction;satisfaction, and natural disasters or other environmental matters.

We aim to mitigate this risk through contract terms, and we have submitted and may submit requests for equitable adjustment (REAs), engineering change proposals (ECPs) or other requests or claims to seek recovery in whole or in part for our increased costs. We have also sought, and will seek, other avenues, as appropriate, to compensate the company for certain unexpected cost increases. However, our contracts may not enable full recovery, and/or customers may disagree with our requests or may not have funding to cover them. Changes in underlying assumptions, circumstances or estimates, and the failure to recover on REAs, ECPs or other claims could have a material adverse effect on the profitability of one or more of our contracts.

Certain of our fixed-price contracts include or may include fixed-price development work. This work is inherently more uncertain, and, as a result, there is typically more variability in estimates of the costs to complete the development stage. As work progresses into production, the risks associated with estimating total costs are typically reduced as compared to fixed-price development work. While management uses its best judgment to estimate costs associated with fixed-price contracts, future events can result in significant adjustments. In addition, from time to time, we may begin performing on a contract prior to completing contract negotiations. Uncertainties in final contract terms, quantity and pricing,pricing or loss of negotiating leverage associated with long delays in finalizing contract terms could negatively affect our profitability.profitability on those contracts. Certain of our contracts also include options exercisable at the customer’s discretion. The customer may decline to exercise an option, or the customer may exercise an option for which we may incur a loss or perform at a low margin, either of which could adversely affect our results of operations.

Under cost-type contracts, allowable costs are generally subject to reimbursement plus a fee. We often enter into cost-type contracts for development programs with complex design and technical challenges. These cost-type programs may have award or incentive fees that are uncertain and may be earned over extended periods or towards the end of the contract. In these cases, the financial risks areinclude typicallyprofit in recognizing profit, which ultimately may not be earned,recognition or program cancellationcancellation, including if cost, schedule, or technical performance issues arise. We also face additional financial risk when solicitations require us to bid on cost-type development work and fixed-price production lots and/or options in one submission, where we must estimate the cost of production before a product has been developed and tested, or cost-type development work requiring us to provide certain items at our expense or with little or no fee. MacroeconomicChanges challengesin macroeconomic conditions increase these risks.

Because of the significance of management’s judgments and the estimation processes, and the difficulties inherent in estimating future costs, particularly in a challenging and dynamic macroeconomic environment, it is possible that weour results could seediffer materially different results. Changes in underlying assumptions, circumstances or estimates, and the failure to recover on requests for equitable adjustments, engineering change proposals or other claims could have a material adverse effect on the profitability of one or more offrom our contracts and on our overall financial position, results of operations and/or cash flows.estimates. See “Critical Accounting Policies and Estimates” in MD&A and Note 11 to the consolidated financial statements.

•CompetitionCompetitive dynamics within our markets and bid protests, or other attempts to interfere with our ability to obtain and retain awards, may affect our ability to win new contracts and result in reduced revenues, which could have a material adverse effect on our financial position, results of operations and/or cash flows.

In addition, U.S. government procurement and certain other countries’ laws permit certain legal challenges to the terms of a contract solicitation or award, sometimes referred to as a bid protest. Bid protests can result in award decisions being reversed and loss of the contract award. Even where a bid protest does not result in such a loss, it can result in significant expenses and delay the start of contract activities and revenue or result in contract modifications. We are also subject to risks associated with our ability to challenge Other Transaction Authority (OTA) agreements, which the U.S. government can award for certain research, prototype and production projects. OTA awards are not subject to all of the procurement requirements that typically apply to DoD contracts and rights to protest such awards may be more limited than for other contracts.

Our business, financial position, results of operations and/or cash flows have been and may in the future be adversely impacted by the global macroeconomic environment, which impacts have included and may in the future include high rates of inflation;inflation, increased interest rates;rates, tight credit conditions in financial markets;markets, widespread disruptions in supply chains;chains, workforce challenges, including labor shortages;shortages, changes in trade policies, such as tariffs, and market volatility, including exchange rate volatility.volatility, all of which may affect material costs and supplier pricing. These and other macroeconomic challenges have led and can lead to increased costs, labor and supply shortages, and delays and disruption in performance, as well as competing demands for scarce resources, which in turn have adversely impacted and may continue to adversely impact our customers, our industry, our company, our suppliers and others with whom we do business. We continue to work proactively to mitigate the challenges caused by the macroeconomic environment, including, in some cases, hedging foreign exchange, interest rate and commodity price risk, and seeking the inclusion of economic price adjustment clauses or seeking to recover on requestsREAs, for equitable adjustments, engineering change proposalsECPs or other claims.claims, but the impacts of these challenges are uncertain and our efforts to mitigate them may not be successful.

The size, nature and complexity of our business make us particularly susceptible to investigations, claims, disputes, enforcement actions, prosecutions, litigation and other legal proceedings (collectively “legal proceedings”), particularly those involving governments, which may continue to increase. We are or may become subject to legal proceedings globally (including criminal, civil and administrative) and across a broad array of matters, including, but not limited to, government contracts,contracts; cost accounting,accounting; financial accounting and reporting,reporting; false statements or claims,claims; cybersecurity; and pension accounting and other employee benefit plan matters. These matters can divert resources;resources, result in administrative, civil or criminal fines, penalties or other sanctions (including judgments, convictions, consent or other voluntary decrees or agreements), compensatory, treble or other damages, non-monetary relief, or other liabilities;liabilities, and otherwise harm our business and our ability to obtain and retain awards. Certain outcomes may lead to suspension or debarment from government contracts or suspension of export/import privileges for the company or one or more of its components. Suspension or debarment or criminal resolutionsresolutions, in particularparticular, could have a material adverse effect on the company because of our reliance on government contracts and export authorizations. Legal proceedings, even if pending or not ultimately resulting in adverse action, or even if fully indemnified or insured, can negatively impact our reputation among our customerscustomers, suppliers and the public, and make it substantially more difficult for us to compete effectively for business, obtain and retain awards, ensure adequate funding for our programs or obtain adequate supplies or insurance in the future. See Note 10 to the consolidated financial statements for information regarding the company’s investigations, claims and litigation.

U.S. government contractors (including their subcontractors and others with whom they do business) must comply with various specific procurement laws, regulations, rules and other legal requirements. If we are found to have violated any such requirements, asor wellare asfound onesnot moreto broadlyhave applicable.acted Theseresponsibly, we may be subject to a wide array of actions, including contract modifications or termination, payment withholds, the loss of export/import privileges, administrative, civil or criminal judgments or penalties (including convictions, agreements, fines, damages and non-monetary relief), or suspension or debarment. Additionally, these various legal requirements, although sometimes customary in government contracting, increase costs and risks.risks Theyand have been and are evolving at a significant pace.pace, which further increases costs and risks. The costs are not always fully recoverable. New laws or other requirements, or changes to existing ones (including, for example, related to cybersecurity, information and data protection, cost accounting, environment, sustainability, securities, competition, compensation costs, employment, taxes, counterfeit parts, pensions, and use of certain non-US equipment) or acquisitions more expansivebroadly), interpretationscan significantly increase our costs (including compliance costs) and risks, create operational challenges, potentially limit our ability to return cash to shareholders, reduce our profitability and/or adversely affect our competitiveness. Such risks may increase as a result of new regulations or executive orders (such as the recent executive order applicable to government defense contractors, which seeks, among other changesthings, to address underperformance and insufficient prioritization of government contracts, insufficient investment in production and production speed, as well as limit share repurchases and dividends by government defense contractors), different interpretations in how government agencies construe existing ones,requirements, canor significantlygovernment increaseagencies ourtaking costspositions that represent changes from historical practices. In addition, changes in priorities and risksgovernment actions with respect to defense contracting have led to increased uncertainty regarding such risks, including as a result of uncertainty regarding the impact and reduceimplementation ourof profitability.recent executive orders.

We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies, such as the DCAA, Defense Contract Management Agency (DCMA) and the DoDDoW Inspector General. These agencies review performance under our contracts, our cost structure and accounting, our compliance, and the adequacy of our systems in meeting government requirements. Costs ultimately found to be unallowable or improperly allocated are generally not reimbursed or require us to refund the customer. WhenIf an audit uncovers improper or illegal activities, we arecould be subject to possible civil and criminal penalties, sanctions, or suspension or debarment. Whether or not illegal activities are alleged, the U.S. government has the ability to decrease or withhold certain payments when it deems systems to be inadequate, with significant financial impact, regardless of the ultimate outcome. As a result of such actions, we may be subject to increased scrutiny, identified for enforcement action, and/or required to engage in remediation efforts, any or all of which could damage our reputation, increase our costs (including compliance costs) and risks, create operational challenges, and/or adversely affect our competitiveness. In addition, we risk serious reputational harm in situations involving allegations of impropriety made against us or our business partners.

Our industry has experienced, and we expect it will continue to experience, significant changes to business practices globally, in part as a result of changes in the global security and threat environment and an increased focus on affordability, efficiencies, business systems, recovery of costs and a reprioritization of available defense funds. We have experienced and may continue to experience an increased number of audits and challenges to our claims and our business systems for current and past years, as well as longer periods to close audits, broader requests for information and an increased risk of withholdings of payments. The U.S. government has been pursuing and may continue to pursue policies that could negatively impact our profitability, including those that shift additional responsibilityresponsibility, cost and performance risks to the contractor. Changes in procurement practices, including those favoring incentive-based fee arrangements; fixed price development or long-term production programs; different award criteria; and non-traditional contract provisions have affected and may in the future affect our profitability and predictability.

We face potential liability based on misconduct by employees, agents or others working with us or on our behalf that could violate the applicable laws of the jurisdictions in which we operate, including laws governing improper payments to government officials, the protection of export controlled or classified information, false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy, intellectual property and contract terms. Improper actions by our employees, agents or others working with us or on our behalf also subject us to risk of administrative, civil or criminal investigations and enforcement actions;actions, monetary and non-monetary penalties;penalties, liabilities;liabilities, and the loss of privileges and other sanctions, including suspension and debarment. We have in the past experienced and may in the future experience misconduct committed by our employees, agents, suppliers, partners or others working with us or on our behalf. This risk of improper conduct increases as we continue to expand globally, with greater opportunities and demands to do more business with local and new partners, and in new environments. At the same time, law enforcement agencies are continuing to focus collaboratively on combating global corruption and other misconduct. In the ordinary course weWe form and are members of joint ventures or other business arrangements and/or invest in third parties with whom we do business. We may be unable to prevent misconduct or violations of applicable laws by these joint ventures or our partners, including, in each case, their respective officers, directors and employees.employees, and their actions may adversely impact us and our reputation.

•Environmental matters, including climate change, unforeseen costs associated with compliance and remediation efforts, and government and third-party claims, could have a material adverse effect on our reputation and our financial position, results of operations and/or cash flows.

Our operations are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations, including as they may be expanded, otherwise changed or enforced differently over time. Compliance with these existing and evolving environmental laws and regulations requires, and is expected to continue to require, significant operating and capital costs. For example, some of these recently enacted laws and regulations prohibit the use of certain chemicals or other substances that are used in our business, which has, in some cases, required us to identify alternate sources, resulting in additional costs and/or otherwise impacting our business and operations. New and evolving laws, regulations and rule makings globally impose different and at times more restrictive standards and require greater disclosures. For example, certain jurisdictions, including the State of California and the European Union, have enacted legislation which requires or would require more stringent greenhouse gas emissions and climate risk reporting. They could also require capital investments, could adversely impact our ongoing operations, and could require changes on a more accelerated time frame. We expect our suppliers to face similar challenges and incur additional compliance costs that may be passed on to us. These direct and indirect costs can adversely impact our results of operations and financial condition, and, if we are unable to comply with legislative and regulatory requirements or meet our sustainability objectives, our reputation and ability to do business could be negatively impacted. In addition, our customers’ requirements, priorities and ways of doing business with respect to environmental matters, and climate change specifically, also may have an impact on our business, operations and financial success.

We incur, and expect to continue to incur, substantial remediation costs related to the cleanup of pollutants previously released into the environment. Stricter or different remediation standards or enforcement of existing laws and regulations;regulations, new requirements, including regulation of new substances;substances, discovery of previously unknown or more extensive contamination or new contaminants;contaminants, imposition of fines, penalties, or damages (including natural resource damages);, a determination that certain remediation or other costs are unallowable;unallowable, rulings on allocation or insurance coverage;coverage, and/or the insolvency, inability or unwillingness of other parties to pay their share, could require us to incur material additional costs in excess of those anticipated.

We are subject to income and other taxes in the U.S. and foreignother jurisdictions. Changes in applicable tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, as well as measurement of benefit plan obligations, and revaluation of uncertain tax positions, have affected and could affect our tax expense.expense, the timing of payments, or deferred tax assets. In addition, the final determination of any tax audits or related litigation, in particular with regard to our positions on research credits, could be materially different from our historical income tax provisions and accruals. In addition, we may be subject to future tax audits and legal challenges involving OATK, which we acquired in 2018, or the spinoff of its then subsidiary Vista Outdoor, and we may be unable to obtain indemnification or we may be required to indemnify Vista.

As a defense contractor, weWe face significant cyber and other security threats. They include, among other things, attempts to gain unauthorized access to sensitive information or otherwise compromise the integrity, confidentiality and/or availability of our systems, hardware and networks, and the information on them;them, insider threats;threats, ransomware;ransomware, threats to the safety of our directors, officers and employees;employees, threats to our facilities, infrastructure, products (we produce and use), and subcontractors or other suppliers (referred to inclusively as suppliers);, and threats from terrorist acts, espionage, civil unrest and other acts of aggression. We are also subject to increasing government, customer and other cyber and security requirements, including disclosure obligations.

Cyber threats, both on premises and in the cloud, are complex, continuous and evolving and include, but are not limited to: malicious software, destructive malware, ransomware, targeting by more advanced and persistent adversaries, including nation states and other actors, zero-day attacks, attempts to gain unauthorized access to systems or data, disruption to operations, critical systems or denial of service attacks;attacks, unauthorized release of confidential, personal or other protected information (ours or that of our employees, customers or partners);, corruption of data, networks or systems;systems, harm to individuals;individuals, and loss of assets. We have been and could be impacted by cyber threats or other disruptions or vulnerabilities found in products or services we use or in our internal, partners’ or customers’ systems that are used in connection with our business. Further, the sophistication, availability and use of artificial intelligence bytechniques threatto actorsautomate presentand enhance cyber attacks pose an evolving and increased level of risk.risk to our information systems. We have experienced cyber attacks and, due to the evolving threat landscape, expect we will continue to experience additional attacks in the future. The various measures and controls we have implemented to monitor and mitigate risks associated with these threats and to increase the cyber resiliency of our infrastructure and products may not always be sufficient or fully effective, particularly against previously unknown vulnerabilities, including those that could go undetected for an extended period.period, which may inhibit our ability to provide prompt, full, and reliable information about such incidents to our customers, regulators, and the public. For further discussion of our cybersecurity risk management, strategy and governance, see “Cybersecurity.”

Cyber events have caused and could cause us harm and require us to undertake remedial actions. Successful attacks can lead to losses or misuse of sensitive information or capabilities;capabilities, theft or corruption of data;data, harm to personnel, infrastructure or products;products, protracted disruptions in our operations and performance;performance, and the misuse of our products. They can also damage our reputation, impact our ability to obtain adequate insurance coverage, and lead to loss of business, regulatory actions, and costs, liabilities or other financial losses for which we may not have adequate sources of recovery.

Our customers and partners (including ourcustomers, suppliers and joint ventures)partners to whom we entrust confidential data, and on whom we rely to provide products and services, face similar threats and growing requirements, including ones for which others may seek to hold us responsible.requirements. We depend on our customers, suppliers, and other business partners to implement and verify adequate controls and safeguards to protect against and report cyber incidents. IfWhen they fail to deter, detect, remediate or report cyber incidents in a timely manner, or fail to implement applicable requirements, we suffer, and may sufferin the future suffer, financial and other harm, including to our information, operations, performance, employees and reputation. Further, the systems, products and services that we provide to customers may not be able to detect or deter threats, or effectively to mitigate resulting losses. These losses could adversely affect our customers and our company.

We also face increasing and evolving disclosure obligations related to cyber and other securitycybersecurity events and the risk of failing to meet all our existing or future disclosure obligations and/or having our disclosures misinterpreted. National security or public safety considerations may also affect, delay or in limited instances prevent, our public disclosure of a cybersecurity incident in certain circumstances.incident.

We also face threats to our physical security, including to our facilities and the safety and well-being of our people, including senior executives. These threats could involve terrorism, insider threats, targeted threats against senior executives, workplace violence, or civil unrest, natural disasters, damaging weather or fires, which could adversely affect our company. Our customers and suppliers face similar risks that, if realized, could also adversely impact our operations. Such acts could cause delays, manufacturing downtime, or other impacts that could detrimentally impact our ability to perform our operations. We could also incur unanticipated costs to remediate impacts and lost business. For further discussion of our cybersecurity risk management, strategy and governance, see “Cybersecurity.”

•Our earnings and profitability depend, in part, on subcontractor and supplierthe performance, financial viability, and compliance with regulatory requirements globally,globally of our subcontractors and suppliers, as well as on the availability and pricing of highly skilled labor, raw materials, chemicals, parts, and componentcomponents. availabilityThe anddisruption pricing, andof one or more of these factors could have a material adverse effect on our financial position, results of operations and/or cash flows.

We rely on subcontractors and other companiessuppliers (referred to collectively as suppliers) to provide raw materials, chemicals, parts andparts, components and subsystems for our products, produce hardware elements and sub-assemblies, provide software and intellectual property, provide information about the parts they supply to us, and perform some of the services we need for our operations or provide to our customers, and to do so efficiently and in compliance with all applicable laws, regulations and contract terms, while maintaining strong values and cultures. Disruptions orDisruptions, performance problems or other issues with our subcontractorssuppliers, or other suppliers (referred to inclusively as suppliers),including unanticipated cost growth for the products and services they provide,growth, failure to meet regulatory or contractual requirements, and/or unethical or illegal behavior, or a misalignment between our contractual obligations to our customers and our agreements with our suppliers, have had and may continue to have various adverse impacts on the company, including on our ability to meet our commitments to customers and financial expectations. ThisSupply chain challenges, including risk of delays and disruptions in the supply chain, and supply chain challenges more broadly, has been and continuescontinue to be heightened globally due to the current macroeconomic environment.globally.

Our ability to perform our obligations on time iscan be adversely affected if one or more of our suppliers is unable to provide the agreed-upon products, materials or information,intellectual property, or perform the agreed-upon servicesservices, in a timely, compliant and cost-effective manner. We alsohave experienced, and may experiencecontinue to experience, financial or other performance challenges performing if we are unable to use or obtain certain raw materials, chemicalschemicals, parts, components or other substances in a timely and/or cost-efficient manner due to laws or other regulations that restrict or prohibit the use or import of such itemsitems, or cause suppliers to be unwilling or unable to supply themthem, and we cannot obtain a reasonable substitute on a timely or cost-effective basis.basis, including as a result of tariffs or other trade restrictions. Changes in political or economic conditions, including changes in demand, changes in the macroeconomic environment (including inflation and labor and supply chain challenges), changes in defense budgets and/or priorities, changes in the global security environment, changes in export/import restrictions, tariffs, sanctions and other trade restrictivetrade-related activities, evolving requirements, or changes in access to critical technology and materials (including metals and components), and/or evolving requirements, among others, have adversely affected and could in the future adversely affect the financial stability of our suppliers and/or their ability to perform effectively. The inability of our suppliers to perform effectively has required and may require us to provide them additional support and/or to transition to alternate suppliers, if available, with additional costs and delays. We expect we will need to continue to provide additional resources to support certain of our suppliers in performing under our contracts. In addition, if we are unable to do that or if our suppliers are no longer able to perform due to financial difficulties, we may face additional losses and liabilities under our current contracts and adversely impact the prospects for certain new ones.

In connection with our U.S. government contracts, we are required to procure certain raw materials, chemicals, components and parts from supply sources approved by the customer and/or are restricted from procuring products or services from certain sources. Because the identification and qualification of new or additional suppliers for certain products and services can take an extended period of time and can result in additional cost, supplier disruptions can have an adverse impact on our business. For example, we require assured access to certain microelectronics.microelectronics Ourand our ability to produce and/or deliver products will be significantly impacted if the microelectronics manufacturing supply chain is cut off or significantly limited or delayed. This risk is increased for products and services that are single or sole source. For example, for some components, therewe hasmay beenhave had, or may behave, only one supplier, or one domestic supplier.supplier, that meets our needs. If that supplier cannot meettimely our needsperform, or if we are unable to procure components from certain suppliers due to regulatory restrictions, we may be unable to find a suitable alternative and to meet our obligations.

Our operating results and growth opportunities are heavily dependent upon our ability to attract and retain sufficient qualified personnel who are or can reasonably beobtain clearedrequisite (security clearances and obtain program access),access, who have the requisite skills in multiple areas, including science, technology, engineering and math, and who share our values and are able to operate effectively consistent with our culture. Outside the U.S., it is increasingly important that we are also able to attract and retain personnel with relevant local qualifications and experience. We continue to face increased competition for talent with traditional defense companies, new entrants in our markets and commercial companies, globally, with increasing wage rates and, in some cases, greater flexibility around working conditions. Although we have realized benefits from extensive hiring and retention programs in recent years, the risk of insufficient personnel may increase, either broadly or with respect to select critical staffing requirements, including those with security clearances. If necessary qualified personnel are more scarce or more difficult to attract or retain under reasonable terms, or if we experience a high level of attrition, generally or in particular areas, or if such personnel are increasingly unable to obtain security clearances or program access on a timely basis or are unable to be timely and effectively trained, we would expect higher labor-related costs and we could face challenges performing on various of our programs and meeting financial expectations. In addition, the macroeconomic environment, including continued challenges in the global labor market, may further affect our ability to hire, develop and retain the necessary workforce,workforce. Separately, the recent executive order regarding executive salaries and incentive compensation metrics applicable to maintaindefense performancecontractors levelscould andadversely impact our corporateability culture.to attract or retain executive talent.

Certain of our employees are covered by collective bargaining agreements. We generally have been able to renegotiate renewals to expiring agreements without significant disruption of operating activities. However, other companies recently have experienced challenges in renewing labor agreements. If, for example, we also experience difficulties with renewals and renegotiations of existing collective bargaining agreements, or if our employees pursue new collective representation, we could incur additional expenses and impacts on operating efficiency and may be subject to work stoppagesstoppages, production delays, increased labor costs and/or other labor-related disruptions. Any such expensesexpenses, stoppages or delaysdisruptions could adversely affect our performance and results.

•Our international business exposes us to additional risks, including risks related to geopolitical and economic factors, laws and regulations, which could have a material adverse impacteffect on our financial position, results of operations and/or cash flows.

Sales to customers outside the U.S. are an important component of our business and strategy. Our international business (including our participation in joint ventures and other forms of collaboration, requirements for local content, and our global supply chain) is subject to numerous political and economic factors, legal requirements, cross-cultural considerations and other risks associated with doing business globally. These risks differ in some respects from those associated with our U.S. business and our exposure to such risks is expected to increase if and as our international business continues to grow.

The following discussion should be read along with the financial statements included in this Form 10-K, as well as Part II, “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) of our Form 10-K for the year ended December 31, 20232024 (“20232024 Annual Report on Form 10-K”). To the extent the JulyJanuary 1, 20242025 SDSSSAS realignment impacted the disclosures in the 20232024 Annual Report on Form 10-K, we recast those prior year MD&A disclosures herein.

The conflictsongoing conflict in UkraineUkraine, andrecent theevents Middlein EastVenezuela and threats elsewhere, particularly in the Middle East and the Western Pacific region, have increased global tensions and instability and highlighted security requirements globally, including in Europe, the Middle East andEast, the Pacific region,region and Latin America, as well as the U.S. These conflicts have resulted in and may continue to result in increased demand for defense products and services from allies and partner nations, particularly in those areas.regions. For example, we have experienced an increase in demand for certain of our products and services directly and indirectly related to the conflict in Ukraine. We continue to monitor developments in these regions, but have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from thethese conflicts in Ukraine or the Middle East.conflicts.

We believe the current global security environmentenvironment, highlightscharacterized theby significant national security threats to the U.S. and its allies, andcontinues to highlight the need for strong deterrence and robust defense capabilities, and we are actively evaluating both opportunities and risks associated with this environment. We believe our capabilities, particularly in space, C4ISR, air and missile defense, battle management, advanced weapons, strategic deterrence, and survivable aircraft and mission systems should help our customers in the U.S. and globally defend against current and future threats and, as a result, continue to allowposition us for long-term profitable business growth.

Over the past several years, the global economic environment has experienced extraordinary challenges, including inflationary pressures; widespread delays and disruptions in supply chains; business slowdowns or shutdowns; workforce challenges and labor shortfalls; and market volatility. These macroeconomic factors can and have contributed, and incould thecontinue future couldto contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers. We continue to work to address challenges to our business caused by the macroeconomic environment on our business.environment. We have seen positive progress in the supply chain as on-time deliveries and quality havecontinue improved.to improve. In remaining areas of pressure, we are proactively working with our suppliers to ensure wehelp meet our contract commitments. Although certain pockets of our business were adversely affected by the broader macroeconomic environment during the fourth quarter of 2024, the overall financial impact on our company has continued to subside.

In addition, an overall increase inalthough interest rates inhave declined over the past year, they remain elevated compared to recent years hasand have raised the cost of borrowing for governments,governments. and ifIf rates furtherincrease increase,or remain elevated, it could impact government spending priorities (in the U.S. and allied countries, in particular), including theirthe demand for defense products. Economic tensions and changes in international trade policies, includingincluding, for example, the widespread tariffs announced since last year by the U.S. on its major trading partners, higher tariffs on imported goods and materials,materials theand impositionactions oftaken in response (such as retaliatory tariffs or other trade protectionprotectionist measures andor the renegotiation of free trade agreements,agreements), could also further impact the global market for defense products, services and solutions. The full impact of these governmental actions on macroeconomic conditions and on our business is uncertain, difficult to predict and depends on a number of factors, including the extent and duration of tariffs, any reversal or temporary suspension of announced tariffs, the availability of exemptions, changes in the amount and scope of tariffs, the imposition of new tariffs and other measures that target countries may take in response to U.S. trade policies, and possible resulting general inflationary pressures in the global economy. We are continuing to monitor the impact on our business, suppliers and customers, but do not believe that the tariffs in effect at this time will have a material adverse effect on our business.

The U.S. continues to face an uncertain and evolving political, budget and regulatory environment. In particular, it is difficult to predict the specific course of future defense budgets. Current and future requirements related to the conflictsconflict in Ukraine and threats in the Middle East, threatsthe in theWestern Pacific regionand Latin America and other security priorities, as well as the macroeconomic environment, the national debt, and other domestic priorities, among other things, in the U.S. and globally, will continue to impact our customers’ budgets, spending and priorities, and our industry. The U.S. political environment may also impact defense budgets and priorities, issues related to the national debt, and government spending more broadly. We anticipate that issues related to budgetary priorities andpriorities, defense spending levels,levels and the debt ceiling, and the spending caps imposed by the Fiscal Responsibility Act of 2023 (FRA), particularly with respect to discretionary spending,ceiling will continue to be a subjectsubjects of considerable debate, with a potentially significant impact on our programs and the company.

Annual appropriations to fund the federal government for FY 20252026 have not yet been enacted. CongressOn continuesOctober to1, pass2025, short-termthe U.S. Government entered a shutdown, which ended on November 12, 2025. The federal government is currently operating under a continuing resolutionsresolution (“CR”) tothat fundextends thefunding federal government. Thefor most recentagencies CR(including passed in December 2024 extends current funding levelsDoW) until MarchJanuary 14,30, 2025.2026. It remains uncertain when the government will approve FY 20252026 appropriations,appropriations and thewhat levels of funding FY 2025the appropriations will provide. Government operations under an extended CR or a government shutdown could have potentialadverse impacts on our programs and new starts, in particular.particular, and the U.S. Government’s ability to make timely payments.

In 2015, the U.S. Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for engineering and manufacturing development (EMD) and five low-rate initial production (LRIP) options for a baseline total of 21 aircraft. The EMD phase of the program is largely cost type and began at contract award. The LRIP options are largely fixed price and are expected to continue to be awarded and executed through approximately the end of the decade. In addition to the five LRIP options, Northrop Grumman and the U.S. Air Force have established not to exceed (NTE) pricing for additional aircraft up to unit 40. The average NTE value for these subsequent lots is above the average unit price of the five LRIP lots, and the NTE lots include an economic price adjustment clause to help protect against certain inflationary pressures. Final terms, quantity, and pricing for these subsequent lots are not fully negotiated. We are in discussions with the U.S. Air Force regarding the potential for an accelerated production rate on the program. While the ultimate outcome of these discussions remains uncertain, we currently expect any agreement to accelerate production rate would require future investment by the company to expand production capacity along with the opportunity to earn improved returns on the LRIP and NTE phases of the program.

During the fourth quarter of 2023, we recognized a projected loss of $1.56 billion across the five LRIP options. During the fourth quarter of 2024, we again reviewed our estimated profitability on the program and made no significant changes to the previously recognized loss. The company’s 20242025 results reflect our current best estimate of our cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers and our customer.suppliers. If our estimated cost to complete the aircraft changeschanges, if we reach an agreement with the customer regarding an accelerated production rate, or if our assumptions regarding contract performance, quantities, supplier negotiations, or funding to mitigate the impact of macroeconomic disruptions are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

In July 2024, the Sentinel program was certified for continuation by the DoDDoW upon completion of the Nunn-McCurdy breach review. In connection with the certification, the DoDDoW directed that the program be restructured, including plans for infrastructure related to the command and launch segment, which was the main driver of the increased cost estimates for the Production and Deployment phases. We are partnering with our customer to establish a new program baseline as part of the restructuring activities.

During the fourth quarter of 2024,2025, we reviewed our estimated profitability on the Sentinel program and made no significant changes. The Sentinel EAC incorporatesIf our bestestimated estimate of costscost to complete the restructured EMD effort; however,or ifour theexpectations outcomefor isachieving contract incentives are more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

We manage and assess our business based on our performance on contracts and programs (typically larger contracts or two or more closely-related contracts). We recognize sales from our portfolio of long-term contracts as control is transferred to the customer, primarily over time on a cost-to-cost basis (cost incurred relative to costs estimated at completion). As a result, sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts. Due to the applicable FAR and CAS requirements that govern our U.S. government business, most types of costs are allocable to U.S. government contracts. As such, we do not focus on individual cost groupings (such as manufacturing, engineering and design labor, subcontractor, material, overhead and general and administrative (G&A) costs), as much as we do on total contract cost, which is the key driver of our sales and operating income.

In evaluating our operating performance, we primarily focus on changes in sales and operating margin rates. 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 operating 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, which are typically described in terms of changes in net EAC adjustments. Contract mix generally refers to changes in the ratio of contract type and/or life cycle (e.g., cost-type, fixed-price, development, production, and/or sustainment). Contract mix can also refer to differences in the profitability of the programs that drive changes in sales (e.g., sales growth or decreases on programs with accretive or dilutive margin rates).

For purposes of the operating results discussion below, we assess our performance using certain financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”)., as follows:

•Mark-to-market adjusted net earnings (MTM-adjusted net earnings) and MTM-adjusted earnings per share (MTM-adjusted EPS) exclude MTM pension and OPB benefit/ (expense) and related tax impacts, which are generally only recognized during the fourth quarter. These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the company’s underlying financial performance by presenting the company’s operating results before the non-operational impact of 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 MTM accounting is not considered in management’s assessment of the company’s operating performance or in its determination of incentive compensation awards.

20242025 sales increased $1.7$921 billion,million, or 42 percent, due to higher sales of $1.1 billion at Mission Systems, $603 million at Defense Systems, net of a 12$192 percentmillion growthreduction inrelated salesto the training services divestiture, and $596 million at Aeronautics SystemsSystems. andThese higherincreases sales at Mission Systems and Defense Systems,were partially offset by $960 million of lower sales at Space SystemsSystems, largely drivendue byto a reduction of $595$738 million sales reduction associated with wind-down of work on the restricted space and NGI programs, as previously disclosed. 2024 sales reflect continued strong demand for our products and services.$425 million of higher intercompany eliminations.

20242025 operating income increased $1.8$141 billion,million, or 723 percent, primarily due to highera operating$231 incomemillion atpre-tax Aeronauticsgain Systems,on largelysale driven byfor the priortraining yearservices $1.56 billion charge on the B-21 program, as well as higher operating income at Space Systemsdivestiture and Defense Systems. 2024 operating income also increased due to a $122$218 million increase in the FAS/CAS operating adjustment,adjustment. These increases were partially offset by $73a $167 million decrease in segment operating income, primarily driven by $423 million of higherlower unallocatedoperating corporateincome expense,at largelyAeronautics dueSystems toreflecting the first quarter B-21 loss provision, and a $127$126 million increase in non-divestiture-related unallocated corporate expense largely driven by higher deferred state taxestax relatedexpense. to the MTM benefit (expense) and prior year B-21 charge and $25 million of lower intangible amortization and PP&E step-up depreciation. 20242025 operating margin rate increased to 10.610.8 percent from 6.510.6 percent reflecting the items above.

20242025 G&A costs as a percentage of sales decreasedof 9.6 percent were comparable to 9.7the percentprior from 10.2 percent primarily due to higher sales.year.

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

The 20242025 MTM benefit of $443$527 million was primarily driven by a 58 basis point increase in the discount rate from year end 2023, partially offset by actual net plan asset returns of 4.711.3 percent compared to our 7.5 percent asset return assumption.assumption, partially offset by a 15 basis point decrease in the discount rate from year end 2024.

(2)The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM (benefit) (expense) and applying the 21 percent federal statutory rate.

(2)The federal tax impact in each period was calculated by subtracting the deferred state tax impact from MTM (benefit) (expense) and applying the 21 percent federal statutory rate.

20242025 diluted earnings per share increased $14.81,$0.74, or 1093 percent, reflecting the 103 percent increase incomparable net earnings described above and a 32 percent reduction in weighted-average diluted shares outstanding.

Subsequent Realignment - Effective January 1, 2025, the company realigned the Strike and Surveillance Aircraft Solutions (SSAS) business unit from Defense Systems to Aeronautics Systems. This realignment is not reflected in the financial information contained in this report; it will be reflected in the company’s operating results beginning in the first quarter of 2025.report.

(1)Represents the deferred state tax expense (benefit) associated with MTM benefit (expense) and the prior year B-21 charge,loss provisions, which are recorded in Unallocated corporate expense consistent with other changes in deferred state taxes.

20242025 segment operating income increaseddecreased $1.8$167 billion,million, or 654 percent, primarily due to higher$423 million of lower operating income at Aeronautics Systems,Systems largely driven byreflecting the priorfirst year $1.56 billion charge on thequarter B-21 program,loss asprovision welland as$71 highermillion of lower operating income at Space Systems, partially offset by higher operating income of $229 million at Mission Systems and $155 million at Defense Systems. Segment operating margin rate increaseddecreased to 11.110.4 percent reflectingprimarily due to the B-21 loss provision at Aeronautics Systems, partially offset by higher operating margin rates at AeronauticsDefense Systems, Mission Systems and Space Systems, partially offset by a lower operating margin rate at Mission Systems.

Net Estimate-At-Completion (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 andsales, operating income and themargin aggregate amounts are presented in the table below:rate.

Aeronautics Systems is a leader in the design, development, production, integration, sustainment and modernization of military aircraft systems for the U.S. Air Force, the U.S. Navy, other U.S. government agencies, and international customers. Major products include strategic long-range strike aircraft; tactical fighter and air dominance aircraft; airborne battle management and command and control systems; and unmanneduncrewed autonomous aircraft systems, including high-altitude long-endurance (HALE) strategic intelligence, surveillance and reconnaissance (ISR) systems.

Defense Systems is a leader in the design, engineering, development, integration and production of strategic deterrent systems, advanced tactical weapons, and missile defense solutions, and a provider of sustainment, modernization and training services for manned and unmanned aircraft and electronics systemssolutions for the U.S. military and a broad range of international customers. Major products and services include strategic missiles; integrated, all-domain command and control (C2) systems; precision strike weapons; advanced propulsion, including tactical solid rocket motors and high speed air-breathing and hypersonic systems; high-performance gun systems, ammunition, precision munitions and advanced fuzes; and aircraftweapons integration, modernization, and mission systems logistics support, sustainment, operations and modernization.sustainment.

20242025 sales increased $271$603 million, or 38 percent, primarily due to a $182$224 million increase on Sentinel as that program continues to ramp, a $163$185 million increase on certainarmament programs, including military ammunition programs, a $124$153 million increase onin Stand-insales Attackfrom Weaponnew (SiAW)awards asacross the IBCS program rampsportfolio, and higher volume fromdue to material timing of materials and increased order quantities on the Guided Multiple Launch Rocket System (GMLRS) program. These increases were partially offset by a $262$192 million decreasereduction duein sales related to the completion of an internationaldivested training programservices and lower volume on the Special Electronic Mission Aircraft (SEMA) program as it nears completion.business.

20232025 operating income increased $48$155 million, or 622 percent, due to higher sales, partially offset by a lowerhigher operating margin rate.rate and higher sales. Operating margin rate decreasedincreased to 10.010.9 percent from 10.29.7 percent,percent primarily due to lowerhigher net EAC adjustments.adjustments, including a $76 million favorable EAC adjustment on the Sentinel program during the second quarter of 2025.

Mission Systems is a leader in advanced mission solutions and multifunction systems, primarily for the U.S. defense and intelligence community, and international customers. Major products and services include radar, electro-optical/infrared (EO/IR) and acoustic sensors; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR) systems; radar, electro-optical/infrared (EO/IR) and acoustic sensors; electronic warfare systems; advanced communications and network systems; advanced microelectronics; navigation and positioning sensors; maritime power, propulsion and payload launch systems; full spectrum cyber solutions; and intelligence processing systems.

Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global aerospace and defense technology company. We deliver a broad range of products, services and solutions to U.S. and international customers, and principally to the U.SU.S. Department of War (“DoW”) and intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity.

Over the past several years, the global economic environment has experienced challenges, including inflationary pressures; widespread delays and disruptions in supply chains; constraints on the availability of critical materials, including rare earth minerals and metals; business slowdowns or shutdowns; workforce challenges and labor shortfalls; and market volatility. These macroeconomic factors have contributed, and could continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers. We continue to work to address challenges to our business caused by the macroeconomic environment. We have seen progress in the supply chain as on-time deliveries and quality continue to improve. In remaining areas of pressure, we are proactively working with our suppliers to help meet our contract commitments.

In addition, if interest rates increase or otherwise fluctuate, it could impact government spending priorities (in the U.S. and allied countries, in particular), including the demand for defense products. Economic tensions and changes in international trade policies, including, for example, widespread tariffs announced since last year by the U.S. on its major trading partners, higher tariffs on imported goods and materials and actions taken in response (such as retaliatory tariffs or other trade protectionist measures or the renegotiation of free trade agreements), could also further impact the global market for defense products, services and solutions. In addition, following the recentfirst quarter 2026 U.S. Supreme Court decision that invalidated tariffs imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”), the U.S. announced tariffs under different statutory authorities, including a 10% global tariff. The full impact of these governmental actions on macroeconomic conditions and on our business is uncertain, difficult to predict and depends on a number of factors, including the extent and duration of tariffs, the availability of exemptions, changes in the amount and scope of tariffs, any reversal or temporary suspension of announced tariffs, the availability of refunds for tariffs paid under IEEPA, the imposition of new tariffs and other measures that target countries may take in response to U.S. trade policies, and possible resulting general inflationary pressures in the global economy. We are continuing to monitor the impact on our business, suppliers and customers, but do not believe that the tariffs, including the IEEPA tariffs, have had or will have a material adverse effect on our business.

On July 4, 2025, the FY 2025 reconciliation bill titled the One Big Beautiful Bill Act (the “OBBBA”) was enacted. The OBBBA allocatesallocated approximately $150 billion in mandatory defense funding, including funding for air and missile defense, munitions, strategic deterrence, shipbuilding and supply chains and other military capabilities,capabilities. and theThe appropriated funds will remain available to be obligated until September 30, 2029 and expended through FY 2034. TheFunding from the OBBBA ishas expectedallowed to result infor increased investments by the DoW in defense modernization projectsprojects, homeland missile defense capabilities, and Pacificincreased regionproduction deterrence,capacity amongacross othera number of key programs. See Note 4 to the financial statements for additional information on key income tax provisions of the OBBBA.

The Presidential Administration (the “Administration”) has issued numerous executive orders, including orders to undertake a comprehensive overhaul of the Federal Acquisition Regulation, to reform the DoW defense acquisition process and, more recently, to promote the use of fixed price contracts where appropriate and to address underperformance and insufficient prioritization of government contracts, insufficient investment in production and production speed and incentive compensation metrics applicable to defense contractors. See “Risk factors” for further discussion regarding risks associated with executive orders and regulatory changes. Some of the Administration’s executive orders are subject to ongoing court challenges. Implementation of certain of these executive orders could adversely affect our business or create a more challenging or costly regulatory, operating and economic environment.

In 2015, the U.S. Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for engineering and manufacturing development (EMD) and five low-rate initial production (LRIP) options for a baseline total of 21 aircraft. The EMD phase of the program is largely cost type and began at contract award. The LRIP options are largely fixed price and are expected to continue to be awarded and executed through approximately the end of the decade. We have previously recognized and disclosed cumulative losses of approximately $2.0 billion on the LRIP phase of the program. Northrop Grumman and the U.S. Air Force have also established not to exceed (NTE) pricing for two additional lots. TheFinal terms, quantity, and pricing for the NTE lots are not fully negotiated; however, the average value for these NTE lots is above the average unit price of the five LRIP lots, and the NTE lots include an economic price adjustment clause to help protect against certain inflationary pressures. Final terms, quantity, and pricing for the NTE lots are not fully negotiated.

During the first quarter of 2026, we reached an agreement with the U.S. Air Force to expand production capacity for the B-21 program and increase the aircraft production rate. We currentlycontinue to expect to invest approximately $2.5 billion over a multi-year period to expand production capacity; in return, we have the opportunity to earn improved returns on the LRIP and NTE phases of the program.

During the second quarter of 2026, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss. As we finalized certain details associated with the first quarter 2026 agreement with the U.S. Air Force described above, certain costs shifted between LRIP lots resulting in favorable EAC adjustments on the first four LRIP lots and an increase in the loss contingency accrual on the remainder of the program. The company’s firstsecond quarter 2026 results reflect our current best estimate of cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers. If our estimated cost to complete the aircraft changes, or if our assumptions regarding contract performance, quantities, or supplier negotiations are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

During the firstsecond quarter of 2026, we continued to make progress on joint activities with the U.S. Air Force. These efforts, which included requirements and design maturation, risk reduction activities, and evaluation of options to accelerate fielding of initial capability, have resulted in further definition and authorization of elements of the program execution plan, resulting in a $7.6 billion increase in program backlog. We also reviewed our estimated profitability on the Sentinel program and maderecognized noa significantfavorable changes.earnings adjustment related to our recent achievement of certain contract incentives. If our estimated cost to complete the restructured EMD effort or our expectationsachievement forof achievingfuture contract incentives areis more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

FirstYear quarterto date 2026 sales increased $413$938 million, or 45 percent, primarily due to higher sales of $469$874 million at Aeronautics Systems, as$196 well as higher salesmillion at Defense Systems and $147 million at Mission Systems. These increases were partially offset by $116$298 million of higher intercompany eliminations and lower sales at Space Systems due to the wind-down of work on the Next Generation Interceptor (NGI) program.eliminations.

FirstSecond quarter 2026 operating income increaseddecreased $416$329 million, or 7323 percent, largelyprimarily driven by the prior year $477$231 million B-21gain losson provisionthe attraining Aeronauticsservices Systems,divestiture, partiallyas offsetwell byas $61 million of lower segment operating income and a $56 million decrease in the FAS/CAS operating adjustment. Operating margin rate increaseddeclined to 10.010.1 percent from 6.113.8 percent reflecting the items above.

FirstSecond quarter 2026 G&A costs as a percentage of sales decreased to 9.89.4 percent from 10.69.8 percent in the prior year period primarily due to higher sales and cost management.sales.

FirstSecond quarter 2026 income tax expense increaseddecreased $58$179 million, or 6071 percent, due to $452a lower ETR and $259 million of higherlower earnings before income taxes, partially offset by a lower effective tax rate (ETR).taxes. The firstsecond quarter 2026 ETR decreased to 15.06.3 percent from 16.817.7 percent primarilyprincipally due to higherthe researchremeasurement credits,of includingUTPs agiven benefitrecent relateddevelopments to CAMT guidance recently issued bywith the IRS.IRS towards resolving our previously filed federal income tax returns and refund claims.

FirstSecond quarter 2026 net earnings increaseddecreased $394$80 million, or 827 percent, primarily due to the $416$329 million increasedecrease in operating income described aboveabove, andpartially offset by a $36$179 million decrease in income tax expense, a $29 million increase in the non-operating FAS pension benefit,benefit partially offset byand a $58$29 million increase in incomeOther, taxnet expense.largely driven by favorable returns associated with an investment sold during the quarter.

FirstSecond quarter 2026 diluted earnings per share increaseddecreased $2.82,$0.47, or 856 percent, reflecting ana 827 percent increasedecrease in net earnings and a 21 percent reduction in weighted-average diluted shares outstanding.

FirstSecond quarter 2026 segment operating income increaseddecreased $504$61 million, or 895 percent, primarily due to $488$97 million of lower operating income at Defense Systems and $44 million of lower operating income at Space Systems, partially offset by $60 million of higher operating income at Mission Systems and $41 million of higher operating income at Aeronautics Systems and $72 million of higher operating income at Mission Systems, partially offset by $48 million of lower operating income at Space Systems. Segment operating margin rate increaseddecreased to 10.810.6 percent from 6.011.8 percent primarily due to a lower operating margin rate at Defense Systems and Space Systems, partially offset by a higher operating margin rate at Aeronautics Systems and Mission Systems, partially offset by a lower operating margin rate at Space Systems.

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

Unallocated Corporate Expense (Income)

FirstSecond quarter 2026 sales increased $469$405 million, or 1713 percent, primarily due to higher salesvolume on B-21 and other restricted programsprograms, asa well$106 asmillion increased volumeincrease on the E-130J TACAMO (“TACAMO”) program as it ramps up.up, Theand higher B-21volume sales reflecton the company’sB-2, first quarter 2026 agreement with the U.S. Air Force to expand production capacityF-35 and increaseE-2 theprograms. aircraft production rate, including the sale of a company-owned test asset. The salesThese increases were partially offset by a decrease on F/A-18 as final production deliveries have completed.

FirstYear quarterto date 2026 sales increased $94$874 million, or 515 percent, primarily due to higher volumesales on SentinelB-21 and other restricted programs, a $193 million increase on the TACAMO program as thatit programramps continues to ramp,up, as well as higher volume on tacticalthe solid rocket motor programsB-2 and acrossF-35 programs. The higher B-21 sales reflect the Integratedcompany’s Battlefirst Commandquarter System2026 (IBCS)agreement portfolio.with Thesethe U.S. Air Force to expand production capacity and increase the aircraft production rate, including the sale of a company-owned test asset. The sales increases were partially offset by a $72decrease millionon reductionF/A-18 inas salesfinal relatedproduction todeliveries thehave divested training services business.completed.

FirstSecond quarter 2026 operating income increased $5$41 million, or 313 percent, primarily due to higher sales, partially offset by a lower operating margin rate.sales. Operating margin rate decreasedof to 9.710.3 percent fromwas 9.9comparable percentwith principallythe dueprior toyear lower net EAC adjustments.period.

FirstYear quarterto date 2026 operating income increased $72$529 million, or 20383 percent, primarily due to a higher operating margin rate and higher sales.rate. Operating margin rate increased to 15.19.8 percent from 12.9 percent, primarily due to the absence of the prior year investmentsB-21 madeloss by the sector in connection with restricted business opportunities, as well as higher net EAC adjustments in the current year.provision.

FirstSecond quarter 2026 sales decreasedincreased $88$102 million, or 35 percent, primarily due to wind-downhigher of workvolume on the NGI program, which reduced sales by $98 million,Sentinel as wellthe asprogram lowercontinues salesto onramp and higher volume across the GEMIntegrated 63XLBattle programCommand relatedSystem to(IBCS) the unfavorable EAC adjustment described below.portfolio. These decreasesincreases were partially offset by highera volume$40 onmillion Spacereduction Developmentin Agencysales satelliterelated programs driven by ramp-up onto the Tranchedivested 3training trackingservices layer award.business.

FirstYear quarterto date 2026 operating income decreased $48$92 million, or 1721 percent, primarily due to a lower operating margin raterate, andpartially loweroffset by higher sales. Operating margin rate decreased to 9.58.5 percent from 11.011.4 percent,percent largelyprincipally due to lower net EAC adjustments, including a $71 million unfavorable adjustment on GEM 63XL associated with a launch anomaly that occurred duringreflecting the firstSiAW quarter.and prior year Sentinel adjustments described above.

FirstSecond quarter 2026 product sales increased $437$550 million, or 67 percent, primarily due to higher sales on B-21 and TACAMO at Aeronautics Systems, as well as higher volume on Sentinel, tactical solid rocket motor programsSentinel and across the IBCS portfolio at Defense Systems. These increases were partially offset by the wind-down of work on the NGI programSystems, and lowerincreased sales onfor GEMCRS 63XLmissions, GPI and GMD WS at Space Systems.

FirstSecond quarter 2026 product costs wereincreased comparable$630 tomillion, theor prior9 year,percent, reflecting a higherlower operating margin rate principallyprimarily due to thelower absencenet ofEAC theadjustments prioron yearproduct B-21 loss provisionprograms at AeronauticsDefense Systems and investments made in connection with restricted business opportunities at MissionSpace Systems.

FirstSecond quarter 2026 service sales decreased $24$25 million, or 1 percent, primarily due to lower restricted sales at Space Systems and lower servicevolume volumeon airborne electronic warfare programs at DefenseMission Systems due to the training services divestiture,Systems, partially offset by higher restricted sales at Aeronautics Systems.