UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________ 
FORM 10-Q
______________________________________ 
FORM10-Q
x 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 20192020
or
o 
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)
DELAWAREDelaware 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) (703) 280-2900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockNOCNew 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 x
No o
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 x
No o
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 ☐
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
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.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐    No ☒
Yes o
No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 19, 201924, 2020, 169,799,679166,702,730 shares of common stock were outstanding.



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NORTHROP GRUMMAN CORPORATION                        


TABLE OF CONTENTS
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Item 2. 
 
 
 
 
 
 
Item 3.
Item 4.
   
  
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
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NORTHROP GRUMMAN CORPORATION                        


PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March 31Three Months Ended March 31
$ in millions, except per share amounts2019
20182020
2019
Sales









Product$5,728

$4,289
$6,176

$5,728
Service2,461

2,446
2,444

2,461
Total sales8,189

6,735
8,620

8,189
Operating costs and expenses









Product4,517

3,269
4,952

4,517
Service1,976

1,907
1,946

1,976
General and administrative expenses760

711
788

760
Operating income936

848
934

936
Other (expense) income









Interest expense(138)
(143)(125)
(138)
FAS (non-service) pension benefit200

254
302

200
Other, net36

40
(58)
36
Earnings before income taxes1,034

999
1,053

1,034
Federal and foreign income tax expense171

159
185

171
Net earnings$863

$840
$868

$863











Basic earnings per share$5.08

$4.82
$5.18

$5.08
Weighted-average common shares outstanding, in millions170.0

174.3
167.7

170.0
Diluted earnings per share$5.06

$4.79
$5.15

$5.06
Weighted-average diluted shares outstanding, in millions170.7

175.4
168.4

170.7











Net earnings (from above)$863

$840
$868

$863
Other comprehensive loss      
Change in unamortized prior service credit, net of tax(11) (15)(10) (11)
Change in cumulative translation adjustment and other, net4
 (3)(9) 4
Other comprehensive loss, net of tax(7) (18)(19) (7)
Comprehensive income$856
 $822
$849
 $856
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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NORTHROP GRUMMAN CORPORATION                        


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
$ in millions, except par valueMarch 31,
2020
 December 31,
2019
Assets   
Cash and cash equivalents$3,278
 $2,245
Accounts receivable, net2,136
 1,326
Unbilled receivables, net5,918
 5,334
Inventoried costs, net785
 783
Prepaid expenses and other current assets1,011
 997
Total current assets13,128
 10,685
Property, plant and equipment, net of accumulated depreciation of $5,952 for 2020 and $5,850 for 20196,956
 6,912
Operating lease right-of-use assets1,469
 1,511
Goodwill18,698
 18,708
Intangible assets, net974
 1,040
Deferred tax assets355
 508
Other non-current assets1,623
 1,725
Total assets$43,203
 $41,089
    
Liabilities   
Trade accounts payable$2,071
 $2,226
Accrued employee compensation1,472
 1,865
Advance payments and billings in excess of costs incurred2,027
 2,237
Other current liabilities4,607
 3,106
Total current liabilities10,177
 9,434
Long-term debt, net of current portion of $1,790 for 2020 and $1,109 for 201914,299
 12,770
Pension and other postretirement benefit plan liabilities6,779
 6,979
Operating lease liabilities1,280
 1,308
Other non-current liabilities1,606
 1,779
Total liabilities34,141
 32,270
    
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: 2020—167,099,297 and 2019—167,848,424167
 168
Paid-in capital
 
Retained earnings9,011
 8,748
Accumulated other comprehensive loss(116) (97)
Total shareholders’ equity9,062
 8,819
Total liabilities and shareholders’ equity$43,203
 $41,089
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
$ in millions, except par valueMarch 31,
2019
 December 31,
2018
Assets   
Cash and cash equivalents$755
 $1,579
Accounts receivable, net2,166
 1,448
Unbilled receivables, net5,785
 5,026
Inventoried costs, net778
 654
Prepaid expenses and other current assets959
 973
Total current assets10,443
 9,680
Property, plant and equipment, net of accumulated depreciation of $5,493 for 2019 and $5,369 for 20186,420
 6,372
Operating lease right-of-use assets1,283
 
Goodwill18,698
 18,672
Intangible assets, net1,289
 1,372
Deferred tax assets84
 94
Other non-current assets1,534
 1,463
Total assets$39,751
 $37,653
    
Liabilities   
Trade accounts payable$1,932
 $2,182
Accrued employee compensation1,404
 1,676
Advance payments and billings in excess of costs incurred1,969
 1,917
Other current liabilities3,516
 2,499
Total current liabilities8,821
 8,274
Long-term debt, net of current portion of $523 for 2019 and $517 for 201813,863
 13,883
Pension and other postretirement benefit plan liabilities5,646
 5,755
Operating lease liabilities1,098
 
Deferred tax liabilities133
 108
Other non-current liabilities1,451
 1,446
Total liabilities31,012
 29,466
    
Commitments and contingencies (Note 7)
 
    
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: 2019—169,873,750 and 2018—170,607,336170
 171
Paid-in capital
 
Retained earnings8,628
 8,068
Accumulated other comprehensive loss(59) (52)
Total shareholders’ equity8,739
 8,187
Total liabilities and shareholders’ equity$39,751
 $37,653
 Three Months Ended March 31
$ in millions2020 2019
Operating activities   
Net earnings$868
 $863
Adjustments to reconcile to net cash used in operating activities:   
Depreciation and amortization297
 302
Stock-based compensation18
 26
Deferred income taxes156
 33
Changes in assets and liabilities:   
Accounts receivable, net(810) (718)
Unbilled receivables, net(584) (759)
Inventoried costs, net(2) (124)
Prepaid expenses and other assets56
 (23)
Accounts payable and other liabilities(833) (480)
Income taxes payable, net10
 140
Retiree benefits(237) (142)
Other, net68
 (31)
Net cash used in operating activities(993) (913)
    
Investing activities   
Capital expenditures(272) (284)
Other, net2
 4
Net cash used in investing activities(270) (280)
    
Financing activities   
Net proceeds from issuance of long-term debt2,239
 
Payments to credit facilities(7) (20)
Net borrowings on commercial paper744
 814
Common stock repurchases(344) (60)
Cash dividends paid(227) (211)
Payments of employee taxes withheld from share-based awards(63) (61)
Other, net(46) 
Net cash provided by financing activities2,296
 462
Increase (decrease) in cash and cash equivalents1,033
 (731)
Cash and cash equivalents, beginning of year2,245
 1,579
Cash and cash equivalents, end of period$3,278
 $848
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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NORTHROP GRUMMAN CORPORATION                        


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 Three Months Ended March 31
$ in millions2019 2018
Operating activities   
Net earnings$863
 $840
Adjustments to reconcile to net cash provided by operating activities:   
Depreciation and amortization234
 122
Non-cash lease expense68
 
Stock-based compensation26
 19
Deferred income taxes33
 (22)
Changes in assets and liabilities:   
Accounts receivable, net(718) (187)
Unbilled receivables, net(759) (404)
Inventoried costs, net(124) (37)
Prepaid expenses and other assets(23) 13
Accounts payable and other liabilities(480) (590)
Income taxes payable, net140
 197
Retiree benefits(142) (190)
Other, net(31) 2
Net cash used in operating activities(913) (237)
    
Investing activities   
Capital expenditures(284) (305)
Other, net4
 (2)
Net cash used in investing activities(280) (307)
    
Financing activities   
Net payments to credit facilities(20) (14)
Net borrowings on commercial paper814
 
Common stock repurchases(60) 
Cash dividends paid(211) (198)
Payments of employee taxes withheld from share-based awards(61) (79)
Other, net
 (21)
Net cash provided by (used in) financing activities462
 (312)
Decrease in cash, cash equivalents and restricted cash(731) (856)
Cash, cash equivalents and restricted cash, beginning of year1,579
 11,225
Cash, cash equivalents and restricted cash, end of period$848
 $10,369
 Three Months Ended March 31
$ in millions, except per share amounts2020 2019
Common stock   
Beginning of period$168
 $171
Common stock repurchased(1) (1)
End of period167
 170
Paid-in capital   
Beginning of period
 
End of period
 
Retained earnings   
Beginning of period8,748
 8,068
Common stock repurchased(348) (62)
Net earnings868
 863
Dividends declared(223) (206)
Stock compensation(45) (35)
Other11
 
End of period9,011
 8,628
Accumulated other comprehensive (loss) income   
Beginning of period(97) (52)
Other comprehensive loss, net of tax(19) (7)
End of period(116) (59)
Total shareholders’ equity$9,062
 $8,739
Cash dividends declared per share$1.32
 $1.20
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 Three Months Ended March 31
$ in millions, except per share amounts2019 2018
Common stock   
Beginning of year$171
 $174
Common stock repurchased(1) 
End of period170
 174
Paid-in capital   
Beginning of year
 44
Stock compensation
 (44)
End of period
 
Retained earnings   
Beginning of year8,068
 6,913
Impact from adoption of ASU 2018-02 and ASU 2016-01
 (21)
Common stock repurchased(62) 
Net earnings863
 840
Dividends declared(206) (195)
Stock compensation(35) (35)
End of period8,628
 7,502
Accumulated other comprehensive (loss) income   
Beginning of year(52) 1
Impact from adoption of ASU 2018-02 and ASU 2016-01
 21
Other comprehensive loss, net of tax(7) (18)
End of period(59) 4
Total shareholders’ equity$8,739
 $7,680
Cash dividends declared per share$1.20
 $1.10
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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NORTHROP GRUMMAN CORPORATION                        


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1.    BASIS OF PRESENTATION
Principles of Consolidation and Reporting
These unaudited condensed consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman Corporation and its subsidiaries and joint ventures or other investments for which we consolidate the financial results (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”). Material intercompanyIntercompany 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.
On June 6, 2018 (the “Merger date”), the company completed its previously announced acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”). On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc., which we established as a new, fourth business sector (“Innovation Systems”). The operating results of Innovation Systems subsequent to the Merger date have been included in the company's unaudited condensed consolidated results of operations. See Note 2 for further information regarding the Merger.
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.
Effective January 1, 2020, the company reorganized its operating sectors to better align the company’s broad portfolio to serve its customers’ needs. The four new sectors, which also comprise our reportable segments, are Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.
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 20182019 Annual Report on Form 10-K.10-K and the Form 8-K that we expect to file with the SEC immediately after filing this Form 10-Q, which recasts the disclosures in certain portions of the 2019 Annual Report on Form 10-K to reflect changes in the company’s reportable segments.
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 legacy Northrop Grumman’sthe 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. Similarly, Innovation Systems uses a “fiscal” calendar by closing its books on a Sunday near these quarter-end dates and will continue this practice until its business processes are aligned with legacy Northrop Grumman’s. This practice is only used at interim periods within a reporting year.
As previously announced, effective January 1, 2019, we adopted Accounting Standards Codification (ASC) Topic 842, Leases, using the optional transition method to apply the standard through a cumulative effect adjustment in the period of adoption. The adoption of this standard is reflected in the amounts and disclosures set forth in this Form 10-Q.
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 production of goods, the provision of services, or a combination of both. The company classifies sales as product or service based on the predominant attributes of each contract.
The company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the company provides multiple distinct goods or services to a customer, most commonly when a contract covers multiple phases of the product lifecycle (e.g., development, production, sustainment, etc.). In those cases, the company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using a cost plus a reasonable margin approach. Warranties are

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NORTHROP GRUMMAN CORPORATION                        

provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not considered to be separate performance obligations. Our accounting for costs to obtain or fulfill a contract are not material.
Contracts are often modified for changes in contract specifications or requirements, which may result in scope and/or price changes. Most of the company’s contract modifications are for goods or services that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative estimate-at-completion (EAC) adjustment.
The company recognizesWe recognize revenue as control is transferred to the customer, either over time or at a point in time. In general, our U.S. government contracts contain termination for convenience and/or other clauses that generally provide the customer rights to goods produced and/or in-process. Similarly, our non-U.S. government contracts generally contain contractual termination clauses or entitle the company to payment for work performed to date for goods and services that do not have an alternative use. As control is effectively transferred while we perform on our contracts, we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion) as the company believes this represents the most appropriate measurement towards satisfaction of itsour 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 revenuesales 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.

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NORTHROP GRUMMAN CORPORATION                        

We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative EACEstimate-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 (G&A) costs, is charged against income in the period the loss is identified. Each loss provision is first offset against costs included in Unbilled receivables or Inventoried costs; remaining amounts are reflected in Other current liabilities.
Significant The following table presents the effect of aggregate net EAC adjustments:
 Three Months Ended March 31
$ in millions, except per share data2020 2019
Revenue$136
 $166
Operating income124
 138
Net earnings(1)
98
 109
Diluted earnings per share(1)
0.58
 0.64
(1)
Based on a 21 percent statutory tax rate.
EAC adjustments on a single contract couldperformance 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 discrete event orsuch adjustments to an individual contract were material to the financial statements during the three months ended March 31, 20192020 and 2018.
The following table presents the effect of aggregate net EAC adjustments:
 Three Months Ended March 31
$ in millions, except per share data2019 2018
Operating income$138
 $116
Net earnings(1)
109
 92
Diluted earnings per share(1)
0.64
 0.52
(1)
Based on a 21 percent statutory tax rate.
Revenue recognized from performance obligations satisfied in previous reporting periods was $166 million and $133 million for the three months ended March 31, 2019 and 2018, respectively.2019.
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

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NORTHROP GRUMMAN CORPORATION                        

and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time thean option or IDIQ task order is exercised or awarded.
Company backlog as of March 31, 20192020 was $57.3$64.2 billion. We expect to recognize approximately 5045 percent and 7570 percent of our March 31, 20192020 backlog as revenue over the next 12 and 24 months, respectively, 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. Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.
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. Unbilled receivables are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts. Accumulated contract costs in unbilled receivables include costs such as direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. Unbilled receivables also include certain estimates of variable consideration described above. These contract assets are not considered a significant financing component of the company’s contracts as the payment terms are intended to protect the customer in the event the company does not perform on its obligations under the contract.
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. Certain customers make advance payments prior to the company’s satisfaction of its obligations on the contract. These amounts are recorded as contract liabilities until such obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements.
The amount of revenue recognized for the three months ended March 31, 20192020 and 20182019 that was included in the contract liability balances at the beginning of each year was $674$781 million and $706$674 million, respectively.
Disaggregation of Revenue
See Note 119 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

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NORTHROP GRUMMAN CORPORATION                        

Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
$ in millionsMarch 31,
2020
December 31,
2019
Unamortized prior service credit, net of tax expense of $13 for 2020 and $17 for 2019$41
$51
Cumulative translation adjustment and other, net(157)(148)
Total accumulated other comprehensive loss$(116)$(97)
$ in millions March 31,
2019
 December 31,
2018
Unamortized prior service credit, net of tax expense of $28 for 2019 and $32 for 2018 $87
 $98
Cumulative translation adjustment (143) (144)
Other, net (3) (6)
Total accumulated other comprehensive loss $(59) $(52)
Reclassifications from accumulated other comprehensive loss to net earnings related to the amortization of prior service credit were $11 million and $15 million, net of taxes, for the three months ended March 31, 2019 and 2018, respectively. The reclassifications are included in the computation of net periodic pension cost (benefit). See Note 8 for further information.
Reclassifications from accumulated other comprehensive loss to net earnings relating to cumulative translation adjustments and effective cash flow hedges were not material for the three months ended March 31, 2019 and 2018.
Leases
The company leases certain buildings, land and equipment. Under ASC 842, at contract inception we determine whether the contract is or contains a lease and whether the lease should be classified as an operating or a financing

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lease. Operating leases are included in Operating lease right-of-use (ROU) assets, Other current liabilities, and Operating lease liabilities in our unaudited condensed consolidated statements of financial position.
The company recognizes operating lease ROU assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. Many of our leases include renewal options aligned with our contract terms. We define the initial lease term to include renewal options determined to be reasonably certain. In our adoption of ASC 842, we elected not to recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. We elected the practical expedient to not separate lease components from nonlease components and applied that practical expedient to all material classes of leased assets.
Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays, or rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement owned by the lessee, the company generally records a deferred rent liability and amortizes the deferred rent over the term of the lease as a reduction to rent expense. For rent holidays and rent escalation clauses during the lease term, the company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation for intended use.
Finance leases are not material to our unaudited condensed consolidated financial statements and the company is not a lessor in any material arrangements. We do not have any material restrictions or covenants in our lease agreements, sale-leaseback transactions, land easements or residual value guarantees.
Restricted Cash
On occasion, we are required to maintain cash deposits with banks in connection with certain contingent obligations. This restricted cash is included inPrepaid expenses and other current assetsin the unaudited condensed consolidated statements of financial position. As of March 31, 2019 our restricted cash totaled approximately $93 million. We had no restricted cash as of December 31, 2018.
Related Party Transactions
TheFor all periods presented, the company had no material related party transactions in any period presented.transactions.
Accounting Standards Updates
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASC Topic 842 supersedes existing lease guidance, including ASC 840 - Leases. Among other things, ASU 2016-02 requires recognition of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease and requires disclosure of certain information about leasing arrangements. On July 30, 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which, among other things, allows companies to elect an optional transition method to apply the new lease standard through a cumulative-effect adjustment in the period of adoption.
We adopted the standard on January 1, 2019 using the optional transition method and, as a result, did not recast prior period unaudited condensed comparative financial statements. All prior period amounts and disclosures are presented under ASC 840. We elected the package of practical expedients, which, among other things, allows us to carry forward our prior lease classifications under ASC 840. We did not elect to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840. Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities on the unaudited condensed consolidated statements of financial position with no cumulative impact to retained earnings and did not have a material impact on our results of operations or cash flows.
Other accountingAccounting standards updates adopted and/or issued, but not effective until after March 31, 2019,2020, 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.

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NORTHROP GRUMMAN CORPORATION                        

2.  ACQUISITION OF ORBITAL ATK
On June 6, 2018, the company completed its previously announced acquisition of Orbital ATK, by acquiring all of the outstanding shares of Orbital ATK for a purchase price of $7.7 billion in cash. On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc. We established Innovation Systems as a new, fourth business sector. Its main products include precision munitions and armaments; tactical missiles and subsystems; ammunition; launch vehicles; space and strategic propulsion systems; aerospace structures; space exploration products; and national security and commercial satellite systems and related components/services. The acquisition was financed with proceeds from the company’s debt financing completed in October 2017 and cash on hand. We believe this acquisition will enable us to broaden our capabilities and offerings, provide additional innovative solutions to meet our customers’ emerging requirements, create value for shareholders and provide expanded opportunities for our combined employees.
Preliminary Purchase Price Allocation
The acquisition was accounted for as a purchase business combination. As such, the company recorded the assets acquired and liabilities assumed at fair value, with the excess of the purchase price over the fair value of assets acquired and liabilities assumed recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. In some cases, the company used discounted cash flow analyses, which were based on our best estimate of future sales, earnings and cash flows after considering such factors as general market conditions, customer budgets, existing firm and future orders, changes in working capital, long term business plans and recent operating performance. Use of different estimates and judgments could yield materially different results.
During the second quarter of 2018, the company completed a preliminary analysis to determine the fair values of the assets acquired and liabilities assumed and the amounts recorded reflected management’s initial assessment of fair value as of the Merger date. Based on additional information obtained to date, the company refined its initial assessment of fair value and recognized the following significant adjustments to our preliminary purchase price allocation: Intangible assets increased $220 million, Other current liabilities increased $114 million, Pension and other postretirement benefit (OPB) plan liabilities increased $56 million, Other non-current liabilities increased $53 million and Goodwill decreased $47 million. These adjustments did not result in a material impact on the financial results of prior periods.
The company expects to finalize its purchase price allocation within one year of the Merger date. We are continuing to analyze and assess relevant information in the following areas to determine the fair value of assets acquired and liabilities assumed as of the Merger date: certain income tax, legal and contract-related matters. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table below.
The Merger date fair value of the consideration transferred totaled $7.7 billion in cash, which was comprised of the following:
$ in millions, except per share amounts Purchase price
Shares of Orbital ATK common stock outstanding as of the Merger date 57,562,152
Cash consideration per share of Orbital ATK common stock $134.50
Total purchase price $7,742

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The following preliminary purchase price allocation table presents the company’s refined estimate of the fair values of assets acquired and liabilities assumed at the Merger date:
$ in millions 
As of
June 6, 2018
Cash and cash equivalents $85
Accounts receivable 596
Unbilled receivables 1,264
Inventoried costs 220
Other current assets 226
Property, plant and equipment 1,509
Goodwill 6,248
Intangible assets 1,525
Other non-current assets 151
Total assets acquired 11,824
Trade accounts payable (397)
Accrued employee compensation (158)
Advance payments and billings in excess of costs incurred (222)
Below market contracts(1)
 (151)
Other current liabilities (412)
Long-term debt (1,687)
Pension and OPB plan liabilities (613)
Deferred tax liabilities (253)
Other non-current liabilities (189)
Total liabilities assumed (4,082)
Total purchase price $7,742
(1)
Included in Other current liabilities in the unaudited condensed consolidated statements of financial position.
The following table presents a summary of purchased intangible assets and their related estimated useful lives:
  
Fair Value
(in millions)
 Estimated Useful Life in Years
Customer contracts $1,245
 9
Commercial customer relationships 280
 13
Total customer-related intangible assets $1,525
  
The preliminary purchase price allocation resulted in the recognition of $6.2 billion of goodwill, a majority of which was allocated to the Innovation Systems sector. The goodwill recognized is attributable to expected revenue synergies generated by the integration of Aerospace Systems, Mission Systems and Technology Services products and technologies with those of legacy Orbital ATK, synergies resulting from the consolidation or elimination of certain costs, and intangible assets that do not qualify for separate recognition, such as the assembled workforce of Orbital ATK. None of the goodwill is expected to be deductible for tax purposes.

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NORTHROP GRUMMAN CORPORATION                        

Unaudited Supplemental Pro Forma Information
The following table presents unaudited pro forma financial information prepared in accordance with Article 11 of Regulation S-X and computed as if Orbital ATK had been included in our results as of January 1, 2017:
$ in millions, except per share amountsThree Months Ended March 31, 2018
Sales$8,000
Net earnings914
Diluted earnings per share5.21
The unaudited supplemental pro forma financial data has been calculated after applying our accounting policies and adjusting the historical results of Orbital ATK with pro forma adjustments, net of tax, that assume the acquisition occurred on January 1, 2017. Significant pro forma adjustments include the following:
1.The elimination of intercompany sales and costs of sales between the company and Orbital ATK of $47 million for the three months ended March 31, 2018.
2.The elimination of nonrecurring transaction costs incurred by the company and Orbital ATK in connection with the Merger of $7 million for the three months ended March 31, 2018.
3.The recognition of additional depreciation expense, net of removal of historical depreciation expense, of $6 million for the three months ended March 31, 2018 related to the step-up in fair value of acquired property, plant and equipment.
4.The recognition of additional amortization expense, net of removal of historical amortization expense, of $66 million for the three months ended March 31, 2018 related to the fair value of acquired intangible assets.
5.The elimination of Orbital ATK's historical amortization of net actuarial losses and prior service credits and impact of the revised pension and OPB net periodic benefit cost as determined under the company’s plan assumptions of $31 million for the three months ended March 31, 2018.
6.The income tax effect on the pro forma adjustments, which was calculated using the federal statutory tax rate, of $7 million for the three months ended March 31, 2018.
The unaudited pro forma financial information does not reflect the potential realization of revenue synergies or cost savings, nor does it reflect other costs relating to the integration of the two companies. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the acquisition had been consummated on January 1, 2017, nor are they indicative of future results.
3.    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 0.7 million shares and 1.10.7 million shares for the three months ended March 31, 20192020 and 2018,2019, 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”). Repurchases under the 2015 Repurchase Program commenced in March 2016.2016 and were completed in March 2020.
On December 4, 2018, 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 “2018 Repurchase Program”). By its terms,Repurchases under the 2018 Repurchase Program commenced in March 2020 upon the completion of the company’s 2015 Repurchase Program. As of March 31, 2020, repurchases under the 2018 Repurchase Program will commence upon completion of the 2015 Repurchase Program and will expire when we have used all authorized funds for repurchases.
During the fourth quarter of 2018, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC (Goldman Sachs) to repurchase $1.0 billion of the company’s common stock under the 2015 Repurchase Program. Under the agreement, we made a payment of $1.0 billion to Goldman Sachs and

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received an initial delivery of 3.0 million shares valued at $800 million that were immediately canceled by the company. The remaining balance was settled on January 4, 2019 with a final delivery of 0.9 million shares from Goldman Sachs. The final average purchase price was $260.32 per share.
As of March 31, 2019, repurchases under the 2015 Repurchase Program totaled $3.0 billion; $1.0$20 million; $2.98 billion remained under this share repurchase authorization. By its terms, the 20152018 Repurchase Program is set to expire when we have used all authorized funds for repurchases.
Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market andor 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 Three Months Ended March 31
 2020 2019
September 16, 2015 $4,000
 15.4
 $260.33
 March 2020 0.9
 1.1
December 4, 2018 $3,000
 0.1
 306.22
 
 0.1
 
          Shares Repurchased
(in millions)
Repurchase Program
Authorization Date
 Amount
Authorized
(in millions)
 Total
Shares Retired
(in millions)
 
Average 
Price
Per Share
(1)
 Date Completed Three Months Ended March 31
 2019 2018
September 16, 2015 $4,000
 12.4
 $241.36
 
 1.1
 
December 4, 2018 $3,000
 
 $
 
 
 

(1) 
Includes commissions paid.
Dividends on Common Stock
In May 2018, the company increased the quarterly common stock dividend 9 percent to $1.20 per share from the previous amount of $1.10 per share.
In January 2018,2019, the company increased the quarterly common stock dividend 10 percent to $1.10$1.32 per share from the previous amount of $1.00$1.20 per share.

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NORTHROP GRUMMAN CORPORATION                        

3.    INCOME TAXES
 Three Months Ended March 31
$ in millions2020
2019
Federal and foreign income tax expense$185
 $171
Effective income tax rate17.6% 16.5%
 Three Months Ended March 31
$ in millions2019
2018
Federal and foreign income tax expense$171
 $159
Effective income tax rate16.5% 15.9%

The first quarter 2020 effective tax rate for the first quarter of 2019 increased to 16.517.6 percent from 15.916.5 percent in the first quarter of 20182019 primarily due to lowernondeductible losses on marketable securities and an increase in reserves for uncertain tax benefits related to employee share-based compensation and claims for prior year manufacturing deductions,positions. These were partially offset by higheran increase in research credits. The company’s effective rate forcredits, which totaled $41 million in the first quarter of 2019 includes2020 and $31 million of research credits andin the prior year period. Both periods benefited from $13 million of excess tax benefits for employee share-based compensation.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act includes certain changes to U.S. tax law that impact the company, including a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. The CARES Act did not have a significant impact on the company’s first quarter 2020 effective tax rate for the first quarter of 2018 included $26 million of excess tax benefits for employee share-based compensation, $20 million of research credits and $8 million of claims for prior year manufacturing deductions.rate.
During the three months ended March 31, 2019, we increased ourThe 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 by approximately $15 million and itAct. It is reasonably possible that within the next twelve12 months thoseour unrecognized tax benefits related to these matters may increasedecrease by up to an additional $70$60 million. Since enactment of the 2017 Tax Act, the IRS and U.S. Treasury Department have issued and are expected to further issue interpretive guidance that impacts taxpayers. We will continue to evaluate such guidance as it is issued.
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2017 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under 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 year 2016years 2016-2017 are currently under IRS examination.

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NORTHROP GRUMMAN CORPORATION                        

54.    FAIR VALUE OF FINANCIAL INSTRUMENTS
The company holds a portfolio of marketable securities consisting of 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 commodity forward contracts and foreign currency forward contracts. The company periodically uses commodity forward contracts to hedge forecasted purchases of certain commodities. The contracts generally establish a fixed price for the underlying commodity and are designated and qualify as effective cash flow hedges of such commodity purchases. Commodity derivatives are valued based on prices of future exchanges and recently reported transactions in the marketplace. For foreign currency forward contracts, whereWhere 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:
  March 31, 2020 December 31, 2019
$ in millions Level 1 Level 2 Total Level 1 Level 2 Total
Financial Assets (Liabilities)            
Marketable securities $288
 $4
 $292
 $364
 $1
 $365
Marketable securities valued using NAV     16
     17
Total marketable securities 288
 4
 308
 364
 1
 382
Derivatives 
 (3) (3) 
 (3) (3)
  March 31, 2019 December 31, 2018
$ in millions Level 1 Level 2 Total Level 1 Level 2 Total
Financial Assets (Liabilities)            
Marketable securities $347
 $
 $347
 $319
 $1
 $320
Marketable securities valued using NAV 
 
 16
 
 
 15
Total marketable securities 347
 
 363
 319
 1
 335
Derivatives 
 (5) (5) 
 (10) (10)
At March 31, 2019, the company had commodity forward contracts outstanding that hedge forecasted commodity purchases of 19 million pounds of copper and 7 million pounds of zinc. Gains or losses on the commodity forward contracts are recognized in product and service cost as the performance obligations on related contracts are satisfied.
The notional value of the company’s foreign currency forward contracts at March 31, 20192020 and December 31, 20182019 was $111$85 million and $114$98 million, respectively. The portion of notional value designated as a cash flow hedge atwas $3 million and $7 million as of March 31, 2019 was $12 million. At2020 and December 31, 2018, no portion2019, respectively.

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NORTHROP GRUMMAN CORPORATION                        

The derivative fair values and related unrealized gains/losses at March 31, 20192020 and December 31, 20182019 were not material. There were no transfers of financial instruments between the three levels of the fair value hierarchy during the three months ended March 31, 2019.2020.
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 $14.8$17.5 billion and $14.3$15.1 billion as of March 31, 20192020 and December 31, 2018,2019, 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 carrying value of long-term debt was $14.4$16.1 billion and $13.9 billion as of March 31, 20192020 and December 31, 2018.2019, respectively. The current portion of long-term debt is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.
Unsecured Senior Notes
In March 2020, the company issued $2.25 billion of unsecured senior notes for general corporate purposes, including debt repayment and working capital, as follows:
$750 million of 4.40% senior notes due 2030 (the “2030 Notes”),
$500 million of 5.15% senior notes due 2040 (the “2040 Notes”) and
$1.0 billion of 5.25% senior notes due 2050 (the “2050 Notes”).
We refer to the 2030 Notes, the 2040 Notes and the 2050 Notes, together, as the “notes.” Interest on the notes is payable semi-annually in arrears. The notes are generally subject to redemption, in whole or in part, at the company’s discretion at any time, or from time to time, prior to maturity at a redemption price equal to the greater of 100% of the principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest.
6.5.    INVESTIGATIONS, CLAIMS AND LITIGATION
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$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 have been delivered. The company’s lawsuit is based on various theories of liability. The complaint 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

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complaint with an answer, denying most of the company’s claims, and counterclaims seeking approximately $410 million, less certain amounts outstanding under the contract. 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 April 2, 2013, the U.S. Department of Justice informed the company of a False Claims Act complaint relating to the FSS contract that was filed under seal by a relator in June 2011 in the U.S. District Court for the Eastern District of Virginia. On June 3, 2013, the United States filed a Notice informing the Court that the United States had decided not to intervene in this case. The relator alleged that the company violated the False Claims Act in a number of ways with respect to the FSS contract, alleged damage to the USPS in an amount of at least approximately $179 million annually, alleged that he was improperly discharged in retaliation, and sought an unspecified partial refund of the contract purchase price, penalties, attorney’s fees and other costs of suit. The relator later voluntarily dismissed his retaliation claim and reasserted it in a separate arbitration, which he also ultimately voluntarily dismissed. On September 5, 2014, the court granted the company’s motion for summary judgment and ordered the relator’s False Claims Act case be dismissed with prejudice. On December 19, 2014, the company filed a motion for partial summary judgment asking the court to dismiss the principal counterclaim referenced above. On June 29, 2015, the Court heard argument and denied that motion without prejudice to filing a later motion to dismiss. On February 16, 2018, both the company and the United States filed motions to dismiss many of the claims and counterclaims referenced above, in whole or in part. The United States also filed a motion seeking to amend its answer and counterclaim, including to reduce its counterclaim to approximately $193 million, which the court granted on June 11, 2018. On October 17, 2018, the court granted in part and denied in part the parties’ motions to dismiss. On December 17, 2018,February 3, 2020, the parties commenced what was expected to be a seven-week trial. The first four weeks of trial have concluded, but the court issuedpostponed the remaining three weeks until May 2020 as a Scheduling Order, proposed by the parties, providing for the parties to engage in mediation through March 1, 2019. After the government shutdown, the mediation was rescheduled for May 2019. The Scheduling Order provides for pretrial activities to resume, if and as necessary, with trial to commence on or about September 23, 2019.result of COVID-19-related concerns. Although the ultimate outcome of these matters (“the FSS matters,” collectively), including any possible loss, cannot be predicted or reasonably estimated at this time, the company intends vigorously to pursue and defend the FSS matters.

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NORTHROP GRUMMAN CORPORATION                        

On August 8, 2013, the company received a court-appointed expert’s report in litigation pending in the Second Federal Court of the Federal District in Brazil brought by the Brazilian Post and Telegraph Corporation (ECT), a Brazilian state-owned entity, against Solystic SAS (Solystic), a French subsidiary of the company, and two2 of its consortium partners. In this suit, commenced on December 17, 2004, and relatively inactive for some period of time, ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$111 million (the equivalent of approximately $28$22 million as of March 31, 2019)2020), plus interest, inflation adjustments and attorneys’ fees, as authorized by Brazilian law, which amounts could be significant over time. The original suit sought R$89 million (the equivalent of approximately $23$17 million as of March 31, 2019)2020) in damages. In October 2013, ECT asserted an additional damage claim of R$22 million (the equivalent of approximately $6$4 million as of March 31, 2019)2020). In its counterclaim, Solystic alleges ECT breached the contract by wrongfully refusing to accept the equipment Solystic had designed and built and seeks damages of approximately €31 million (the equivalent of approximately $35$34 million as of March 31, 2019)2020), plus interest, inflation adjustments and attorneys’ fees, as authorized by Brazilian law. The Brazilian court retained an expert to consider certain issues pending before it. On August 8, 2013 and September 10, 2014, the company received reports from the expert, which contain some recommended findings relating to liability and the damages calculations put forth by ECT. Some of the expert’s recommended findings were favorable to the company and others were favorable to ECT. In November 2014, the parties submitted comments on the expert’s most recent report. On June 16, 2015, the court published a decision denying the parties’ request to present oral testimony. In a decision dated November 13, 2018, the trial court ruled in ECT’s favor on one of its claims against Solystic, and awarded damages of R$41 million (the equivalent of approximately $10$8 million as of March 31, 2019)2020) against Solystic and its consortium partners, with that amount to be adjusted for inflation and interest from November 2004 through any appeal, in accordance with the Manual of Calculations of the Federal Justice, as well as attorneys’ fees. On March 22, 2019, ECT appealed the trial court’s decision to the intermediate court of appeals. Solystic filed its appeal on April 11, 2019. The parties are exploringassessing whether there is a possible path for a negotiated resolution under a newly-established short term ECT dispute resolution program.of the dispute.
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, the New York State Department of Health and other federal, state and local governmental authorities, to address legacy environmental conditions in Bethpage. We have incurred, and expect to continue to incur, as included in Note 7,6, substantial remediation costs related to these environmental conditions. The remediation standards or requirements to which we are subject are being reconsidered and may

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change and costs may increase materially. As discussed in Note 6, the State of New York issued a Feasibility Study and an Amended Record of Decision, seeking to impose additional remedial requirements. The company is engaged in discussions with the State of New York and certain other potentially responsible parties. The State of New York has notified ussaid that, it intends to seek to impose additional remedial requirements and, among other things, it is also evaluating potential natural resource damages. In addition, we are a party to various, and expect to become a party to additional, legal proceedings and disputes related to remediation, costs, allowability and/or alleged environmental impacts in Bethpage, including with federal and state entities, the Navy, local municipalities and water districts, and insurance carriers, andas 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 (including natural resource 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.
On August 12, 2016, a putative class action complaint, naming Orbital ATK and two of its then-officers as defendants, Steven Knurr, et al. v. Orbital ATK, Inc., No. 16-cv-01031 (TSE-MSN), was filed in the United States District Court for the Eastern District of Virginia. The complaint asserts claims on behalf of purchasers of Orbital ATK securities for violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5, allegedly arising out of false and misleading statements and the failure to disclose that: (i) Orbital ATK lacked effective control over financial reporting; and (ii) as a result, it failed to record an anticipated loss on a long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the U.S. Army's Lake City Army Ammunition Plant. On April 24, 2017 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for alleged violations of additional sections of the Exchange Act and alleged false and misleading statements in Orbital ATK’s Form S-4 filed in connection with the Orbital-ATK Merger. The complaint seeks damages, reasonable costs and expenses at trial, including counsel and expert fees, and such other relief as deemed appropriate by the Court. On August 8, 2018, plaintiffs sought leave to file an additional amended complaint; defendants filed an opposition. The parties engaged in mediation on November 6, 2018. On December 27, 2018, the parties reached a preliminary agreement to resolve the litigation for $108 million subject to agreement on additional terms and to court approval. On February 22, 2019, the court preliminarily approved the parties’ proposed settlement and set a schedule for final settlement proceedings, including a final approval settlement hearing on June 7, 2019. The company is also negotiating with and pursuing coverage litigation against various of its insurance carriers. The company intends vigorously to defend itself in connection with these matters. We currently expect related contingencies will continue to be included in the company’s measurement period adjustments of the fair value of assets acquired and liabilities assumed in the Merger (see Note 2).
The SEC is investigating Orbital ATK’s historical accounting practices relating to the restatement of Orbital’s unaudited condensed consolidated financial statements for the quarterly periods ended July 5, 2015 and October 4, 2015 described in the Transition Report on Form 10-K for the nine-month period ending December 31, 2015 previously filed on March 15, 2016. The SEC is also investigating matters relating to a voluntary disclosure Orbital ATK made concerning the restatement described in Orbital ATK’s Form 10-K/A for the nine-month period ending December 31, 2015 filed on February 24, 2017. The ultimate outcome of these matters, including any possible loss, cannot be predicted or reasonably estimated at this time and the company intends to continue to cooperate with the SEC.
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 March 31, 2019,2020, or its annual results of operations and/or cash flows.
7.6.    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

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well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available. The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse

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effect on its unaudited condensed consolidated financial position as of March 31, 2019,2020, or its annual results of operations and/or cash flows.
Recently, the U.S. government has raised questions about an interest rate assumption used by the company to determine our CAS pension cost in previous years. We are currently engaging with the government to address their questions. Although we believe our pension-related assumptions are appropriate, 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 rangeamount of reasonably possible future costs for environmental remediation, the amountin excess of accrued within that range,costs and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of March 31, 20192020 and December 31, 2018:2019:
$ in millions 
Range of Reasonably Possible Future Costs(1)
 
Accrued Costs(2)
 
Deferred Costs(3)
March 31, 2019 $460 - $836 $473
 $353
December 31, 2018 447 - 835 461
 343
$ in millions 
Accrued Costs(1)(2)
 
Reasonably Possible Future Costs in Excess of Accrued Costs(2)
 
Deferred Costs(3)
March 31, 2020 $533
 $448
 $439
December 31, 2019 531
 448
 436
(1)
Estimated remediation costs are not discounted to present value. The range of reasonably possible future costs does not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.
(2)(1) As of March 31, 2019, $1722020, $163 million is recorded in Other current liabilities and $301$370 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 March 31, 2019, $1392020, $131 million is deferred in Prepaid expenses and other current assets and $214$308 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 March 31, 2019,2020, or its annual results of operations and/or cash flows. With respect to Bethpage, as describedthe State of New York issued a Feasibility Study and an Amended Record of Decision, proposing to impose additional remedial requirements. The company is engaged in discussions with the State of New York and other potentially responsible parties. As discussed in Note 6, we cannot at this time estimate5, the range of reasonably possible additional future costs that could result from potential changes to remediation standards or requirements to which we are subject.subject are being reconsidered and may change and costs may increase materially.
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 March 31, 2019,2020, there were $493$469 million of stand-by letters of credit and guarantees and $200$182 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 March 31, 2019,2020, there were $1.0 billion$744 million of outstanding short-term commercial paper borrowings at a weighted-average interest rate of 3.041.88 percent that have original maturities of three months or less from the date of issuance. The outstanding balance of commercial paper borrowings is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.
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 2023. At March 31, 2019, there was no balance outstanding under this facility; however,2024 and is intended to support the outstanding balance ofcompany’s commercial paper program and other general corporate purposes. Commercial paper borrowings reducesreduce the amount available for

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borrowing under the 2018 Credit Agreement. At March 31, 2020, there was 0 balance outstanding under this facility.
In December 2016, a subsidiary of the company entered into a two-year credit facility, with two additional one-year option periods, in an aggregate principal amount of £120 million (the equivalent of approximately $156$149 million as of March 31, 2019)2020) (the “2016 Credit Agreement”). The company exercised the second option to extend the maturity to December 2020. The 2016 Credit Agreement is guaranteed by the company. At March 31, 2019,2020, there was £70£55 million (the equivalent of approximately $91$68 million) outstanding under this facility, which bears interest at a rate of LIBOR plus 1.10 percent. All of the borrowings outstanding under this facility mature less than one year fromare recorded in Other current liabilities in the dateunaudited condensed consolidated statement of issuance, but may be renewed under the terms of the facility. Based on our intent and ability to refinance the obligations on a long-term basis, a large majority of the borrowings are classified as non-current.financial position.
At March 31, 2019,2020, the company was in compliance with all covenants under its credit agreements.

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87.    RETIREMENT BENEFITS
The cost to the company of its retirementpension and other postretirement benefit (OPB) plans is shown in the following table:
 Three Months Ended March 31
 Pension
Benefits
 OPB
$ in millions2020 2019 2020 2019
Components of net periodic benefit cost (benefit)       
Service cost$102
 $92
 $4
 $4
Interest cost307
 340
 17
 20
Expected return on plan assets(594) (525) (26) (23)
Amortization of prior service credit(15) (15) 1
 (1)
Net periodic benefit cost (benefit)$(200) $(108) $(4) $
 Three Months Ended March 31
 Pension
Benefits
 OPB
$ in millions2019 2018 2019 2018
Components of net periodic benefit cost       
Service cost$92
 $99
 $4
 $5
Interest cost340
 290
 20
 19
Expected return on plan assets(525) (529) (23) (25)
Amortization of prior service credit(15) (15) (1) (5)
Net periodic benefit cost (benefit)$(108) $(155) $
 $(6)

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 March 31
$ in millions2020 2019
Defined benefit pension plans$20
 $23
OPB plans12
 12
Defined contribution plans256
 191
 Three Months Ended March 31
$ in millions2019 2018
Defined benefit pension plans$23
 $22
OPB plans12
 11
Defined contribution plans191
 104

9.8.    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'scompany’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented:
  Three Months Ended March 31
in millions 2020 2019
RSRs granted 0.1
 0.1
RPSRs granted 0.2
 0.2
Grant date aggregate fair value $87
 $91
 Three Months Ended March 31
in millions2019 2018
RSRs granted0.1
 0.1
RPSRs granted0.2
 0.2
Grant date aggregate fair value$91
 $87

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


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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:
  Three Months Ended March 31
$ in millions 2020 2019
Minimum aggregate payout amount $31
 $36
Maximum aggregate payout amount 175
 203
  Three Months Ended March 31
$ in millions 20192018
Minimum aggregate payout amount $36
$35
Maximum aggregate payout amount 203
196

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 financial metrics over a three-year period.
10.    LEASES9.    SEGMENT INFORMATION
As described in Note 1, effectiveEffective January 1, 2019, we adopted ASC 842 using2020, the optional transition method. In accordance withcompany reorganized its operating sectors to better align the optional transition method, we did not recast the prior period unaudited condensed consolidated financial statements and all prior period amounts and disclosures are presented under ASC 840. Finance leases are not materialcompany’s broad portfolio to our unaudited condensed consolidated financial statements and are therefore not included in the following disclosures.
Total Lease Cost
Total lease cost is included in Product and Service costs and General and administrative expenses in the unaudited condensed consolidated statement of earnings and comprehensive income and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:
$ in millions Three Months Ended March 31, 2019
Operating lease cost $82
Variable lease cost 2
Short-term lease cost 17
Total lease cost $101
Supplemental Balance Sheet Information
Supplemental operating lease balance sheet information consists of the following:
$ in millions March 31, 2019
Operating lease right-of-use assets $1,283
   
Other current liabilities 229
Operating lease liabilities 1,098
Total operating lease liabilities $1,327
Other Supplemental Information
Other supplemental operating lease information consists of the following:
$ in millions Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities $84
Right-of-use assets obtained in exchange for new lease liabilities 54
   
Weighted average remaining lease term 11.0 years
Weighted average discount rate 4.0%

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Maturities of Lease Liabilities
Maturities of operating lease liabilities as of March 31, 2019 were as follows:
$ in millions  
Year Ending December 31  
2019(1)
 $208
2020 260
2021 207
2022 170
2023 134
Thereafter 737
Total lease payments 1,716
Less: imputed interest (389)
Present value of operating lease liabilities $1,327
(1)
Excludes the three months endedMarch 31, 2019.
As of March 31, 2019, we have a rental commitment of $226 million for a real estate lease that has not yet commenced. This operating lease is expected to commence in the fourth quarter of 2019 with a lease term of approximately 17 years.
Rental expense for operating leases classified under ASC 840 for the three months ended March 31, 2018 was $92 million, net of immaterial amounts of sublease income. As of December 31, 2018, future minimum lease payments under long-term non-cancelable operating leases as classified under ASC 840 were as follows:
$ in millions
  
Year Ending December 31 
2019$312
2020270
2021221
2022186
2023152
Thereafter939
Total minimum lease payments$2,080

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11.    SEGMENT INFORMATION
serve its customers’ needs. The company is aligned in four operating4 new sectors, which also comprise our reportable segments: Aerospacesegments, are Aeronautics Systems, InnovationDefense Systems, Mission Systems and Technology Services.Space Systems.
The following table presents sales and operating income by segment:
 Three Months Ended March 31
$ in millions2020 2019
Sales   
Aeronautics Systems$2,843
 $2,818
Defense Systems1,881
 1,768
Mission Systems2,347
 2,210
Space Systems1,948
 1,801
Intersegment eliminations(399) (408)
Total sales8,620
 8,189
Operating income   
Aeronautics Systems259
 308
Defense Systems196
 202
Mission Systems348
 319
Space Systems199
 188
Intersegment eliminations(49) (50)
Total segment operating income953
 967
Net FAS (service)/CAS pension adjustment105
 108
Unallocated corporate expense(124) (139)
Total operating income$934
 $936
 Three Months Ended March 31
$ in millions2019 2018
Sales   
Aerospace Systems$3,496
 $3,280
Innovation Systems1,438
 
Mission Systems2,886
 2,883
Technology Services977
 1,144
Intersegment eliminations(608) (572)
Total sales8,189
 6,735
Operating income   
Aerospace Systems382
 341
Innovation Systems167
 
Mission Systems383
 371
Technology Services102
 122
Intersegment eliminations(67) (72)
Total segment operating income967
 762
Net FAS (service)/CAS pension adjustment108
 127
Unallocated corporate expense(139) (41)
Total operating income$936
 $848

Net FAS (Service)/CAS Pension 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 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
Unallocated corporate expense 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 and other corporate unallowable costs. Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment

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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.

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Disaggregation of Revenue
Sales by Customer TypeThree Months Ended March 31
 2019 2018
$ in millions$
%(3)
 $
%(3)
Aerospace Systems     
U.S. government (1)
$3,022
86% $2,908
89%
International (2)
394
11% 271
8%
Other customers34
1% 42
1%
Intersegment sales46
2% 59
2%
Aerospace Systems sales3,496
100% 3,280
100%
Innovation Systems     
U.S. government (1)
1,015
71% 

International (2)
247
17% 

Other customers114
8% 

Intersegment sales62
4% 

Innovation Systems sales1,438
100% 

Mission Systems     
U.S. government (1)
2,167
75% 2,190
76%
International (2)
367
13% 379
13%
Other customers34
1% 30
1%
Intersegment sales318
11% 284
10%
Mission Systems sales2,886
100% 2,883
100%
Technology Services     
U.S. government (1)
553
57% 602
53%
International (2)
209
21% 220
19%
Other customers33
3% 93
8%
Intersegment sales182
19% 229
20%
Technology Services sales977
100% 1,144
100%
Total     
U.S. government (1)
6,757
83% 5,700
85%
International (2)
1,217
15% 870
13%
Other customers215
2% 165
2%
Total Sales$8,189
100% $6,735
100%
Sales by Customer TypeThree Months Ended March 31
 2020 2019
$ in millions$
%(3)
 $
%(3)
Aeronautics Systems     
U.S. government(1)
$2,361
83% $2,334
83%
International(2)
444
16% 435
15%
Other customers12
% 25
1%
Intersegment sales26
1% 24
1%
Aeronautics Systems sales2,843
100% 2,818
100%
Defense Systems     
U.S. government(1)
1,259
67% 1,141
65%
International(2)
340
18% 363
21%
Other customers111
6% 97
5%
Intersegment sales171
9% 167
9%
Defense Systems sales1,881
100% 1,768
100%
Mission Systems     
U.S. government(1)
1,671
71% 1,613
73%
International(2)
483
21% 376
17%
Other customers17
1% 24
1%
Intersegment sales176
7% 197
9%
Mission Systems sales2,347
100% 2,210
100%
Space Systems     
U.S. government(1)
1,803
93% 1,669
93%
International(2)
68
3% 43
2%
Other customers51
3% 69
4%
Intersegment sales26
1% 20
1%
Space Systems sales1,948
100% 1,801
100%
Total     
U.S. government(1)
7,094
83% 6,757
83%
International(2)
1,335
15% 1,217
15%
Other customers191
2% 215
2%
Total Sales$8,620
100% $8,189
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'scompany’s segments derives substantial revenue from the U.S. government.
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.
(3) Percentages calculated based on total segment sales.


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Sales by Contract TypeThree Months Ended March 31Three Months Ended March 31
2019 20182020 2019
$ in millions$
%(1)
 $
%(1)
$
%(1)
 $
%(1)
Aerospace Systems 
 
  
 
Aeronautics Systems 
 
  
 
Cost-type$2,002
58% $1,902
59%$1,343
48% $1,312
47%
Fixed-price1,448
42% 1,319
41%1,474
52% 1,482
53%
Intersegment sales46
  59
 26
  24
 
Aerospace Systems sales3,496
  3,280
 
Innovation Systems     
Aeronautics Systems sales2,843
  2,818
 
Defense Systems     
Cost-type408
30% 

628
37% 623
39%
Fixed-price968
70% 

1,082
63% 978
61%
Intersegment sales62
  
 171
  167
 
Innovation Systems sales1,438
  
 
Defense Systems sales1,881
  1,768
 
Mission Systems          
Cost-type1,274
50% 1,279
49%846
39% 835
41%
Fixed-price1,294
50% 1,320
51%1,325
61% 1,178
59%
Intersegment sales318
  284
 176
  197
 
Mission Systems sales2,886
  2,883
 2,347
  2,210
 
Technology Services     
Space Systems     
Cost-type392
49% 437
48%1,398
73% 1,306
73%
Fixed-price403
51% 478
52%524
27% 475
27%
Intersegment sales182
  229
 26
  20
 
Technology Services sales977
  1,144
 
Space Systems sales1,948
  1,801
 
Total          
Cost-type4,076
50% 3,618
54%4,215
49% 4,076
50%
Fixed-price4,113
50% 3,117
46%4,405
51% 4,113
50%
Total Sales$8,189
  $6,735
 $8,620
  $8,189
 
(1) 
Percentages calculated based on external customer sales.  


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Sales by Geographic RegionThree Months Ended March 31Three Months Ended March 31
2019 20182020 2019
$ in millions$
%(2)
 $
%(2)
$
%(2)
 $
%(2)
Aerospace Systems     
Aeronautics Systems     
United States$3,056
89% $2,950
92%$2,373
84% $2,359
85%
Asia/Pacific239
7% 129
4%207
8% 233
8%
All other (1)
155
4% 142
4%237
8% 202
7%
Intersegment sales46
  59
 26
  24
 
Aerospace Systems sales3,496
  3,280
 
Innovation Systems     
Aeronautics Systems sales2,843
  2,818
 
Defense Systems     
United States1,129
82% 

1,370
80% 1,238
77%
Asia/Pacific45
3% 

82
5% 88
6%
All other (1)
202
15% 

258
15% 275
17%
Intersegment sales62
  
 171
  167
 
Innovation Systems sales1,438
  
 
Defense Systems sales1,881
  1,768
 
Mission Systems          
United States2,201
86% 2,220
85%1,688
78% 1,637
81%
Asia/Pacific146
5% 153
6%176
8% 135
7%
All other (1)
221
9% 226
9%307
14% 241
12%
Intersegment sales318
  284
 176
  197
 
Mission Systems sales2,886
  2,883
 2,347
  2,210
 
Technology Services     
Space Systems     
United States586
74% 695
76%1,854
97% 1,738
98%
Asia/Pacific38
4% 32
3%5
% 12
%
All other (1)
171
22% 188
21%63
3% 31
2%
Intersegment sales182
  229
 26
  20
 
Technology Services sales977
  1,144
 
Space Systems sales1,948
  1,801
 
Total          
United States6,972
85% 5,865
87%7,285
85% 6,972
85%
Asia/Pacific468
6% 314
5%470
5% 468
6%
All other (1)
749
9% 556
8%865
10% 749
9%
Total Sales$8,189
  $6,735
 $8,620
  $8,189
 
(1) 
All other is principally comprised of Europe and the Middle East.  
(2) 
Percentages calculated based on external customer sales.  


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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 March 31, 2019,2020, and the related condensed consolidated statements of earnings and comprehensive income, cash flows and changes in shareholders’ equity for the three-month periods ended March 31, 20192020 and 2018,2019, 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, 2018,2019, 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 30, 2019,29, 2020, 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 recognizing pension and other postretirement benefit plans actuarial gains and losses andleases in 2019 due to the manner in which it accounts for revenue from contracts with customers.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, 2018,2019, is consistent,fairly stated, in all material respects, within relation to the audited consolidated statement of financial statementsposition 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
April 23, 201928, 2020




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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global securityaerospace and defense company. We offer ause our broad portfolio of capabilities and technologies that enable us to create and deliver innovative platforms, systems and solutions for applications that range from undersea to outer spacein space; manned and into cyberspace. We provide capabilities in autonomous systems;airborne systems, including strike; hypersonics; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); space; strike; 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 20182019 Annual Report on Form 10-K and the Form 8-K that we expect to file with the SEC immediately after filing this Form 10-Q, which providesrecasts the disclosures in certain portions of the 2019 Annual Report on Form 10-K to reflect changes in the company’s reportable segments. These documents provide additional information on our business and the environment in which we operate and our operating results.
AcquisitionCOVID-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 Orbital ATK
On June 6, 2018 (the “Merger date”)confirmed cases, business slowdowns or shutdowns, government challenges and market volatility. In March 2020, the World Health Organization characterized COVID-19 as a global pandemic, and the President declared a national emergency concerning the COVID-19 outbreak. The company’s leadership and Crisis Management Teams have closely monitored the developments, including the impact on our company, our employees, our customers, our suppliers and our communities. They have considered guidance from the Centers for Disease Control (CDC), other health organizations, governments and our customers. We have taken, and continue to take, actions to help protect the health, safety and well-being of our employees, to support our suppliers and local communities, and to continue to serve our customers. Our goals have been to lessen the immediate potential adverse impacts, both health and economic, and to continue to position the company completed its previously announced acquisitionfor long-term success. Among other actions, we have required employees to work from home or remotely where practicable, and expanded IT and communication support to enhance their productivity; adjusted work spaces and shift schedules to facilitate social distancing for those who continue to work in our facilities; implemented visitor protocols and enhanced cleaning and disinfecting procedures at our facilities; worked to procure and distribute personal protective equipment (“PPE”); restricted travel; provided additional paid time off for those most at risk; and contributed financial and manufacturing resources to supporting critical national requirements, such as for PPE. Along with the Northrop Grumman Foundation, we have provided grants for global, national and local organizations that support frontline healthcare workers, address food insecurity, advance efforts for vaccines, increase student access to technology and provide support to vulnerable populations; donated PPE items to emergency response teams and healthcare professionals, including N95 masks and Tyvek suits; and established a COVID-19 relief matching gift program for employees.
As a result of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”). OnCOVID-19, many state and local jurisdictions have implemented mandatory stay-at-home or shelter-in-place orders. To date, most of those orders have exempted some or all of the Merger date, Orbital ATK becamedefense industrial base, including Northrop Grumman and many of our suppliers, as part of the essential or critical infrastructure. Our facilities have largely remained open and many of our employees who cannot work remotely are continuing to come to work and support our customers’ national security and mission-essential operations. Even though we have been able to continue many of our operations, we have experienced and expect to continue to experience certain increasing costs to maintain our operations and reductions in productivity, including as a wholly-owned subsidiaryresult of actions to protect health; because of illness, quarantines, and absenteeism; as a result of government actions; and because of disruption and stress among our suppliers and customers. We continue to monitor this situation closely and cannot predict how it will change. Our customers have generally continued to make timely payments, and we are working with them to consider the possibility of additional cost recoveries. Again, however, our customers are facing tremendous demands and we cannot predict how this may change and how they will continue to allocate resources.
Financial impacts related to COVID-19, including our actions and costs in response to the pandemic, were not material to the company’s first quarter 2020 financial position, results of operations or cash flows. Going forward, we currently expect the COVID–19 crisis to result in a reduction to 2020 revenue and operating margins in portions of our business driven primarily by supplier disruption, changes in employee productivity, and related program delays or challenges. Our employees, suppliers and customers, the company and its name was changed to Northrop Grumman Innovation Systems, Inc., whichour global community are facing

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tremendous challenges and we established as a new, fourth business sector (“Innovation Systems”). The operating results of Innovation Systems subsequentcannot predict how this dynamic situation will evolve or the impact it will have. For further information on the potential impact to the Merger date have been included in the company’s unaudited condensed consolidated resultscompany of operations. See Note 2 to the financial statements for further information regarding the acquisition of Orbital ATK.COVID-19, see “Risk Factors”.
U.S. Political and Economic Environment
Since the filing of our 20182019 Annual Report on Form 10-K, full year appropriations for FY 2019 have been enacted for all remaining U.S. government agencies and the President has proposed a FY 2020released his budget requesting $750request for fiscal year 2021 (FY21) on February 10, 2020. The FY21 budget request includes $746 billion for national security, which will be the subject of debate in Congress. The President’sFY21 budget request addresses various capabilities highlighted in the U.S. National Security Strategy, the National Defense Strategy and the Missile Defense Review. We believe our capabilities, particularly in space, missiles, missile defense, hypersonics, counter-hypersonics, survivabilitysurvivable aircraft and cyber will allow us to continue to profitably growallow for long-term profitable growth in our business in support of our customers’ needs. Congress has enacted emergency COVID-19 relief bills addressing certain impacts of the pandemic.
CONSOLIDATED OPERATING RESULTS
Selected financial highlights are presented in the table below:
Three Months Ended March 31 %Three Months Ended March 31 %
$ in millions, except per share amounts2019 2018 Change2020 2019 Change
Sales$8,189
 $6,735
 22%$8,620
 $8,189
 5 %
Operating costs and expenses7,253
 5,887
 23%7,686
 7,253
 6 %
Operating costs and expenses as a % of sales88.6% 87.4%  89.2% 88.6%  
Operating income936
 848
 10%934
 936
  %
Operating margin rate11.4% 12.6%  10.8% 11.4%  
Federal and foreign income tax expense171
 159
 8%185
 171
 8 %
Effective income tax rate16.5% 15.9%  17.6% 16.5%  
Net earnings863
 840
 3%868
 863
 1 %
Diluted earnings per share$5.06
 $4.79
 6%$5.15
 $5.06
 2 %
Sales
First quarter 20192020 sales increased $1.5 billion primarily$431 million, or 5 percent, due to the addition of $1.4 billion of sales from Innovation Systems and higher sales at Aerospace Systems, partially offset by lower sales at Technology Services.all four sectors.
See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 119 to the financial statements for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments.

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Operating Income and Margin Rate
First quarter 20192020 operating income increased $88 million, or 10was comparable to the prior year period. First quarter 2020 operating margin rate declined to 10.8 percent primarily due to higherreflecting lower segment operating income, including $167 million of operating income from Innovationmargins at Aeronautics Systems and Defense Systems, partially offset by a $98 million increasedecrease in unallocated corporate expense due to intangible asset amortization and PP&E step-up depreciation. expense.
First quarter 2019 operating margin rate declined to 11.4 percent from 12.6 percent due to the increase in unallocated corporate expense, partially offset by improved segment performance.
General2020 general and administrative (G&A) costs as a percentage of sales for the first quarter of 2019 decreased to 9.39.1 percent from 10.69.3 percent primarily due to cost management and the addition of Innovation Systems at a lower G&A rate.higher sales.
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
The first quarter 2020 effective tax rate for the first quarter of 2019 increased to 16.517.6 percent from 15.916.5 percent in the first quarter of 2018.2019 primarily due to nondeductible losses on marketable securities and an increase in reserves for uncertain tax positions. These were partially offset by an increase in research credits. See Note 43 to the financial statements for additional information.
Net Earnings
NetFirst quarter 2020 net earnings for the first quarter of 2019 increased $23 million primarily duewere comparable to the increase in operating income, partially offset byprior year period and include a $54$102 million decreaseincrease in our FAS (non-service) pension benefit, and the higher effective tax rate.partially offset by a $94 million decrease in Other, net as a result of lower returns on marketable securities related to our non-qualified benefit plans.

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Diluted Earnings Per Share
DilutedFirst quarter 2020 diluted earnings per share for the first quarter of 2019 increased $0.27, or 62 percent, reflecting a 31 percent increase in net earnings and a 31 percent reduction in weighted-average diluted shares outstanding.
SEGMENT OPERATING RESULTS
Basis of Presentation
Effective January 1, 2020, the company reorganized its operating sectors to better align the company’s broad portfolio to serve its customers’ needs. The company is aligned in four operatingnew sectors, which also comprise our reportable segments: Aerospacesegments, are Aeronautics Systems, InnovationDefense Systems, Mission Systems and Technology Services. As described above, onSpace Systems. This realignment is reflected in the effective date of the Merger, we established Innovation Systems as a new, fourth business sector. The segment operating results below include sales and operating income for Innovation Systems subsequent to the Merger date.accompanying financial information.
We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities:
AerospaceAeronautics Systems InnovationDefense Systems Mission Systems Technology ServicesSpace Systems
Autonomous Systems DefenseBattle Management & Missile Systems Advanced CapabilitiesAirborne Sensors & Networks Global Logistics and ModernizationLaunch & Strategic Missiles
Manned Aircraft Flight SystemsMission Readiness Cyber and ISRGlobal Services
Space& Intelligence Mission Solutions Space Systems
 Maritime/Land Systems & Sensors and Processing
Navigation, Targeting & Survivability  
Effective January 1, 2019, the former Advanced Defense Services and System Modernization and Services business areas of Technology Services were merged to create the Global Services business area. This change had no impact on the segment operating results of Technology Services as a whole.
This section discusses segment sales, operating income and operating margin rates. In evaluating segment operating performance, we look primarily at changes in sales and operating income. Where applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between products and services. Changes in sales are generally described in terms of volume, while changes in margin rates are generally described in terms of performance and/or contract mix. For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability. Contract mix generally refers to changes in the ratio of contract type and/or lifecycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).


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Segment Operating Income and Margin Rate
Segment operating income, as reconciled in the table below, and segment operating margin rate (segment operating income divided by sales) are non-GAAP (accounting principles generally accepted in the United States of America) measures that reflect total earnings from 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 expense and unallocated corporate expensesitems (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 March 31 %Three Months Ended March 31 %
$ in millions2019 2018 Change2020 2019 Change
Segment operating income$967
 $762
 27 %$953
 $967
 (1)%
Segment operating margin rate11.8% 11.3%  11.1% 11.8%  
CAS pension expense200
 226
 (12)%207
 200
 4 %
Less: FAS (service) pension expense(92) (99) (7)%(102) (92) 11 %
Net FAS (service)/CAS pension adjustment108
 127
 (15)%105
 108
 (3)%
Intangible asset amortization and PP&E step-up depreciation(96) 
 NM
(82) (96) (15)%
Other unallocated corporate expense(43) (41) 5 %(42) (43) (2)%
Unallocated corporate expense(139) (41) 239 %(124) (139) (11)%
Operating income$936
 $848
 10 %$934
 $936
  %
First quarter 20192020 segment operating income increased $205decreased $14 million, or 271 percent, primarily due to the addition of $167 million of operating income from Innovation Systems and higherreflects lower segment operating income at AerospaceAeronautics Systems, partially offset by higher segment operating income at Mission Systems and Space Systems. Segment operating margin rate increaseddecreased to 11.1 percent primarily due to improved performancelower segment operating margins at AerospaceAeronautics Systems and MissionDefense Systems.
Net FAS (service)/CAS Pension Adjustment
The decrease in ourfirst quarter 2020 net FAS (service)/CAS pension adjustment duringis comparable to the first quarter of 2019 is primarily due to lower CAS expense largely as a result ofprior year period and reflects changes in actuarial assumptions as of December 31, 2018, partially offset by increased CAS expense due to the addition of Innovation Systems.2019.
Unallocated Corporate Expense(Expense) Income
The increasedecrease in first quarter 2020 unallocated corporate expense during the first quarter of 2019 is primarily due to $96$14 million of lower intangible asset amortization and PP&E step-up depreciation.
Net Estimate-at-Completion (EAC)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 March 31Three Months Ended March 31
$ in millions2019 20182020 2019
Favorable EAC adjustments$235
 $207
$276
 $235
Unfavorable EAC adjustments(97) (91)(152) (97)
Net EAC adjustments$138
 $116
$124
 $138


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Net EAC adjustments by segment are presented in the table below:
Three Months Ended March 31Three Months Ended March 31
$ in millions2019 20182020 2019
Aerospace Systems$50
 $54
Innovation Systems(1)
50
 
Aeronautics Systems$12
 $51
Defense Systems22
 32
Mission Systems30
 45
79
 35
Technology Services11
 22
Space Systems12
 21
Eliminations(3) (5)(1) (1)
Net EAC adjustments$138
 $116
$124
 $138
(1)
Amounts reflect EAC adjustments after the percent complete on Innovation Systems contracts was reset to zero as of the Merger date.
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.
AEROSPACE SYSTEMSThree Months Ended March 31 %
AERONAUTICS SYSTEMSThree Months Ended March 31 %
$ in millions2019 2018 Change2020 2019 Change
Sales$3,496
 $3,280
 7%$2,843
 $2,818
 1 %
Operating income382
 341
 12%259
 308
 (16)%
Operating margin rate10.9% 10.4%  9.1% 10.9%  
Sales
First quarter 20192020 sales increased $216$25 million, or 71 percent, due to higher sales in all three business areas.both Autonomous Systems and Manned Aircraft sales reflect higherAircraft. Higher volume on restricted F-35programs and E-2D programs.Global Hawk were partially offset by lower volume on the B-2 Defensive Management System Modernization program and NATO AGS, which are both nearing completion.
Operating Income
First quarter 2020 operating income decreased $49 million, or 16 percent, principally due to a lower operating margin rate. Operating margin rate decreased to 9.1 percent from 10.9 percent, due to lower net EAC adjustments at Autonomous Systems as well as the timing of F-35 risk retirements and contract mix at Manned Aircraft.
DEFENSE SYSTEMSThree Months Ended March 31 %
$ in millions2020 2019 Change
Sales$1,881
 $1,768
 6 %
Operating income196
 202
 (3)%
Operating margin rate10.4% 11.4%  
Sales
First quarter 2020 sales increased $113 million or 6 percent, due to higher sales in both Battle Management & Missile Systems and Mission Readiness. Battle Management & Missile Systems sales increased primarily due to higher volume on several programs, including Triton,the Guided Multiple Launch Rocket System (GMLRS), Advanced Anti-Radiation Guided Missile (AARGM) program and other missile products. Mission Readiness sales increased principally due to higher volume on an international training program and the Special Electronic Mission Aircraft program.
Operating Income
First quarter 2020 operating income decreased $6 million, or 3 percent, primarily due to a lower operating margin rate, partially offset by lower NATO AGS volume as that program nears completion. Spacehigher sales. Operating margin rate decreased to 10.4 percent from 11.4 percent primarily due to favorable adjustments on certain small caliber ammunition programs in the first quarter of 2019.

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MISSION SYSTEMSThree Months Ended March 31 %
$ in millions2020 2019 Change
Sales$2,347
 $2,210
 6%
Operating income348
 319
 9%
Operating margin rate14.8% 14.4%  
Sales
First quarter 2020 sales reflectincreased $137 million, or 6 percent, primarily due to higher volume on a secure communications satellite program.Airborne Sensors & Networks and Maritime/Land Systems & Sensors programs. Airborne Sensors & Networks sales increased principally due to higher airborne radar volume, including on the F-35 and SABR programs. Maritime/Land Systems & Sensors sales increased primarily due to higher volume on marine systems and restricted programs.
Operating Income
First quarter 20192020 operating income increased $41$29 million, or 129 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 10.914.8 percent from 14.4 percent primarily due to improved performance on Airborne Sensors & Networks programs, partially offset by changes in contract mix at Maritime/Land Systems & Sensors and the timing of risk retirements at Navigation, Targeting & Survivability.
SPACE SYSTEMSThree Months Ended March 31 %
$ in millions2020 2019 Change
Sales$1,948
 $1,801
 8%
Operating income199
 188
 6%
Operating margin rate10.2% 10.4%  
Sales
First quarter 2020 sales increased $147 million, or 8 percent, primarily due to higher sales in Space, partially offset by lower sales in Launch & Strategic Missiles. Space sales were driven by higher volume on restricted programs, Next Generation Overhead Persistent Infrared Radar (Next Gen OPIR) and the Arctic Satellite Broadband Mission (ASBM) program. Launch & Strategic Missiles sales reflect lower volume on the Ground-based Midcourse Defense (GMD) program and Space Launch System (SLS) Booster, partially offset by higher volume on hypersonic programs and the Ground Based Strategic Deterrent (GBSD) Technology Maturation Risk Reduction (TMRR) program.
Operating Income
First quarter 2020 operating income increased $11 million, or 6 percent, primarily due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 10.2 percent from 10.4 percent principally due to improved performance on Manned Aircraft and Autonomous Systems programs, partially offset by the timing of risk retirements and changes in contract mix on Space programs.
INNOVATION SYSTEMSThree Months Ended March 31 %
$ in millions2019 2018 Change
Sales$1,438
 
 
Operating income167
 
 
Operating margin rate11.6% 
  
The sales and operating income above reflect the operating results of Innovation Systems subsequent to the Merger date.In our comparative discussion below, we reference pro forma sales prepared in accordance with Article 11 of Regulation S-X and computed as if Orbital ATK had been included in our results in the year prior to the Merger, or as of January 1, 2017. Refer to Note 2 to the financial statements for additional supplemental consolidated pro forma financial information. This pro forma financial information should not be considered indicative of the results that would have actually occurred if the Merger had been consummated on January 1, 2017, nor are they indicative of future results.
Sales
First quarter 2019 sales increased $126 million, or 10 percent, compared with pro forma sales of $1.3 billion in the first quarter of 2018, due to higher sales in all three business areas. Space Systems sales reflect higher volume on national security satellite systems. Defense Systems sales increased due to higher volume on tactical missiles and subsystems, including the Advanced Anti-Radiation Guided Missile (AARGM) program, and precision munitions

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and armament products, partially offset by lower sales on ammunition products. Flight Systems sales reflect higher volume on launch vehicles, principally Ground-based Midcourse Defense, and aerospace structures.
Operating Income
First quarter 2019 operating income totaled $167 million and operating margin rate was 11.6 percent. First quarter results benefited from the timing of favorable negotiations on certain commercial contracts.
MISSION SYSTEMSThree Months Ended March 31%
$ in millions2019 2018 Change
Sales$2,886
 $2,883
 %
Operating income383
 371
 3%
Operating margin rate13.3% 12.9%  
Sales
First quarter 2019 sales were comparable tocontracts recognized in the first quarter of 2018, and reflect higher Cyber and ISR volume, offset by lower Advanced Capabilities and Sensors and Processing volume. Cyber and ISR sales increased principally due to higher volume on space payloads and mission programs. Advanced Capabilities sales decreased due to lower missile defense volume, primarily related to the JRDC program, which completed during the first quarter of 2018, partially offset by higher volume on advanced technology restricted programs. Sensors and Processing sales reflect lower volume on targeting programs and communications programs, partially offset by higher restricted volume.2019.
Operating Income
First quarter 2019 operating income increased $12 million, or 3 percent, due to a higher operating margin rate. Operating margin rate increased to 13.3 percent from 12.9 percent, primarily due to improved performance on Advanced Capabilities and Sensors and Processing programs, partially offset by lower performance on Cyber and ISR programs.
TECHNOLOGY SERVICESThree Months Ended March 31 %
$ in millions2019 2018 Change
Sales$977
 $1,144
 (15)%
Operating income102
 122
 (16)%
Operating margin rate10.4% 10.7%  
Sales
First quarter 2019 sales declined $167 million, or 15 percent, primarily due to program completions across the sector. Global Services sales declined principally due to the completion of a state and local services contract and certain defense services contracts, largely the JRDC program. Global Logistics and Modernization sales declined primarily due to the completion of a manned aircraft sustainment program, KC-10, partially offset by sales growth on strategic and electronic systems sustainment programs.
Operating Income
First quarter 2019 operating income declined $20 million, or 16 percent, primarily due to lower sales. Operating margin rate decreased to 10.4 percent from 10.7 percent.

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PRODUCT AND SERVICE ANALYSIS
The following table presents product and service sales and operating costs and expenses by segment:
 Three Months Ended March 31
$ in millions20202019
Segment Information:SalesOperating Costs and ExpensesSalesOperating Costs and Expenses
Aeronautics Systems    
Product$2,409
$2,202
$2,405
$2,144
Service408
359
389
344
Intersegment eliminations26
23
24
22
Total Aeronautics Systems2,843
2,584
2,818
2,510
Defense Systems    
Product770
705
621
558
Service940
827
980
859
Intersegment eliminations171
153
167
149
Total Defense Systems1,881
1,685
1,768
1,566
Mission Systems    
Product1,508
1,277
1,382
1,163
Service663
572
631
559
Intersegment eliminations176
150
197
169
Total Mission Systems2,347
1,999
2,210
1,891
Space Systems    
Product1,489
1,327
1,320
1,169
Service433
398
461
426
Intersegment eliminations26
24
20
18
Total Space Systems1,948
1,749
1,801
1,613
Segment Totals    
Total Product$6,176
$5,511
$5,728
$5,034
Total Service2,444
2,156
2,461
2,188
Total Segment(1)
$8,620
$7,667
$8,189
$7,222
 Three Months Ended March 31
$ in millions20192018
Segment Information:SalesOperating Costs and ExpensesSalesOperating Costs and Expenses
Aerospace Systems    
Product$2,974
$2,652
$2,751
$2,465
Service522
462
529
474
Innovation Systems    
Product1,240
1,096


Service198
175


Mission Systems    
Product1,784
1,523
1,719
1,476
Service1,102
980
1,164
1,036
Technology Services    
Product123
116
106
97
Service854
759
1,038
925
Segment Totals    
Total Product$6,121
$5,387
$4,576
$4,038
Total Service2,676
2,376
2,731
2,435
Intersegment eliminations(608)(541)(572)(500)
Total segment(1)
$8,189
$7,222
$6,735
$5,973
(1) 
A reconciliation of segment operating income to total operating income is included in “Segment Operating Results.”
Product Sales and Costs
First quarter 20192020 product sales increased $1.5 billion,$448 million, or 348 percent. The increase was primarily due to the addition of $1.2 billion of producthigher volume on restricted and Next Gen OPIR programs at Space Systems, higher sales from Innovationon missile products at Defense Systems and higher restrictedairborne radar and F-35 volume at AerospaceMission Systems.
First quarter 20192020 product costs increased $1.3 billion,$477 million, or 339 percent, consistent with the higher product sales described above and principally reflects highera lower product margin rates at MissionAeronautics Systems and Aerospace Systems.due to lower net favorable EAC adjustments.
Service Sales and Costs
First quarter 20192020 service sales decreased $55$17 million, or 2 percent. The decrease was primarily driven by1 percent, due to lower service sales at Technology ServicesDefense Systems and MissionSpace Systems, principally due to several program completions, partially offset by the addition of $198 million ofhigher service sales from Innovationat Mission Systems.
First quarter 20192020 service costs decreased $59$32 million, or 21 percent, consistent with the lower service sales described above and reflects higher service margin rates at AerospaceMission Systems.

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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 thean 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 March 31, 20192020 and December 31, 2018:

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2019:
 March 31, 2019 2018   March 31, 2020 December 31, 2019  
$ in millions Funded Unfunded Total
Backlog
 
Total
Backlog
 % Change in 2019 Funded Unfunded Total
Backlog
 
Total
Backlog
 % Change in 2020
Aerospace Systems $12,269
 $15,841
 $28,110
 $26,440
 6 %
Innovation Systems 5,623
 2,478
 8,101
 8,207
 (1)%
Aeronautics Systems $11,642
 $13,544
 $25,186
 $26,021
 (3)%
Defense Systems 6,462
 1,719
 8,181
 8,481
 (4)%
Mission Systems 11,073
 6,767
 17,840
 15,408
 16 % 9,336
 4,840
 14,176
 14,226
  %
Technology Services 2,797
 487
 3,284
 3,445
 (5)%
Space Systems 5,082
 11,542
 16,624
 16,112
 3 %
Total backlog $31,762
 $25,573
 $57,335
 $53,500
 7 % $32,522
 $31,645
 $64,167
 $64,840
 (1)%
New Awards
First quarter 20192020 net awards totaled $12.3$7.9 billion and backlog totaled $64.2 billion. Significant first quarter new awards include $3.2 billion for restricted competitive prime space $1.0 billion for submarine subsystems production, $805contracts totaling multiple billions of dollars in the aggregate; $339 million for F-35, $633the Scalable Agile Beam Radar (SABR) program, $281 million for IBCS - Poland and $323the Triton program, $165 million for AARGM-ER. the Advanced Anti-Radiation Guided Missile (AARGM) program and $160 million for the Ground-based Midcourse Defense (GMD) program.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximizeincrease 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 byused in operating activities and free cash flow, a non-GAAP measure described in more detail below.
At March 31, 2020, we had $3.3 billion in cash and cash equivalents. In March 2020, we issued $2.25 billion of unsecured senior notes to help preserve financial flexibility in light of uncertainty resulting from the COVID-19 pandemic. We intend to use those proceeds for general corporate purposes, which may include debt repayment and working capital. In April 2020, we entered into a one-year $500 million uncommitted credit facility to provide an additional source of potential financing.
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. 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. We expect both of these actions should help to mitigate COVID-19 related negative impacts to our operating cash flows for the remainder of the year.
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.

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NORTHROP GRUMMAN CORPORATION                        

Operating Cash Flow
The table below summarizes key components of cash flow used in operating activities:
Three Months Ended March 31 %Three Months Ended March 31 %
$ in millions2019 2018 Change2020 2019 Change
Net earnings$863
 $840
 3 %$868
 $863
 1 %
Non-cash items(1)
361
 119
 203 %471
 361
 30 %
Changes in assets and liabilities:          
Trade working capital(1,964) (1,008) 95 %(2,163) (1,964) 10 %
Retiree benefits(142) (190) (25)%(237) (142) 67 %
Other, net(31) 2
 NM
68
 (31) NM
Net cash used in operating activities$(913) $(237) (285)%$(993) $(913) (9)%
(1) 
Includes depreciation and amortization, non-cash lease expense, stock based compensation expense and deferred income taxes.
NetFirst quarter 2020 cash used in operating activities increased $80 million principally due to the timing of trade working capital. The net use of cash during the first quarter of 2019 increased $676 million, principally due to changes in trade working capital. These changes reflectis consistent with the completion of an ERP conversion as well as the inclusion of Innovation Systems. Although successfully completed, the ERP conversion delayed billings and cash receipts of approximately $350 million, which the company expects will be recovered in the second quarter of 2019. Innovation Systems used approximately $250 millioncompany’s historical timing of operating cash during the quarter. First quarter cash trendsflows, which are generally consistent with prior years where operating cash flows have beenmore heavily weighted toward the second half of the year.
Free Cash Flow
Free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash used in operating activities less capital expenditures, and may not be defined and calculated by other companies in the same manner. We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases. This non-GAAP measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP.

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NORTHROP GRUMMAN CORPORATION                        

The table below reconciles net cash used in operating activities to free cash flow:
Three Months Ended March 31 %Three Months Ended March 31 %
$ in millions2019 2018 Change2020 2019 Change
Net cash used in operating activities$(913) $(237) (285)%$(993) $(913) (9)%
Less: capital expenditures(284) (305) (7)%(272) (284) (4)%
Free cash flow$(1,197) $(542) (121)%$(1,265) $(1,197) (6)%
First quarter 20192020 free cash flow decreased $655$68 million principally due to the increase in net cash used in operating activities.
Investing Cash Flow
NetFirst quarter 2020 net cash used in investing activities during the first quarter of 2019 decreased to $280$270 million from $307$280 million principally due to lower capital expenditures.
Financing Cash Flow
NetFirst quarter 2020 net cash provided by financing activities duringincreased to $2.3 billion from $462 million principally due to $2.2 billion of net proceeds from the issuance of long-term debt in the first quarter of 2019 was $462 million, as compared to net cash used2020, partially offset by share repurchases in financing activities of $312 million for the same period in 2018, principally driven by net commercial paper borrowings of $814 million.quarter.
Credit Facilities, Commercial Paper and Financial Arrangements - See Note 76 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 32 to the financial statements for further information on our share repurchase programs.
Long-term Debt - See Note 54 to the financial statements for further information.

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NORTHROP GRUMMAN CORPORATION                        

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 20182019 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 20182019 Annual Report on Form 10-K, this Form 10-Q and from time to time in our other filings with the Securities and Exchange Commission (SEC). These risks and uncertainties are amplified by the global COVID-19 pandemic, which has caused and will continue to cause significant challenges, instability and uncertainty. They include:
our dependence on the U.S. government for a substantial portion of our business
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, program delays, our ability to recover costs under contracts, changing government funding and acquisition priorities and processes, changing government payment rules and practices, 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 and/or litigation
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
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

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NORTHROP GRUMMAN CORPORATION                        

the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation, our ability to do business, and our financial position, results of operations and/or cash flows
cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners
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 chemicals and components
changes in procurement and other laws, regulations and practices applicable to our industry, findings by the U.S. government as to our compliance with such laws and regulations, and changes in our customers’ business practices globally
increased competition within our markets and bid protests
the ability to maintain a qualified workforce
our ability to meet performance obligations under our contracts, including obligations that are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control
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

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NORTHROP GRUMMAN CORPORATION                        

natural disasters
health epidemics, pandemics and similar outbreaks, including the global COVID-19 pandemic
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 and health and welfare plans
benefit obligations
our ability successfully to integrate the Orbital ATK business and realize fully the anticipated benefits of the acquisition, without adverse consequences
our abilityappropriately 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
unanticipated changes in our tax provisions or exposure to additional tax liabilities, including qualification of the Alliant Techsystems Inc. spin-off of Vista Outdoor Inc. as a tax-free transaction
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
ThereOther than the debt issuance, including associated interest, described in Note 4 of Part I, Item 1, there have been no material changes to our contractual obligations from those discussed in our 20182019 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 20182019 Annual Report on Form 10-K.

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NORTHROP GRUMMAN CORPORATION                        

Item 4.4.    Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer (Chief(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 March 31, 2019,2020, 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
As part of our ongoing integration of Northrop Grumman Innovation Systems, we have integrated certain controls and related procedures for legacy Orbital ATK with those of legacy Northrop Grumman. During the three months ended March 31, 2019,2020, no changes occurred in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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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 65 and 76 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 65 and 76 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 20182019 Annual Report on Form 10-K.
Environmental Matters Involving Potential Monetary Damages in Excess of $100,000
The following environmental matter is reported pursuant to SEC Regulation S-K Item 103 because it involves potential monetary damages in excess of $100,000. In June 2016, the U.S. Environmental Protection Agency (EPA) conducted an environmental inspection at the Allegheny Ballistics Laboratory in Rocket Center, WV, which was then and is now operated by Alliant Techsystems Operations LLC (“ATO”). ATO became an indirect subsidiary of the Company approximately 2 years later, in June 2018. On March 3, 2020, EPA notified ATO of a proposed penalty for alleged noncompliance with certain air emission, water discharge and waste management permitting and regulatory requirements. EPA proposed a civil penalty totaling $497,635 and certain non-monetary actions. The Company disputes the allegations and is in discussions with the government.
Item 1A. Risk Factors
For a discussion of ourThe following updates and supplements the risk factors please seedescribed in the section entitled “Risk Factors” in our 20182019 Annual Report on Form 10-K, as updated by the Current Report on Form 8-K filed on March 19, 2020. It should be read in conjunction with the risk factors in the 2019 Annual Report on Form 10-K. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in the 2019 Form 10-K which could materially affect our business, financial condition or future results. The COVID-19 pandemic has heightened, and in some cases manifested, certain of the risks we normally face in operating our business, including those disclosed in the 2019 Form 10-K, and the risk factor disclosure in the 2019 Form 10-K is qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q, including the updated risk factor set forth below. Except as otherwise described herein, there have been no other material changes from the risk factors previously disclosed in the 2019 Form 10-K.
We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.
We face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of coronavirus disease 2019 (“COVID-19”). Since first reported in late 2019, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, government challenges and market volatility of an unprecedented nature. Although we have, to date, managed to continue most of our operations, we cannot predict the future course of events nor can we assure that this global pandemic, including its economic impact, will not have a material adverse impact on our business, financial position, results of operations and/or cash flows. (For further information relating to our company’s experience to date, and certain steps taken to approach the risks presented by the COVID-19 pandemic, see Management’s Discussion and Analysis of Financial Condition and Results of Operations).
If significant portions of our workforce are unable to work effectively, including because of illness, quarantines or absenteeism; steps the company has taken to protect health and challenges with additional steps (such as securing personal protective equipment and testing); government actions; facility closures; work slowdowns or stoppages; limited supplies or resources; or other circumstances related to COVID-19, our operations will be further impacted. We may be unable to perform fully on our contracts and we may incur liabilities and suffer losses as a result. In addition, we will continue to incur additional costs as a result of the COVID-19 outbreak, including to protect the well-being of our employees, which will likely not be fully recoverable. The continued spread of COVID-19 may

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NORTHROP GRUMMAN CORPORATION                        

also affect our ability to hire, develop and retain our talented and diverse workforce, and to maintain our corporate culture.
The continued spread of COVID-19, including the global pandemic and the economic impact, are likely also to cause further disruption in our supply chain. If our suppliers have increased challenges with their workforce (including as a result of illness, absenteeism or government orders), access to necessary components and supplies, access to capital, and access to fundamental support services (such as shipping and transportation), they may be unable to provide the agreed-upon goods and services in a timely, compliant and cost-effective manner. We may incur additional costs and delays in our business, including as a result of higher prices, schedule delays or the need to identify and develop alternative suppliers, and we may need to provide additional resources to support our suppliers or otherwise continue performance under our contracts. In some instances, we may be unable to do that, incurring additional liabilities under our current contracts and hampering new ones.
The global COVID-19 crisis is putting extraordinary pressures on the U.S. government and governments around the world. It could cause delays or limits in the ability of the government and other customers to perform, including making timely payments and awards to us, negotiating contracts and agreeing appropriate costs for recovery, performing quality inspections, supporting testing, accepting delivery, approving security clearances (for individuals and facilities), and providing necessary personnel, equipment and facilities. In addition, as a result of the COVID-19 crisis, there may be changes in our customers’ priorities and practices, as our customers in both the United States and globally confront competing budget priorities and more limited resources. These changes may impact current and future programs, government payments and other practices, procurements, and funding decisions.
While we have significant sources of cash and liquidity and access to committed and uncommitted credit lines, a prolonged period of generating lower cash from operations could adversely affect both our financial condition and the achievement of our strategic objectives. Additionally, there can be no assurance that we will not face credit rating downgrades, and such downgrades could adversely affect our cost of funds, liquidity and access to capital markets. The current market volatility will likely also impact investment performance and our expected asset valuations and returns, which can materially impact the calculation of long-term liabilities such as our pension obligations.
We continue to work with our stakeholders (including customers, employees, suppliers and local communities) in an effort to address responsibly this global pandemic. We continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take certain actions in an effort to mitigate various adverse consequences.
We expect that the longer the COVID-19 pandemic, including its economic disruption, continues, the greater the adverse impact on our business operations, financial performance and results of operations will be. Given the tremendous uncertainties and variables, we cannot at this time predict the impact of the global COVID-19 pandemic, but it could have a material adverse impact on our business, financial position, results of operations and/or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities – The table below summarizes our repurchases of common stock during the first quarter of 2019:2020:
PeriodNumber
of Shares
Purchased
 
Average Price
Paid per
Share
(1)(2)
 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)
January 1, 2019 - January 25, 2019876,678
 
NM(2)

 876,678
  $4,084
January 26, 2019 - February 22, 201975,264
 $282.15
 75,264
  4,063
February 23, 2019 - March 29, 2019153,777
 275.40
 153,777
  4,021
Total1,105,719
 
NM(2)

 1,105,719
  $4,021
PeriodNumber
of Shares
Purchased
 
Average Price
Paid per
Share
(1)
 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)
January 1, 2020 - January 24, 2020204,200
 $374.96
 204,200
  $3,253
January 25, 2020 - February 21, 2020207,300
 369.78
 207,300
  3,176
February 22, 2020 - March 27, 2020625,975
 313.11
 625,975
  2,980
Total1,037,475
 $336.61
 1,037,475
  $2,980
(1) 
Includes commissions paid.
(2)
In October 2018, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC, which was completed in January 2019 with a final delivery of 0.9 million shares. Pursuant to the terms of the ASR, a total of approximately 3.9 million shares of our common stock were repurchased with an average final purchase price of $260.32 per share.
Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market andor in privately negotiated transactions. The company retires its common stock upon repurchase and, in

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NORTHROP GRUMMAN CORPORATION                        

the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs.
See Note 32 to the financial statements for further information on our share repurchase programs.
Item 3. Defaults Upon Senior Securities
No information is required in response to this item.
Item 4. Mine Safety Disclosures
No information is required in response to this item.
Item 5. Other Information
No information is required in response to this item.


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NORTHROP GRUMMAN CORPORATION                        


Item 6. Exhibits
2.1
  
2.2
  
2.3
  
2.4
4.1
4.2
4.3
4.4
  
+*10.1
  
+*10.2
  
+*10.3
  
+*10.4
  
+*10.5
  
*15
  
*31.1
  
*31.2
  
**32.1
  
**32.2
  

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NORTHROP GRUMMAN CORPORATION                        

*101Northrop Grumman Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2019,2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Cover Page, (ii) Condensed Consolidated Statements of Earnings and Comprehensive Income, (ii)(iii) Condensed Consolidated Statements of Financial Position, (iii)(iv) Condensed Consolidated Statements of Cash Flows, (iv)(v) Condensed Consolidated Statements of Changes in Shareholders’ Equity, and (v)(vi) Notes to Condensed Consolidated Financial StatementsStatements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+Management contract or compensatory plan or arrangement
  
*Filed with this report
  
**Furnished with this report


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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: April 23, 201928, 2020


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