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

OVERVIEW

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

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

The following discussion should be read along with the financial statements included in this Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Liquidity and Capital Resources,” “Quantitative and Qualitative Disclosures About Market Risks” and “Risk Factors” in our 2025 Annual Report on Form 10-K, which provides additional information on our business, the environment in which we operate and our operating results.

Divestiture of Training Services Business

On May 24, 2025 (the “Divestiture date”), the company completed its previously announced sale of substantially all of the Immersive Mission Solutions (IMS) operating unit of Defense Systems (the “training services” business or “divestiture”) for $333 million in cash and recorded a pre-tax gain on sale of $231 million. IMS is a provider of mission training and satellite ground network communications software for U.S. government customers. 2025 operating results include sales and operating income for the training services business prior to the Divestiture date.

Global Security Environment

The U.S. and its allies continue to face a dynamic global security environment of heightened tensions and instability, threats from state and non-state actors, including in particular major global powers, as well as terrorist organizations, increasing nuclear tensions, diverse regional security concerns, political instability and uncertainty concerning global strategic alliances. The market for defense products, services and solutions globally is driven by these complex and rapidly evolving security challenges, considered in the broader context of political and socioeconomic circumstances and priorities. Our operations and financial performance, as well as demand for our products and services, are impacted by these events, including global unrest. The same is true for our suppliers and other business partners.

The ongoing conflicts in Ukraine and Iran and threats elsewhere, particularly in the Middle East and the Western Pacific region, have increased global tensions and instability and highlighted security requirements globally. These conflicts have resulted in and may continue to result in increased demand for defense products and services from allies and partner nations, particularly in those regions. We continue to monitor developments in these regions, but have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from these conflicts.

We believe the current global security environment, characterized by significant national security threats to the U.S. and its allies, continues to highlight the need for strong deterrence and robust defense capabilities. We are actively evaluating both opportunities and risks associated with this environment and are moving with speed and at scale to deliver innovative solutions to our customers. We believe our capabilities, particularly in space, C4ISR, air and missile defense, battle management, solid rocket motors, advanced weapons, strategic deterrence, survivable aircraft, autonomous aircraft systems and mission systems should help our customers in the U.S. and globally defend against current and future threats and, as a result, continue to position us for long-term profitable business growth.

Global Economic Environment

Over the past several years, the global economic environment has experienced challenges, including inflationary pressures; widespread delays and disruptions in supply chains; constraints on the availability of critical materials, including rare earth minerals and metals; business slowdowns or shutdowns; workforce challenges and labor shortfalls; and market volatility. These macroeconomic factors have contributed, and could continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for

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limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers. We continue to work to address challenges to our business caused by the macroeconomic environment. We have seen progress in the supply chain as on-time deliveries and quality continue to improve. In remaining areas of pressure, we are proactively working with our suppliers to help meet our contract commitments.

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

U.S. Political, Budget and Regulatory Environment

The U.S. continues to face an uncertain and evolving political, budget and regulatory environment. In particular, it is difficult to predict the specific course of future defense budgets. Current and future requirements related to the conflicts in Ukraine and Iran and threats in the Middle East, the Western Pacific and Latin America and other security priorities, as well as the macroeconomic environment, the national debt, and other domestic priorities, among other things, in the U.S. and globally, will continue to impact our customers’ budgets, spending and priorities, and our industry. The U.S. political environment may also impact defense budgets and priorities, issues related to the national debt, and government spending more broadly. We anticipate that issues related to budgetary priorities, defense spending levels and the debt ceiling will continue to be subjects of considerable debate, with a potentially significant impact on our programs and the company.

On July 4, 2025, the FY 2025 reconciliation bill titled the One Big Beautiful Bill Act (the “OBBBA”) was enacted. The OBBBA allocates approximately $150 billion in mandatory defense funding, including funding for air and missile defense, munitions, strategic deterrence, shipbuilding and supply chains and other military capabilities, and the appropriated funds will remain available to be obligated until September 30, 2029 and expended through FY 2034. The OBBBA is expected to result in increased investments by the DoW in defense modernization projects and Pacific region deterrence, among other programs. See Note 4 to the financial statements for additional information on key income tax provisions of the OBBBA.

On February 3, 2026, annual appropriations to fund a vast majority of the federal government for FY 2026 were enacted. The legislation finalized 11 of the 12 regular appropriations bills for FY 2026 and includes approximately $859 billion for defense. The legislation did not fund the Department of Homeland Security (“DHS”), which was instead funded under a continuing resolution through February 13, 2026. After the DHS continuing resolution expired, the federal government entered a partial shutdown, which remains in effect. We do not believe that the ongoing partial shutdown will have a material adverse effect on our business.

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

In light of the ongoing conflicts and heightened global instability as well as political tensions and related legal challenges, we expect continued uncertainty in the global security, U.S. political, budget and regulatory environment. Initiatives to reduce governmental spending, federal budget and debt ceiling action, and further

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changes in U.S. government policy positions, including trade and foreign policy, tax policy and DoW policies or priorities, could materially impact defense spending broadly and the company’s programs in particular.

B-21 Program

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

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

During the fourth quarter of 2023, we recognized a projected loss of $1.56 billion across the five LRIP options. During the first quarter of 2025, we recognized an additional $477 million loss across the five LRIP options. During the first quarter of 2026, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss. However, impacts from the recent agreement with the U.S. Air Force and higher estimated production costs resulted in a $157 million net unfavorable EAC adjustment on the first four LRIP lots, which was offset by a net reduction in the loss contingency accrual on the remainder of the program.

The company’s first quarter 2026 results reflect our current best estimate of cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers. If our estimated cost to complete the aircraft changes, or if our assumptions regarding contract performance, quantities, or supplier negotiations are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Sentinel Program

In 2020, the U.S. Air Force awarded Northrop Grumman a $13.3 billion contract for the EMD phase of the Sentinel program. In January 2024, the U.S. Air Force provided congressional notification that the Sentinel program was under a Nunn-McCurdy breach review, which is required when total program cost estimates exceed certain defined thresholds. This notification, which had been driven primarily by increases in cost estimates for the Production and Deployment phases, commenced the process to achieve certification for continuance of the program and update its baseline cost estimates. We are currently executing under a cost-type contract for the EMD phase, and the Production and Deployment phases are yet to be priced and negotiated.

In July 2024, the Sentinel program was certified for continuation by the DoW upon completion of the Nunn-McCurdy breach review. In connection with the certification, the DoW directed that the program be restructured, including plans for infrastructure related to the command and launch segment, which was the main driver of the increased cost estimates for the Production and Deployment phases.

During the second quarter of 2025, we partnered with the U.S. Air Force in defining the preliminary execution framework necessary for successful restructure of the program. The program restructure will include a revision to the acquisition strategy, joint establishment of a new program baseline, and other critical preparation activities necessary to re-accomplish Milestone B approval.

During the first quarter of 2026, we reviewed our estimated profitability on the Sentinel program and made no significant changes. If our estimated cost to complete the restructured EMD effort or our expectations for achieving contract incentives are more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

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Operating Performance Assessment and Reporting

In evaluating our operating performance, we primarily focus on changes in sales and operating margin rates. Where applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between products and services. Changes in sales are generally described in terms of volume, while changes in operating margin rates are generally described in terms of performance and/or contract mix. For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume-related changes in profitability, which are typically described in terms of changes in net EAC adjustments. Contract mix generally refers to changes in the ratio of contract type and/or life cycle (e.g., cost-type, fixed-price, development, production, and/or sustainment). Contract mix can also refer to differences in the profitability of the programs that drive changes in sales (e.g., sales growth or decreases on programs with accretive or dilutive margin rates).

CONSOLIDATED OPERATING RESULTS

For purposes of the operating results discussion below, we assess our performance using certain financial measures that are not calculated in accordance with GAAP. Organic sales is defined as total sales excluding sales attributable to the company's former training services business. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the company’s underlying sales growth as well as in understanding our ongoing business and future sales trends by presenting the company’s sales adjusted for the impact of the divestiture.

We reconcile this non-GAAP financial measure to its most directly comparable GAAP financial measure below. This non-GAAP measure may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.

Selected financial highlights are presented in the table below:

															Three Months Ended March 31												%
$ in millions, except per share amounts																					2026						2025						Change
Sales																					$	9,881					$	9,468					4		%
Operating costs and expenses																					8,892						8,895						—		%
Operating costs and expenses as a % of sales																					90.0		%				93.9		%
Operating income																					989						573						73		%
Operating margin rate																					10.0		%				6.1		%
Federal and foreign income tax expense																					155						97						60		%
Effective income tax rate																					15.0		%				16.8		%
Net earnings																					875						481						82		%
Diluted earnings per share																					$	6.14					$	3.32					85		%

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Sales

The table below reconciles sales to organic sales:

															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Sales																					$	9,881					$	9,468					4		%
Less: Training services sales																					—						(72)
Organic sales																					$	9,881					$	9,396					5		%

First quarter 2026 sales increased $413 million, or 4 percent, due to higher sales of $469 million at Aeronautics Systems, as well as higher sales at Defense Systems and Mission Systems. These increases were partially offset by $116 million of higher intercompany eliminations and lower sales at Space Systems due to the wind-down of work on the Next Generation Interceptor (NGI) program.

See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 10 to the financial statements for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments.

Operating Income and Margin Rate

First quarter 2026 operating income increased $416 million, or 73 percent, largely driven by the prior year $477 million B-21 loss provision at Aeronautics Systems, partially offset by a $56 million decrease in the FAS/CAS operating adjustment. Operating margin rate increased to 10.0 percent from 6.1 percent reflecting the items above.

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

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

First quarter 2026 income tax expense increased $58 million, or 60 percent, due to $452 million of higher earnings before income taxes, partially offset by a lower effective tax rate (ETR). The first quarter 2026 ETR decreased to 15.0 percent from 16.8 percent primarily due to higher research credits, including a benefit related to CAMT guidance recently issued by the IRS.

See Note 4 to the financial statements for additional information.

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

Diluted Earnings Per Share

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

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SEGMENT OPERATING RESULTS

Basis of Presentation

The company is aligned in four operating sectors, which also comprise our reportable segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems.

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 measures that reflect the combined operating income of our four segments less the operating income associated with intersegment sales. Segment operating income includes pension expense allocated to our sectors under FAR and CAS and excludes FAS pension service expense and unallocated corporate items (certain corporate-level expenses, which are not considered allowable or allocable under applicable FAR and CAS requirements, and costs not considered part of management’s evaluation of segment operating performance). These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the financial performance and operational trends of our sectors. These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.

															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Operating income																					$	989					$	573					73		%
Operating margin rate																					10.0		%				6.1		%
Reconciliation to segment operating income:
CAS pension expense																					(60)						(117)						(49)		%
FAS pension service expense																					53						54						(2)		%
FAS/CAS operating adjustment																					(7)						(63)						(89)		%
Intangible asset amortization and PP&E step-up depreciation																					21						21						—		%
Other unallocated corporate expense																					69						37						86		%
Unallocated corporate expense																					90						58						55		%
Segment operating income																					$	1,072					$	568					89		%
Segment operating margin rate																					10.8		%				6.0		%

First quarter 2026 segment operating income increased $504 million, or 89 percent, primarily due to $488 million of higher operating income at Aeronautics Systems and $72 million of higher operating income at Mission Systems, partially offset by $48 million of lower operating income at Space Systems. Segment operating margin rate increased to 10.8 percent from 6.0 percent primarily due to a higher operating margin rate at Aeronautics Systems and Mission Systems, partially offset by a lower operating margin rate at Space Systems.

FAS/CAS Operating Adjustment

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

Unallocated Corporate Expense

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

Net EAC Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on segment operating income and margin rate.

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The aggregate favorable and unfavorable EAC adjustments are presented in the table below:

									Three Months Ended March 31
$ in millions															2026						2025
Favorable EAC adjustments															$	660					$	324
Unfavorable EAC adjustments															(740)						(424)
Net EAC adjustments															$	(80)					$	(100)

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

									Three Months Ended March 31
$ in millions															2026						2025
Aeronautics Systems															$	(107)					$	(189)
Defense Systems															15						23
Mission Systems															51						37
Space Systems															(38)						29
Eliminations															(1)						—
Net EAC adjustments															$	(80)					$	(100)

AERONAUTICS SYSTEMS															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Sales																					$	3,283					$	2,814					17		%
Operating income (loss)																					305						(183)						NM
Operating margin rate																					9.3		%				(6.5)		%

Sales

First quarter 2026 sales increased $469 million, or 17 percent, primarily due to higher sales on B-21 and other restricted programs as well as increased volume on the E-130J TACAMO program as it ramps up. The higher B-21 sales reflect the company’s first quarter 2026 agreement with the U.S. Air Force to expand production capacity and increase the aircraft production rate, including the sale of a company-owned test asset. The sales increases were partially offset by a decrease on F/A-18 as final production deliveries have completed.

Operating Income

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

DEFENSE SYSTEMS															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Sales																					$	1,899					$	1,805					5		%
Less: Training services sales																					—						(72)
Organic sales																					$	1,899					$	1,733					10		%
Operating income																					$	184					$	179					3		%
Operating margin rate																					9.7		%				9.9		%

Sales

First quarter 2026 sales increased $94 million, or 5 percent, primarily due to higher volume on Sentinel as that program continues to ramp, as well as higher volume on tactical solid rocket motor programs and across the Integrated Battle Command System (IBCS) portfolio. These increases were partially offset by a $72 million reduction in sales related to the divested training services business.

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Operating Income

First quarter 2026 operating income increased $5 million, or 3 percent, primarily due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 9.7 percent from 9.9 percent principally due to lower net EAC adjustments.

MISSION SYSTEMS															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Sales																					$	2,861					$	2,807					2		%
Operating income																					433						361						20		%
Operating margin rate																					15.1		%				12.9		%

Sales

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

Operating Income

First quarter 2026 operating income increased $72 million, or 20 percent, primarily due to a higher operating margin rate and higher sales. Operating margin rate increased to 15.1 percent from 12.9 percent, primarily due to prior year investments made by the sector in connection with restricted business opportunities, as well as higher net EAC adjustments in the current year.

SPACE SYSTEMS															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Sales																					$	2,480					$	2,568					(3)		%
Operating income																					235						283						(17)		%
Operating margin rate																					9.5		%				11.0		%

Sales

First quarter 2026 sales decreased $88 million, or 3 percent, primarily due to wind-down of work on the NGI program, which reduced sales by $98 million, as well as lower sales on the GEM 63XL program related to the unfavorable EAC adjustment described below. These decreases were partially offset by higher volume on Space Development Agency satellite programs driven by ramp-up on the Tranche 3 tracking layer award.

Operating Income

First quarter 2026 operating income decreased $48 million, or 17 percent, due to a lower operating margin rate and lower sales. Operating margin rate decreased to 9.5 percent from 11.0 percent, largely due to lower net EAC adjustments, including a $71 million unfavorable adjustment on GEM 63XL associated with a launch anomaly that occurred during the first quarter.

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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 millions												2026						2025
Segment Information:																		Sales			Operating Costs and Expenses			Sales			Operating Costs and Expenses
Aeronautics Systems
Product																		$	2,494		$	2,294		$	2,091		$	2,358
Service																		755			653			682			601
Intersegment eliminations																		34			31			41			38
Total Aeronautics Systems																		3,283			2,978			2,814			2,997
Defense Systems
Product																		1,517			1,375			1,405			1,262
Service																		330			294			355			324
Intersegment eliminations																		52			46			45			40
Total Defense Systems																		1,899			1,715			1,805			1,626
Mission Systems
Product																		1,966			1,682			1,961			1,730
Service																		510			419			511			434
Intersegment eliminations																		385			327			335			282
Total Mission Systems																		2,861			2,428			2,807			2,446
Space Systems
Product																		1,981			1,811			2,064			1,829
Service																		328			281			399			362
Intersegment eliminations																		171			153			105			94
Total Space Systems																		2,480			2,245			2,568			2,285
Segment Totals
Total Product																		$	7,958		$	7,162		$	7,521		$	7,179
Total Service																		1,923			1,647			1,947			1,721
Total Segment**(1)**																		$	9,881		$	8,809		$	9,468		$	8,900

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

Product Sales and Costs

First quarter 2026 product sales increased $437 million, or 6 percent, primarily due to higher sales on B-21 at Aeronautics Systems, as well as higher volume on Sentinel, tactical solid rocket motor programs and across the IBCS portfolio at Defense Systems. These increases were partially offset by the wind-down of work on the NGI program and lower sales on GEM 63XL at Space Systems.

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

Service Sales and Costs

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

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

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BACKLOG

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

						March 31, 2026																		December 31, 2025
$ in millions						Funded						Unfunded						Total Backlog						Total Backlog						% Change in 2026
Aeronautics Systems						$	12,996					$	11,275					$	24,271					$	23,052					5		%
Defense Systems						7,759						19,970						27,729						27,796						—		%
Mission Systems						12,887						4,916						17,803						18,632						(4)		%
Space Systems						10,426						15,379						25,805						26,201						(2)		%
Total backlog						$	44,068					$	51,540					$	95,608					$	95,681					—		%

First quarter 2026 net awards totaled $9.8 billion and backlog totaled $95.6 billion. Significant first quarter new awards include $4.9 billion for restricted programs (primarily at Aeronautics Systems, Space Systems, and Mission Systems), $0.5 billion for F-35 (primarily at Aeronautics Systems), $0.5 billion for infrared countermeasures programs, and $0.4 billion for Triton.

LIQUIDITY AND CAPITAL RESOURCES

We are focused on the efficient conversion of operating income into cash to provide for the company’s material cash requirements, including working capital needs, satisfaction of contractual commitments, funding of our pension and OPB plans, investment in our business through capital expenditures, and shareholder returns.

At March 31, 2026, we had $2.1 billion in cash and cash equivalents. We expect cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets, if needed, to be sufficient to provide liquidity to the company in the short-term and long-term. The company has a five-year senior unsecured revolving credit facility in an aggregate principal amount of $3.0 billion, and in April 2026, we renewed our one-year $500 million uncommitted credit facility. At March 31, 2026, there were no borrowings outstanding under these credit facilities; however, as of March 31, 2026, we had $500 million in commercial paper outstanding, which reduced the amount available for borrowing under our unsecured revolving credit facility by that amount.

Cash Flow Measures

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

Operating Cash Flow

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

															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Net earnings																					$	875					$	481					82		%
Changes in trade working capital(1)																					(2,074)						(2,187)						(5)		%
Other, net																					(457)						141						NM
Net cash used in operating activities																					$	(1,656)					$	(1,565)					(6)		%

(1)Beginning in the fourth quarter of 2025, the company redefined trade working capital presented in this table to include accounts receivable, unbilled receivables, inventoried costs, trade accounts payable and advance payments and billings in excess of costs incurred. Prior period amounts and disclosures have been recast to conform to the current period presentation.

First quarter 2026 net cash used in operating activities was comparable with the same period in 2025. Net cash used in operating activities reflects increases in trade working capital, consistent with the company’s historical timing of operating cash flows, which are generally more heavily weighted towards the second half of the year.

Free Cash Flow

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

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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.

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

															Three Months Ended March 31												%
$ in millions																					2026						2025						Change
Net cash used in operating activities																					$	(1,656)					$	(1,565)					(6)		%
Capital expenditures																					(167)						(256)						(35)		%
Free cash flow																					$	(1,823)					$	(1,821)					—		%

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

Investing Cash Flow

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

Financing Cash Flow

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

Credit Facilities, Commercial Paper and Financial Arrangements - See Note 7 to the financial statements for further information on our credit facilities, commercial paper and our use of standby letters of credit and guarantees.

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

Long-term Debt - See Note 5 to the financial statements for further information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and estimates from those discussed in our 2025 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,” “guidance,” “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 2025 Annual Report on Form 10-K and from time to time in our other filings with the SEC. They include:

Industry and Economic Risks

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

• significant delays or reductions in appropriations and/or for our programs, and U.S. government funding and program support more broadly, including as a result of a prolonged continuing resolution and/or government shutdown, and/or related to the global security environment or other global events

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

• the use of estimates when accounting for our contracts and the effect of contract cost growth and our efforts to recover or offset such costs and/or changes in estimated contract costs and revenues, including as a result of inflationary pressures, labor shortages, supply chain challenges, changes in trade policies and/or other macroeconomic factors, and risks related to management’s judgments and assumptions in estimating and/or projecting contract revenue and performance which may be inaccurate

• increased competition within our markets and bid protests

• continued pressures from macroeconomic trends, including on costs, schedules, performance and ability to meet expectations

Legal and Regulatory Risks

• investigations, claims, disputes, enforcement actions, litigation (including criminal, civil and administrative) and/or other legal proceedings

• changes in procurement and other laws, SEC, DoW and other rules and regulations, including changes through executive orders, contract terms and practices applicable to our industry, findings by the U.S. government as to our compliance with such requirements, more aggressive enforcement of such requirements and changes in our customers’ business practices and preferences globally

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

• environmental matters, unforeseen environmental costs and government and third-party claims

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

Business and Operational Risks

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

• the performance and viability of our subcontractors and suppliers and the availability and pricing of raw materials, critical minerals and metals, chemicals, parts and components, particularly with inflationary pressures, increased costs, pricing changes, shortages in labor and financial resources, supply chain disruptions, and extended material lead times

• our ability to attract and retain a qualified and talented workforce with the necessary security clearances to meet our performance obligations

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

• our ability to innovate, develop new products and technologies, progress and benefit from digital transformation and maintain technologies to meet the needs of our customers

• natural disasters, epidemics, pandemics and similar outbreaks and other significant disruptions

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

• our ability appropriately to protect and exploit intellectual property rights

General and Other Risk Factors

• the adequacy and availability of, and ability to obtain, insurance coverage, customer indemnifications or other liability protections

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

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

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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.