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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2020
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-16411
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
80-0640649
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
2980 Fairview Park Drive
 
 
Falls Church,
Virginia
 
22042
(Address of principal executive offices)
 
(Zip Code)
(703) 280-2900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
NOC
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ☒     Accelerated Filer ☐
Non-accelerated Filer ☐    Smaller Reporting Company                 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 27, 2020, 166,714,063 shares of common stock were outstanding.


Table of Contents

NORTHROP GRUMMAN CORPORATION                        

TABLE OF CONTENTS
 
 
Page
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
 

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Table of Contents

NORTHROP GRUMMAN CORPORATION                        

PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended June 30

Six Months Ended June 30
$ in millions, except per share amounts
2020

2019

2020

2019
Sales











Product
$
6,482


$
5,880


$
12,658


$
11,608

Service
2,402


2,576


4,846


5,037

Total sales
8,884


8,456


17,504


16,645

Operating costs and expenses











Product
5,127


4,661


10,079


9,178

Service
1,931


2,065


3,877


4,041

General and administrative expenses
832


784


1,620


1,544

Operating income
994


946


1,928


1,882

Other (expense) income











Interest expense
(154
)

(137
)

(279
)

(275
)
FAS (non-service) pension benefit
303


200


605


400

Other, net
60


19


2


55

Earnings before income taxes
1,203


1,028


2,256


2,062

Federal and foreign income tax expense
198


167


383


338

Net earnings
$
1,005


$
861


$
1,873


$
1,724













Basic earnings per share
$
6.02


$
5.07


$
11.20


$
10.15

Weighted-average common shares outstanding, in millions
166.9


169.7


167.3


169.9

Diluted earnings per share
$
6.01


$
5.06


$
11.16


$
10.11

Weighted-average diluted shares outstanding, in millions
167.3


170.3


167.9


170.5













Net earnings (from above)
$
1,005


$
861


$
1,873


$
1,724

Other comprehensive loss
 
 
 
 
 
 
 
Change in unamortized prior service credit, net of tax
(11
)
 
(12
)
 
(21
)
 
(23
)
Change in cumulative translation adjustment and other, net
10

 
(4
)
 
1

 

Other comprehensive loss, net of tax
(1
)
 
(16
)
 
(20
)
 
(23
)
Comprehensive income
$
1,004

 
$
845

 
$
1,853

 
$
1,701

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

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NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
$ in millions, except par value
June 30,
2020
 
December 31,
2019
Assets
 
 
 
Cash and cash equivalents
$
4,178

 
$
2,245

Accounts receivable, net
1,989

 
1,326

Unbilled receivables, net
5,460

 
5,334

Inventoried costs, net
832

 
783

Prepaid expenses and other current assets
720

 
997

Total current assets
13,179

 
10,685

Property, plant and equipment, net of accumulated depreciation of $6,103 for 2020 and $5,850 for 2019
7,063

 
6,912

Operating lease right-of-use assets
1,528

 
1,511

Goodwill
18,707

 
18,708

Intangible assets, net
909

 
1,040

Deferred tax assets
346

 
508

Other non-current assets
1,743

 
1,725

Total assets
$
43,475

 
$
41,089

 
 
 
 
Liabilities
 
 
 
Trade accounts payable
$
2,006

 
$
2,226

Accrued employee compensation
1,614

 
1,865

Advance payments and billings in excess of costs incurred
2,179

 
2,237

Other current liabilities
3,928

 
3,106

Total current liabilities
9,727

 
9,434

Long-term debt, net of current portion of $1,803 for 2020 and $1,109 for 2019
14,259

 
12,770

Pension and other postretirement benefit plan liabilities
6,582

 
6,979

Operating lease liabilities
1,333

 
1,308

Other non-current liabilities
1,862

 
1,779

Total liabilities
33,763

 
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—166,708,207 and 2019—167,848,424
167

 
168

Paid-in capital
10

 

Retained earnings
9,652

 
8,748

Accumulated other comprehensive loss
(117
)
 
(97
)
Total shareholders’ equity
9,712

 
8,819

Total liabilities and shareholders’ equity
$
43,475

 
$
41,089

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

-2-

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NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended June 30
$ in millions
2020
 
2019
Operating activities
 
 
 
Net earnings
$
1,873

 
$
1,724

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
Depreciation and amortization
605

 
606

Stock-based compensation
36

 
55

Deferred income taxes
169

 
48

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(663
)
 
(384
)
Unbilled receivables, net
(126
)
 
(658
)
Inventoried costs, net
(49
)
 
(156
)
Prepaid expenses and other assets
(16
)
 
(48
)
Accounts payable and other liabilities
(374
)
 
(367
)
Income taxes payable, net
330

 
194

Retiree benefits
(473
)
 
(285
)
Other, net
32

 
(35
)
Net cash provided by operating activities
1,344

 
694

 
 
 
 
Investing activities
 
 
 
Capital expenditures
(541
)
 
(536
)
Other, net
2

 
1

Net cash used in investing activities
(539
)
 
(535
)
 
 
 
 
Financing activities
 
 
 
Net proceeds from issuance of long-term debt
2,239

 

Payments to credit facilities
(13
)
 
(20
)
Net borrowings on commercial paper

 
101

Common stock repurchases
(490
)
 
(231
)
Cash dividends paid
(469
)
 
(435
)
Payments of employee taxes withheld from share-based awards
(64
)
 
(63
)
Other, net
(75
)
 
(2
)
Net cash provided by (used in) financing activities
1,128

 
(650
)
Increase (decrease) in cash and cash equivalents
1,933

 
(491
)
Cash and cash equivalents, beginning of year
2,245

 
1,579

Cash and cash equivalents, end of period
$
4,178

 
$
1,088

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

-3-

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NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions, except per share amounts
2020
 
2019
 
2020
 
2019
Common stock
 
 
 
 
 
 
 
Beginning of period
$
167

 
$
170

 
$
168

 
$
171

Common stock repurchased

 
(1
)
 
(1
)
 
(2
)
End of period
167

 
169

 
167

 
169

Paid-in capital
 
 
 
 
 
 
 
Beginning of period

 

 

 

Stock compensation
10

 

 
10

 

End of period
10

 

 
10

 

Retained earnings
 
 
 
 
 
 
 
Beginning of period
9,011

 
8,628

 
8,748

 
8,068

Common stock repurchased
(131
)
 
(172
)
 
(479
)
 
(234
)
Net earnings
1,005

 
861

 
1,873

 
1,724

Dividends declared
(242
)
 
(226
)
 
(465
)
 
(432
)
Stock compensation
9

 
29

 
(36
)
 
(6
)
Other

 

 
11

 

End of period
9,652

 
9,120

 
9,652

 
9,120

Accumulated other comprehensive loss
 
 
 
 
 
 
 
Beginning of period
(116
)
 
(59
)
 
(97
)
 
(52
)
Other comprehensive loss, net of tax
(1
)
 
(16
)
 
(20
)
 
(23
)
End of period
(117
)
 
(75
)
 
(117
)
 
(75
)
Total shareholders’ equity
$
9,712

 
$
9,214

 
$
9,712

 
$
9,214

Cash dividends declared per share
$
1.45

 
$
1.32

 
$
2.77

 
$
2.52

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

-4-

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1.    BASIS OF PRESENTATION
Principles of Consolidation and Reporting
These unaudited condensed consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman Corporation and its subsidiaries and joint ventures or other investments for which we consolidate the financial results (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”). Intercompany accounts, transactions and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method.
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.
Beginning in the second quarter of 2020, the company no longer considers certain unallowable costs and environmental matters that are principally managed at the corporate office as part of management’s evaluation of segment operating performance. As a result, certain unallowable compensation and other costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. In addition, certain accrued and deferred costs, as well as unallowable costs, if any, associated with certain environmental matters that were previously reflected in segment assets and operating results are now reflected in corporate assets and Unallocated corporate expense within operating income. The impact of these changes are reflected in the amounts in this Form 10-Q. See Note 9 and Part II, Item 5 for further information regarding the impact of these changes on the company’s current and prior period segment operating income.
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 2019 Annual Report on Form 10-K, the Form 8-K that we filed with the SEC on April 29, 2020, 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, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
The quarterly information is labeled using a calendar convention; that is, first quarter is consistently labeled as ending on March 31, second quarter as ending on June 30 and third quarter as ending on September 30. It is the company’s long-standing practice to establish actual interim closing dates using a “fiscal” calendar, in which we close our books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes. This practice is only used at interim periods within a reporting year.
Accounting Estimates
Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.
Revenue Recognition
The majority of our sales are derived from long-term contracts with the U.S. government for the production of goods, the provision of services, or a combination of both. We recognize revenue as control is transferred to the customer, either over time or at a point in time. 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 our performance obligations. Revenue for contracts in which the control of goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon delivery).
Contract Estimates
Use of the cost-to-cost method requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. The company estimates profit on

-5-

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes that profit as costs are incurred. Significant judgment is used to estimate total sales and cost at completion.
Contract sales may include estimates of variable consideration, including cost or performance incentives (such as award and incentive fees), contract claims and requests for equitable adjustment (REAs). Variable consideration is included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled.
We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative 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.
The following table presents the effect of aggregate net EAC adjustments:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions, except per share data
2020
 
2019
 
2020
 
2019
Revenue
$
125

 
$
154

 
$
261

 
$
320

Operating income
112

 
158

 
236

 
296

Net earnings(1)
88

 
125

 
186

 
234

Diluted earnings per share(1)
0.53

 
0.73

 
1.11

 
1.37

(1) 
Based on a 21 percent statutory tax rate.
EAC adjustments on a single performance obligation can have a material effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. No such adjustments were material to the financial statements during the three months ended June 30, 2020 and 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 and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded.
Company backlog as of June 30, 2020 was $70.0 billion. We expect to recognize approximately 40 percent and 65 percent of our June 30, 2020 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. Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position. The amount of revenue recognized for the three and six months ended June 30, 2020 that was included in the December 31, 2019 contract liability balance was $442 million and $1.2 billion, respectively. The amount of revenue recognized for the three and six months ended June 30, 2019 that was included in the December 31, 2018 contract liability balance was $333 million and $1.0 billion, respectively.
Disaggregation of Revenue
See Note 9 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

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Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
$ in millions
June 30,
2020
December 31,
2019
Unamortized prior service credit, net of tax expense of $10 for 2020 and $17 for 2019
$
30

$
51

Cumulative translation adjustment and other, net
(147
)
(148
)
Total accumulated other comprehensive loss
$
(117
)
$
(97
)

Related Party Transactions
For all periods presented, the company had no material related party transactions.
Accounting Standards Updates
Accounting standards updates adopted and/or issued, but not effective until after June 30, 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.
2.    EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK
Basic Earnings Per Share
We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period.
Diluted Earnings Per Share
Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 0.4 million shares and 0.6 million shares for the three and six months ended June 30, 2020, respectively. The dilutive effect of these securities totaled 0.6 million shares for the three and six months ended June 30, 2019.
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 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”). Repurchases under the 2018 Repurchase Program commenced in March 2020 upon the completion of the company’s 2015 Repurchase Program. As of June 30, 2020, repurchases under the 2018 Repurchase Program totaled $0.2 billion; $2.8 billion remained under this share repurchase authorization. By its terms, the 2018 Repurchase Program is set to expire when all authorized funds for repurchases have been used.
Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs.
The table below summarizes the company’s share repurchases to date under the authorizations described above:
 
 
 
 
 
 
 
 
 
 
Shares Repurchased
(in millions)
Repurchase Program
Authorization Date
 
Amount
Authorized
(in millions)
 
Total
Shares Retired
(in millions)
 
Average 
Price
Per Share
(1)
 
Date Completed
 
Six Months Ended June 30
 
2020
 
2019
September 16, 2015
 
$
4,000

 
15.4

 
$
260.33

 
March 2020
 
0.9

 
1.7

December 4, 2018
 
$
3,000

 
0.5

 
326.20

 

 
0.5

 


(1) 
Includes commissions paid.
Dividends on Common Stock
In May 2020, the company increased the quarterly common stock dividend 10 percent to $1.45 per share from the previous amount of $1.32 per share.

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NORTHROP GRUMMAN CORPORATION                        

In May 2019, the company increased the quarterly common stock dividend 10 percent to $1.32 per share from the previous amount of $1.20 per share.
3.    INCOME TAXES
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020

2019
Federal and foreign income tax expense
$
198

 
$
167

 
$
383

 
$
338

Effective income tax rate
16.5
%
 
16.2
%
 
17.0
%
 
16.4
%

Current Quarter
The second quarter 2020 effective tax rate of 16.5 percent was generally comparable to the prior year period. The company’s second quarter 2020 effective tax rate includes $48 million of research credits, as compared to $51 million in the prior year period.
Year to Date
The year to date 2020 effective tax rate increased to 17.0 percent from 16.4 percent in the prior period primarily due to an increase in reserves for uncertain tax positions. The company’s year to date 2020 effective tax rate includes $90 million of research credits, as compared to $82 million in the prior year period. Both periods benefited from $13 million of excess tax benefits for employee share-based compensation.
In March 2020, 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 second quarter and year to date 2020 effective tax rate.
The company has recorded unrecognized tax benefits related to our methods of accounting associated with the timing of revenue recognition and related costs, and the 2017 Tax Act. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may decrease by up to $70 million. Since enactment of the 2017 Tax Act, the Internal Revenue Service (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 years 2016-2017 are currently under appeal with the IRS.
4.    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 foreign currency forward contracts. Where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value and uses the applicable London Interbank Offered Rate (LIBOR) swap rates.

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NORTHROP GRUMMAN CORPORATION                        

The following table presents the financial assets and liabilities the company records at fair value on a recurring basis identified by the level of inputs used to determine fair value:
 
 
June 30, 2020
 
December 31, 2019
$ in millions
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Financial Assets (Liabilities)
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities
 
$
331

 
$
1

 
$
332

 
$
364

 
$
1

 
$
365

Marketable securities valued using NAV
 
 
 
 
 
16

 
 
 
 
 
17

Total marketable securities
 
331

 
1

 
348

 
364

 
1

 
382

Derivatives
 

 
(1
)
 
(1
)
 

 
(3
)
 
(3
)

The notional value of the company’s foreign currency forward contracts at June 30, 2020 and December 31, 2019 was $71 million and $98 million, respectively. At June 30, 2020, no portion of the notional value was designated as a cash flow hedge. The portion of the notional value designated as a cash flow hedge at December 31, 2019 was $7 million.
The derivative fair values and related unrealized gains/losses at June 30, 2020 and December 31, 2019 were not material. There were no transfers of financial instruments between the three levels of the fair value hierarchy during the six months ended June 30, 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 $19.0 billion and $15.1 billion as of June 30, 2020 and December 31, 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 $16.1 billion and $13.9 billion as of June 30, 2020 and December 31, 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.
5.    INVESTIGATIONS, CLAIMS AND LITIGATION
On May 4, 2012, the company commenced an action, Northrop Grumman Systems Corp. v. United States, in the U.S. Court of Federal Claims. This lawsuit relates to an approximately $875 million firm fixed-price contract awarded to the company in 2007 by the U.S. Postal Service (USPS) for the construction and delivery of flats sequencing systems (FSS) as part of the postal automation program. The FSS 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 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

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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 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 February 3, 2020, the parties commenced what was expected to be a seven-week trial. The first four weeks of trial concluded, but the court postponed the remaining estimated three weeks as a result of COVID-19-related concerns. Trial is currently scheduled to resume in October 2020. 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.
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 two of its consortium partners. In this suit, commenced on December 17, 2004, ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$111 million (the equivalent of approximately $20 million as of June 30, 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 $16 million as of June 30, 2020) in damages. In October 2013, ECT asserted an additional damage claim of R$22 million (the equivalent of approximately $4 million as of June 30, 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 million as of June 30, 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 $8 million as of June 30, 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 have executed a settlement agreement in this matter and have filed it with the court for approval.
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 6, substantial remediation costs related to these environmental conditions. The remediation standards or requirements to which we are subject are being reconsidered and are changing 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 said that, 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 (including the Navy, Defense Contract Management Agency, the state, local municipalities and water districts) and insurance carriers, as well as class action and individual plaintiffs alleging personal injury and property

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NORTHROP GRUMMAN CORPORATION                        

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.
The company is a party to various other investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2020, or its annual results of operations and/or cash flows.
6.    COMMITMENTS AND CONTINGENCIES
U.S. Government Cost Claims and Contingencies
From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available. The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of June 30, 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 expense in previous years and in our current forward pricing rate proposal. On June 1, 2020, the government provided written notice that the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS. We are engaging with the government to address their questions, and are preparing our formal response, which we believe demonstrates the appropriateness of the assumptions used. However, the sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of this matter could have a material adverse effect on our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range of any potential loss.
Environmental Matters
The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of June 30, 2020 and December 31, 2019:
$ in millions
 
Accrued Costs(1)(2)
 
Reasonably Possible Future Costs in Excess of Accrued Costs(2)
 
Deferred Costs(3)
June 30, 2020
 
$
570

 
$
452

 
$
478

December 31, 2019
 
531

 
448

 
436

(1) As of June 30, 2020, $173 million is recorded in Other current liabilities and $397 million is recorded in Other non-current liabilities.
(2) Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.
(3) As of June 30, 2020, $144 million is deferred in Prepaid expenses and other current assets and $334 million is deferred in Other non-current assets. These amounts are evaluated for recoverability on a routine basis.
Although management cannot predict whether new information gained as our environmental remediation projects progress, or as changes in facts and circumstances occur, will materially affect the estimated liability accrued, except with respect to Bethpage, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2020, or its annual results of operations and/or cash flows. With respect to Bethpage, the 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

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NORTHROP GRUMMAN CORPORATION                        

responsible parties. As discussed in Note 5, the remediation standards or requirements to which we are subject are being reconsidered and are changing 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 June 30, 2020, there were $460 million of stand-by letters of credit and guarantees and $79 million of surety bonds outstanding.
Commercial Paper
The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $2.0 billion. At June 30, 2020, there were no commercial paper borrowings outstanding.
Credit Facilities
The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $2.0 billion (the “2018 Credit Agreement”) that matures in August 2024 and is intended to support the company’s commercial paper program and other general corporate purposes. Commercial paper borrowings reduce the amount available for borrowing under the 2018 Credit Agreement. At June 30, 2020, there was no 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 $148 million as of June 30, 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 June 30, 2020, there was £50 million (the equivalent of approximately $62 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 are recorded in Other current liabilities in the unaudited condensed consolidated statement of financial position.
At June 30, 2020, the company was in compliance with all covenants under its credit agreements.
7.    RETIREMENT BENEFITS
The cost to the company of its pension and other postretirement benefit (OPB) plans is shown in the following table:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
Pension
Benefits
 
OPB
 
Pension
Benefits
 
OPB
$ in millions
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Components of net periodic benefit cost (benefit)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
102

 
$
92

 
$
5

 
$
4

 
$
204

 
$
184

 
$
9

 
$
8

Interest cost
306

 
340

 
16

 
20

 
613

 
680

 
33

 
40

Expected return on plan assets
(594
)
 
(526
)
 
(25
)
 
(23
)
 
(1,188
)
 
(1,051
)
 
(51
)
 
(46
)
Amortization of prior service credit
(15
)
 
(14
)
 
1

 

 
(30
)
 
(29
)
 
2

 
(1
)
Net periodic benefit cost (benefit)
$
(201
)
 
$
(108
)
 
$
(3
)
 
$
1

 
$
(401
)
 
$
(216
)
 
$
(7
)
 
$
1


Employer Contributions
The company sponsors defined benefit pension and OPB plans, as well as defined contribution plans. We fund our defined benefit pension plans annually in a manner consistent with the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006.
Contributions made by the company to its retirement plans are as follows:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Defined benefit pension plans
$
26

 
$
23

 
$
46

 
$
46

OPB plans
11

 
12

 
23

 
24

Defined contribution plans
100

 
88

 
356

 
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NORTHROP GRUMMAN CORPORATION                        

8.    STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS
Stock Awards
The following table presents the number of restricted stock rights (RSRs) and restricted performance stock rights (RPSRs) granted to employees under the company’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented:
 
 
Six Months Ended June 30
in millions
 
2020
 
2019
RSRs granted
 
0.1

 
0.1

RPSRs granted
 
0.2

 
0.2

Grant date aggregate fair value
 
$
91

 
$
92


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.
Cash Awards
The following table presents the minimum and maximum aggregate payout amounts related to cash units (CUs) and cash performance units (CPUs) granted to employees in the periods presented:
 
 
Six Months Ended June 30
$ in millions
 
2020
 
2019
Minimum aggregate payout amount
 
$
31

 
$
36

Maximum aggregate payout amount
 
175

 
203


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.

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NORTHROP GRUMMAN CORPORATION                        

9.    SEGMENT INFORMATION
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.
As discussed in Note 1, beginning in the second quarter of 2020, the company no longer considers certain unallowable costs as part of management’s evaluation of segment operating performance. As a result, certain unallowable costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. This change has been applied retrospectively in the amounts below. See Part II, Item 5 for further information regarding the impact of this change on the company’s current and prior period segment information.
The following table presents sales and operating income by segment:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Sales
 
 
 
 
 
 
 
Aeronautics Systems
$
2,925

 
$
2,721

 
$
5,768

 
$
5,539

Defense Systems
1,886

 
1,916

 
3,767

 
3,684

Mission Systems
2,446

 
2,404

 
4,793

 
4,614

Space Systems
2,048

 
1,788

 
3,996

 
3,589

Intersegment eliminations
(421
)
 
(373
)
 
(820
)
 
(781
)
Total sales
8,884

 
8,456

 
17,504

 
16,645

Operating income
 
 
 
 
 
 
 
Aeronautics Systems
310

 
299

 
573

 
610

Defense Systems
217

 
212

 
415

 
416

Mission Systems
347

 
338

 
700

 
661

Space Systems
209

 
193

 
411

 
383

Intersegment eliminations
(52
)
 
(49
)
 
(101
)
 
(99
)
Total segment operating income
1,031


993

 
1,998

 
1,971

Net FAS (service)/CAS pension adjustment
103

 
107

 
208

 
215

Unallocated corporate expense
(140
)
 
(154
)
 
(278
)
 
(304
)
Total operating income
$
994

 
$
946

 
$
1,928

 
$
1,882


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, advertising and other corporate unallowable costs. Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations, as well as certain compensation and other costs.

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Disaggregation of Revenue
Sales by Customer Type
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
$ in millions
$
%(3)
 
$
%(3)
 
$
%(3)
 
$
%(3)
Aeronautics Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
$
2,477

85
%
 
$
2,238

82
%
 
$
4,838

84
%
 
$
4,572

82
%
International(2)
407

14
%
 
439

16
%
 
851

15
%
 
874

16
%
Other customers
12

%
 
20

1
%
 
24

%
 
45

1
%
Intersegment sales
29

1
%
 
24

1
%
 
55

1
%
 
48

1
%
Aeronautics Systems sales
2,925

100
%
 
2,721

100
%
 
5,768

100
%
 
5,539

100
%
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,305

69
%
 
1,281

67
%
 
2,564

68
%
 
2,422

66
%
International(2)
316

17
%
 
365

19
%
 
656

18
%
 
728

20
%
Other customers
85

4
%
 
106

5
%
 
196

5
%
 
203

5
%
Intersegment sales
180

10
%
 
164

9
%
 
351

9
%
 
331

9
%
Defense Systems sales
1,886

100
%
 
1,916

100
%
 
3,767

100
%
 
3,684

100
%
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,776

73
%
 
1,746

73
%
 
3,447

72
%
 
3,359

73
%
International(2)
468

19
%
 
465

19
%
 
951

20
%
 
841

18
%
Other customers
18

1
%
 
29

1
%
 
35

1
%
 
53

1
%
Intersegment sales
184

7
%
 
164

7
%
 
360

7
%
 
361

8
%
Mission Systems sales
2,446

100
%
 
2,404

100
%
 
4,793

100
%
 
4,614

100
%
Space Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,911

93
%
 
1,679

94
%
 
3,714

93
%
 
3,348

93
%
International(2)
70

4
%
 
32

2
%
 
138

3
%
 
75

2
%
Other customers
39

2
%
 
56

3
%
 
90

3
%
 
125

4
%
Intersegment sales
28

1
%
 
21

1
%
 
54

1
%
 
41

1
%
Space Systems sales
2,048

100
%
 
1,788

100
%
 
3,996

100
%
 
3,589

100
%
Total
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
7,469

84
%
 
6,944

82
%
 
14,563

83
%
 
13,701

82
%
International(2)
1,261

14
%
 
1,301

16
%
 
2,596

15
%
 
2,518

15
%
Other customers
154

2
%
 
211

2
%
 
345

2
%
 
426

3
%
Total Sales
$
8,884

100
%
 
$
8,456

100
%
 
$
17,504

100
%
 
$
16,645

100
%
(1) 
Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.
(3) Percentages calculated based on total segment sales.

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NORTHROP GRUMMAN CORPORATION                        

Sales by Contract Type
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
$ in millions
$
%(1)
 
$
%(1)
 
$
%(1)
 
$
%(1)
Aeronautics Systems
 

 

 
 

 

 
 

 

 
 

 

Cost-type
$
1,426

49
%
 
$
1,312

49
%
 
$
2,769

48
%
 
$
2,624

48
%
Fixed-price
1,470

51
%
 
1,385

51
%
 
2,944

52
%
 
2,867

52
%
Intersegment sales
29

 
 
24

 
 
55

 
 
48

 
Aeronautics Systems sales
2,925

 
 
2,721

 
 
5,768

 
 
5,539

 
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
582

34
%
 
632

36
%
 
1,210

35
%
 
1,255

37
%
Fixed-price
1,124

66
%
 
1,120

64
%
 
2,206

65
%
 
2,098

63
%
Intersegment sales
180

 
 
164

 
 
351

 
 
331

 
Defense Systems sales
1,886

 
 
1,916

 
 
3,767

 
 
3,684

 
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
895

40
%
 
870

39
%
 
1,741

39
%
 
1,705

40
%
Fixed-price
1,367

60
%
 
1,370

61
%
 
2,692

61
%
 
2,548

60
%
Intersegment sales
184

 
 
164

 
 
360

 
 
361

 
Mission Systems sales
2,446

 
 
2,404

 
 
4,793

 
 
4,614

 
Space Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
1,468

73
%
 
1,298

73
%
 
2,866

73
%
 
2,604

73
%
Fixed-price
552

27
%
 
469

27
%
 
1,076

27
%
 
944

27
%
Intersegment sales
28

 
 
21

 
 
54

 
 
41

 
Space Systems sales
2,048

 
 
1,788

 
 
3,996

 
 
3,589

 
Total
 
 
 
 
 
 
 
 
 
 
 
Cost-type
4,371

49
%
 
4,112

49
%
 
8,586

49
%
 
8,188

49
%
Fixed-price
4,513

51
%
 
4,344

51
%
 
8,918

51
%
 
8,457

51
%
Total Sales
$
8,884

 
 
$
8,456

 
 
$
17,504

 
 
$
16,645

 
(1) 
Percentages calculated based on external customer sales.  

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NORTHROP GRUMMAN CORPORATION                        

Sales by Geographic Region
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
2019
 
2020
 
2019
$ in millions
$
%(2)
 
$
%(2)
 
$
%(2)
 
$
%(2)
Aeronautics Systems
 
 
 
 
 
 
 
 
 
 
 
United States
$
2,489

86
%
 
$
2,258

84
%
 
$
4,862

85
%
 
$
4,617

84
%
Asia/Pacific
202

7
%
 
215

8
%
 
409

7
%
 
448

8
%
All other(1)
205

7
%
 
224

8
%
 
442

8
%
 
426

8
%
Intersegment sales
29

 
 
24

 
 
55

 
 
48

 
Aeronautics Systems sales
2,925

 
 
2,721

 
 
5,768

 
 
5,539

 
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,390

82
%
 
1,387

79
%
 
2,760

81
%
 
2,625

78
%
Asia/Pacific
107

6
%
 
125

7
%
 
189

5
%
 
213

6
%
All other(1)
209

12
%
 
240

14
%
 
467

14
%
 
515

16
%
Intersegment sales
180

 
 
164

 
 
351

 
 
331

 
Defense Systems sales
1,886

 
 
1,916

 
 
3,767

 
 
3,684

 
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,794

79
%
 
1,775

79
%
 
3,482

79
%
 
3,412

80
%
Asia/Pacific
191

9
%
 
142

6
%
 
367

8
%
 
277

7
%
All other(1)
277

12
%
 
323

15
%
 
584

13
%
 
564

13
%
Intersegment sales
184

 
 
164

 
 
360

 
 
361

 
Mission Systems sales
2,446

 
 
2,404

 
 
4,793

 
 
4,614

 
Space Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,950

97
%
 
1,735

98
%
 
3,804

97
%
 
3,473

98
%
Asia/Pacific
5

%
 
2

%
 
10

%
 
14

%
All other(1)
65

3
%
 
30

2
%
 
128

3
%
 
61

2
%
Intersegment sales
28

 
 
21

 
 
54

 
 
41

 
Space Systems sales
2,048

 
 
1,788

 
 
3,996

 
 
3,589

 
Total
 
 
 
 
 
 
 
 
 
 
 
United States
7,623

86
%
 
7,155

84
%
 
14,908

85
%
 
14,127

85
%
Asia/Pacific
505

6
%
 
484

6
%
 
975

6
%
 
952

6
%
All other(1)
756

8
%
 
817

10
%
 
1,621

9
%
 
1,566

9
%
Total Sales
$
8,884

 
 
$
8,456

 
 
$
17,504

 
 
$
16,645

 
(1) 
All other is principally comprised of Europe and the Middle East.  
(2) 
Percentages calculated based on external customer sales.  

-17-


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Northrop Grumman Corporation
Falls Church, Virginia
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of June 30, 2020, and the related condensed consolidated statements of earnings and comprehensive income and changes in shareholders’ equity for the three-month and six-month periods ended June 30, 2020 and 2019, and of cash flows for the six-month periods ended June 30, 2020 and 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, 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 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 leases in 2019 due to the adoption of ASC 842, Leases. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2019, is fairly stated, in all material respects, in relation to the audited consolidated statement of financial position from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/  Deloitte & Touche LLP
McLean, Virginia
July 29, 2020


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NORTHROP GRUMMAN CORPORATION                        

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Northrop Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global aerospace and defense company. We use our broad portfolio of capabilities and technologies to create and deliver innovative platforms, systems and solutions in space; manned and autonomous airborne systems, including strike; hypersonics; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); and logistics and modernization. We participate in many high-priority defense and government programs in the United States (U.S.) and abroad. We conduct most of our business with the U.S. government, principally the Department of Defense (DoD) and intelligence community. We also conduct business with foreign, state and local governments, as well as commercial customers.
The following discussion should be read along with the financial statements included in this Form 10-Q, as well as our 2019 Annual Report on Form 10-K, the Form 8-K that we filed with the SEC on April 29, 2020, 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, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. These documents provide additional information on our business and the environment in which we operate and our operating results.
COVID-19
Coronavirus disease 2019 (“COVID-19”) was first reported in late 2019 and has since dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, government challenges and market volatility. 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, our crisis management and business resumption teams, and local site leadership continue closely to monitor and address the developments, including the impact on our company, our employees, our customers, our suppliers and our communities. The company has considered and continues to consider guidance from the Centers for Disease Control (CDC), other health organizations, governments and our customers, among others. We have taken, and continue to take, robust 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 for long-term success. Like the communities in which we serve, our actions have varied depending on the spread of COVID-19 and local health requirements, the needs of our employees and the needs of our business. Among other actions, we have required or enabled 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; enhanced cleaning and disinfecting procedures at our facilities; required face coverings and worked to procure and distribute personal protective equipment (“PPE”); implemented health checks and visitor protocols; restricted travel; provided additional benefits including 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.
Earlier in the COVID-19 pandemic, many state and local jurisdictions implemented mandatory stay-at-home or shelter-in-place orders. Most of those orders exempted some or all of the defense 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. More recently, state and local jurisdictions started to lift mandatory stay-at-home or shelter-in-place orders and started gradually to ease restrictions. We started to implement return to office plans to allow some employees who had been working remotely slowly to return to the workplace. At our facilities, we generally saw employee absenteeism decrease and productivity increase during the second quarter. Most recently, as cases have resurged in parts of our country, including areas in which we maintain large facilities, we have seen governments slow or reverse efforts to reopen or shift into later phases of recovery, with increased risks to our operations. Throughout, we have worked to adapt and to take robust actions to protect the health, safety and well-being of our employees and to serve our customers, considering, among other things, state and local requirements and guidance from the CDC. We have also taken various steps in efforts to support our

-19-

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NORTHROP GRUMMAN CORPORATION                        

suppliers, with a particular focus on critical small and midsized business partners, including passing through increased progress payments from DoD to our suppliers and accelerating payments to certain suppliers.
Even though we have been able to continue many of our operations, we have experienced and expect to continue to experience certain increased costs to maintain our operations and address reductions in productivity, including as a result 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, including the extent of any increase in the number of COVID-19 cases and the costs and impacts to us. 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.
COVID-19-related impacts reduced the company’s second quarter 2020 revenue and operating income, in particular at Aeronautics and Mission Systems; however, those impacts were less significant than we initially expected. Based on what we understand today, we do not currently expect COVID-19-related impacts to materially reduce our revenue or operating income during the second half of the year. However, our employees, suppliers and customers, the company and our global community are facing tremendous challenges and we cannot predict how this dynamic situation will evolve or the impact it will have on the company. For further information on the potential impact to the company of COVID-19, see the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
U.S. Political and Economic Environment
Since the filing of our 2019 Annual Report on Form 10-K, the President released his budget request 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 FY21 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, survivable aircraft and mission systems will continue to allow 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 and is continuing to consider other responses to the COVID-19 crisis.
CONSOLIDATED OPERATING RESULTS
Selected financial highlights are presented in the table below:
 
Three Months Ended June 30
 
%
 
Six Months Ended June 30
 
%
$ in millions, except per share amounts
2020
 
2019
 
Change
 
2020
 
2019
 
Change
Sales
$
8,884

 
$
8,456

 
5
%
 
$
17,504

 
$
16,645

 
5
%
Operating costs and expenses
7,890

 
7,510

 
5
%
 
15,576

 
14,763

 
6
%
Operating costs and expenses as a % of sales
88.8
%
 
88.8
%
 
 
 
89.0
%
 
88.7
%
 
 
Operating income
994

 
946

 
5
%
 
1,928

 
1,882

 
2
%
Operating margin rate
11.2
%
 
11.2
%
 
 
 
11.0
%
 
11.3
%
 
 
Federal and foreign income tax expense
198

 
167

 
19
%
 
383

 
338

 
13
%
Effective income tax rate
16.5
%
 
16.2
%
 
 
 
17.0
%
 
16.4
%
 
 
Net earnings
1,005

 
861

 
17
%
 
1,873

 
1,724

 
9
%
Diluted earnings per share
$
6.01

 
$
5.06

 
19
%
 
$
11.16

 
$
10.11

 
10
%
Sales
Current Quarter
Second quarter 2020 sales increased $428 million or 5 percent, primarily due to higher sales at Space Systems and Aeronautics Systems.
Year to Date
Year to date 2020 sales increased $859 million, or 5 percent, due to higher sales at all four sectors.

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NORTHROP GRUMMAN CORPORATION                        

See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 9 to the financial statements for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments.
Operating Income and Margin Rate
Current Quarter
Second quarter 2020 operating income increased $48 million, or 5 percent, primarily due to an increase in segment operating income and lower unallocated corporate expense. Second quarter 2020 operating margin rate of 11.2 percent was comparable to the prior year period.
Second quarter 2020 general and administrative (G&A) costs as a percentage of sales of 9.4 percent was comparable to the prior year period.
Year to Date
Year to date 2020 operating income increased $46 million, or 2 percent, primarily due to an increase in segment operating income and lower unallocated corporate expense. Year to date 2020 operating margin rate declined to 11.0 percent reflecting a lower segment operating margin rate, partially offset by a decrease in unallocated corporate expense.
Year to date 2020 general and administrative (G&A) costs as a percentage of sales of 9.3 percent was comparable to the prior year period.
See “Segment Operating Results” below for further information by segment. For information regarding product and service operating costs and expenses, see “Product and Service Analysis” below.
Federal and Foreign Income Taxes
Current Quarter
The second quarter 2020 effective tax rate of 16.5 percent was generally comparable to the prior year period. See Note 3 to the financial statements for additional information.
Year to Date
The year to date 2020 effective tax rate increased to 17.0 percent from 16.4 percent in the prior period primarily due to an increase in reserves for uncertain tax positions. See Note 3 to the financial statements for additional information.
Net Earnings
Current Quarter
Second quarter 2020 net earnings increased $144 million, or 17 percent, primarily due to a $103 million increase in our FAS (non-service) pension benefit, a $48 million increase in operating income and a $41 million increase in Other, net, largely due to higher returns on marketable securities related to our non-qualified benefit plans, partially offset by a $31 million increase in tax expense.
Year to Date
Year to date 2020 net earnings increased $149 million, or 9 percent, primarily due to a $205 million increase in our FAS (non-service) pension benefit and a $46 million increase in operating income, partially offset by a $53 million decrease in Other, net, largely due to lower returns on marketable securities related to our non-qualified benefit plans, and a $45 million increase in tax expense.
Diluted Earnings Per Share
Current Quarter
Second quarter 2020 diluted earnings per share increased 19 percent, reflecting a 17 percent increase in net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.
Year to Date
Year to date 2020 diluted earnings per share increased 10 percent, reflecting a 9 percent increase in net earnings and a 2 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 four new sectors, which also comprise our reportable segments, are Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. This realignment is reflected in the accompanying financial information.

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NORTHROP GRUMMAN CORPORATION                        

Beginning in the second quarter of 2020, the company no longer considers certain unallowable costs as part of management’s evaluation of segment operating performance. As a result, certain unallowable costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. This change has been applied retrospectively in the accompanying financial information. See Notes 1 and 9 to the financial statements and Part II, Item 5 for further information regarding the impact of this change on the company’s current and prior period segment information.
We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities:
Aeronautics Systems
 
Defense Systems
 
Mission Systems
 
Space Systems
Autonomous Systems
 
Battle Management & Missile Systems
 
Airborne Sensors & Networks
 
Launch & Strategic Missiles
Manned Aircraft
 
Mission Readiness
 
Cyber & Intelligence Mission Solutions
 
Space
 
 
 
 
Maritime/Land Systems & Sensors
 
 
 
 
 
 
Navigation, Targeting & Survivability
 
 
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).
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 items (certain corporate-level expenses, which are not considered allowable or allocable under applicable CAS or FAR, and costs not considered part of management’s evaluation of segment operating performance). These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the financial performance and operational trends of our sectors. These measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.
 
Three Months Ended June 30
 
%
 
Six Months Ended June 30
 
%
$ in millions
2020
 
2019
 
Change
 
2020
 
2019
 
Change
Segment operating income
$
1,031

 
$
993

 
4
 %
 
$
1,998

 
$
1,971

 
1
 %
Segment operating margin rate
11.6
%
 
11.7
%
 
 
 
11.4
%
 
11.8
%
 
 
CAS pension expense
205

 
199

 
3
 %
 
412

 
399

 
3
 %
Less: FAS (service) pension expense
(102
)
 
(92
)
 
11
 %
 
(204
)
 
(184
)
 
11
 %
Net FAS (service)/CAS pension adjustment
103

 
107

 
(4
)%
 
208

 
215

 
(3
)%
Intangible asset amortization and PP&E step-up depreciation
(77
)
 
(98
)
 
(21
)%
 
(159
)
 
(194
)
 
(18
)%
Other unallocated corporate expense
(63
)
 
(56
)
 
13
 %
 
(119
)
 
(110
)
 
8
 %
Unallocated corporate expense
(140
)
 
(154
)
 
(9
)%
 
(278
)
 
(304
)
 
(9
)%
Operating income
$
994

 
$
946

 
5
 %
 
$
1,928

 
$
1,882

 
2
 %

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Current Quarter
Second quarter 2020 segment operating income increased $38 million, or 4 percent, and reflects higher segment operating income at all four sectors. Segment operating margin rate was comparable to the prior year period and reflects lower segment operating margin rates at Space Systems and Aeronautics Systems, partially offset by a higher segment operating margin rate at Defense Systems.
Year to Date
Year to date 2020 segment operating income increased $27 million, or 1 percent, and reflects higher operating income at Mission Systems and Space Systems, partially offset by lower operating income at Aeronautics Systems. Segment operating margin rate decreased to 11.4 percent primarily due to a lower segment operating margin rate at Aeronautics Systems.
Net FAS (service)/CAS Pension Adjustment
The second quarter 2020 and year to date 2020 net FAS (service)/CAS pension adjustments were comparable to the prior year period and reflect changes in actuarial assumptions as of December 31, 2019.
Unallocated Corporate Expense
Current Quarter
The decrease in second quarter 2020 unallocated corporate expense is primarily due to $21 million of lower intangible asset amortization and PP&E step-up depreciation.
Year to Date
The decrease in year to date 2020 unallocated corporate expense is primarily due to $35 million of lower intangible asset amortization and PP&E step-up depreciation.
Net EAC Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Favorable EAC adjustments
$
241

 
$
283

 
$
517

 
$
518

Unfavorable EAC adjustments
(129
)
 
(125
)
 
(281
)
 
(222
)
Net EAC adjustments
$
112

 
$
158

 
$
236

 
$
296

Net EAC adjustments by segment are presented in the table below:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Aeronautics Systems
$
22

 
$
59

 
$
34

 
$
110

Defense Systems
39

 
38

 
61

 
70

Mission Systems
59

 
52

 
138

 
87

Space Systems
(7
)
 
16

 
5

 
37

Eliminations
(1
)
 
(7
)
 
(2
)
 
(8
)
Net EAC adjustments
$
112

 
$
158

 
$
236

 
$
296

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.

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AERONAUTICS SYSTEMS
Three Months Ended June 30
 
%
 
Six Months Ended June 30
 
%
$ in millions
2020
 
2019
 
Change
 
2020
 
2019
 
Change
Sales
$
2,925

 
$
2,721

 
7
%
 
$
5,768

 
$
5,539

 
4
 %
Operating income
310

 
299

 
4
%
 
573

 
610

 
(6
)%
Operating margin rate
10.6
%
 
11.0
%
 
 
 
9.9
%
 
11.0
%
 
 
Sales
Current Quarter
Second quarter 2020 sales increased $204 million, or 7 percent, due to higher sales in both Manned Aircraft and Autonomous Systems. Higher volume on restricted programs, E-2D and Triton were partially offset by a COVID-19-related slowdown of F-35 production activity.
Year to Date
Year to date 2020 sales increased $229 million, or 4 percent, due to higher sales in both Manned Aircraft and Autonomous Systems. Higher volume on restricted programs and E-2D were partially offset by a COVID-19-related slowdown of F-35 production activity and lower volume on the B-2 Defensive Management System Modernization program as it nears completion.
Operating Income
Current Quarter
Second quarter 2020 operating income increased $11 million, or 4 percent, primarily due to higher sales. Operating margin rate decreased to 10.6 percent from 11.0 percent, principally due to lower net favorable EAC adjustments at Autonomous Systems as well as changes in contract mix at Manned Aircraft, partially offset by a $21 million benefit recognized in connection with the resolution of a government accounting matter.
Year to Date
Year to date 2020 operating income decreased $37 million, or 6 percent, principally due to a lower operating margin rate. Operating margin rate decreased to 9.9 percent from 11.0 percent, principally due to lower net favorable EAC adjustments at Autonomous Systems as well as changes in contract mix at Manned Aircraft.
DEFENSE SYSTEMS
Three Months Ended June 30
 
%
 
Six Months Ended June 30
 
%
$ in millions
2020
 
2019
 
Change
 
2020
 
2019
 
Change
Sales
$
1,886

 
$
1,916

 
(2
)%
 
$
3,767

 
$
3,684

 
2
 %
Operating income
217

 
212

 
2
 %
 
415

 
416

 
 %
Operating margin rate
11.5
%
 
11.1
%
 
 
 
11.0
%
 
11.3
%
 
 
Sales
Current Quarter
Second quarter 2020 sales decreased $30 million, or 2 percent, due to lower volume in Battle Management & Missile Systems, partially offset by higher volume on Mission Readiness programs. Battle Management & Missile Systems sales decreased principally due to lower volume on programs nearing completion, including an international weapons program and several small caliber ammunition programs, partially offset by higher volume on the Guided Multiple Launch Rocket System (GMLRS), the Advanced Anti-Radiation Guided Missile (AARGM) program and other missile products. Mission Readiness sales increased primarily due to higher restricted volume, partially offset by lower volume on the Hunter sustainment program as it nears completion.
Year to Date
Year to date 2020 sales increased $83 million or 2 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 GMLRS, AARGM and other missile products, partially offset by lower volume on an international weapons program as it nears completion. Mission Readiness sales increased principally due to higher restricted volume, partially offset by lower volume on the Hunter sustainment program as it nears completion.

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NORTHROP GRUMMAN CORPORATION                        

Operating Income
Current Quarter
Second quarter 2020 operating income increased $5 million, or 2 percent, primarily due to a higher operating margin rate. Operating margin rate increased to 11.5 percent from 11.1 percent primarily due to improved performance on Mission Readiness programs.
Year to Date
Year to date 2020 operating income was comparable to the prior year period. Operating margin rate decreased to 11.0 percent from 11.3 percent primarily due to favorable adjustments on certain small caliber ammunition programs in the first quarter of 2019, partially offset by improved performance on Mission Readiness programs.
MISSION SYSTEMS
Three Months Ended June 30
 
%
 
Six Months Ended June 30
 
%
$ in millions
2020
 
2019
 
Change
 
2020
 
2019
 
Change
Sales
$
2,446

 
$
2,404

 
2
%
 
$
4,793

 
$
4,614

 
4
%
Operating income
347

 
338

 
3
%
 
700

 
661

 
6
%
Operating margin rate
14.2
%
 
14.1
%
 
 
 
14.6
%
 
14.3
%
 
 
Sales
Current Quarter
Second quarter 2020 sales increased $42 million, or 2 percent, primarily due to higher volume on Airborne Sensors & Networks programs, partially offset by lower volume on Cyber & Intelligence Mission Solutions programs. Airborne Sensors & Networks sales increased primarily due to higher airborne radar volume, including on the Multi-role Electronically Scanned Array (MESA) and Scalable Agile Beam Radar (SABR) programs. Cyber & Intelligence Mission Solutions sales decreased principally due to lower volume on an intelligence program as it nears completion.
Year to Date
Year to date 2020 sales increased $179 million, or 4 percent, primarily due to higher volume on Airborne Sensors & Networks and Maritime/Land Systems & Sensors programs, partially offset by lower volume on Cyber & Intelligence Mission Solutions. Airborne Sensors & Networks sales increased principally due to higher airborne radar volume, including on the MESA, SABR and F-35 programs. Maritime/Land Systems & Sensors sales increased primarily due to higher volume on marine systems and restricted programs, partially offset by lower international volume. Cyber & Intelligence Mission Solutions sales decreased principally due to lower volume on an intelligence program as it nears completion.
Operating Income
Current Quarter
Second quarter 2020 operating income increased $9 million, or 3 percent, principally due to higher sales. Operating margin rate was comparable to the prior year period.
Year to Date
Year to date 2020 operating income increased $39 million, or 6 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 14.6 percent from 14.3 percent primarily due to improved performance on Airborne Sensors & Networks and Cyber & Intelligence Mission Solutions programs, partially offset by lower net favorable adjustments and changes in contract mix at Navigation, Targeting & Survivability.
SPACE SYSTEMS
Three Months Ended June 30
 
%
 
Six Months Ended June 30
 
%
$ in millions
2020
 
2019
 
Change
 
2020
 
2019
 
Change
Sales
$
2,048

 
$
1,788

 
15
%
 
$
3,996

 
$
3,589

 
11
%
Operating income
209

 
193

 
8
%
 
411

 
383

 
7
%
Operating margin rate
10.2
%
 
10.8
%
 
 
 
10.3
%
 
10.7
%
 
 
Sales
Current Quarter
Second quarter 2020 sales increased $260 million, or 15 percent, due to higher sales in both Space and 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 &

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Strategic Missiles sales reflect higher volume on hypersonics and launch vehicle programs, partially offset by lower volume on the Ground-based Midcourse Defense (GMD) program.
Year to Date
Year to date 2020 sales increased $407 million, or 11 percent, due to higher sales in both Space and Launch & Strategic Missiles. Space sales were driven by higher volume on restricted programs, Next Gen OPIR and ASBM. Launch & Strategic Missiles sales reflect higher volume on hypersonics programs and the Ground Based Strategic Deterrent (GBSD) Technology Maturation Risk Reduction (TMRR) program, partially offset by lower volume on GMD.
Operating Income
Current Quarter
Second quarter 2020 operating income increased $16 million, or 8 percent, primarily due to higher sales. Operating margin rate decreased to 10.2 percent from 10.8 percent principally due to delays in production for certain commercial space components.
Year to Date
Year to date 2020 operating income increased $28 million, or 7 percent, primarily due to higher sales. Operating margin rate decreased to 10.3 percent from 10.7 percent principally due to delays in production for certain commercial space components and the timing of favorable negotiations on certain commercial contracts recognized in the first quarter of 2019.

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NORTHROP GRUMMAN CORPORATION                        

PRODUCT AND SERVICE ANALYSIS
The following table presents product and service sales and operating costs and expenses by segment:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
2019
 
2020
2019
Segment Information:
Sales
Operating Costs and Expenses
Sales
Operating Costs and Expenses
 
Sales
Operating Costs and Expenses
Sales
Operating Costs and Expenses
Aeronautics Systems
 
 
 
 
 
 
 
 
 
Product
$
2,512

$
2,247

$
2,301

$
2,068

 
$
4,921

$
4,446

$
4,706

$
4,210

Service
384

342

396

333

 
792

700

785

676

Intersegment eliminations
29

26

24

21

 
55

49

48

43

Total Aeronautics Systems
2,925

2,615

2,721

2,422

 
5,768

5,195

5,539

4,929

Defense Systems
 
 
 
 
 
 
 
 
 
Product
753

676

697

626

 
1,523

1,380

1,318

1,183

Service
953

831

1,055

931

 
1,893

1,657

2,035

1,789

Intersegment eliminations
180

162

164

147

 
351

315

331

296

Total Defense Systems
1,886

1,669

1,916

1,704

 
3,767

3,352

3,684

3,268

Mission Systems
 
 
 
 
 
 
 
 
 
Product
1,646

1,388

1,574

1,332

 
3,154

2,662

2,956

2,492

Service
616

554

666

598

 
1,279

1,124

1,297

1,156

Intersegment eliminations
184

157

164

136

 
360

307

361

305

Total Mission Systems
2,446

2,099

2,404

2,066

 
4,793

4,093

4,614

3,953

Space Systems
 
 
 
 
 
 
 
 
 
Product
1,571

1,402

1,308

1,163

 
3,060

2,727

2,628

2,330

Service
449

413

459

412

 
882

810

920

838

Intersegment eliminations
28

24

21

20

 
54

48

41

38

Total Space Systems
2,048

1,839

1,788

1,595

 
3,996

3,585

3,589

3,206

Segment Totals
 
 
 
 
 
 
 
 
 
Total Product
$
6,482

$
5,713

$
5,880

$
5,189

 
$
12,658

$
11,215

$
11,608

$
10,215

Total Service
2,402

2,140

2,576

2,274

 
4,846

4,291

5,037

4,459

Total Segment(1)
$
8,884

$
7,853

$
8,456

$
7,463

 
$
17,504

$
15,506

$
16,645

$
14,674

(1) 
A reconciliation of segment operating income to total operating income is included in “Segment Operating Results.”
Product Sales and Costs
Current Quarter
Second quarter 2020 product sales increased $602 million, or 10 percent. The increase was primarily due to higher product sales on restricted programs and Next Gen OPIR at Space Systems and higher product sales on restricted programs and E-2D at Aeronautics Systems.
Second quarter 2020 product costs increased $524 million, or 10 percent, consistent with the higher product sales described above.
Year to Date
Year to date 2020 product sales increased $1.1 billion, or 9 percent, principally due to higher volume on restricted programs and Next Gen OPIR at Space Systems, restricted programs and E-2D at Aeronautics Systems, missile products at Defense Systems and airborne radar and restricted programs at Mission Systems.
Year to date 2020 product costs increased $1.0 billion, or 10 percent, consistent with the higher product sales described above and principally reflects a lower product margin at Aeronautics Systems due to lower net favorable EAC adjustments.

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Service Sales and Costs
Current Quarter
Second quarter 2020 service sales decreased $174 million, or 7 percent, primarily due to a shift toward more product content in the lifecycle of several programs at Defense Systems and completion of certain service programs at Mission Systems.
Second quarter 2020 service costs decreased $134 million, or 6 percent, consistent with the lower service sales described above.
Year to Date
Year to date 2020 service sales decreased $191 million, or 4 percent, primarily due to a shift toward more product content in the lifecycle of several programs at Defense Systems.
Year to date 2020 service costs decreased $168 million, or 4 percent, consistent with the lower service sales described above.
BACKLOG
Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent to the company’s remaining performance obligations at the end of each period. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded. Backlog is converted into sales as costs are incurred or deliveries are made.
Backlog consisted of the following as of June 30, 2020 and December 31, 2019:
 
 
June 30, 2020
 
December 31, 2019
 
 
$ in millions
 
Funded
 
Unfunded
 
Total
Backlog
 
Total
Backlog
 
% Change in 2020
Aeronautics Systems
 
$
12,163

 
$
12,556

 
$
24,719

 
$
26,021

 
(5
)%
Defense Systems
 
6,245

 
1,728

 
7,973

 
8,481

 
(6
)%
Mission Systems
 
9,548

 
3,997

 
13,545

 
14,226

 
(5
)%
Space Systems
 
5,908

 
17,903

 
23,811

 
16,112

 
48
 %
Total backlog
 
$
33,864

 
$
36,184

 
$
70,048

 
$
64,840

 
8
 %
New Awards
Second quarter and year to date 2020 net awards totaled $14.8 billion and $22.7 billion, respectively, and backlog totaled $70.0 billion. Significant second quarter new awards include $7.4 billion for restricted programs, $1.9 billion for Next Gen OPIR, $0.5 billion for E-2D, $0.4 billion for four commercial satellites and $0.3 billion for Triton.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure efficient conversion of operating income into cash and to increase shareholder value through cash deployment activities. In addition to our cash position, we use various financial measures to assist in capital deployment decision-making, including cash provided by operating activities and free cash flow, a non-GAAP measure described in more detail below.
At June 30, 2020, we had $4.2 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. The CARES Act also provided for a deferral of certain estimated income tax payments by extending the deadline for amounts due in the second quarter to July 15, 2020. Under Section 3610, the CARES Act also authorized the government to reimburse qualifying contractors for certain costs of providing paid leave to employees as a result of COVID-19. The company has begun

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to seek, and anticipates continuing to seek, recovery for certain COVID-19-related costs under Section 3610 of the CARES Act and through our contract provisions. 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 believe these actions should continue to mitigate some COVID-19-related negative impacts to our operating cash flows during 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.
Operating Cash Flow
The table below summarizes key components of cash flow provided by operating activities:
 
Six Months Ended June 30
 
%
$ in millions
2020
 
2019
 
Change
Net earnings
$
1,873

 
$
1,724

 
9
 %
Non-cash items(1)
810

 
709

 
14
 %
Changes in assets and liabilities:
 
 
 
 
 
Trade working capital
(898
)
 
(1,419
)
 
(37
)%
Retiree benefits
(473
)
 
(285
)
 
66
 %
Other, net
32

 
(35
)
 
(191
)%
Net cash provided by operating activities
$
1,344

 
$
694

 
94
 %
(1) 
Includes depreciation and amortization, non-cash lease expense, stock based compensation expense and deferred income taxes.
Year to date 2020 cash provided by operating activities increased $650 million principally due to improved trade working capital and higher net earnings. The improvement in trade working capital reflects CARES Act payroll tax deferrals and increased DoD progress payment rates, partially offset by acceleration of payments to suppliers and pass through of increased progress payments to suppliers.
Free Cash Flow
Free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by 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.
The table below reconciles net cash provided by operating activities to free cash flow:
 
Six Months Ended June 30
 
%
$ in millions
2020
 
2019
 
Change
Net cash provided by operating activities
$
1,344

 
$
694

 
94
%
Less: capital expenditures
(541
)
 
(536
)
 
1
%
Free cash flow
$
803

 
$
158

 
408
%
Year to date 2020 free cash flow increased $645 million principally due to the increase in net cash provided by operating activities.
Investing Cash Flow
Year to date 2020 net cash used in investing activities was comparable to the prior year period.

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Financing Cash Flow
Year to date 2020 net cash provided by financing activities was $1.1 billion compared to net cash used in financing activities of $650 million in 2019, principally due to $2.2 billion of net proceeds from the issuance of long-term debt in the first quarter of 2020, partially offset by higher share repurchases.
Credit Facilities, Commercial Paper and Financial Arrangements - See Note 6 to the financial statements for further information on our credit facilities, commercial paper and our use of standby letters of credit and guarantees.
Share Repurchases - See Note 2 to the financial statements for further information on our share repurchase programs.
Long-term Debt - See Note 4 to the financial statements for further information.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
There have been no material changes to our critical accounting policies, estimates or judgments from those discussed in our 2019 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 2019 Annual Report on Form 10-K, in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 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:
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, litigation and/or other legal proceedings
the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs
our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulations
the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation and our ability to do business
cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners

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the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials and components
changes in procurement and other laws, regulations, contract terms and practices applicable to our industry, findings by the U.S. government as to our compliance with such requirements, and changes in our customers’ business practices globally
increased competition within our markets and bid protests
the ability to maintain a qualified workforce with the required security clearances and requisite skills
our ability to meet performance obligations under our contracts, including obligations that require innovative design capabilities, are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control
environmental matters, including unforeseen environmental costs and government and third party claims
natural disasters
health epidemics, pandemics and similar outbreaks, 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 benefit obligations
our ability appropriately to exploit and/or protect intellectual property rights
our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers
unanticipated changes in our tax provisions or exposure to additional tax liabilities
changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets
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
Other 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 2019 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 2019 Annual Report on Form 10-K.
Item 4.    Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer (Chairman, Chief Executive Officer and President) and principal financial officer (Corporate Vice President and Chief Financial Officer) have evaluated the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) as of June 30, 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

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information required to be disclosed in the reports that we file or submit is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended June 30, 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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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have provided information about certain legal proceedings in which we are involved in Notes 5 and 6 to the financial statements.
We are a party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. These types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms include judgments or convictions and consent or other voluntary decrees or agreements); compensatory, treble or other damages; non-monetary relief or actions; or other liabilities. Government regulations provide that certain allegations against a contractor may lead to suspension or debarment from future government contracts or suspension of export privileges for the company or one or more of its components. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. For additional information on pending matters, please see Notes 5 and 6 to the financial statements, and for further information on the risks we face from existing and future investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, please see “Risk Factors” in our 2019 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 has disputed the allegations and is in discussions with the government.
Item 1A. Risk Factors
There have been no material changes to our risk factors since our 2019 Annual Report on Form 10-K, except with respect to the risk factor regarding COVID-19 that the company included in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
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 second quarter of 2020:
Period
Number
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)
March 28, 2020 - April 24, 2020
397,447

 
$
329.41

 
397,447

 
 
$
2,849

April 25, 2020 - May 22, 2020

 

 

 
 
2,849

May 23, 2020 - June 26, 2020

 

 

 
 
2,849

Total
397,447

 
$
329.41

 
397,447

 
 
$
2,849

(1) 
Includes commissions paid.
Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs.
See Note 2 to the financial statements for further information on our share repurchase programs.

-33-

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Item 5. Other Information
As discussed in Notes 1 and 9 to the financial statements, beginning in the second quarter of 2020, the company no longer considers certain unallowable costs as part of management’s evaluation of segment operating performance. As a result, certain unallowable costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income.
The following tables summarize the effect of this change on our segment information for the three months ended March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019 and the years ended December 31, 2019, 2018 and 2017. This change has no impact on consolidated operating results. The tables should be read in conjunction with the information contained in the company’s 2019 Annual Report on Form 10-K and the Form 8-K that we filed with the SEC on April 29, 2020, 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.
As Previously Reported
 
2017
 
2018
 
2019
 
2019
 
2020

Total
 
Total
 
Total
 
Three Months Ended
$ in millions
Year
 
Year
 
Year
 
Mar 31
Jun 30
Sep 30
Dec 31
 
Mar 31
Operating income
 
 
 
 
 
 
 
 
 
 
 
 
Aeronautics Systems
$
848

 
$
1,107

 
$
1,170

 
$
308

$
295

$
265

$
302

 
$
259

Defense Systems
534

 
690

 
781

 
202

209

199

171

 
196

Mission Systems
1,157

 
1,215

 
1,382

 
319

332

346

385

 
348

Space Systems
578

 
635

 
781

 
188

191

187

215

 
199

Intersegment eliminations
(214
)
 
(200
)
 
(205
)
 
(50
)
(49
)
(57
)
(49
)
 
(49
)
Total segment operating income
2,903

 
3,447

 
3,909

 
967

978

940

1,024

 
953

Net FAS (service)/CAS pension adjustment
638

 
613

 
465

 
108

107

131

119

 
105

Unallocated corporate expense
(323
)
 
(280
)
 
(405
)
 
(139
)
(139
)
(120
)
(7
)
 
(124
)
Total operating income
$
3,218

 
$
3,780

 
$
3,969

 
$
936

$
946

$
951

$
1,136

 
$
934

As Recast
 
2017
 
2018
 
2019
 
2019
 
2020
 
Total
 
Total
 
Total
 
Three Months Ended
$ in millions
Year
 
Year
 
Year
 
Mar 31
Jun 30
Sep 30
Dec 31
 
Mar 31
Operating income
 
 
 
 
 
 
 
 
 
 
 
 
Aeronautics Systems
$
859

 
$
1,128

 
$
1,188

 
$
311

$
299

$
269

$
309

 
$
263

Defense Systems
539

 
697

 
793

 
204

212

201

176

 
198

Mission Systems
1,179

 
1,245

 
1,408

 
323

338

351

396

 
353

Space Systems
582

 
644

 
794

 
190

193

191

220

 
202

Intersegment eliminations
(214
)
 
(200
)
 
(205
)
 
(50
)
(49
)
(57
)
(49
)
 
(49
)
Total segment operating income
2,945

 
3,514

 
3,978

 
978

993

955

1,052

 
967

Net FAS (service)/CAS pension adjustment
638

 
613

 
465

 
108

107

131

119

 
105

Unallocated corporate expense
(365
)
 
(347
)
 
(474
)
 
(150
)
(154
)
(135
)
(35
)
 
(138
)
Total operating income
$
3,218

 
$
3,780

 
$
3,969

 
$
936

$
946

$
951

$
1,136

 
$
934




-34-

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

Item 6. Exhibits
2.1
 
 
2.2
 
 
2.3
 
 
2.4
 
 
+*10.1
 
 
*15
 
 
*31.1
 
 
*31.2
 
 
**32.1
 
 
**32.2
 
 
*101
Northrop Grumman Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Cover Page, (ii) Condensed Consolidated Statements of Earnings and Comprehensive Income, (iii) Condensed Consolidated Statements of Financial Position, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Shareholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
*104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+
Management contract or compensatory plan or arrangement
 
 
*
Filed with this report
 
 
**
Furnished with this report

-35-

Table of Contents

NORTHROP GRUMMAN CORPORATION                        

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

NORTHROP GRUMMAN CORPORATION
(Registrant)
 
 
By:
 
 
/s/ Michael A. Hardesty
 
 
Michael A. Hardesty
Corporate Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
Date: July 29, 2020

-36-
Exhibit

Exhibit 10.1

Fees and Expenses
(effective as of May 20, 2020)

Note: No changes from fees and expenses approved on May 15, 2019.

Retainer:
Retainer fees are paid quarterly, at the end of each quarter. Fees are as follows:
    
Annual cash retainer:
$130,000
Additional retainer for Lead Independent Director:
$35,000
Additional retainer for Audit Committee:
$10,000
Additional retainer for Audit Committee chair:
$20,000
Additional retainer for Comp Committee chair:
$20,000
Additional retainer for Gov Committee chair:
$20,000
Additional retainer for Policy Committee chair:
$20,000

Equity Grant:
Directors are awarded an annual equity grant of $160,000 in deferred stock units (“Automatic Stock Units”), awarded annually on the day of the Company’s Annual Meeting of Shareholders. The Automatic Stock Units will vest on the one year anniversary of the grant date. Directors may elect to have all or any portion of their Automatic Stock Units paid on (A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from service as a member of the Board or (B) the vesting date.

Deferral of Cash Retainer:
Directors may elect to defer payment of all or a portion of their cash retainer fees and any other committee retainer fees into a deferred stock unit account (“Elective Stock Units”). Elective Stock Units are awarded on a calendar quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the Board.

Elective Deferral Program:
Directors may elect to defer to a later year all or a portion of their annual cash retainer and any other fees payable for their Board service into alternative investment options similar to the options available under Northrop Grumman’s Savings Excess Plan.

Stock Ownership:
All directors are required to own Company stock in an amount equal to five times the annual cash retainer, with such ownership to be achieved within five years of the later of (i) May 18, 2011 or (ii) the director’s election to the Board. Deferred stock units and Company stock owned outright by the director will count towards this requirement.

Expenses:
Transportation
Ordinary and necessary business expenses will be reimbursed to traveling directors after presentation of original receipts to the company. Directors



will be reimbursed for round trip first class air travel from the director’s regular place of business or residence. Whenever possible, directors will be transported to board meetings by our own company aircraft. Surface travel will be reimbursed at the current mileage allowance for traveling executives. Currently, that rate is 58 cents per mile, if the director is driving locally. Taxi service will be reimbursed upon presentation of a receipt. Northrop Grumman arranges drivers from an executive security service to transport directors between the airport and the hotel currently in use and Northrop Grumman drivers transport directors from the hotel to the meeting location.

Hotels
The Corporate Secretary’s office will make hotel arrangements for directors in connection with the board and committee meetings. Drivers are available to transport directors to the board and committee meetings. Directors may bill their room charges directly to the Northrop Grumman master account that has been established for director visits.

            

Exhibit


NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 15

LETTER FROM INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Northrop Grumman Corporation
2980 Fairview Park Drive
Falls Church, Virginia 22042
We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Northrop Grumman Corporation and subsidiaries for the periods ended June 30, 2020, and 2019, as indicated in our report dated July 29, 2020; because we did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, is incorporated by reference in Registration Statement Nos. 033-59815, 033-59853, 333-67266, 333-100179, 333-107734, 333-121104, 333-125120, 333-127317, and 333-175798 on Form S-8; and Registration Statement No. 333-237504 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP
McLean, Virginia
July 29, 2020




Exhibit


NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kathy J. Warden, certify that:
1.
I have reviewed this report on Form 10-Q of Northrop Grumman Corporation (“company”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: July 29, 2020

/s/ Kathy J. Warden
Kathy J. Warden
Chairman, Chief Executive Officer and President



Exhibit


NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David F. Keffer, certify that:
1.
I have reviewed this report on Form 10-Q of Northrop Grumman Corporation (“company”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: July 29, 2020
 
/s/ David F. Keffer
David F. Keffer
Corporate Vice President and Chief Financial Officer


Exhibit


NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Northrop Grumman Corporation (the “company”) on Form 10-Q for the period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kathy J. Warden, Chairman, Chief Executive Officer and President of the company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.
 
Date: July 29, 2020

/s/ Kathy J. Warden
Kathy J. Warden
Chairman, Chief Executive Officer and President




Exhibit


NORTHROP GRUMMAN CORPORATION
 
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Northrop Grumman Corporation (the “company”) on Form 10-Q for the period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David F. Keffer, Corporate Vice President and Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.

Date: July 29, 2020

/s/ David F. Keffer
David F. Keffer
Corporate Vice President and Chief Financial Officer




v3.20.2
Document and Entity Information Document - shares
6 Months Ended
Jun. 30, 2020
Jul. 27, 2020
Document and Entity Information [Abstract]    
Entity Current Reporting Status Yes  
Document Type 10-Q  
Document Fiscal Period Focus Q2  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2020  
Document Transition Report false  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Current Fiscal Year End Date --12-31  
Entity File Number 1-16411  
Entity Registrant Name NORTHROP GRUMMAN CORP /DE/  
Entity Central Index Key 0001133421  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 80-0640649  
Entity Address, Line 1 2980 Fairview Park Drive  
Entity Address, City Or Town Falls Church,  
Entity Address, State Or Province VA  
Entity Address, Postal ZIP Code 22042  
City Area Code 703  
Local Phone Number 280-2900  
Title of 12(b) Security Common Stock  
Trading Symbol NOC  
Security Exchange Name NYSE  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   166,714,063
v3.20.2
Condensed Consolidated Statements of Earnings and Comprehensive Income (Unaudited) - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Sales $ 8,884 $ 8,456 $ 17,504 $ 16,645
Operating costs and expenses        
General and administrative expenses 832 784 1,620 1,544
Operating income 994 946 1,928 1,882
Other (expense) income        
Interest expense (154) (137) (279) (275)
FAS (non-service) pension benefit 303 200 605 400
Other, net 60 19 2 55
Earnings before income taxes 1,203 1,028 2,256 2,062
Federal and foreign income tax expense 198 167 383 338
Net earnings $ 1,005 $ 861 $ 1,873 $ 1,724
Basic earnings per share        
Basic earnings per share $ 6.02 $ 5.07 $ 11.20 $ 10.15
Weighted-average common shares outstanding, in millions 166.9 169.7 167.3 169.9
Diluted earnings per share        
Diluted earnings per share $ 6.01 $ 5.06 $ 11.16 $ 10.11
Weighted-average diluted shares outstanding, in millions 167.3 170.3 167.9 170.5
Net earnings (from above) $ 1,005 $ 861 $ 1,873 $ 1,724
Change in unamortized prior service credit, net of tax (11) (12) (21) (23)
Change in cumulative translation adjustment and other, net 10 (4) 1 0
Other comprehensive loss, net of tax (1) (16) (20) (23)
Comprehensive income 1,004 845 1,853 1,701
Product [Member]        
Sales 6,482 5,880 12,658 11,608
Cost of Sales 5,127 4,661 10,079 9,178
Service [Member]        
Sales 2,402 2,576 4,846 5,037
Cost of Sales $ 1,931 $ 2,065 $ 3,877 $ 4,041
v3.20.2
Condensed Consolidated Statements of Financial Position (Unaudited) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents $ 4,178 $ 2,245
Accounts receivable, net 1,989 1,326
Unbilled receivables, net 5,460 5,334
Inventoried costs, net 832 783
Prepaid expenses and other current assets 720 997
Total current assets 13,179 10,685
Property, plant and equipment, net of accumulated depreciation of $1,111 for 2020 and $5,850 for 2019 7,063 6,912
Operating lease right-of-use assets 1,528 1,511
Goodwill 18,707 18,708
Intangible assets, net 909 1,040
Deferred tax assets 346 508
Other non-current assets 1,743 1,725
Total assets 43,475 41,089
Liabilities    
Trade accounts payable 2,006 2,226
Accrued employee compensation 1,614 1,865
Advance payments and billings in excess of costs incurred 2,179 2,237
Other current liabilities 3,928 3,106
Total current liabilities 9,727 9,434
Long-term debt, net of current portion of $1,111 for 2020 and $1,109 for 2019 14,259 12,770
Pension and other postretirement benefit plan liabilities 6,582 6,979
Operating lease liabilities 1,333 1,308
Other non-current liabilities 1,862 1,779
Total liabilities 33,763 32,270
Commitments and contingencies (Note 6)
Shareholders’ equity    
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding 0 0
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2020—111,111,111 and 2019—167,848,424 167 168
Paid-in capital 10 0
Retained earnings 9,652 8,748
Accumulated other comprehensive loss (117) (97)
Total shareholders’ equity 9,712 8,819
Total liabilities and shareholders’ equity $ 43,475 $ 41,089
v3.20.2
Condensed Consolidated Statements of Financial Position (Unaudited) (Parentheticals) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Accumulated depreciation $ (6,103) $ (5,850)
Long-term debt, current portion $ 1,803 $ 1,109
Preferred Stock, par value $ 1 $ 1
Preferred Stock, shares authorized 10,000,000 10,000,000
Preferred Stock, shares issued 0 0
Preferred Stock, shares outstanding 0 0
Common Stock, par value $ 1 $ 1
Common Stock, shares authorized 800,000,000 800,000,000
Common Stock, shares issued 166,708,207 167,848,424
Common Stock, shares outstanding 166,708,207 167,848,424
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Operating activities    
Net earnings $ 1,873 $ 1,724
Adjustments to reconcile to net cash used in operating activities:    
Depreciation and amortization 605 606
Stock-based compensation 36 55
Deferred income taxes 169 48
Changes in assets and liabilities:    
Accounts receivable, net (663) (384)
Unbilled receivables, net (126) (658)
Inventoried costs, net (49) (156)
Prepaid expenses and other assets (16) (48)
Accounts payable and other liabilities (374) (367)
Income taxes payable, net 330 194
Retiree benefits (473) (285)
Other Noncash Income (Expense) (32) 35
Net cash used in operating activities 1,344 694
Investing activities    
Capital expenditures (541) (536)
Other, net 2 1
Net cash used in investing activities (539) (535)
Financing activities    
Net proceeds from issuance of long-term debt 2,239 0
Payments to credit facilities (13) (20)
Net borrowings on commercial paper 0 101
Common stock repurchases (490) (231)
Cash dividends paid (469) (435)
Payments of employee taxes withheld from share-based awards (64) (63)
Other, net (75) (2)
Net cash provided by financing activities 1,128 (650)
Decrease in cash and cash equivalents 1,933 (491)
Cash and cash equivalents, beginning of year 2,245 1,579
Cash and cash equivalents, end of period $ 4,178 $ 1,088
v3.20.2
Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)
$ in Millions
Total
Common stock
Paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Beginning of period at Dec. 31, 2018   $ 171 $ 0 $ 8,068 $ (52)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock repurchased   (2) 0 (234)  
Net earnings $ 1,724     1,724  
Dividends declared       (432)  
Stock compensation     0 (6)  
Other       0  
Other comprehensive loss, net of tax (23)       (23)
End of period at Jun. 30, 2019 $ 9,214 169 0 9,120 (75)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividends declared per share $ 2.52        
Beginning of period at Mar. 31, 2019   170 0 8,628 (59)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock repurchased   (1) 0 (172)  
Net earnings $ 861     861  
Dividends declared       (226)  
Stock compensation     0 29  
Other       0  
Other comprehensive loss, net of tax (16)       (16)
End of period at Jun. 30, 2019 $ 9,214 169 0 9,120 (75)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividends declared per share $ 1.32        
Beginning of period at Dec. 31, 2019 $ 8,819 168 0 8,748 (97)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock repurchased   (1) 0 (479)  
Net earnings 1,873     1,873  
Dividends declared       (465)  
Stock compensation     10 (36)  
Other       11  
Other comprehensive loss, net of tax (20)       (20)
End of period at Jun. 30, 2020 $ 9,712 167 10 9,652 (117)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividends declared per share $ 2.77        
Beginning of period at Mar. 31, 2020   167 0 9,011 (116)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock repurchased   0 0 (131)  
Net earnings $ 1,005     1,005  
Dividends declared       (242)  
Stock compensation     10 9  
Other       0  
Other comprehensive loss, net of tax (1)       (1)
End of period at Jun. 30, 2020 $ 9,712 $ 167 $ 10 $ 9,652 $ (117)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividends declared per share $ 1.45        
v3.20.2
Basis of Presentation (Unaudited)
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION BASIS OF PRESENTATION
Principles of Consolidation and Reporting
These unaudited condensed consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman Corporation and its subsidiaries and joint ventures or other investments for which we consolidate the financial results (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”). Intercompany accounts, transactions and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method.
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.
Beginning in the second quarter of 2020, the company no longer considers certain unallowable costs and environmental matters that are principally managed at the corporate office as part of management’s evaluation of segment operating performance. As a result, certain unallowable compensation and other costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. In addition, certain accrued and deferred costs, as well as unallowable costs, if any, associated with certain environmental matters that were previously reflected in segment assets and operating results are now reflected in corporate assets and Unallocated corporate expense within operating income. The impact of these changes are reflected in the amounts in this Form 10-Q. See Note 9 and Part II, Item 5 for further information regarding the impact of these changes on the company’s current and prior period segment operating income.
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 2019 Annual Report on Form 10-K, the Form 8-K that we filed with the SEC on April 29, 2020, 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, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
The quarterly information is labeled using a calendar convention; that is, first quarter is consistently labeled as ending on March 31, second quarter as ending on June 30 and third quarter as ending on September 30. It is the company’s long-standing practice to establish actual interim closing dates using a “fiscal” calendar, in which we close our books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes. This practice is only used at interim periods within a reporting year.
Accounting Estimates
Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.
Revenue Recognition
The majority of our sales are derived from long-term contracts with the U.S. government for the production of goods, the provision of services, or a combination of both. We recognize revenue as control is transferred to the customer, either over time or at a point in time. 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 our performance obligations. Revenue for contracts in which the control of goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon delivery).
Contract Estimates
Use of the cost-to-cost method requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. The company estimates profit on
these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes that profit as costs are incurred. Significant judgment is used to estimate total sales and cost at completion.
Contract sales may include estimates of variable consideration, including cost or performance incentives (such as award and incentive fees), contract claims and requests for equitable adjustment (REAs). Variable consideration is included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled.
We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative 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.
The following table presents the effect of aggregate net EAC adjustments:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions, except per share data
2020
 
2019
 
2020
 
2019
Revenue
$
125

 
$
154

 
$
261

 
$
320

Operating income
112

 
158

 
236

 
296

Net earnings(1)
88

 
125

 
186

 
234

Diluted earnings per share(1)
0.53

 
0.73

 
1.11

 
1.37

(1) 
Based on a 21 percent statutory tax rate.
EAC adjustments on a single performance obligation can have a material effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. No such adjustments were material to the financial statements during the three months ended June 30, 2020 and 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 and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded.
Company backlog as of June 30, 2020 was $70.0 billion. We expect to recognize approximately 40 percent and 65 percent of our June 30, 2020 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. Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position. The amount of revenue recognized for the three and six months ended June 30, 2020 that was included in the December 31, 2019 contract liability balance was $442 million and $1.2 billion, respectively. The amount of revenue recognized for the three and six months ended June 30, 2019 that was included in the December 31, 2018 contract liability balance was $333 million and $1.0 billion, respectively.
Disaggregation of Revenue
See Note 9 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
$ in millions
June 30,
2020
December 31,
2019
Unamortized prior service credit, net of tax expense of $10 for 2020 and $17 for 2019
$
30

$
51

Cumulative translation adjustment and other, net
(147
)
(148
)
Total accumulated other comprehensive loss
$
(117
)
$
(97
)

Related Party Transactions
For all periods presented, the company had no material related party transactions.
Accounting Standards Updates
Accounting standards updates adopted and/or issued, but not effective until after June 30, 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.
v3.20.2
Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited)
6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK 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 0.4 million shares and 0.6 million shares for the three and six months ended June 30, 2020, respectively. The dilutive effect of these securities totaled 0.6 million shares for the three and six months ended June 30, 2019.
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 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”). Repurchases under the 2018 Repurchase Program commenced in March 2020 upon the completion of the company’s 2015 Repurchase Program. As of June 30, 2020, repurchases under the 2018 Repurchase Program totaled $0.2 billion; $2.8 billion remained under this share repurchase authorization. By its terms, the 2018 Repurchase Program is set to expire when all authorized funds for repurchases have been used.
Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs.
The table below summarizes the company’s share repurchases to date under the authorizations described above:
 
 
 
 
 
 
 
 
 
 
Shares Repurchased
(in millions)
Repurchase Program
Authorization Date
 
Amount
Authorized
(in millions)
 
Total
Shares Retired
(in millions)
 
Average 
Price
Per Share
(1)
 
Date Completed
 
Six Months Ended June 30
 
2020
 
2019
September 16, 2015
 
$
4,000

 
15.4

 
$
260.33

 
March 2020
 
0.9

 
1.7

December 4, 2018
 
$
3,000

 
0.5

 
326.20

 

 
0.5

 


(1) 
Includes commissions paid.
Dividends on Common Stock
In May 2020, the company increased the quarterly common stock dividend 10 percent to $1.45 per share from the previous amount of $1.32 per share.
In May 2019, the company increased the quarterly common stock dividend 10 percent to $1.32 per share from the previous amount of $1.20 per share.
v3.20.2
Income Taxes (Unaudited)
6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020

2019
Federal and foreign income tax expense
$
198

 
$
167

 
$
383

 
$
338

Effective income tax rate
16.5
%
 
16.2
%
 
17.0
%
 
16.4
%

Current Quarter
The second quarter 2020 effective tax rate of 16.5 percent was generally comparable to the prior year period. The company’s second quarter 2020 effective tax rate includes $48 million of research credits, as compared to $51 million in the prior year period.
Year to Date
The year to date 2020 effective tax rate increased to 17.0 percent from 16.4 percent in the prior period primarily due to an increase in reserves for uncertain tax positions. The company’s year to date 2020 effective tax rate includes $90 million of research credits, as compared to $82 million in the prior year period. Both periods benefited from $13 million of excess tax benefits for employee share-based compensation.
In March 2020, 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 second quarter and year to date 2020 effective tax rate.
The company has recorded unrecognized tax benefits related to our methods of accounting associated with the timing of revenue recognition and related costs, and the 2017 Tax Act. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may decrease by up to $70 million. Since enactment of the 2017 Tax Act, the Internal Revenue Service (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 years 2016-2017 are currently under appeal with the IRS.
v3.20.2
Fair Value of Financial Instruments (Unaudited)
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS 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 foreign currency forward contracts. Where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value and uses the applicable London Interbank Offered Rate (LIBOR) swap rates.
The following table presents the financial assets and liabilities the company records at fair value on a recurring basis identified by the level of inputs used to determine fair value:
 
 
June 30, 2020
 
December 31, 2019
$ in millions
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Financial Assets (Liabilities)
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities
 
$
331

 
$
1

 
$
332

 
$
364

 
$
1

 
$
365

Marketable securities valued using NAV
 
 
 
 
 
16

 
 
 
 
 
17

Total marketable securities
 
331

 
1

 
348

 
364

 
1

 
382

Derivatives
 

 
(1
)
 
(1
)
 

 
(3
)
 
(3
)

The notional value of the company’s foreign currency forward contracts at June 30, 2020 and December 31, 2019 was $71 million and $98 million, respectively. At June 30, 2020, no portion of the notional value was designated as a cash flow hedge. The portion of the notional value designated as a cash flow hedge at December 31, 2019 was $7 million.
The derivative fair values and related unrealized gains/losses at June 30, 2020 and December 31, 2019 were not material. There were no transfers of financial instruments between the three levels of the fair value hierarchy during the six months ended June 30, 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 $19.0 billion and $15.1 billion as of June 30, 2020 and December 31, 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 $16.1 billion and $13.9 billion as of June 30, 2020 and December 31, 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.
v3.20.2
Investigations, Claims and Litigation (Unaudited)
6 Months Ended
Jun. 30, 2020
Disclosure Text Block Supplement [Abstract]  
INVESTIGATIONS, CLAIMS AND LITIGATION INVESTIGATIONS, CLAIMS AND LITIGATION
On May 4, 2012, the company commenced an action, Northrop Grumman Systems Corp. v. United States, in the U.S. Court of Federal Claims. This lawsuit relates to an approximately $875 million firm fixed-price contract awarded to the company in 2007 by the U.S. Postal Service (USPS) for the construction and delivery of flats sequencing systems (FSS) as part of the postal automation program. The FSS 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 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 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 February 3, 2020, the parties commenced what was expected to be a seven-week trial. The first four weeks of trial concluded, but the court postponed the remaining estimated three weeks as a result of COVID-19-related concerns. Trial is currently scheduled to resume in October 2020. 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.
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 two of its consortium partners. In this suit, commenced on December 17, 2004, ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$111 million (the equivalent of approximately $20 million as of June 30, 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 $16 million as of June 30, 2020) in damages. In October 2013, ECT asserted an additional damage claim of R$22 million (the equivalent of approximately $4 million as of June 30, 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 million as of June 30, 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 $8 million as of June 30, 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 have executed a settlement agreement in this matter and have filed it with the court for approval.
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 6, substantial remediation costs related to these environmental conditions. The remediation standards or requirements to which we are subject are being reconsidered and are changing 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 said that, 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 (including the Navy, Defense Contract Management Agency, the state, local municipalities and water districts) and insurance carriers, as well as class action and individual plaintiffs alleging personal injury and property
damage and seeking both monetary and non-monetary relief. These Bethpage matters could result in additional costs, fines, penalties, sanctions, compensatory or other damages (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.
The company is a party to various other investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2020, or its annual results of operations and/or cash flows.
v3.20.2
Commitments and Contingencies (Unaudited)
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES COMMITMENTS AND CONTINGENCIES
U.S. Government Cost Claims and Contingencies
From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available. The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of June 30, 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 expense in previous years and in our current forward pricing rate proposal. On June 1, 2020, the government provided written notice that the assumptions the company used during the period 2013-2019 were potentially noncompliant with CAS. We are engaging with the government to address their questions, and are preparing our formal response, which we believe demonstrates the appropriateness of the assumptions used. However, the sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of this matter could have a material adverse effect on our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range of any potential loss.
Environmental Matters
The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of June 30, 2020 and December 31, 2019:
$ in millions
 
Accrued Costs(1)(2)
 
Reasonably Possible Future Costs in Excess of Accrued Costs(2)
 
Deferred Costs(3)
June 30, 2020
 
$
570

 
$
452

 
$
478

December 31, 2019
 
531

 
448

 
436

(1) As of June 30, 2020, $173 million is recorded in Other current liabilities and $397 million is recorded in Other non-current liabilities.
(2) Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.
(3) As of June 30, 2020, $144 million is deferred in Prepaid expenses and other current assets and $334 million is deferred in Other non-current assets. These amounts are evaluated for recoverability on a routine basis.
Although management cannot predict whether new information gained as our environmental remediation projects progress, or as changes in facts and circumstances occur, will materially affect the estimated liability accrued, except with respect to Bethpage, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2020, or its annual results of operations and/or cash flows. With respect to Bethpage, the 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 5, the remediation standards or requirements to which we are subject are being reconsidered and are changing 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 June 30, 2020, there were $460 million of stand-by letters of credit and guarantees and $79 million of surety bonds outstanding.
Commercial Paper
The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $2.0 billion. At June 30, 2020, there were no commercial paper borrowings outstanding.
Credit Facilities
The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $2.0 billion (the “2018 Credit Agreement”) that matures in August 2024 and is intended to support the company’s commercial paper program and other general corporate purposes. Commercial paper borrowings reduce the amount available for borrowing under the 2018 Credit Agreement. At June 30, 2020, there was no 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 $148 million as of June 30, 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 June 30, 2020, there was £50 million (the equivalent of approximately $62 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 are recorded in Other current liabilities in the unaudited condensed consolidated statement of financial position.
At June 30, 2020, the company was in compliance with all covenants under its credit agreements.
v3.20.2
Retirement Benefits (Unaudited)
6 Months Ended
Jun. 30, 2020
Retirement Benefits [Abstract]  
RETIREMENT BENEFITS RETIREMENT BENEFITS
The cost to the company of its pension and other postretirement benefit (OPB) plans is shown in the following table:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
Pension
Benefits
 
OPB
 
Pension
Benefits
 
OPB
$ in millions
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Components of net periodic benefit cost (benefit)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
102

 
$
92

 
$
5

 
$
4

 
$
204

 
$
184

 
$
9

 
$
8

Interest cost
306

 
340

 
16

 
20

 
613

 
680

 
33

 
40

Expected return on plan assets
(594
)
 
(526
)
 
(25
)
 
(23
)
 
(1,188
)
 
(1,051
)
 
(51
)
 
(46
)
Amortization of prior service credit
(15
)
 
(14
)
 
1

 

 
(30
)
 
(29
)
 
2

 
(1
)
Net periodic benefit cost (benefit)
$
(201
)
 
$
(108
)
 
$
(3
)
 
$
1

 
$
(401
)
 
$
(216
)
 
$
(7
)
 
$
1


Employer Contributions
The company sponsors defined benefit pension and OPB plans, as well as defined contribution plans. We fund our defined benefit pension plans annually in a manner consistent with the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006.
Contributions made by the company to its retirement plans are as follows:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Defined benefit pension plans
$
26

 
$
23

 
$
46

 
$
46

OPB plans
11

 
12

 
23

 
24

Defined contribution plans
100

 
88

 
356

 
279


v3.20.2
Stock Compensation Plans and Other Compensation Arrangements (Unaudited)
6 Months Ended
Jun. 30, 2020
Share-based Payment Arrangement [Abstract]  
STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS
Stock Awards
The following table presents the number of restricted stock rights (RSRs) and restricted performance stock rights (RPSRs) granted to employees under the company’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented:
 
 
Six Months Ended June 30
in millions
 
2020
 
2019
RSRs granted
 
0.1

 
0.1

RPSRs granted
 
0.2

 
0.2

Grant date aggregate fair value
 
$
91

 
$
92


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.
Cash Awards
The following table presents the minimum and maximum aggregate payout amounts related to cash units (CUs) and cash performance units (CPUs) granted to employees in the periods presented:
 
 
Six Months Ended June 30
$ in millions
 
2020
 
2019
Minimum aggregate payout amount
 
$
31

 
$
36

Maximum aggregate payout amount
 
175

 
203


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.
v3.20.2
Segment Information (Unaudited)
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
SEGMENT INFORMATION SEGMENT INFORMATION
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.
As discussed in Note 1, beginning in the second quarter of 2020, the company no longer considers certain unallowable costs as part of management’s evaluation of segment operating performance. As a result, certain unallowable costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. This change has been applied retrospectively in the amounts below. See Part II, Item 5 for further information regarding the impact of this change on the company’s current and prior period segment information.
The following table presents sales and operating income by segment:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Sales
 
 
 
 
 
 
 
Aeronautics Systems
$
2,925

 
$
2,721

 
$
5,768

 
$
5,539

Defense Systems
1,886

 
1,916

 
3,767

 
3,684

Mission Systems
2,446

 
2,404

 
4,793

 
4,614

Space Systems
2,048

 
1,788

 
3,996

 
3,589

Intersegment eliminations
(421
)
 
(373
)
 
(820
)
 
(781
)
Total sales
8,884

 
8,456

 
17,504

 
16,645

Operating income
 
 
 
 
 
 
 
Aeronautics Systems
310

 
299

 
573

 
610

Defense Systems
217

 
212

 
415

 
416

Mission Systems
347

 
338

 
700

 
661

Space Systems
209

 
193

 
411

 
383

Intersegment eliminations
(52
)
 
(49
)
 
(101
)
 
(99
)
Total segment operating income
1,031


993

 
1,998

 
1,971

Net FAS (service)/CAS pension adjustment
103

 
107

 
208

 
215

Unallocated corporate expense
(140
)
 
(154
)
 
(278
)
 
(304
)
Total operating income
$
994

 
$
946

 
$
1,928

 
$
1,882


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, advertising and other corporate unallowable costs. Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations, as well as certain compensation and other costs.
Disaggregation of Revenue
Sales by Customer Type
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
$ in millions
$
%(3)
 
$
%(3)
 
$
%(3)
 
$
%(3)
Aeronautics Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
$
2,477

85
%
 
$
2,238

82
%
 
$
4,838

84
%
 
$
4,572

82
%
International(2)
407

14
%
 
439

16
%
 
851

15
%
 
874

16
%
Other customers
12

%
 
20

1
%
 
24

%
 
45

1
%
Intersegment sales
29

1
%
 
24

1
%
 
55

1
%
 
48

1
%
Aeronautics Systems sales
2,925

100
%
 
2,721

100
%
 
5,768

100
%
 
5,539

100
%
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,305

69
%
 
1,281

67
%
 
2,564

68
%
 
2,422

66
%
International(2)
316

17
%
 
365

19
%
 
656

18
%
 
728

20
%
Other customers
85

4
%
 
106

5
%
 
196

5
%
 
203

5
%
Intersegment sales
180

10
%
 
164

9
%
 
351

9
%
 
331

9
%
Defense Systems sales
1,886

100
%
 
1,916

100
%
 
3,767

100
%
 
3,684

100
%
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,776

73
%
 
1,746

73
%
 
3,447

72
%
 
3,359

73
%
International(2)
468

19
%
 
465

19
%
 
951

20
%
 
841

18
%
Other customers
18

1
%
 
29

1
%
 
35

1
%
 
53

1
%
Intersegment sales
184

7
%
 
164

7
%
 
360

7
%
 
361

8
%
Mission Systems sales
2,446

100
%
 
2,404

100
%
 
4,793

100
%
 
4,614

100
%
Space Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,911

93
%
 
1,679

94
%
 
3,714

93
%
 
3,348

93
%
International(2)
70

4
%
 
32

2
%
 
138

3
%
 
75

2
%
Other customers
39

2
%
 
56

3
%
 
90

3
%
 
125

4
%
Intersegment sales
28

1
%
 
21

1
%
 
54

1
%
 
41

1
%
Space Systems sales
2,048

100
%
 
1,788

100
%
 
3,996

100
%
 
3,589

100
%
Total
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
7,469

84
%
 
6,944

82
%
 
14,563

83
%
 
13,701

82
%
International(2)
1,261

14
%
 
1,301

16
%
 
2,596

15
%
 
2,518

15
%
Other customers
154

2
%
 
211

2
%
 
345

2
%
 
426

3
%
Total Sales
$
8,884

100
%
 
$
8,456

100
%
 
$
17,504

100
%
 
$
16,645

100
%
(1) 
Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.
(3) Percentages calculated based on total segment sales.
Sales by Contract Type
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
$ in millions
$
%(1)
 
$
%(1)
 
$
%(1)
 
$
%(1)
Aeronautics Systems
 

 

 
 

 

 
 

 

 
 

 

Cost-type
$
1,426

49
%
 
$
1,312

49
%
 
$
2,769

48
%
 
$
2,624

48
%
Fixed-price
1,470

51
%
 
1,385

51
%
 
2,944

52
%
 
2,867

52
%
Intersegment sales
29

 
 
24

 
 
55

 
 
48

 
Aeronautics Systems sales
2,925

 
 
2,721

 
 
5,768

 
 
5,539

 
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
582

34
%
 
632

36
%
 
1,210

35
%
 
1,255

37
%
Fixed-price
1,124

66
%
 
1,120

64
%
 
2,206

65
%
 
2,098

63
%
Intersegment sales
180

 
 
164

 
 
351

 
 
331

 
Defense Systems sales
1,886

 
 
1,916

 
 
3,767

 
 
3,684

 
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
895

40
%
 
870

39
%
 
1,741

39
%
 
1,705

40
%
Fixed-price
1,367

60
%
 
1,370

61
%
 
2,692

61
%
 
2,548

60
%
Intersegment sales
184

 
 
164

 
 
360

 
 
361

 
Mission Systems sales
2,446

 
 
2,404

 
 
4,793

 
 
4,614

 
Space Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
1,468

73
%
 
1,298

73
%
 
2,866

73
%
 
2,604

73
%
Fixed-price
552

27
%
 
469

27
%
 
1,076

27
%
 
944

27
%
Intersegment sales
28

 
 
21

 
 
54

 
 
41

 
Space Systems sales
2,048

 
 
1,788

 
 
3,996

 
 
3,589

 
Total
 
 
 
 
 
 
 
 
 
 
 
Cost-type
4,371

49
%
 
4,112

49
%
 
8,586

49
%
 
8,188

49
%
Fixed-price
4,513

51
%
 
4,344

51
%
 
8,918

51
%
 
8,457

51
%
Total Sales
$
8,884

 
 
$
8,456

 
 
$
17,504

 
 
$
16,645

 
(1) 
Percentages calculated based on external customer sales.  
Sales by Geographic Region
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
2019
 
2020
 
2019
$ in millions
$
%(2)
 
$
%(2)
 
$
%(2)
 
$
%(2)
Aeronautics Systems
 
 
 
 
 
 
 
 
 
 
 
United States
$
2,489

86
%
 
$
2,258

84
%
 
$
4,862

85
%
 
$
4,617

84
%
Asia/Pacific
202

7
%
 
215

8
%
 
409

7
%
 
448

8
%
All other(1)
205

7
%
 
224

8
%
 
442

8
%
 
426

8
%
Intersegment sales
29

 
 
24

 
 
55

 
 
48

 
Aeronautics Systems sales
2,925

 
 
2,721

 
 
5,768

 
 
5,539

 
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,390

82
%
 
1,387

79
%
 
2,760

81
%
 
2,625

78
%
Asia/Pacific
107

6
%
 
125

7
%
 
189

5
%
 
213

6
%
All other(1)
209

12
%
 
240

14
%
 
467

14
%
 
515

16
%
Intersegment sales
180

 
 
164

 
 
351

 
 
331

 
Defense Systems sales
1,886

 
 
1,916

 
 
3,767

 
 
3,684

 
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,794

79
%
 
1,775

79
%
 
3,482

79
%
 
3,412

80
%
Asia/Pacific
191

9
%
 
142

6
%
 
367

8
%
 
277

7
%
All other(1)
277

12
%
 
323

15
%
 
584

13
%
 
564

13
%
Intersegment sales
184

 
 
164

 
 
360

 
 
361

 
Mission Systems sales
2,446

 
 
2,404

 
 
4,793

 
 
4,614

 
Space Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,950

97
%
 
1,735

98
%
 
3,804

97
%
 
3,473

98
%
Asia/Pacific
5

%
 
2

%
 
10

%
 
14

%
All other(1)
65

3
%
 
30

2
%
 
128

3
%
 
61

2
%
Intersegment sales
28

 
 
21

 
 
54

 
 
41

 
Space Systems sales
2,048

 
 
1,788

 
 
3,996

 
 
3,589

 
Total
 
 
 
 
 
 
 
 
 
 
 
United States
7,623

86
%
 
7,155

84
%
 
14,908

85
%
 
14,127

85
%
Asia/Pacific
505

6
%
 
484

6
%
 
975

6
%
 
952

6
%
All other(1)
756

8
%
 
817

10
%
 
1,621

9
%
 
1,566

9
%
Total Sales
$
8,884

 
 
$
8,456

 
 
$
17,504

 
 
$
16,645

 
(1) 
All other is principally comprised of Europe and the Middle East.  
(2) 
Percentages calculated based on external customer sales.
v3.20.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Principles of Consolidation
These unaudited condensed consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman Corporation and its subsidiaries and joint ventures or other investments for which we consolidate the financial results (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”). Intercompany accounts, transactions and profits are eliminated in consolidation. Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method.
Basis of Presentation
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.
Beginning in the second quarter of 2020, the company no longer considers certain unallowable costs and environmental matters that are principally managed at the corporate office as part of management’s evaluation of segment operating performance. As a result, certain unallowable compensation and other costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. In addition, certain accrued and deferred costs, as well as unallowable costs, if any, associated with certain environmental matters that were previously reflected in segment assets and operating results are now reflected in corporate assets and Unallocated corporate expense within operating income. The impact of these changes are reflected in the amounts in this Form 10-Q. See Note 9 and Part II, Item 5 for further information regarding the impact of these changes on the company’s current and prior period segment operating income.
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 2019 Annual Report on Form 10-K, the Form 8-K that we filed with the SEC on April 29, 2020, 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, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Fiscal Period Policy The quarterly information is labeled using a calendar convention; that is, first quarter is consistently labeled as ending on March 31, second quarter as ending on June 30 and third quarter as ending on September 30. It is the company’s long-standing practice to establish actual interim closing dates using a “fiscal” calendar, in which we close our books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes. This practice is only used at interim periods within a reporting year.
Accounting Estimates
Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.
Revenue from Contract with Customer
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. We recognize revenue as control is transferred to the customer, either over time or at a point in time. 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 our performance obligations. Revenue for contracts in which the control of goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon delivery).
Contract Estimates
Use of the cost-to-cost method requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. The company estimates profit on
these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes that profit as costs are incurred. Significant judgment is used to estimate total sales and cost at completion.
Contract sales may include estimates of variable consideration, including cost or performance incentives (such as award and incentive fees), contract claims and requests for equitable adjustment (REAs). Variable consideration is included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled.
We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative 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.
Contract Assets and Liabilities
For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position.
Earnings Per Share Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans.
We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period.
Investments in Marketable Securities 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
Derivative Financial Instruments and Hedging Activities Where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value and uses the applicable London Interbank Offered Rate (LIBOR) swap rates.
Fair Value of Long-term Debt 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.
U.S. Government Cost Claims From time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available.
Pension and Other Postretirement 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
v3.20.2
Basis of Presentation (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Change in Accounting Estimate [Table Text Block]
The following table presents the effect of aggregate net EAC adjustments:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions, except per share data
2020
 
2019
 
2020
 
2019
Revenue
$
125

 
$
154

 
$
261

 
$
320

Operating income
112

 
158

 
236

 
296

Net earnings(1)
88

 
125

 
186

 
234

Diluted earnings per share(1)
0.53

 
0.73

 
1.11

 
1.37

(1) 
Based on a 21 percent statutory tax rate
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
$ in millions
June 30,
2020
December 31,
2019
Unamortized prior service credit, net of tax expense of $10 for 2020 and $17 for 2019
$
30

$
51

Cumulative translation adjustment and other, net
(147
)
(148
)
Total accumulated other comprehensive loss
$
(117
)
$
(97
)

v3.20.2
Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
Share Repurchases
The table below summarizes the company’s share repurchases to date under the authorizations described above:
 
 
 
 
 
 
 
 
 
 
Shares Repurchased
(in millions)
Repurchase Program
Authorization Date
 
Amount
Authorized
(in millions)
 
Total
Shares Retired
(in millions)
 
Average 
Price
Per Share
(1)
 
Date Completed
 
Six Months Ended June 30
 
2020
 
2019
September 16, 2015
 
$
4,000

 
15.4

 
$
260.33

 
March 2020
 
0.9

 
1.7

December 4, 2018
 
$
3,000

 
0.5

 
326.20

 

 
0.5

 


(1) 
Includes commissions paid.
v3.20.2
Income Taxes (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
Schedule of Income Tax Expense and Effective Income Tax Rates
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020

2019
Federal and foreign income tax expense
$
198

 
$
167

 
$
383

 
$
338

Effective income tax rate
16.5
%
 
16.2
%
 
17.0
%
 
16.4
%

v3.20.2
Fair Value of Financial Instruments (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Fair value information of assets and liabilities measured at fair value on a recurring basis
The following table presents the financial assets and liabilities the company records at fair value on a recurring basis identified by the level of inputs used to determine fair value:
 
 
June 30, 2020
 
December 31, 2019
$ in millions
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Financial Assets (Liabilities)
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities
 
$
331

 
$
1

 
$
332

 
$
364

 
$
1

 
$
365

Marketable securities valued using NAV
 
 
 
 
 
16

 
 
 
 
 
17

Total marketable securities
 
331

 
1

 
348

 
364

 
1

 
382

Derivatives
 

 
(1
)
 
(1
)
 

 
(3
)
 
(3
)

v3.20.2
Commitments and Contingencies (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Environmental Remediation Range of Future Costs [Line Items]  
Environmental Remediation [Table Text Block]
The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of June 30, 2020 and December 31, 2019:
$ in millions
 
Accrued Costs(1)(2)
 
Reasonably Possible Future Costs in Excess of Accrued Costs(2)
 
Deferred Costs(3)
June 30, 2020
 
$
570

 
$
452

 
$
478

December 31, 2019
 
531

 
448

 
436

(1) As of June 30, 2020, $173 million is recorded in Other current liabilities and $397 million is recorded in Other non-current liabilities.
(2) Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.
(3) As of June 30, 2020, $144 million is deferred in Prepaid expenses and other current assets and $334 million is deferred in Other non-current assets. These amounts are evaluated for recoverability on a routine basis.
v3.20.2
Retirement Benefits (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Retirement Benefits [Abstract]  
Components of net periodic benefit cost
The cost to the company of its pension and other postretirement benefit (OPB) plans is shown in the following table:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
Pension
Benefits
 
OPB
 
Pension
Benefits
 
OPB
$ in millions
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Components of net periodic benefit cost (benefit)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
102

 
$
92

 
$
5

 
$
4

 
$
204

 
$
184

 
$
9

 
$
8

Interest cost
306

 
340

 
16

 
20

 
613

 
680

 
33

 
40

Expected return on plan assets
(594
)
 
(526
)
 
(25
)
 
(23
)
 
(1,188
)
 
(1,051
)
 
(51
)
 
(46
)
Amortization of prior service credit
(15
)
 
(14
)
 
1

 

 
(30
)
 
(29
)
 
2

 
(1
)
Net periodic benefit cost (benefit)
$
(201
)
 
$
(108
)
 
$
(3
)
 
$
1

 
$
(401
)
 
$
(216
)
 
$
(7
)
 
$
1


Employer contributions to retirement plans
Contributions made by the company to its retirement plans are as follows:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Defined benefit pension plans
$
26

 
$
23

 
$
46

 
$
46

OPB plans
11

 
12

 
23

 
24

Defined contribution plans
100

 
88

 
356

 
279


v3.20.2
Stock Compensation Plans and Other Compensation Arrangements (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Share-based Payment Arrangement [Abstract]  
Nonvested Restricted Stock Shares Activity [Table Text Block]
The following table presents the number of restricted stock rights (RSRs) and restricted performance stock rights (RPSRs) granted to employees under the company’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented:
 
 
Six Months Ended June 30
in millions
 
2020
 
2019
RSRs granted
 
0.1

 
0.1

RPSRs granted
 
0.2

 
0.2

Grant date aggregate fair value
 
$
91

 
$
92


Cash Units and Cash Performance Units Aggregate Payout Amount [Table Text Block]
The following table presents the minimum and maximum aggregate payout amounts related to cash units (CUs) and cash performance units (CPUs) granted to employees in the periods presented:
 
 
Six Months Ended June 30
$ in millions
 
2020
 
2019
Minimum aggregate payout amount
 
$
31

 
$
36

Maximum aggregate payout amount
 
175

 
203


v3.20.2
Segment Information (Unaudited) (Tables)
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Sales and operating income by segment
The following table presents sales and operating income by segment:
 
Three Months Ended June 30
 
Six Months Ended June 30
$ in millions
2020
 
2019
 
2020
 
2019
Sales
 
 
 
 
 
 
 
Aeronautics Systems
$
2,925

 
$
2,721

 
$
5,768

 
$
5,539

Defense Systems
1,886

 
1,916

 
3,767

 
3,684

Mission Systems
2,446

 
2,404

 
4,793

 
4,614

Space Systems
2,048

 
1,788

 
3,996

 
3,589

Intersegment eliminations
(421
)
 
(373
)
 
(820
)
 
(781
)
Total sales
8,884

 
8,456

 
17,504

 
16,645

Operating income
 
 
 
 
 
 
 
Aeronautics Systems
310

 
299

 
573

 
610

Defense Systems
217

 
212

 
415

 
416

Mission Systems
347

 
338

 
700

 
661

Space Systems
209

 
193

 
411

 
383

Intersegment eliminations
(52
)
 
(49
)
 
(101
)
 
(99
)
Total segment operating income
1,031


993

 
1,998

 
1,971

Net FAS (service)/CAS pension adjustment
103

 
107

 
208

 
215

Unallocated corporate expense
(140
)
 
(154
)
 
(278
)
 
(304
)
Total operating income
$
994

 
$
946

 
$
1,928

 
$
1,882


Revenue by Major Customers by Reporting Segments
Sales by Customer Type
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
$ in millions
$
%(3)
 
$
%(3)
 
$
%(3)
 
$
%(3)
Aeronautics Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
$
2,477

85
%
 
$
2,238

82
%
 
$
4,838

84
%
 
$
4,572

82
%
International(2)
407

14
%
 
439

16
%
 
851

15
%
 
874

16
%
Other customers
12

%
 
20

1
%
 
24

%
 
45

1
%
Intersegment sales
29

1
%
 
24

1
%
 
55

1
%
 
48

1
%
Aeronautics Systems sales
2,925

100
%
 
2,721

100
%
 
5,768

100
%
 
5,539

100
%
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,305

69
%
 
1,281

67
%
 
2,564

68
%
 
2,422

66
%
International(2)
316

17
%
 
365

19
%
 
656

18
%
 
728

20
%
Other customers
85

4
%
 
106

5
%
 
196

5
%
 
203

5
%
Intersegment sales
180

10
%
 
164

9
%
 
351

9
%
 
331

9
%
Defense Systems sales
1,886

100
%
 
1,916

100
%
 
3,767

100
%
 
3,684

100
%
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,776

73
%
 
1,746

73
%
 
3,447

72
%
 
3,359

73
%
International(2)
468

19
%
 
465

19
%
 
951

20
%
 
841

18
%
Other customers
18

1
%
 
29

1
%
 
35

1
%
 
53

1
%
Intersegment sales
184

7
%
 
164

7
%
 
360

7
%
 
361

8
%
Mission Systems sales
2,446

100
%
 
2,404

100
%
 
4,793

100
%
 
4,614

100
%
Space Systems
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
1,911

93
%
 
1,679

94
%
 
3,714

93
%
 
3,348

93
%
International(2)
70

4
%
 
32

2
%
 
138

3
%
 
75

2
%
Other customers
39

2
%
 
56

3
%
 
90

3
%
 
125

4
%
Intersegment sales
28

1
%
 
21

1
%
 
54

1
%
 
41

1
%
Space Systems sales
2,048

100
%
 
1,788

100
%
 
3,996

100
%
 
3,589

100
%
Total
 
 
 
 
 
 
 
 
 
 
 
U.S. government(1)
7,469

84
%
 
6,944

82
%
 
14,563

83
%
 
13,701

82
%
International(2)
1,261

14
%
 
1,301

16
%
 
2,596

15
%
 
2,518

15
%
Other customers
154

2
%
 
211

2
%
 
345

2
%
 
426

3
%
Total Sales
$
8,884

100
%
 
$
8,456

100
%
 
$
17,504

100
%
 
$
16,645

100
%
(1) 
Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.
(2) International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.
(3) Percentages calculated based on total segment sales.
Revenue from External Customers by Contract Type
Sales by Contract Type
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
$ in millions
$
%(1)
 
$
%(1)
 
$
%(1)
 
$
%(1)
Aeronautics Systems
 

 

 
 

 

 
 

 

 
 

 

Cost-type
$
1,426

49
%
 
$
1,312

49
%
 
$
2,769

48
%
 
$
2,624

48
%
Fixed-price
1,470

51
%
 
1,385

51
%
 
2,944

52
%
 
2,867

52
%
Intersegment sales
29

 
 
24

 
 
55

 
 
48

 
Aeronautics Systems sales
2,925

 
 
2,721

 
 
5,768

 
 
5,539

 
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
582

34
%
 
632

36
%
 
1,210

35
%
 
1,255

37
%
Fixed-price
1,124

66
%
 
1,120

64
%
 
2,206

65
%
 
2,098

63
%
Intersegment sales
180

 
 
164

 
 
351

 
 
331

 
Defense Systems sales
1,886

 
 
1,916

 
 
3,767

 
 
3,684

 
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
895

40
%
 
870

39
%
 
1,741

39
%
 
1,705

40
%
Fixed-price
1,367

60
%
 
1,370

61
%
 
2,692

61
%
 
2,548

60
%
Intersegment sales
184

 
 
164

 
 
360

 
 
361

 
Mission Systems sales
2,446

 
 
2,404

 
 
4,793

 
 
4,614

 
Space Systems
 
 
 
 
 
 
 
 
 
 
 
Cost-type
1,468

73
%
 
1,298

73
%
 
2,866

73
%
 
2,604

73
%
Fixed-price
552

27
%
 
469

27
%
 
1,076

27
%
 
944

27
%
Intersegment sales
28

 
 
21

 
 
54

 
 
41

 
Space Systems sales
2,048

 
 
1,788

 
 
3,996

 
 
3,589

 
Total
 
 
 
 
 
 
 
 
 
 
 
Cost-type
4,371

49
%
 
4,112

49
%
 
8,586

49
%
 
8,188

49
%
Fixed-price
4,513

51
%
 
4,344

51
%
 
8,918

51
%
 
8,457

51
%
Total Sales
$
8,884

 
 
$
8,456

 
 
$
17,504

 
 
$
16,645

 
(1) 
Percentages calculated based on external customer sales.
Revenue from External Customers by Geographic Areas
Sales by Geographic Region
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
2019
 
2020
 
2019
$ in millions
$
%(2)
 
$
%(2)
 
$
%(2)
 
$
%(2)
Aeronautics Systems
 
 
 
 
 
 
 
 
 
 
 
United States
$
2,489

86
%
 
$
2,258

84
%
 
$
4,862

85
%
 
$
4,617

84
%
Asia/Pacific
202

7
%
 
215

8
%
 
409

7
%
 
448

8
%
All other(1)
205

7
%
 
224

8
%
 
442

8
%
 
426

8
%
Intersegment sales
29

 
 
24

 
 
55

 
 
48

 
Aeronautics Systems sales
2,925

 
 
2,721

 
 
5,768

 
 
5,539

 
Defense Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,390

82
%
 
1,387

79
%
 
2,760

81
%
 
2,625

78
%
Asia/Pacific
107

6
%
 
125

7
%
 
189

5
%
 
213

6
%
All other(1)
209

12
%
 
240

14
%
 
467

14
%
 
515

16
%
Intersegment sales
180

 
 
164

 
 
351

 
 
331

 
Defense Systems sales
1,886

 
 
1,916

 
 
3,767

 
 
3,684

 
Mission Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,794

79
%
 
1,775

79
%
 
3,482

79
%
 
3,412

80
%
Asia/Pacific
191

9
%
 
142

6
%
 
367

8
%
 
277

7
%
All other(1)
277

12
%
 
323

15
%
 
584

13
%
 
564

13
%
Intersegment sales
184

 
 
164

 
 
360

 
 
361

 
Mission Systems sales
2,446

 
 
2,404

 
 
4,793

 
 
4,614

 
Space Systems
 
 
 
 
 
 
 
 
 
 
 
United States
1,950

97
%
 
1,735

98
%
 
3,804

97
%
 
3,473

98
%
Asia/Pacific
5

%
 
2

%
 
10

%
 
14

%
All other(1)
65

3
%
 
30

2
%
 
128

3
%
 
61

2
%
Intersegment sales
28

 
 
21

 
 
54

 
 
41

 
Space Systems sales
2,048

 
 
1,788

 
 
3,996

 
 
3,589

 
Total
 
 
 
 
 
 
 
 
 
 
 
United States
7,623

86
%
 
7,155

84
%
 
14,908

85
%
 
14,127

85
%
Asia/Pacific
505

6
%
 
484

6
%
 
975

6
%
 
952

6
%
All other(1)
756

8
%
 
817

10
%
 
1,621

9
%
 
1,566

9
%
Total Sales
$
8,884

 
 
$
8,456

 
 
$
17,504

 
 
$
16,645

 
(1) 
All other is principally comprised of Europe and the Middle East.  
(2) 
Percentages calculated based on external customer sales.
v3.20.2
Basis of Presentation (Unaudited) Contract Estimates (Details 1) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Change in Accounting Estimate [Line Items]        
Revenue $ 125 $ 154 $ 261 $ 320
Operating income 994 946 1,928 1,882
Net earnings $ 1,005 $ 861 $ 1,873 $ 1,724
Diluted earnings per share $ 6.01 $ 5.06 $ 11.16 $ 10.11
Contracts Accounted for under Percentage of Completion [Member]        
Change in Accounting Estimate [Line Items]        
Operating income $ 112 $ 158 $ 236 $ 296
Net earnings $ 88 $ 125 $ 186 $ 234
Diluted earnings per share $ 0.53 $ 0.73 $ 1.11 $ 1.37
v3.20.2
Basis of Presentation (Unaudited) Backlog and Contract Assets and Liabilities (Details 2) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Change in Contract with Customer, Liability [Abstract]        
Contract with Customer, Liability, Revenue Recognized $ 442 $ 333 $ 1,200 $ 1,000
Revenue from Contract with Customer [Abstract]        
Revenue, Remaining Performance Obligation, Amount $ 70,000   $ 70,000  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Explanation     We expect to recognize approximately 40 percent and 65 percent of our June 30, 2020 backlog as revenue over the next 12 and 24 months, respectively, with the remainder to be recognized thereafter.  
v3.20.2
Basis of Presentation (Unaudited) Accumulated Other Comprehensive Income (Loss) (Details 3) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]    
Unamortized prior service credit, net of tax expense of $11 for 2020 and $17 for 2019 $ (30) $ (51)
Cumulative translation adjustment and other, net (147) (148)
Total accumulated other comprehensive loss (117) (97)
Unamortized prior service credit, tax expense $ 10 $ 17
v3.20.2
Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited) Earnings Per Share and Dividends (Details 1) - $ / shares
shares in Millions
1 Months Ended 3 Months Ended 6 Months Ended
May 31, 2020
May 31, 2019
May 31, 2018
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Earnings Per Share, Basic and Diluted [Abstract]              
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements       0.4 0.6 0.6 0.6
Common stock dividends per share, declared (in dollars per share) $ 1.45 $ 1.32 $ 1.20 $ 1.45 $ 1.32 $ 2.77 $ 2.52
Increase in quarterly common stock dividend (percent) 10.00% 10.00%          
v3.20.2
Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited) Share Repurchases (Details 2) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
4 Months Ended 6 Months Ended 47 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Jun. 30, 2019
Feb. 29, 2020
Dec. 04, 2018
Sep. 16, 2015
September 2015 Share Repurchase Program Original Authorization            
Share Repurchase [Line Items]            
Amount Authorized           $ 4,000
Shares Retired       15.4    
Average Cost Per Share       $ 260.33    
Shares Repurchased   0.9 1.7      
December 2018 Share Repurchase Original Authorization [Member]            
Share Repurchase [Line Items]            
Amount Authorized         $ 3,000  
Shares Retired 0.5          
Average Cost Per Share $ 326.20          
Shares Repurchased   0.5        
Share Repurchases - Notes to Table            
Shares repurchased amount $ 200          
Amount remaining under authorization for share repurchases $ 2,800 $ 2,800        
v3.20.2
Income Taxes (Unaudited) Effective Income Tax Rate Reconciliation (Details 1) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Tax Disclosure [Abstract]        
Federal and foreign income tax expense $ 198 $ 167 $ 383 $ 338
Effective income tax rate 16.50% 16.20% 17.00% 16.40%
Effective Income Tax Rate Reconciliation, Tax Credit, Research, Amount $ 48 $ 51 $ 90 $ 82
Effective Income Tax Rate Reconciliation, Tax Expense (Benefit), Share-based Payment Arrangement, Amount     $ 13 $ 13
v3.20.2
Income Taxes (Unaudited) Unrecognized Tax Benefit (Details 2)
$ in Millions
Jun. 30, 2020
USD ($)
Income Tax Disclosure [Abstract]  
Decrease in Unrecognized Tax Benefits is Reasonably Possible $ 70
v3.20.2
Fair Value of Financial Instruments (Unaudited) (Details 1) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Marketable Securities $ 348 $ 382
Fair Value, Inputs, Level 1 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Marketable Securities 331 364
Derivatives 0 0
Fair Value, Inputs, Level 2 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Marketable Securities 1 1
Derivatives (1) (3)
Fair Value, Recurring [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Marketable Securities 332 365
Derivatives (1) (3)
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Marketable Securities 331 364
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Marketable Securities 1 1
Fair Value, Nonrecurring [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Marketable Securities $ 16 $ 17
v3.20.2
Amounts in Paragraphs - Fair Value of Financial Instruments (Unaudited) (Details 2) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]    
Foreign Currency Derivative Instruments Not Designated as Hedging Instruments, Asset at Fair Value $ 71 $ 98
Foreign Currency Cash Flow Hedge Derivative at Fair Value, Net $ 0 $ 7
v3.20.2
Fair Value of Financial Instruments (Unaudited) Long-term Debt (Details 3) - USD ($)
$ in Millions
Jun. 30, 2020
Mar. 23, 2020
Dec. 31, 2019
Debt Disclosure [Abstract]      
Long-term Debt, Fair Value $ 19,000   $ 15,100
Debt and Lease Obligation $ 16,100   $ 13,900
Debt Instrument [Line Items]      
Debt Instrument, Face Amount   $ 2,250  
Two Thousand Thirty [Member]      
Debt Instrument [Line Items]      
Debt Instrument, Face Amount   $ 750  
Debt Instrument, Interest Rate, Stated Percentage   4.40%  
Two Thousand Forty 2 [Member]      
Debt Instrument [Line Items]      
Debt Instrument, Face Amount   $ 500  
Debt Instrument, Interest Rate, Stated Percentage   5.15%  
Two Thousand Fifty [Member]      
Debt Instrument [Line Items]      
Debt Instrument, Face Amount   $ 1,000  
Debt Instrument, Interest Rate, Stated Percentage   5.25%  
v3.20.2
Investigations, Claims and Litigation (Unaudited) (Details)
€ in Millions, R$ in Millions, $ in Millions
12 Months Ended 63 Months Ended 81 Months Ended 83 Months Ended 85 Months Ended
Dec. 31, 2007
USD ($)
Nov. 13, 2018
BRL (R$)
Nov. 13, 2018
USD ($)
Jun. 30, 2020
EUR (€)
Jun. 30, 2020
BRL (R$)
Jun. 30, 2020
USD ($)
Jun. 30, 2020
BRL (R$)
Defendant
Jun. 30, 2020
USD ($)
Defendant
Jun. 30, 2020
USD ($)
Feb. 16, 2018
USD ($)
May 04, 2012
USD ($)
United States Postal Service                      
Loss Contingencies                      
CounterclaimForDamagesSought                   $ 193  
Solystic Matter [Member]                      
Loss Contingencies                      
Loss Contingency, Damages Sought, Value             R$ 111 $ 20      
Counterclaim       € 31   $ 35          
Loss Contingency, Damages Awarded, Value   R$ 41 $ 8                
Unpaid Portions of Contract Price and Direct Costs Incurred [Member] | United States Postal Service                      
Loss Contingencies                      
Unbilled receivables, net                     $ 63
Acts and Omissions with Adverse Affects on Performance and Obligations [Member] | United States Postal Service                      
Loss Contingencies                      
Gain contingency, unrecorded amount                     $ 115
United States Postal Service                      
Loss Contingencies                      
Contract award $ 875                    
United States Postal Service | False Claims Act | Threatened Litigation                      
Loss Contingencies                      
Loss Contingency, Damages Sought, Value                 $ 179    
Solystic Matter [Member] | Solystic Matter [Member]                      
Loss Contingencies                      
Loss Contingency, Number of Additional Defendants | Defendant             2 2      
Initial Claim [Member] | Solystic Matter [Member]                      
Loss Contingencies                      
Loss Contingency, Damages Sought, Value             R$ 89 $ 16      
Incremental claim [Member] | Solystic Matter [Member]                      
Loss Contingencies                      
Loss Contingency, Damages Sought, Value         R$ 22 4          
Maximum | United States Postal Service                      
Loss Contingencies                      
Loss Contingency, Estimate of Possible Loss           $ 410   $ 410 $ 410    
v3.20.2
Commitments and Contingencies (Unaudited) (Details)
£ in Millions
6 Months Ended
Jun. 30, 2020
GBP (£)
Rate
Jun. 30, 2020
USD ($)
Dec. 31, 2019
USD ($)
Site Contingency [Line Items]      
Accrual for Environmental Remediation Costs   $ 570,000,000 $ 531,000,000
Loss Contingency, Range of Possible Loss, Portion Not Accrued   452,000,000 448,000,000
Recorded Third-Party Environmental Recoveries, Amount   478,000,000 $ 436,000,000
Financial Arrangements      
Standby Unused Letters Of Credit and bank guarantees   460,000,000  
Surety Bond Outstanding   79,000,000  
Line of Credit Facility [Line Items]      
Debt Instrument, Covenant Compliance the company was in compliance with all covenants under its credit agreements.    
Two Year Term [Member] [Domain]      
Line of Credit Facility [Line Items]      
Line of Credit Facility, Maximum Borrowing Capacity £ 120 148,000,000  
Line of Credit Outstanding £ 50 62,000,000  
Five Year Term [Member] [Domain]      
Line of Credit Facility [Line Items]      
Line of Credit Facility, Maximum Borrowing Capacity   2,000,000,000.0  
Line of Credit Outstanding   0  
London Interbank Offered Rate (LIBOR) [Member] | Two Year Term [Member] [Domain]      
Line of Credit Facility [Line Items]      
Line of Credit Facility, Interest Rate During Period | Rate 1.10%    
Commercial Paper [Member]      
Line of Credit Facility [Line Items]      
Commercial Paper, Maximum Borrowing Capacity   2,000,000,000.0  
Commercial Paper   0  
Other Current Liabilities [Member]      
Site Contingency [Line Items]      
Accrual for Environmental Remediation Costs   173,000,000  
Other Noncurrent Liabilities [Member]      
Site Contingency [Line Items]      
Accrual for Environmental Remediation Costs   397,000,000  
Other Current Assets [Member]      
Site Contingency [Line Items]      
Recorded Third-Party Environmental Recoveries, Amount   144,000,000  
Other Noncurrent Assets [Member]      
Site Contingency [Line Items]      
Recorded Third-Party Environmental Recoveries, Amount   $ 334,000,000  
v3.20.2
Retirement Benefits (Unaudited) (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Components of Net Periodic Benefit Cost        
Defined contribution plan, employer contributions $ 100 $ 88 $ 356 $ 279
Pension Benefits        
Components of Net Periodic Benefit Cost        
Service cost 102 92 204 184
Interest cost 306 340 613 680
Expected return on plan assets (594) (526) (1,188) (1,051)
Amortization of prior service credit (15) (14) (30) (29)
Net periodic benefit cost (benefit) (201) (108) (401) (216)
Defined benefit plan, contributions by Employer 26 23 46 46
OPB        
Components of Net Periodic Benefit Cost        
Service cost 5 4 9 8
Interest cost 16 20 33 40
Expected return on plan assets (25) (23) (51) (46)
Amortization of prior service credit 1 0 2 (1)
Net periodic benefit cost (benefit) (3) 1 (7) 1
Defined benefit plan, contributions by Employer $ 11 $ 12 $ 23 $ 24
v3.20.2
Stock Compensation Plans and Other Compensation Arrangements (Unaudited) (Details) - USD ($)
shares in Millions, $ in Millions
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Restricted Stock Rights and Restricted Performance Stock Rights Grant Date Aggregate Fair Value $ 91 $ 92
Restricted Stock Units (RSUs) [Member]    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Shares granted 0.1 0.1
Vesting period 3 years  
Performance Shares [Member]    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Shares granted 0.2 0.2
Vesting period 3 years  
Cash Units and Cash Performance Units | Minimum [Member]    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Deferred Compensation Cash-based Arrangements, Liability, Current and Noncurrent $ 31 $ 36
Cash Units and Cash Performance Units | Maximum [Member]    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Deferred Compensation Cash-based Arrangements, Liability, Current and Noncurrent $ 175 $ 203
Cash Units    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Vesting period 3 years  
Cash Performance Units    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Vesting period 3 years  
v3.20.2
Segment Information (Unaudited) Reconciliation to Consolidated Operating Income (Details 1)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
segment
Jun. 30, 2019
USD ($)
Segment Reporting Information [Line Items]        
Number of reportable segments | segment     4  
Sales $ 8,884 $ 8,456 $ 17,504 $ 16,645
Operating income 994 946 1,928 1,882
Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Operating income 1,031 993 1,998 1,971
Operating Segments [Member] | Aeronautics Systems [Member]        
Segment Reporting Information [Line Items]        
Sales 2,925 2,721 5,768 5,539
Operating income 310 299 573 610
Operating Segments [Member] | Defense Systems [Member]        
Segment Reporting Information [Line Items]        
Sales 1,886 1,916 3,767 3,684
Operating income 217 212 415 416
Operating Segments [Member] | Mission Systems [Member]        
Segment Reporting Information [Line Items]        
Sales 2,446 2,404 4,793 4,614
Operating income 347 338 700 661
Operating Segments [Member] | Space Systems [Member]        
Segment Reporting Information [Line Items]        
Sales 2,048 1,788 3,996 3,589
Operating income 209 193 411 383
Intersegment sales        
Segment Reporting Information [Line Items]        
Sales (421) (373) (820) (781)
Operating income (52) (49) (101) (99)
Segment Reconciling Items [Member]        
Segment Reporting Information [Line Items]        
Net FAS (service)/ CAS pension adjustment 103 107 208 215
Corporate, Non-Segment [Member]        
Segment Reporting Information [Line Items]        
Operating income $ (140) $ (154) $ (278) $ (304)
v3.20.2
Segment Information (Unaudited) Sales by Customer Type (Details 2) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue, Major Customer [Line Items]        
Sales $ 8,884 $ 8,456 $ 17,504 $ 16,645
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
U.S. government(1)        
Revenue, Major Customer [Line Items]        
Sales $ 7,469 $ 6,944 $ 14,563 $ 13,701
Concentration Risk, Percentage 84.00% 82.00% 83.00% 82.00%
U.S. government(1) | Aeronautics Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 2,477 $ 2,238 $ 4,838 $ 4,572
Concentration Risk, Percentage 85.00% 82.00% 84.00% 82.00%
U.S. government(1) | Defense Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 1,305 $ 1,281 $ 2,564 $ 2,422
Concentration Risk, Percentage 69.00% 67.00% 68.00% 66.00%
U.S. government(1) | Mission Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 1,776 $ 1,746 $ 3,447 $ 3,359
Concentration Risk, Percentage 73.00% 73.00% 72.00% 73.00%
U.S. government(1) | Space Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 1,911 $ 1,679 $ 3,714 $ 3,348
Concentration Risk, Percentage 93.00% 94.00% 93.00% 93.00%
International(2)        
Revenue, Major Customer [Line Items]        
Sales $ 1,261 $ 1,301 $ 2,596 $ 2,518
Concentration Risk, Percentage 14.00% 16.00% 15.00% 15.00%
International(2) | Aeronautics Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 407 $ 439 $ 851 $ 874
Concentration Risk, Percentage 14.00% 16.00% 15.00% 16.00%
International(2) | Defense Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 316 $ 365 $ 656 $ 728
Concentration Risk, Percentage 17.00% 19.00% 18.00% 20.00%
International(2) | Mission Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 468 $ 465 $ 951 $ 841
Concentration Risk, Percentage 19.00% 19.00% 20.00% 18.00%
International(2) | Space Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 70 $ 32 $ 138 $ 75
Concentration Risk, Percentage 4.00% 2.00% 3.00% 2.00%
Other customers        
Revenue, Major Customer [Line Items]        
Sales $ 154 $ 211 $ 345 $ 426
Concentration Risk, Percentage 2.00% 2.00% 2.00% 3.00%
Other customers | Aeronautics Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 12 $ 20 $ 24 $ 45
Concentration Risk, Percentage 0.00% 1.00% 0.00% 1.00%
Other customers | Defense Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 85 $ 106 $ 196 $ 203
Concentration Risk, Percentage 4.00% 5.00% 5.00% 5.00%
Other customers | Mission Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 18 $ 29 $ 35 $ 53
Concentration Risk, Percentage 1.00% 1.00% 1.00% 1.00%
Other customers | Space Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 39 $ 56 $ 90 $ 125
Concentration Risk, Percentage 2.00% 3.00% 3.00% 4.00%
Intersegment Sales [Member] | Aeronautics Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 29 $ 24 $ 55 $ 48
Concentration Risk, Percentage 1.00% 1.00% 1.00% 1.00%
Intersegment Sales [Member] | Defense Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 180 $ 164 $ 351 $ 331
Concentration Risk, Percentage 10.00% 9.00% 9.00% 9.00%
Intersegment Sales [Member] | Mission Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 184 $ 164 $ 360 $ 361
Concentration Risk, Percentage 7.00% 7.00% 7.00% 8.00%
Intersegment Sales [Member] | Space Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 28 $ 21 $ 54 $ 41
Concentration Risk, Percentage 1.00% 1.00% 1.00% 1.00%
Operating Segments [Member] | Aeronautics Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 2,925 $ 2,721 $ 5,768 $ 5,539
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Defense Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 1,886 $ 1,916 $ 3,767 $ 3,684
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Mission Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 2,446 $ 2,404 $ 4,793 $ 4,614
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Space Systems [Member]        
Revenue, Major Customer [Line Items]        
Sales $ 2,048 $ 1,788 $ 3,996 $ 3,589
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
v3.20.2
Segment Information (Unaudited) Sales by Contract Type (Details 3) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue, Contract Type [Line Items]        
Sales $ 8,884 $ 8,456 $ 17,504 $ 16,645
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Cost-type [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 4,371 $ 4,112 $ 8,586 $ 8,188
Concentration Risk, Percentage 49.00% 49.00% 49.00% 49.00%
Cost-type [Member] | Aeronautics Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 1,426 $ 1,312 $ 2,769 $ 2,624
Concentration Risk, Percentage 49.00% 49.00% 48.00% 48.00%
Cost-type [Member] | Defense Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 582 $ 632 $ 1,210 $ 1,255
Concentration Risk, Percentage 34.00% 36.00% 35.00% 37.00%
Cost-type [Member] | Mission Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 895 $ 870 $ 1,741 $ 1,705
Concentration Risk, Percentage 40.00% 39.00% 39.00% 40.00%
Cost-type [Member] | Space Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 1,468 $ 1,298 $ 2,866 $ 2,604
Concentration Risk, Percentage 73.00% 73.00% 73.00% 73.00%
Fixed-price [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 4,513 $ 4,344 $ 8,918 $ 8,457
Concentration Risk, Percentage 51.00% 51.00% 51.00% 51.00%
Fixed-price [Member] | Aeronautics Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 1,470 $ 1,385 $ 2,944 $ 2,867
Concentration Risk, Percentage 51.00% 51.00% 52.00% 52.00%
Fixed-price [Member] | Defense Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 1,124 $ 1,120 $ 2,206 $ 2,098
Concentration Risk, Percentage 66.00% 64.00% 65.00% 63.00%
Fixed-price [Member] | Mission Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 1,367 $ 1,370 $ 2,692 $ 2,548
Concentration Risk, Percentage 60.00% 61.00% 61.00% 60.00%
Fixed-price [Member] | Space Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 552 $ 469 $ 1,076 $ 944
Concentration Risk, Percentage 27.00% 27.00% 27.00% 27.00%
Intersegment sales | Aeronautics Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 29 $ 24 $ 55 $ 48
Intersegment sales | Defense Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales 180 164 351 331
Intersegment sales | Mission Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales 184 164 360 361
Intersegment sales | Space Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales 28 21 54 41
Operating Segments [Member] | Aeronautics Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 2,925 $ 2,721 $ 5,768 $ 5,539
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Defense Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 1,886 $ 1,916 $ 3,767 $ 3,684
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Mission Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 2,446 $ 2,404 $ 4,793 $ 4,614
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Space Systems [Member]        
Revenue, Contract Type [Line Items]        
Sales $ 2,048 $ 1,788 $ 3,996 $ 3,589
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
v3.20.2
Segment Information (Unaudited) Sales by Geographic Location (Details 4) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue, Geographic Location [Line Items]        
Sales $ 8,884 $ 8,456 $ 17,504 $ 16,645
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
United States        
Revenue, Geographic Location [Line Items]        
Sales $ 7,623 $ 7,155 $ 14,908 $ 14,127
Concentration Risk, Percentage 86.00% 84.00% 85.00% 85.00%
United States | Aeronautics Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 2,489 $ 2,258 $ 4,862 $ 4,617
Concentration Risk, Percentage 86.00% 84.00% 85.00% 84.00%
United States | Defense Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 1,390 $ 1,387 $ 2,760 $ 2,625
Concentration Risk, Percentage 82.00% 79.00% 81.00% 78.00%
United States | Mission Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 1,794 $ 1,775 $ 3,482 $ 3,412
Concentration Risk, Percentage 79.00% 79.00% 79.00% 80.00%
United States | Space Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 1,950 $ 1,735 $ 3,804 $ 3,473
Concentration Risk, Percentage 97.00% 98.00% 97.00% 98.00%
Asia/Pacific        
Revenue, Geographic Location [Line Items]        
Sales $ 505 $ 484 $ 975 $ 952
Concentration Risk, Percentage 6.00% 6.00% 6.00% 6.00%
Asia/Pacific | Aeronautics Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 202 $ 215 $ 409 $ 448
Concentration Risk, Percentage 7.00% 8.00% 7.00% 8.00%
Asia/Pacific | Defense Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 107 $ 125 $ 189 $ 213
Concentration Risk, Percentage 6.00% 7.00% 5.00% 6.00%
Asia/Pacific | Mission Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 191 $ 142 $ 367 $ 277
Concentration Risk, Percentage 9.00% 6.00% 8.00% 7.00%
Asia/Pacific | Space Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 5 $ 2 $ 10 $ 14
Concentration Risk, Percentage 0.00% 0.00% 0.00% 0.00%
All other        
Revenue, Geographic Location [Line Items]        
Sales $ 756 $ 817 $ 1,621 $ 1,566
Concentration Risk, Percentage 8.00% 10.00% 9.00% 9.00%
All other | Aeronautics Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 205 $ 224 $ 442 $ 426
Concentration Risk, Percentage 7.00% 8.00% 8.00% 8.00%
All other | Defense Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 209 $ 240 $ 467 $ 515
Concentration Risk, Percentage 12.00% 14.00% 14.00% 16.00%
All other | Mission Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 277 $ 323 $ 584 $ 564
Concentration Risk, Percentage 12.00% 15.00% 13.00% 13.00%
All other | Space Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 65 $ 30 $ 128 $ 61
Concentration Risk, Percentage 3.00% 2.00% 3.00% 2.00%
Intersegment sales | Aeronautics Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 29 $ 24 $ 55 $ 48
Intersegment sales | Defense Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales 180 164 351 331
Intersegment sales | Mission Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales 184 164 360 361
Intersegment sales | Space Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales 28 21 54 41
Operating Segments [Member] | Aeronautics Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 2,925 $ 2,721 $ 5,768 $ 5,539
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Defense Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 1,886 $ 1,916 $ 3,767 $ 3,684
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Mission Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 2,446 $ 2,404 $ 4,793 $ 4,614
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%
Operating Segments [Member] | Space Systems [Member]        
Revenue, Geographic Location [Line Items]        
Sales $ 2,048 $ 1,788 $ 3,996 $ 3,589
Concentration Risk, Percentage 100.00% 100.00% 100.00% 100.00%