10-Q

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, 2019

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 19, 2019, 169,198,172 shares of common stock were outstanding.

NORTHROP GRUMMAN CORPORATION                        

TABLE OF CONTENTS 

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Earnings and Comprehensive Income	1
	Condensed Consolidated Statements of Financial Position	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	4
	Notes to Condensed Consolidated Financial Statements
	1. Basis of Presentation	5
	2. Acquisition of Orbital ATK	9
	3. Earnings Per Share, Share Repurchases and Dividends on Common Stock	11
	4. Income Taxes	12
	5. Fair Value of Financial Instruments	13
	6. Investigations, Claims and Litigation	14
	7. Commitments and Contingencies	16
	8. Retirement Benefits	17
	9. Stock Compensation Plans and Other Compensation Arrangements	18
	10. Leases	18
	11. Segment Information	20
	Report of Independent Registered Public Accounting Firm	24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Overview	25
	Consolidated Operating Results	25
	Segment Operating Results	27
	Product and Service Analysis	32
	Backlog	33
	Liquidity and Capital Resources	33
	Critical Accounting Policies, Estimates and Judgments	35
	Accounting Standards Updates	35
	Forward-Looking Statements and Projections	35
	Contractual Obligations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	38
	Signatures	39

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NORTHROP GRUMMAN CORPORATION                        

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30						Six Months Ended June 30
$ in millions, except per share amounts	2019			2018			2019			2018
Sales
Product	$	5,880		$	4,790		$	11,608		$	9,079
Service	2,576			2,329			5,037			4,775
Total sales	8,456			7,119			16,645			13,854
Operating costs and expenses
Product	4,661			3,698			9,178			6,967
Service	2,065			1,865			4,041			3,772
General and administrative expenses	784			739			1,544			1,450
Operating income	946			817			1,882			1,665
Other (expense) income
Interest expense	(137		)	(144		)	(275		)	(287		)
FAS (non-service) pension benefit	200			258			400			512
Other, net	19			45			55			85
Earnings before income taxes	1,028			976			2,062			1,975
Federal and foreign income tax expense	167			187			338			346
Net earnings	$	861		$	789		$	1,724		$	1,629
Basic earnings per share	$	5.07		$	4.52		$	10.15		$	9.34
Weighted-average common shares outstanding, in millions	169.7			174.5			169.9			174.4
Diluted earnings per share	$	5.06		$	4.50		$	10.11		$	9.29
Weighted-average diluted shares outstanding, in millions	170.3			175.4			170.5			175.4
Net earnings (from above)	$	861		$	789		$	1,724		$	1,629
Other comprehensive loss
Change in unamortized prior service credit, net of tax	(12		)	(15		)	(23		)	(30		)
Change in cumulative translation adjustment and other, net	(4		)	(3		)	—			(6		)
Other comprehensive loss, net of tax	(16		)	(18		)	(23		)	(36		)
Comprehensive income	$	845		$	771		$	1,701		$	1,593

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, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	1,088		$	1,579
Accounts receivable, net	1,832			1,448
Unbilled receivables, net	5,657			5,026
Inventoried costs, net	810			654
Prepaid expenses and other current assets	772			973
Total current assets	10,159			9,680
Property, plant and equipment, net of accumulated depreciation of $5,628 for 2019 and $5,369 for 2018	6,522			6,372
Operating lease right-of-use assets	1,278			—
Goodwill	18,708			18,672
Intangible assets, net	1,206			1,372
Deferred tax assets	85			94
Other non-current assets	1,626			1,463
Total assets	$	39,584		$	37,653
Liabilities
Trade accounts payable	$	1,962		$	2,182
Accrued employee compensation	1,528			1,676
Advance payments and billings in excess of costs incurred	1,942			1,917
Other current liabilities	2,723			2,499
Total current liabilities	8,155			8,274
Long-term debt, net of current portion of $545 for 2019 and $517 for 2018	13,838			13,883
Pension and other postretirement benefit plan liabilities	5,535			5,755
Operating lease liabilities	1,081			—
Deferred tax liabilities	140			108
Other non-current liabilities	1,621			1,446
Total liabilities	30,370			29,466
Commitments and contingencies (Note 7)
Shareholders’ equity
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2019—169,305,793 and 2018—170,607,336	169			171
Paid-in capital	—			—
Retained earnings	9,120			8,068
Accumulated other comprehensive loss	(75		)	(52		)
Total shareholders’ equity	9,214			8,187
Total liabilities and shareholders’ equity	$	39,584		$	37,653

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

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NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30
$ in millions	2019			2018
Operating activities
Net earnings	$	1,724		$	1,629
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization	479			281
Non-cash lease expense	127			—
Stock-based compensation	55			53
Deferred income taxes	48			49
Changes in assets and liabilities:
Accounts receivable, net	(384		)	(145		)
Unbilled receivables, net	(658		)	(570		)
Inventoried costs, net	(156		)	(73		)
Prepaid expenses and other assets	(48		)	57
Accounts payable and other liabilities	(367		)	(422		)
Income taxes payable, net	194			186
Retiree benefits	(285		)	(394		)
Other, net	(35		)	(13		)
Net cash provided by operating activities	694			638
Investing activities
Acquisition of Orbital ATK, net of cash acquired	—			(7,657		)
Capital expenditures	(536		)	(504		)
Other, net	1			2
Net cash used in investing activities	(535		)	(8,159		)
Financing activities
Payments of long-term debt	—			(1,550		)
Net payments to credit facilities	(20		)	(314		)
Net borrowings on commercial paper	101			249
Common stock repurchases	(231		)	(41		)
Cash dividends paid	(435		)	(407		)
Payments of employee taxes withheld from share-based awards	(63		)	(80		)
Other, net	(2		)	(22		)
Net cash used in financing activities	(650		)	(2,165		)
Decrease in cash and cash equivalents	(491		)	(9,686		)
Cash and cash equivalents, beginning of year	1,579			11,225
Cash and cash equivalents, end of period	$	1,088		$	1,539

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

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NORTHROP GRUMMAN CORPORATION                        

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

	Three Months Ended June 30						Six Months Ended June 30
$ in millions, except per share amounts	2019			2018			2019			2018
Common stock
Beginning of period	$	170		$	174		$	171		$	174
Common stock repurchased	(1		)	—			(2		)	—
End of period	169			174			169			174
Paid-in capital
Beginning of period	—			—			—			44
Common stock repurchased	—			(34		)	—			(34		)
Stock compensation	—			34			—			(10		)
End of period	—			—			—			—
Retained earnings
Beginning of period	8,628			7,502			8,068			6,913
Impact from adoption of ASU 2018-02 and ASU 2016-01	—			—			—			(21		)
Common stock repurchased	(172		)	(15		)	(234		)	(15		)
Net earnings	861			789			1,724			1,629
Dividends declared	(226		)	(210		)	(432		)	(405		)
Stock compensation	29			—			(6		)	(35		)
End of period	9,120			8,066			9,120			8,066
Accumulated other comprehensive (loss) income
Beginning of period	(59		)	4			(52		)	1
Impact from adoption of ASU 2018-02 and ASU 2016-01	—			—			—			21
Other comprehensive loss, net of tax	(16		)	(18		)	(23		)	(36		)
End of period	(75		)	(14		)	(75		)	(14		)
Total shareholders’ equity	$	9,214		$	8,226		$	9,214		$	8,226
Cash dividends declared per share	$	1.32		$	1.20		$	2.52		$	2.30

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

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NORTHROP GRUMMAN CORPORATION                        

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.    BASIS OF PRESENTATION

Principles of Consolidation and Reporting

These unaudited condensed consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman Corporation and its subsidiaries and joint ventures or other investments for which we consolidate the financial results (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”). Material 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.

On June 6, 2018 (the “Merger date”), the company completed its previously announced acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”). On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc., which we established as a new, fourth business sector (“Innovation Systems”). The operating results of Innovation Systems subsequent to the Merger date have been included in the company’s unaudited condensed consolidated results of operations. See Note 2 for further information regarding the Merger.

These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”) and in accordance with the rules of the Securities and Exchange Commission (SEC) for interim reporting. The financial statements include adjustments of a normal recurring nature considered necessary by management for a fair presentation of the company’s unaudited condensed consolidated financial position, results of operations and cash flows.

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 2018 Annual Report on Form 10-K.

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.

As previously announced, effective January 1, 2019, we adopted Accounting Standards Codification (ASC) Topic 842, Leases, using the optional transition method to apply the standard through a cumulative effect adjustment in the period of adoption. The adoption of this standard is reflected in the amounts and disclosures set forth in this Form 10-Q.

Accounting Estimates

Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.

Revenue Recognition

The majority of our sales are derived from long-term contracts with the U.S. government for the production of goods, the provision of services, or a combination of both. The company classifies sales as product or service based on the predominant attributes of each contract.

The company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the company provides multiple distinct goods or services to a customer, most commonly when a contract covers multiple phases of the product lifecycle (e.g., development, production, sustainment, etc.). In those cases, the company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using a cost plus a reasonable margin approach. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore

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NORTHROP GRUMMAN CORPORATION                        

not considered to be separate performance obligations. Assets recognized from the costs to obtain or fulfill a contract are not material.

Contracts are often modified for changes in contract specifications or requirements, which may result in scope and/or price changes. Most of the company’s contract modifications are for goods or services that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative estimate-at-completion (EAC) adjustment.

The company recognizes revenue as control is transferred to the customer, either over time or at a point in time. In general, our U.S. government contracts contain termination for convenience and/or other clauses that generally provide the customer rights to goods produced and/or in-process. Similarly, our non-U.S. government contracts generally contain contractual termination clauses or entitle the company to payment for work performed to date for goods and services that do not have an alternative use. As control is effectively transferred while we perform on our contracts, we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion) as the company believes this represents the most appropriate measurement towards satisfaction of its 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. Each loss provision is first offset against costs included in Unbilled receivables or Inventoried costs; remaining amounts are reflected in Other current liabilities.

Significant EAC adjustments on a single contract could have a material effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. No discrete event or adjustments to an individual contract were material to the financial statements during the three months ended June 30, 2019. During the three months ended June 30, 2018, the company recognized $69 million of favorable EAC adjustments on multiple restricted programs at Aerospace Systems.

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	2019		2018		2019		2018
Operating income	$	158	$	143	$	296	$	259
Net earnings(1)	125		113		234		205
Diluted earnings per share(1)	0.73		0.64		1.37		1.17

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

Revenue recognized from performance obligations satisfied in previous reporting periods was $154 million and $320 million for the three and six months ended June 30, 2019, respectively, and $156 million and $289 million for the three and six months ended June 30, 2018, respectively.

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NORTHROP GRUMMAN CORPORATION                        

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 the option or IDIQ task order is exercised or awarded.

Company backlog as of June 30, 2019 was $63.0 billion. We expect to recognize approximately 40 percent and 65 percent of our June 30, 2019 backlog as revenue over the next 12 and 24 months, respectively, with the remainder to be recognized thereafter.

Contract Assets and Liabilities

For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.

Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Unbilled receivables are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts. Accumulated contract costs in unbilled receivables include costs such as direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. Unbilled receivables also include certain estimates of variable consideration described above. These contract assets are not considered a significant financing component of the company’s contracts as the payment terms are intended to protect the customer in the event the company does not perform on its obligations under the contract.

Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position. Certain customers make advance payments prior to the company’s satisfaction of its obligations on the contract. These amounts are recorded as contract liabilities until such obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements.

The amount of revenue recognized for the three 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. The amount of revenue recognized for the three and six months ended June 30, 2018 that was included in the December 31, 2017 contract liability balance was $364 million and $1.1 billion, respectively.

Disaggregation of Revenue

See Note 11 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, 2019			December 31, 2018
Unamortized prior service credit, net of tax expense of $24 for 2019 and $32 for 2018	$	75		$	98
Cumulative translation adjustment	(145		)	(144		)
Other, net	(5		)	(6		)
Total accumulated other comprehensive loss	$	(75	)	$	(52	)

Reclassifications from accumulated other comprehensive loss to net earnings related to the amortization of prior service credit were $12 million and $23 million, net of taxes, for the three and six months ended June 30, 2019, respectively and were $15 million and $30 million, net of taxes, for the three and six months ended June 30, 2018,

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NORTHROP GRUMMAN CORPORATION                        

respectively. The reclassifications are included in the computation of net periodic pension cost (benefit). See Note 8 for further information.

Reclassifications from accumulated other comprehensive loss to net earnings relating to cumulative translation adjustments and effective cash flow hedges were not material for the three and six months ended June 30, 2019 and 2018.

Leases

The company leases certain buildings, land and equipment. Under ASC 842, at contract inception we determine whether the contract is or contains a lease and whether the lease should be classified as an operating or a finance lease. Operating leases are included in Operating lease right-of-use assets, Other current liabilities, and Operating lease liabilities in our unaudited condensed consolidated statements of financial position.

The company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. Many of our leases include renewal options aligned with our contract terms. We define the initial lease term to include renewal options determined to be reasonably certain. In our adoption of ASC 842, we elected not to recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. We elected the practical expedient to not separate lease components from nonlease components and applied that practical expedient to all material classes of leased assets.

Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays or rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement owned by the lessee, the company generally records a deferred rent liability and amortizes the deferred rent over the term of the lease as a reduction to rent expense. For rent holidays and rent escalation clauses during the lease term, the company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation for intended use.

Finance leases are not material to our unaudited condensed consolidated financial statements and the company is not a lessor in any material arrangements. We do not have any material restrictions or covenants in our lease agreements, sale-leaseback transactions, land easements or residual value guarantees.

Related Party Transactions

The company had no material related party transactions in any period presented.

Restricted Cash

On occasion, we are required to maintain cash deposits with banks in connection with certain contingent obligations. As of June 30, 2019, we had no restricted cash, as the contingencies that existed in connection with the company’s restricted cash balance as of March 31, 2019 were satisfied. We had no restricted cash as of December 31, 2018.

Accounting Standards Updates

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASC Topic 842 supersedes existing lease guidance, including ASC 840 - Leases. Among other things, ASU 2016-02 requires recognition of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease and requires disclosure of certain information about leasing arrangements. On July 30, 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which, among other things, allows companies to elect an optional transition method to apply the new lease standard through a cumulative-effect adjustment in the period of adoption.

We adopted the standard on January 1, 2019 using the optional transition method and, as a result, did not recast prior period unaudited condensed consolidated comparative financial statements. All prior period amounts and disclosures are presented under ASC 840. We elected the package of practical expedients, which, among other things, allows us to carry forward our prior lease classifications under ASC 840. We did not elect to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840. Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities on the unaudited condensed consolidated statements of financial position with no cumulative impact to retained earnings and did not have a material impact on our results of operations or cash flows.

Other accounting standards updates adopted and/or issued, but not effective until after June 30, 2019, are not expected to have a material effect on the company’s unaudited condensed consolidated financial position, annual results of operations and/or cash flows.

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NORTHROP GRUMMAN CORPORATION                        

2.  ACQUISITION OF ORBITAL ATK

On June 6, 2018, the company completed its previously announced acquisition of Orbital ATK, by acquiring all of the outstanding shares of Orbital ATK for a purchase price of $7.7 billion in cash. On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc. We established Innovation Systems as a new, fourth business sector. Its main products include precision munitions and armaments; tactical missiles and subsystems; ammunition; launch vehicles; space and strategic propulsion systems; aerospace structures; space exploration products; and national security and commercial satellite systems and related components/services. The acquisition was financed with proceeds from the company’s debt financing completed in October 2017 and cash on hand. We believe this acquisition will enable us to broaden our capabilities and offerings, provide additional innovative solutions to meet our customers’ emerging requirements, create value for shareholders and provide expanded opportunities for our combined employees.

Purchase Price Allocation

The acquisition was accounted for as a purchase business combination. As such, the company recorded the assets acquired and liabilities assumed at fair value, with the excess of the purchase price over the fair value of assets acquired and liabilities assumed recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. In some cases, the company used discounted cash flow analyses, which were based on our best estimate of future sales, earnings and cash flows after considering such factors as general market conditions, customer budgets, existing firm and future orders, changes in working capital, long term business plans and recent operating performance. Use of different estimates and judgments could yield materially different results.

During the second quarter of 2019, the company finalized its determination of the fair values of the assets acquired and liabilities assumed as of the Merger date. Based on additional information obtained during the measurement period, the company refined its initial assessment of fair value and recognized the following significant adjustments to its preliminary purchase price allocation: Intangible assets increased $220 million, Other current liabilities increased $114 million, Pension and other postretirement benefit (OPB) plan liabilities increased $56 million, Other non-current liabilities increased $53 million, Other current assets increased $44 million and Goodwill decreased $36 million. These adjustments did not result in a material impact on the financial results of prior periods.

The Merger date fair value of the consideration transferred totaled $7.7 billion in cash, which was comprised of the following:

$ in millions, except per share amounts	Purchase price
Shares of Orbital ATK common stock outstanding as of the Merger date	57,562,152
Cash consideration per share of Orbital ATK common stock	$	134.50
Total purchase price	$	7,742

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NORTHROP GRUMMAN CORPORATION                        

The following purchase price allocation table presents the company’s final determination of the fair values of assets acquired and liabilities assumed at the Merger date:

$ in millions	As of June 6, 2018
Cash and cash equivalents	$	85
Accounts receivable	596
Unbilled receivables	1,237
Inventoried costs	220
Other current assets	237
Property, plant and equipment	1,509
Goodwill	6,259
Intangible assets	1,525
Other non-current assets	151
Total assets acquired	11,819
Trade accounts payable	(397		)
Accrued employee compensation	(158		)
Advance payments and billings in excess of costs incurred	(222		)
Below market contracts(1)	(151		)
Other current liabilities	(412		)
Long-term debt	(1,687		)
Pension and OPB plan liabilities	(613		)
Deferred tax liabilities	(248		)
Other non-current liabilities	(189		)
Total liabilities assumed	(4,077		)
Total purchase price	$	7,742

⁽¹⁾  Included in Other current liabilities in the unaudited condensed consolidated statements of financial position.

The following table presents a summary of purchased intangible assets and their related estimated useful lives:

	Fair Value (in millions)		Estimated Useful Life in Years
Customer contracts	$	1,245	9
Commercial customer relationships	280		13
Total customer-related intangible assets	$	1,525

The purchase price allocation resulted in the recognition of $6.3 billion of goodwill, a majority of which was allocated to the Innovation Systems sector. The goodwill recognized is attributable to expected revenue synergies generated by the integration of Aerospace Systems, Mission Systems and Technology Services products and technologies with those of legacy Orbital ATK, synergies resulting from the consolidation or elimination of certain costs, and intangible assets that do not qualify for separate recognition, such as the assembled workforce of Orbital ATK. None of the goodwill is expected to be deductible for tax purposes.

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NORTHROP GRUMMAN CORPORATION                        

Unaudited Supplemental Pro Forma Information

The following table presents unaudited pro forma financial information prepared in accordance with Article 11 of Regulation S-X and computed as if Orbital ATK had been included in our results as of January 1, 2017:

$ in millions, except per share amounts	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Sales	$	8,078	$	16,078
Net earnings	882		1,796
Diluted earnings per share	5.03		10.24

The unaudited supplemental pro forma financial data has been calculated after applying our accounting policies and adjusting the historical results of Orbital ATK with pro forma adjustments, net of tax, that assume the acquisition occurred on January 1, 2017. Significant pro forma adjustments include the following:

1. The elimination of intercompany sales and costs of sales between the company and Orbital ATK of $33 million and $80 million for the three and six months ended June 30, 2018, respectively.

2. The elimination of nonrecurring transaction costs incurred by the company and Orbital ATK in connection with the Merger of $64 million and $71 million for the three and six months ended June 30, 2018, respectively.

3. The recognition of additional depreciation expense, net of removal of historical depreciation expense, of $5 million and $11 million for the three and six months ended June 30, 2018, respectively, related to the step-up in fair value of acquired property, plant and equipment.

4. The recognition of additional amortization expense, net of removal of historical amortization expense, of $48 million and $114 million for the three and six months ended June 30, 2018, respectively, related to the fair value of acquired intangible assets.

5. The elimination of Orbital ATK's historical amortization of net actuarial losses and prior service credits and impact of the revised pension and OPB net periodic benefit cost as determined under the company’s plan assumptions of $20 million and $51 million for the three and six months ended June 30, 2018, respectively.

6. The income tax effect on the pro forma adjustments, which was calculated using the federal statutory tax rate, of $(7) million and $0.4 million for the three and six months ended June 30, 2018, respectively.

The unaudited pro forma financial information does not reflect the potential realization of revenue synergies or cost savings, nor does it reflect other costs relating to the integration of the two companies. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the acquisition had been consummated on January 1, 2017, nor are they indicative of future results.

3.    EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK

Basic Earnings Per Share

We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period.

Diluted Earnings Per Share

Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 0.6 million shares for the three and six months ended June 30, 2019. The dilutive effect of these securities totaled 0.9 million shares and 1.0 million shares for the three and six months ended June 30, 2018, respectively.

Share Repurchases

On September 16, 2015, the company’s board of directors authorized a share repurchase program of up to $4.0 billion of the company’s common stock (the “2015 Repurchase Program”). Repurchases under the 2015 Repurchase Program commenced in March 2016.

On December 4, 2018, the company’s board of directors authorized a new share repurchase program of up to an additional $3.0 billion in share repurchases of the company’s common stock (the “2018 Repurchase Program”). By its terms, repurchases under the 2018 Repurchase Program will commence upon completion of the 2015 Repurchase Program and will expire when we have used all authorized funds for repurchases.

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NORTHROP GRUMMAN CORPORATION                        

During the fourth quarter of 2018, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC (Goldman Sachs) to repurchase $1.0 billion of the company’s common stock under the 2015 Repurchase Program. Under the agreement, we made a payment of $1.0 billion to Goldman Sachs and received an initial delivery of 3.0 million shares valued at $800 million that were immediately canceled by the company. The remaining balance was settled on January 4, 2019 with a final delivery of 0.9 million shares from Goldman Sachs. The final average purchase price was $260.32 per share.

As of June 30, 2019, repurchases under the 2015 Repurchase Program totaled $3.2 billion; $0.8 billion remained under this share repurchase authorization. By its terms, the 2015 Repurchase Program is set to expire when we have used all authorized funds for repurchases.

Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market and 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
							2019	2018
September 16, 2015	$	4,000	13.0	$	243.90		1.7	0.2
December 4, 2018	$	3,000	—	—			—	—

⁽¹⁾  Includes commissions paid.

Dividends on Common Stock

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.

In May 2018, the company increased the quarterly common stock dividend 9 percent to $1.20 per share from the previous amount of $1.10 per share.

In January 2018, the company increased the quarterly common stock dividend 10 percent to $1.10 per share from the previous amount of $1.00 per share.

4.    INCOME TAXES

	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2019			2018			2019			2018
Federal and foreign income tax expense	$	167		$	187		$	338		$	346
Effective income tax rate	16.2		%	19.2		%	16.4		%	17.5		%

Current Quarter

The second quarter 2019 effective tax rate decreased to 16.2 percent from 19.2 percent in the second quarter of 2018 primarily due to higher research credits. The company’s effective tax rate for the second quarter of 2019 includes $36 million of current year research credits and $15 million of additional research credits related to a prior year, as compared to $22 million of research credits in the second quarter of 2018.

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NORTHROP GRUMMAN CORPORATION                        

Year to Date

The year to date 2019 effective tax rate decreased to 16.4 percent from 17.5 percent in same period of 2018 primarily due to higher research credits, partially offset by lower excess tax benefits for employee share-based compensation. The company’s year to date 2019 effective tax rate includes $67 million of current year research credits, $15 million of additional research credits related to a prior year and $13 million of excess tax benefits for employee share-based compensation. The company’s year to date 2018 effective tax rate included $42 million of research credits and $26 million of excess tax benefits for employee share-based compensation.

Since enactment of the Tax Cuts and Jobs Act in late 2017, the IRS and U.S. Treasury Department have issued and are expected to further issue interpretive guidance that impacts taxpayers. We will continue to evaluate such guidance as it is issued, and, at this time, the company expects it is reasonably possible that within the next twelve months our unrecognized tax benefits, primarily related to timing items, may increase by up to an additional $70 million.

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 IRS examination.

5.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The company holds a portfolio of marketable securities consisting of securities to partially fund non-qualified employee benefit plans. A portion of these securities are held in common/collective trust funds and are measured at fair value using net asset value (NAV) per share as a practical expedient; and therefore are not required to be categorized in the fair value hierarchy table below. Marketable securities are included in Other non-current assets in the unaudited condensed consolidated statements of financial position.

The company’s derivative portfolio consists primarily of commodity forward contracts and foreign currency forward contracts. The company periodically uses commodity forward contracts to hedge forecasted purchases of certain commodities. The contracts generally establish a fixed price for the underlying commodity and are designated and qualify as effective cash flow hedges of such commodity purchases. Commodity derivatives are valued based on prices of future exchanges and recently reported transactions in the marketplace. For foreign currency forward contracts, 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, 2019								December 31, 2018
$ in millions	Level 1		Level 2			Total			Level 1		Level 2			Total
Financial Assets (Liabilities)
Marketable securities	$	337	$	—		$	337		$	319	$	1		$	320
Marketable securities valued using NAV						16								15
Total marketable securities	337		—			353			319		1			335
Derivatives	—		(8		)	(8		)	—		(10		)	(10		)

At June 30, 2019, the company had commodity forward contracts outstanding that hedge forecasted commodity purchases of 12 million pounds of copper and 5 million pounds of zinc. Gains or losses on the commodity forward contracts are recognized in product and service cost as the performance obligations on related contracts are satisfied.

The notional value of the company’s foreign currency forward contracts at June 30, 2019 and December 31, 2018 was $99 million and $114 million, respectively. The portion of notional value designated as a cash flow hedge at June 30, 2019 was $12 million. At December 31, 2018, no portion of the notional value was designated as a cash flow hedge.

The derivative fair values and related unrealized gains/losses at June 30, 2019 and December 31, 2018 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, 2019.

The carrying value of cash and cash equivalents and commercial paper approximates fair value.

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NORTHROP GRUMMAN CORPORATION                        

Long-term Debt

The estimated fair value of long-term debt was $15.4 billion and $14.3 billion as of June 30, 2019 and December 31, 2018, respectively. We calculated the fair value of long-term debt using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements. The carrying value of long-term debt was $14.4 billion as of June 30, 2019 and December 31, 2018. The current portion of long-term debt is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.

6.    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 December 17, 2018, the court issued a Scheduling Order, proposed by the parties, providing for the parties to engage in mediation through March 1, 2019. After the government shutdown, the mediation was rescheduled for May 2019. The parties filed joint motions to suspend the deadlines for pretrial activities while the parties engage in mediation. On April 29, 2019 and June 5, 2019, the court issued Orders suspending the deadlines. Those suspensions ended on July 1, 2019, and on July 12, 2019, the court issued an Order scheduling trial to commence on February 3, 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, and relatively inactive for some period of time, ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$111 million (the equivalent of approximately $29 million as of June 30, 2019), plus interest, inflation adjustments and attorneys’ fees, as authorized by Brazilian law, which amounts could be significant over time. The original suit sought R$89 million (the equivalent of approximately $23 million as of June 30, 2019) in damages. In October 2013, ECT asserted an additional damage claim of R$22 million (the equivalent of approximately $6 million as of June 30, 2019). 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, 2019), 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

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NORTHROP GRUMMAN CORPORATION                        

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 $11 million as of June 30, 2019) against Solystic and its consortium partners, with that amount to be adjusted for inflation and interest from November 2004 through any appeal, in accordance with the Manual of Calculations of the Federal Justice, as well as attorneys’ fees. On March 22, 2019, ECT appealed the trial court’s decision to the intermediate court of appeals. Solystic filed its appeal on April 11, 2019. The parties are exploring whether there is a possible path for a negotiated resolution of the dispute.

We are engaged in remediation activities relating to environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. For over 20 years, we have worked closely with the United States Navy, the United States Environmental Protection Agency, the New York State Department of Environmental Conservation, the New York State Department of Health and other federal, state and local governmental authorities, to address legacy environmental conditions in Bethpage. We have incurred, and expect to continue to incur, as included in Note 7, substantial remediation costs related to these environmental conditions. The remediation standards or requirements to which we are subject are being reconsidered and may change and costs may increase materially. As discussed in Note 7, the State of New York recently issued a Feasibility Study and Proposed Amended Record of Decision, proposing to impose additional remedial requirements. The company, along with other interested parties, has submitted comments on that proposal. 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, the Navy, 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.

On August 12, 2016, a putative class action complaint, naming Orbital ATK and two of its then-officers as defendants, Steven Knurr, et al. v. Orbital ATK, Inc., No. 16-cv-01031 (TSE-MSN), was filed in the United States District Court for the Eastern District of Virginia. The complaint asserts claims on behalf of purchasers of Orbital ATK securities for violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5, allegedly arising out of false and misleading statements and the failure to disclose that: (i) Orbital ATK lacked effective control over financial reporting; and (ii) as a result, it failed to record an anticipated loss on a long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the U.S. Army's Lake City Army Ammunition Plant. On April 24, 2017 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for alleged violations of additional sections of the Exchange Act and alleged false and misleading statements in Orbital ATK’s Form S-4 filed in connection with the Orbital-ATK Merger. The complaint seeks damages, reasonable costs and expenses at trial, including counsel and expert fees, and such other relief as deemed appropriate by the Court. On June 7, 2019, the court approved the parties’ proposal to resolve the litigation for $108 million, subject to certain terms and conditions. The company continues to negotiate with and pursue coverage litigation against various of its insurance carriers.

The SEC has been investigating Orbital ATK’s historical accounting practices relating to the restatement of Orbital’s unaudited condensed consolidated financial statements for the quarterly periods ended July 5, 2015 and October 4, 2015 described in the Transition Report on Form 10-K for the nine-month period ending December 31, 2015 previously filed on March 15, 2016. The SEC has also been investigating matters relating to a voluntary disclosure Orbital ATK made concerning the restatement described in Orbital ATK’s Form 10-K/A for the nine-month period ending December 31, 2015 filed on February 24, 2017. The Staff of the SEC Division of Enforcement has advised the company that it has concluded its investigation and does not intend to recommend enforcement action.

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, 2019, or its annual results of operations and/or cash flows.

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NORTHROP GRUMMAN CORPORATION                        

7.    COMMITMENTS AND CONTINGENCIES

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. 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, 2019, or its annual results of operations and/or cash flows.

Environmental Matters

The table below summarizes management’s estimate of the range of reasonably possible future costs for environmental remediation, the amount accrued within that range, and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of June 30, 2019 and December 31, 2018:

$ in millions	Range of Reasonably Possible Future Costs(1)	Accrued Costs(2)		Deferred Costs(3)
June 30, 2019	$532 - $1,018	$	547	$	426
December 31, 2018	447 - 835	461		343

⁽¹⁾  Estimated remediation costs are not discounted to present value. The range of reasonably possible future costs does not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.

⁽²⁾ As of June 30, 2019, $167 million is recorded in Other current liabilities and $380 million is recorded in Other non-current liabilities.

⁽³⁾ As of June 30, 2019, $133 million is deferred in Prepaid expenses and other current assets and $293 million is deferred in Other non-current assets.

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, 2019, or its annual results of operations and/or cash flows. With respect to Bethpage, the State of New York recently issued a Feasibility Study and Proposed Amended Record of Decision, proposing to impose additional remedial requirements. The company, along with other interested parties, has submitted comments on that proposal. The comments address, among other things, the adequacy of the existing remedy, concerns with the state’s proposal, and an alternative approach. As discussed in Note 6, the remediation standards or requirements to which we are subject are being reconsidered and may change and costs may increase materially.

Financial Arrangements

In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At June 30, 2019, there were $489 million of stand-by letters of credit and guarantees and $208 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, 2019, there were $299 million of outstanding short-term commercial paper borrowings at a weighted-average interest rate of 2.61 percent that have original maturities of three months or less from the date of issuance. The outstanding balance of commercial paper borrowings is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.

Credit Facilities

The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $2.0 billion (the “2018 Credit Agreement”) that matures in August 2023. At June 30, 2019, there was no balance outstanding

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NORTHROP GRUMMAN CORPORATION                        

under this facility; however, the outstanding balance of commercial paper borrowings reduces the amount available for borrowing under the 2018 Credit Agreement.

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 $152 million as of June 30, 2019) (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, 2019, there was £70 million (the equivalent of approximately $89 million) outstanding under this facility, which bears interest at a rate of LIBOR plus 1.10 percent. All of the borrowings outstanding under this facility mature less than one year from the date of issuance, but may be renewed under the terms of the facility. Based on our intent and ability to refinance the obligations on a long-term basis, a large majority of the borrowings are classified as non-current.

At June 30, 2019, the company was in compliance with all covenants under its credit agreements.

8.    RETIREMENT BENEFITS

The cost (benefit) to the company of its retirement 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	2019			2018			2019			2018			2019			2018			2019			2018
Components of net periodic benefit cost (benefit)
Service cost	$	92		$	100		$	4		$	5		$	184		$	199		$	8		$	10
Interest cost	340			300			20			19			680			590			40			38
Expected return on plan assets	(526		)	(544		)	(23		)	(24		)	(1,051		)	(1,073		)	(46		)	(49		)
Amortization of prior service credit	(14		)	(14		)	—			(6		)	(29		)	(29		)	(1		)	(11		)
Net periodic benefit cost (benefit)	$	(108	)	$	(158	)	$	1		$	(6	)	$	(216	)	$	(313	)	$	1		$	(12	)

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	2019		2018		2019		2018
Defined benefit pension plans	$	23	$	23	$	46	$	45
OPB plans	12		11		24		22
Defined contribution plans	88		88		279		192

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NORTHROP GRUMMAN CORPORATION                        

9.    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	2019		2018
RSRs granted	0.1		0.1
RPSRs granted	0.2		0.2
Grant date aggregate fair value	$	92	$	114

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	2019		2018
Minimum aggregate payout amount	$	36	$	36
Maximum aggregate payout amount	203		205

CUs typically vest and settle in cash on the third anniversary of the grant date, while CPUs generally vest and pay out in cash based on the achievement of financial metrics over a three-year period.

10.    LEASES

As described in Note 1, effective January 1, 2019, we adopted ASC 842 using the optional transition method. In accordance with the optional transition method, we did not recast the prior period unaudited condensed consolidated financial statements and all prior period amounts and disclosures are presented under ASC 840. Finance leases are not material to our unaudited condensed consolidated financial statements and are therefore not included in the following disclosures.

Total Lease Cost

Total lease cost is included in Product and Service costs and General and administrative expenses in the unaudited condensed consolidated statement of earnings and comprehensive income and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:

$ in millions	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	77	$	159
Variable lease cost	2		4
Short-term lease cost	12		29
Total lease cost	$	91	$	192

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NORTHROP GRUMMAN CORPORATION                        

Supplemental Balance Sheet Information

Supplemental operating lease balance sheet information consists of the following:

$ in millions	June 30, 2019
Operating lease right-of-use assets	$	1,278
Other current liabilities	245
Operating lease liabilities	1,081
Total operating lease liabilities	$	1,326

Other Supplemental Information

Other supplemental operating lease information consists of the following:

$ in millions	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	153
Right-of-use assets obtained in exchange for new lease liabilities	101
Weighted average remaining lease term	10.3 years
Weighted average discount rate	3.9		%

Maturities of Lease Liabilities

Maturities of operating lease liabilities as of June 30, 2019 are as follows:

$ in millions
Year Ending December 31
2019 (1)	$	137
2020	270
2021	219
2022	183
2023	145
Thereafter	746
Total lease payments	1,700
Less: imputed interest	(374		)
Present value of operating lease liabilities	$	1,326

⁽¹⁾  Excludes the six months ended June 30, 2019.

As of June 30, 2019, we have a rental commitment of $226 million for a real estate lease that has not yet commenced. This operating lease is expected to commence in the fourth quarter of 2019 with a lease term of approximately 17 years.

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NORTHROP GRUMMAN CORPORATION                        

Rental expense for operating leases classified under ASC 840 for the three and six months ended June 30, 2018 was $81 million and $173 million, respectively. These amounts are net of immaterial amounts of sublease income. As of December 31, 2018, future minimum lease payments under long-term non-cancelable operating leases as classified under ASC 840 were as follows:

$ in millions
Year Ending December 31
2019	$	312
2020	270
2021	221
2022	186
2023	152
Thereafter	939
Total minimum lease payments	$	2,080

11.    SEGMENT INFORMATION

The company is aligned in four operating sectors, which also comprise our reportable segments: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services.

The following table presents sales and operating income by segment:

	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2019			2018			2019			2018
Sales
Aerospace Systems	$	3,390		$	3,337		$	6,886		$	6,617
Innovation Systems	1,498			400			2,936			400
Mission Systems	3,128			2,874			6,014			5,757
Technology Services	1,044			1,048			2,021			2,192
Intersegment eliminations	(604		)	(540		)	(1,212		)	(1,112		)
Total sales	8,456			7,119			16,645			13,854
Operating income
Aerospace Systems	361			357			743			698
Innovation Systems	169			39			336			39
Mission Systems	408			352			791			723
Technology Services	113			95			215			217
Intersegment eliminations	(73		)	(64		)	(140		)	(136		)
Total segment operating income	978			779			1,945			1,541
Net FAS (service)/CAS pension adjustment	107			137			215			264
Unallocated corporate expense	(139		)	(99		)	(278		)	(140		)
Total operating income	$	946		$	817		$	1,882		$	1,665

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

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NORTHROP GRUMMAN CORPORATION                        

administration, legal, environmental, compensation, retiree benefits and other corporate unallowable costs. Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment 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.

Disaggregation of Revenue

Sales by Customer Type	Three Months Ended June 30								Six Months Ended June 30
	2019				2018				2019				2018
$ in millions	$		%(3)		$		%(3)		$		%(3)		$		%(3)
Aerospace Systems
U.S. government (1)	$	2,918	86	%	$	2,799	84	%	$	5,940	86	%	$	5,707	86	%
International (2)	390		11	%	449		13	%	784		11	%	720		11	%
Other customers	30		1	%	38		1	%	64		1	%	80		1	%
Intersegment sales	52		2	%	51		2	%	98		2	%	110		2	%
Aerospace Systems sales	3,390		100	%	3,337		100	%	6,886		100	%	6,617		100	%
Innovation Systems
U.S. government (1)	1,061		71	%	265		66	%	2,076		71	%	265		66	%
International (2)	227		15	%	92		23	%	474		16	%	92		23	%
Other customers	118		8	%	30		8	%	232		8	%	30		8	%
Intersegment sales	92		6	%	13		3	%	154		5	%	13		3	%
Innovation Systems sales	1,498		100	%	400		100	%	2,936		100	%	400		100	%
Mission Systems
U.S. government (1)	2,348		75	%	2,155		75	%	4,515		75	%	4,345		76	%
International (2)	459		15	%	391		14	%	826		14	%	770		13	%
Other customers	39		1	%	34		1	%	73		1	%	64		1	%
Intersegment sales	282		9	%	294		10	%	600		10	%	578		10	%
Mission Systems sales	3,128		100	%	2,874		100	%	6,014		100	%	5,757		100	%
Technology Services
U.S. government (1)	617		59	%	597		57	%	1,170		58	%	1,199		54	%
International (2)	225		22	%	193		18	%	434		21	%	413		19	%
Other customers	24		2	%	76		7	%	57		3	%	169		8	%
Intersegment sales	178		17	%	182		18	%	360		18	%	411		19	%
Technology Services sales	1,044		100	%	1,048		100	%	2,021		100	%	2,192		100	%
Total
U.S. government (1)	6,944		82	%	5,816		82	%	13,701		82	%	11,516		83	%
International (2)	1,301		16	%	1,125		16	%	2,518		15	%	1,995		15	%
Other customers	211		2	%	178		2	%	426		3	%	343		2	%
Total Sales	$	8,456	100	%	$	7,119	100	%	$	16,645	100	%	$	13,854	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
	2019				2018				2019				2018
$ in millions	$		%(1)		$		%(1)		$		%(1)		$		%(1)
Aerospace Systems
Cost-type	$	1,979	59	%	$	1,934	59	%	$	3,981	59	%	$	3,836	59	%
Fixed-price	1,359		41	%	1,352		41	%	2,807		41	%	2,671		41	%
Intersegment sales	52				51				98				110
Aerospace Systems sales	3,390				3,337				6,886				6,617
Innovation Systems
Cost-type	405		29	%	99		26	%	813		29	%	99		26	%
Fixed-price	1,001		71	%	288		74	%	1,969		71	%	288		74	%
Intersegment sales	92				13				154				13
Innovation Systems sales	1,498				400				2,936				400
Mission Systems
Cost-type	1,316		46	%	1,207		47	%	2,590		48	%	2,486		48	%
Fixed-price	1,530		54	%	1,373		53	%	2,824		52	%	2,693		52	%
Intersegment sales	282				294				600				578
Mission Systems sales	3,128				2,874				6,014				5,757
Technology Services
Cost-type	412		48	%	385		44	%	804		48	%	822		46	%
Fixed-price	454		52	%	481		56	%	857		52	%	959		54	%
Intersegment sales	178				182				360				411
Technology Services sales	1,044				1,048				2,021				2,192
Total
Cost-type	4,112		49	%	3,625		51	%	8,188		49	%	7,243		52	%
Fixed-price	4,344		51	%	3,494		49	%	8,457		51	%	6,611		48	%
Total Sales	$	8,456			$	7,119			$	16,645			$	13,854

⁽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
	2019				2018				2019				2018
$ in millions	$		%(2)		$		%(2)		$		%(2)		$		%(2)
Aerospace Systems
United States	$	2,948	88	%	$	2,837	86	%	$	6,004	88	%	$	5,787	89	%
Asia/Pacific	220		7	%	249		8	%	459		7	%	378		6	%
All other (1)	170		5	%	200		6	%	325		5	%	342		5	%
Intersegment sales	52				51				98				110
Aerospace Systems sales	3,390				3,337				6,886				6,617
Innovation Systems
United States	1,179		84	%	296		77	%	2,308		83	%	296		77	%
Asia/Pacific	48		3	%	24		6	%	93		3	%	24		6	%
All other (1)	179		13	%	67		17	%	381		14	%	67		17	%
Intersegment sales	92				13				154				13
Innovation Systems sales	1,498				400				2,936				400
Mission Systems
United States	2,387		84	%	2,193		85	%	4,588		85	%	4,413		85	%
Asia/Pacific	154		5	%	160		6	%	300		5	%	313		6	%
All other (1)	305		11	%	227		9	%	526		10	%	453		9	%
Intersegment sales	282				294				600				578
Mission Systems sales	3,128				2,874				6,014				5,757
Technology Services
United States	641		74	%	673		78	%	1,227		74	%	1,368		77	%
Asia/Pacific	62		7	%	36		4	%	100		6	%	68		4	%
All other (1)	163		19	%	157		18	%	334		20	%	345		19	%
Intersegment sales	178				182				360				411
Technology Services sales	1,044				1,048				2,021				2,192
Total
United States	7,155		84	%	5,999		84	%	14,127		85	%	11,864		85	%
Asia/Pacific	484		6	%	469		7	%	952		6	%	783		6	%
All other (1)	817		10	%	651		9	%	1,566		9	%	1,207		9	%
Total Sales	$	8,456			$	7,119			$	16,645			$	13,854

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

⁽²⁾  Percentages calculated based on external customer sales.  

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Northrop Grumman Corporation

Falls Church, Virginia

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of June 30, 2019, 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, 2019 and 2018, and of cash flows for the six-month periods ended June 30, 2019 and 2018, and the related notes (collectively referred to as the “interim financial information”). Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries as of December 31, 2018, and the related consolidated statements of earnings and comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated January 30, 2019, we expressed an unqualified opinion on those consolidated financial statements, which included an explanatory paragraph regarding the Company’s change in its method of accounting for recognizing pension and other postretirement benefit plans actuarial gains and losses and the manner in which it accounts for revenue from contracts with customers. In our opinion, the accompanying condensed consolidated statement of financial position as of December 31, 2018, is consistent, in all material respects, with the audited consolidated financial statements 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 23, 2019

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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 security company. We offer a broad portfolio of capabilities and technologies that enable us to deliver innovative platforms, systems and solutions for applications that range from undersea to outer space and into cyberspace. We provide capabilities in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); space; strike; and logistics and modernization. We participate in many high-priority defense and government programs in the United States (U.S.) and abroad. We conduct most of our business with the U.S. government, principally the Department of Defense (DoD) and intelligence community. We also conduct business with foreign, state and local governments, as well as commercial customers.

The following discussion should be read along with the financial statements included in this Form 10-Q, as well as our 2018 Annual Report on Form 10-K, which provides additional information on our business and the environment in which we operate and our operating results.

Acquisition of Orbital ATK

On June 6, 2018 (the “Merger date”), the company completed its previously announced acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”). On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc., which we established as a new, fourth business sector (“Innovation Systems”). The operating results of Innovation Systems subsequent to the Merger date have been included in the company’s unaudited condensed consolidated results of operations. See Note 2 to the financial statements for further information regarding the acquisition of Orbital ATK.

U.S. Political and Economic Environment

Since the filing of our 2018 Annual Report on Form 10-K, full year appropriations for FY 2019 were enacted for all remaining U.S. government agencies and the President proposed an FY 2020 budget requesting $750 billion for national security. The President’s budget request addresses various capabilities highlighted in the U.S. National Security Strategy, the National Defense Strategy and the Missile Defense Review. Congress is evaluating the President’s budget request as it drafts authorization and appropriations legislation for FY 2020, and also seeks to address budget caps established by the Budget Control Act and the debt limit for FY 2020 and FY 2021. We believe our capabilities, particularly in space, missiles, missile defense, hypersonics, counter-hypersonics, survivability and cyber will allow us to continue to profitably grow our business in support of our customers’ needs.

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	2019			2018			Change		2019			2018			Change
Sales	$	8,456		$	7,119		19	%	$	16,645		$	13,854		20	%
Operating costs and expenses	7,510			6,302			19	%	14,763			12,189			21	%
Operating costs and expenses as a % of sales	88.8		%	88.5		%			88.7		%	88.0		%
Operating income	946			817			16	%	1,882			1,665			13	%
Operating margin rate	11.2		%	11.5		%			11.3		%	12.0		%
Federal and foreign income tax expense	167			187			(11	)%	338			346			(2	)%
Effective income tax rate	16.2		%	19.2		%			16.4		%	17.5		%
Net earnings	861			789			9	%	1,724			1,629			6	%
Diluted earnings per share	$	5.06		$	4.50		12	%	$	10.11		$	9.29		9	%

Sales

Current Quarter

Second quarter 2019 sales increased $1.3 billion primarily due to the addition of a full quarter of Innovation Systems sales as well as higher sales at Mission Systems and Aerospace Systems.

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NORTHROP GRUMMAN CORPORATION                        

Year to Date

Year to date 2019 sales increased $2.8 billion primarily due to the addition of a full six months of Innovation Systems sales as well as higher sales at Aerospace Systems and Mission Systems, partially offset by lower sales at Technology Services.

See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 11 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 2019 operating income increased $129 million, or 16 percent, primarily due to a $199 million increase in segment operating income, partially offset by a $40 million increase in unallocated corporate expense, largely due to intangible asset amortization and PP&E step-up depreciation, and a $30 million decrease in net FAS (service)/CAS pension adjustment. Operating margin rate declined to 11.2 percent from 11.5 percent primarily due to higher intangible asset amortization and PP&E step-up depreciation, partially offset by improved segment performance.

Second quarter 2019 general and administrative (G&A) costs as a percentage of sales decreased to 9.3 percent from 10.4 percent primarily due to cost management, including cost synergies realized in connection with the 2018 acquisition of Orbital ATK, and the addition of Innovation Systems at a lower G&A rate.

Year to Date

Year to date 2019 operating income increased $217 million, or 13 percent, primarily due to a $404 million increase in segment operating income, partially offset by a $138 million increase in unallocated corporate expense, largely due to intangible asset amortization and PP&E step-up depreciation, and a $49 million decrease in net FAS (service)/CAS pension adjustment. Operating margin rate declined to 11.3 percent from 12.0 percent due to higher intangible asset amortization and PP&E step-up depreciation, partially offset by improved segment performance.

Year to date 2019 G&A costs as a percentage of sales decreased to 9.3 percent from 10.5 percent primarily due to cost management, including the cost synergies described above, and the addition of Innovation Systems at a lower G&A rate.

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 2019 effective tax rate decreased to 16.2 percent from 19.2 percent in the second quarter of 2018 primarily due to higher research credits. See Note 4 to the financial statements for additional information.

Year to Date

The year to date 2019 effective tax rate decreased to 16.4 percent from 17.5 percent in same period of 2018 primarily due to higher research credits, partially offset by lower excess tax benefits for employee share-based compensation. See Note 4 to the financial statements for additional information.

Net Earnings

Current Quarter

Second quarter 2019 net earnings increased $72 million primarily due to higher operating income and a lower effective tax rate, partially offset by a $58 million decrease in FAS (non-service) pension benefit and a $26 million decrease in other, net, principally due to lower interest income.

Year to Date

Year to date 2019 net earnings increased $95 million primarily due to higher operating income, partially offset by a $112 million decrease in FAS (non-service) pension benefit.

Diluted Earnings Per Share

Current Quarter

Second quarter 2019 diluted earnings per share increased $0.56, or 12 percent reflecting a 9 percent increase in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

Year to Date

Year to date 2019 diluted earnings per share increased $0.82, or 9 percent, reflecting a 6 percent increase in net earnings and a 3 percent reduction in weighted-average diluted shares outstanding.

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NORTHROP GRUMMAN CORPORATION                        

SEGMENT OPERATING RESULTS

Basis of Presentation

The company is aligned in four operating sectors, which also comprise our reportable segments: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services. As described above, on the effective date of the Merger, we established Innovation Systems as a new, fourth business sector. The segment operating results below include sales and operating income for Innovation Systems subsequent to the Merger date.

We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities:

Aerospace Systems	Innovation Systems	Mission Systems	Technology Services
Autonomous Systems	Defense Systems	Advanced Capabilities	Global Logistics and Modernization
Manned Aircraft	Flight Systems	Cyber and ISR	Global Services
Space	Space Systems	Sensors and Processing

Effective January 1, 2019, the former Advanced Defense Services and System Modernization and Services business areas of Technology Services were merged to create the Global Services business area. This change had no impact on the segment operating results of Technology Services as a whole.

This section discusses segment sales, operating income and operating margin rates. In evaluating segment operating performance, we look primarily at changes in sales and operating income. Where applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between products and services. Changes in sales are generally described in terms of volume, while changes in margin rates are generally described in terms of performance and/or contract mix. For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability. Contract mix generally refers to changes in the ratio of contract type and/or lifecycle (e.g., cost-type, fixed-price, development, production, and/or sustainment).

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NORTHROP GRUMMAN CORPORATION                        

Segment Operating Income and Margin Rate

Segment operating income, as reconciled in the table below, and segment operating margin rate (segment operating income divided by sales) are non-GAAP (accounting principles generally accepted in the United States of America) measures that reflect total earnings from our four segments, including allocated pension expense 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 expenses (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	2019			2018			Change		2019			2018			Change
Segment operating income	$	978		$	779		26	%	$	1,945		$	1,541		26	%
Segment operating margin rate	11.6		%	10.9		%			11.7		%	11.1		%
CAS pension expense	199			237			(16	)%	399			463			(14	)%
Less: FAS (service) pension expense	(92		)	(100		)	(8	)%	(184		)	(199		)	(8	)%
Net FAS (service)/CAS pension adjustment	107			137			(22	)%	215			264			(19	)%
Intangible asset amortization and PP&E step-up depreciation	(98		)	(30		)	NM		(194		)	(30		)	NM
Other unallocated corporate expense	(41		)	(69		)	(41	)%	(84		)	(110		)	(24	)%
Unallocated corporate expense	(139		)	(99		)	40	%	(278		)	(140		)	99	%
Operating income	$	946		$	817		16	%	$	1,882		$	1,665		13	%

Current Quarter

Second quarter 2019 segment operating income increased $199 million, or 26 percent, due to higher operating income at all four sectors, including a full quarter of operating income from Innovation Systems. Segment operating margin rate increased to 11.6 percent from 10.9 percent largely due to improved performance at Mission Systems and Technology Services. In addition, segment operating income and margin rate benefited from cost synergies realized in connection with the 2018 acquisition of Orbital ATK.

Year to Date

Year to date 2019 segment operating income increased $404 million, or 26 percent, primarily due to the inclusion of a full six months of operating income from Innovation Systems as well as higher operating income at Mission Systems and Aerospace Systems. Segment operating margin rate increased due to improved performance at all four sectors. In addition, segment operating income and margin rate benefited from the cost synergies described above.

Net FAS (service)/CAS Pension Adjustment

The decrease in our second quarter and year to date 2019 net FAS (service)/CAS pension adjustment is primarily due to lower CAS expense largely as a result of changes in actuarial assumptions as of December 31, 2018, partially offset by increased CAS expense due to the addition of Innovation Systems.

Unallocated Corporate Expense

Current Quarter

The increase in second quarter 2019 unallocated corporate expense is primarily due to a $68 million increase of intangible asset amortization and PP&E step-up depreciation. This increase was partially offset by $23 million of non-recurring transaction costs related to the Orbital ATK acquisition in the second quarter of 2018.

Year to Date

The increase in year to date 2019 unallocated corporate expense is primarily due to a $164 million increase of intangible asset amortization and PP&E step-up depreciation. This increase was partially offset by $29 million of non-recurring transaction costs related to the Orbital ATK acquisition during the first six months of 2018.

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NORTHROP GRUMMAN CORPORATION                        

Net Estimate-at-Completion (EAC) Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on reported sales 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	2019			2018			2019			2018
Favorable EAC adjustments	$	283		$	237		$	518		$	444
Unfavorable EAC adjustments	(125		)	(94		)	(222		)	(185		)
Net EAC adjustments	$	158		$	143		$	296		$	259

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

	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2019			2018			2019			2018
Aerospace Systems	$	54		$	95		$	104		$	149
Innovation Systems(1)	31			—			81			—
Mission Systems	58			50			88			95
Technology Services	20			(2		)	31			20
Eliminations	(5		)	—			(8		)	(5		)
Net EAC adjustments	$	158		$	143		$	296		$	259

⁽¹⁾  Amounts reflect EAC adjustments after the percent complete on Innovation Systems contracts was reset to zero as of the Merger date.

For purposes of the discussion in the remainder of this Segment Operating Results section, references to operating income and operating margin rate reflect segment operating income and segment operating margin rate, respectively.

AEROSPACE SYSTEMS	Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	2019			2018			Change		2019			2018			Change
Sales	$	3,390		$	3,337		2	%	$	6,886		$	6,617		4	%
Operating income	361			357			1	%	743			698			6	%
Operating margin rate	10.6		%	10.7		%			10.8		%	10.5		%

Sales

Current Quarter

Second quarter 2019 sales increased $53 million, or 2 percent, due to higher volume on Manned Aircraft and Space programs. Manned Aircraft sales reflect a higher rate of F-35 production activity. Space sales principally reflect higher volume on a civil space program. Autonomous Systems sales were comparable to the prior year period.

Year to Date

Year to date 2019 sales increased $269 million, or 4 percent, due to higher sales in all three business areas. Manned Aircraft sales reflect increased restricted volume and a higher rate of F-35 production activity. Space sales reflect higher volume on a secure communications satellite program. Autonomous Systems sales increased due to higher volume on several programs, including Triton, partially offset by lower NATO AGS volume as that program nears completion.

Operating Income

Current Quarter

Second quarter 2019 operating income increased $4 million, or 1 percent, due to higher sales. Operating margin rate of 10.6 percent was comparable to the prior year period.

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NORTHROP GRUMMAN CORPORATION                        

Year to Date

Year to date 2019 operating income increased $45 million, or 6 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 10.8 percent from 10.5 percent due to improved performance in all three business areas.

INNOVATION SYSTEMS	Three Months Ended June 30						%	Six Months Ended June 30						%
$ in millions	2019			2018			Change	2019			2018			Change
Sales	$	1,498		$	400		NM	$	2,936		$	400		NM
Operating income	169			39			NM	336			39			NM
Operating margin rate	11.3		%	9.8		%		11.4		%	9.8		%

The sales and operating income above reflect the operating results of Innovation Systems subsequent to the Merger date. In our comparative discussion below, we reference pro forma sales prepared in accordance with Article 11 of Regulation S-X and computed as if Orbital ATK had been included in our results in the year prior to the Merger, or as of January 1, 2017. Refer to Note 2 to the financial statements for additional supplemental consolidated pro forma financial information. This pro forma financial information should not be considered indicative of the results that would have actually occurred if the Merger had been consummated on January 1, 2017, nor are they indicative of future results.

Sales

Current Quarter

Second quarter 2019 sales increased $106 million, or 8 percent, compared with pro forma sales of $1.4 billion in the second quarter of 2018, principally due to higher sales at Flight Systems and Defense Systems. Flight Systems sales increased due to higher volume on military aerospace structures and launch vehicles. Defense Systems sales reflect higher volume on tactical missiles and subsystems, including the Advanced Anti-Radiation Guided Missile (AARGM) program.

Year to Date

Year to date 2019 sales increased $233 million, or 9 percent, compared with year to date 2018 pro forma sales of $2.7 billion due to higher sales in all three business areas. Flight Systems sales reflect higher volume on launch vehicles, principally Ground-based Midcourse Defense, and military aerospace structures. Defense Systems sales increased due to higher volume on tactical missiles and subsystems, including the AARGM program, and precision munitions and armament products, partially offset by lower sales on ammunition products. Space Systems sales reflect higher volume on national security satellite systems.

Operating Income

Current Quarter

Second quarter 2019 operating income totaled $169 million and operating margin rate was 11.3 percent.

Year to Date

Year to date 2019 operating income totaled $336 million and operating margin rate was 11.4 percent. Year to date results benefited from the timing of favorable negotiations on certain commercial contracts.

MISSION SYSTEMS	Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	2019			2018			Change		2019			2018			Change
Sales	$	3,128		$	2,874		9	%	$	6,014		$	5,757		4	%
Operating income	408			352			16	%	791			723			9	%
Operating margin rate	13.0		%	12.2		%			13.2		%	12.6		%

Sales

Current Quarter

Second quarter 2019 sales increased $254 million, or 9 percent, due to higher sales in all three business areas. Sensors and Processing sales increased principally due to higher volume on infrared countermeasures, airborne radar and restricted programs. Advanced Capabilities sales increased due to higher volume on restricted programs. Cyber and ISR sales reflect higher volume on space payloads and mission programs.

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NORTHROP GRUMMAN CORPORATION                        

Year to Date

Year to date 2019 sales increased $257 million, or 4 percent, across all three business areas. Sensors and Processing sales increased principally due to higher volume on restricted and airborne radar programs, partially offset by lower volume on communications programs. Cyber and ISR sales increased principally due to higher volume on space payloads and mission programs as well as higher intercompany volume. Advanced Capabilities sales increased due to higher volume on restricted programs, partially offset by lower missile defense volume, primarily related to the JRDC program.

Operating Income

Current Quarter

Second quarter 2019 operating income increased $56 million, or 16 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 13.0 percent from 12.2 percent, primarily due to improved performance on Advanced Capabilities programs.

Year to Date

Year to date 2019 operating income increased $68 million, or 9 percent, due to a higher operating margin rate and higher sales. Operating margin rate increased to 13.2 percent from 12.6 percent primarily due to improved performance on Advanced Capabilities and Sensors and Processing programs, partially offset by lower performance on Cyber and ISR programs.

TECHNOLOGY SERVICES	Three Months Ended June 30						%		Six Months Ended June 30						%
$ in millions	2019			2018			Change		2019			2018			Change
Sales	$	1,044		$	1,048		—	%	$	2,021		$	2,192		(8	)%
Operating income	113			95			19	%	215			217			(1	)%
Operating margin rate	10.8		%	9.1		%			10.6		%	9.9		%

Sales

Current Quarter

Second quarter 2019 sales were comparable to the second quarter of 2018, and reflect lower Global Services sales, principally due to the completion in 2018 of a state and local services contract, offset by higher Global Logistics and Modernization volume.

Year to Date

Year to date 2019 sales decreased $171 million, or 8 percent, due to program completions across the sector. Global Services sales declined principally due to the completions in 2018 of a state and local services contract and of certain defense services contracts, largely the JRDC program. Global Logistics and Modernization sales declined primarily due to the completion in 2018 of a manned aircraft sustainment program, KC-10, partially offset by sales growth on strategic and electronic systems sustainment programs.

Operating Income

Current Quarter

Second quarter 2019 operating income increased $18 million, or 19 percent, and operating margin rate increased to 10.8 percent from 9.1 percent primarily due to improved performance on Global Services programs and the absence in 2019 of a negative EAC adjustment recognized on a state and local services contract in the prior year period.

Year to Date

Year to date 2019 operating income decreased $2 million, or 1 percent, due to lower sales, largely offset by a higher operating margin rate. Operating margin rate increased to 10.6 percent from 9.9 percent primarily due to improved performance on Global Services programs.

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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	2019						2018						2019						2018
Segment Information:	Sales			Operating Costs and Expenses			Sales			Operating Costs and Expenses			Sales			Operating Costs and Expenses			Sales			Operating Costs and Expenses
Aerospace Systems
Product	$	2,853		$	2,572		$	2,813		$	2,514		$	5,827		$	5,224		$	5,564		$	4,979
Service	537			457			524			466			1,059			919			1,053			940
Innovation Systems
Product	1,328			1,177			354			317			2,568			2,273			354			317
Service	170			152			46			44			368			327			46			44
Mission Systems
Product	1,960			1,678			1,812			1,566			3,744			3,201			3,531			3,042
Service	1,168			1,042			1,062			956			2,270			2,022			2,226			1,992
Technology Services
Product	140			126			118			109			263			242			224			206
Service	904			805			930			844			1,758			1,564			1,968			1,769
Segment Totals
Total Product	$	6,281		$	5,553		$	5,097		$	4,506		$	12,402		$	10,940		$	9,673		$	8,544
Total Service	2,779			2,456			2,562			2,310			5,455			4,832			5,293			4,745
Intersegment eliminations	(604		)	(531		)	(540		)	(476		)	(1,212		)	(1,072		)	(1,112		)	(976		)
Total segment(1)	$	8,456		$	7,478		$	7,119		$	6,340		$	16,645		$	14,700		$	13,854		$	12,313

⁽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 2019 product sales increased $1.2 billion, or 23 percent. The increase was primarily due to a full quarter of product sales from Innovation Systems and higher product sales on Sensors and Processing programs at Mission Systems.

Second quarter 2019 product costs increased $1.0 billion, or 23 percent, consistent with the higher product sales described above.

Year to Date

Year to date 2019 product sales increased $2.7 billion, or 28 percent. The increase was primarily due to a full six months of product sales from Innovation Systems, higher restricted and F-35 volume at Aerospace Systems and higher product sales on Sensors and Processing programs at Mission Systems.

Year to date 2019 product costs increased $2.4 billion, or 28 percent, consistent with the higher product sales described above.

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NORTHROP GRUMMAN CORPORATION                        

Service Sales and Costs

Current Quarter

Second quarter 2019 service sales increased $217 million, or 8 percent. The increase was primarily due to a full quarter of service sales from Innovation Systems and higher service sales at Mission Systems.

Second quarter 2019 service costs increased $146 million, or 6 percent, consistent with the higher service sales described above and reflects improved performance on service contracts at each sector.

Year to Date

Year to date 2019 service sales increased $162 million, or 3 percent. The increase was primarily driven by a full six months of service sales from Innovation Systems and higher service sales at Mission Systems, partially offset by lower service sales at Technology Services principally due to several program completions.

Year to date 2019 service costs increased $87 million, or 2 percent. The increase was primarily driven by the higher service sales described above and reflects improved performance at Aerospace Systems and Technology Services.

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 the 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, 2019 and December 31, 2018:

	June 30, 2019						December 31, 2018
$ in millions	Funded		Unfunded		Total Backlog		Total Backlog		% Change in 2019
Aerospace Systems	$	12,622	$	21,127	$	33,749	$	26,440	28	%
Innovation Systems	5,775		2,660		8,435		8,207		3	%
Mission Systems	10,638		6,963		17,601		15,408		14	%
Technology Services	2,793		445		3,238		3,445		(6	)%
Total backlog	$	31,828	$	31,195	$	63,023	$	53,500	18	%

New Awards

Second quarter and year to date 2019 net awards totaled $13.5 billion and $25.8 billion, respectively, and backlog increased to $63.0 billion as of June 30, 2019. Significant new awards in the second quarter include $4.1 billion for the F-35 program, $3.6 billion to deliver an additional 24 E-2D Advance Hawkeye aircraft and related equipment to the U.S. Navy, $843 million for space restricted programs, $316 million for the Global Hawk program and $265 million for the Intermediate Range Conventional Prompt Strike hypersonic program.

LIQUIDITY AND CAPITAL RESOURCES

We endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize 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.

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

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NORTHROP GRUMMAN CORPORATION                        

Operating Cash Flow

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

	Six Months Ended June 30						%
$ in millions	2019			2018			Change
Net earnings	$	1,724		$	1,629		6	%
Non-cash items(1)	709			383			85	%
Changes in assets and liabilities:
Trade working capital	(1,419		)	(967		)	47	%
Retiree benefits	(285		)	(394		)	(28	)%
Other, net	(35		)	(13		)	169	%
Net cash provided by operating activities	$	694		$	638		9	%

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

Year to date 2019 cash provided by operating activities increased $56 million principally due to higher net earnings, partially offset by an increase in trade working capital.

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	2019			2018			Change
Net cash provided by operating activities	$	694		$	638		9	%
Less: capital expenditures	(536		)	(504		)	6	%
Free cash flow	$	158		$	134		18	%

Year to date 2019 free cash flow increased $24 million principally due to the increase in net cash provided by operating activities.

Investing Cash Flow

Year to date 2019 net cash used in investing activities decreased to $535 million from $8.2 billion principally due to $7.7 billion paid in 2018 for the acquisition of Orbital ATK, net of cash acquired.

Financing Cash Flow

Year to date 2019 net cash used in financing activities decreased to $650 million from $2.2 billion principally due to $1.8 billion in debt and credit facility repayments in 2018, partially offset by increased share repurchases and lower net borrowings on commercial paper in 2019.

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

Share Repurchases - See Note 3 to the financial statements for further information on our share repurchase programs.

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

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NORTHROP GRUMMAN CORPORATION                        

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

There have been no material changes to our critical accounting policies, estimates or judgments from those discussed in our 2018 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 2018 Annual Report on Form 10-K and from time to time in our other filings with the Securities and Exchange Commission (SEC). They include:

• 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 more broadly

• investigations, claims, disputes, enforcement actions and/or litigation

• the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs

• our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, 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, our ability to do business, and our financial position, results of operations and/or cash flows

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

• the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials, chemicals and components

• changes in procurement and other laws, regulations and practices applicable to our industry, findings by the U.S. government as to our compliance with such laws and regulations, and changes in our customers’ business practices globally

• increased competition within our markets and bid protests

• the ability to maintain a qualified workforce

• our ability to meet performance obligations under our contracts, including obligations that are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control

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

• natural disasters

• 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

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NORTHROP GRUMMAN CORPORATION                        

• 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, postretirement and health and welfare plans

• our ability successfully to integrate the Orbital ATK business and realize fully the anticipated benefits of the acquisition, without adverse consequences

• our ability to exploit 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

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

• unanticipated changes in our tax provisions or exposure to additional tax liabilities, including qualification of the Alliant Techsystems Inc. spin-off of Vista Outdoor Inc. as a tax-free transaction

You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this report is first filed or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

CONTRACTUAL OBLIGATIONS

There have been no material changes to our contractual obligations from those discussed in our 2018 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 2018 Annual Report on Form 10-K.

Item 4.    Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

Our principal executive officer (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, 2019, and have concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the three months ended June 30, 2019, no changes occurred in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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NORTHROP GRUMMAN CORPORATION                        

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We have provided information about certain legal proceedings in which we are involved in Notes 6 and 7 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 6 and 7 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 2018 Annual Report on Form 10-K.

Item 1A. Risk Factors

For a discussion of our risk factors please see the section entitled “Risk Factors” in our 2018 Annual Report on Form 10-K.

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 2019:

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 30, 2019 - April 26, 2019	112,600	$	277.21	112,600		$	3,989
April 27, 2019 - May 24, 2019	252,485	295.98		252,485		3,914
May 25, 2019 - June 28, 2019	211,700	312.05		211,700		3,848
Total	576,785	$	298.21	576,785		$	3,848

⁽¹⁾  Includes commissions paid.

Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market and 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 3 to the financial statements for further information on our share repurchase programs.

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NORTHROP GRUMMAN CORPORATION                        

Item 6. Exhibits

2.1	Agreement and Plan of Merger among Titan II, Inc. (formerly Northrop Grumman Corporation), Northrop Grumman Corporation (formerly New P, Inc.) and Titan Merger Sub Inc., dated March 30, 2011 (incorporated by reference to Exhibit 10.1 to Form 8-K filed April 4, 2011, File No. 001-16411)
2.2	Separation and Distribution Agreement dated as of March 29, 2011, among Titan II, Inc. (formerly Northrop Grumman Corporation), Northrop Grumman Corporation (formerly New P, Inc.), Huntington Ingalls Industries, Inc., Northrop Grumman Shipbuilding, Inc. and Northrop Grumman Systems Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K filed April 4, 2011, File No. 001-16411)
2.3	Agreement and Plan of Merger, dated as of September 17, 2017, among Northrop Grumman Corporation, Neptune Merger, Inc. and Orbital ATK, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed September 18, 2017)
2.4	Transaction Agreement, dated as of April 28, 2014, among Alliant Techsystems Inc., Vista Spinco Inc., Vista Merger Sub Inc. and Orbital Sciences Corporation (incorporated by reference to Exhibit 2.1 to Alliant Techsystems Inc. (now known as Northrop Grumman Innovation Systems, Inc.) Form 8-K filed May 2, 2014)
+*10.1	Non-Employee Director Compensation Term Sheet, effective May 15, 2019
*15	Letter from Independent Registered Public Accounting Firm
*31.1	Certification of Kathy J. Warden pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certification of Kenneth L. Bedingfield pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
**32.1	Certification of Kathy J. Warden pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**32.2	Certification of Kenneth L. Bedingfield pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*101	Northrop Grumman Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, 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.

+	Management contract or compensatory plan or arrangement
*	Filed with this report
**	Furnished with this report

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NORTHROP GRUMMAN CORPORATION                        

SIGNATURES

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

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

Date: July 23, 2019

-39-

EX-10.1

Exhibit 10.1

Fees and Expenses

(effective as of 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.

EX-15

NORTHROP GRUMMAN CORPORATION

EXHIBIT 15

LETTER FROM INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

July 23, 2019

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, 2019, and 2018, as indicated in our report dated July 23, 2019; 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, 2019, 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. 333-217087 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

EX-31.1

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 Form10-Qof 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 23, 2019

/s/ Kathy J. Warden

Kathy J. Warden

Chief Executive Officer and President

EX-31.2

NORTHROP GRUMMAN CORPORATION

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kenneth L. Bedingfield, certify that:

1. I have reviewed this report on Form10-Qof 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 23, 2019

/s/ Kenneth L. Bedingfield

Kenneth L. Bedingfield

Corporate Vice President and Chief Financial Officer

EX-32.1

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 theQuarterlyReport of Northrop Grumman Corporation (the “company”) on Form10-Qfor theperiod endedJune 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kathy J. Warden, 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 23, 2019

/s/ Kathy J. Warden

Kathy J. Warden

Chief Executive Officer and President

EX-32.2

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 theQuarterlyReport of Northrop Grumman Corporation (the “company”) on Form10-Qfor theperiod endedJune 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenneth L. Bedingfield, 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 23, 2019

/s/ Kenneth L. Bedingfield

Kenneth L. Bedingfield

Corporate Vice President and Chief Financial Officer

XML

Document and Entity Information Document - shares	6 Months Ended
	Jun. 30, 2019	Jul. 19, 2019
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, 2019
Document Transition Report	false
Amendment Flag	false
Document Fiscal Year Focus	2019
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		169,198,172

XML

Condensed Consolidated Statements of Earnings and Comprehensive Income (Unaudited) - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Sales	$ 8,456	$ 7,119	$ 16,645	$ 13,854
Operating costs and expenses
General and administrative expenses	784	739	1,544	1,450
Operating income	946	817	1,882	1,665
Other (expense) income
Interest expense	(137)	(144)	(275)	(287)
FAS (non-service) pension benefit	200	258	400	512
Other, net	19	45	55	85
Earnings before income taxes	1,028	976	2,062	1,975
Federal and foreign income tax expense	167	187	338	346
Net earnings	$ 861	$ 789	$ 1,724	$ 1,629
Basic earnings per share
Basic earnings per share	$ 5.07	$ 4.52	$ 10.15	$ 9.34
Weighted-average common shares outstanding, in millions	169.7	174.5	169.9	174.4
Diluted earnings per share
Diluted earnings per share	$ 5.06	$ 4.50	$ 10.11	$ 9.29
Weighted-average diluted shares outstanding, in millions	170.3	175.4	170.5	175.4
Net earnings (from above)	$ 861	$ 789	$ 1,724	$ 1,629
Change in unamortized prior service credit, net of tax	(12)	(15)	(23)	(30)
Change in cumulative translation adjustment and other, net	(4)	(3)	0	(6)
Other comprehensive loss, net of tax	(16)	(18)	(23)	(36)
Comprehensive income	845	771	1,701	1,593
Product [Member]
Sales	5,880	4,790	11,608	9,079
Cost of Sales	4,661	3,698	9,178	6,967
Service [Member]
Sales	2,576	2,329	5,037	4,775
Cost of Sales	$ 2,065	$ 1,865	$ 4,041	$ 3,772

XML

Condensed Consolidated Statements of Financial Position (Unaudited) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	$ 1,088	$ 1,579
Accounts receivable, net	1,832	1,448
Unbilled receivables, net	5,657	5,026
Inventoried costs, net	810	654
Prepaid expenses and other current assets	772	973
Total current assets	10,159	9,680
Property, plant and equipment, net of accumulated depreciation of $5,628 for 2019 and $5,369 for 2018	6,522	6,372
Operating lease right-of-use assets	1,278	0
Goodwill	18,708	18,672
Intangible assets, net	1,206	1,372
Deferred tax assets	85	94
Other non-current assets	1,626	1,463
Total assets	39,584	37,653
Liabilities
Trade accounts payable	1,962	2,182
Accrued employee compensation	1,528	1,676
Advance payments and billings in excess of costs incurred	1,942	1,917
Other current liabilities	2,723	2,499
Total current liabilities	8,155	8,274
Long-term debt, net of current portion of $545 for 2019 and $517 for 2018	13,838	13,883
Pension and other postretirement benefit plan liabilities	5,535	5,755
Operating lease liabilities	1,081	0
Deferred tax liabilities	140	108
Other non-current liabilities	1,621	1,446
Total liabilities	30,370	29,466
Commitments and contingencies (Note 7)
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: 2019—169,305,793 and 2018—170,607,336	169	171
Paid-in capital	0	0
Retained earnings	9,120	8,068
Accumulated other comprehensive loss	(75)	(52)
Total shareholders’ equity	9,214	8,187
Total liabilities and shareholders’ equity	$ 39,584	$ 37,653

XML

Condensed Consolidated Statements of Financial Position (Unaudited) (Parentheticals) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Accumulated depreciation	$ (5,628)	$ (5,369)
Long-term debt, current portion	$ 545	$ 517
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	169,305,793	170,607,336
Common Stock, shares outstanding	169,305,793	170,607,336

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Operating activities
Net earnings	$ 1,724	$ 1,629
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization	479	281
Non-cash lease expense	127	0
Stock-based compensation	55	53
Deferred income taxes	48	49
Changes in assets and liabilities:
Accounts receivable, net	(384)	(145)
Unbilled receivables, net	(658)	(570)
Inventoried costs, net	(156)	(73)
Prepaid expenses and other assets	(48)	57
Accounts payable and other liabilities	(367)	(422)
Income taxes payable, net	194	186
Retiree benefits	(285)	(394)
Other, net	(35)	(13)
Net cash provided by operating activities	694	638
Investing activities
Acquisition of Orbital ATK, net of cash acquired	0	(7,657)
Capital expenditures	(536)	(504)
Other, net	1	2
Net cash used in investing activities	(535)	(8,159)
Financing activities
Payments of long-term debt	0	(1,550)
Net payments to credit facilities	(20)	(314)
Net borrowings on commercial paper	101	249
Common stock repurchases	(231)	(41)
Cash dividends paid	(435)	(407)
Payments of employee taxes withheld from share-based awards	(63)	(80)
Other, net	(2)	(22)
Net cash used in financing activities	(650)	(2,165)
Decrease in cash and cash equivalents	(491)	(9,686)
Cash and cash equivalents, beginning of year	1,579	11,225
Cash and cash equivalents, end of period	$ 1,088	$ 1,539

XML

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, 2017		$ 174	$ 44	$ 6,913	$ 1
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Impact from adoption of ASU 2018-02 and ASU 2016-01				(21)	21
Common stock repurchased		0	(34)	(15)
Net earnings	$ 1,629			1,629
Dividends declared				(405)
Stock compensation			(10)	(35)
Other comprehensive loss, net of tax	(36)				(36)
End of period at Jun. 30, 2018	$ 8,226	174	0	8,066	(14)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash dividends declared per share	$ 2.30
Beginning of period at Mar. 31, 2018		174	0	7,502	4
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Impact from adoption of ASU 2018-02 and ASU 2016-01				0	0
Common stock repurchased		0	(34)	(15)
Net earnings	$ 789			789
Dividends declared				(210)
Stock compensation			34	0
Other comprehensive loss, net of tax	(18)				(18)
End of period at Jun. 30, 2018	$ 8,226	174	0	8,066	(14)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash dividends declared per share	$ 1.20
Beginning of period at Dec. 31, 2018	$ 8,187	171	0	8,068	(52)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Impact from adoption of ASU 2018-02 and ASU 2016-01				0	0
Common stock repurchased		(2)	0	(234)
Net earnings	1,724			1,724
Dividends declared				(432)
Stock compensation			0	(6)
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]
Impact from adoption of ASU 2018-02 and ASU 2016-01				0	0
Common stock repurchased		(1)	0	(172)
Net earnings	$ 861			861
Dividends declared				(226)
Stock compensation			0	29
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

XML

Basis of Presentation (Unaudited)

6 Months Ended

Jun. 30, 2019

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”). Material 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.

On June 6, 2018 (the “Merger date”), the company completed its previously announced acquisition of Orbital ATK, Inc. (“Orbital ATK”) (the “Merger”). On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc., which we established as a new, fourth business sector (“Innovation Systems”). The operating results of Innovation Systems subsequent to the Merger date have been included in the company’s unaudited condensed consolidated results of operations. See Note 2 for further information regarding the Merger.

These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”) and in accordance with the rules of the Securities and Exchange Commission (SEC) for interim reporting. The financial statements include adjustments of a normal recurring nature considered necessary by management for a fair presentation of the company’s unaudited condensed consolidated financial position, results of operations and cash flows.

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 2018 Annual Report on Form 10-K.

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.

As previously announced, effective January 1, 2019, we adopted Accounting Standards Codification (ASC) Topic 842, Leases, using the optional transition method to apply the standard through a cumulative effect adjustment in the period of adoption. The adoption of this standard is reflected in the amounts and disclosures set forth in this Form 10-Q.

Accounting Estimates

Preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.

Revenue Recognition

The majority of our sales are derived from long-term contracts with the U.S. government for the production of goods, the provision of services, or a combination of both. The company classifies sales as product or service based on the predominant attributes of each contract.

The company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the company provides multiple distinct goods or services to a customer, most commonly when a contract covers multiple phases of the product lifecycle (e.g., development, production, sustainment, etc.). In those cases, the company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using a cost plus a reasonable margin approach. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore

not considered to be separate performance obligations. Assets recognized from the costs to obtain or fulfill a contract are not material.

Contracts are often modified for changes in contract specifications or requirements, which may result in scope and/or price changes. Most of the company’s contract modifications are for goods or services that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative estimate-at-completion (EAC) adjustment.

The company recognizes revenue as control is transferred to the customer, either over time or at a point in time. In general, our U.S. government contracts contain termination for convenience and/or other clauses that generally provide the customer rights to goods produced and/or in-process. Similarly, our non-U.S. government contracts generally contain contractual termination clauses or entitle the company to payment for work performed to date for goods and services that do not have an alternative use. As control is effectively transferred while we perform on our contracts, we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion) as the company believes this represents the most appropriate measurement towards satisfaction of its 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. Each loss provision is first offset against costs included in Unbilled receivables or Inventoried costs; remaining amounts are reflected in Other current liabilities.

Significant EAC adjustments on a single contract could have a material effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. No discrete event or adjustments to an individual contract were material to the financial statements during the three months ended June 30, 2019. During the three months ended June 30, 2018, the company recognized $69 million of favorable EAC adjustments on multiple restricted programs at Aerospace Systems.

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	2019		2018		2019		2018
Operating income	$	158	$	143	$	296	$	259
Net earnings(1)	125		113		234		205
Diluted earnings per share(1)	0.73		0.64		1.37		1.17

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

Revenue recognized from performance obligations satisfied in previous reporting periods was $154 million and $320 million for the three and six months ended June 30, 2019, respectively, and $156 million and $289 million for the three and six months ended June 30, 2018, respectively.

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 the option or IDIQ task order is exercised or awarded.

Company backlog as of June 30, 2019 was $63.0 billion. We expect to recognize approximately 40 percent and 65 percent of our June 30, 2019 backlog as revenue over the next 12 and 24 months, respectively, with the remainder to be recognized thereafter.

Contract Assets and Liabilities

For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.

Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Unbilled receivables are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts. Accumulated contract costs in unbilled receivables include costs such as direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. Unbilled receivables also include certain estimates of variable consideration described above. These contract assets are not considered a significant financing component of the company’s contracts as the payment terms are intended to protect the customer in the event the company does not perform on its obligations under the contract.

Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position. Certain customers make advance payments prior to the company’s satisfaction of its obligations on the contract. These amounts are recorded as contract liabilities until such obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements.

The amount of revenue recognized for the three 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. The amount of revenue recognized for the three and six months ended June 30, 2018 that was included in the December 31, 2017 contract liability balance was $364 million and $1.1 billion, respectively.

Disaggregation of Revenue

See Note 11 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, 2019			December 31, 2018
Unamortized prior service credit, net of tax expense of $24 for 2019 and $32 for 2018	$	75		$	98
Cumulative translation adjustment	(145		)	(144		)
Other, net	(5		)	(6		)
Total accumulated other comprehensive loss	$	(75	)	$	(52	)

Reclassifications from accumulated other comprehensive loss to net earnings related to the amortization of prior service credit were $12 million and $23 million, net of taxes, for the three and six months ended June 30, 2019, respectively and were $15 million and $30 million, net of taxes, for the three and six months ended June 30, 2018,

respectively. The reclassifications are included in the computation of net periodic pension cost (benefit). See Note 8 for further information.

Reclassifications from accumulated other comprehensive loss to net earnings relating to cumulative translation adjustments and effective cash flow hedges were not material for the three and six months ended June 30, 2019 and 2018.

Leases

The company leases certain buildings, land and equipment. Under ASC 842, at contract inception we determine whether the contract is or contains a lease and whether the lease should be classified as an operating or a finance lease. Operating leases are included in Operating lease right-of-use assets, Other current liabilities, and Operating lease liabilities in our unaudited condensed consolidated statements of financial position.

The company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. Many of our leases include renewal options aligned with our contract terms. We define the initial lease term to include renewal options determined to be reasonably certain. In our adoption of ASC 842, we elected not to recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. We elected the practical expedient to not separate lease components from nonlease components and applied that practical expedient to all material classes of leased assets.

Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays or rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement owned by the lessee, the company generally records a deferred rent liability and amortizes the deferred rent over the term of the lease as a reduction to rent expense. For rent holidays and rent escalation clauses during the lease term, the company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation for intended use.

Finance leases are not material to our unaudited condensed consolidated financial statements and the company is not a lessor in any material arrangements. We do not have any material restrictions or covenants in our lease agreements, sale-leaseback transactions, land easements or residual value guarantees.

Related Party Transactions

The company had no material related party transactions in any period presented.

Restricted Cash

On occasion, we are required to maintain cash deposits with banks in connection with certain contingent obligations. As of June 30, 2019, we had no restricted cash, as the contingencies that existed in connection with the company’s restricted cash balance as of March 31, 2019 were satisfied. We had no restricted cash as of December 31, 2018.

Accounting Standards Updates

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASC Topic 842 supersedes existing lease guidance, including ASC 840 - Leases. Among other things, ASU 2016-02 requires recognition of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease and requires disclosure of certain information about leasing arrangements. On July 30, 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which, among other things, allows companies to elect an optional transition method to apply the new lease standard through a cumulative-effect adjustment in the period of adoption.

We adopted the standard on January 1, 2019 using the optional transition method and, as a result, did not recast prior period unaudited condensed consolidated comparative financial statements. All prior period amounts and disclosures are presented under ASC 840. We elected the package of practical expedients, which, among other things, allows us to carry forward our prior lease classifications under ASC 840. We did not elect to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840. Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities on the unaudited condensed consolidated statements of financial position with no cumulative impact to retained earnings and did not have a material impact on our results of operations or cash flows.

Other accounting standards updates adopted and/or issued, but not effective until after June 30, 2019, are not expected to have a material effect on the company’s unaudited condensed consolidated financial position, annual results of operations and/or cash flows.

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Business Acquisition (Unaudited) Business Acquisition (Unaudited)

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

ACQUISITION OF ORBITAL ATK

On June 6, 2018, the company completed its previously announced acquisition of Orbital ATK, by acquiring all of the outstanding shares of Orbital ATK for a purchase price of $7.7 billion in cash. On the Merger date, Orbital ATK became a wholly-owned subsidiary of the company and its name was changed to Northrop Grumman Innovation Systems, Inc. We established Innovation Systems as a new, fourth business sector. Its main products include precision munitions and armaments; tactical missiles and subsystems; ammunition; launch vehicles; space and strategic propulsion systems; aerospace structures; space exploration products; and national security and commercial satellite systems and related components/services. The acquisition was financed with proceeds from the company’s debt financing completed in October 2017 and cash on hand. We believe this acquisition will enable us to broaden our capabilities and offerings, provide additional innovative solutions to meet our customers’ emerging requirements, create value for shareholders and provide expanded opportunities for our combined employees.

Purchase Price Allocation

The acquisition was accounted for as a purchase business combination. As such, the company recorded the assets acquired and liabilities assumed at fair value, with the excess of the purchase price over the fair value of assets acquired and liabilities assumed recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. In some cases, the company used discounted cash flow analyses, which were based on our best estimate of future sales, earnings and cash flows after considering such factors as general market conditions, customer budgets, existing firm and future orders, changes in working capital, long term business plans and recent operating performance. Use of different estimates and judgments could yield materially different results.

During the second quarter of 2019, the company finalized its determination of the fair values of the assets acquired and liabilities assumed as of the Merger date. Based on additional information obtained during the measurement period, the company refined its initial assessment of fair value and recognized the following significant adjustments to its preliminary purchase price allocation: Intangible assets increased $220 million, Other current liabilities increased $114 million, Pension and other postretirement benefit (OPB) plan liabilities increased $56 million, Other non-current liabilities increased $53 million, Other current assets increased $44 million and Goodwill decreased $36 million. These adjustments did not result in a material impact on the financial results of prior periods.

The Merger date fair value of the consideration transferred totaled $7.7 billion in cash, which was comprised of the following:

$ in millions, except per share amounts	Purchase price
Shares of Orbital ATK common stock outstanding as of the Merger date	57,562,152
Cash consideration per share of Orbital ATK common stock	$	134.50
Total purchase price	$	7,742

The following purchase price allocation table presents the company’s final determination of the fair values of assets acquired and liabilities assumed at the Merger date:

$ in millions	As of June 6, 2018
Cash and cash equivalents	$	85
Accounts receivable	596
Unbilled receivables	1,237
Inventoried costs	220
Other current assets	237
Property, plant and equipment	1,509
Goodwill	6,259
Intangible assets	1,525
Other non-current assets	151
Total assets acquired	11,819
Trade accounts payable	(397		)
Accrued employee compensation	(158		)
Advance payments and billings in excess of costs incurred	(222		)
Below market contracts(1)	(151		)
Other current liabilities	(412		)
Long-term debt	(1,687		)
Pension and OPB plan liabilities	(613		)
Deferred tax liabilities	(248		)
Other non-current liabilities	(189		)
Total liabilities assumed	(4,077		)
Total purchase price	$	7,742

⁽¹⁾  Included in Other current liabilities in the unaudited condensed consolidated statements of financial position.

The following table presents a summary of purchased intangible assets and their related estimated useful lives:

	Fair Value (in millions)		Estimated Useful Life in Years
Customer contracts	$	1,245	9
Commercial customer relationships	280		13
Total customer-related intangible assets	$	1,525

The purchase price allocation resulted in the recognition of $6.3 billion of goodwill, a majority of which was allocated to the Innovation Systems sector. The goodwill recognized is attributable to expected revenue synergies generated by the integration of Aerospace Systems, Mission Systems and Technology Services products and technologies with those of legacy Orbital ATK, synergies resulting from the consolidation or elimination of certain costs, and intangible assets that do not qualify for separate recognition, such as the assembled workforce of Orbital ATK. None of the goodwill is expected to be deductible for tax purposes.

Unaudited Supplemental Pro Forma Information

The following table presents unaudited pro forma financial information prepared in accordance with Article 11 of Regulation S-X and computed as if Orbital ATK had been included in our results as of January 1, 2017:

$ in millions, except per share amounts	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Sales	$	8,078	$	16,078
Net earnings	882		1,796
Diluted earnings per share	5.03		10.24

The unaudited supplemental pro forma financial data has been calculated after applying our accounting policies and adjusting the historical results of Orbital ATK with pro forma adjustments, net of tax, that assume the acquisition occurred on January 1, 2017. Significant pro forma adjustments include the following:

1. The elimination of intercompany sales and costs of sales between the company and Orbital ATK of $33 million and $80 million for the three and six months ended June 30, 2018, respectively.

2. The elimination of nonrecurring transaction costs incurred by the company and Orbital ATK in connection with the Merger of $64 million and $71 million for the three and six months ended June 30, 2018, respectively.

3. The recognition of additional depreciation expense, net of removal of historical depreciation expense, of $5 million and $11 million for the three and six months ended June 30, 2018, respectively, related to the step-up in fair value of acquired property, plant and equipment.

4. The recognition of additional amortization expense, net of removal of historical amortization expense, of $48 million and $114 million for the three and six months ended June 30, 2018, respectively, related to the fair value of acquired intangible assets.

5. The elimination of Orbital ATK's historical amortization of net actuarial losses and prior service credits and impact of the revised pension and OPB net periodic benefit cost as determined under the company’s plan assumptions of $20 million and $51 million for the three and six months ended June 30, 2018, respectively.

6. The income tax effect on the pro forma adjustments, which was calculated using the federal statutory tax rate, of $(7) million and $0.4 million for the three and six months ended June 30, 2018, respectively.

The unaudited pro forma financial information does not reflect the potential realization of revenue synergies or cost savings, nor does it reflect other costs relating to the integration of the two companies. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the acquisition had been consummated on January 1, 2017, nor are they indicative of future results.

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Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited)

6 Months Ended

Jun. 30, 2019

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 0.6 million shares for the three and six months ended June 30, 2019. The dilutive effect of these securities totaled 0.9 million shares and 1.0 million shares for the three and six months ended June 30, 2018, respectively.

Share Repurchases

On September 16, 2015, the company’s board of directors authorized a share repurchase program of up to $4.0 billion of the company’s common stock (the “2015 Repurchase Program”). Repurchases under the 2015 Repurchase Program commenced in March 2016.

On December 4, 2018, the company’s board of directors authorized a new share repurchase program of up to an additional $3.0 billion in share repurchases of the company’s common stock (the “2018 Repurchase Program”). By its terms, repurchases under the 2018 Repurchase Program will commence upon completion of the 2015 Repurchase Program and will expire when we have used all authorized funds for repurchases.

During the fourth quarter of 2018, the company entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC (Goldman Sachs) to repurchase $1.0 billion of the company’s common stock under the 2015 Repurchase Program. Under the agreement, we made a payment of $1.0 billion to Goldman Sachs and received an initial delivery of 3.0 million shares valued at $800 million that were immediately canceled by the company. The remaining balance was settled on January 4, 2019 with a final delivery of 0.9 million shares from Goldman Sachs. The final average purchase price was $260.32 per share.

As of June 30, 2019, repurchases under the 2015 Repurchase Program totaled $3.2 billion; $0.8 billion remained under this share repurchase authorization. By its terms, the 2015 Repurchase Program is set to expire when we have used all authorized funds for repurchases.

Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market and 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
							2019	2018
September 16, 2015	$	4,000	13.0	$	243.90		1.7	0.2
December 4, 2018	$	3,000	—	—			—	—

⁽¹⁾  Includes commissions paid.

Dividends on Common Stock

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.

In May 2018, the company increased the quarterly common stock dividend 9 percent to $1.20 per share from the previous amount of $1.10 per share.

In January 2018, the company increased the quarterly common stock dividend 10 percent to $1.10 per share from the previous amount of $1.00 per share.

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Income Taxes (Unaudited)

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2019			2018			2019			2018
Federal and foreign income tax expense	$	167		$	187		$	338		$	346
Effective income tax rate	16.2		%	19.2		%	16.4		%	17.5		%

Current Quarter

The second quarter 2019 effective tax rate decreased to 16.2 percent from 19.2 percent in the second quarter of 2018 primarily due to higher research credits. The company’s effective tax rate for the second quarter of 2019 includes $36 million of current year research credits and $15 million of additional research credits related to a prior year, as compared to $22 million of research credits in the second quarter of 2018.

Year to Date

The year to date 2019 effective tax rate decreased to 16.4 percent from 17.5 percent in same period of 2018 primarily due to higher research credits, partially offset by lower excess tax benefits for employee share-based compensation. The company’s year to date 2019 effective tax rate includes $67 million of current year research credits, $15 million of additional research credits related to a prior year and $13 million of excess tax benefits for employee share-based compensation. The company’s year to date 2018 effective tax rate included $42 million of research credits and $26 million of excess tax benefits for employee share-based compensation.

Since enactment of the Tax Cuts and Jobs Act in late 2017, the IRS and U.S. Treasury Department have issued and are expected to further issue interpretive guidance that impacts taxpayers. We will continue to evaluate such guidance as it is issued, and, at this time, the company expects it is reasonably possible that within the next twelve months our unrecognized tax benefits, primarily related to timing items, may increase by up to an additional $70 million.

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 IRS examination.

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Fair Value of Financial Instruments (Unaudited)

6 Months Ended

Jun. 30, 2019

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 commodity forward contracts and foreign currency forward contracts. The company periodically uses commodity forward contracts to hedge forecasted purchases of certain commodities. The contracts generally establish a fixed price for the underlying commodity and are designated and qualify as effective cash flow hedges of such commodity purchases. Commodity derivatives are valued based on prices of future exchanges and recently reported transactions in the marketplace. For foreign currency forward contracts, 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, 2019								December 31, 2018
$ in millions	Level 1		Level 2			Total			Level 1		Level 2			Total
Financial Assets (Liabilities)
Marketable securities	$	337	$	—		$	337		$	319	$	1		$	320
Marketable securities valued using NAV						16								15
Total marketable securities	337		—			353			319		1			335
Derivatives	—		(8		)	(8		)	—		(10		)	(10		)

At June 30, 2019, the company had commodity forward contracts outstanding that hedge forecasted commodity purchases of 12 million pounds of copper and 5 million pounds of zinc. Gains or losses on the commodity forward contracts are recognized in product and service cost as the performance obligations on related contracts are satisfied.

The notional value of the company’s foreign currency forward contracts at June 30, 2019 and December 31, 2018 was $99 million and $114 million, respectively. The portion of notional value designated as a cash flow hedge at June 30, 2019 was $12 million. At December 31, 2018, no portion of the notional value was designated as a cash flow hedge.

The derivative fair values and related unrealized gains/losses at June 30, 2019 and December 31, 2018 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, 2019.

The carrying value of cash and cash equivalents and commercial paper approximates fair value.

Long-term Debt

The estimated fair value of long-term debt was $15.4 billion and $14.3 billion as of June 30, 2019 and December 31, 2018, respectively. We calculated the fair value of long-term debt using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements. The carrying value of long-term debt was $14.4 billion as of June 30, 2019 and December 31, 2018. The current portion of long-term debt is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.

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Investigations, Claims and Litigation (Unaudited)

6 Months Ended

Jun. 30, 2019

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 December 17, 2018, the court issued a Scheduling Order, proposed by the parties, providing for the parties to engage in mediation through March 1, 2019. After the government shutdown, the mediation was rescheduled for May 2019. The parties filed joint motions to suspend the deadlines for pretrial activities while the parties engage in mediation. On April 29, 2019 and June 5, 2019, the court issued Orders suspending the deadlines. Those suspensions ended on July 1, 2019, and on July 12, 2019, the court issued an Order scheduling trial to commence on February 3, 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, and relatively inactive for some period of time, ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$111 million (the equivalent of approximately $29 million as of June 30, 2019), plus interest, inflation adjustments and attorneys’ fees, as authorized by Brazilian law, which amounts could be significant over time. The original suit sought R$89 million (the equivalent of approximately $23 million as of June 30, 2019) in damages. In October 2013, ECT asserted an additional damage claim of R$22 million (the equivalent of approximately $6 million as of June 30, 2019). 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, 2019), 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 $11 million as of June 30, 2019) against Solystic and its consortium partners, with that amount to be adjusted for inflation and interest from November 2004 through any appeal, in accordance with the Manual of Calculations of the Federal Justice, as well as attorneys’ fees. On March 22, 2019, ECT appealed the trial court’s decision to the intermediate court of appeals. Solystic filed its appeal on April 11, 2019. The parties are exploring whether there is a possible path for a negotiated resolution of the dispute.

We are engaged in remediation activities relating to environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage, New York. For over 20 years, we have worked closely with the United States Navy, the United States Environmental Protection Agency, the New York State Department of Environmental Conservation, the New York State Department of Health and other federal, state and local governmental authorities, to address legacy environmental conditions in Bethpage. We have incurred, and expect to continue to incur, as included in Note 7, substantial remediation costs related to these environmental conditions. The remediation standards or requirements to which we are subject are being reconsidered and may change and costs may increase materially. As discussed in Note 7, the State of New York recently issued a Feasibility Study and Proposed Amended Record of Decision, proposing to impose additional remedial requirements. The company, along with other interested parties, has submitted comments on that proposal. 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, the Navy, 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.

On August 12, 2016, a putative class action complaint, naming Orbital ATK and two of its then-officers as defendants, Steven Knurr, et al. v. Orbital ATK, Inc., No. 16-cv-01031 (TSE-MSN), was filed in the United States District Court for the Eastern District of Virginia. The complaint asserts claims on behalf of purchasers of Orbital ATK securities for violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5, allegedly arising out of false and misleading statements and the failure to disclose that: (i) Orbital ATK lacked effective control over financial reporting; and (ii) as a result, it failed to record an anticipated loss on a long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the U.S. Army's Lake City Army Ammunition Plant. On April 24, 2017 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for alleged violations of additional sections of the Exchange Act and alleged false and misleading statements in Orbital ATK’s Form S-4 filed in connection with the Orbital-ATK Merger. The complaint seeks damages, reasonable costs and expenses at trial, including counsel and expert fees, and such other relief as deemed appropriate by the Court. On June 7, 2019, the court approved the parties’ proposal to resolve the litigation for $108 million, subject to certain terms and conditions. The company continues to negotiate with and pursue coverage litigation against various of its insurance carriers.

The SEC has been investigating Orbital ATK’s historical accounting practices relating to the restatement of Orbital’s unaudited condensed consolidated financial statements for the quarterly periods ended July 5, 2015 and October 4, 2015 described in the Transition Report on Form 10-K for the nine-month period ending December 31, 2015 previously filed on March 15, 2016. The SEC has also been investigating matters relating to a voluntary disclosure Orbital ATK made concerning the restatement described in Orbital ATK’s Form 10-K/A for the nine-month period ending December 31, 2015 filed on February 24, 2017. The Staff of the SEC Division of Enforcement has advised the company that it has concluded its investigation and does not intend to recommend enforcement action.

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, 2019, or its annual results of operations and/or cash flows.

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Commitments and Contingencies (Unaudited)

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

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. 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, 2019, or its annual results of operations and/or cash flows.

Environmental Matters

The table below summarizes management’s estimate of the range of reasonably possible future costs for environmental remediation, the amount accrued within that range, and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of June 30, 2019 and December 31, 2018:

$ in millions	Range of Reasonably Possible Future Costs(1)	Accrued Costs(2)		Deferred Costs(3)
June 30, 2019	$532 - $1,018	$	547	$	426
December 31, 2018	447 - 835	461		343

⁽¹⁾  Estimated remediation costs are not discounted to present value. The range of reasonably possible future costs does not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.

⁽²⁾ As of June 30, 2019, $167 million is recorded in Other current liabilities and $380 million is recorded in Other non-current liabilities.

⁽³⁾ As of June 30, 2019, $133 million is deferred in Prepaid expenses and other current assets and $293 million is deferred in Other non-current assets.

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, 2019, or its annual results of operations and/or cash flows. With respect to Bethpage, the State of New York recently issued a Feasibility Study and Proposed Amended Record of Decision, proposing to impose additional remedial requirements. The company, along with other interested parties, has submitted comments on that proposal. The comments address, among other things, the adequacy of the existing remedy, concerns with the state’s proposal, and an alternative approach. As discussed in Note 6, the remediation standards or requirements to which we are subject are being reconsidered and may change and costs may increase materially.

Financial Arrangements

In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At June 30, 2019, there were $489 million of stand-by letters of credit and guarantees and $208 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, 2019, there were $299 million of outstanding short-term commercial paper borrowings at a weighted-average interest rate of 2.61 percent that have original maturities of three months or less from the date of issuance. The outstanding balance of commercial paper borrowings is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position.

Credit Facilities

The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $2.0 billion (the “2018 Credit Agreement”) that matures in August 2023. At June 30, 2019, there was no balance outstanding

under this facility; however, the outstanding balance of commercial paper borrowings reduces the amount available for borrowing under the 2018 Credit Agreement.

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 $152 million as of June 30, 2019) (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, 2019, there was £70 million (the equivalent of approximately $89 million) outstanding under this facility, which bears interest at a rate of LIBOR plus 1.10 percent. All of the borrowings outstanding under this facility mature less than one year from the date of issuance, but may be renewed under the terms of the facility. Based on our intent and ability to refinance the obligations on a long-term basis, a large majority of the borrowings are classified as non-current.

At June 30, 2019, the company was in compliance with all covenants under its credit agreements.

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Retirement Benefits (Unaudited)

6 Months Ended

Jun. 30, 2019

Retirement Benefits [Abstract]

RETIREMENT BENEFITS

RETIREMENT BENEFITS

The cost (benefit) to the company of its retirement 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	2019			2018			2019			2018			2019			2018			2019			2018
Components of net periodic benefit cost (benefit)
Service cost	$	92		$	100		$	4		$	5		$	184		$	199		$	8		$	10
Interest cost	340			300			20			19			680			590			40			38
Expected return on plan assets	(526		)	(544		)	(23		)	(24		)	(1,051		)	(1,073		)	(46		)	(49		)
Amortization of prior service credit	(14		)	(14		)	—			(6		)	(29		)	(29		)	(1		)	(11		)
Net periodic benefit cost (benefit)	$	(108	)	$	(158	)	$	1		$	(6	)	$	(216	)	$	(313	)	$	1		$	(12	)

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	2019		2018		2019		2018
Defined benefit pension plans	$	23	$	23	$	46	$	45
OPB plans	12		11		24		22
Defined contribution plans	88		88		279		192

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Stock Compensation Plans and Other Compensation Arrangements (Unaudited)

6 Months Ended

Jun. 30, 2019

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	2019		2018
RSRs granted	0.1		0.1
RPSRs granted	0.2		0.2
Grant date aggregate fair value	$	92	$	114

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	2019		2018
Minimum aggregate payout amount	$	36	$	36
Maximum aggregate payout amount	203		205

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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Leases (Unaudited) (Notes)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Lessee, Operating and Finance Leases [Text Block]

LEASES

As described in Note 1, effective January 1, 2019, we adopted ASC 842 using the optional transition method. In accordance with the optional transition method, we did not recast the prior period unaudited condensed consolidated financial statements and all prior period amounts and disclosures are presented under ASC 840. Finance leases are not material to our unaudited condensed consolidated financial statements and are therefore not included in the following disclosures.

Total Lease Cost

Total lease cost is included in Product and Service costs and General and administrative expenses in the unaudited condensed consolidated statement of earnings and comprehensive income and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:

$ in millions	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	77	$	159
Variable lease cost	2		4
Short-term lease cost	12		29
Total lease cost	$	91	$	192

Supplemental Balance Sheet Information

Supplemental operating lease balance sheet information consists of the following:

$ in millions	June 30, 2019
Operating lease right-of-use assets	$	1,278
Other current liabilities	245
Operating lease liabilities	1,081
Total operating lease liabilities	$	1,326

Other Supplemental Information

Other supplemental operating lease information consists of the following:

$ in millions	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	153
Right-of-use assets obtained in exchange for new lease liabilities	101
Weighted average remaining lease term	10.3 years
Weighted average discount rate	3.9		%

Maturities of Lease Liabilities

Maturities of operating lease liabilities as of June 30, 2019 are as follows:

$ in millions
Year Ending December 31
2019 (1)	$	137
2020	270
2021	219
2022	183
2023	145
Thereafter	746
Total lease payments	1,700
Less: imputed interest	(374		)
Present value of operating lease liabilities	$	1,326

⁽¹⁾  Excludes the six months ended June 30, 2019.

As of June 30, 2019, we have a rental commitment of $226 million for a real estate lease that has not yet commenced. This operating lease is expected to commence in the fourth quarter of 2019 with a lease term of approximately 17 years.

Rental expense for operating leases classified under ASC 840 for the three and six months ended June 30, 2018 was $81 million and $173 million, respectively. These amounts are net of immaterial amounts of sublease income. As of December 31, 2018, future minimum lease payments under long-term non-cancelable operating leases as classified under ASC 840 were as follows:

$ in millions
Year Ending December 31
2019	$	312
2020	270
2021	221
2022	186
2023	152
Thereafter	939
Total minimum lease payments	$	2,080

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Segment Information (Unaudited)

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

The company is aligned in four operating sectors, which also comprise our reportable segments: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services.

The following table presents sales and operating income by segment:

	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2019			2018			2019			2018
Sales
Aerospace Systems	$	3,390		$	3,337		$	6,886		$	6,617
Innovation Systems	1,498			400			2,936			400
Mission Systems	3,128			2,874			6,014			5,757
Technology Services	1,044			1,048			2,021			2,192
Intersegment eliminations	(604		)	(540		)	(1,212		)	(1,112		)
Total sales	8,456			7,119			16,645			13,854
Operating income
Aerospace Systems	361			357			743			698
Innovation Systems	169			39			336			39
Mission Systems	408			352			791			723
Technology Services	113			95			215			217
Intersegment eliminations	(73		)	(64		)	(140		)	(136		)
Total segment operating income	978			779			1,945			1,541
Net FAS (service)/CAS pension adjustment	107			137			215			264
Unallocated corporate expense	(139		)	(99		)	(278		)	(140		)
Total operating income	$	946		$	817		$	1,882		$	1,665

Net FAS (Service)/CAS Pension Adjustment

For financial statement purposes, we account for our employee pension plans in accordance with FAS. However, the cost of these plans is charged to our contracts in accordance with the Federal Acquisition Regulation (FAR) and the related U.S. Government Cost Accounting Standards (CAS). The net FAS (service)/CAS pension adjustment reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income.

Unallocated Corporate Expense

Unallocated corporate expense includes the portion of corporate costs not considered allowable or allocable under applicable CAS or FAR, and therefore not allocated to the segments, such as a portion of management and

administration, legal, environmental, compensation, retiree benefits and other corporate unallowable costs. Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment 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.

Disaggregation of Revenue

Sales by Customer Type	Three Months Ended June 30								Six Months Ended June 30
	2019				2018				2019				2018
$ in millions	$		%(3)		$		%(3)		$		%(3)		$		%(3)
Aerospace Systems
U.S. government (1)	$	2,918	86	%	$	2,799	84	%	$	5,940	86	%	$	5,707	86	%
International (2)	390		11	%	449		13	%	784		11	%	720		11	%
Other customers	30		1	%	38		1	%	64		1	%	80		1	%
Intersegment sales	52		2	%	51		2	%	98		2	%	110		2	%
Aerospace Systems sales	3,390		100	%	3,337		100	%	6,886		100	%	6,617		100	%
Innovation Systems
U.S. government (1)	1,061		71	%	265		66	%	2,076		71	%	265		66	%
International (2)	227		15	%	92		23	%	474		16	%	92		23	%
Other customers	118		8	%	30		8	%	232		8	%	30		8	%
Intersegment sales	92		6	%	13		3	%	154		5	%	13		3	%
Innovation Systems sales	1,498		100	%	400		100	%	2,936		100	%	400		100	%
Mission Systems
U.S. government (1)	2,348		75	%	2,155		75	%	4,515		75	%	4,345		76	%
International (2)	459		15	%	391		14	%	826		14	%	770		13	%
Other customers	39		1	%	34		1	%	73		1	%	64		1	%
Intersegment sales	282		9	%	294		10	%	600		10	%	578		10	%
Mission Systems sales	3,128		100	%	2,874		100	%	6,014		100	%	5,757		100	%
Technology Services
U.S. government (1)	617		59	%	597		57	%	1,170		58	%	1,199		54	%
International (2)	225		22	%	193		18	%	434		21	%	413		19	%
Other customers	24		2	%	76		7	%	57		3	%	169		8	%
Intersegment sales	178		17	%	182		18	%	360		18	%	411		19	%
Technology Services sales	1,044		100	%	1,048		100	%	2,021		100	%	2,192		100	%
Total
U.S. government (1)	6,944		82	%	5,816		82	%	13,701		82	%	11,516		83	%
International (2)	1,301		16	%	1,125		16	%	2,518		15	%	1,995		15	%
Other customers	211		2	%	178		2	%	426		3	%	343		2	%
Total Sales	$	8,456	100	%	$	7,119	100	%	$	16,645	100	%	$	13,854	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
	2019				2018				2019				2018
$ in millions	$		%(1)		$		%(1)		$		%(1)		$		%(1)
Aerospace Systems
Cost-type	$	1,979	59	%	$	1,934	59	%	$	3,981	59	%	$	3,836	59	%
Fixed-price	1,359		41	%	1,352		41	%	2,807		41	%	2,671		41	%
Intersegment sales	52				51				98				110
Aerospace Systems sales	3,390				3,337				6,886				6,617
Innovation Systems
Cost-type	405		29	%	99		26	%	813		29	%	99		26	%
Fixed-price	1,001		71	%	288		74	%	1,969		71	%	288		74	%
Intersegment sales	92				13				154				13
Innovation Systems sales	1,498				400				2,936				400
Mission Systems
Cost-type	1,316		46	%	1,207		47	%	2,590		48	%	2,486		48	%
Fixed-price	1,530		54	%	1,373		53	%	2,824		52	%	2,693		52	%
Intersegment sales	282				294				600				578
Mission Systems sales	3,128				2,874				6,014				5,757
Technology Services
Cost-type	412		48	%	385		44	%	804		48	%	822		46	%
Fixed-price	454		52	%	481		56	%	857		52	%	959		54	%
Intersegment sales	178				182				360				411
Technology Services sales	1,044				1,048				2,021				2,192
Total
Cost-type	4,112		49	%	3,625		51	%	8,188		49	%	7,243		52	%
Fixed-price	4,344		51	%	3,494		49	%	8,457		51	%	6,611		48	%
Total Sales	$	8,456			$	7,119			$	16,645			$	13,854

⁽¹⁾  Percentages calculated based on external customer sales.  

Sales by Geographic Region	Three Months Ended June 30								Six Months Ended June 30
	2019				2018				2019				2018
$ in millions	$		%(2)		$		%(2)		$		%(2)		$		%(2)
Aerospace Systems
United States	$	2,948	88	%	$	2,837	86	%	$	6,004	88	%	$	5,787	89	%
Asia/Pacific	220		7	%	249		8	%	459		7	%	378		6	%
All other (1)	170		5	%	200		6	%	325		5	%	342		5	%
Intersegment sales	52				51				98				110
Aerospace Systems sales	3,390				3,337				6,886				6,617
Innovation Systems
United States	1,179		84	%	296		77	%	2,308		83	%	296		77	%
Asia/Pacific	48		3	%	24		6	%	93		3	%	24		6	%
All other (1)	179		13	%	67		17	%	381		14	%	67		17	%
Intersegment sales	92				13				154				13
Innovation Systems sales	1,498				400				2,936				400
Mission Systems
United States	2,387		84	%	2,193		85	%	4,588		85	%	4,413		85	%
Asia/Pacific	154		5	%	160		6	%	300		5	%	313		6	%
All other (1)	305		11	%	227		9	%	526		10	%	453		9	%
Intersegment sales	282				294				600				578
Mission Systems sales	3,128				2,874				6,014				5,757
Technology Services
United States	641		74	%	673		78	%	1,227		74	%	1,368		77	%
Asia/Pacific	62		7	%	36		4	%	100		6	%	68		4	%
All other (1)	163		19	%	157		18	%	334		20	%	345		19	%
Intersegment sales	178				182				360				411
Technology Services sales	1,044				1,048				2,021				2,192
Total
United States	7,155		84	%	5,999		84	%	14,127		85	%	11,864		85	%
Asia/Pacific	484		6	%	469		7	%	952		6	%	783		6	%
All other (1)	817		10	%	651		9	%	1,566		9	%	1,207		9	%
Total Sales	$	8,456			$	7,119			$	16,645			$	13,854

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

⁽²⁾ 

Percentages calculated based on external customer sales.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

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”). Material 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.

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 2018 Annual Report on Form 10-K.

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

The majority of our sales are derived from long-term contracts with the U.S. government for the production of goods, the provision of services, or a combination of both. The company classifies sales as product or service based on the predominant attributes of each contract.

The company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer. In most cases, goods and services provided under the company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the company provides multiple distinct goods or services to a customer, most commonly when a contract covers multiple phases of the product lifecycle (e.g., development, production, sustainment, etc.). In those cases, the company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using a cost plus a reasonable margin approach. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore

not considered to be separate performance obligations. Assets recognized from the costs to obtain or fulfill a contract are not material.

Contracts are often modified for changes in contract specifications or requirements, which may result in scope and/or price changes. Most of the company’s contract modifications are for goods or services that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative estimate-at-completion (EAC) adjustment.

The company recognizes revenue as control is transferred to the customer, either over time or at a point in time. In general, our U.S. government contracts contain termination for convenience and/or other clauses that generally provide the customer rights to goods produced and/or in-process. Similarly, our non-U.S. government contracts generally contain contractual termination clauses or entitle the company to payment for work performed to date for goods and services that do not have an alternative use. As control is effectively transferred while we perform on our contracts, we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion) as the company believes this represents the most appropriate measurement towards satisfaction of its 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).

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. Each loss provision is first offset against costs included in Unbilled receivables or Inventoried costs; remaining amounts are reflected in Other current liabilities.

Significant EAC adjustments on a single contract could have a material effect on the company’s financial statements.

Contract Assets and Liabilities

For each of the company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.

Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Unbilled receivables are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts. Accumulated contract costs in unbilled receivables include costs such as direct production costs, factory and engineering overhead, production tooling costs, and allowable G&A. Unbilled receivables also include certain estimates of variable consideration described above. These contract assets are not considered a significant financing component of the company’s contracts as the payment terms are intended to protect the customer in the event the company does not perform on its obligations under the contract.

Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position. Certain customers make advance payments prior to the company’s satisfaction of its obligations on the contract. These amounts are recorded as contract liabilities until such obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements.

Leases

The company leases certain buildings, land and equipment. Under ASC 842, at contract inception we determine whether the contract is or contains a lease and whether the lease should be classified as an operating or a finance lease. Operating leases are included in Operating lease right-of-use assets, Other current liabilities, and Operating lease liabilities in our unaudited condensed consolidated statements of financial position.

The company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. Many of our leases include renewal options aligned with our contract terms. We define the initial lease term to include renewal options determined to be reasonably certain. In our adoption of ASC 842, we elected not to recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. We elected the practical expedient to not separate lease components from nonlease components and applied that practical expedient to all material classes of leased assets.

Many of the company’s real property lease agreements contain incentives for tenant improvements, rent holidays or rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement owned by the lessee, the company generally records a deferred rent liability and amortizes the deferred rent over the term of the lease as a reduction to rent expense. For rent holidays and rent escalation clauses during the lease term, the company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the company uses the date of initial possession as the commencement date, which is generally when the company is given the right of access to the space and begins to make improvements in preparation for intended use.

Restricted Cash

On occasion, we are required to maintain cash deposits with banks in connection with certain contingent obligations.

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

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 include the dilutive effect of awards granted to employees under stock-based compensation plans.

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

Commodity derivatives are valued based on prices of future exchanges and recently reported transactions in the marketplace. For 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.

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.

New Accounting Pronouncements and Changes in Accounting Principles

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASC Topic 842 supersedes existing lease guidance, including ASC 840 - Leases. Among other things, ASU 2016-02 requires recognition of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease and requires disclosure of certain information about leasing arrangements. On July 30, 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which, among other things, allows companies to elect an optional transition method to apply the new lease standard through a cumulative-effect adjustment in the period of adoption.

We adopted the standard on January 1, 2019 using the optional transition method and, as a result, did not recast prior period unaudited condensed consolidated comparative financial statements. All prior period amounts and disclosures are presented under ASC 840. We elected the package of practical expedients, which, among other things, allows us to carry forward our prior lease classifications under ASC 840. We did not elect to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840. Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities on the unaudited condensed consolidated statements of financial position with no cumulative impact to retained earnings and did not have a material impact on our results of operations or cash flows.

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Basis of Presentation (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

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	2019		2018		2019		2018
Operating income	$	158	$	143	$	296	$	259
Net earnings(1)	125		113		234		205
Diluted earnings per share(1)	0.73		0.64		1.37		1.17

⁽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, 2019			December 31, 2018
Unamortized prior service credit, net of tax expense of $24 for 2019 and $32 for 2018	$	75		$	98
Cumulative translation adjustment	(145		)	(144		)
Other, net	(5		)	(6		)
Total accumulated other comprehensive loss	$	(75	)	$	(52	)

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Business Acquisition (Unaudited) Business Acquisition (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

The Merger date fair value of the consideration transferred totaled $7.7 billion in cash, which was comprised of the following:

$ in millions, except per share amounts	Purchase price
Shares of Orbital ATK common stock outstanding as of the Merger date	57,562,152
Cash consideration per share of Orbital ATK common stock	$	134.50
Total purchase price	$	7,742

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

The following purchase price allocation table presents the company’s final determination of the fair values of assets acquired and liabilities assumed at the Merger date:

$ in millions	As of June 6, 2018
Cash and cash equivalents	$	85
Accounts receivable	596
Unbilled receivables	1,237
Inventoried costs	220
Other current assets	237
Property, plant and equipment	1,509
Goodwill	6,259
Intangible assets	1,525
Other non-current assets	151
Total assets acquired	11,819
Trade accounts payable	(397		)
Accrued employee compensation	(158		)
Advance payments and billings in excess of costs incurred	(222		)
Below market contracts(1)	(151		)
Other current liabilities	(412		)
Long-term debt	(1,687		)
Pension and OPB plan liabilities	(613		)
Deferred tax liabilities	(248		)
Other non-current liabilities	(189		)
Total liabilities assumed	(4,077		)
Total purchase price	$	7,742

⁽¹⁾ 

Included in Other current liabilities in the unaudited condensed consolidated statements of financial position.

Schedule of Acquired Finite-Lived Intangible Assets by Major Class [Table Text Block]

The following table presents a summary of purchased intangible assets and their related estimated useful lives:

	Fair Value (in millions)		Estimated Useful Life in Years
Customer contracts	$	1,245	9
Commercial customer relationships	280		13
Total customer-related intangible assets	$	1,525

Business Acquisition, Pro Forma Information [Table Text Block]

The following table presents unaudited pro forma financial information prepared in accordance with Article 11 of Regulation S-X and computed as if Orbital ATK had been included in our results as of January 1, 2017:

$ in millions, except per share amounts	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Sales	$	8,078	$	16,078
Net earnings	882		1,796
Diluted earnings per share	5.03		10.24

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Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

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
							2019	2018
September 16, 2015	$	4,000	13.0	$	243.90		1.7	0.2
December 4, 2018	$	3,000	—	—			—	—

⁽¹⁾ 

Includes commissions paid.

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Income Taxes (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

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	2019			2018			2019			2018
Federal and foreign income tax expense	$	167		$	187		$	338		$	346
Effective income tax rate	16.2		%	19.2		%	16.4		%	17.5		%

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Fair Value of Financial Instruments (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

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, 2019								December 31, 2018
$ in millions	Level 1		Level 2			Total			Level 1		Level 2			Total
Financial Assets (Liabilities)
Marketable securities	$	337	$	—		$	337		$	319	$	1		$	320
Marketable securities valued using NAV						16								15
Total marketable securities	337		—			353			319		1			335
Derivatives	—		(8		)	(8		)	—		(10		)	(10		)

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Commitments and Contingencies (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

Environmental Remediation Range of Future Costs [Line Items]

Environmental Remediation [Table Text Block]

The table below summarizes management’s estimate of the range of reasonably possible future costs for environmental remediation, the amount accrued within that range, and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of June 30, 2019 and December 31, 2018:

$ in millions	Range of Reasonably Possible Future Costs(1)	Accrued Costs(2)		Deferred Costs(3)
June 30, 2019	$532 - $1,018	$	547	$	426
December 31, 2018	447 - 835	461		343

⁽¹⁾  Estimated remediation costs are not discounted to present value. The range of reasonably possible future costs does not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts.

⁽²⁾ As of June 30, 2019, $167 million is recorded in Other current liabilities and $380 million is recorded in Other non-current liabilities.

⁽³⁾ As of June 30, 2019, $133 million is deferred in Prepaid expenses and other current assets and $293 million is deferred in Other non-current assets.

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Retirement Benefits (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

Retirement Benefits [Abstract]

Components of net periodic benefit cost

The cost (benefit) to the company of its retirement 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	2019			2018			2019			2018			2019			2018			2019			2018
Components of net periodic benefit cost (benefit)
Service cost	$	92		$	100		$	4		$	5		$	184		$	199		$	8		$	10
Interest cost	340			300			20			19			680			590			40			38
Expected return on plan assets	(526		)	(544		)	(23		)	(24		)	(1,051		)	(1,073		)	(46		)	(49		)
Amortization of prior service credit	(14		)	(14		)	—			(6		)	(29		)	(29		)	(1		)	(11		)
Net periodic benefit cost (benefit)	$	(108	)	$	(158	)	$	1		$	(6	)	$	(216	)	$	(313	)	$	1		$	(12	)

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	2019		2018		2019		2018
Defined benefit pension plans	$	23	$	23	$	46	$	45
OPB plans	12		11		24		22
Defined contribution plans	88		88		279		192

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Stock Compensation Plans and Other Compensation Arrangements (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

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	2019		2018
RSRs granted	0.1		0.1
RPSRs granted	0.2		0.2
Grant date aggregate fair value	$	92	$	114

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	2019		2018
Minimum aggregate payout amount	$	36	$	36
Maximum aggregate payout amount	203		205

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Leases (Unaudited) Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Lease, Cost [Table Text Block]

Total lease cost is comprised of the following:

$ in millions	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	77	$	159
Variable lease cost	2		4
Short-term lease cost	12		29
Total lease cost	$	91	$	192

Supplemental Balance Sheet Disclosures [Text Block]

Supplemental operating lease balance sheet information consists of the following:

$ in millions	June 30, 2019
Operating lease right-of-use assets	$	1,278
Other current liabilities	245
Operating lease liabilities	1,081
Total operating lease liabilities	$	1,326

Other Supplemental Lease Information [Table Text Block]

Other supplemental operating lease information consists of the following:

$ in millions	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	153
Right-of-use assets obtained in exchange for new lease liabilities	101
Weighted average remaining lease term	10.3 years
Weighted average discount rate	3.9		%

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Maturities of operating lease liabilities as of June 30, 2019 are as follows:

$ in millions
Year Ending December 31
2019 (1)	$	137
2020	270
2021	219
2022	183
2023	145
Thereafter	746
Total lease payments	1,700
Less: imputed interest	(374		)
Present value of operating lease liabilities	$	1,326

⁽¹⁾ 

Excludes the six months ended June 30, 2019.

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

As of December 31, 2018, future minimum lease payments under long-term non-cancelable operating leases as classified under ASC 840 were as follows:

$ in millions
Year Ending December 31
2019	$	312
2020	270
2021	221
2022	186
2023	152
Thereafter	939
Total minimum lease payments	$	2,080

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Segment Information (Unaudited) (Tables)

6 Months Ended

Jun. 30, 2019

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	2019			2018			2019			2018
Sales
Aerospace Systems	$	3,390		$	3,337		$	6,886		$	6,617
Innovation Systems	1,498			400			2,936			400
Mission Systems	3,128			2,874			6,014			5,757
Technology Services	1,044			1,048			2,021			2,192
Intersegment eliminations	(604		)	(540		)	(1,212		)	(1,112		)
Total sales	8,456			7,119			16,645			13,854
Operating income
Aerospace Systems	361			357			743			698
Innovation Systems	169			39			336			39
Mission Systems	408			352			791			723
Technology Services	113			95			215			217
Intersegment eliminations	(73		)	(64		)	(140		)	(136		)
Total segment operating income	978			779			1,945			1,541
Net FAS (service)/CAS pension adjustment	107			137			215			264
Unallocated corporate expense	(139		)	(99		)	(278		)	(140		)
Total operating income	$	946		$	817		$	1,882		$	1,665

Revenue by Major Customers by Reporting Segments

Sales by Customer Type	Three Months Ended June 30								Six Months Ended June 30
	2019				2018				2019				2018
$ in millions	$		%(3)		$		%(3)		$		%(3)		$		%(3)
Aerospace Systems
U.S. government (1)	$	2,918	86	%	$	2,799	84	%	$	5,940	86	%	$	5,707	86	%
International (2)	390		11	%	449		13	%	784		11	%	720		11	%
Other customers	30		1	%	38		1	%	64		1	%	80		1	%
Intersegment sales	52		2	%	51		2	%	98		2	%	110		2	%
Aerospace Systems sales	3,390		100	%	3,337		100	%	6,886		100	%	6,617		100	%
Innovation Systems
U.S. government (1)	1,061		71	%	265		66	%	2,076		71	%	265		66	%
International (2)	227		15	%	92		23	%	474		16	%	92		23	%
Other customers	118		8	%	30		8	%	232		8	%	30		8	%
Intersegment sales	92		6	%	13		3	%	154		5	%	13		3	%
Innovation Systems sales	1,498		100	%	400		100	%	2,936		100	%	400		100	%
Mission Systems
U.S. government (1)	2,348		75	%	2,155		75	%	4,515		75	%	4,345		76	%
International (2)	459		15	%	391		14	%	826		14	%	770		13	%
Other customers	39		1	%	34		1	%	73		1	%	64		1	%
Intersegment sales	282		9	%	294		10	%	600		10	%	578		10	%
Mission Systems sales	3,128		100	%	2,874		100	%	6,014		100	%	5,757		100	%
Technology Services
U.S. government (1)	617		59	%	597		57	%	1,170		58	%	1,199		54	%
International (2)	225		22	%	193		18	%	434		21	%	413		19	%
Other customers	24		2	%	76		7	%	57		3	%	169		8	%
Intersegment sales	178		17	%	182		18	%	360		18	%	411		19	%
Technology Services sales	1,044		100	%	1,048		100	%	2,021		100	%	2,192		100	%
Total
U.S. government (1)	6,944		82	%	5,816		82	%	13,701		82	%	11,516		83	%
International (2)	1,301		16	%	1,125		16	%	2,518		15	%	1,995		15	%
Other customers	211		2	%	178		2	%	426		3	%	343		2	%
Total Sales	$	8,456	100	%	$	7,119	100	%	$	16,645	100	%	$	13,854	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
	2019				2018				2019				2018
$ in millions	$		%(1)		$		%(1)		$		%(1)		$		%(1)
Aerospace Systems
Cost-type	$	1,979	59	%	$	1,934	59	%	$	3,981	59	%	$	3,836	59	%
Fixed-price	1,359		41	%	1,352		41	%	2,807		41	%	2,671		41	%
Intersegment sales	52				51				98				110
Aerospace Systems sales	3,390				3,337				6,886				6,617
Innovation Systems
Cost-type	405		29	%	99		26	%	813		29	%	99		26	%
Fixed-price	1,001		71	%	288		74	%	1,969		71	%	288		74	%
Intersegment sales	92				13				154				13
Innovation Systems sales	1,498				400				2,936				400
Mission Systems
Cost-type	1,316		46	%	1,207		47	%	2,590		48	%	2,486		48	%
Fixed-price	1,530		54	%	1,373		53	%	2,824		52	%	2,693		52	%
Intersegment sales	282				294				600				578
Mission Systems sales	3,128				2,874				6,014				5,757
Technology Services
Cost-type	412		48	%	385		44	%	804		48	%	822		46	%
Fixed-price	454		52	%	481		56	%	857		52	%	959		54	%
Intersegment sales	178				182				360				411
Technology Services sales	1,044				1,048				2,021				2,192
Total
Cost-type	4,112		49	%	3,625		51	%	8,188		49	%	7,243		52	%
Fixed-price	4,344		51	%	3,494		49	%	8,457		51	%	6,611		48	%
Total Sales	$	8,456			$	7,119			$	16,645			$	13,854

⁽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
	2019				2018				2019				2018
$ in millions	$		%(2)		$		%(2)		$		%(2)		$		%(2)
Aerospace Systems
United States	$	2,948	88	%	$	2,837	86	%	$	6,004	88	%	$	5,787	89	%
Asia/Pacific	220		7	%	249		8	%	459		7	%	378		6	%
All other (1)	170		5	%	200		6	%	325		5	%	342		5	%
Intersegment sales	52				51				98				110
Aerospace Systems sales	3,390				3,337				6,886				6,617
Innovation Systems
United States	1,179		84	%	296		77	%	2,308		83	%	296		77	%
Asia/Pacific	48		3	%	24		6	%	93		3	%	24		6	%
All other (1)	179		13	%	67		17	%	381		14	%	67		17	%
Intersegment sales	92				13				154				13
Innovation Systems sales	1,498				400				2,936				400
Mission Systems
United States	2,387		84	%	2,193		85	%	4,588		85	%	4,413		85	%
Asia/Pacific	154		5	%	160		6	%	300		5	%	313		6	%
All other (1)	305		11	%	227		9	%	526		10	%	453		9	%
Intersegment sales	282				294				600				578
Mission Systems sales	3,128				2,874				6,014				5,757
Technology Services
United States	641		74	%	673		78	%	1,227		74	%	1,368		77	%
Asia/Pacific	62		7	%	36		4	%	100		6	%	68		4	%
All other (1)	163		19	%	157		18	%	334		20	%	345		19	%
Intersegment sales	178				182				360				411
Technology Services sales	1,044				1,048				2,021				2,192
Total
United States	7,155		84	%	5,999		84	%	14,127		85	%	11,864		85	%
Asia/Pacific	484		6	%	469		7	%	952		6	%	783		6	%
All other (1)	817		10	%	651		9	%	1,566		9	%	1,207		9	%
Total Sales	$	8,456			$	7,119			$	16,645			$	13,854

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

⁽²⁾ 

Percentages calculated based on external customer sales.

XML

Basis of Presentation (Unaudited) (Details 1) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Change in Accounting Estimate [Line Items]
Operating income	$ 946	$ 817	$ 1,882	$ 1,665
Net earnings	$ 861	$ 789	$ 1,724	$ 1,629
Earnings Per Share, Diluted	$ 5.06	$ 4.50	$ 10.11	$ 9.29
Contract with Customer, Performance Obligation Satisfied in Previous Period	$ 154	$ 156	$ 320	$ 289
Contracts Accounted for under Percentage of Completion [Member]
Change in Accounting Estimate [Line Items]
Operating income	158	143	296	259
Net earnings	$ 125	$ 113	$ 234	$ 205
Earnings Per Share, Diluted	$ 0.73	$ 0.64	$ 1.37	$ 1.17
Aerospace Systems [Member] | Contracts Accounted for under Percentage of Completion [Member]
Change in Accounting Estimate [Line Items]
Operating income		$ 69

XML

Basis of Presentation (Unaudited) (Details 2) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Change in Contract with Customer, Liability [Abstract]
Contract with Customer, Liability, Revenue Recognized	$ 333	$ 364	$ 1,000	$ 1,100
Revenue from Contract with Customer [Abstract]
Revenue, Remaining Performance Obligation, Amount	$ 63,000		$ 63,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Explanation			We expect to recognize approximately 40 percent and 65 percent of our June 30, 2019 backlog as revenue over the next 12 and 24 months, respectively, with the remainder to be recognized thereafter.

XML

Basis of Presentation (Unaudited) (Details 4) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Prior Service Cost (Credit), after Tax	$ 75		$ 75		$ 98
Cumulative translation adjustment	(145)		(145)		(144)
Other, net	(5)		(5)		(6)
Total accumulated other comprehensive loss	(75)		(75)		(52)
Unamortized prior service credit, tax expense	24		24		$ 32
Unamortized prior service credit, reclassified from accumulated other comprehensive loss to net earnings	$ 12	$ 15	$ 23	$ 30

XML

Basis of Presentation (Unaudited) (Details 3) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Restricted Cash	$ 0	$ 0

XML

Business Acquisition (Unaudited) (Details 1) - USD ($) $ / shares in Units, $ in Millions		11 Months Ended
	Jun. 06, 2018	Jun. 06, 2019	Jun. 30, 2019	Dec. 31, 2018
Business Acquisition [Line Items]
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Intangibles		$ 220
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Other current liabilities		114
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Pension and other post-retirement benefit plan liabilities		56
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Other Non-Current Liabilities		53
Business Combination, Provisional, Initial Accounting Incomplete, Adjustments, Other Current Assets		44
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Goodwill		$ (36)
Goodwill			$ 18,708	$ 18,672
Shares of Orbital ATK common stock outstanding as of the Merger date	57,562,152
Cash consideration per share of Orbital ATK common stock	$ 134.50
Total purchase price	$ 7,742
Orbital ATK
Business Acquisition [Line Items]
Cash and cash equivalents	85
Accounts receivable	596
Unbilled receivables	1,237
Inventoried costs	220
Other current assets	237
Property, plant and equipment	1,509
Goodwill	6,259
Intangible assets	1,525
Other non-current assets	151
Total assets acquired	11,819
Trade accounts payable	(397)
Accrued employee compensation	(158)
Advance payments and billings in excess of costs incurred	(222)
Below market contracts(1)	(151)
Other current liabilities	(412)
Long-term debt	(1,687)
Pension and OPB plan liabilities	(613)
Deferred tax liabilities	(248)
Other non-current liabilities	(189)
Total liabilities assumed	(4,077)
Total purchase price	$ 7,742

XML

Business Acquisition (Unaudited) (Details 2) $ in Millions	Jun. 06, 2018 USD ($)
Orbital ATK
Business Acquisition [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill	$ 1,525
Customer Contracts [Member]
Business Acquisition [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill	$ 1,245
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	9 years
Customer Relationships [Member]
Business Acquisition [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill	$ 280
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	13 years

XML

Business Acquisition (Unaudited) (Details 3) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018
Business Acquisition [Line Items]
Pro forma sales	$ 8,078.0	$ 16,078.0
Pro forma net earnings	$ 882.0	$ 1,796.0
Pro forma diluted earnings per share	$ 5.03	$ 10.24
Pro Forma Adjustments, Orbital ATK intercompany sales elimination	$ (33.0)	$ (80.0)
Pro Forma Adjustments, Elimination of nonrecurring transaction costs	64.0	71.0
Pro Forma Adjustments, Additional depreciation expense, net of removal of historical depreciation	(5.0)	(11.0)
Pro Forma Adjustments, Additional amortization expense, net of removal of historical amortization expense	(48.0)	(114.0)
Pro Forma Adjustments, Elimination of Orbital ATK’s amortization on net actuarial losses and prior service costs and pension/post-retirement costs	20.0	51.0
Income Tax Effects of Pro Forma Adjustments	$ (7.0)	$ 0.4

XML

Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited) (Details 1) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		6 Months Ended		39 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Dec. 04, 2018	Sep. 16, 2015
Share Repurchase [Line Items]
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	0.6	0.9	0.6	1.0
September 2015 Share Repurchase Program Original Authorization
Share Repurchase [Line Items]
Amount Authorized							$ 4,000
Shares Retired					13.0
Average Cost Per Share					$ 243.90
Shares Repurchased			1.7	0.2
Share Repurchases - Notes to Table
Shares repurchased amount					$ 3,200
Amount remaining under authorization for share repurchases	$ 800		$ 800		$ 800
December 2018 Share Repurchase Original Authorization [Member]
Share Repurchase [Line Items]
Amount Authorized						$ 3,000
Shares Retired			0.0
Average Cost Per Share			$ 0

XML

Earnings Per Share, Share Repurchases and Dividends on Common Stock (Unaudited) (Details 2) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	1 Months Ended				2 Months Ended		3 Months Ended		6 Months Ended
	May 31, 2019	May 31, 2018	Jan. 31, 2018	May 31, 2017	Jan. 04, 2019	Dec. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Oct. 29, 2018
Equity, Class of Treasury Stock [Line Items]
Accelerated Share Repurchase						$ 1,000
Accelerated Share Repurchases, Payment											$ 1,000
Accelerated Share Repurchase Initial Receipt Shares											3.0
Accelerated Share Repurchase Initial Receipt Monetary											$ 800
Accelerated Share Repurchase Final Receipt Shares					0.9
Accelerated Share Repurchases, Final Price Paid Per Share					$ 260.32
Earnings Per Share, Basic and Diluted [Abstract]
Common stock dividends per share, declared (in dollars per share)	$ 1.32	$ 1.20	$ 1.10	$ 1.00			$ 1.32	$ 1.20	$ 2.52	$ 2.30
Increase in quarterly common stock dividend (percent)	10.00%	9.00%	10.00%

XML

Income Taxes (Unaudited) (Details 1) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Tax Disclosure [Abstract]
Federal and foreign income tax expense	$ 167	$ 187	$ 338	$ 346
Effective income tax rate	16.20%	19.20%	16.40%	17.50%
Effective Income Tax Rate Reconciliation, Tax Credit, Research, Amount	$ 36	$ 22	$ 67	$ 42
Effective Income Tax Rate Reconciliation, Tax Credit, Other, Amount	$ 15		15
Effective Income Tax Rate Reconciliation, Tax Expense (Benefit), Share-based Payment Arrangement, Amount			$ 13	$ 26

XML

Income Taxes (Unaudited) (Details 2) $ in Millions	Jun. 30, 2019 USD ($)
Income Tax Disclosure [Abstract]
Increase in Unrecognized Tax Benefits is Reasonably Possible	$ 70

XML

Fair Value of Financial Instruments (Unaudited) (Details 1) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities	$ 353	$ 335
Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities	337	319
Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities	0	1
Fair Value, Recurring [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities	337	320
Derivatives	(8)	(10)
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities	337	319
Derivatives	0	0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities	0	1
Derivatives	(8)	(10)
Fair Value, Nonrecurring [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities	$ 16	15
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Marketable Securities

XML

Fair Value of Financial Instruments (Unaudited) (Details 2) lb in Millions, $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($) lb	Dec. 31, 2018 USD ($)
Copper [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Derivative, Nonmonetary Notional Amount, Mass | lb	12
Zinc [Member] [Domain]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Derivative, Nonmonetary Notional Amount, Mass | lb	5
Foreign Exchange Forward [Member]
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivative, Notional Amount | $	$ 99	$ 114
Cash Flow Hedging [Member]
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivative, Notional Amount | $	$ 12	$ 0

XML

Fair Value of Financial Instruments (Unaudited) Fair Value of Financial Instruments (Unaudited) (Details 3) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018	Jun. 06, 2018
Business Acquisition [Line Items]
Long-term Debt, Fair Value	$ 15,400	$ 14,300
Debt and Lease Obligation	$ 14,400	$ 14,400
Orbital ATK
Business Acquisition [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities, Long-term Debt			$ 1,687

XML

Investigations, Claims and Litigation (Unaudited) (Details) € in Millions, R$ in Millions, $ in Millions		12 Months Ended	63 Months Ended		69 Months Ended			71 Months Ended		73 Months Ended
	Dec. 28, 2018 USD ($)	Dec. 31, 2007 USD ($)	Nov. 13, 2018 BRL (R$)	Nov. 13, 2018 USD ($)	Jun. 30, 2019 EUR (€)	Jun. 30, 2019 BRL (R$)	Jun. 30, 2019 USD ($)	Jun. 30, 2019 BRL (R$) Defendant	Jun. 30, 2019 USD ($) Defendant	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Feb. 16, 2018 USD ($)	May 04, 2012 USD ($)
Loss Contingencies
Unbilled receivables, net							$ 5,657		$ 5,657	$ 5,657	$ 5,026
United States Postal Service
Loss Contingencies
CounterclaimForDamagesSought												$ 193
Solystic Matter [Member]
Loss Contingencies
Loss Contingency, Damages Sought, Value								R$ 111	$ 29
Counterclaim					€ 31		35
Loss Contingency, Damages Awarded, Value			R$ 41	$ 11
Orbital ATK
Loss Contingencies
Loss Contingency, Damages Awarded, Value	$ 108
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	$ 23
Incremental claim [Member] | Solystic Matter [Member]
Loss Contingencies
Loss Contingency, Damages Sought, Value						R$ 22	6
Maximum | United States Postal Service
Loss Contingencies
Loss Contingency, Estimate of Possible Loss							$ 410		$ 410	$ 410

XML

Commitments and Contingencies (Unaudited) (Details) £ in Millions	6 Months Ended
	Jun. 30, 2019 GBP (£) Rate	Jun. 30, 2019 USD ($) Rate	Dec. 31, 2018 USD ($)
Site Contingency [Line Items]
Accrual for Environmental Remediation Costs		$ 547,000,000	$ 461,000,000
Recorded Third-Party Environmental Recoveries, Amount		426,000,000	343,000,000
Financial Arrangements
Standby Unused Letters Of Credit and bank guarantees		489,000,000
Surety Bond Outstanding		208,000,000
Line of Credit Facility [Line Items]
Debt Instrument, Covenant Compliance	the company was in compliance with all covenants under its credit agreements.
Commercial Paper		299,000,000
Commercial Paper, Maximum Borrowing Capacity		$ 2,000,000,000.0
Commercial Paper, Weighted Average Interest Rate | Rate	2.61%	2.61%
Commercial Paper, Term	3 months
Two Year Term [Member] [Domain]
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	£ 120	$ 152,000,000
Line of Credit Outstanding	£ 70	89,000,000
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%
Other Current Liabilities [Member]
Site Contingency [Line Items]
Accrual for Environmental Remediation Costs		167,000,000
Other Noncurrent Liabilities [Member]
Site Contingency [Line Items]
Accrual for Environmental Remediation Costs		380,000,000
Other Current Assets [Member]
Site Contingency [Line Items]
Recorded Third-Party Environmental Recoveries, Amount		133,000,000
Other Noncurrent Assets [Member]
Site Contingency [Line Items]
Recorded Third-Party Environmental Recoveries, Amount		293,000,000
Environmental Issue [Member] | Maximum
Site Contingency [Line Items]
Loss Contingency, Estimate of Possible Loss		1,018,000,000	835,000,000
Environmental Issue [Member] | Minimum
Site Contingency [Line Items]
Loss Contingency, Estimate of Possible Loss		$ 532,000,000	$ 447,000,000

XML

Retirement Benefits (Unaudited) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Defined Contribution Plan [Abstract]
Defined contribution plan, employer contributions	$ 88	$ 88	$ 279	$ 192
Pension Benefits
Components of Net Periodic Benefit Cost
Service cost	92	100	184	199
Interest cost	340	300	680	590
Expected return on plan assets	(526)	(544)	(1,051)	(1,073)
Amortization of prior service credit	(14)	(14)	(29)	(29)
Net periodic benefit cost (benefit)	(108)	(158)	(216)	(313)
Defined benefit plan, contributions by Employer	23	23	46	45
OPB
Components of Net Periodic Benefit Cost
Service cost	4	5	8	10
Interest cost	20	19	40	38
Expected return on plan assets	(23)	(24)	(46)	(49)
Amortization of prior service credit	0	(6)	(1)	(11)
Net periodic benefit cost (benefit)	1	(6)	1	(12)
Defined benefit plan, contributions by Employer	$ 12	$ 11	$ 24	$ 22

XML

Stock Compensation Plans and Other Compensation Arrangements (Unaudited) (Details) - USD ($) shares in Millions, $ in Millions	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted Stock Rights and Restricted Performance Stock Rights Grant Date Aggregate Fair Value	$ 92	$ 114
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
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
Cash Units and Cash Performance Units | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Deferred Compensation Cash-based Arrangements, Liability, Current and Noncurrent	$ 36	$ 36
Cash Units and Cash Performance Units | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Deferred Compensation Cash-based Arrangements, Liability, Current and Noncurrent	$ 203	$ 205

XML

Leases (Unaudited) Total Lease Cost (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Operating Lease Cost	$ 77	$ 159
Variable Lease Cost	2	4
Short-term Lease Cost	12	29
Total Lease Cost	$ 91	$ 192

XML

Leases (Unaudited) Lease Balance Sheet (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Assets and Liabilities, Lessee [Abstract]
Operating lease right-of-use assets	$ 1,278	$ 0
Operating Lease, Liability, Current	245
Operating lease liabilities	1,081	$ 0
Operating Lease, Liability	$ 1,326

XML

Leases (Unaudited) Lease Other Supplemental Information (Details) $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($) Rate
Leases Other Supplemental Information [Abstract]
Payments on operating leases	$ 153
Right-of-use assets obtained in exchange for new operating lease liabilities	$ 101
Weighted-average remaining lease term—operating leases (in years)	10 years 3 months 18 days
Weighted-average discount rate—operating leases | Rate	3.90%

XML

Leases (Unaudited) Lease Maturities (Details) $ in Millions	Jun. 30, 2019 USD ($)
Lease Maturities [Abstract]
Remainder of 2019	$ 137
2020	270
2021	219
2022	183
2023	145
Thereafter	746
Total lease payments	1,700
Less: Imputed Interest	(374)
Present value of operating lease liabilities	1,326
Lessee, Operating Lease, Lease Not yet Commenced, Value	$ 226
Lessee, Operating Lease, Lease Not yet Commenced, Term of Contract	17 years

XML

Leases (Unaudited) Future Minimum Lease Payments Under 840 (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Dec. 31, 2018
Future Minimum Lease Payments Under 840 [Abstract]
Operating Leases, Rent Expense	$ 81	$ 173
Operating Leases, Future Minimum Payments Due, Next Twelve Months			$ 312
Operating Leases, Future Minimum Payments, Due in Two Years			270
Operating Leases, Future Minimum Payments, Due in Three Years			221
Operating Leases, Future Minimum Payments, Due in Four Years			186
Operating Leases, Future Minimum Payments, Due in Five Years			152
Operating Leases, Future Minimum Payments, Due Thereafter			939
Operating Leases, Future Minimum Payments Due			$ 2,080

XML

Segment Information (Unaudited) (Details 1) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) segment	Jun. 30, 2018 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments | segment			4
Sales	$ 8,456	$ 7,119	$ 16,645	$ 13,854
Operating income	946	817	1,882	1,665
Operating Segments [Member]
Segment Reporting Information [Line Items]
Operating income	978	779	1,945	1,541
Operating Segments [Member] | Aerospace Systems [Member]
Segment Reporting Information [Line Items]
Sales	3,390	3,337	6,886	6,617
Operating income	361	357	743	698
Operating Segments [Member] | Innovation Systems [Member]
Segment Reporting Information [Line Items]
Sales	1,498	400	2,936	400
Operating income	169	39	336	39
Operating Segments [Member] | Mission Systems [Member]
Segment Reporting Information [Line Items]
Sales	3,128	2,874	6,014	5,757
Operating income	408	352	791	723
Operating Segments [Member] | Technology Services [Member]
Segment Reporting Information [Line Items]
Sales	1,044	1,048	2,021	2,192
Operating income	113	95	215	217
Intersegment sales
Segment Reporting Information [Line Items]
Sales	(604)	(540)	(1,212)	(1,112)
Operating income	(73)	(64)	(140)	(136)
Segment Reconciling Items [Member]
Segment Reporting Information [Line Items]
Net FAS (service)/ CAS pension adjustment	107	137	215	264
Corporate, Non-Segment [Member]
Segment Reporting Information [Line Items]
Operating income	$ (139)	$ (99)	$ (278)	$ (140)

XML

Segment Information (Unaudited) (Details 2) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue, Major Customer [Line Items]
Sales	$ 8,456	$ 7,119	$ 16,645	$ 13,854
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
U.S. government (1)
Revenue, Major Customer [Line Items]
Sales	$ 6,944	$ 5,816	$ 13,701	$ 11,516
Concentration Risk, Percentage	82.00%	82.00%	82.00%	83.00%
U.S. government (1) | Aerospace Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 2,918	$ 2,799	$ 5,940	$ 5,707
Concentration Risk, Percentage	86.00%	84.00%	86.00%	86.00%
U.S. government (1) | Innovation Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 1,061	$ 265	$ 2,076	$ 265
Concentration Risk, Percentage	71.00%	66.00%	71.00%	66.00%
U.S. government (1) | Mission Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 2,348	$ 2,155	$ 4,515	$ 4,345
Concentration Risk, Percentage	75.00%	75.00%	75.00%	76.00%
U.S. government (1) | Technology Services [Member]
Revenue, Major Customer [Line Items]
Sales	$ 617	$ 597	$ 1,170	$ 1,199
Concentration Risk, Percentage	59.00%	57.00%	58.00%	54.00%
International (2)
Revenue, Major Customer [Line Items]
Sales	$ 1,301	$ 1,125	$ 2,518	$ 1,995
Concentration Risk, Percentage	16.00%	16.00%	15.00%	15.00%
International (2) | Aerospace Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 390	$ 449	$ 784	$ 720
Concentration Risk, Percentage	11.00%	13.00%	11.00%	11.00%
International (2) | Innovation Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 227	$ 92	$ 474	$ 92
Concentration Risk, Percentage	15.00%	23.00%	16.00%	23.00%
International (2) | Mission Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 459	$ 391	$ 826	$ 770
Concentration Risk, Percentage	15.00%	14.00%	14.00%	13.00%
International (2) | Technology Services [Member]
Revenue, Major Customer [Line Items]
Sales	$ 225	$ 193	$ 434	$ 413
Concentration Risk, Percentage	22.00%	18.00%	21.00%	19.00%
Other customers
Revenue, Major Customer [Line Items]
Sales	$ 211	$ 178	$ 426	$ 343
Concentration Risk, Percentage	2.00%	2.00%	3.00%	2.00%
Other customers | Aerospace Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 30	$ 38	$ 64	$ 80
Concentration Risk, Percentage	1.00%	1.00%	1.00%	1.00%
Other customers | Innovation Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 118	$ 30	$ 232	$ 30
Concentration Risk, Percentage	8.00%	8.00%	8.00%	8.00%
Other customers | Mission Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 39	$ 34	$ 73	$ 64
Concentration Risk, Percentage	1.00%	1.00%	1.00%	1.00%
Other customers | Technology Services [Member]
Revenue, Major Customer [Line Items]
Sales	$ 24	$ 76	$ 57	$ 169
Concentration Risk, Percentage	2.00%	7.00%	3.00%	8.00%
Intersegment sales | Aerospace Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 52	$ 51	$ 98	$ 110
Concentration Risk, Percentage	2.00%	2.00%	2.00%	2.00%
Intersegment sales | Innovation Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 92	$ 13	$ 154	$ 13
Concentration Risk, Percentage	6.00%	3.00%	5.00%	3.00%
Intersegment sales | Mission Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 282	$ 294	$ 600	$ 578
Concentration Risk, Percentage	9.00%	10.00%	10.00%	10.00%
Intersegment sales | Technology Services [Member]
Revenue, Major Customer [Line Items]
Sales	$ 178	$ 182	$ 360	$ 411
Concentration Risk, Percentage	17.00%	18.00%	18.00%	19.00%
Operating Segments [Member] | Aerospace Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 3,390	$ 3,337	$ 6,886	$ 6,617
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Innovation Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 1,498	$ 400	$ 2,936	$ 400
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Mission Systems [Member]
Revenue, Major Customer [Line Items]
Sales	$ 3,128	$ 2,874	$ 6,014	$ 5,757
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Technology Services [Member]
Revenue, Major Customer [Line Items]
Sales	$ 1,044	$ 1,048	$ 2,021	$ 2,192
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%

XML

Segment Information (Unaudited) (Details 3) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue, Contract Type [Line Items]
Sales	$ 8,456	$ 7,119	$ 16,645	$ 13,854
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Cost-type [Member]
Revenue, Contract Type [Line Items]
Sales	$ 4,112	$ 3,625	$ 8,188	$ 7,243
Concentration Risk, Percentage	49.00%	51.00%	49.00%	52.00%
Cost-type [Member] | Aerospace Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 1,979	$ 1,934	$ 3,981	$ 3,836
Concentration Risk, Percentage	59.00%	59.00%	59.00%	59.00%
Cost-type [Member] | Innovation Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 405	$ 99	$ 813	$ 99
Concentration Risk, Percentage	29.00%	26.00%	29.00%	26.00%
Cost-type [Member] | Mission Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 1,316	$ 1,207	$ 2,590	$ 2,486
Concentration Risk, Percentage	46.00%	47.00%	48.00%	48.00%
Cost-type [Member] | Technology Services [Member]
Revenue, Contract Type [Line Items]
Sales	$ 412	$ 385	$ 804	$ 822
Concentration Risk, Percentage	48.00%	44.00%	48.00%	46.00%
Fixed-price [Member]
Revenue, Contract Type [Line Items]
Sales	$ 4,344	$ 3,494	$ 8,457	$ 6,611
Concentration Risk, Percentage	51.00%	49.00%	51.00%	48.00%
Fixed-price [Member] | Aerospace Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 1,359	$ 1,352	$ 2,807	$ 2,671
Concentration Risk, Percentage	41.00%	41.00%	41.00%	41.00%
Fixed-price [Member] | Innovation Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 1,001	$ 288	$ 1,969	$ 288
Concentration Risk, Percentage	71.00%	74.00%	71.00%	74.00%
Fixed-price [Member] | Mission Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 1,530	$ 1,373	$ 2,824	$ 2,693
Concentration Risk, Percentage	54.00%	53.00%	52.00%	52.00%
Fixed-price [Member] | Technology Services [Member]
Revenue, Contract Type [Line Items]
Sales	$ 454	$ 481	$ 857	$ 959
Concentration Risk, Percentage	52.00%	56.00%	52.00%	54.00%
Intersegment sales | Aerospace Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 52	$ 51	$ 98	$ 110
Intersegment sales | Innovation Systems [Member]
Revenue, Contract Type [Line Items]
Sales	92	13	154	13
Intersegment sales | Mission Systems [Member]
Revenue, Contract Type [Line Items]
Sales	282	294	600	578
Intersegment sales | Technology Services [Member]
Revenue, Contract Type [Line Items]
Sales	178	182	360	411
Operating Segments [Member] | Aerospace Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 3,390	$ 3,337	$ 6,886	$ 6,617
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Innovation Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 1,498	$ 400	$ 2,936	$ 400
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Mission Systems [Member]
Revenue, Contract Type [Line Items]
Sales	$ 3,128	$ 2,874	$ 6,014	$ 5,757
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Technology Services [Member]
Revenue, Contract Type [Line Items]
Sales	$ 1,044	$ 1,048	$ 2,021	$ 2,192
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%

XML

Segment Information (Unaudited) (Details 4) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue, Geographic Location [Line Items]
Sales	$ 8,456	$ 7,119	$ 16,645	$ 13,854
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
United States
Revenue, Geographic Location [Line Items]
Sales	$ 7,155	$ 5,999	$ 14,127	$ 11,864
Concentration Risk, Percentage	84.00%	84.00%	85.00%	85.00%
United States | Aerospace Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 2,948	$ 2,837	$ 6,004	$ 5,787
Concentration Risk, Percentage	88.00%	86.00%	88.00%	89.00%
United States | Innovation Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 1,179	$ 296	$ 2,308	$ 296
Concentration Risk, Percentage	84.00%	77.00%	83.00%	77.00%
United States | Mission Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 2,387	$ 2,193	$ 4,588	$ 4,413
Concentration Risk, Percentage	84.00%	85.00%	85.00%	85.00%
United States | Technology Services [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 641	$ 673	$ 1,227	$ 1,368
Concentration Risk, Percentage	74.00%	78.00%	74.00%	77.00%
Asia/Pacific
Revenue, Geographic Location [Line Items]
Sales	$ 484	$ 469	$ 952	$ 783
Concentration Risk, Percentage	6.00%	7.00%	6.00%	6.00%
Asia/Pacific | Aerospace Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 220	$ 249	$ 459	$ 378
Concentration Risk, Percentage	7.00%	8.00%	7.00%	6.00%
Asia/Pacific | Innovation Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 48	$ 24	$ 93	$ 24
Concentration Risk, Percentage	3.00%	6.00%	3.00%	6.00%
Asia/Pacific | Mission Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 154	$ 160	$ 300	$ 313
Concentration Risk, Percentage	5.00%	6.00%	5.00%	6.00%
Asia/Pacific | Technology Services [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 62	$ 36	$ 100	$ 68
Concentration Risk, Percentage	7.00%	4.00%	6.00%	4.00%
All other
Revenue, Geographic Location [Line Items]
Sales	$ 817	$ 651	$ 1,566	$ 1,207
Concentration Risk, Percentage	10.00%	9.00%	9.00%	9.00%
All other | Aerospace Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 170	$ 200	$ 325	$ 342
Concentration Risk, Percentage	5.00%	6.00%	5.00%	5.00%
All other | Innovation Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 179	$ 67	$ 381	$ 67
Concentration Risk, Percentage	13.00%	17.00%	14.00%	17.00%
All other | Mission Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 305	$ 227	$ 526	$ 453
Concentration Risk, Percentage	11.00%	9.00%	10.00%	9.00%
All other | Technology Services [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 163	$ 157	$ 334	$ 345
Concentration Risk, Percentage	19.00%	18.00%	20.00%	19.00%
Intersegment sales | Aerospace Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 52	$ 51	$ 98	$ 110
Intersegment sales | Innovation Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	92	13	154	13
Intersegment sales | Mission Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	282	294	600	578
Intersegment sales | Technology Services [Member]
Revenue, Geographic Location [Line Items]
Sales	178	182	360	411
Operating Segments [Member] | Aerospace Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 3,390	$ 3,337	$ 6,886	$ 6,617
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Innovation Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 1,498	$ 400	$ 2,936	$ 400
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Mission Systems [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 3,128	$ 2,874	$ 6,014	$ 5,757
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Operating Segments [Member] | Technology Services [Member]
Revenue, Geographic Location [Line Items]
Sales	$ 1,044	$ 1,048	$ 2,021	$ 2,192
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%