Income Taxes (Unaudited)

9 Months Ended

Sep. 30, 2019



	Three Months Ended September 30						Nine Months Ended September 30
$ in millions	2019			2018			2019			2018
Federal and foreign income tax expense	$	122		$	120		$	460		$	466
Effective income tax rate	11.6		%	8.8		%	14.8		%	14.0		%

Current Quarter

The third quarter 2019 effective tax rate increased to 11.6 percent from 8.8 percent in the third quarter of 2018. The company’s effective tax rate for the third quarter of 2019 includes benefits of $89 million for research credits and $17 million for foreign derived intangible income. The company’s tax rate for the third quarter of 2018 included a $106 million benefit for research credits and manufacturing deductions and an $84 million benefit associated with the Tax Cuts and Jobs Act (the “2017 Tax Act”).

Year to Date

The year to date 2019 effective tax rate increased to 14.8 percent from 14.0 percent in the prior year period. The company’s year to date 2019 effective tax rate includes benefits of $171 million for research credits and $26 million for foreign derived intangible income. The company’s year to date 2018 effective tax rate included a $156 million benefit for research credits and manufacturing deductions and an $84 million benefit associated with the 2017 Tax Act.

During the three and nine months ended September 30, 2019, we increased our unrecognized tax benefits by approximately $294 million and $327 million, respectively, related to our methods of accounting associated with the timing of revenue recognition and related costs, and the 2017 Tax Act. Since enactment of the 2017 Tax Act, the IRS

and U.S. Treasury Department have issued and are expected to further issue interpretive guidance that impacts taxpayers. We will continue to evaluate such guidance as it is issued.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2017 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under IRS examination. In addition, legacy Orbital ATK federal tax returns for the year ended March 31, 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 are currently under IRS examination.