Northrop Grumman : Quarterly report which provides a continuing view of a company's financial position

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 September 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	(I.R.S. Employer
	incorporation or organization)	Identification No.)
	2980 Fairview Park Drive
	Falls Church, Virginia	22042
	(Address of principal executive offices)	(Zip Code)
	[phone]
	(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 October 21, 2019, 168,532,761 shares of common stock were outstanding.

Table of Contents

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	15
	8.	Retirement Benefits	17
	9.	Stock Compensation Plans and Other Compensation Arrangements	17
	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	26
	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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Table of Contents

NORTHROP GRUMMAN CORPORATION

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (Unaudited)

					Nine Months Ended September
		Three Months Ended September 30			30
$ in millions, except per share amounts		2019		2018		2019		2018
Sales
Product	$	5,997	$	5,614	$	17,605	$	14,693
Service		2,478		2,471		7,515		7,246
Total sales		8,475		8,085		25,120		21,939
Operating costs and expenses
Product		4,777		4,233		13,955		11,200
Service		1,971		1,863		6,012		5,635
General and administrative expenses		776		817		2,320		2,267
Operating income		951		1,172		2,833		2,837
Other (expense) income
Interest expense		(123)		(133)		(398)		(420)
FAS (non-service) pension benefit		200		270		600		782
Other, net		27		55		82		140
Earnings before income taxes		1,055		1,364		3,117		3,339
Federal and foreign income tax expense		122		120		460		466
Net earnings	$	933	$	1,244	$	2,657	$	2,873
Basic earnings per share	$	5.52	$	7.15	$	15.67	$	16.48
Weighted-average common shares outstanding, in millions		169.1		174.1		169.6		174.3
Diluted earnings per share	$	5.49	$	7.11	$	15.60	$	16.40
Weighted-average diluted shares outstanding, in millions		169.9		174.9		170.3		175.2
Net earnings (from above)	$	933	$	1,244	$	2,657	$	2,873
Other comprehensive loss
Change in unamortized prior service credit, net of tax		(12)		(15)		(35)		(45)
Change in cumulative translation adjustment and other, net		-		(3)		-		(9)
Other comprehensive loss, net of tax		(12)		(18)		(35)		(54)
Comprehensive income	$	921	$	1,226	$	2,622	$	2,819

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. -1-

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NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
		September 30,		December 31,
$ in millions, except par value		2019		2018
Assets
Cash and cash equivalents	$	1,127	$	1,579
Accounts receivable, net		2,111		1,448
Unbilled receivables, net		5,777		5,026
Inventoried costs, net		810		654
Prepaid expenses and other current assets		1,011		973
Total current assets		10,836		9,680
Property, plant and equipment, net of accumulated depreciation of $5,709 for 2019 and $5,369 for 2018		6,611		6,372
Operating lease right-of-use assets		1,511		-
Goodwill		18,707		18,672
Intangible assets, net		1,123		1,372
Deferred tax assets		83		94
Other non-current assets		1,682		1,463
Total assets	$	40,553	$	37,653
Liabilities
Trade accounts payable	$	2,021	$	2,182
Accrued employee compensation		1,744		1,676
Advance payments and billings in excess of costs incurred		2,127		1,917
Other current liabilities		2,524		2,499
Total current liabilities		8,416		8,274
Long-term debt, net of current portion of $45 for 2019 and $517 for 2018		13,826		13,883
Pension and other postretirement benefit plan liabilities		5,431		5,755
Operating lease liabilities		1,304		-
Deferred tax liabilities		111		108
Other non-current liabilities		1,734		1,446
Total liabilities		30,822		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
168,701,653 and 2018-170,607,336			171
Paid-in capital		-		-
Retained earnings		9,649		8,068
Accumulated other comprehensive loss		(87)		(52)
Total shareholders' equity		9,731		8,187
Total liabilities and shareholders' equity	$	40,553	$	37,653

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. -2-

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NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		Nine Months Ended September
			30
$ in millions		2019		2018
Operating activities
Net earnings	$	2,657	$	2,873
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization		737		534
Non-cash lease expense		187		-
Stock-based compensation		93		82
Deferred income taxes		24		275
Changes in assets and liabilities:
Accounts receivable, net		(663)		(52)
Unbilled receivables, net		(778)		(898)
Inventoried costs, net		(156)		(102)
Prepaid expenses and other assets		(81)		(109)
Accounts payable and other liabilities		320		(125)
Income taxes payable, net		(34)		(114)
Retiree benefits		(422)		(847)
Other, net		(51)		(67)
Net cash provided by operating activities		1,833		1,450
Investing activities
Acquisition of Orbital ATK, net of cash acquired		-		(7,657)
Capital expenditures		(793)		(786)
Other, net		8		23
Net cash used in investing activities		(785)		(8,420)
Financing activities
Payments of long-term debt		(500)		(2,276)
Net payments to credit facilities		(31)		(314)
Net borrowings on commercial paper		201		499
Common stock repurchases		(444)		(209)
Cash dividends paid		(658)		(616)
Payments of employee taxes withheld from share-based awards		(63)		(84)
Other, net		(5)		(27)
Net cash used in financing activities		(1,500)		(3,027)
Decrease in cash and cash equivalents		(452)		(9,997)
Cash and cash equivalents, beginning of year		1,579		11,225
Cash and cash equivalents, end of period	$	1,127	$	1,228

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. -3-