i false i --12-31 i Q2 i 2020 i 0001133421 i NORTHROP
GRUMMAN CORP /DE/ i 17000000 i 10000000 i 5850000000 i 6103000000 i 1 i 1 i 800000000 i 800000000 i 167848424 i 166708207 i 167848424 i 166708207 i 13000000 i 600000 i 1109000000 i 1803000000 i 1 i 1 i 10000000 i 10000000 i 0 i 0 i 0 i 0 i P3Y i P3Y i P3Y i P3Y i 0 i 0 i 0 i 0
0001133421
2020-01-01
2020-06-30
0001133421
2020-07-27
0001133421
us-gaap:ServiceMember
2019-04-01
2019-06-30
0001133421
2019-01-01
2019-06-30
0001133421
us-gaap:ServiceMember
2019-01-01
2019-06-30
0001133421
2020-04-01
2020-06-30
0001133421
us-gaap:ProductMember
2019-04-01
2019-06-30
0001133421
us-gaap:ProductMember
2020-01-01
2020-06-30
0001133421
2019-04-01
2019-06-30
0001133421
us-gaap:ProductMember
2019-01-01
2019-06-30
0001133421
us-gaap:ServiceMember
2020-01-01
2020-06-30
0001133421
us-gaap:ProductMember
2020-04-01
2020-06-30
0001133421
us-gaap:ServiceMember
2020-04-01
2020-06-30
0001133421
2019-12-31
0001133421
2020-06-30
0001133421
2018-12-31
0001133421
2019-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2019-04-01
2019-06-30
0001133421
us-gaap:CommonStockMember
2019-04-01
2019-06-30
0001133421
us-gaap:RetainedEarningsMember
2019-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2020-06-30
0001133421
us-gaap:RetainedEarningsMember
2019-01-01
2019-06-30
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-06-30
0001133421
us-gaap:CommonStockMember
2019-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2019-01-01
2019-06-30
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-01-01
2019-06-30
0001133421
us-gaap:RetainedEarningsMember
2020-06-30
0001133421
us-gaap:RetainedEarningsMember
2020-03-31
0001133421
us-gaap:AdditionalPaidInCapitalMember
2020-04-01
2020-06-30
0001133421
us-gaap:CommonStockMember
2019-01-01
2019-06-30
0001133421
us-gaap:RetainedEarningsMember
2020-04-01
2020-06-30
0001133421
us-gaap:RetainedEarningsMember
2019-04-01
2019-06-30
0001133421
us-gaap:CommonStockMember
2020-06-30
0001133421
us-gaap:RetainedEarningsMember
2020-01-01
2020-06-30
0001133421
us-gaap:RetainedEarningsMember
2019-03-31
0001133421
us-gaap:CommonStockMember
2018-12-31
0001133421
us-gaap:CommonStockMember
2019-03-31
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-12-31
0001133421
us-gaap:RetainedEarningsMember
2019-12-31
0001133421
us-gaap:AdditionalPaidInCapitalMember
2020-01-01
2020-06-30
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-03-31
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-12-31
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-04-01
2020-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2019-12-31
0001133421
us-gaap:CommonStockMember
2020-04-01
2020-06-30
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-01-01
2020-06-30
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-03-31
0001133421
us-gaap:CommonStockMember
2020-03-31
0001133421
us-gaap:RetainedEarningsMember
2018-12-31
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-04-01
2019-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2019-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2019-03-31
0001133421
us-gaap:CommonStockMember
2019-12-31
0001133421
us-gaap:CommonStockMember
2020-01-01
2020-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2018-12-31
0001133421
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-06-30
0001133421
us-gaap:AdditionalPaidInCapitalMember
2020-03-31
0001133421
us-gaap:ContractsAccountedForUnderPercentageOfCompletionMember
2019-01-01
2019-06-30
0001133421
us-gaap:ContractsAccountedForUnderPercentageOfCompletionMember
2020-04-01
2020-06-30
0001133421
us-gaap:ContractsAccountedForUnderPercentageOfCompletionMember
2020-01-01
2020-06-30
0001133421
us-gaap:ContractsAccountedForUnderPercentageOfCompletionMember
2019-04-01
2019-06-30
0001133421
2020-05-01
2020-05-31
0001133421
2019-05-01
2019-05-31
0001133421
noc:December2018ShareRepurchaseOriginalAuthorizationMember
2018-12-04
0001133421
noc:December2018ShareRepurchaseOriginalAuthorizationMember
2020-03-01
2020-06-30
0001133421
noc:December2018ShareRepurchaseOriginalAuthorizationMember
2020-06-30
0001133421
noc:September2015ShareRepurchaseOriginalAuthorizationMember
2015-09-16
0001133421
2018-05-01
2018-05-31
0001133421
noc:September2015ShareRepurchaseOriginalAuthorizationMember
2016-04-01
2020-02-29
0001133421
noc:December2018ShareRepurchaseOriginalAuthorizationMember
2020-01-01
2020-06-30
0001133421
noc:September2015ShareRepurchaseOriginalAuthorizationMember
2020-01-01
2020-06-30
0001133421
noc:September2015ShareRepurchaseOriginalAuthorizationMember
2019-01-01
2019-06-30
0001133421
noc:TwoThousandThirtyMember
2020-03-23
0001133421
noc:TwoThousandFiftyMember
2020-03-23
0001133421
noc:TwoThousandForty2Member
2020-03-23
0001133421
2020-03-23
0001133421
us-gaap:FairValueMeasurementsRecurringMember
2019-12-31
0001133421
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
2019-12-31
0001133421
us-gaap:FairValueMeasurementsNonrecurringMember
2020-06-30
0001133421
us-gaap:FairValueInputsLevel2Member
2019-12-31
0001133421
us-gaap:FairValueInputsLevel1Member
2020-06-30
0001133421
us-gaap:FairValueMeasurementsRecurringMember
2020-06-30
0001133421
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
2020-06-30
0001133421
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
2019-12-31
0001133421
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
2020-06-30
0001133421
us-gaap:FairValueInputsLevel2Member
2020-06-30
0001133421
us-gaap:FairValueInputsLevel1Member
2019-12-31
0001133421
us-gaap:FairValueMeasurementsNonrecurringMember
2019-12-31
0001133421
noc:IncrementalclaimMember
noc:SolysticMatterMember
2013-10-01
2020-06-30
0001133421
noc:SolysticMatterMember
2013-10-01
2020-06-30
0001133421
noc:SolysticMatterMember
2013-08-08
2020-06-30
0001133421
noc:UnitedStatesPostalServiceMember
srt:MaximumMember
2020-06-30
0001133421
noc:FalseClaimsActMember
us-gaap:ThreatenedLitigationMember
noc:UnitedStatesPostalServiceMember
2013-06-03
2020-06-30
0001133421
noc:InitialClaimMember
noc:SolysticMatterMember
2013-08-08
2020-06-30
0001133421
noc:SolysticMatterMember
noc:SolysticMatterMember
2013-08-08
2020-06-30
0001133421
noc:UnitedStatesPostalServiceMember
noc:ActsAndOmissionsWithAdverseAffectsOnPerformanceAndObligationsMember
2012-05-04
0001133421
noc:UnitedStatesPostalServiceMember
2007-01-01
2007-12-31
0001133421
noc:UnitedStatesPostalServiceMember
2018-02-16
0001133421
noc:SolysticMatterMember
2013-08-08
2018-11-13
0001133421
noc:UnitedStatesPostalServiceMember
noc:UnpaidPortionsOfContractPriceAndDirectCostsIncurredMember
2012-05-04
0001133421
noc:TwoYearTermMemberDomain
2020-06-30
0001133421
us-gaap:OtherNoncurrentLiabilitiesMember
2020-06-30
0001133421
us-gaap:OtherCurrentLiabilitiesMember
2020-06-30
0001133421
us-gaap:OtherCurrentAssetsMember
2020-06-30
0001133421
us-gaap:CommercialPaperMember
2020-06-30
0001133421
noc:TwoYearTermMemberDomain
us-gaap:LondonInterbankOfferedRateLIBORMember
2020-01-01
2020-06-30
0001133421
noc:FiveYearTermMemberDomain
2020-06-30
0001133421
us-gaap:OtherNoncurrentAssetsMember
2020-06-30
0001133421
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2019-04-01
2019-06-30
0001133421
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2019-01-01
2019-06-30
0001133421
us-gaap:PensionPlansDefinedBenefitMember
2020-01-01
2020-06-30
0001133421
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2020-04-01
2020-06-30
0001133421
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2020-01-01
2020-06-30
0001133421
us-gaap:PensionPlansDefinedBenefitMember
2020-04-01
2020-06-30
0001133421
us-gaap:PensionPlansDefinedBenefitMember
2019-01-01
2019-06-30
0001133421
us-gaap:PensionPlansDefinedBenefitMember
2019-04-01
2019-06-30
0001133421
us-gaap:RestrictedStockUnitsRSUMember
2020-01-01
2020-06-30
0001133421
us-gaap:PerformanceSharesMember
2020-01-01
2020-06-30
0001133421
us-gaap:PerformanceSharesMember
2019-01-01
2019-06-30
0001133421
us-gaap:RestrictedStockUnitsRSUMember
2019-01-01
2019-06-30
0001133421
srt:MaximumMember
noc:CashUnitsAndCashPerformanceUnitsMember
2019-06-30
0001133421
srt:MinimumMember
noc:CashUnitsAndCashPerformanceUnitsMember
2019-06-30
0001133421
srt:MinimumMember
noc:CashUnitsAndCashPerformanceUnitsMember
2020-06-30
0001133421
srt:MaximumMember
noc:CashUnitsAndCashPerformanceUnitsMember
2020-06-30
0001133421
noc:CashPerformanceUnitsMember
2020-01-01
2020-06-30
0001133421
noc:CashUnitsMember
2020-01-01
2020-06-30
0001133421
country:US
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
country:US
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
country:US
2019-04-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
country:US
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
2019-04-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
country:US
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
2019-01-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
country:US
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
srt:AsiaPacificMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
srt:AsiaPacificMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
srt:AsiaPacificMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
srt:AsiaPacificMember
2020-04-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
country:US
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
country:US
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
srt:AsiaPacificMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
country:US
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
country:US
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
2019-01-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
country:US
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
srt:AsiaPacificMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
country:US
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
srt:AsiaPacificMember
2020-01-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
2020-01-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
country:US
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
country:US
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
country:US
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
country:US
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
country:US
2019-01-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
srt:AsiaPacificMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
srt:AsiaPacificMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
country:US
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
country:US
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
country:US
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
noc:AllOtherGeographicRegionDomain
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
2019-04-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
2020-04-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
2019-01-01
2019-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
2019-04-01
2019-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:TimeAndMaterialsContractMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
us-gaap:FixedPriceContractMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
noc:OtherCustomersMember
2020-04-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
noc:InternationalMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
noc:OtherCustomersMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
noc:InternationalMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
noc:InternationalMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
noc:OtherCustomersMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
noc:OtherCustomersMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
noc:USGovernmentMember
2019-01-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:InternationalMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
noc:InternationalMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
noc:InternationalMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2020-01-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
2019-04-01
2019-06-30
0001133421
noc:USGovernmentMember
2020-04-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:DefenseSystemsMember
2020-04-01
2020-06-30
0001133421
noc:InternationalMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
noc:AeronauticsSystemsMember
2019-04-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:OtherCustomersMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
noc:InternationalMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
noc:OtherCustomersMember
2020-01-01
2020-06-30
0001133421
noc:InternationalMember
2019-01-01
2019-06-30
0001133421
noc:IntersegmentSalesMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
noc:OtherCustomersMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
noc:InternationalMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:DefenseSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:MissionSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
noc:OtherCustomersMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
2020-01-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:SpaceSystemsMember
2020-04-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:AeronauticsSystemsMember
2019-01-01
2019-06-30
0001133421
noc:USGovernmentMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:SpaceSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
noc:AeronauticsSystemsMember
2020-01-01
2020-06-30
0001133421
noc:IntersegmentSalesMember
noc:DefenseSystemsMember
2020-01-01
2020-06-30
0001133421
noc:OtherCustomersMember
2019-04-01
2019-06-30
0001133421
noc:InternationalMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
noc:USGovernmentMember
2019-04-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:MissionSystemsMember
2019-01-01
2019-06-30
0001133421
noc:InternationalMember
noc:AeronauticsSystemsMember
2020-04-01
2020-06-30
0001133421
noc:USGovernmentMember
noc:MissionSystemsMember
2020-01-01
2020-06-30
0001133421
noc:InternationalMember
noc:DefenseSystemsMember
2019-04-01
2019-06-30
0001133421
noc:OtherCustomersMember
2019-01-01
2019-06-30
0001133421
noc:USGovernmentMember
noc:SpaceSystemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:CorporateNonSegmentMember
2020-04-01
2020-06-30
0001133421
us-gaap:IntersegmentEliminationMember
2020-01-01
2020-06-30
0001133421
us-gaap:CorporateNonSegmentMember
2020-01-01
2020-06-30
0001133421
us-gaap:IntersegmentEliminationMember
2019-04-01
2019-06-30
0001133421
us-gaap:MaterialReconcilingItemsMember
2019-01-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
2020-04-01
2020-06-30
0001133421
us-gaap:MaterialReconcilingItemsMember
2020-04-01
2020-06-30
0001133421
us-gaap:OperatingSegmentsMember
2020-01-01
2020-06-30
0001133421
us-gaap:IntersegmentEliminationMember
2020-04-01
2020-06-30
0001133421
us-gaap:MaterialReconcilingItemsMember
2019-04-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
2019-01-01
2019-06-30
0001133421
us-gaap:CorporateNonSegmentMember
2019-04-01
2019-06-30
0001133421
us-gaap:OperatingSegmentsMember
2019-04-01
2019-06-30
0001133421
us-gaap:CorporateNonSegmentMember
2019-01-01
2019-06-30
0001133421
us-gaap:IntersegmentEliminationMember
2019-01-01
2019-06-30
0001133421
us-gaap:MaterialReconcilingItemsMember
2020-01-01
2020-06-30
utreg:Rate
iso4217:EUR
iso4217:BRL
xbrli:pure
noc:Defendant
iso4217:USD
xbrli:shares
iso4217:GBP
iso4217:USD
xbrli:shares
noc:segment
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|
| | |
i ☒ | | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
|
| | |
i ☐ | | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
|
| | | |
i Delaware | | i 80-0640649 |
(State
or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
i 2980 Fairview Park Drive | | |
i Falls
Church, | i Virginia | | i 22042 |
(Address of principal
executive offices) | | (Zip Code) |
( i 703) i 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 |
i Common Stock | i NOC | i 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. i 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). i 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: i Large Accelerated Filer ☒ Accelerated Filer ☐
Non-accelerated Filer ☐ Smaller
Reporting Company i ☐
Emerging Growth Company i ☐
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 i ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date.
As of July 27, 2020, i 166,714,063 shares of common stock were outstanding.
NORTHROP GRUMMAN CORPORATION
|
| | |
| | Page |
| | |
Item
1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 3. | | |
Item
4. | | |
| | |
| | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item
5. | | |
Item 6. | | |
| | |
NORTHROP GRUMMAN CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three
Months Ended June 30 |
| Six Months Ended June 30 |
$ in millions, except per share amounts | 2020 |
| 2019 |
| 2020 |
| 2019 |
Sales |
|
|
|
|
|
|
|
|
|
|
|
Product | $ | i 6,482 |
|
| $ | i 5,880 |
|
| $ | i 12,658 |
|
| $ | i 11,608 |
|
Service | i 2,402 |
|
| i 2,576 |
|
| i 4,846 |
|
| i 5,037 |
|
Total
sales | i 8,884 |
|
| i 8,456 |
|
| i 17,504 |
|
| i 16,645 |
|
Operating
costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
Product | i 5,127 |
|
| i 4,661 |
|
| i 10,079 |
|
| i 9,178 |
|
Service | i 1,931 |
|
| i 2,065 |
|
| i 3,877 |
|
| i 4,041 |
|
General
and administrative expenses | i 832 |
|
| i 784 |
|
| i 1,620 |
|
| i 1,544 |
|
Operating
income | i 994 |
|
| i 946 |
|
| i 1,928 |
|
| i 1,882 |
|
Other
(expense) income |
|
|
|
|
|
|
|
|
|
|
|
Interest expense | ( i 154 | ) |
| ( i 137 | ) |
| ( i 279 | ) |
| ( i 275 | ) |
FAS
(non-service) pension benefit | i 303 |
|
| i 200 |
|
| i 605 |
|
| i 400 |
|
Other,
net | i 60 |
|
| i 19 |
|
| i 2 |
|
| i 55 |
|
Earnings
before income taxes | i 1,203 |
|
| i 1,028 |
|
| i 2,256 |
|
| i 2,062 |
|
Federal
and foreign income tax expense | i 198 |
|
| i 167 |
|
| i 383 |
|
| i 338 |
|
Net
earnings | $ | i 1,005 |
|
| $ | i 861 |
|
| $ | i 1,873 |
|
| $ | i 1,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share | $ | i 6.02 |
|
| $ | i 5.07 |
|
| $ | i 11.20 |
|
| $ | i 10.15 |
|
Weighted-average
common shares outstanding, in millions | i 166.9 |
|
| i 169.7 |
|
| i 167.3 |
|
| i 169.9 |
|
Diluted
earnings per share | $ | i 6.01 |
|
| $ | i 5.06 |
|
| $ | i 11.16 |
|
| $ | i 10.11 |
|
Weighted-average
diluted shares outstanding, in millions | i 167.3 |
|
| i 170.3 |
|
| i 167.9 |
|
| i 170.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (from above) | $ | i 1,005 |
|
| $ | i 861 |
|
| $ | i 1,873 |
|
| $ | i 1,724 |
|
Other
comprehensive loss | | | | | | | |
Change in unamortized prior service credit, net of tax | ( i 11 | ) | | ( i 12 | ) | | ( i 21 | ) | | ( i 23 | ) |
Change
in cumulative translation adjustment and other, net | i 10 |
| | ( i 4 | ) | | i 1 |
| | i — |
|
Other
comprehensive loss, net of tax | ( i 1 | ) | | ( i 16 | ) | | ( i 20 | ) | | ( i 23 | ) |
Comprehensive
income | $ | i 1,004 |
| | $ | i 845 |
| | $ | i 1,853 |
| | $ | i 1,701 |
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
|
| | | | | | | |
$
in millions, except par value | | | |
Assets | | | |
Cash and cash equivalents | $ | i 4,178 |
| | $ | i 2,245 |
|
Accounts
receivable, net | i 1,989 |
| | i 1,326 |
|
Unbilled
receivables, net | i 5,460 |
| | i 5,334 |
|
Inventoried
costs, net | i 832 |
| | i 783 |
|
Prepaid
expenses and other current assets | i 720 |
| | i 997 |
|
Total
current assets | i 13,179 |
| | i 10,685 |
|
Property,
plant and equipment, net of accumulated depreciation of $6,103 for 2020 and $5,850 for 2019 | i 7,063 |
| | i 6,912 |
|
Operating
lease right-of-use assets | i 1,528 |
| | i 1,511 |
|
Goodwill | i 18,707 |
| | i 18,708 |
|
Intangible
assets, net | i 909 |
| | i 1,040 |
|
Deferred
tax assets | i 346 |
| | i 508 |
|
Other
non-current assets | i 1,743 |
| | i 1,725 |
|
Total
assets | $ | i 43,475 |
| | $ | i 41,089 |
|
| | | |
Liabilities | | | |
Trade
accounts payable | $ | i 2,006 |
| | $ | i 2,226 |
|
Accrued
employee compensation | i 1,614 |
| | i 1,865 |
|
Advance
payments and billings in excess of costs incurred | i 2,179 |
| | i 2,237 |
|
Other
current liabilities | i 3,928 |
| | i 3,106 |
|
Total
current liabilities | i 9,727 |
| | i 9,434 |
|
Long-term
debt, net of current portion of $1,803 for 2020 and $1,109 for 2019 | i 14,259 |
| | i 12,770 |
|
Pension
and other postretirement benefit plan liabilities | i 6,582 |
| | i 6,979 |
|
Operating
lease liabilities | i 1,333 |
| | i 1,308 |
|
Other
non-current liabilities | i 1,862 |
| | i 1,779 |
|
Total
liabilities | i 33,763 |
| | i 32,270 |
|
| | | |
Commitments
and contingencies (Note 6) | i
| | i
|
| | | |
Shareholders’
equity | | | |
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding | i — |
| | i — |
|
Common
stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2020—166,708,207 and 2019—167,848,424 | i 167 |
| | i 168 |
|
Paid-in
capital | i 10 |
| | i — |
|
Retained
earnings | i 9,652 |
| | i 8,748 |
|
Accumulated
other comprehensive loss | ( i 117 | ) | | ( i 97 | ) |
Total
shareholders’ equity | i 9,712 |
| | i 8,819 |
|
Total
liabilities and shareholders’ equity | $ | i 43,475 |
| | $ | i 41,089 |
|
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | | | | |
| Six
Months Ended June 30 |
$ in millions | 2020 | | 2019 |
Operating activities | | | |
Net earnings | $ | i 1,873 |
| | $ | i 1,724 |
|
Adjustments
to reconcile to net cash provided by operating activities: | | | |
Depreciation and amortization | i 605 |
| | i 606 |
|
Stock-based
compensation | i 36 |
| | i 55 |
|
Deferred
income taxes | i 169 |
| | i 48 |
|
Changes
in assets and liabilities: | | | |
Accounts receivable, net | ( i 663 | ) | | ( i 384 | ) |
Unbilled
receivables, net | ( i 126 | ) | | ( i 658 | ) |
Inventoried
costs, net | ( i 49 | ) | | ( i 156 | ) |
Prepaid
expenses and other assets | ( i 16 | ) | | ( i 48 | ) |
Accounts
payable and other liabilities | ( i 374 | ) | | ( i 367 | ) |
Income
taxes payable, net | i 330 |
| | i 194 |
|
Retiree
benefits | ( i 473 | ) | | ( i 285 | ) |
Other,
net | i 32 |
| | ( i 35 | ) |
Net
cash provided by operating activities | i 1,344 |
| | i 694 |
|
| | | |
Investing
activities | | | |
Capital expenditures | ( i 541 | ) | | ( i 536 | ) |
Other,
net | i 2 |
| | i 1 |
|
Net
cash used in investing activities | ( i 539 | ) | | ( i 535 | ) |
| | | |
Financing
activities | | | |
Net proceeds from issuance of long-term debt | i 2,239 |
| | i — |
|
Payments
to credit facilities | ( i 13 | ) | | ( i 20 | ) |
Net
borrowings on commercial paper | i — |
| | i 101 |
|
Common
stock repurchases | ( i 490 | ) | | ( i 231 | ) |
Cash
dividends paid | ( i 469 | ) | | ( i 435 | ) |
Payments
of employee taxes withheld from share-based awards | ( i 64 | ) | | ( i 63 | ) |
Other,
net | ( i 75 | ) | | ( i 2 | ) |
Net
cash provided by (used in) financing activities | i 1,128 |
| | ( i 650 | ) |
Increase
(decrease) in cash and cash equivalents | i 1,933 |
| | ( i 491 | ) |
Cash
and cash equivalents, beginning of year | i 2,245 |
| | i 1,579 |
|
Cash
and cash equivalents, end of period | $ | i 4,178 |
| | $ | i 1,088 |
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three
Months Ended June 30 | | Six Months Ended June 30 |
$ in millions, except per share amounts | 2020 | | 2019 | | 2020 | | 2019 |
Common stock | | | | | | | |
Beginning
of period | $ | i 167 |
| | $ | i 170 |
| | $ | i 168 |
| | $ | i 171 |
|
Common
stock repurchased | i — |
| | ( i 1 | ) | | ( i 1 | ) | | ( i 2 | ) |
End
of period | i 167 |
| | i 169 |
| | i 167 |
| | i 169 |
|
Paid-in
capital | | | | | | | |
Beginning of period | i — |
| | i — |
| | i — |
| | i — |
|
Stock
compensation | i 10 |
| | i — |
| | i 10 |
| | i — |
|
End
of period | i 10 |
| | i — |
| | i 10 |
| | i — |
|
Retained
earnings | | | | | | | |
Beginning of period | i 9,011 |
| | i 8,628 |
| | i 8,748 |
| | i 8,068 |
|
Common
stock repurchased | ( i 131 | ) | | ( i 172 | ) | | ( i 479 | ) | | ( i 234 | ) |
Net
earnings | i 1,005 |
| | i 861 |
| | i 1,873 |
| | i 1,724 |
|
Dividends
declared | ( i 242 | ) | | ( i 226 | ) | | ( i 465 | ) | | ( i 432 | ) |
Stock
compensation | i 9 |
| | i 29 |
| | ( i 36 | ) | | ( i 6 | ) |
Other | i — |
| | i — |
| | i 11 |
| | i — |
|
End
of period | i 9,652 |
| | i 9,120 |
| | i 9,652 |
| | i 9,120 |
|
Accumulated
other comprehensive loss | | | | | | | |
Beginning of period | ( i 116 | ) | | ( i 59 | ) | | ( i 97 | ) | | ( i 52 | ) |
Other
comprehensive loss, net of tax | ( i 1 | ) | | ( i 16 | ) | | ( i 20 | ) | | ( i 23 | ) |
End
of period | ( i 117 | ) | | ( i 75 | ) | | ( i 117 | ) | | ( i 75 | ) |
Total
shareholders’ equity | $ | i 9,712 |
| | $ | i 9,214 |
| | $ | i 9,712 |
| | $ | i 9,214 |
|
Cash
dividends declared per share | $ | i 1.45 |
| | $ | i 1.32 |
| | $ | i 2.77 |
| | $ | i 2.52 |
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTHROP GRUMMAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. i BASIS
OF PRESENTATION
Principles of Consolidation and Reporting
i These unaudited condensed consolidated financial statements (the “financial statements”) include the accounts of Northrop Grumman Corporation and its subsidiaries and joint ventures or other investments for which we consolidate the financial results (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”). Intercompany accounts, transactions and profits are eliminated in consolidation.
Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method. i These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”) and in accordance with the rules of the Securities and Exchange Commission (SEC) for interim reporting. The financial statements include adjustments of a normal recurring nature considered necessary by management
for a fair presentation of the company’s unaudited condensed consolidated financial position, results of operations and cash flows. Effective January 1, 2020, the company reorganized its operating sectors to better align the company’s broad portfolio to serve its customers’ needs. The four new sectors, which also comprise our reportable segments, are Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. Beginning in the second quarter of 2020,
the company no longer considers certain unallowable costs and environmental matters that are principally managed at the corporate office as part of management’s evaluation of segment operating performance. As a result, certain unallowable compensation and other costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. In addition, certain accrued and deferred costs, as well as unallowable costs, if any, associated with certain environmental matters that were previously reflected in segment assets and operating results are now reflected in corporate assets and Unallocated corporate expense within operating income. The impact of these changes are reflected in the amounts in this Form 10-Q. See Note 9 and Part II, Item 5
for further information regarding the impact of these changes on the company’s current and prior period segment operating income. The results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the information contained in the company’s 2019 Annual Report on Form 10-K, the Form 8-K that we filed with the SEC on April 29, 2020, which recasts the disclosures in certain portions of the 2019 Annual Report on Form 10-K to reflect changes in the
company’s reportable segments, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. i 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
i 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.
i Revenue Recognition
The majority of our sales are derived from long-term contracts with the U.S. government for the production of goods, the provision of services, or a combination of both. We recognize revenue as control is transferred to the customer, either over time or at a point in time. As control is effectively transferred while we perform on our contracts,
we generally recognize revenue over time using the cost-to-cost method (cost incurred relative to total cost estimated at completion) as the company believes this represents the most appropriate measurement towards satisfaction of our performance obligations. Revenue for contracts in which the control of goods produced does not transfer until delivery to the customer is recognized at a point in time (i.e., typically upon delivery). 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
NORTHROP GRUMMAN CORPORATION
these contracts as the difference between total estimated sales and total estimated cost at completion and recognizes that profit as costs are incurred. Significant judgment is used to estimate total sales and
cost at completion. Contract sales may include estimates of variable consideration, including cost or performance incentives (such as award and incentive fees), contract claims and requests for equitable adjustment (REAs). Variable consideration is included in total estimated sales to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration as the most likely amount to which we expect to be entitled. We recognize changes in estimated contract
sales or costs and the resulting changes in contract profit on a cumulative basis. Cumulative EAC adjustments represent the cumulative effect of the changes on current and prior periods; sales and operating margins in future periods are recognized as if the revised estimates had been used since contract inception. If it is determined that a loss is expected to result on an individual performance obligation, the entire amount of the estimable future loss, including an allocation of general and administrative (G&A) costs, is charged against income in the period the loss is identified. i The
following table presents the effect of aggregate net EAC adjustments: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
$ in millions, except per share data | 2020 | | 2019 | | 2020 | | 2019 |
Revenue | $ | i 125 |
| | $ | i 154 |
| | $ | i 261 |
| | $ | i 320 |
|
Operating
income | i 112 |
| | i 158 |
| | i 236 |
| | i 296 |
|
Net
earnings(1) | i 88 |
| | i 125 |
| | i 186 |
| | i 234 |
|
Diluted
earnings per share(1) | i 0.53 |
| | i 0.73 |
| | i 1.11 |
| | i 1.37 |
|
/ | |
(1) | Based
on a 21 percent statutory tax rate. |
EAC adjustments on a single performance obligation can have a material effect on the company’s financial statements. When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments. No such adjustments were material to the financial statements during the three months ended June 30, 2020 and 2019. Backlog
Backlog represents the future sales we expect to recognize on firm orders received by the
company and is equivalent to the company’s remaining performance obligations at the end of each period. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded. Company backlog as of June 30, 2020 was $ i 70.0
billion. i We expect to recognize approximately 40 percent and 65 percent of our June 30, 2020 backlog as revenue over the next 12 and 24 months, respectively, with the remainder to be recognized thereafter. For each of the
company’s contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Contract assets are equivalent to and reflected as Unbilled receivables in the unaudited condensed consolidated statements of financial position and are primarily related to long-term contracts where revenue recognized under the cost-to-cost method exceeds amounts billed to customers. Contract liabilities are equivalent to and reflected
as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position. The amount of revenue recognized for the three and six months ended June 30, 2020 that was included in the December 31, 2019 contract liability balance was $ i 442
million and $ i 1.2 billion, respectively. The amount of revenue recognized for the three and six months ended June 30, 2019 that was included in the December 31, 2018 contract
liability balance was $ i 333 million and $ i 1.0 billion,
respectively. Disaggregation of Revenue
See Note 9 for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
NORTHROP
GRUMMAN CORPORATION
Accumulated Other Comprehensive Loss
i The components of accumulated other comprehensive loss are as follows: |
| | | | | | |
$ in millions | | |
Unamortized prior service credit, net of tax expense of $10 for 2020 and $17 for 2019 | $ | i 30 |
| $ | i 51 |
|
Cumulative
translation adjustment and other, net | ( i 147 | ) | ( i 148 | ) |
Total
accumulated other comprehensive loss | $ | ( i 117 | ) | $ | ( i 97 | ) |
/ Related
Party Transactions
For all periods presented, the company had no material related party transactions. Accounting Standards Updates
Accounting standards updates adopted and/or issued, but not effective until after June 30, 2020, are not expected to have a material effect on the company’s unaudited condensed consolidated financial position, annual results of operations and/or cash flows. 2. i 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
i 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 i 0.4 million shares and i 0.6
million shares for the three and six months ended June 30, 2020, respectively. The dilutive effect of these securities totaled i 0.6 million shares for the three and six months ended June 30,
2019. Share Repurchases
On September 16, 2015, the company’s board of directors authorized a share repurchase program of up to $ i 4.0 billion of the
company’s common stock (the “2015 Repurchase Program”). Repurchases under the 2015 Repurchase Program commenced in March 2016 and were completed in March 2020. On December 4, 2018, the company’s board of directors authorized a new share repurchase program of up to an additional $ i 3.0
billion in share repurchases of the company’s common stock (the “2018 Repurchase Program”). Repurchases under the 2018 Repurchase Program commenced in March 2020 upon the completion of the company’s 2015 Repurchase Program. As of June 30, 2020, repurchases under the 2018 Repurchase Program totaled $ i 0.2
billion; $ i 2.8 billion remained under this share repurchase authorization. By its terms, the 2018 Repurchase Program is set to expire when all authorized funds for repurchases have been used. Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market
or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs. i The table below summarizes the company’s share repurchases to date under the authorizations described above: |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Shares Repurchased
(in
millions) |
Repurchase Program
Authorization Date | | Amount
Authorized
(in millions) | | Total
Shares Retired
(in millions) | | Average
Price
Per Share(1) | | Date Completed | | Six
Months Ended June 30 |
| 2020 | | 2019 |
| | $ | i 4,000 |
| | i 15.4 |
| | $ | i 260.33 |
| | March
2020 | | i 0.9 |
| | i 1.7 |
|
| | $ | i 3,000 |
| | i 0.5 |
| | i 326.20 |
| |
| | i 0.5 |
| | — |
|
/ | |
(1) | Includes
commissions paid. |
Dividends on Common Stock
In May 2020, the company increased the quarterly common stock dividend i 10 percent to $ i 1.45
per share from the previous amount of $ i 1.32 per share.
NORTHROP GRUMMAN CORPORATION
In
May 2019, the company increased the quarterly common stock dividend i 10 percent to $ i 1.32
per share from the previous amount of $ i 1.20 per share. 3. i INCOME
TAXES i |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six
Months Ended June 30 |
$ in millions | 2020 | | 2019 | | 2020 |
| 2019 |
Federal and foreign income tax expense | $ | i 198 |
| | $ | i 167 |
| | $ | i 383 |
| | $ | i 338 |
|
Effective
income tax rate | i 16.5 | % | | i 16.2 | % | | i 17.0 | % | | i 16.4 | % |
/ Current
Quarter
The second quarter 2020 effective tax rate of i 16.5 percent was generally comparable to the prior year period. The company’s second quarter 2020 effective tax rate includes $ i 48
million of research credits, as compared to $ i 51 million in the prior year period. Year to Date
The year to date 2020 effective tax rate increased to i 17.0
percent from i 16.4 percent in the prior period primarily due to an increase in reserves for uncertain tax positions. The company’s year to date 2020 effective tax rate includes $ i 90
million of research credits, as compared to $ i 82 million in the prior year period. Both periods benefited from $ i 13
million of excess tax benefits for employee share-based compensation. In March 2020, the CARES Act was enacted. The CARES Act includes certain changes to U.S. tax law that impact the company, including a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. The CARES Act did not have a significant impact on the company’s second quarter and year to date 2020 effective tax rate. The company has recorded unrecognized tax benefits related to our methods of accounting associated with the timing of revenue recognition
and related costs, and the 2017 Tax Act. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may decrease by up to $ i 70 million. Since enactment of the 2017 Tax Act, the Internal Revenue Service (IRS) and U.S. Treasury Department have issued and are expected to further issue interpretive guidance that impacts taxpayers. We will continue to evaluate such guidance as it is issued. We
file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2017 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under IRS examination. In addition, legacy Orbital ATK federal tax returns for the year ended March 31, 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 are currently under appeal with the IRS. 4. i FAIR
VALUE OF FINANCIAL INSTRUMENTS
i The company holds a portfolio of marketable securities consisting of securities to partially fund non-qualified employee benefit plans. A portion of these securities are held in common/collective trust funds and are measured at fair value using net asset value (NAV) per share as a practical expedient; and therefore are not required to be categorized in the fair value hierarchy table below. Marketable securities are included in Other non-current assets in the unaudited condensed consolidated statements of financial position.
The company’s derivative portfolio consists primarily of foreign currency forward contracts. i 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.
NORTHROP GRUMMAN CORPORATION
i 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: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
$ in millions | | Level 1 | | Level 2 | | Total | | Level 1 | | Level
2 | | Total |
Financial Assets (Liabilities) | | | | | | | | | | | | |
Marketable
securities | | $ | i 331 |
| | $ | i 1 |
| | $ | i 332 |
| | $ | i 364 |
| | $ | i 1 |
| | $ | i 365 |
|
Marketable
securities valued using NAV | | | | | | i 16 |
| | | | | | i 17 |
|
Total
marketable securities | | i 331 |
| | i 1 |
| | i 348 |
| | i 364 |
| | i 1 |
| | i 382 |
|
Derivatives | | i — |
| | ( i 1 | ) | | ( i 1 | ) | | i — |
| | ( i 3 | ) | | ( i 3 | ) |
/ The derivative fair values and related unrealized gains/losses at June 30, 2020 and
December 31, 2019 were not material. There were no transfers of financial instruments between the three levels of the fair value hierarchy during the six months ended June 30, 2020. The carrying value of cash and cash equivalents and commercial paper approximates fair value.
Long-term Debt
The estimated fair value of long-term debt was $ i 19.0
billion and $ i 15.1 billion as of June 30, 2020 and December 31, 2019, respectively. i 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 $ i 16.1 billion and $ i 13.9
billion as of June 30, 2020 and December 31, 2019, respectively. The current portion of long-term debt is recorded in Other current liabilities in the unaudited condensed consolidated statements of financial position. Unsecured Senior Notes
In March 2020, the company issued $ i 2.25
billion of unsecured senior notes for general corporate purposes, including debt repayment and working capital, as follows: | |
• | $ i 750 million of i 4.40%
senior notes due 2030 (the “2030 Notes”), |
| |
• | $ i 500 million of i 5.15%
senior notes due 2040 (the “2040 Notes”) and |
| |
• | $ i 1.0 billion of i 5.25%
senior notes due 2050 (the “2050 Notes”). |
We refer to the 2030 Notes, the 2040 Notes and the 2050 Notes, together, as the “notes.” Interest on the notes is payable semi-annually in arrears. The notes are generally subject to redemption, in whole or in part, at the company’s discretion at any time, or from time to time, prior to maturity at a redemption price equal to the greater of 100% of the principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest. 5. i 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 $ i 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 $ i 63
million for unpaid portions of the contract price, and approximately $ i 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 $ i 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
NORTHROP GRUMMAN CORPORATION
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 $ i 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 $ i 193 million, which the court granted on June 11, 2018. On October 17, 2018, the court granted in part and
denied in part the parties’ motions to dismiss. On February 3, 2020, the parties commenced what was expected to be a seven-week trial. The first four weeks of trial concluded, but the court postponed the remaining estimated three weeks as a result of COVID-19-related concerns. Trial is currently scheduled to resume in October 2020. Although the ultimate outcome of these matters (“the FSS matters,” collectively), including any possible loss, cannot be predicted or reasonably estimated at this time, the company intends vigorously to pursue and defend the FSS matters. On August 8, 2013, the company received a court-appointed expert’s
report in litigation pending in the Second Federal Court of the Federal District in Brazil brought by the Brazilian Post and Telegraph Corporation (ECT), a Brazilian state-owned entity, against Solystic SAS (Solystic), a French subsidiary of the company, and i two of its consortium partners. In this suit, commenced
on December 17, 2004, ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$ i 111 million (the equivalent of approximately $ i 20
million as of June 30, 2020), plus interest, inflation adjustments and attorneys’ fees, as authorized by Brazilian law, which amounts could be significant over time. The original suit sought R$ i 89 million (the equivalent of approximately $ i 16
million as of June 30, 2020) in damages. In October 2013, ECT asserted an additional damage claim of R$ i 22 million (the equivalent of approximately $ i 4
million as of June 30, 2020). In its counterclaim, Solystic alleges ECT breached the contract by wrongfully refusing to accept the equipment Solystic had designed and built and seeks damages of approximately € i 31 million (the equivalent of approximately $ i 35
million as of June 30, 2020), plus interest, inflation adjustments and attorneys’ fees, as authorized by Brazilian law. The Brazilian court retained an expert to consider certain issues pending before it. On August 8, 2013 and September 10, 2014, the company received reports from the expert, which contain some recommended findings relating to liability and the damages calculations put forth by ECT. Some of the expert’s recommended findings were favorable to the company and others were favorable to ECT. In November 2014, the parties submitted comments on the expert’s most recent
report. On June 16, 2015, the court published a decision denying the parties’ request to present oral testimony. In a decision dated November 13, 2018, the trial court ruled in ECT’s favor on one of its claims against Solystic, and awarded damages of R$ i 41 million (the equivalent of approximately $ i 8
million as of June 30, 2020) against Solystic and its consortium partners, with that amount to be adjusted for inflation and interest from November 2004 through any appeal, in accordance with the Manual of Calculations of the Federal Justice, as well as attorneys’ fees. On March 22, 2019, ECT appealed the trial court’s decision to the intermediate court of appeals. Solystic filed its appeal on April 11, 2019. The parties have executed a settlement agreement in this matter and have filed it with the court for approval. We are engaged in remediation activities relating to environmental conditions allegedly resulting from historic operations at the former United States Navy and Grumman facilities in Bethpage,
New York. For over 20 years, we have worked closely with the United States Navy, the United States Environmental Protection Agency, the New York State Department of Environmental Conservation, the New York State Department of Health and other federal, state and local governmental authorities, to address legacy environmental conditions in Bethpage. We have incurred, and expect to continue to incur, as included in Note 6, substantial remediation costs related to these environmental conditions. The remediation standards or requirements to which we are subject are being reconsidered and are changing and costs may increase materially. As discussed in Note 6, the State of New York issued a Feasibility Study and an Amended Record of Decision, seeking to impose additional remedial requirements. The company is engaged in discussions with the State of New York and certain
other potentially responsible parties. The State of New York has said that, among other things, it is also evaluating potential natural resource damages. In addition, we are a party to various, and expect to become a party to additional, legal proceedings and disputes related to remediation, costs, allowability and/or alleged environmental impacts in Bethpage, including with federal and state entities (including the Navy, Defense Contract Management Agency, the state, local municipalities and water districts) and insurance carriers, as well as class action and individual plaintiffs alleging personal injury and property
NORTHROP GRUMMAN CORPORATION
damage and seeking both monetary and non-monetary relief. These Bethpage matters could result in additional costs, fines, penalties, sanctions, compensatory or other damages (including natural resource damages), determinations on allocation, allowability and coverage, and non-monetary relief. We cannot at this time predict or reasonably estimate the potential cumulative outcomes or ranges of possible liability of these aggregate Bethpage matters.
The company is a party to various other investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including
government investigations and claims, that arise in the ordinary course of our business. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2020, or its annual results of operations and/or cash
flows. 6. i COMMITMENTS AND CONTINGENCIES
U.S. Government Cost Claims and Contingencies
i From
time to time, the company is advised of claims by the U.S. government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and U.S. government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available. The
company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of June 30, 2020, or its annual results of operations and/or cash flows. Recently, the U.S. government has raised questions about an interest rate assumption used by the company to determine our CAS pension expense in previous years and in our current forward pricing rate proposal. On June 1, 2020, the government provided written notice that the assumptions the
company used during the period 2013-2019 were potentially noncompliant with CAS. We are engaging with the government to address their questions, and are preparing our formal response, which we believe demonstrates the appropriateness of the assumptions used. However, the sensitivity to changes in interest rate assumptions makes it reasonably possible the outcome of this matter could have a material adverse effect on our financial position, results of operations and/or cash flows, although we are not currently able to estimate a range of any potential loss. Environmental Matters
i The
table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S. government contracts as of June 30, 2020 and December 31, 2019: |
| | | | | | | | | | | | |
$
in millions | | Accrued Costs(1)(2) | | Reasonably Possible Future Costs in Excess of Accrued Costs(2) | | Deferred Costs(3) |
| | $ | i 570 |
| | $ | i 452 |
| | $ | i 478 |
|
| | i 531 |
| | i 448 |
| | i 436 |
|
(1)
As of June 30, 2020, $ i 173 million is recorded in Other current liabilities and $ i 397
million is recorded in Other non-current liabilities. (2) Estimated remediation costs are not discounted to present value. The reasonably possible future costs in excess of accrued costs do not take into consideration amounts expected to be recoverable through overhead charges on U.S. government contracts. (3) As of June 30, 2020, $ i 144
million is deferred in Prepaid expenses and other current assets and $ i 334 million is deferred in Other non-current assets. These amounts are evaluated for recoverability on a routine basis. / Although management cannot predict
whether new information gained as our environmental remediation projects progress, or as changes in facts and circumstances occur, will materially affect the estimated liability accrued, except with respect to Bethpage, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2020, or its annual results of operations and/or cash flows. With respect to Bethpage, the State of New York issued a Feasibility Study and an Amended Record of Decision, proposing to impose additional remedial requirements. The company is engaged in discussions with the State of New York and other potentially
NORTHROP GRUMMAN CORPORATION
responsible parties. As discussed in Note 5, the remediation standards or requirements to which we are subject are being reconsidered and are changing and costs may increase materially.
Financial Arrangements
In the ordinary course of business, the
company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At June 30, 2020, there were $ i 460 million of stand-by letters of credit and guarantees and $ i 79
million of surety bonds outstanding. Commercial Paper
The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $ i 2.0 billion. At June 30,
2020, there were i no commercial paper borrowings outstanding. Credit Facilities
The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $ i 2.0
billion (the “2018 Credit Agreement”) that matures in August 2024 and is intended to support the company’s commercial paper program and other general corporate purposes. Commercial paper borrowings reduce the amount available for borrowing under the 2018 Credit Agreement. At June 30, 2020, there was i no balance
outstanding under this facility. In December 2016, a subsidiary of the company entered into a two-year credit facility, with two additional one-year option periods, in an aggregate principal amount of £ i 120 million (the equivalent of approximately $ i 148
million as of June 30, 2020) (the “2016 Credit Agreement”). The company exercised the second option to extend the maturity to December 2020. The 2016 Credit Agreement is guaranteed by the company. At June 30, 2020, there was £ i 50
million (the equivalent of approximately $ i 62 million) outstanding under this facility, which bears interest at a rate of LIBOR plus i 1.10
percent. All of the borrowings outstanding under this facility are recorded in Other current liabilities in the unaudited condensed consolidated statement of financial position. 7. i RETIREMENT
BENEFITS
i The cost to the company of its pension and other postretirement benefit (OPB) plans is shown in the following table: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three
Months Ended June 30 | | Six Months Ended June 30 |
| Pension
Benefits | | OPB | | Pension
Benefits | | OPB |
$ in millions | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Components
of net periodic benefit cost (benefit) | | | | | | | | | | | | | | | |
Service
cost | $ | i 102 |
| | $ | i 92 |
| | $ | i 5 |
| | $ | i 4 |
| | $ | i 204 |
| | $ | i 184 |
| | $ | i 9 |
| | $ | i 8 |
|
Interest
cost | i 306 |
| | i 340 |
| | i 16 |
| | i 20 |
| | i 613 |
| | i 680 |
| | i 33 |
| | i 40 |
|
Expected
return on plan assets | ( i 594 | ) | | ( i 526 | ) | | ( i 25 | ) | | ( i 23 | ) | | ( i 1,188 | ) | | ( i 1,051 | ) | | ( i 51 | ) | | ( i 46 | ) |
Amortization
of prior service credit | ( i 15 | ) | | ( i 14 | ) | | i 1 |
| | i — |
| | ( i 30 | ) | | ( i 29 | ) | | i 2 |
| | ( i 1 | ) |
Net
periodic benefit cost (benefit) | $ | ( i 201 | ) | | $ | ( i 108 | ) | | $ | ( i 3 | ) | | $ | i 1 |
| | $ | ( i 401 | ) | | $ | ( i 216 | ) | | $ | ( i 7 | ) | | $ | i 1 |
|
/ Employer
Contributions
The company sponsors defined benefit pension and OPB plans, as well as defined contribution plans. i 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. i Contributions
made by the company to its retirement plans are as follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
$ in millions | 2020 | | 2019 | | 2020 | | 2019 |
Defined
benefit pension plans | $ | i 26 |
| | $ | i 23 |
| | $ | i 46 |
| | $ | i 46 |
|
OPB
plans | i 11 |
| | i 12 |
| | i 23 |
| | i 24 |
|
Defined
contribution plans | i 100 |
| | i 88 |
| | i 356 |
| | i 279 |
|
/
NORTHROP GRUMMAN CORPORATION
8. i STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS
Stock Awards
i The
following table presents the number of restricted stock rights (RSRs) and restricted performance stock rights (RPSRs) granted to employees under the company’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented: |
| | | | | | | | |
| | Six Months Ended June 30 |
in millions | | 2020 | | 2019 |
RSRs
granted | | i 0.1 |
| | i 0.1 |
|
RPSRs
granted | | i 0.2 |
| | i 0.2 |
|
Grant
date aggregate fair value | | $ | i 91 |
| | $ | i 92 |
|
/ RSRs
typically vest on the third anniversary of the grant date, while RPSRs generally vest and pay out based on the achievement of financial metrics over a three-year period.
Cash Awards
i The following table presents the minimum and maximum aggregate payout amounts related to cash units (CUs) and cash performance units (CPUs) granted to employees in the periods presented: |
| | | | | | | | |
| | Six
Months Ended June 30 |
$ in millions | | 2020 | | 2019 |
Minimum aggregate payout amount | | $ | i 31 |
| | $ | i 36 |
|
Maximum
aggregate payout amount | | i 175 |
| | i 203 |
|
/ CUs
typically vest and settle in cash on the third anniversary of the grant date, while CPUs generally vest and pay out in cash based on the achievement of financial metrics over a three-year period.
NORTHROP GRUMMAN CORPORATION
9. i SEGMENT
INFORMATION
Effective January 1, 2020, the company reorganized its operating sectors to better align the company’s broad portfolio to serve its customers’ needs. The i four new sectors, which also comprise our reportable segments,
are Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. As discussed in Note 1, beginning in the second quarter of 2020, the company no longer considers certain unallowable costs as part of management’s evaluation of segment operating performance. As a result, certain unallowable costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. This change has been applied retrospectively in the amounts below. See Part II, Item 5 for further information regarding the impact of this change on the company’s current and prior period segment information. i The
following table presents sales and operating income by segment: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
$ in millions | 2020 | | 2019 | | 2020 | | 2019 |
Sales | | | | | | | |
Aeronautics
Systems | $ | i 2,925 |
| | $ | i 2,721 |
| | $ | i 5,768 |
| | $ | i 5,539 |
|
Defense
Systems | i 1,886 |
| | i 1,916 |
| | i 3,767 |
| | i 3,684 |
|
Mission
Systems | i 2,446 |
| | i 2,404 |
| | i 4,793 |
| | i 4,614 |
|
Space
Systems | i 2,048 |
| | i 1,788 |
| | i 3,996 |
| | i 3,589 |
|
Intersegment
eliminations | ( i 421 | ) | | ( i 373 | ) | | ( i 820 | ) | | ( i 781 | ) |
Total
sales | i 8,884 |
| | i 8,456 |
| | i 17,504 |
| | i 16,645 |
|
Operating
income | | | | | | | |
Aeronautics Systems | i 310 |
| | i 299 |
| | i 573 |
| | i 610 |
|
Defense
Systems | i 217 |
| | i 212 |
| | i 415 |
| | i 416 |
|
Mission
Systems | i 347 |
| | i 338 |
| | i 700 |
| | i 661 |
|
Space
Systems | i 209 |
| | i 193 |
| | i 411 |
| | i 383 |
|
Intersegment
eliminations | ( i 52 | ) | | ( i 49 | ) | | ( i 101 | ) | | ( i 99 | ) |
Total
segment operating income | i 1,031 |
|
| i 993 |
| | i 1,998 |
| | i 1,971 |
|
Net
FAS (service)/CAS pension adjustment | i 103 |
| | i 107 |
| | i 208 |
| | i 215 |
|
Unallocated
corporate expense | ( i 140 | ) | | ( i 154 | ) | | ( i 278 | ) | | ( i 304 | ) |
Total
operating income | $ | i 994 |
| | $ | i 946 |
| | $ | i 1,928 |
| | $ | i 1,882 |
|
/ Net
FAS (Service)/CAS Pension Adjustment
For financial statement purposes, we account for our employee pension plans in accordance with FAS. However, the cost of these plans is charged to our contracts in accordance with the Federal Acquisition Regulation (FAR) and the related U.S. Government Cost Accounting Standards (CAS). The net FAS (service)/CAS pension adjustment reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income. Unallocated Corporate Expense
Unallocated corporate expense includes the portion of corporate costs not considered allowable or allocable under applicable CAS or
FAR, and therefore not allocated to the segments, such as a portion of management and administration, legal, environmental, compensation, retiree benefits, advertising and other corporate unallowable costs. Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations, as well as certain compensation and other costs.
NORTHROP
GRUMMAN CORPORATION
Disaggregation of Revenue
i |
| | | | | | | | | | | | | | | | | | | | | | | |
Sales
by Customer Type | Three Months Ended June 30 | | Six Months Ended June 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
$ in millions | $ | %(3) | | $ | %(3) | | $ | %(3) | | $ | %(3) |
Aeronautics
Systems | | | | | | | | | | | |
U.S. government(1) | $ | i 2,477 |
| i 85 | % | | $ | i 2,238 |
| i 82 | % | | $ | i 4,838 |
| i 84 | % | | $ | i 4,572 |
| i 82 | % |
International(2) | i 407 |
| i 14 | % | | i 439 |
| i 16 | % | | i 851 |
| i 15 | % | | i 874 |
| i 16 | % |
Other
customers | i 12 |
| i — | % | | i 20 |
| i 1 | % | | i 24 |
| i — | % | | i 45 |
| i 1 | % |
Intersegment
sales | i 29 |
| i 1 | % | | i 24 |
| i 1 | % | | i 55 |
| i 1 | % | | i 48 |
| i 1 | % |
Aeronautics
Systems sales | i 2,925 |
| i 100 | % | | i 2,721 |
| i 100 | % | | i 5,768 |
| i 100 | % | | i 5,539 |
| i 100 | % |
Defense
Systems | | | | | | | | | | | |
U.S. government(1) | i 1,305 |
| i 69 | % | | i 1,281 |
| i 67 | % | | i 2,564 |
| i 68 | % | | i 2,422 |
| i 66 | % |
International(2) | i 316 |
| i 17 | % | | i 365 |
| i 19 | % | | i 656 |
| i 18 | % | | i 728 |
| i 20 | % |
Other
customers | i 85 |
| i 4 | % | | i 106 |
| i 5 | % | | i 196 |
| i 5 | % | | i 203 |
| i 5 | % |
Intersegment
sales | i 180 |
| i 10 | % | | i 164 |
| i 9 | % | | i 351 |
| i 9 | % | | i 331 |
| i 9 | % |
Defense
Systems sales | i 1,886 |
| i 100 | % | | i 1,916 |
| i 100 | % | | i 3,767 |
| i 100 | % | | i 3,684 |
| i 100 | % |
Mission
Systems | | | | | | | | | | | |
U.S. government(1) | i 1,776 |
| i 73 | % | | i 1,746 |
| i 73 | % | | i 3,447 |
| i 72 | % | | i 3,359 |
| i 73 | % |
International(2) | i 468 |
| i 19 | % | | i 465 |
| i 19 | % | | i 951 |
| i 20 | % | | i 841 |
| i 18 | % |
Other
customers | i 18 |
| i 1 | % | | i 29 |
| i 1 | % | | i 35 |
| i 1 | % | | i 53 |
| i 1 | % |
Intersegment
sales | i 184 |
| i 7 | % | | i 164 |
| i 7 | % | | i 360 |
| i 7 | % | | i 361 |
| i 8 | % |
Mission
Systems sales | i 2,446 |
| i 100 | % | | i 2,404 |
| i 100 | % | | i 4,793 |
| i 100 | % | | i 4,614 |
| i 100 | % |
Space
Systems | | | | | | | | | | | |
U.S. government(1) | i 1,911 |
| i 93 | % | | i 1,679 |
| i 94 | % | | i 3,714 |
| i 93 | % | | i 3,348 |
| i 93 | % |
International(2) | i 70 |
| i 4 | % | | i 32 |
| i 2 | % | | i 138 |
| i 3 | % | | i 75 |
| i 2 | % |
Other
customers | i 39 |
| i 2 | % | | i 56 |
| i 3 | % | | i 90 |
| i 3 | % | | i 125 |
| i 4 | % |
Intersegment
sales | i 28 |
| i 1 | % | | i 21 |
| i 1 | % | | i 54 |
| i 1 | % | | i 41 |
| i 1 | % |
Space
Systems sales | i 2,048 |
| i 100 | % | | i 1,788 |
| i 100 | % | | i 3,996 |
| i 100 | % | | i 3,589 |
| i 100 | % |
Total | | | | | | | | | | | |
U.S.
government(1) | i 7,469 |
| i 84 | % | | i 6,944 |
| i 82 | % | | i 14,563 |
| i 83 | % | | i 13,701 |
| i 82 | % |
International(2) | i 1,261 |
| i 14 | % | | i 1,301 |
| i 16 | % | | i 2,596 |
| i 15 | % | | i 2,518 |
| i 15 | % |
Other
customers | i 154 |
| i 2 | % | | i 211 |
| i 2 | % | | i 345 |
| i 2 | % | | i 426 |
| i 3 | % |
Total
Sales | $ | i 8,884 |
| i 100 | % | | $ | i 8,456 |
| i 100 | % | | $ | i 17,504 |
| i 100 | % | | $ | i 16,645 |
| i 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.
/
NORTHROP GRUMMAN CORPORATION
i |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
$
in millions | $ | %(1) | | $ | %(1) | | $ | %(1) | | $ | %(1) |
Aeronautics
Systems | |
| |
| | |
| |
| | |
| |
| | |
| |
|
Cost-type | $ | i 1,426 |
| i 49 | % | | $ | i 1,312 |
| i 49 | % | | $ | i 2,769 |
| i 48 | % | | $ | i 2,624 |
| i 48 | % |
Fixed-price | i 1,470 |
| i 51 | % | | i 1,385 |
| i 51 | % | | i 2,944 |
| i 52 | % | | i 2,867 |
| i 52 | % |
Intersegment
sales | i 29 |
| | | i 24 |
| | | i 55 |
| | | i 48 |
| |
Aeronautics
Systems sales | i 2,925 |
| | | i 2,721 |
| | | i 5,768 |
| | | i 5,539 |
| |
Defense
Systems | | | | | | | | | | | |
Cost-type | i 582 |
| i 34 | % | | i 632 |
| i 36 | % | | i 1,210 |
| i 35 | % | | i 1,255 |
| i 37 | % |
Fixed-price | i 1,124 |
| i 66 | % | | i 1,120 |
| i 64 | % | | i 2,206 |
| i 65 | % | | i 2,098 |
| i 63 | % |
Intersegment
sales | i 180 |
| | | i 164 |
| | | i 351 |
| | | i 331 |
| |
Defense
Systems sales | i 1,886 |
| | | i 1,916 |
| | | i 3,767 |
| | | i 3,684 |
| |
Mission
Systems | | | | | | | | | | | |
Cost-type | i 895 |
| i 40 | % | | i 870 |
| i 39 | % | | i 1,741 |
| i 39 | % | | i 1,705 |
| i 40 | % |
Fixed-price | i 1,367 |
| i 60 | % | | i 1,370 |
| i 61 | % | | i 2,692 |
| i 61 | % | | i 2,548 |
| i 60 | % |
Intersegment
sales | i 184 |
| | | i 164 |
| | | i 360 |
| | | i 361 |
| |
Mission
Systems sales | i 2,446 |
| | | i 2,404 |
| | | i 4,793 |
| | | i 4,614 |
| |
Space
Systems | | | | | | | | | | | |
Cost-type | i 1,468 |
| i 73 | % | | i 1,298 |
| i 73 | % | | i 2,866 |
| i 73 | % | | i 2,604 |
| i 73 | % |
Fixed-price | i 552 |
| i 27 | % | | i 469 |
| i 27 | % | | i 1,076 |
| i 27 | % | | i 944 |
| i 27 | % |
Intersegment
sales | i 28 |
| | | i 21 |
| | | i 54 |
| | | i 41 |
| |
Space
Systems sales | i 2,048 |
| | | i 1,788 |
| | | i 3,996 |
| | | i 3,589 |
| |
Total | | | | | | | | | | | |
Cost-type | i 4,371 |
| i 49 | % | | i 4,112 |
| i 49 | % | | i 8,586 |
| i 49 | % | | i 8,188 |
| i 49 | % |
Fixed-price | i 4,513 |
| i 51 | % | | i 4,344 |
| i 51 | % | | i 8,918 |
| i 51 | % | | i 8,457 |
| i 51 | % |
Total
Sales | $ | i 8,884 |
| | | $ | i 8,456 |
| | | $ | i 17,504 |
| | | $ | i 16,645 |
| |
| |
(1) | Percentages
calculated based on external customer sales. |
NORTHROP GRUMMAN CORPORATION
i |
| | | | | | | | | | | | | | | | | | | | | | | |
Sales
by Geographic Region | Three Months Ended June 30 | | Six Months Ended June 30 |
| 2020 | 2019 | | 2020 | | 2019 |
$ in millions | $ | %(2) | | $ | %(2) | | $ | %(2) | | $ | %(2) |
Aeronautics
Systems | | | | | | | | | | | |
United States | $ | i 2,489 |
| i 86 | % | | $ | i 2,258 |
| i 84 | % | | $ | i 4,862 |
| i 85 | % | | $ | i 4,617 |
| i 84 | % |
Asia/Pacific | i 202 |
| i 7 | % | | i 215 |
| i 8 | % | | i 409 |
| i 7 | % | | i 448 |
| i 8 | % |
All
other(1) | i 205 |
| i 7 | % | | i 224 |
| i 8 | % | | i 442 |
| i 8 | % | | i 426 |
| i 8 | % |
Intersegment
sales | i 29 |
| | | i 24 |
| | | i 55 |
| | | i 48 |
| |
Aeronautics
Systems sales | i 2,925 |
| | | i 2,721 |
| | | i 5,768 |
| | | i 5,539 |
| |
Defense
Systems | | | | | | | | | | | |
United States | i 1,390 |
| i 82 | % | | i 1,387 |
| i 79 | % | | i 2,760 |
| i 81 | % | | i 2,625 |
| i 78 | % |
Asia/Pacific | i 107 |
| i 6 | % | | i 125 |
| i 7 | % | | i 189 |
| i 5 | % | | i 213 |
| i 6 | % |
All
other(1) | i 209 |
| i 12 | % | | i 240 |
| i 14 | % | | i 467 |
| i 14 | % | | i 515 |
| i 16 | % |
Intersegment
sales | i 180 |
| | | i 164 |
| | | i 351 |
| | | i 331 |
| |
Defense
Systems sales | i 1,886 |
| | | i 1,916 |
| | | i 3,767 |
| | | i 3,684 |
| |
Mission
Systems | | | | | | | | | | | |
United States | i 1,794 |
| i 79 | % | | i 1,775 |
| i 79 | % | | i 3,482 |
| i 79 | % | | i 3,412 |
| i 80 | % |
Asia/Pacific | i 191 |
| i 9 | % | | i 142 |
| i 6 | % | | i 367 |
| i 8 | % | | i 277 |
| i 7 | % |
All
other(1) | i 277 |
| i 12 | % | | i 323 |
| i 15 | % | | i 584 |
| i 13 | % | | i 564 |
| i 13 | % |
Intersegment
sales | i 184 |
| | | i 164 |
| | | i 360 |
| | | i 361 |
| |
Mission
Systems sales | i 2,446 |
| | | i 2,404 |
| | | i 4,793 |
| | | i 4,614 |
| |
Space
Systems | | | | | | | | | | | |
United States | i 1,950 |
| i 97 | % | | i 1,735 |
| i 98 | % | | i 3,804 |
| i 97 | % | | i 3,473 |
| i 98 | % |
Asia/Pacific | i 5 |
| i — | % | | i 2 |
| i — | % | | i 10 |
| i — | % | | i 14 |
| i — | % |
All
other(1) | i 65 |
| i 3 | % | | i 30 |
| i 2 | % | | i 128 |
| i 3 | % | | i 61 |
| i 2 | % |
Intersegment
sales | i 28 |
| | | i 21 |
| | | i 54 |
| | | i 41 |
| |
Space
Systems sales | i 2,048 |
| | | i 1,788 |
| | | i 3,996 |
| | | i 3,589 |
| |
Total | | | | | | | | | | | |
United
States | i 7,623 |
| i 86 | % | | i 7,155 |
| i 84 | % | | i 14,908 |
| i 85 | % | | i 14,127 |
| i 85 | % |
Asia/Pacific | i 505 |
| i 6 | % | | i 484 |
| i 6 | % | | i 975 |
| i 6 | % | | i 952 |
| i 6 | % |
All
other(1) | i 756 |
| i 8 | % | | i 817 |
| i 10 | % | | i 1,621 |
| i 9 | % | | i 1,566 |
| i 9 | % |
Total
Sales | $ | i 8,884 |
| | | $ | i 8,456 |
| | | $ | i 17,504 |
| | | $ | i 16,645 |
| |
| |
(1) | All
other is principally comprised of Europe and the Middle East. |
/ | |
(2) | Percentages calculated based on external customer sales. |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Northrop Grumman Corporation
Falls Church, Virginia
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of June 30, 2020, and the related condensed consolidated statements of earnings and comprehensive income and changes in shareholders’ equity for the three-month
and six-month periods ended June 30, 2020 and 2019, and of cash flows for the six-month periods ended June 30, 2020 and 2019, and the related notes (collectively referred to as the “interim financial information”). Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America. We
have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries as of December 31, 2019, and the related consolidated statements of earnings and comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated January 29, 2020, we expressed an unqualified opinion on those consolidated financial statements, which included an explanatory paragraph regarding the Company’s change in its method of accounting for leases
in 2019 due to the adoption of ASC 842, Leases. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2019, is fairly stated, in all material respects, in relation to the audited consolidated statement of financial position from which it has been derived. Basis for Review Results
This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
McLean, Virginia
NORTHROP GRUMMAN CORPORATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Northrop
Grumman Corporation (herein referred to as “Northrop Grumman,” the “company,” “we,” “us,” or “our”) is a leading global aerospace and defense company. We use our broad portfolio of capabilities and technologies to create and deliver innovative platforms, systems and solutions in space; manned and autonomous airborne systems, including strike; hypersonics; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); and logistics and modernization. We participate in many high-priority defense and government programs in the United States (U.S.) and abroad. We conduct most of our business with the U.S. government, principally the Department of Defense (DoD) and intelligence community. We also conduct business with foreign, state and local governments, as well as commercial customers.
The following discussion should be read along with the financial
statements included in this Form 10-Q, as well as our 2019 Annual Report on Form 10-K, the Form 8-K that we filed with the SEC on April 29, 2020, which recasts the disclosures in certain portions of the 2019 Annual Report on Form 10-K to reflect changes in the company’s reportable segments, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. These documents provide additional information on our business and the environment in which we operate and our operating results. COVID-19
Coronavirus disease 2019 (“COVID-19”) was first reported in late 2019 and has since dramatically impacted
the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, government challenges and market volatility. In March 2020, the World Health Organization characterized COVID-19 as a global pandemic, and the President declared a national emergency concerning the COVID-19 outbreak. The company’s leadership, our crisis management and business resumption teams, and local site leadership continue closely to monitor and address the developments, including the impact on our company, our employees, our customers, our suppliers and our communities. The company has considered and continues to consider guidance from the Centers for Disease Control (CDC), other health organizations,
governments and our customers, among others. We have taken, and continue to take, robust actions to help protect the health, safety and well-being of our employees, to support our suppliers and local communities, and to continue to serve our customers. Our goals have been to lessen the immediate potential adverse impacts, both health and economic, and to continue to position the company for long-term success. Like the communities in which we serve, our actions have varied depending on the spread of COVID-19 and local health requirements, the needs of our employees and the needs of our business. Among other actions, we have required or enabled employees to work from home or remotely where practicable, and expanded IT and communication support to enhance their productivity; adjusted work spaces and shift schedules to facilitate social distancing for those who continue to work in our
facilities; enhanced cleaning and disinfecting procedures at our facilities; required face coverings and worked to procure and distribute personal protective equipment (“PPE”); implemented health checks and visitor protocols; restricted travel; provided additional benefits including paid time off for those most at risk; and contributed financial and manufacturing resources to supporting critical national requirements, such as for PPE. Along with the Northrop Grumman Foundation, we have provided grants for global, national and local organizations that support frontline healthcare workers, address food insecurity, advance efforts for vaccines, increase student access to technology and provide support to vulnerable populations; donated PPE items to emergency response teams and healthcare professionals, including N95 masks and Tyvek suits; and established a COVID-19 relief matching gift program for employees. Earlier in
the COVID-19 pandemic, many state and local jurisdictions implemented mandatory stay-at-home or shelter-in-place orders. Most of those orders exempted some or all of the defense industrial base, including Northrop Grumman and many of our suppliers, as part of the essential or critical infrastructure. Our facilities have largely remained open and many of our employees who cannot work remotely are continuing to come to work and support our customers’ national security and mission-essential operations. More recently, state and local jurisdictions started to lift mandatory stay-at-home or shelter-in-place orders and started gradually to ease restrictions. We started to implement return to office plans to allow some employees who had been working remotely slowly to return to the workplace. At our facilities, we generally saw employee absenteeism decrease and productivity increase during the second quarter. Most recently, as cases have resurged in parts of our country, including
areas in which we maintain large facilities, we have seen governments slow or reverse efforts to reopen or shift into later phases of recovery, with increased risks to our operations. Throughout, we have worked to adapt and to take robust actions to protect the health, safety and well-being of our employees and to serve our customers, considering, among other things, state and local requirements and guidance from the CDC. We have also taken various steps in efforts to support our
NORTHROP GRUMMAN CORPORATION
suppliers,
with a particular focus on critical small and midsized business partners, including passing through increased progress payments from DoD to our suppliers and accelerating payments to certain suppliers.
Even though we have been able to continue many of our operations, we have experienced and expect to continue to experience certain increased costs to maintain our operations and address reductions in productivity, including as a result of actions to protect health; because of illness, quarantines, and absenteeism; as a result of government actions; and because of disruption and stress among our suppliers and customers. We continue to monitor this situation closely and cannot predict how it will change, including the extent of any increase in the number of COVID-19 cases and the costs and impacts to us. Our customers have generally continued to make timely payments, and we are working with them to consider the possibility of additional
cost recoveries. Again, however, our customers are facing tremendous demands and we cannot predict how this may change and how they will continue to allocate resources.
COVID-19-related impacts reduced the company’s second quarter 2020 revenue and operating income, in particular at Aeronautics and Mission Systems; however, those impacts were less significant than we initially expected. Based on what we understand today, we do not currently expect COVID-19-related impacts to materially reduce our revenue or operating income during the second half of the year. However, our employees, suppliers and customers, the company and our global community are facing tremendous challenges and we cannot predict how this dynamic situation will evolve or the impact it
will have on the company. For further information on the potential impact to the company of COVID-19, see the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. U.S. Political and Economic Environment
Since the filing of our 2019 Annual Report on Form 10-K, the President released his budget request for fiscal year 2021 (FY21) on February 10, 2020. The FY21 budget request includes $746 billion for national security, which will be the subject of debate in Congress. The FY21 budget request addresses various capabilities highlighted
in the U.S. National Security Strategy, the National Defense Strategy and the Missile Defense Review. We believe our capabilities, particularly in space, missiles, missile defense, hypersonics, counter-hypersonics, survivable aircraft and mission systems will continue to allow for long-term profitable growth in our business in support of our customers’ needs. Congress has enacted emergency COVID-19 relief bills addressing certain impacts of the pandemic and is continuing to consider other responses to the COVID-19 crisis. CONSOLIDATED OPERATING RESULTS
Selected financial highlights are presented in the table below:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three
Months Ended June 30 | | % | | Six Months Ended June 30 | | % |
$ in millions, except per share amounts | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Sales | $ | 8,884 |
| | $ | 8,456 |
| | 5 | % | | $ | 17,504 |
| | $ | 16,645 |
| | 5 | % |
Operating
costs and expenses | 7,890 |
| | 7,510 |
| | 5 | % | | 15,576 |
| | 14,763 |
| | 6 | % |
Operating
costs and expenses as a % of sales | 88.8 | % | | 88.8 | % | | | | 89.0 | % | | 88.7 | % | | |
Operating
income | 994 |
| | 946 |
| | 5 | % | | 1,928 |
| | 1,882 |
| | 2 | % |
Operating
margin rate | 11.2 | % | | 11.2 | % | | | | 11.0 | % | | 11.3 | % | | |
Federal
and foreign income tax expense | 198 |
| | 167 |
| | 19 | % | | 383 |
| | 338 |
| | 13 | % |
Effective
income tax rate | 16.5 | % | | 16.2 | % | | | | 17.0 | % | | 16.4 | % | | |
Net
earnings | 1,005 |
| | 861 |
| | 17 | % | | 1,873 |
| | 1,724 |
| | 9 | % |
Diluted
earnings per share | $ | 6.01 |
| | $ | 5.06 |
| | 19 | % | | $ | 11.16 |
| | $ | 10.11 |
| | 10 | % |
Sales
Current Quarter
Second quarter 2020 sales increased $428 million or 5 percent, primarily due to higher sales at Space Systems and Aeronautics Systems.
Year to Date
Year to date 2020 sales increased $859 million, or 5 percent, due to higher sales at all four sectors.
NORTHROP GRUMMAN CORPORATION
See “Segment Operating Results” below for further information by segment and “Product and Service Analysis” for product and service detail. See Note 9 to the financial statements for information regarding the company’s sales by customer type, contract type and geographic region for each of our segments. Operating Income and Margin Rate
Current Quarter
Second
quarter 2020 operating income increased $48 million, or 5 percent, primarily due to an increase in segment operating income and lower unallocated corporate expense. Second quarter 2020 operating margin rate of 11.2 percent was comparable to the prior year period.
Second quarter 2020 general and administrative (G&A) costs as a percentage of sales of 9.4 percent was comparable to the prior year period.
Year to Date
Year to date 2020 operating income increased
$46 million, or 2 percent, primarily due to an increase in segment operating income and lower unallocated corporate expense. Year to date 2020 operating margin rate declined to 11.0 percent reflecting a lower segment operating margin rate, partially offset by a decrease in unallocated corporate expense.
Year to date 2020 general and administrative (G&A) costs as a percentage of sales of 9.3 percent was comparable to the prior year period.
See “Segment Operating Results” below for further information by segment. For information
regarding product and service operating costs and expenses, see “Product and Service Analysis” below.
Federal and Foreign Income Taxes
Current Quarter
The second quarter 2020 effective tax rate of 16.5 percent was generally comparable to the prior year period. See Note 3 to the financial statements for additional information.
Year to Date
The year to date 2020 effective tax rate increased to 17.0 percent from 16.4 percent
in the prior period primarily due to an increase in reserves for uncertain tax positions. See Note 3 to the financial statements for additional information.
Net Earnings
Current Quarter
Second quarter 2020 net earnings increased $144 million, or 17 percent, primarily due to a $103 million increase in our FAS (non-service) pension benefit, a $48 million increase in operating income and a $41 million increase in Other, net, largely
due to higher returns on marketable securities related to our non-qualified benefit plans, partially offset by a $31 million increase in tax expense.
Year to Date
Year to date 2020 net earnings increased $149 million, or 9 percent, primarily due to a $205 million increase in our FAS (non-service) pension benefit and a $46 million increase in operating income, partially offset by a $53 million decrease in Other, net, largely due to lower returns on marketable securities related
to our non-qualified benefit plans, and a $45 million increase in tax expense.
Diluted Earnings Per Share
Current Quarter
Second quarter 2020 diluted earnings per share increased 19 percent, reflecting a 17 percent increase in net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.
Year to Date
Year to date 2020 diluted earnings per share increased 10 percent,
reflecting a 9 percent increase in net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.
SEGMENT OPERATING RESULTS
Basis of Presentation
Effective January 1, 2020, the company reorganized its operating sectors to better align the company’s broad portfolio to serve its customers’ needs. The four new
sectors, which also comprise our reportable segments, are Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. This realignment is reflected in the accompanying financial information.
NORTHROP GRUMMAN CORPORATION
Beginning in the second quarter of 2020, the company no longer considers certain unallowable costs as part of management’s evaluation of segment
operating performance. As a result, certain unallowable costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. This change has been applied retrospectively in the accompanying financial information. See Notes 1 and 9 to the financial statements and Part II, Item 5 for further information regarding the impact of this change on the company’s current and prior period segment information. We present our sectors in the following business areas, which are reported in a manner reflecting core capabilities: |
| | | | | | |
Aeronautics
Systems | | Defense Systems | | Mission Systems | | Space Systems |
Autonomous Systems | | Battle Management & Missile Systems | | Airborne Sensors & Networks | | Launch
& Strategic Missiles |
Manned Aircraft | | Mission Readiness | | Cyber & Intelligence Mission Solutions | | Space |
| | | | Maritime/Land Systems & Sensors | | |
| | | | Navigation,
Targeting & Survivability | | |
This section discusses segment sales, operating income and operating margin rates. In evaluating segment operating performance, we look primarily at changes in sales and operating income. Where applicable, significant fluctuations in operating performance attributable to individual contracts or programs, or changes in a specific cost element across multiple contracts, are described in our analysis. Based on this approach and the nature of our operations, the discussion of results of operations below first focuses on our four segments before distinguishing between
products and services. Changes in sales are generally described in terms of volume, while changes in margin rates are generally described in terms of performance and/or contract mix. For purposes of this discussion, volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability. Contract mix generally refers to changes in the ratio of contract type and/or lifecycle (e.g., cost-type, fixed-price, development, production, and/or sustainment). Segment Operating Income and Margin Rate
Segment
operating income, as reconciled in the table below, and segment operating margin rate (segment operating income divided by sales) are non-GAAP (accounting principles generally accepted in the United States of America) measures that reflect total earnings from our four segments, including allocated pension expense we have recognized under the Federal Acquisition Regulation (FAR) and the related U.S. Government Cost Accounting Standards (CAS), and excluding FAS pension expense and unallocated corporate items (certain corporate-level expenses, which are not considered allowable or allocable under applicable CAS or FAR, and costs not considered part of management’s evaluation of segment operating performance). These non-GAAP measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the financial performance and operational trends of our sectors. These measures may not be defined and calculated by other companies
in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | % | | Six
Months Ended June 30 | | % |
$ in millions | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Segment
operating income | $ | 1,031 |
| | $ | 993 |
| | 4 | % | | $ | 1,998 |
| | $ | 1,971 |
| | 1 | % |
Segment
operating margin rate | 11.6 | % | | 11.7 | % | | | | 11.4 | % | | 11.8 | % | | |
CAS
pension expense | 205 |
| | 199 |
| | 3 | % | | 412 |
| | 399 |
| | 3 | % |
Less:
FAS (service) pension expense | (102 | ) | | (92 | ) | | 11 | % | | (204 | ) | | (184 | ) | | 11 | % |
Net
FAS (service)/CAS pension adjustment | 103 |
| | 107 |
| | (4 | )% | | 208 |
| | 215 |
| | (3 | )% |
Intangible
asset amortization and PP&E step-up depreciation | (77 | ) | | (98 | ) | | (21 | )% | | (159 | ) | | (194 | ) | | (18 | )% |
Other
unallocated corporate expense | (63 | ) | | (56 | ) | | 13 | % | | (119 | ) | | (110 | ) | | 8 | % |
Unallocated
corporate expense | (140 | ) | | (154 | ) | | (9 | )% | | (278 | ) | | (304 | ) | | (9 | )% |
Operating
income | $ | 994 |
| | $ | 946 |
| | 5 | % | | $ | 1,928 |
| | $ | 1,882 |
| | 2 | % |
NORTHROP GRUMMAN CORPORATION
Current Quarter
Second quarter 2020 segment operating income increased $38 million, or 4 percent, and reflects higher segment operating income at all four sectors. Segment operating margin rate was comparable to the prior year period and reflects lower segment operating margin rates at Space Systems and Aeronautics Systems, partially offset by a higher segment operating margin rate at Defense Systems.
Year to Date
Year
to date 2020 segment operating income increased $27 million, or 1 percent, and reflects higher operating income at Mission Systems and Space Systems, partially offset by lower operating income at Aeronautics Systems. Segment operating margin rate decreased to 11.4 percent primarily due to a lower segment operating margin rate at Aeronautics Systems.
Net FAS (service)/CAS Pension Adjustment
The second quarter 2020 and year to date 2020 net FAS (service)/CAS pension adjustments were comparable to
the prior year period and reflect changes in actuarial assumptions as of December 31, 2019. Unallocated Corporate Expense
Current Quarter
The decrease in second quarter 2020 unallocated corporate expense is primarily due to $21 million of lower intangible asset amortization and PP&E step-up depreciation.
Year to Date
The decrease in year to date 2020
unallocated corporate expense is primarily due to $35 million of lower intangible asset amortization and PP&E step-up depreciation.
Net EAC Adjustments - We record changes in estimated contract earnings at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below: |
| | | | | | | | | | | | | | | |
| Three
Months Ended June 30 | | Six Months Ended June 30 |
$ in millions | 2020 | | 2019 | | 2020 | | 2019 |
Favorable EAC adjustments | $ | 241 |
| | $ | 283 |
| | $ | 517 |
| | $ | 518 |
|
Unfavorable
EAC adjustments | (129 | ) | | (125 | ) | | (281 | ) | | (222 | ) |
Net EAC adjustments | $ | 112 |
| | $ | 158 |
| | $ | 236 |
| | $ | 296 |
|
Net
EAC adjustments by segment are presented in the table below:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
$ in millions | 2020 | | 2019 | | 2020 | | 2019 |
Aeronautics
Systems | $ | 22 |
| | $ | 59 |
| | $ | 34 |
| | $ | 110 |
|
Defense
Systems | 39 |
| | 38 |
| | 61 |
| | 70 |
|
Mission Systems | 59 |
| | 52 |
| | 138 |
| | 87 |
|
Space
Systems | (7 | ) | | 16 |
| | 5 |
| | 37 |
|
Eliminations | (1 | ) | | (7 | ) | | (2 | ) | | (8 | ) |
Net
EAC adjustments | $ | 112 |
| | $ | 158 |
| | $ | 236 |
| | $ | 296 |
|
For
purposes of the discussion in the remainder of this Segment Operating Results section, references to operating income and operating margin rate reflect segment operating income and segment operating margin rate, respectively.
NORTHROP GRUMMAN CORPORATION
|
| | | | | | | | | | | | | | | | | | | | | |
AERONAUTICS
SYSTEMS | Three Months Ended June 30 | | % | | Six Months Ended June 30 | | % |
$ in millions | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Sales | $ | 2,925 |
| | $ | 2,721 |
| | 7 | % | | $ | 5,768 |
| | $ | 5,539 |
| | 4 | % |
Operating
income | 310 |
| | 299 |
| | 4 | % | | 573 |
| | 610 |
| | (6 | )% |
Operating
margin rate | 10.6 | % | | 11.0 | % | | | | 9.9 | % | | 11.0 | % | | |
Sales
Current Quarter
Second quarter 2020 sales increased $204 million, or 7 percent, due to higher sales in both Manned Aircraft and Autonomous Systems. Higher volume on restricted programs, E-2D and Triton were partially offset by a COVID-19-related slowdown of F-35 production activity.
Year to Date
Year to date 2020 sales increased $229 million, or 4 percent, due to higher sales in both Manned Aircraft and Autonomous Systems. Higher volume
on restricted programs and E-2D were partially offset by a COVID-19-related slowdown of F-35 production activity and lower volume on the B-2 Defensive Management System Modernization program as it nears completion.
Operating Income
Current Quarter
Second quarter 2020 operating income increased $11 million, or 4 percent, primarily due to higher sales. Operating margin rate decreased to 10.6 percent from 11.0 percent, principally due to lower net favorable
EAC adjustments at Autonomous Systems as well as changes in contract mix at Manned Aircraft, partially offset by a $21 million benefit recognized in connection with the resolution of a government accounting matter. Year to Date
Year to date 2020 operating income decreased $37 million, or 6 percent, principally due to a lower operating margin rate. Operating margin rate decreased to 9.9 percent from 11.0 percent, principally due to lower net favorable EAC adjustments at Autonomous
Systems as well as changes in contract mix at Manned Aircraft. |
| | | | | | | | | | | | | | | | | | | | | |
DEFENSE SYSTEMS | Three Months Ended June 30 | | % | | Six
Months Ended June 30 | | % |
$ in millions | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Sales | $ | 1,886 |
| | $ | 1,916 |
| | (2 | )% | | $ | 3,767 |
| | $ | 3,684 |
| | 2 | % |
Operating
income | 217 |
| | 212 |
| | 2 | % | | 415 |
| | 416 |
| | — | % |
Operating
margin rate | 11.5 | % | | 11.1 | % | | | | 11.0 | % | | 11.3 | % | | |
Sales
Current Quarter
Second quarter 2020 sales decreased $30 million, or 2 percent, due to lower volume in Battle Management & Missile Systems, partially offset by higher volume on Mission Readiness programs. Battle Management & Missile Systems sales decreased principally due to lower volume on programs nearing completion, including an international weapons program and several small caliber ammunition programs, partially offset by higher volume on the Guided Multiple Launch Rocket System (GMLRS), the Advanced Anti-Radiation Guided Missile (AARGM) program and other missile products. Mission Readiness sales increased primarily due to higher restricted volume, partially offset by lower volume on the Hunter sustainment program
as it nears completion.
Year to Date
Year to date 2020 sales increased $83 million or 2 percent, due to higher sales in both Battle Management & Missile Systems and Mission Readiness. Battle Management & Missile Systems sales increased primarily due to higher volume on GMLRS, AARGM and other missile products, partially offset by lower volume on an international weapons program as it nears completion. Mission Readiness sales increased principally due to higher restricted volume, partially offset by lower volume on the Hunter sustainment program as it nears completion.
NORTHROP GRUMMAN CORPORATION
Operating Income
Current Quarter
Second quarter 2020 operating income increased $5 million, or 2 percent, primarily due to a higher operating margin rate. Operating margin rate increased to 11.5 percent from 11.1 percent primarily due to improved performance on Mission Readiness programs.
Year
to Date
Year to date 2020 operating income was comparable to the prior year period. Operating margin rate decreased to 11.0 percent from 11.3 percent primarily due to favorable adjustments on certain small caliber ammunition programs in the first quarter of 2019, partially offset by improved performance on Mission Readiness programs.
|
| | | | | | | | | | | | | | | | | | | | | |
MISSION
SYSTEMS | Three Months Ended June 30 | | % | | Six Months Ended June 30 | | % |
$ in millions | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Sales | $ | 2,446 |
| | $ | 2,404 |
| | 2 | % | | $ | 4,793 |
| | $ | 4,614 |
| | 4 | % |
Operating
income | 347 |
| | 338 |
| | 3 | % | | 700 |
| | 661 |
| | 6 | % |
Operating
margin rate | 14.2 | % | | 14.1 | % | | | | 14.6 | % | | 14.3 | % | | |
Sales
Current Quarter
Second quarter 2020 sales increased $42 million, or 2 percent, primarily due to higher volume on Airborne Sensors & Networks programs, partially offset by lower volume on Cyber & Intelligence Mission Solutions programs. Airborne Sensors & Networks sales increased primarily due to higher airborne radar volume, including on the Multi-role Electronically Scanned Array (MESA) and Scalable Agile Beam Radar (SABR) programs. Cyber & Intelligence Mission Solutions sales decreased principally due to lower volume on an intelligence program as it nears completion.
Year to Date
Year to date 2020
sales increased $179 million, or 4 percent, primarily due to higher volume on Airborne Sensors & Networks and Maritime/Land Systems & Sensors programs, partially offset by lower volume on Cyber & Intelligence Mission Solutions. Airborne Sensors & Networks sales increased principally due to higher airborne radar volume, including on the MESA, SABR and F-35 programs. Maritime/Land Systems & Sensors sales increased primarily due to higher volume on marine systems and restricted programs, partially offset by lower international volume. Cyber & Intelligence Mission Solutions sales decreased principally due to lower volume on an intelligence program as it nears completion.
Operating Income
Current Quarter
Second
quarter 2020 operating income increased $9 million, or 3 percent, principally due to higher sales. Operating margin rate was comparable to the prior year period.
Year to Date
Year to date 2020 operating income increased $39 million, or 6 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 14.6 percent from 14.3 percent
primarily due to improved performance on Airborne Sensors & Networks and Cyber & Intelligence Mission Solutions programs, partially offset by lower net favorable adjustments and changes in contract mix at Navigation, Targeting & Survivability. |
| | | | | | | | | | | | | | | | | | | | | |
SPACE SYSTEMS | Three
Months Ended June 30 | | % | | Six Months Ended June 30 | | % |
$ in millions | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Sales | $ | 2,048 |
| | $ | 1,788 |
| | 15 | % | | $ | 3,996 |
| | $ | 3,589 |
| | 11 | % |
Operating
income | 209 |
| | 193 |
| | 8 | % | | 411 |
| | 383 |
| | 7 | % |
Operating
margin rate | 10.2 | % | | 10.8 | % | | | | 10.3 | % | | 10.7 | % | | |
Sales
Current Quarter
Second quarter 2020 sales increased $260 million, or 15 percent, due to higher sales in both Space and Launch & Strategic Missiles. Space sales were driven by higher volume on restricted programs, Next Generation Overhead Persistent Infrared Radar (Next Gen OPIR) and the Arctic Satellite Broadband Mission (ASBM) program. Launch &
NORTHROP
GRUMMAN CORPORATION
Strategic Missiles sales reflect higher volume on hypersonics and launch vehicle programs, partially offset by lower volume on the Ground-based Midcourse Defense (GMD) program.
Year to Date
Year to date 2020 sales increased $407 million, or 11 percent, due to higher sales in both Space and Launch & Strategic Missiles. Space sales were driven by higher volume on restricted programs, Next Gen OPIR and ASBM. Launch & Strategic Missiles sales reflect higher volume on hypersonics programs and the Ground Based Strategic Deterrent (GBSD) Technology Maturation Risk Reduction
(TMRR) program, partially offset by lower volume on GMD.
Operating Income
Current Quarter
Second quarter 2020 operating income increased $16 million, or 8 percent, primarily due to higher sales. Operating margin rate decreased to 10.2 percent from 10.8 percent principally due to delays in production for certain commercial space components.
Year to Date
Year to date 2020 operating income increased
$28 million, or 7 percent, primarily due to higher sales. Operating margin rate decreased to 10.3 percent from 10.7 percent principally due to delays in production for certain commercial space components and the timing of favorable negotiations on certain commercial contracts recognized in the first quarter of 2019.
NORTHROP GRUMMAN CORPORATION
PRODUCT AND SERVICE ANALYSIS
The following table presents product and service sales and operating costs and expenses by segment: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three
Months Ended June 30 | | Six Months Ended June 30 |
$ in millions | 2020 | 2019 | | 2020 | 2019 |
Segment Information: | Sales | Operating Costs and Expenses | Sales | Operating
Costs and Expenses | | Sales | Operating Costs and Expenses | Sales | Operating Costs and Expenses |
Aeronautics Systems | | | | | | | | | |
Product | $ | 2,512 |
| $ | 2,247 |
| $ | 2,301 |
| $ | 2,068 |
| | $ | 4,921 |
| $ | 4,446 |
| $ | 4,706 |
| $ | 4,210 |
|
Service | 384 |
| 342 |
| 396 |
| 333 |
| | 792 |
| 700 |
| 785 |
| 676 |
|
Intersegment
eliminations | 29 |
| 26 |
| 24 |
| 21 |
| | 55 |
| 49 |
| 48 |
| 43 |
|
Total
Aeronautics Systems | 2,925 |
| 2,615 |
| 2,721 |
| 2,422 |
| | 5,768 |
| 5,195 |
| 5,539 |
| 4,929 |
|
Defense
Systems | | | | | | | | | |
Product | 753 |
| 676 |
| 697 |
| 626 |
| | 1,523 |
| 1,380 |
| 1,318 |
| 1,183 |
|
Service | 953 |
| 831 |
| 1,055 |
| 931 |
| | 1,893 |
| 1,657 |
| 2,035 |
| 1,789 |
|
Intersegment
eliminations | 180 |
| 162 |
| 164 |
| 147 |
| | 351 |
| 315 |
| 331 |
| 296 |
|
Total
Defense Systems | 1,886 |
| 1,669 |
| 1,916 |
| 1,704 |
| | 3,767 |
| 3,352 |
| 3,684 |
| 3,268 |
|
Mission
Systems | | | | | | | | | |
Product | 1,646 |
| 1,388 |
| 1,574 |
| 1,332 |
| | 3,154 |
| 2,662 |
| 2,956 |
| 2,492 |
|
Service | 616 |
| 554 |
| 666 |
| 598 |
| | 1,279 |
| 1,124 |
| 1,297 |
| 1,156 |
|
Intersegment
eliminations | 184 |
| 157 |
| 164 |
| 136 |
| | 360 |
| 307 |
| 361 |
| 305 |
|
Total
Mission Systems | 2,446 |
| 2,099 |
| 2,404 |
| 2,066 |
| | 4,793 |
| 4,093 |
| 4,614 |
| 3,953 |
|
Space
Systems | | | | | | | | | |
Product | 1,571 |
| 1,402 |
| 1,308 |
| 1,163 |
| | 3,060 |
| 2,727 |
| 2,628 |
| 2,330 |
|
Service | 449 |
| 413 |
| 459 |
| 412 |
| | 882 |
| 810 |
| 920 |
| 838 |
|
Intersegment
eliminations | 28 |
| 24 |
| 21 |
| 20 |
| | 54 |
| 48 |
| 41 |
| 38 |
|
Total
Space Systems | 2,048 |
| 1,839 |
| 1,788 |
| 1,595 |
| | 3,996 |
| 3,585 |
| 3,589 |
| 3,206 |
|
Segment
Totals | | | | | | | | | |
Total Product | $ | 6,482 |
| $ | 5,713 |
| $ | 5,880 |
| $ | 5,189 |
| | $ | 12,658 |
| $ | 11,215 |
| $ | 11,608 |
| $ | 10,215 |
|
Total
Service | 2,402 |
| 2,140 |
| 2,576 |
| 2,274 |
| | 4,846 |
| 4,291 |
| 5,037 |
| 4,459 |
|
Total
Segment(1) | $ | 8,884 |
| $ | 7,853 |
| $ | 8,456 |
| $ | 7,463 |
| | $ | 17,504 |
| $ | 15,506 |
| $ | 16,645 |
| $ | 14,674 |
|
| |
(1) | A
reconciliation of segment operating income to total operating income is included in “Segment Operating Results.” |
Product Sales and Costs
Current Quarter
Second quarter 2020 product sales increased $602 million, or 10 percent. The increase was primarily due to higher product sales on restricted programs and Next Gen OPIR at Space Systems and higher product sales on restricted programs and E-2D at Aeronautics Systems.
Second quarter 2020 product costs increased $524 million, or 10
percent, consistent with the higher product sales described above.
Year to Date
Year to date 2020 product sales increased $1.1 billion, or 9 percent, principally due to higher volume on restricted programs and Next Gen OPIR at Space Systems, restricted programs and E-2D at Aeronautics Systems, missile products at Defense Systems and airborne radar and restricted programs at Mission Systems.
Year to date 2020 product costs increased $1.0 billion, or 10 percent, consistent with the higher product sales
described above and principally reflects a lower product margin at Aeronautics Systems due to lower net favorable EAC adjustments.
NORTHROP GRUMMAN CORPORATION
Service Sales and Costs
Current Quarter
Second quarter 2020 service sales decreased $174 million, or
7 percent, primarily due to a shift toward more product content in the lifecycle of several programs at Defense Systems and completion of certain service programs at Mission Systems.
Second quarter 2020 service costs decreased $134 million, or 6 percent, consistent with the lower service sales described above.
Year to Date
Year to date 2020 service sales decreased $191 million, or 4 percent, primarily due to a shift toward more product content in the lifecycle of several programs
at Defense Systems.
Year to date 2020 service costs decreased $168 million, or 4 percent, consistent with the lower service sales described above.
BACKLOG
Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent to the company’s remaining performance obligations at the end of each period. It comprises both funded backlog (firm orders
for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time an option or IDIQ task order is exercised or awarded. Backlog is converted into sales as costs are incurred or deliveries are made. |
| | | | | | | | | | | | | | | | | | | |
| | | | | | |
$ in millions | | Funded | | Unfunded | | Total
Backlog | | Total Backlog | | %
Change in 2020 |
Aeronautics Systems | | $ | 12,163 |
| | $ | 12,556 |
| | $ | 24,719 |
| | $ | 26,021 |
| | (5 | )% |
Defense
Systems | | 6,245 |
| | 1,728 |
| | 7,973 |
| | 8,481 |
| | (6 | )% |
Mission
Systems | | 9,548 |
| | 3,997 |
| | 13,545 |
| | 14,226 |
| | (5 | )% |
Space
Systems | | 5,908 |
| | 17,903 |
| | 23,811 |
| | 16,112 |
| | 48 | % |
Total
backlog | | $ | 33,864 |
| | $ | 36,184 |
| | $ | 70,048 |
| | $ | 64,840 |
| | 8 | % |
New
Awards
Second quarter and year to date 2020 net awards totaled $14.8 billion and $22.7 billion, respectively, and backlog totaled $70.0 billion. Significant second quarter new awards include $7.4 billion for restricted programs, $1.9 billion for Next Gen OPIR, $0.5 billion for E-2D, $0.4 billion for four commercial satellites and $0.3 billion for Triton.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure efficient conversion of operating income into cash and to increase shareholder value through cash deployment activities.
In addition to our cash position, we use various financial measures to assist in capital deployment decision-making, including cash provided by operating activities and free cash flow, a non-GAAP measure described in more detail below.
At June 30, 2020, we had $4.2 billion in cash and cash equivalents. In March 2020, we issued $2.25 billion of unsecured senior notes to help preserve financial flexibility in light of uncertainty resulting from the COVID-19 pandemic. We intend to use those proceeds for general corporate purposes, which may include debt repayment and working capital. In April 2020, we entered into a one-year $500 million uncommitted credit
facility to provide an additional source of potential financing. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) established a program with provisions to allow U.S. companies to defer the employer’s portion of social security taxes between March 27, 2020 and December 31, 2020 and pay such taxes in two installments in 2021 and 2022. The CARES Act also provided for a deferral of certain estimated income tax payments by extending the deadline for amounts due in the second quarter to July 15, 2020. Under Section 3610, the CARES Act also authorized the government to reimburse qualifying contractors for certain costs of providing paid leave to employees as a result of COVID-19. The
company has begun
NORTHROP GRUMMAN CORPORATION
to seek, and anticipates continuing to seek, recovery for certain COVID-19-related costs under Section 3610 of the CARES Act and through our contract provisions. In addition, the U.S. Department of Defense (DoD) has, to date, taken steps to increase the rate for certain progress payments from 80 percent to 90 percent for costs incurred and
work performed on relevant contracts. We believe these actions should continue to mitigate some COVID-19-related negative impacts to our operating cash flows during the remainder of the year. Cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets, if needed, are expected to be sufficient to fund our operations for at least the next 12 months.
Operating Cash Flow
The table below summarizes key components of cash flow provided by operating activities:
|
| | | | | | | | | | |
| Six
Months Ended June 30 | | % |
$ in millions | 2020 | | 2019 | | Change |
Net earnings | $ | 1,873 |
| | $ | 1,724 |
| | 9 | % |
Non-cash
items(1) | 810 |
| | 709 |
| | 14 | % |
Changes in assets and liabilities: | | | | | |
Trade
working capital | (898 | ) | | (1,419 | ) | | (37 | )% |
Retiree benefits | (473 | ) | | (285 | ) | | 66 | % |
Other,
net | 32 |
| | (35 | ) | | (191 | )% |
Net cash provided by operating activities | $ | 1,344 |
| | $ | 694 |
| | 94 | % |
| |
(1) | Includes
depreciation and amortization, non-cash lease expense, stock based compensation expense and deferred income taxes. |
Year to date 2020 cash provided by operating activities increased $650 million principally due to improved trade working capital and higher net earnings. The improvement in trade working capital reflects CARES Act payroll tax deferrals and increased DoD progress payment rates, partially offset by acceleration of payments to suppliers and pass through of increased progress payments to suppliers.
Free Cash Flow
Free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided
by operating activities less capital expenditures, and may not be defined and calculated by other companies in the same manner. We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases. This non-GAAP measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP.
The table below reconciles net cash provided by operating activities to free cash flow:
|
| | | | | | | | | | |
| Six
Months Ended June 30 | | % |
$ in millions | 2020 | | 2019 | | Change |
Net cash provided by operating activities | $ | 1,344 |
| | $ | 694 |
| | 94 | % |
Less:
capital expenditures | (541 | ) | | (536 | ) | | 1 | % |
Free cash flow | $ | 803 |
| | $ | 158 |
| | 408 | % |
Year
to date 2020 free cash flow increased $645 million principally due to the increase in net cash provided by operating activities.
Investing Cash Flow
Year to date 2020 net cash used in investing activities was comparable to the prior year period.
NORTHROP
GRUMMAN CORPORATION
Financing Cash Flow
Year to date 2020 net cash provided by financing activities was $1.1 billion compared to net cash used in financing activities of $650 million in 2019, principally due to $2.2 billion of net proceeds from the issuance of long-term debt in the first quarter of 2020, partially offset by higher share repurchases.
Credit Facilities, Commercial Paper and Financial Arrangements - See Note 6 to the financial statements for further information on our credit facilities,
commercial paper and our use of standby letters of credit and guarantees.
Share Repurchases - See Note 2 to the financial statements for further information on our share repurchase programs.
Long-term Debt - See Note 4 to the financial statements for further information.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
There have been no material changes to our critical accounting policies, estimates or judgments from those discussed in our 2019 Annual Report on Form 10-K.
ACCOUNTING
STANDARDS UPDATES
See Note 1 to our financial statements for further information on accounting standards updates.
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Form 10-Q and the information we are incorporating by reference contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “anticipate,” “intend,” “may,” “could,” “should,” “plan,” “project,” “forecast,” “believe,” “estimate,” “outlook,” “trends,” “goals” and similar expressions
generally identify these forward-looking statements. Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or cash flows. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified and discussed more fully in the section entitled “Risk Factors” in our 2019 Annual Report on Form 10-K, in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March
31, 2020 and from time to time in our other filings with the Securities and Exchange Commission (SEC). These risks and uncertainties are amplified by the global COVID-19 pandemic, which has caused and will continue to cause significant challenges, instability and uncertainty. They include: | |
• | the impact of the COVID-19 outbreak or future epidemics on our business, including the potential for worker absenteeism, facility closures, work slowdowns or stoppages, supply chain disruptions, program delays, our ability to recover costs under contracts, changing government funding and acquisition priorities and processes, changing
government payment rules and practices, and potential impacts on access to capital, the markets and the fair value of our assets; |
| |
• | our dependence on the U.S. government for a substantial portion of our business |
| |
• | significant delays or reductions in appropriations for our programs, and U.S. government funding and program support more broadly |
| |
• | investigations,
claims, disputes, enforcement actions, litigation and/or other legal proceedings |
| |
• | the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs |
| |
• | our
exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulations |
| |
• | the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation and our ability to do business |
| |
• | cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners |
NORTHROP GRUMMAN CORPORATION
| |
• | the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials and components |
| |
• | changes in procurement and other laws, regulations, contract terms and practices applicable to our industry, findings by
the U.S. government as to our compliance with such requirements, and changes in our customers’ business practices globally |
| |
• | increased competition within our markets and bid protests |
| |
• | the ability to maintain a qualified workforce with the required security clearances and requisite skills |
| |
• | our
ability to meet performance obligations under our contracts, including obligations that require innovative design capabilities, are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control |
| |
• | environmental matters, including unforeseen environmental costs and government and third party claims |
| |
• | health
epidemics, pandemics and similar outbreaks, including the global COVID-19 pandemic |
| |
• | the adequacy and availability of our insurance coverage, customer indemnifications or other liability protections |
| |
• | products and services we provide related to hazardous and high risk operations, including the production and use of such products, which subject us to various environmental, regulatory, financial, reputational and other risks |
| |
• | the
future investment performance of plan assets, changes in actuarial assumptions associated with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our pension and postretirement benefit obligations |
| |
• | our ability appropriately to exploit and/or protect intellectual property rights |
| |
• | our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers |
| |
• | unanticipated
changes in our tax provisions or exposure to additional tax liabilities |
| |
• | changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets |
You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this report is first filed or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law. CONTRACTUAL OBLIGATIONS
Other than the debt issuance, including associated interest, described in Note 4 of Part I, Item 1, there have been no material changes to our contractual obligations from those discussed in our 2019 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes
to our market risks from those discussed in our 2019 Annual Report on Form 10-K.
Item 4. Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer (Chairman, Chief Executive Officer and President) and principal financial officer (Corporate Vice President and Chief Financial Officer) have evaluated the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) as of June 30,
2020, and have concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
NORTHROP GRUMMAN CORPORATION
information
required to be disclosed in the reports that we file or submit is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended June 30, 2020, no changes occurred in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 5 and 6 to the financial statements.
We are a party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course
of our business. These types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms include judgments or convictions and consent or other voluntary decrees or agreements); compensatory, treble or other damages; non-monetary relief or actions; or other liabilities. Government regulations provide that certain allegations against a contractor may lead to suspension or debarment from future government contracts or suspension of export privileges for the company or one or more of its components. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. For additional information on pending matters, please see Notes 5 and 6
to the financial statements, and for further information on the risks we face from existing and future investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, please see “Risk Factors” in our 2019 Annual Report on Form 10-K. Environmental Matters Involving Potential Monetary Damages in Excess of $100,000
The following environmental matter is reported pursuant to SEC Regulation S-K Item 103 because it involves potential monetary damages in excess of $100,000. In June 2016, the U.S. Environmental Protection Agency (EPA) conducted an environmental inspection at the Allegheny Ballistics Laboratory in Rocket Center, WV, which was then and is now operated by Alliant Techsystems Operations LLC (“ATO”). ATO became an indirect subsidiary of the
Company approximately 2 years later, in June 2018. On March 3, 2020, EPA notified ATO of a proposed penalty for alleged noncompliance with certain air emission, water discharge and waste management permitting and regulatory requirements. EPA proposed a civil penalty totaling $497,635 and certain non-monetary actions. The Company has disputed the allegations and is in discussions with the government. Item 1A. Risk Factors
There have been no material changes to our risk factors since our 2019 Annual Report on Form 10-K, except with respect to the risk factor regarding COVID-19 that the
company included in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities – The table below summarizes our repurchases of common stock during the second quarter of 2020: |
| | | | | | | | | | | | | | |
Period | Number
of
Shares
Purchased | | Average Price
Paid per
Share(1) | | Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs | | Approximate
Dollar Value of
Shares that May
Yet Be Purchased
under the
Plans or Programs
($ in millions) |
| 397,447 |
| | $ | 329.41 |
| | 397,447 |
| | | $ | 2,849 |
|
| — |
| | — |
| | — |
| | | 2,849 |
|
| — |
| | — |
| | — |
| | | 2,849 |
|
Total | 397,447 |
| | $ | 329.41 |
| | 397,447 |
| | | $ | 2,849 |
|
| |
(1) | Includes
commissions paid. |
Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market or in privately negotiated transactions. The company retires its common stock upon repurchase and, in the periods presented, has not made any purchases of common stock other than in connection with these publicly announced repurchase programs. See Note 2 to the financial statements for further information on our share repurchase programs.
NORTHROP GRUMMAN CORPORATION
Item 5. Other Information
As discussed in Notes 1 and 9 to the financial statements, beginning in the second quarter of 2020, the company no longer considers certain unallowable costs as part of management’s evaluation of segment operating performance. As a result, certain unallowable costs, which were previously included in segment operating results, are now reported in Unallocated corporate expense within operating income. The
following tables summarize the effect of this change on our segment information for the three months ended March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019 and the years ended December 31, 2019, 2018 and 2017. This change has no impact on consolidated operating results. The tables should be read in conjunction with the information contained in the company’s 2019 Annual Report on Form 10-K and the Form 8-K that we filed with the SEC on April
29, 2020, which recasts the disclosures in certain portions of the 2019 Annual Report on Form 10-K to reflect changes in the company’s reportable segments. As Previously Reported
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2018 | | 2019 | | 2019 | | 2020 |
| Total | | Total | | Total | | Three
Months Ended |
$ in millions | Year | | Year | | Year | | Mar 31 | Jun 30 | Sep 30 | Dec 31 | | Mar
31 |
Operating income | | | | | | | | | | | | |
Aeronautics
Systems | $ | 848 |
| | $ | 1,107 |
| | $ | 1,170 |
| | $ | 308 |
| $ | 295 |
| $ | 265 |
| $ | 302 |
| | $ | 259 |
|
Defense
Systems | 534 |
| | 690 |
| | 781 |
| | 202 |
| 209 |
| 199 |
| 171 |
| | 196 |
|
Mission
Systems | 1,157 |
| | 1,215 |
| | 1,382 |
| | 319 |
| 332 |
| 346 |
| 385 |
| | 348 |
|
Space
Systems | 578 |
| | 635 |
| | 781 |
| | 188 |
| 191 |
| 187 |
| 215 |
| | 199 |
|
Intersegment
eliminations | (214 | ) | | (200 | ) | | (205 | ) | | (50 | ) | (49 | ) | (57 | ) | (49 | ) | | (49 | ) |
Total
segment operating income | 2,903 |
| | 3,447 |
| | 3,909 |
| | 967 |
| 978 |
| 940 |
| 1,024 |
| | 953 |
|
Net
FAS (service)/CAS pension adjustment | 638 |
| | 613 |
| | 465 |
| | 108 |
| 107 |
| 131 |
| 119 |
| | 105 |
|
Unallocated
corporate expense | (323 | ) | | (280 | ) | | (405 | ) | | (139 | ) | (139 | ) | (120 | ) | (7 | ) | | (124 | ) |
Total
operating income | $ | 3,218 |
| | $ | 3,780 |
| | $ | 3,969 |
| | $ | 936 |
| $ | 946 |
| $ | 951 |
| $ | 1,136 |
| | $ | 934 |
|
As
Recast
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2018 | | 2019 | | 2019 | | 2020 |
| Total | | Total | | Total | | Three
Months Ended |
$ in millions | Year | | Year | | Year | | Mar 31 | Jun 30 | Sep 30 | Dec 31 | | Mar
31 |
Operating income | | | | | | | | | | | | |
Aeronautics
Systems | $ | 859 |
| | $ | 1,128 |
| | $ | 1,188 |
| | $ | 311 |
| $ | 299 |
| $ | 269 |
| $ | 309 |
| | $ | 263 |
|
Defense
Systems | 539 |
| | 697 |
| | 793 |
| | 204 |
| 212 |
| 201 |
| 176 |
| | 198 |
|
Mission
Systems | 1,179 |
| | 1,245 |
| | 1,408 |
| | 323 |
| 338 |
| 351 |
| 396 |
| | 353 |
|
Space
Systems | 582 |
| | 644 |
| | 794 |
| | 190 |
| 193 |
| 191 |
| 220 |
| | 202 |
|
Intersegment
eliminations | (214 | ) | | (200 | ) | | (205 | ) | | (50 | ) | (49 | ) | (57 | ) | (49 | ) | | (49 | ) |
Total
segment operating income | 2,945 |
| | 3,514 |
| | 3,978 |
| | 978 |
| 993 |
| 955 |
| 1,052 |
| | 967 |
|
Net
FAS (service)/CAS pension adjustment | 638 |
| | 613 |
| | 465 |
| | 108 |
| 107 |
| 131 |
| 119 |
| | 105 |
|
Unallocated
corporate expense | (365 | ) | | (347 | ) | | (474 | ) | | (150 | ) | (154 | ) | (135 | ) | (35 | ) | | (138 | ) |
Total
operating income | $ | 3,218 |
| | $ | 3,780 |
| | $ | 3,969 |
| | $ | 936 |
| $ | 946 |
| $ | 951 |
| $ | 1,136 |
| | $ | 934 |
|
NORTHROP GRUMMAN CORPORATION
Item 6. Exhibits |
| |
2.1 | |
| |
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 | |
| |
2.4 | |
| |
+*10.1 | |
| |
*15 | |
| |
*31.1 | |
| |
*31.2 | |
| |
**32.1 | |
| |
**32.2 | |
| |
*101 | Northrop Grumman Corporation Quarterly Report on Form 10-Q for the quarter ended June 30,
2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Cover Page, (ii) Condensed Consolidated Statements of Earnings and Comprehensive Income, (iii) Condensed Consolidated Statements of Financial Position, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Shareholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| |
*104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
| |
+ | Management
contract or compensatory plan or arrangement |
| |
* | Filed with this report |
| |
** | Furnished with this report |
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: | | |
| | Corporate Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) |
