filings.toolsNorthrop Grumman 10-Q 2024-06-30
Filed 2024-07-25. 8 sections, 172K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM | 10-Q |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2024
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-16411
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 80-0640649 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 2980 Fairview Park Drive | |||||||||||
| Falls Church, | Virginia | 22042 | |||||||||
| (Address of principal executive offices) | (Zip Code) |
(703) 280-2900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock | NOC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ☒ Accelerated Filer ☐
Non-accelerated Filer ☐ Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 22, 2024, 146,245,264 shares of common stock were outstanding.
NORTHROP GRUMMAN CORPORATION
TABLE OF CONTENTS
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NORTHROP GRUMMAN CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||
| $ in millions, except per share amounts | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Product | $ | 8,076 | $ | 7,441 | $ | 16,178 | $ | 14,712 | |||||||||||||||
| Service | 2,142 | 2,135 | 4,173 | 4,165 | |||||||||||||||||||
| Total sales | 10,218 | 9,576 | 20,351 | 18,877 | |||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||
| Product | 6,388 | 5,876 | 12,799 | 11,603 | |||||||||||||||||||
| Service | 1,639 | 1,660 | 3,228 | 3,249 | |||||||||||||||||||
| General and administrative expenses | 1,101 | 1,073 | 2,163 | 2,111 | |||||||||||||||||||
| Total operating costs and expenses | 9,128 | 8,609 | 18,190 | 16,963 | |||||||||||||||||||
| Operating income | 1,090 | 967 | 2,161 | 1,914 | |||||||||||||||||||
| Other (expense) income | |||||||||||||||||||||||
| Interest expense | (154) | (147) | (300) | (276) | |||||||||||||||||||
| Non-operating FAS pension benefit | 167 | 133 | 335 | 265 | |||||||||||||||||||
| Other, net | 43 | 34 | 81 | 82 | |||||||||||||||||||
| Earnings before income taxes | 1,146 | 987 | 2,277 | 1,985 | |||||||||||||||||||
| Federal and foreign income tax expense | 206 | 175 | 393 | 331 | |||||||||||||||||||
| Net earnings | $ | 940 | $ | 812 | $ | 1,884 | $ | 1,654 | |||||||||||||||
| Basic earnings per share | $ | 6.37 | $ | 5.35 | $ | 12.72 | $ | 10.87 | |||||||||||||||
| Weighted-average common shares outstanding, in millions | 147.5 | 151.7 | 148.1 | 152.1 | |||||||||||||||||||
| Diluted earnings per share | $ | 6.36 | $ | 5.34 | $ | 12.69 | $ | 10.83 | |||||||||||||||
| Weighted-average diluted shares outstanding, in millions | 147.7 | 152.2 | 148.5 | 152.7 | |||||||||||||||||||
| Net earnings (from above) | $ | 940 | $ | 812 | $ | 1,884 | $ | 1,654 | |||||||||||||||
| Other comprehensive (loss) income, net of tax | |||||||||||||||||||||||
| Change in cumulative translation adjustment | (1) | 3 | — | 5 | |||||||||||||||||||
| Change in other, net | (2) | (2) | (18) | (2) | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax | (3) | 1 | (18) | 3 | |||||||||||||||||||
| Comprehensive income | $ | 937 | $ | 813 | $ | 1,866 | $ | 1,657 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
| $ in millions, except par value | June 30, 2024 | December 31, 2023 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 3,272 | $ | 3,109 | |||||||
| Accounts receivable, net | 1,694 | 1,454 | |||||||||
| Unbilled receivables, net | 6,434 | 5,693 | |||||||||
| Inventoried costs, net | 1,504 | 1,109 | |||||||||
| Prepaid expenses and other current assets | 1,363 | 2,341 | |||||||||
| Total current assets | 14,267 | 13,706 | |||||||||
| Property, plant and equipment, net of accumulated depreciation of $8,328 for 2024 and $7,964 for 2023 | 9,771 | 9,653 | |||||||||
| Operating lease right-of-use assets | 1,823 | 1,818 | |||||||||
| Goodwill | 17,516 | 17,517 | |||||||||
| Intangible assets, net | 282 | 305 | |||||||||
| Deferred tax assets | 1,250 | 1,020 | |||||||||
| Other non-current assets | 2,761 | 2,525 | |||||||||
| Total assets | $ | 47,670 | $ | 46,544 | |||||||
| Liabilities | |||||||||||
| Trade accounts payable | $ | 2,352 | $ | 2,110 | |||||||
| Accrued employee compensation | 1,903 | 2,251 | |||||||||
| Advance payments and billings in excess of costs incurred | 3,292 | 4,193 | |||||||||
| Other current liabilities | 5,361 | 3,388 | |||||||||
| Total current liabilities | 12,908 | 11,942 | |||||||||
| Long-term debt, net of current portion of $1,590 for 2024 and $70 for 2023 | 14,706 | 13,786 | |||||||||
| Pension and other postretirement benefit plan liabilities | 1,211 | 1,290 | |||||||||
| Operating lease liabilities | 1,870 | 1,892 | |||||||||
| Other non-current liabilities | 2,674 | 2,839 | |||||||||
| Total liabilities | 33,369 | 31,749 | |||||||||
| Commitments and contingencies (Note 7) | |||||||||||
| Shareholders’ equity | |||||||||||
| Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding | — | — | |||||||||
| Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2024—146,463,372 and 2023—150,109,271 | 146 | 150 | |||||||||
| Paid-in capital | — | — | |||||||||
| Retained earnings | 14,301 | 14,773 | |||||||||
| Accumulated other comprehensive loss | (146) | (128) | |||||||||
| Total shareholders’ equity | 14,301 | 14,795 | |||||||||
| Total liabilities and shareholders’ equity | $ | 47,670 | $ | 46,544 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
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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 technology company. We deliver a broad range of products, services and solutions to United States (U.S.) and international customers, and principally to the U.S Department of Defense (DoD) and intelligence community. Our broad portfolio is aligned to support national security priorities and our solutions equip our customers with capabilities they need to connect, protect and advance humanity.
The company is a leading provider of space systems, advanced aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and breakthrough technologies, such as artificial intelligence, advanced computing and cyber. We are focused on competing and winning programs that enable continued growth, performing on our commitments and affordably delivering capability our customers need. With the investments we've made in advanced technologies, combined with our talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet our customers' needs today and in the future.
The following discussion should be read along with the financial statements included in this Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Liquidity and Capital Resources,” “Quantitative and Qualitative Disclosures About Market Risks” and “Risk Factors” in our 2023 Annual Report on Form 10-K, which provides additional information on our business, the environment in which we operate and our operating results.
Global Security Environment
The U.S. and its allies continue to face a global security environment of heightened tensions and instability, threats from state and non-state actors, including in particular major global powers, as well as terrorist organizations, increasing nuclear tensions, diverse regional security concerns and political instability. The market for defense products, services and solutions globally is driven by these complex and evolving security challenges, considered in the broader context of political and socioeconomic circumstances and priorities. Our operations and financial performance, as well as demand for our products and services, are impacted by global events, including violence and unrest. The same is true for our suppliers and other business partners.
The conflict in Ukraine has increased global tensions and instability, highlighted threats and increased global demand, as well as further disrupted global supply chains. We have not experienced, and do not anticipate experiencing, significant adverse financial impacts directly from the ongoing conflict. We have experienced, and, while difficult to predict, may continue to experience an increase in demand for certain of our goods and services directly and indirectly related to the conflict in Ukraine, either through direct sales or if the U.S. provides increased military assistance and support to Ukraine.
Hostilities in the Middle East have further heightened global tensions and instability. At this time, it is unknown whether hostilities in this region will escalate into an even larger conflict. We do not have a significant business presence in the region, and therefore do not anticipate significant adverse financial impacts directly from the current conflict.
More broadly, the ongoing conflicts in Ukraine and the Middle East and threats elsewhere, particularly in the Pacific region, have heightened tensions and highlighted security requirements globally, including in Europe, the Middle East and the Pacific region, as well as the U.S. These conflicts may result in increased demand for defense products and services from allies and partner nations, particularly in those areas. We are actively evaluating both opportunities and risks associated with the broader global security environment.
We believe the current global security environment highlights the significant national security threats to the U.S. and its allies, and the need for strong deterrence and robust defense capabilities. We believe our capabilities, particularly in space, C4ISR, missile defense, battle management, advanced weapons, and survivable aircraft and mission systems should help our customers in the U.S. and globally defend against current and future threats and, as a result, continue to allow for long-term profitable business growth.
Global Economic Environment
Over the past several years, the global economic environment has experienced extraordinary challenges, including inflationary pressures; widespread delays and disruptions in supply chains; business slowdowns or shutdowns; workforce challenges and labor shortfalls; and market volatility. The macroeconomic factors have contributed, and we expect will continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as increased competing demands for limited resources to address such increased costs and other challenges, for
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our company, our suppliers and partners, and our customers. We continue to work hard to mitigate challenges caused by the macroeconomic environment on our business, including by taking steps to support our suppliers and small business partners. Although certain pockets of our business were adversely affected by the broader macroeconomic environment during the second quarter of 2024, the overall financial impact on our company has continued to subside.
In addition, increased interest rates, raising the cost of borrowing for governments, could further impact government spending priorities (in the U.S. and allied countries, in particular), including their demand for defense products. Economic tensions and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements, could also further impact the global market for defense products, services and solutions.
U.S. Political, Budget and Regulatory Environment
The U.S. continues to face an uncertain and evolving political, budget and regulatory environment. In particular, it is difficult to predict the specific course of future defense budgets. Current and future requirements related to the conflicts in Ukraine and Israel, threats in the Pacific regions and other security priorities, as well as global inflation, the national debt, and other domestic priorities, among other things, in the U.S. and globally, will continue to impact our customers’ budgets, spending and priorities, and our industry. The U.S. political environment, including the U.S. election cycle, may also impact defense budgets and priorities, issues related to the national debt, and government spending more broadly. We anticipate that issues related to budgetary priorities and defense spending levels, the debt ceiling, and the spending caps imposed by the Fiscal Responsibility Act of 2023 (FRA), particularly with respect to discretionary spending, will continue to be a subject of considerable debate, with a potentially significant impact on our programs and the company.
On March 11, 2024, the Administration released its budget request for FY 2025. The request included $895 billion for national security, $850 billion of which is for the DoD. Congress is evaluating the Administration’s budget request as it drafts authorization and appropriations legislation for FY 2025. On March 23, 2024, the President signed into law the Further Consolidated Appropriations Act for FY 2024, which provides funding for government agencies, including $825 billion for the DoD, through September 30, 2024. On April 24, 2024, the President signed into law bills providing $95 billion in supplem
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risks from those discussed in our 2023 Annual Report on Form 10-K.
Item 4. Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer (Chair, 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, 2024, and have concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended June 30, 2024, no changes occurred in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have provided information about certain legal proceedings in which we are involved in Notes 6 and 7 to the financial statements.
We are a party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, that arise in the ordinary course of our business. These types of matters could result in administrative, civil or criminal fines, penalties or other sanctions (which terms include judgments or convictions and consent or other voluntary decrees or agreements); compensatory, treble or other damages; non-monetary relief actions; or other liabilities. Government regulations provide that certain allegations against a contractor may lead to suspension or debarment from future government contracts or suspension of export privileges for the company or one or more of its components. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter. For additional information on pending matters, please see Notes 6 and 7 to the financial statements, and for further information on the risks we face from existing and future investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, please see “Risk Factors” in our 2023 Annual Report on Form 10-K.
Consistent with SEC Regulation S-K Item 103, we have elected to disclose those environmental proceedings with a governmental entity as a party where the company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more.
Item 1A. Risk Factors
For a discussion of our risk factors please see the section entitled “Risk Factors” in our 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below summarizes our repurchases of common stock during the three months ended June 30, 2024.
| Period | Total Number of Shares Purchased | Average Price Paid per Share**(1)(2)** | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs ($ in millions) | ||||||||||||||||||||||
| March 30, 2024 - April 26, 2024 | 118,798 | $ | 460.43 | 118,798 | $ | 2,391 | ||||||||||||||||||||
| April 27, 2024 - May 24, 2024 | 821,306 | NM(2) | 821,306 | 2,177 | ||||||||||||||||||||||
| May 25, 2024 - June 28, 2024 | 691,988 | $ | 437.31 | 691,988 | 1,874 | |||||||||||||||||||||
| Total | 1,632,092 | NM(2) | 1,632,092 | $ | 1,874 |
(1)Excludes commissions paid and other costs of execution, including taxes.
(2)During the first quarter of 2024, the company entered into an accelerated share repurchase (ASR) agreement with Morgan Stanley, which was completed on May 1, 2024. Pursuant to the terms of the ASR, a total of approximately 2.2 million shares of our common stock were repurchased with an average final purchase price of of $455.73 (1.8 million shares in January 2024 and 0.4 million shares in May 2024).
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.
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Item 5. Other Information
Consistent with Item 408 of Regulation S-K, the following table reflects Rule 10b5-1 trading arrangements and non-Rule 10b5-1 trading arrangements (as defined in Item 408) entered into by any director or officer (as defined in Rule 16a-1(f) of the Exchange Act) during the quarter ended June 30, 2024.
| Name (Title) | Type of Trading Arrangement | Date of Adoption | Expiration Date of Trading Arrangement | Aggregate Number of Securities to Be Purchased or Sold | ||||||||||
| Mark A. Welsh III | Rule 10b5-1 Trading Arrangement | May 30, 2024 | Until August 29, 2025 or such earlier date upon the completion of all trades under the plan or the occurrence of such other termination events as specified in the plan. | Sale of 397 shares of common stock | ||||||||||
| (Director) |
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Item 6. Exhibits
| * | Filed with this report | ||||
| ** | Furnished with this report | ||||
| + | Management contract or compensatory plan or arrangement |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NORTHROP GRUMMAN CORPORATION (Registrant) | ||||||||
| By: | /s/ Michael A. Hardesty | |||||||
| Michael A. Hardesty Corporate Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) |
Date: July 24, 2024
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