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false0001133421NORTHROP GRUMMAN CORP /DE/ 0001133421 2019-10-24 2019-10-24


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 24, 2019
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
1-16411
 
80-0640649
(State or Other Jurisdiction
of Incorporation or Organization)
 
(Commission File Number)
 
(IRS Employer
Identification Number)

2980 Fairview Park Drive, Falls Church, VA 22042
(Address of principal executive offices)(Zip Code)

(703) 280-2900
(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐





ITEM 2.02. Results of Operations and Financial Condition.
On October 24, 2019, Northrop Grumman Corporation issued an earnings release announcing its financial results for the quarter ended September 30, 2019, under the heading “Northrop Grumman Third Quarter 2019 Financial Results.” The earnings release is furnished as Exhibit 99.

ITEM 9.01. Financial Statements and Exhibits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d)
 
Exhibits
 
 
 
 
 
 
Furnished
 
 
 
 
 
 
Exhibit 99 — Earnings Release dated October 24, 2019
 




SIGNATURE

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 hereunto duly authorized.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NORTHROP GRUMMAN CORPORATION
 
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ Jennifer C. McGarey
 
 
 
 
 
 
(Signature)
Jennifer C. McGarey
Corporate Vice President and Secretary

Date: October 24, 2019




Exhibit Index
 
 
 
 
Exhibit No.
 
Exhibit 101 — Northrop Grumman Corporation Current Report on Form 8-K dated October 24, 2019, formatted in XBRL (Extensible Business Reporting Language): Cover Page. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
Exhibit
 
 
Exhibit 99
https://cdn.kscope.io/0a2b0726119672780fb385257f700010-noclogoblue2015a01a02a01a48.jpg
 
 
 
 
News Release
 
 
 
 
 
 
 
Contact:
  
Tim Paynter (Media)
 
 
 
  
703-280-2720
 
 
 
  
timothy.paynter@ngc.com
 
 
 
  
 
 
 
 
  
Todd Ernst (Investors)
 
 
 
  
703-280-4535
 
 
 
  
todd.ernst@ngc.com
Northrop Grumman Third Quarter 2019 Financial Results
•
Net Awards Total $10.1 Billion; Book-to-Bill of 1.2
•
Backlog Increases to $65.0 Billion
•
Sales Increase 5 Percent to $8.5 Billion; Higher Sales at All Four Sectors
•
EPS of $5.49
•
Cash from Operations Totals $1.1 Billion; Free Cash Flow1 Totals $882 Million
•
2019 MTM-adjusted EPS1 Guidance Increased to $20.10 to $20.35
•
2019 Free Cash Flow1 Guidance Updated to $2.7 to $3.0 Billion

FALLS CHURCH, Va. – October 24, 2019 – Northrop Grumman Corporation (NYSE: NOC) reported third quarter 2019 sales increased 5 percent to $8.5 billion from $8.1 billion in the third quarter of 2018. Third quarter 2019 net earnings totaled $933 million, or $5.49 per share, compared with $1.2 billion, or $7.11 per share in the third quarter of 2018. Last year's results included a $1.01 per share benefit for the settlement of cost claims, as well as $0.47 per share more for pension-related items than in the current period.
“Northrop Grumman delivered solid third quarter results, and we continued to grow the business with higher sales at all four sectors,” said Kathy Warden, chairman, chief executive officer and president. “We are aligning our business for the future, expanding our backlog and delivering on our customers' highest priorities to create sustained value for our shareholders.”





1 Non-GAAP measure — see definitions at the end of this earnings release.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
2


Consolidated Operating Results and Cash Flows
 
Three Months Ended September 30
 
 
 
Nine Months Ended September 30
 
 
$ in millions, except per share amounts
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Sales
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
$
3,458

 
$
3,282

 
5
%
 
$
10,344

 
$
9,899

 
4
%
Innovation Systems
1,584

 
1,415

 
12
%
 
4,520

 
1,815

 
NM

Mission Systems
3,029

 
2,911

 
4
%
 
9,043

 
8,668

 
4
%
Technology Services
1,067

 
1,040

 
3
%
 
3,088

 
3,232

 
(4
%)
Intersegment eliminations
(663
)
 
(563
)
 
 
 
(1,875
)
 
(1,675
)
 
 
Total sales
8,475

 
8,085

 
5
%
 
25,120

 
21,939

 
14
%
Segment operating income1
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
324

 
376

 
(14
%)
 
1,067

 
1,074

 
(1
%)
Innovation Systems
164

 
161

 
2
%
 
500

 
200

 
NM

Mission Systems
398

 
399

 
—

 
1,189

 
1,122

 
6
%
Technology Services
136

 
111

 
23
%
 
351

 
328

 
7
%
Intersegment eliminations
(82
)
 
(68
)
 
 
 
(222
)
 
(204
)
 
 
Segment operating income1
940

 
979

 
(4
%)
 
2,885

 
2,520

 
14
%
Segment operating margin rate1
11.1
%
 
12.1
%
 
(100) bps

 
11.5
%
 
11.5
%
 
—

Net FAS (service)/CAS pension adjustment
131

 
176

 
(26
%)
 
346

 
440

 
(21
%)
Unallocated corporate expense:
 
 
 
 
 
 
 
 
 
 
 
Intangible asset amortization and PP&E step-up depreciation
(98
)
 
(97
)
 
1
%
 
(292
)
 
(127
)
 
NM

Other unallocated corporate (expense) income
(22
)
 
114

 
NM

 
(106
)
 
4

 
NM

Unallocated corporate (expense) income
(120
)
 
17

 
NM

 
(398
)
 
(123
)
 
NM

Operating income
$
951

 
$
1,172

 
(19
%)
 
$
2,833

 
$
2,837

 
—

Operating margin rate
11.2
%
 
14.5
%
 
(330) bps

 
11.3
%
 
12.9
%
 
(160) bps

Interest expense
(123
)
 
(133
)
 
(8
%)
 
(398
)
 
(420
)
 
(5
%)
FAS (non-service) pension benefit
200

 
270

 
(26
%)
 
600

 
782

 
(23
%)
Other, net
27

 
55

 
(51
%)
 
82

 
140

 
(41
%)
Earnings before income taxes
1,055

 
1,364

 
(23
%)
 
3,117

 
3,339

 
(7
%)
Federal and foreign income tax expense
122

 
120

 
2
%
 
460

 
466

 
(1
%)
Effective income tax rate
11.6
%
 
8.8
%
 
280 bps

 
14.8
%
 
14.0
%
 
80 bps

Net earnings
$
933

 
$
1,244

 
(25
%)
 
$
2,657

 
$
2,873

 
(8
%)
Diluted earnings per share
5.49

 
7.11

 
(23
%)
 
15.60

 
16.40

 
(5
%)
Weighted-average diluted shares outstanding, in millions
169.9

 
174.9

 
(3
%)
 
170.3

 
175.2

 
(3
%)
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
1,139

 
$
812

 
40
%
 
$
1,833

 
$
1,450

 
26
%
Less: capital expenditures
(257
)
 
(282
)
 
(9
%)
 
(793
)
 
(786
)
 
1
%
Free cash flow1
$
882

 
$
530

 
66
%
 
$
1,040

 
$
664

 
57
%
1 

Non-GAAP measure — see definitions at the end of this earnings release.


Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
3


Sales
Third quarter 2019 sales increased $390 million, or 5 percent, due to higher sales at all four sectors.
Operating Income and Margin Rate
Third quarter 2019 operating income decreased $221 million and operating margin rate declined to 11.2 percent primarily due to higher unallocated corporate expense, a decrease in the net FAS (service)/CAS pension adjustment and lower segment operating income. Third quarter 2018 unallocated corporate expense included a $223 million benefit recognized for the finalization of certain prior year cost claims.
Segment Operating Income and Margin Rate
Third quarter 2019 segment operating income decreased $39 million, or 4 percent, primarily due to lower segment operating income at Aerospace Systems, partially offset by higher operating income at Technology Services. Segment operating margin rate decreased to 11.1 percent principally due to a lower operating margin rate at Aerospace Systems.
Federal and Foreign Income Taxes
The third quarter 2019 effective tax rate increased to 11.6 percent from 8.8 percent in the third quarter of 2018. The company’s effective tax rate for the third quarter of 2019 includes benefits of $89 million for research credits and $17 million for foreign derived intangible income.
Operating Cash Flows
Third quarter 2019 cash provided by operating activities increased $327 million to $1.1 billion principally due to lower voluntary pension contributions and improved trade working capital, partially offset by lower net earnings. In last year's third quarter, the company made a $250 million voluntary pre-tax pension contribution. After capital expenditures of $257 million, third quarter 2019 free cash flow1 was $882 million.
Awards and Backlog
Third quarter and year to date 2019 net awards totaled $10.1 billion and $35.9 billion, respectively, and backlog increased to $65.0 billion as of September 30, 2019. Significant new awards in the third quarter include $1.4 billion to deliver an additional nine E-2D Advanced Hawkeye aircraft and related equipment to Japan, $608 million for space restricted programs, $504 million for the F-35 program, $481 million for the Triton program and $312 million for targets and countermeasures used to test the Ballistic Missile Defense System.








1 Non-GAAP measure — see definitions at the end of this earnings release.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
4


Segment Operating Results
AEROSPACE SYSTEMS
Three Months Ended September 30
 
%
 
Nine Months Ended September 30
 
%
$ in millions
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Sales
$
3,458

 
$
3,282

 
5
 %
 
$
10,344

 
$
9,899

 
4
 %
Operating income
324

 
376

 
(14
)%
 
1,067

 
1,074

 
(1
)%
Operating margin rate
9.4
%
 
11.5
%
 
 
 
10.3
%
 
10.8
%
 
 
Sales
Third quarter 2019 sales increased 5 percent, due to higher sales in all three business areas. Manned aircraft sales reflect higher volume on the E-2 program and a higher rate of F-35 production activity, partially offset by lower B-2 sales. Space sales reflect higher volume on Next Generation Overhead Persistent Infrared (Next Gen OPIR) programs. Autonomous Systems sales increased due to higher volume on multiple programs, including Global Hawk, partially offset by lower NATO AGS volume as that program nears completion.
Operating Income
Third quarter 2019 operating income declined to $324 million and operating margin rate decreased to 9.4 percent principally due to lower net favorable EAC adjustments. This reflects the timing of favorable adjustments as well as unfavorable adjustments for the B-2 Defensive Management System Modernization program and delays in production for certain commercial space components.
INNOVATION SYSTEMS
Three Months Ended September 30
 
%
 
Nine Months Ended September 30
 
%
$ in millions
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Sales
$
1,584

 
$
1,415

 
12
%
 
$
4,520

 
$
1,815

 
NM
Operating income
164

 
161

 
2
%
 
500

 
200

 
NM
Operating margin rate
10.4
%
 
11.4
%
 
 
 
11.1
%
 
11.0
%
 
 
Sales
Third quarter 2019 sales increased 12 percent due to higher sales in all three business areas. Space Systems sales reflect higher volume on national security satellite systems. Defense Systems sales increased primarily due to higher volume on precision munitions and armament products, as well as tactical missiles and subsystems, including the Advanced Anti-Radiation Guided Missile-Extended Range (AARGM-ER) program. Flight Systems sales reflect higher volume on military and commercial aerospace structures.
Operating Income
Third quarter 2019 operating income increased 2 percent primarily due to higher sales, partially offset by a lower operating margin rate of 10.4 percent. The prior period operating margin rate reflects favorable indirect rate performance and recovery of an insurance claim.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
5


MISSION SYSTEMS
Three Months Ended September 30
 
%
 
Nine Months Ended September 30
 
%
$ in millions
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Sales
$
3,029

 
$
2,911

 
4
 %
 
$
9,043

 
$
8,668

 
4
%
Operating income
398

 
399

 
—

 
1,189

 
1,122

 
6
%
Operating margin rate
13.1
%
 
13.7
%
 
 
 
13.1
%
 
12.9
%
 
 
Sales
Third quarter 2019 sales increased 4 percent due to higher sales in all three business areas. Advanced Capabilities sales increased primarily due to higher volume on marine systems. Cyber and ISR sales reflect higher volume on space and restricted programs. Sensors and Processing sales increased principally due to higher volume on airborne radar and electronic warfare programs, partially offset by lower volume from targeting pods.
Operating Income
Third quarter 2019 operating income was comparable to the prior year and operating margin rate was 13.1 percent compared with 13.7 percent in the prior year period. The primary driver of the margin rate change was a higher level of indirect rate benefits in the third quarter of 2018. Third quarter 2019 results reflect continued strong performance at Sensors and Processing, improved performance at Advanced Capabilities, and lower performance on Cyber and ISR programs.
TECHNOLOGY SERVICES
Three Months Ended September 30
 
%
 
Nine Months Ended September 30
 
%
$ in millions
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Sales
$
1,067

 
$
1,040

 
3
%
 
$
3,088

 
$
3,232

 
(4
)%
Operating income
136

 
111

 
23
%
 
351

 
328

 
7
 %
Operating margin rate
12.7
%
 
10.7
%
 
 
 
11.4
%
 
10.1
%
 
 
Sales
Third quarter 2019 sales increased 3 percent due to higher sales in both business areas. Global Logistics and Modernization sales increased primarily due to higher sales on electronic systems sustainment programs, partially offset by lower volume on autonomous systems support programs. Global Services sales increased principally due to higher volume on defense services programs and a civil program, partially offset by the completion of a state and local services contract in 2018.
Operating Income
Third quarter 2019 operating income increased 23 percent and operating margin rate increased to 12.7 percent due to improved performance in both business areas, including a favorable adjustment on a Global Logistics and Modernization sustainment program.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
6


2019 Guidance    
2019 financial guidance, as well as outlook, trends, expectations and other indicia of forward looking statements provided by the company for 2020, reflect the company's judgment based on the information available to the company at the time of this release. The government budget and appropriations processes can impact our customers, programs and financial results. Government budgets and appropriations, including the timing of appropriations and the occurrence of an extended continuing resolution and/or prolonged government shutdown, as well as a breach of the debt ceiling, can impact the company's ability to achieve guidance or meet expectations.
2019 Guidance
($ in millions, except per share amounts)
As of 7/24/19
As of 10/24/19
Sales
~34,000
~34,000
Segment operating margin %1
~11.5%
~11.5%
Total net FAS/CAS pension adjustment2
~1,200
~1,260
Unallocated corporate expense
 
 
Intangible asset amortization & PP&E step-up depreciation
~385
~385
Other items
~225
~225
Operating margin %
High 10%
~11%
Interest expense
~560
~530
Effective tax rate %
Mid 17%
Low 16%
Weighted average shares outstanding
~170M
~170M
MTM-adjusted EPS1
19.30
—
19.55
20.10
—
20.35
Capital expenditures
~1,200
~1,200
Free cash flow1
2,600
—
3,000
2,700
—
3,000
Sector Guidance
Aerospace Systems
 
 
 
 
 
 
Sales $B
High 13
High 13
OM Rate
Mid to High 10%
Mid to High 10%
Innovation Systems
 
 
 
 
 
 
Sales $B
~6
~6
OM Rate
High 10%
High 10%
Mission Systems
 
 
 
 
 
 
Sales $B
Low to Mid 12
Low to Mid 12
OM Rate
~13%
Low 13%
Technology Services
 
 
 
 
 
 
Sales $B
Low 4
Low 4
OM Rate
Low 10%
High 10%
1 
Non-GAAP measure - see definitions at the end of this earnings release.
2 
Total Net FAS/CAS pension adjustment is presented as a single amount consistent with our historical presentation, and includes $830 million of expected CAS pension cost and $430 million of expected FAS pension benefit. In accordance with ASU No. 2017-07, $370 million of FAS (service-related) pension cost is reflected in operating income and $800 million of FAS (non-service) pension benefit is reflected below operating income. CAS pension cost continues to be recorded in operating income.


Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
7


About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at noon Eastern Time on Oct. 24, 2019. A live audio broadcast of the conference call will be available on the investor relations page of the company’s website at www.northropgrumman.com.
Northrop Grumman is a leading global security company providing innovative systems, products and solutions in autonomous systems, cyber, C4ISR, space, strike, and logistics and modernization to customers worldwide. Please visit news.northropgrumman.com and follow us on Twitter, @NGCNews, for more information.

Forward-Looking Statements
This earnings release and the information we are incorporating by reference, and statements to be made on the earnings conference call, contain or may 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,” “guidance,” “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 the Form 10-K for the year ended December 31, 2018 and in our other filings with the Securities and Exchange Commission (SEC). They include:
•
our dependence on the U.S. government for a substantial portion of our business
•
significant delays or reductions in appropriations for our programs and U.S. government funding more broadly
•
investigations, claims, disputes, enforcement actions and/or litigation
•
the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs
•
our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, laws and regulations
•
the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation, our ability to do business, and our financial position, results of operations and/or cash flows
•
cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners
•
the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials, chemicals and components
•
changes in procurement and other laws, regulations and practices applicable to our industry, findings by the U.S. government as to our compliance with such laws and regulations, and changes in our customers’ business practices globally
•
increased competition within our markets and bid protests

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
8


•
the ability to maintain a qualified workforce
•
our ability to meet performance obligations under our contracts, including obligations that are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control
•
environmental matters, including unforeseen environmental costs and government and third party claims
•
natural disasters
•
the adequacy and availability of our insurance coverage, customer indemnifications or other liability protections
•
products and services we provide related to hazardous and high risk operations, including the production and use of such products, which subject us to various environmental, regulatory, financial, reputational and other risks
•
the future investment performance of plan assets, changes in actuarial assumptions associated with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our pension, postretirement and health and welfare plans
•
our ability successfully to integrate the Orbital ATK business and realize fully the anticipated benefits of the acquisition, without adverse consequences
•
our ability to exploit or protect intellectual property rights
•
our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers
•
changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets
•
unanticipated changes in our tax provisions or exposure to additional tax liabilities, including qualification of the Alliant Techsystems Inc. spin-off of Vista Outdoor Inc. as a tax-free transaction
You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this earnings release is first issued 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.
This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company’s use of these measures are included in this release or the attachments.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
9


SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)


 
Three Months Ended September 30
 
Nine Months Ended September 30
$ in millions, except per share amounts
2019
 
2018
 
2019
 
2018
Sales
 
 
 
 
 
 
 
Product
$
5,997

 
$
5,614

 
$
17,605

 
$
14,693

Service
2,478

 
2,471

 
7,515

 
7,246

Total sales
8,475

 
8,085

 
25,120

 
21,939

Operating costs and expenses
 
 
 
 
 
 
 
Product
4,777

 
4,233

 
13,955

 
11,200

Service
1,971

 
1,863

 
6,012

 
5,635

General and administrative expenses
776

 
817

 
2,320

 
2,267

Operating income
951

 
1,172

 
2,833

 
2,837

Other (expense) income
 
 
 
 
 
 
 
Interest expense
(123
)
 
(133
)
 
(398
)
 
(420
)
FAS (non-service) pension benefit
200

 
270

 
600

 
782

Other, net
27

 
55

 
82

 
140

Earnings before income taxes
1,055

 
1,364

 
3,117

 
3,339

Federal and foreign income tax expense
122

 
120

 
460

 
466

Net earnings
$
933

 
$
1,244

 
$
2,657

 
$
2,873

 
 
 
 
 
 
 
 
Basic earnings per share
$
5.52

 
$
7.15

 
$
15.67

 
$
16.48

Weighted-average common shares outstanding, in millions
169.1

 
174.1

 
169.6

 
174.3

Diluted earnings per share
$
5.49

 
$
7.11

 
$
15.60

 
$
16.40

Weighted-average diluted shares outstanding, in millions
169.9

 
174.9

 
170.3

 
175.2

 
 
 
 
 
 
 
 
Net earnings (from above)
$
933

 
$
1,244

 
$
2,657

 
$
2,873

Other comprehensive loss
 
 
 
 
 
 
 
Change in unamortized prior service credit, net of tax
(12
)
 
(15
)
 
(35
)
 
(45
)
Change in cumulative translation adjustment and other, net
—

 
(3
)
 
—

 
(9
)
Other comprehensive loss, net of tax
(12
)
 
(18
)
 
(35
)
 
(54
)
Comprehensive income
$
921

 
$
1,226

 
$
2,622

 
$
2,819


Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
10


SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)

$ in millions, except par value
September 30,
2019
 
December 31,
2018
Assets
 
 
 
Cash and cash equivalents
$
1,127

 
$
1,579

Accounts receivable, net
2,111

 
1,448

Unbilled receivables, net
5,777

 
5,026

Inventoried costs, net
810

 
654

Prepaid expenses and other current assets
1,011

 
973

Total current assets
10,836

 
9,680

Property, plant and equipment, net of accumulated depreciation of $5,709 for 2019 and $5,369 for 2018
6,611

 
6,372

Operating lease right-of-use assets
1,511

 
—

Goodwill
18,707

 
18,672

Intangible assets, net
1,123

 
1,372

Deferred tax assets
83

 
94

Other non-current assets
1,682

 
1,463

Total assets
$
40,553

 
$
37,653

 
 
 
 
Liabilities
 
 
 
Trade accounts payable
$
2,021

 
$
2,182

Accrued employee compensation
1,744

 
1,676

Advance payments and billings in excess of costs incurred
2,127

 
1,917

Other current liabilities
2,524

 
2,499

Total current liabilities
8,416

 
8,274

Long-term debt, net of current portion of $45 for 2019 and $517 for 2018
13,826

 
13,883

Pension and other postretirement benefit plan liabilities
5,431

 
5,755

Operating lease liabilities
1,304

 
—

Deferred tax liabilities
111

 
108

Other non-current liabilities
1,734

 
1,446

Total liabilities
30,822

 
29,466

 
 
 
 
Shareholders’ equity
 
 
 
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding
—

 
—

Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2019—168,701,653 and 2018—170,607,336
169

 
171

Paid-in capital
—

 
—

Retained earnings
9,649

 
8,068

Accumulated other comprehensive loss
(87
)
 
(52
)
Total shareholders’ equity
9,731

 
8,187

Total liabilities and shareholders’ equity
$
40,553

 
$
37,653



Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
11


SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


 
Nine Months Ended September 30
$ in millions
2019
 
2018
Operating activities
 
 
 
Net earnings
$
2,657

 
$
2,873

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
Depreciation and amortization
737

 
534

Non-cash lease expense
187

 
—

Stock-based compensation
93

 
82

Deferred income taxes
24

 
275

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(663
)
 
(52
)
Unbilled receivables, net
(778
)
 
(898
)
Inventoried costs, net
(156
)
 
(102
)
Prepaid expenses and other assets
(81
)
 
(109
)
Accounts payable and other liabilities
320

 
(125
)
Income taxes payable, net
(34
)
 
(114
)
Retiree benefits
(422
)
 
(847
)
Other, net
(51
)
 
(67
)
Net cash provided by operating activities
1,833

 
1,450

 
 
 
 
Investing activities
 
 
 
Acquisition of Orbital ATK, net of cash acquired
—

 
(7,657
)
Capital expenditures
(793
)
 
(786
)
Other, net
8

 
23

Net cash used in investing activities
(785
)
 
(8,420
)
 
 
 
 
Financing activities
 
 
 
Payments of long-term debt
(500
)
 
(2,276
)
Net payments to credit facilities
(31
)
 
(314
)
Net borrowings on commercial paper
201

 
499

Common stock repurchases
(444
)
 
(209
)
Cash dividends paid
(658
)
 
(616
)
Payments of employee taxes withheld from share-based awards
(63
)
 
(84
)
Other, net
(5
)
 
(27
)
Net cash used in financing activities
(1,500
)
 
(3,027
)
Decrease in cash and cash equivalents
(452
)
 
(9,997
)
Cash and cash equivalents, beginning of year
1,579

 
11,225

Cash and cash equivalents, end of period
$
1,127

 
$
1,228



Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
12


SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(Unaudited)


 
 
September 30, 2019
 
December 31, 2018
 
 
$ in millions
 
Funded1
 
Unfunded
 
Total
Backlog2
 
Total
Backlog2
 
% Change in 2019
Aerospace Systems
 
$
12,310

 
$
21,601

 
$
33,911

 
$
26,440

 
28
%
Innovation Systems
 
5,835

 
3,758

 
9,593

 
8,207

 
17
%
Mission Systems
 
10,952

 
7,112

 
18,064

 
15,408

 
17
%
Technology Services
 
2,862

 
574

 
3,436

 
3,445

 
—

Total backlog
 
$
31,959

 
$
33,045

 
$
65,004

 
$
53,500

 
22
%
1 

Funded backlog represents firm orders for which funding is authorized and appropriated.
2 

Total backlog excludes unexercised contract options and indefinite delivery, indefinite quantity (IDIQ) contracts until the time the option or IDIQ task order is exercised or awarded.
 
New Awards
Third quarter and year to date 2019 net awards totaled $10.1 billion and $35.9 billion, respectively, and backlog increased to $65.0 billion as of September 30, 2019. Significant new awards in the third quarter include $1.4 billion to deliver an additional nine E-2D Advanced Hawkeye aircraft and related equipment to Japan, $608 million for space restricted programs, $504 million for the F-35 program, $481 million for the Triton program and $312 million for targets and countermeasures used to test the Ballistic Missile Defense System.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
13


SCHEDULE 5
NORTHROP GRUMMAN CORPORATION
SUPPLEMENTAL PER SHARE INFORMATION
(Unaudited)


 
Three Months Ended September 30
 
Nine Months Ended September 30
$ in millions, except per share amounts
2019
 
2018
 
2019
 
2018
Per share impact of total net FAS/CAS pension adjustment
 
 
 
 
 
 
 
Net FAS (service)/CAS pension adjustment
$
131

 
$
176

 
$
346

 
$
440

FAS (non-service) pension benefit
200

 
270

 
600

 
782

Total net FAS/CAS pension adjustment
331

 
446

 
946

 
1,222

Tax effect1
(70
)
 
(94
)
 
(199
)
 
(257
)
After-tax impact
$
261

 
$
352

 
$
747

 
$
965

Weighted-average diluted shares outstanding, in millions
169.9

 
174.9

 
170.3

 
175.2

Per share impact
$
1.54

 
$
2.01

 
$
4.39

 
$
5.51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share impact of intangible asset amortization and PP&E step-up depreciation
 
 
 
 
 
 
 
Intangible asset amortization and PP&E step-up depreciation
$
(98
)
 
$
(97
)
 
$
(292
)
 
$
(127
)
Tax effect1
21

 
20

 
61

 
27

After-tax impact
$
(77
)
 
$
(77
)
 
$
(231
)
 
$
(100
)
Weighted-average diluted shares outstanding, in millions
169.9

 
174.9

 
170.3

 
175.2

Per share impact
$
(0.45
)
 
$
(0.44
)
 
$
(1.36
)
 
$
(0.57
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share impact of the settlement of cost claims
 
 
 
 
 
 
 
Cost claims
$
—

 
$
223

 
$
—

 
$
223

Tax effect1
—

 
(47
)
 
—

 
(47
)
After-tax impact
$
—

 
$
176

 
$
—

 
$
176

Weighted-average diluted shares outstanding, in millions
169.9

 
174.9

 
170.3

 
175.2

Per share impact
$
—

 
$
1.01

 
$
—

 
$
1.00

1 
Based on a 21% statutory tax rate.



Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com

Northrop Grumman Third Quarter 2019 Financial Results
14


Non-GAAP Financial Measures Disclosure: This earnings release contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the text of the release. Definitions for the non-GAAP measures are provided below and reconciliations are provided in the body of the release. Other companies may define these measures differently or may utilize different non-GAAP measures.
Segment operating income and segment operating margin rate: Segment operating income, as reconciled in the “Consolidated Operating Results and Cash Flows” table within the body of this release, and segment operating margin rate (segment operating income divided by sales) reflect total earnings from our four segments, including allocated pension expense recognized under CAS, and excluding unallocated corporate items and FAS pension expense. These 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 should not be considered in isolation or as alternatives to operating results presented in accordance with GAAP.
Free cash flow: Net cash provided by operating activities less capital expenditures. We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, stock repurchases and the payment of dividends. This 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. Free cash flow is reconciled in the “Consolidated Operating Results and Cash Flows” table within the body of this release.
MTM-adjusted diluted EPS: Diluted earnings per share excluding the per share impact of any potential mark-to-market (“MTM”) (expense) benefit and related tax impacts. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the company’s underlying financial performance per share by presenting the company’s diluted earnings per share results before the non-operational impact of pension and OPB actuarial gains and losses.


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Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
news.northropgrumman.com