Northrop Grumman(NOC) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents Northrop Grumman's unaudited condensed consolidated financial statements and management's discussion and analysis for the first half of 2025 Item 1. Financial Statements This section presents Northrop Grumman's unaudited condensed consolidated financial statements, highlighting key financial positions, operational results, and cash flows for the first half of 2025 Condensed Consolidated Statements of Earnings and Comprehensive Income The statements detail the company's earnings and comprehensive income, showing a Q2 2025 sales increase to $10.35 billion and net earnings of $1.17 billion, boosted by a divestiture gain Q2 & YTD 2025 vs 2024 Earnings Summary | $ in millions, except per share | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total sales | $10,351 | $10,218 | $19,819 | $20,351 | | Operating income | $1,425 | $1,090 | $1,998 | $2,161 | | Net earnings | $1,174 | $940 | $1,655 | $1,884 | | Diluted earnings per share | $8.15 | $6.36 | $11.45 | $12.69 | - A pre-tax gain on the sale of a business of $231 million was recognized in both the three and six months ended June 30, 2025, significantly boosting operating and net income for the quarter[10] Condensed Consolidated Statements of Financial Position The financial position shows total assets at $49.45 billion and total liabilities at $33.98 billion as of June 30, 2025, with a notable decrease in cash Financial Position Summary | $ in millions | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $14,026 | $14,274 | | Cash and cash equivalents | $1,899 | $4,353 | | Total assets | $49,451 | $49,359 | | Total current liabilities | $13,459 | $14,128 | | Long-term debt, net | $15,160 | $14,692 | | Total liabilities | $33,980 | $34,069 | | Total shareholders' equity | $15,471 | $15,290 | Condensed Consolidated Statements of Cash Flows Cash flow statements indicate a net cash outflow of $697 million from operating activities for the first half of 2025, a significant reversal from the prior year YTD 2025 vs 2024 Cash Flow Summary | $ in millions | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(697) | $719 | | Net cash used in investing activities | $(191) | $(590) | | Net cash (used in) provided by financing activities | $(1,566) | $34 | | (Decrease) increase in cash and cash equivalents | $(2,454) | $163 | - Key non-cash adjustments in operating activities for YTD 2025 include a $477 million B-21 loss provision and a $231 million gain on the sale of a business[13] Notes to Condensed Consolidated Financial Statements Notes provide details on accounting policies, the $231 million gain from a divestiture, a $477 million B-21 loss provision, $89.7 billion total backlog, and a 12% dividend increase - On May 24, 2025, the company sold its Immersive Mission Solutions (IMS) operating unit for $333 million in cash, resulting in a pre-tax gain of $231 million[18] - In Q1 2025, an additional loss of $477 million was recognized on the B-21 low-rate initial production (LRIP) options. As of June 30, 2025, the remaining loss accrual for the program is $1.6 billion[26] - Total company backlog as of June 30, 2025 was $89.7 billion. Approximately 40% is expected to be recognized as revenue in the next 12 months[30] - The quarterly common stock dividend was increased by 12% to $2.31 per share in May 2025[47] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 2025 sales growth to $10.4 billion and operating income increase to $1.4 billion, influenced by a divestiture gain and B-21 program loss provision Overview The overview addresses the global security environment, macroeconomic challenges, and key company events including a business divestiture and updates on the B-21 and Sentinel programs - The company completed the sale of its training services business on May 24, 2025, for $333 million in cash, recording a pre-tax gain of $231 million[99] - An additional $477 million loss was recognized on the B-21 LRIP options in Q1 2025, following a $1.56 billion loss in Q4 2023. The company is in discussions for a potential accelerated production rate[113] - The Sentinel program was certified for continuation by the DoD in July 2024 after a Nunn-McCurdy breach review. The program will be restructured, leading to a favorable EAC adjustment of $76 million in Q2 2025[115][116][117] Consolidated Operating Results Consolidated results show Q2 2025 sales up 1% to $10.35 billion and operating income up 31% to $1.43 billion, while YTD operating income decreased due to the B-21 loss Consolidated Financial Highlights | $ in millions, except per share | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Sales | $10,351 | $10,218 | $19,819 | $20,351 | | Operating income | $1,425 | $1,090 | $1,998 | $2,161 | | Operating margin rate | 13.8% | 10.7% | 10.1% | 10.6% | | Net earnings | $1,174 | $940 | $1,655 | $1,884 | | Diluted EPS | $8.15 | $6.36 | $11.45 | $12.69 | - Q2 2025 operating income was primarily driven higher by the $231 million gain on the sale of the training services business[124] - YTD 2025 operating income decreased mainly due to a $477 million loss provision on the B-21 program recorded in the first quarter[126] Segment Operating Results Segment operating income increased 11% in Q2 2025 to $1.22 billion, but YTD income fell 19% to $1.79 billion, primarily due to the B-21 loss provision Segment Sales (in millions) | Segment | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Aeronautics Systems | $3,114 | $3,060 | $5,928 | $6,104 | | Defense Systems | $1,991 | $1,859 | $3,796 | $3,596 | | Mission Systems | $3,157 | $2,773 | $5,964 | $5,432 | | Space Systems | $2,646 | $3,002 | $5,214 | $6,151 | Segment Operating Income (in millions) | Segment | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Aeronautics Systems | $321 | $312 | $138 | $618 | | Defense Systems | $253 | $191 | $432 | $347 | | Mission Systems | $441 | $361 | $802 | $739 | | Space Systems | $280 | $304 | $563 | $634 | - Aeronautics Systems' YTD operating income fell 78% due to the $477 million loss provision on the B-21 program in Q1 2025[152] - Defense Systems' Q2 operating income grew 32%, with margin increasing to 12.7% from 10.3%, driven by a $76 million favorable EAC adjustment on the Sentinel program[156] Backlog Total backlog as of June 30, 2025, was $89.7 billion, a 2% decrease from year-end 2024, with Q2 net awards totaling $7.4 billion Backlog by Segment (in millions) | Segment | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Aeronautics Systems | $23,544 | $25,202 | | Defense Systems | $27,029 | $26,614 | | Mission Systems | $17,544 | $16,443 | | Space Systems | $21,620 | $23,209 | | Total backlog | $89,737 | $91,468 | - Q2 2025 net awards totaled $7.4 billion, and year-to-date net awards were $18.2 billion[176] Liquidity and Capital Resources The company ended Q2 2025 with $1.9 billion in cash, with year-to-date operating cash flow being a $697 million outflow, primarily due to higher net cash taxes Free Cash Flow (Non-GAAP) Reconciliation (YTD, in millions) | | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(697) | $719 | | Capital expenditures | $(487) | $(590) | | Free cash flow | $(1,184) | $129 | - The decrease in YTD operating cash flow was primarily due to $1.0 billion of higher net cash taxes and increased trade working capital[181] - In May 2025, the company issued $1.0 billion of unsecured senior notes for general corporate purposes[179] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risks since the 2024 Annual Report on Form 10-K - There have been no material changes to market risks since the 2024 Annual Report on Form 10-K[192] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during Q2 2025 - Disclosure controls and procedures were deemed effective as of the end of the quarter[194] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025[195] PART II – OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, and equity security sales Legal Proceedings The company is involved in various legal proceedings and government investigations, with details provided in the financial statement notes - Information regarding legal proceedings is provided in Notes 6 and 7 to the financial statements[198] Risk Factors The company refers to its 2024 Annual Report on Form 10-K for a comprehensive discussion of risk factors - For a discussion of risk factors, the company refers to its 2024 Annual Report on Form 10-K[201] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 799,232 shares of common stock at an average price of $485.87, with $3.27 billion remaining for future repurchases Share Repurchases for Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | March 29 - April 25, 2025 | 239,644 | $494.64 | | April 26 - May 23, 2025 | 294,944 | $476.55 | | May 24 - June 27, 2025 | 264,644 | $488.33 | | Total | 799,232 | $485.87 | - At the end of the quarter, approximately $3.27 billion remained authorized for share repurchases[203]