Northrop cautions investors over coronavirus pandemic uncertainty

(NOTE: This story has been updated to clarify that the new disclosure was made as part of a debt offering prospectus)

The ongoing coronavirus pandemic is leading businesses of all shapes and sizes in nearly every market to adjust their expectations, and the longer it goes the fewer certainties they will find.

In regulatory filings Thursday, Northrop Grumman cited the continued spread of the virus that causes COVID-19 respiratory illness as a risk factor that investors should consider in looking at the company.

That updated risk factor information was included in a Securities and Exchange Commission filing about a new potential debt offering from Northrop. The company noted in a separate 8-K filing that the coronavirus-related risk factor was included in the debt offering prospectus. Form 8-K is a broad filing format that publicly-traded companies use to notify investors of a current event.

“This 8-K was filed in conjunction with Northrop Grumman’s prospectus supplement disclosure, and the Covid-19 risk factor was included with other risk factors set forth in the prospectus supplement.  If we were already experiencing material adverse impacts from Covid-19, we would have had to have said so," the company said in a statement to WT.

Northrop cited the overall macroeconomic environment of “disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital.”

“We cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial position, results of operations and/or cash flows,” Northrop said in its SEC filing.

But the company has also called out issues of running its business that are both not unique to them, but also get at the very nature of government contracting that is based on timely payments from customers. Those could get delayed if the federal government and other customers are limited in their capacity to do so, Northrop said.

Stress on the workforce and the overall supply chain is also a near-certainty.

"If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions in connection with the COVID-19 pandemic, our operations will likely be impacted," said the Securities and Exchange Commission filing. "We may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance."

James Fontana, managing member of law firm Dempsey Fontana, laid out the various contractual legal issues and legal issues that government contractors should examine and potentially act on thoroughly in this guest op-ed published earlier in the week.

Shares in Northrop were down nearly 6.7 percent as of 1 p.m. Eastern time Thursday.