Document


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)
April 25, 2018
Northrop Grumman Corporation
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
 
 
 
 
DELAWARE
(State or Other Jurisdiction
of Incorporation)
 
1-16411
(Commission
File Number)
 
80-0640649
(IRS Employer
Identification No.)

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

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:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On April 25, 2018, Northrop Grumman Corporation issued an earnings release announcing its financial results for the quarter ended March 31, 2018, under the heading “Northrop Grumman Reports First Quarter 2018 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 April 25, 2018
 
 





Signature(s)
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)
 
 
 
 
 
 
April 25, 2018
 
By:
 
/s/ Jennifer C. McGarey
 
 
(Date)
 
 
 
(Signature)
Jennifer C. McGarey
Corporate Vice President and Secretary





Exhibit Index
 
 
 
 
Exhibit No.
 



Exhibit
 
 
Exhibit 99
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12201460&doc=3
 
 
 
 
News Release
 
 
 
 
 
 
 
Contact:
  
Tim Paynter (Media)
 
 
 
  
703-280-2720
 
 
 
  
timothy.paynter@ngc.com
 
 
 
  
 
 
 
 
  
Steve Movius (Investors)
 
 
 
  
703-280-4575
 
 
 
  
steve.movius@ngc.com
Northrop Grumman Reports First Quarter 2018 Financial Results
Q1 Sales Increase 5 Percent to $6.7 Billion
Q1 EPS Increase 14 Percent to $4.21
2018 EPS Guidance Increased to $15.40 to $15.65

FALLS CHURCH, Va. – April 25, 2018 – Northrop Grumman Corporation (NYSE: NOC) reported first quarter 2018 sales increased 5 percent to $6.7 billion from $6.4 billion in the first quarter of 2017. First quarter 2018 net earnings increased 14 percent to $739 million, or $4.21 per diluted share, compared with $650 million, or $3.69 per diluted share, in the prior year period.
“Our strong first quarter financial results reflect our continued focus on delivering long-term profitable growth for our shareholders, customers and employees. All three of our businesses generated solid results. Based on our first quarter results we are raising our guidance for earnings per share," said Wes Bush, chairman and chief executive officer.


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


Northrop Grumman Reports First Quarter 2018 Financial Results
2


Table 1 — Consolidated Operating Results Highlights
 
First Quarter
($ in millions, except per share amounts)
2018
 
2017
Sales
$
6,735

 
$
6,410

Segment operating income1
762

 
741

Segment operating margin rate1
11.3
%
 
11.6
%
Net FAS (service)/CAS pension adjustment
127

 
154

Unallocated corporate expenses and other
(35
)
 
(33
)
Operating income
854

 
862

Operating margin rate
12.7
%
 
13.4
%
Interest expense
(143
)
 
(75
)
Net FAS (non-service) pension benefit (expense)
120

 
(18
)
Other, net
40

 
19

Earnings before income taxes
871

 
788

Federal and foreign income tax expense
(132
)
 
(138
)
Effective income tax rate
15.2
%
 
17.5
%
Net earnings
$
739

 
$
650

Diluted EPS
4.21

 
3.69

 


 


Weighted average shares outstanding — Basic
174.3

 
174.8

Dilutive effect of share-based awards
1.1

 
1.3

Weighted average shares outstanding — Diluted
175.4

 
176.1

1 

Non-GAAP measure — see definitions at the end of this earnings release.
The company's first quarter 2018 results reflect the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and Accounting Standards Update (ASU) No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, using the full retrospective method. Schedules 4 and 5 at the end of this release present comparable prior period consolidated and segment financial information recast to reflect the adoption of these standards.
First quarter 2018 sales increased 5 percent, due to higher sales in Aerospace Systems and Mission Systems, partially offset by lower sales at Technology Services. First quarter segment operating income increased 3 percent due to higher sales. Segment operating margin rate declined to 11.3 percent due to a lower margin rate at Aerospace Systems. First quarter operating income and margin rate declined to $854 million and 12.7 percent, respectively, compared with $862 million and 13.4 percent in the prior year period, primarily due to a $27 million decrease in net FAS (service)/CAS pension adjustment, partially offset by a $21 million increase in segment operating income.
First quarter interest expense increased $68 million. Other, net increased $21 million due to a $31 million increase in interest income. These changes reflect the company's issuance in October 2017 of $8.25 billion of debt to finance its pending acquisition of Orbital ATK.
The company's first quarter effective tax rate declined to 15.2 percent from 17.5 percent in the prior year period. The lower tax rate reflects the benefit of the Tax Cuts and Jobs Act of 2017, which reduced the federal statutory tax rate to 21 percent from 35 percent. First quarter 2018 tax benefits for research credits were comparable to the prior year period, and excess tax benefits related to employee share-based compensation totaled $26 million in the first quarter of 2018 compared with $47 million in the first quarter of 2017. The first quarter of 2017 also benefited from several other discrete items.

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


Northrop Grumman Reports First Quarter 2018 Financial Results
3


Table 2 — Cash Flow Highlights
 
First Quarter
($ millions)
2018
 
2017
Net cash used in operating activities
$
(237
)
 
$
(439
)
Less: capital expenditures
(305
)
 
(216
)
Free cash flow1
$
(542
)
 
$
(655
)
1 

Non-GAAP measure — see definitions at the end of this earnings release.
First quarter 2018 cash used in operating activities totaled $237 million compared with $439 million used in the prior year period. After capital expenditures of $305 million, first quarter 2018 free cash flow1 was a use of $542 million.
Table 3 — Segment Operating Results
 
First Quarter



($ millions)
2018

2017

Change
Sales






Aerospace Systems
$
3,280

 
$
2,984


10
%
Mission Systems
2,883

 
2,800


3
%
Technology Services
1,144

 
1,190


(4
%)
Intersegment eliminations
(572
)
 
(564
)



 
6,735

 
6,410


5
%
Segment operating income1

 




Aerospace Systems
341

 
323


6
%
Mission Systems
371

 
359


3
%
Technology Services
122

 
129


(5
%)
Intersegment eliminations
(72
)
 
(70
)



Segment operating income1, 2
762

 
741


3
%
Segment operating margin rate1
11.3
%
 
11.6
%

(30) bps

1 

Non-GAAP measure — see definitions at the end of this earnings release.
2 

Refer to Table 1 for reconciliation to operating income.
Aerospace Systems
 
First Quarter
 
 
($ in millions)
2018
 
2017
 
Change
Sales
$
3,280

 
$
2,984

 
10
%
Operating income
341

 
323

 
6
%
Operating margin rate
10.4
%
 
10.8
%
 
 
Aerospace Systems first quarter 2018 sales increased 10 percent, principally due to higher Manned Aircraft sales. Higher volume for restricted activities and the F-35 and E-2D programs were the primary drivers of increased Manned Aircraft volume. Autonomous Systems and Space Systems sales were slightly higher than the prior year period. Autonomous Systems sales included higher volume on the Fire Scout and Triton programs, partially offset by lower Global Hawk volume. Space sales included higher restricted and Ground Based Strategic Deterrent volume, partially offset by lower intercompany, James Webb Space Telescope and Advanced Extremely High Frequency payload volume.

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


Northrop Grumman Reports First Quarter 2018 Financial Results
4


Aerospace Systems first quarter 2018 operating income increased 6 percent due to higher sales, and operating margin rate declined to 10.4 percent primarily due to a non-programmatic benefit recognized during the first quarter of 2017 and higher volume on early phase development programs in 2018.
Mission Systems
 
First Quarter
 
 
($ in millions)
2018
 
2017
 
Change
Sales
$
2,883

 
$
2,800

 
3
%
Operating income
371

 
359

 
3
%
Operating margin rate
12.9
%
 
12.8
%
 
 
Mission Systems first quarter 2018 sales increased 3 percent principally due to higher volume for Sensors and Processing programs, partially offset by lower volume for Cyber and ISR programs. Higher Sensors and Processing sales are primarily due to higher volume on electro-optical/infrared self-protection and targeting programs, F-35 sensors, and restricted programs. Lower volume for Cyber and ISR reflects lower volume on restricted ISR activities. Advanced Capabilities sales were comparable to the prior year period.
Mission Systems first quarter 2018 operating income increased 3 percent, consistent with higher sales, and operating margin rate was comparable to the prior year period.
Technology Services
 
First Quarter
 
 
($ in millions)
2018
 
2017
 
Change
Sales
$
1,144

 
$
1,190

 
(4
%)
Operating income
122

 
129

 
(5
%)
Operating margin rate
10.7
%
 
10.8
%
 
 
Technology Services first quarter 2018 sales decreased 4 percent due to the completion in 2017 of several programs in System Modernization and Services and Advanced Defense Services. These declines were partially offset by higher volume on several Global Logistics and Modernization programs, including the Special Electronic Mission Aircraft program.
Technology Services first quarter 2018 operating income decreased 5 percent and operating margin rate was comparable to the prior year period.
2018 Guidance    
2018 financial guidance reflects 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, appropriations, including the timing of appropriations, and the occurrence of continuing resolutions and government shutdowns can impact the company's ability to achieve 2018 guidance. 
While the company currently expects its previously announced acquisition of Orbital ATK will close in the first half of this year, 2018 guidance does not reflect the pending acquisition. Additionally, 2018 guidance reflects only six months of interest on the $8.25 billion of debt issued in October 2017 to finance the acquisition. After the close of the acquisition, the company will update its financial guidance to reflect the acquisition.


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


Northrop Grumman Reports First Quarter 2018 Financial Results
5


2018 Guidance
($ in millions, except per share amounts)
As of 1/25/18
As of 4/25/18
 
 
 
 
 
 
 
Sales
~27,000
~27,000
 
 
 
 
 
 
 
Segment operating margin %1
Low - mid 11%
Low - mid 11%
 
 
 
 
 
 
 
Total net FAS/CAS pension adjustment2
~940
~960
 
 
 
 
 
 
 
Unallocated corporate expenses
~250
~250
 
 
 
Operating margin %
~12%
~12%
 
 
 
 
 
 
 
Net interest expense3
~390
~390
 
 
 
Effective tax rate %
~19.5%
~18%
 
 
 
 
 
 
 
Diluted EPS
15.00
15.25
15.40
15.65
 
 
 
 
 
 
 
Capital expenditures
~1,000
~1,000
 
 
 
 
 
 
 
Free cash flow1
2,000
2,300
2,000
2,300
 
 
 
 
 
 
 
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 expected 2018 CAS pension cost of $875 million and FAS pension benefit of $85 million. In accordance with ASU No. 2017-07, $400 million of FAS (service-related) pension cost is reflected in operating income and $485 million of FAS (non-service) pension benefit is reflected below operating income. CAS pension cost continues to be recorded in operating income. See Schedule 4 for further information.
3 Net Interest Expense (interest expense net of interest income) includes six months of net interest expense for $8.25 billion debt issued in October 2017 to finance the pending Orbital ATK acquisition, as well as a full year of estimated net interest expense for the company's remaining debt. Interest expense is presented as a single line item on the income statement and interest income is included in Other, net on the income statement.


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


Northrop Grumman Reports First Quarter 2018 Financial Results
6


About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at noon Eastern time on April 25, 2018. 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, strike, and logistics and modernization to customers worldwide. Please visit www.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 contain statements, other than statements of historical fact, that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “intend,” “may,” “could,” “plan,” “project,” “forecast,” “believe,” “estimate,” “guidance,” “outlook,” “anticipate,” “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 2017 Annual Report on Form 10-K and 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 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
www.northropgrumman.com/media


Northrop Grumman Reports First Quarter 2018 Financial Results
7


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 and/or environmental 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, 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 post-retirement benefit plans and legislative or other regulatory actions impacting our pension, post-retirement and health and welfare plans
the satisfaction of conditions (including regulatory approvals) to and successful consummation of the pending acquisition of Orbital ATK; 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
Additional information regarding these risks and other important factors can be found in the section entitled “Risk Factors” in our 2017 Annual Report on Form 10-K and from time to time in our other filings with the SEC.
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
www.northropgrumman.com/media



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


 
Three Months Ended March 31
$ in millions, except per share amounts
2018
 
2017
Sales
 
 
 
Product
$
4,289

 
$
3,997

Service
2,446

 
2,413

Total sales
6,735

 
6,410

Operating costs and expenses
 
 
 
Product
3,265

 
2,983

Service
1,905

 
1,867

General and administrative expenses
711

 
698

Operating income
854

 
862

Other income (expense)
 
 
 
Interest expense
(143
)
 
(75
)
Net FAS (non-service) pension benefit (expense)
120

 
(18
)
Other, net
40

 
19

Earnings before income taxes
871

 
788

Federal and foreign income tax expense
132

 
138

Net earnings
$
739

 
$
650

 
 
 
 
Basic earnings per share
$
4.24

 
$
3.72

Weighted-average common shares outstanding, in millions
174.3

 
174.8

 
 
 
 
Diluted earnings per share
$
4.21

 
$
3.69

Weighted-average diluted shares outstanding, in millions
175.4

 
176.1

 
 
 
 
Net earnings (from above)
$
739

 
$
650

Other comprehensive income
 
 
 
Change in unamortized benefit plan costs, net of tax
86

 
99

Change in cumulative translation adjustment
(2
)
 
4

Other, net
(1
)
 
2

Other comprehensive income, net of tax
83

 
105

Comprehensive income
$
822

 
$
755




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


 
March 31,
2018
 
December 31,
2017
$ in millions
 
Assets
 
 
 
Cash and cash equivalents
$
10,369

 
$
11,225

Accounts receivable, net
1,241

 
1,054

Unbilled receivables, net
3,869

 
3,465

Inventoried costs, net
435

 
398

Prepaid expenses and other current assets
243

 
445

Total current assets
16,157

 
16,587

Property, plant and equipment, net of accumulated depreciation of $5,119 for 2018 and $5,066 for 2017
4,285

 
4,225

Goodwill
12,455

 
12,455

Deferred tax assets
474

 
447

Other non-current assets
1,424

 
1,414

Total assets
$
34,795

 
$
35,128

 
 
 
 
Liabilities
 
 
 
Trade accounts payable
$
1,395

 
$
1,661

Accrued employee compensation
1,204

 
1,382

Advance payments and amounts in excess of costs incurred
1,479

 
1,761

Other current liabilities
2,337

 
2,288

Total current liabilities
6,415

 
7,092

Long-term debt, net of current portion of $868 for 2018 and $867 for 2017
14,392

 
14,399

Pension and other post-retirement benefit plan liabilities
5,362

 
5,511

Other non-current liabilities
946

 
994

Total liabilities
27,115

 
27,996

 
 
 
 
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: 2018—174,382,256 and 2017—174,085,619
174

 
174

Paid-in capital

 
44

Retained earnings
13,205

 
11,632

Accumulated other comprehensive loss
(5,699
)
 
(4,718
)
Total shareholders’ equity
7,680

 
7,132

Total liabilities and shareholders’ equity
$
34,795

 
$
35,128




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

 
Three Months Ended March 31
$ in millions
2018
 
2017
Operating activities
 
 
 
Net earnings
$
739

 
$
650

Adjustments to reconcile to net cash used in operating activities:
 
 
 
Depreciation and amortization
122

 
104

Stock-based compensation
19

 
17

Deferred income taxes
(55
)
 
(9
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(187
)
 
(317
)
Unbilled receivables, net
(404
)
 
(665
)
Inventoried costs, net
(37
)
 
(27
)
Prepaid expenses and other assets
13

 
(53
)
Accounts payable and other liabilities
(590
)
 
(357
)
Income taxes payable, net
197

 
152

Retiree benefits
(56
)
 
86

Other, net
2

 
(20
)
Net cash used in operating activities
(237
)
 
(439
)
 
 
 
 
Investing activities
 
 
 
Capital expenditures
(305
)
 
(216
)
Other, net
(2
)
 
2

Net cash used in investing activities
(307
)
 
(214
)
 
 
 
 
Financing activities
 
 
 
Common stock repurchases

 
(229
)
Cash dividends paid
(198
)
 
(166
)
Payments of employee taxes withheld from share-based awards
(79
)
 
(90
)
Net (payments to) proceeds from credit facilities
(14
)
 

Other, net
(21
)
 

Net cash used in financing activities
(312
)
 
(485
)
Decrease in cash and cash equivalents
(856
)
 
(1,138
)
Cash and cash equivalents, beginning of year
11,225

 
2,541

Cash and cash equivalents, end of period
$
10,369

 
$
1,403





SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
PRELIMINARY PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED OPERATING RESULTS HIGHLIGHTS 
(Unaudited)

Effective January 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and Accounting Standards Update (ASU) No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, using the full retrospective method. The adoption of these standards is reflected in our recast consolidated operating results highlights for each of the periods presented below.
 
2016
 
2017
 
2017
 
Total
 
Three Months Ended
 
Total
$ in millions, except per share amounts
Year
 
Mar 31
 
Jun 30
 
Sep 30
 
Dec 31
 
Year
AS REPORTED
 
 
 
 
 
 
 
 
 
 
 
Sales
$
24,508

 
$
6,267

 
$
6,375

 
$
6,527

 
$
6,634

 
$
25,803

Segment operating income1
2,935

 
726

 
753

 
759

 
721

 
2,959

Segment operating margin rate1
12.0
%
 
11.6
%
 
11.8
%
 
11.6
%

10.9
%

11.5
%
Net FAS/CAS pension adjustment
316

 
136

 
137

 
172

 
149

 
594

Unallocated corporate expenses and other
(58
)
 
(30
)
 
(35
)
 
(86
)
 
(103
)
 
(254
)
Operating income
3,193

 
832

 
855

 
845


767


3,299

Operating margin rate
13.0
%
 
13.3
%
 
13.4
%
 
12.9
%

11.6
%

12.8
%
Interest expense
(301
)
 
(75
)
 
(76
)
 
(73
)
 
(136
)
 
(360
)
Other, net
31

 
16

 
28

 
13

 
53

 
110

Earnings before income taxes
2,923

 
773

 
807

 
785


684


3,049

Federal and foreign income tax expense
(723
)
 
(133
)
 
(255
)
 
(140
)
 
(506
)
 
(1,034
)
Effective income tax rate
24.7
%
 
17.2
%
 
31.6
%
 
17.8
%

74.0
%

33.9
%
Net earnings
$
2,200

 
$
640

 
$
552

 
$
645


$
178


$
2,015

Diluted EPS
12.19

 
3.63

 
3.15

 
3.68

 
1.01

 
11.47

Weighted average shares outstanding — Diluted
180.5

 
176.1

 
175.5

 
175.3

 
175.5

 
175.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AS RECAST TO REFLECT ASC TOPICS 606 AND 715
 
 
 
 
 
 
Sales
$
24,706

 
$
6,410

 
$
6,473

 
$
6,569

 
$
6,552

 
$
26,004

Segment operating income1
2,864

 
741

 
759

 
756

 
647

 
2,903

Segment operating margin rate1
11.6
%
 
11.6
%
 
11.7
%
 
11.5
%
 
9.9
%
 
11.2
%
  Net FAS (service)/CAS pension adjustment
457

 
154

 
154

 
170

 
160

 
638

  Unallocated corporate expenses and other
(52
)
 
(33
)
 
(40
)
 
(89
)
 
(103
)
 
(265
)
Operating income
3,269

 
862

 
873

 
837

 
704

 
3,276

Operating margin rate
13.2
%
 
13.4
%
 
13.5
%
 
12.7
%
 
10.7
%
 
12.6
%
Interest expense
(301
)
 
(75
)
 
(76
)
 
(73
)
 
(136
)
 
(360
)
  Net FAS (non-service) pension (expense) benefit
(141
)
 
(18
)
 
(17
)
 
2

 
(11
)
 
(44
)
Other, net
28

 
19

 
32

 
16

 
57

 
124

Earnings before income taxes
2,855

 
788

 
812

 
782

 
614

 
2,996

Federal and foreign income tax expense
(699
)
 
(138
)
 
(257
)
 
(139
)
 
(467
)
 
(1,001
)
Effective income tax rate
24.5
%
 
17.5
%
 
31.7
%
 
17.8
%
 
76.1
%
 
33.4
%
Net earnings
$
2,156

 
$
650

 
$
555

 
$
643


$
147

 
$
1,995

Diluted EPS
11.94

 
3.69

 
3.16

 
3.67

 
0.84

 
11.36

Weighted average shares outstanding — Diluted
180.5

 
176.1

 
175.5

 
175.3

 
175.5

 
175.6

1 

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



SCHEDULE 5
NORTHROP GRUMMAN CORPORATION
PRELIMINARY PRO FORMA FINANCIAL INFORMATION
SEGMENT OPERATING RESULTS
(Unaudited)

Effective January 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, using the full retrospective method. The adoption of ASC 606 is reflected in our recast segment operating results for each of the periods presented below.
 
2016
 
2017
 
2017
 
Total
 
Three Months Ended
 
Total
$ in millions
Year
 
Mar 31
 
Jun 30
 
Sep 30
 
Dec 31
 
Year
AS REPORTED
 
 
 
 
 
 
 
 
 
 
 
Sales
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
$
10,828

 
$
2,898

 
$
2,970

 
$
3,082

 
$
3,005

 
$
11,955

Mission Systems
10,928

 
2,739

 
2,781

 
2,837

 
3,025

 
11,382

Technology Services
4,825

 
1,194

 
1,175

 
1,183

 
1,198

 
4,750

Intersegment eliminations
(2,073
)
 
(564
)
 
(551
)
 
(575
)
 
(594
)
 
(2,284
)
  Total
24,508

 
6,267

 
6,375

 
6,527


6,634


25,803

 
 
 
 
 
 
 
 
 
 
 
 
Segment operating income1
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
1,236

 
312

 
315

 
334

 
298

 
1,259

Mission Systems
1,445

 
353

 
374

 
363

 
363

 
1,453

Technology Services
512

 
131

 
134

 
133

 
126

 
524

Intersegment eliminations
(258
)
 
(70
)
 
(70
)
 
(71
)
 
(66
)
 
(277
)
  Total
$
2,935

 
$
726

 
$
753

 
$
759


$
721


$
2,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AS RECAST TO REFLECT ASC TOPIC 606
 
 
 
 
 
 
 
 
 
 
 
Sales
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
$
10,853

 
$
2,984

 
$
3,003

 
$
3,125

 
$
3,019

 
$
12,131

Mission Systems
11,161

 
2,800

 
2,859

 
2,836

 
2,975

 
11,470

Technology Services
4,765

 
1,190

 
1,162

 
1,183

 
1,152

 
4,687

Intersegment eliminations
(2,073
)
 
(564
)
 
(551
)
 
(575
)
 
(594
)
 
(2,284
)
  Total
24,706

 
6,410

 
6,473

 
6,569

 
6,552

 
26,004

 
 
 
 
 
 
 
 
 
 
 
 
Segment operating income1
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
1,198

 
323

 
320

 
344

 
302

 
1,289

Mission Systems
1,468

 
359

 
384

 
359

 
340

 
1,442

Technology Services
456

 
129

 
125

 
124

 
71

 
449

Intersegment eliminations
(258
)
 
(70
)
 
(70
)
 
(71
)
 
(66
)
 
(277
)
  Total
$
2,864

 
$
741

 
$
759

 
$
756

 
$
647

 
$
2,903

1 

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



Northrop Grumman Reports First Quarter 2018 Financial Results
13


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. References to a “Table” in the definitions below relate to tables in the body of the release. Other companies may define these measures differently or may utilize different non-GAAP measures.
Segment operating income: Total earnings from our three segments, including allocated pension expense recognized under CAS, and excluding unallocated corporate items and FAS pension expense. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors. This measure should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP. Segment operating income is reconciled in Table 1.
Segment operating margin rate: Segment operating income as defined above, and reconciled in Table 1, divided by sales. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors. This measure should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.
Free cash flow: Net cash used in 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 Table 2.
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Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media