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|Northrop Grumman Reports First Quarter 2011 Financial Results|
- Q1 EPS from Continuing Operations Increase 25 Percent to $1.67
- Sales from Continuing Operations Total $6.7 Billion
- Outstanding Share Repurchase Authorization Increased to $4 Billion
- Quarterly Dividend Increased 6.4 Percent to $0.50 per Share - Eighth Consecutive Annual Dividend Increase
- 2011 Guidance for EPS from Continuing Operations Increased to $6.50 to $6.70
LOS ANGELES, April 27, 2011 /PRNewswire via COMTEX/ -- Northrop Grumman Corporation (NYSE: NOC) reported that first quarter 2011 earnings from continuing operations increased to $496 million, or $1.67 per diluted share, from $410 million, or $1.34 per diluted share, in the first quarter of 2010. Results for both periods reflect the spin-off of Huntington Ingalls Industries, Inc. (HII), the company's shipbuilding business, effective March 31, 2011. Results for HII are reported as discontinued operations for all periods presented.
First quarter 2011 sales totaled $6.7 billion compared with $6.9 billion in the prior year period. First quarter 2011 sales were impacted by the company's reduced participation in the Nevada National Security Site joint venture (NSTec) and the U.S. Government's continuing resolution funding. As a result of the reduced participation in the joint venture, effective Jan. 1, 2011, the company no longer consolidates NSTec revenue. First quarter 2010 sales included NSTec revenue of $136 million.
Cash provided by continuing operations in the first quarter of 2011 totaled $112 million compared with cash used by continuing operations of $452 million in the first quarter of 2010. New business awards for the 2011 first quarter totaled $5.3 billion, bringing total backlog to $43.7 billion as of March 31, 2011. Total backlog also includes a $1.7 billion reduction due to the reduced participation in the NSTec joint venture.
"This was a very productive quarter. We completed the shipbuilding spin-off and our newly aligned portfolio generated solid financial results. We now expect 2011 earnings of $6.50 to $6.70 per share. We also increased the dividend and raised our outstanding share repurchase authorization to $4 billion, which includes committing the $1.4 billion contribution we received in the shipbuilding spin-off to share repurchases," said Wes Bush, chief executive officer and president.
"In today's challenging environment, our actions demonstrate our continued commitment to value creation through performance improvement, portfolio management and effective cash deployment," Bush concluded.
Table 1 - Financial Highlights
First quarter 2011 operating income increased 19 percent to $811 million from $679 million in the prior year period, and as a percent of sales increased to 12 percent from 9.8 percent. The improvement over the prior year reflects an increase in net pension adjustment, higher segment operating income and lower unallocated corporate expenses. First quarter 2011 net pension adjustment increased to income of $103 million from income of $2 million in the prior year period; segment operating income increased by $15 million, and unallocated corporate expenses declined to $10 million from $25 million. The improvement in net pension adjustments reflects favorable 2010 plan asset returns, and the decline in unallocated corporate expenses reflects favorable changes to estimates of recoveries of state taxes and other unallocated expenses.
Interest expense for the 2011 first quarter declined to $58 million from $77 million due to the issuance of $1.5 billion of lower coupon debt in the fourth quarter of 2010 and the retirement of $1.4 billion of higher coupon debt.
Federal and foreign income taxes totaled $262 million in the first quarter of 2011 compared with $199 million in the prior year; the effective tax rates for these periods were 34.6 percent and 32.7 percent, respectively.
First quarter 2011 net earnings totaled $530 million, or $1.79 per diluted share, compared with $469 million, or $1.53 per diluted share, in the first quarter of 2010. Results for both periods reflect the spin-off of HII effective March 31, 2011; shipbuilding financial results are now reported as discontinued operations for all periods presented. First quarter 2011 earnings from discontinued operations totaled $34 million including non-deductible transaction expenses of $23 million related to the HII spin-off.
First quarter 2011 diluted earnings per share are based on 296.9 million weighted average shares outstanding compared with 306.1 million shares in the first quarter of 2010.
Cash Deployment Actions
The company announced that its board of directors declared a quarterly dividend of $0.50 per share on Northrop Grumman common stock, a 6.4 percent increase from the prior quarterly dividend rate of $0.47 per share. This is the eighth consecutive annual increase in Northrop Grumman's quarterly dividend. The dividend is payable June 11, 2011, to shareholders of record as of the close of business May 31, 2011, with an ex-dividend date of May 26, 2011.
The company also announced that its board of directors authorized an increase in the company's outstanding share repurchase authorization to $4 billion of common stock. Share purchases will take place at management's discretion from time to time, depending on market conditions, in the open market or in privately negotiated transactions. As of March 31, 2011, Northrop Grumman had 292.6 million shares outstanding.
Effective March 31, 2011, Huntington Ingalls Industries, Inc., a wholly owned subsidiary of Northrop Grumman, was separated from the company through a spin-off to shareholders. Each shareholder of record as of the close of business of the New York Stock Exchange on March 30, 2011, received one share of HII for every six shares of Northrop Grumman common stock held. Shareholders received cash in lieu of fractional shares. As a result of the spin-off, Northrop Grumman received a $1.429 billion cash contribution from HII, which is reported under investing activities in the condensed consolidated statements of cash flows.
Table 2 - Cash Flow Highlights
Free cash outflow from continuing operations totaled $11 million in the 2011 first quarter compared with outflow of $558 million in the prior year period. The change in the 2011 period primarily resulted from lower working capital requirements.
Table 3 - 2011 Guidance Updated
The increase in guidance for earnings per share from continuing operations contemplates share repurchases and operating results.
Table 4 - Cash Measurements, Debt and Capital Deployment
Changes in cash and cash equivalents include the following items for cash from operations, investing and financing for continuing operations during the first quarter of 2011:
Table 5 - Business Results
Results for the company's shipbuilding business, which was separated from the company through a spin-off to shareholders effective March 31, 2011, are reported as discontinued operations for all periods presented.
Aerospace Systems first quarter 2011 sales increased 1 percent, principally due to higher volume for manned and unmanned aircraft and restricted programs. Higher volume for these programs was partially offset by lower volume for civil space programs. Aerospace Systems first quarter 2011 operating income increased 2 percent, and as a percent of sales totaled 11 percent, unchanged from the prior year period. Higher operating income reflects higher volume than in the prior year period.
Electronic Systems first quarter 2011 sales decreased 4 percent principally due to lower volume for land and self-protection systems, which more than offset higher volume for targeting systems. Electronic Systems first quarter 2011 operating income increased 5 percent, and as a percent of sales increased to 13.1 percent from 12 percent. Higher operating income and margin rate reflect improved program performance, primarily for land and self-protection systems and postal automation programs, which more than offset lower volume.
Information Systems first quarter 2011 sales declined 2 percent due to lower volume for intelligence and defense programs. Civil systems sales were comparable to the prior year period. The decline in intelligence sales is principally due to lower volume for a restricted program transitioning from development to maintenance and the timing of task orders for the Counter Narco-Terrorism Program. Lower defense sales reflect lower volumes for several programs, including the F-22 and the Multi-role Tactical Command Data Link. Information Systems first quarter 2011 operating income increased 6 percent due to improved program performance for several programs, including the Virginia IT outsourcing program, and as a percent of sales increased to 9.6 percent from 8.9 percent.
Technical Services first quarter 2011 sales decreased 10 percent due to the change in the NSTec joint venture, which more than offset higher volume for integrated logistics and modernization and training solutions programs. As previously announced, effective Jan. 1, 2011, the company reduced its participation in the NSTec joint venture, and as a result did not record any sales for the joint venture in the first quarter of 2011 compared with NSTec sales of $136 million the first quarter of 2010. This reduction more than offset higher sales from other programs, principally KC-10 Contractor Logistics Support. Technical Services first quarter 2011 operating income increased 10 percent, and as a percent of sales increased to 7.8 percent from 6.4 percent. Higher operating income reflects improved program performance and the higher margin rate is principally due to the change in revenue consolidation for the NSTec joint venture.
About Northrop Grumman
Northrop Grumman Corporation is a leading global security company providing innovative systems, products, and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide.
Northrop Grumman will webcast its earnings conference call at 11:30 a.m. ET on April 27, 2011. A live audio broadcast of the conference call along with a supplemental presentation will be available on the investor relations page of the company's Web site at http://www.northropgrumman.com/.
Statements in this release and the attachments, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "expect," "intend," "plan," "believe," "estimate," "guidance," and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, financial guidance regarding future sales, segment operating income, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow and earnings. Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements due to factors such as: the effect of economic conditions in the United States and globally; access to capital; future sales and cash flows; timing of cash receipts; effective tax rates and timing and amounts of tax payments; returns on pension plan assets, interest and discount rates and other changes that may impact pension plan assumptions; retiree medical expense; the outcome of litigation, claims, audits, appeals, bid protests and investigations; hurricane and earthquake-related insurance coverage and recoveries; costs of environmental remediation; availability and retention of qualified personnel; costs of capital investments; changes in organizational structure and reporting segments; risks associated with acquisitions, dispositions, spin-off transactions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other intangible assets; effects of legislation, rulemaking, and changes in accounting, tax or defense procurement; changes in government and customer priorities and requirements (including, government budgetary constraints, shifts in defense spending, changes in import and export policies, changes in customer short-range and long-range plans); acquisition or termination of contracts; technical, operation or quality setbacks in contract performance; protection of intellectual property rights; risks associated with our nuclear operations; issues with, and financial viability of, key suppliers and subcontractors; availability of materials and supplies; controlling costs of fixed-price development programs; contractual performance relief and the application of cost sharing terms; allowability and allocability of costs under U.S. Government contracts; progress and acceptance of new products and technology; domestic and international competition; legal, financial and governmental risks related to international transactions; potential security threats, natural disasters and other disruptions not under our control; and other risk factors disclosed in our filings with the Securities and Exchange Commission.
You should not put undue reliance on any forward-looking statements in this release. These forward-looking statements speak only as of the date of this release and we undertake no obligation to update or revise any forward-looking statements after we distribute this release.
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.
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Non-GAAP Financial Measures Disclosure: Today's press 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. While we believe that these non-GAAP financial measures may be useful in evaluating Northrop Grumman's financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release and in attached schedules. References to a "Table" in the definitions below relate to tables in the body of this press release. Other companies may define these measures differently or may utilize different non-GAAP measures.
Cash provided by continuing operations before discretionary pension contributions: Cash provided by operations before the after-tax impact of discretionary pension contributions. Cash provided by continuing operations before discretionary pension contributions has been provided for consistency and comparability of 2011 and 2010 financial performance and is reconciled on Table 2.
Free cash flow from continuing operations: Cash provided by continuing operations less capital expenditures and outsourcing contract and related software costs. We use free cash flow from continuing operations as a key factor in our planning for and consideration of strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow is reconciled in Table 2.
Free cash flow from continuing operations before discretionary pension contributions:Free cash flow from continuing operations before the after-tax impact of discretionary pension contributions. We use free cash flow from continuing operations before discretionary pension contributions as a key factor in our planning for and consideration of strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP.
Net pension adjustment: Pension expense determined in accordance with GAAP less pension expense allocated to the operating segments under U.S. Government Cost Accounting Standards (CAS). Net pension adjustment is presented in Table 1.
After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at the statutory rate of 35%, provided for consistency and comparability of 2011 and 2010 financial performance and reconciled on Table 1.
Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pension adjustment per share. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS from continuing operations, as reconciled in Table 1, as an internal measure of financial performance.
Pension-adjusted operating income: Operating income before net pension adjustment as reconciled in Table 1 and used as an internal measure of financial performance.
Pension-adjusted operating income as a % of sales: Pension-adjusted operating income as defined above, divided by sales. Management uses pension-adjusted operating income as a % of sales, as reconciled in Table 1, as an internal measure of financial performance.
Segment operating income: Total earnings from our four segments including allocated pension expense recognized under CAS. Reconciling items to operating income are unallocated corporate expenses, which include management and administration, legal, environmental, certain compensation and retiree benefits, and other expenses; net pension adjustment; and reversal of royalty income included in segment operating income. Management uses segment operating income, as reconciled in Table 5, as an internal measure of financial performance of our individual operating segments.
Segment operating margin % / Segment operating income as a % of sales: Segment operating income as defined above, divided by sales. Management uses segment operating income as a % of sales, as reconciled in Table 5, as an internal measure of financial performance.
SOURCE Northrop Grumman Corporation