Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results
Q4 Earnings Per Share from Continuing Operations Increase 24 Percent to $0.92
2005 Earnings Per Share from Continuing Operations Increase 27 Percent to $3.81
Q4 Sales of $7.9 Billion
2005 Sales Increase 3 Percent to Record $30.7 Billion
Q4 Cash from Operations Increases to $678 Million
2005 Cash from Operations Increases to $2.6 Billion
2006 Financial Guidance Updated
LOS ANGELES, Jan. 24 /PRNewswire-FirstCall/ -- Northrop Grumman Corporation (NYSE: NOC) reported that fourth quarter earnings per share from continuing operations increased 24 percent to $0.92 per diluted share and 2005 earnings per share from continuing operations increased 27 percent to $3.81 per diluted share. Sales for the 2005 fourth quarter were $7.9 billion and a record $30.7 billion for 2005. Net cash provided by operating activities for the 2005 fourth quarter more than doubled to $678 million and cash from operations for the year rose 37 percent to $2.6 billion.
"Our continued focus on performance drove higher sales, earnings and cash," said Ronald D. Sugar, Northrop Grumman chairman, chief executive officer and president. "Solid overall operating performance, monetization of non-core assets, and our action to reduce share count contributed to this year's excellent results.
"Our outstanding cash generation supported the repurchase of $1.2 billion of our stock, a 13 percent increase in our dividend, and the continued strengthening of our balance sheet. This year's strong financial results were achieved despite the charges associated with Hurricane Katrina and the F-16 Block 60 program.
"For 2006, we are raising our guidance for earnings per share and cash from operations. We expect double-digit growth in earnings per share to between $4.25 and $4.40 based on a sales base of approximately $31 billion, and we expect cash from operations to range between $2.3 and $2.6 billion. Based on the strength of this year and our outlook for 2006, we plan to continue executing our balanced cash deployment strategy aimed at increasing value for our shareholders and investing for the future," Sugar concluded.
Fourth Quarter 2005 Results
Fourth quarter 2005 income from continuing operations rose 21 percent to $331 million, or $0.92 per diluted share, from $273 million, or $0.74 per diluted share, for the same period of 2004.
Fourth quarter 2005 income from continuing operations includes higher total segment operating margin, a lower effective tax rate, and a $14 million pre-tax gain on the sale of 1.3 million shares of Endwave common stock, partially offset by a $65 million pre-tax charge for the company's F-16 Block 60 program. Fourth quarter 2004 income from continuing operations included a $42 million pre-tax charge for the Wedgetail program and a $35 million charge for a legal settlement. Sales for the fourth quarter of 2005 were essentially unchanged at $7.9 billion compared with the same period of 2004.
Operating margin for the 2005 fourth quarter was essentially unchanged at $534 million compared with $538 million for the same period of 2004.
Other income/expense for the 2005 fourth quarter increased to income of $16 million from an expense of $25 million for the same period of 2004. During the fourth quarter of 2005, the company sold 1.3 million shares of Endwave common stock, which generated a $14 million pre-tax gain. In the fourth quarter of 2004, the company recorded a $15 million foreign currency exchange loss on the liquidation of a subsidiary loan and a $13 million expense related to the early retirement of debt.
Federal and foreign income taxes for the 2005 fourth quarter declined to $128 million from $150 million in the fourth quarter of 2004. The fourth quarter of 2005 includes a $20 million net tax benefit related to the settlement of prior years IRS appeals cases. The effective tax rate applied to income from continuing operations for the 2005 fourth quarter was 27.9 percent compared with 35.5 percent in the 2004 fourth quarter.
Net income for the 2005 fourth quarter increased 22 percent to $331 million, or $0.92 per diluted share, from $272 million, or $0.74 per diluted share, for the same period of 2004. Earnings per share are based on weighted average diluted shares outstanding of 358.1 million for the fourth quarter of 2005 and 367.1 million for the fourth quarter of 2004.
Contract acquisitions for the 2005 fourth quarter declined to $6.6 billion from $11.9 billion for the same period of 2004. Fourth quarter 2005 contract acquisitions were impacted by the delay in the passage of the 2006 defense budget, which resulted in delayed contract awards. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $56.3 billion at Dec. 31, 2005 compared with $58.1 billion at Dec. 31, 2004.
2005 Results
Income from continuing operations for 2005 rose 27 percent to $1.4 billion, or $3.81 per share, from $1.1 billion, or $2.99 per share, for 2004.
Sales for 2005 increased 3 percent to $30.7 billion from $29.9 billion in 2004 reflecting higher sales in every business but Ships. Operating margin for 2005 increased 9 percent to $2.2 billion from $2.0 billion for 2004, reflecting double-digit increases in operating margin in Integrated Systems, Mission Systems, Information Technology, and Space Technology, and a $92 million decline in unallocated expenses principally due to lower legal expenses.
Net interest expense for 2005 declined to $334 million from $373 million in 2004. The $39 million decrease reflects lower average debt in 2005.
During 2005, the company sold 7.25 million TRW Automotive shares and approximately 3.5 million Endwave shares, which generated pre-tax gains of $70 million and $95 million, respectively. These sales contributed to the increase in other income/expense for 2005 to income of $200 million from an expense of $18 million for 2004.
The effective tax rate applied to income from continuing operations for 2005 was 32.3 percent, unchanged from the previous year.
Net income for 2005 rose 29 percent to $1.4 billion, or $3.85 per diluted share, from $1.1 billion, or $2.97 per diluted share, in 2004. Earnings per share are based on weighted average diluted shares outstanding of 363.2 million for 2005 and 365 million for 2004.
Debt and Cash Measurements
Northrop Grumman's total debt was essentially unchanged at $5.1 billion at Dec. 31, 2005 compared with Dec. 31, 2004. Net debt declined to $3.5 billion at Dec. 31, 2005 compared with $3.9 billion at Dec. 31, 2004.
Net cash provided by operating activities for the fourth quarter of 2005 increased to $678 million from $324 million in the fourth quarter of 2004. Net cash provided by operating activities in 2005 increased to $2.6 billion from $1.9 billion in 2004. Net cash provided by operating activities in 2005 includes contributions to the company's pension plans totaling $415 million, of which $203 million was voluntarily pre-funded in the fourth quarter. Net cash provided by operating activities in 2004 included contributions to the company's pension plans totaling $623 million, of which $250 million was voluntarily pre-funded in the fourth quarter of 2004. Capital spending totaled $305 million for the fourth quarter of 2005 and $824 million for 2005.
2006 Guidance
The company now expects 2006 sales of approximately $31 billion versus its prior guidance of approximately $32 billion, which reflects the impact of the company's strategic decision in 2006 to exit the value-added reseller business (reported under Information Technology as the Enterprise Information Technology business area). The update to 2006 sales guidance also contemplates the completion of the sales of other small businesses.
Earnings per share from continuing operations are expected to range between $4.25 and $4.40, and include estimated pension expense as determined in accordance with accounting principles generally accepted in the United States of $450 million and CAS pension expense of $425 million. The company's estimated pension expense for 2006 is based on a composite discount rate of 5.75 percent and a long-term expected rate of return on plan assets of 8.5 percent. Net cash provided by operating activities is expected to be between $2.3 billion and $2.6 billion in 2006.
Share Repurchase Program
On Oct. 25, 2005, the company announced a new $1.5 billion share repurchase program to be completed over 12 to 18 months. On Nov. 4, 2005, as part of the new program, the company executed a $500 million accelerated share repurchase agreement that reduced its shares outstanding by approximately 9 million. During 2005, the company repurchased approximately 22 million shares of its common stock for $1.2 billion. Since the inception of its share repurchase programs in August 2003, the company has retired approximately 42 million shares of its common stock for $2.2 billion. The company had shares outstanding of 347.4 million as of Dec. 31, 2005.
Segment Results
ELECTRONIC SYSTEMS
($ in millions)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
Sales $1,740 $1,730 $6,642 $6,417
Operating Margin 169 196 710 670
% Operating Margin to Sales 9.7% 11.3% 10.7% 10.4%
Electronic Systems fourth quarter 2005 sales were essentially unchanged from the fourth quarter of 2004 primarily due to increases in Defensive & Navigation Systems, Naval & Marine Systems, and Defense Other, which were partially offset by lower sales in Aerospace Systems. Defensive & Navigation Systems sales increased 13 percent; Naval & Marine and Defense Other sales each increased 8 percent.
Electronic Systems fourth quarter 2005 operating margin declined 14 percent from the fourth quarter of 2004 due to a $65 million pre-tax charge for the F-16 Block 60 fixed-price development program, which was partially offset by improved performance in Defensive & Navigation Systems. The charge reflects a higher estimate to complete the Falcon Edge electronic warfare suite. Fourth quarter 2004 operating margin included the impact of improved performance and contract close-outs for several programs, which was partially offset by a $42 million pre-tax charge for the Wedgetail fixed-price development program.
Electronic Systems 2005 sales increased 4 percent from 2004 due to higher sales in Defensive & Navigation Systems and Government Systems, partially offset by lower sales in Defense Other and Aerospace Systems. Defensive & Navigation Systems sales increased 12 percent due to higher sales for the Large Aircraft Infrared Countermeasures (LAIRCM) and EA-18 programs. Government Systems sales increased 19 percent due to higher sales of bio- detection and communication systems. The decrease in Defense Other reflects the transfer of an airborne surveillance program to Aerospace Systems and lower international sales. The decrease in Aerospace Systems is primarily due to lower volume on the Longbow Missile and Fire Control Radar programs and to lower volume and a sales adjustment on the F-16 Block 60 program, which was partially offset by the airborne surveillance program transfer.
Electronic Systems 2005 operating margin increased 6 percent from 2004 primarily due to higher sales volume in Defensive & Navigation Systems and improved performance in Government Systems.
SHIPS
($ in millions)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
Sales $1,463 $1,714 $5,786 $6,252
Operating Margin 104 107 241 389
% Operating Margin to Sales 7.1% 6.2% 4.2% 6.2%
Ships fourth quarter 2005 sales, which include the financial results of the Newport News and Ship Systems sectors, declined 15 percent from the fourth quarter of 2004 and reflect lower sales at Ship Systems due to hurricane impacts and lower DD(X) sales. Surface Combatants sales declined 56 percent due to lower DD(X) sales and hurricane-related work delays. Expeditionary Warfare sales declined 14 percent due to hurricane-related work delays. Aircraft Carriers revenue increased 8 percent due to higher revenue from the USS George Washington and USS Carl Vinson programs. Ships fourth quarter 2005 operating margin declined 3 percent from the fourth quarter of 2004 reflecting lower volume on the DD(X) program, partially offset by higher operating margin in Aircraft Carriers and Submarines.
Ships 2005 sales declined 7 percent from 2004. Higher sales in Aircraft Carriers, Submarines, and Coast Guard & Coastal Defense were offset by sales declines in Surface Combatants, Commercial & Other, and Expeditionary Warfare. Surface Combatants sales declined 30 percent due to lower DD(X) sales and hurricane-related work delays. Commercial & Other declined 73 percent and Expeditionary Warfare sales declined 2 percent due to hurricane-related work delays on the LHD program.
Ships 2005 operating margin declined 38 percent from 2004, and includes higher operating margin in Aircraft Carriers and Submarines and a $150 million third quarter 2005 cumulative adjustment to operating margin to account for hurricane-related cost growth at the Ship Systems sector.
INTEGRATED SYSTEMS
($ in millions)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
Sales $1,483 $1,298 $5,612 $4,742
Operating Margin 118 101 474 412
% Operating Margin to Sales 8.0% 7.8% 8.4% 8.7%
Integrated Systems fourth quarter 2005 sales increased 14 percent from the fourth quarter of 2004 due to higher sales in all business areas. Integrated Systems Western Region sales rose 10 percent; Airborne Early Warning & Electronic Warfare Systems sales increased 20 percent due to higher volume from the E-2 Advanced Hawkeye and EA-6B programs; and Airborne Ground Surveillance & Battle Management Systems sales rose 23 percent primarily due to higher volume on the E-10A program. Integrated Systems fourth quarter 2005 operating margin increased 17 percent from the fourth quarter of 2004 due to higher sales volume and improved performance.
Integrated Systems 2005 sales increased 18 percent from 2004 due to higher sales in all business areas. Airborne Early Warning & Electronic Warfare Systems sales rose 33 percent due to higher volume from the E-2 Advanced Hawkeye and EA-18G programs, and Integrated Systems Western Region sales increased 15 percent due to higher sales in the Unmanned Systems, the Multi- Platform Radar Technology Insertion Program (MP-RTIP) and the B-2 program.
Integrated Systems 2005 operating margin increased 15 percent from 2004 due to higher sales volume. The change in operating margin rate was due to a greater proportion of lower margin development program revenue.
MISSION SYSTEMS
($ in millions)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
Sales $1,332 $1,200 $5,362 $4,947
Operating Margin 91 77 381 321
% Operating Margin to Sales 6.8% 6.4% 7.1% 6.5%
Mission Systems fourth quarter 2005 sales increased 11 percent from the fourth quarter of 2004 due to higher sales in all business areas. Command, Control & Intelligence Systems revenue increased 14 percent, Missile Systems sales increased 8 percent, and Technical & Management Services sales increased 10 percent. Mission Systems fourth quarter 2005 operating margin increased 18 percent from the fourth quarter of 2004 due to higher sales volume and improved performance in Command, Control & Intelligence Systems.
Mission Systems 2005 sales increased 8 percent from 2004 due to higher sales in Command, Control & Intelligence Systems and Missile Systems. Command, Control & Intelligence Systems sales increased 7 percent due to growth in several programs, and Missile Systems sales increased 18 percent due to revenue from the Kinetic Energy Interceptor and Intercontinental Ballistic Missile programs. Mission Systems 2005 operating margin increased 19 percent from 2004 due to higher sales volume and improved performance in Command, Control & Intelligence Systems and Missile Systems.
INFORMATION TECHNOLOGY
($ in millions)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
Sales $1,383 $1,335 $5,254 $5,051
Operating Margin 88 77 355 301
% Operating Margin to Sales 6.4% 5.8% 6.8% 6.0%
Information Technology fourth quarter 2005 sales increased 4 percent from the fourth quarter of 2004 due to higher sales in Government Information Technology and Commercial Information Technology, partially offset by lower Enterprise Information Technology sales. Government Information Technology sales rose 12 percent due to the Integic acquisition, higher volume in existing programs and new program awards. Information Technology fourth quarter 2005 operating margin increased 14 percent from the fourth quarter of 2004 due to higher sales volume and improved performance in Government Information Technology, partially offset by lower performance in Enterprise Information Technology.
Information Technology 2005 sales increased 4 percent from 2004 primarily due to higher revenue in Government Information Technology, Commercial Information Technology and Technology Services, partially offset by lower Enterprise Information Technology sales. Government Information Technology revenue increased 9 percent due to higher volume in existing programs, the acquisition of Integic and new business awards. Commercial Information Technology sales rose 8 percent due to new business awards. Information Technology 2005 operating margin increased 18 percent from 2004 due to higher sales volume and improved performance in Government Information Technology and Commercial Information Technology, partially offset by lower performance at Enterprise Information Technology.
SPACE TECHNOLOGY
($ in millions)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
Sales $815 $804 $3,395 $3,269
Operating Margin 57 53 255 222
% Operating Margin to Sales 7.0% 6.6% 7.5% 6.8%
Space Technology fourth quarter 2005 sales increased 1 percent from the fourth quarter of 2004 due to a 9 percent increase in Civil Space sales partially offset by lower sales in other business areas. Space Technology fourth quarter 2005 operating margin increased 8 percent from the fourth quarter of 2004 due to improved program performance at five of the six business areas, partially offset by lower program performance in Civil Space.
Space Technology sales increased 4 percent in 2005 compared with 2004 due to higher sales in Civil Space and Intelligence, Surveillance & Reconnaissance, partially offset by lower sales in Satellite Communications, Missile & Space Defense, and Software Defined Radios. Civil Space sales increased 23 percent due to higher revenue from NASA and NOAA programs. Intelligence, Surveillance & Reconnaissance sales increased 10 percent due to higher volume in restricted programs. Space Technology 2005 operating margin increased 15 percent due to higher sales volume and improved program performance in Intelligence, Surveillance & Reconnaissance.
Future Presentation Format
Beginning with the announcement of first quarter 2006 financial results, the company will adopt a new presentation format as depicted in Schedule 5 of this press release. The new presentation format includes the establishment of the Technical Services segment on Jan. 1, 2006. To enhance the company's presentation of its performance, the Mission Systems, Information Technology and Technical Services segment results will be collectively presented as Information & Services. The Integrated Systems and Space Technology segment results will be collectively presented as Aerospace. Electronic Systems will be presented as Electronics. Ships will continue to include the financial results of Ship Systems and Newport News. This new presentation format does not reflect a change to the company's organizational structure.
Schedule 5 provides the company's quarterly financial results under the new format for years 2003, 2004 and 2005 and includes a revision to intercompany margin recognition and elimination for the company's operating segments.
Fourth Quarter 2005 Highlights
* Northrop Grumman was awarded an interim contract by the commonwealth of
Virginia to help transform and improve its information technology
infrastructure to ensure quality services are delivered to state
agencies and the citizens they serve. The interim contract phase is
funded at $3.5 million. Upon review by Virginia's General Assembly, the
interim contract will transition to a 10-year contract valued at
approximately $2 billion and will include cost reimbursable, fixed-
priced and fixed-unit pricing contractual provisions.
* The U.S. Navy awarded Northrop Grumman a contract valued at
approximately $1.94 billion for the refueling and complex overhaul of
the aircraft carrier USS Carl Vinson.
* Northrop Grumman received a $558.6 million contract modification to
exercise an option under a previously awarded contract for continuation
of work on the new generation nuclear-powered aircraft carrier, CVN 21.
* The U.S. Air Force awarded Northrop Grumman a five-year, $532 million
contract for the Joint Surveillance Target Attack Radar System (Joint
STARS) System Improvement Program to provide systems design and
development improvements to the E-8C Joint STARS fleet.
* Northrop Grumman was awarded a blanket purchase agreement for the
installation, engineering and maintenance of the U.S. Social Security
Administration's local area network. The network is critical to
providing availability and security to Social Security customers. The
blanket purchase agreement is valued at up to $153 million over five
years.
* Northrop Grumman delivered one of the most technologically advanced and
sailor-friendly U.S. Navy warships ever built. The amphibious
transport dock ship USS San Antonio (LPD 17) represents the first in a
class that will form a solid foundation for the Navy's new
expeditionary warfare strategy.
* Northrop Grumman redelivered the USS George Washington to the U.S. Navy
following a 10-and-a-half-month maintenance availability.
* The U.S. Postal Service recognized Northrop Grumman performance on the
Biohazard Detection System Program with two prestigious awards -- the
Quality Supplier of the Year Award and the Engineering Excellence
Award.
* Northrop Grumman achieved its twenty-first CMMI(R) Level 5 rating, the
highest possible for benchmarking commercial and defense industry best
practices for management and engineering.
* A high-energy, solid-state laser developed by Northrop Grumman for the
U.S. military has fired one of the most powerful beams yet produced by
an electric laser of more than 27 kW with a run time of 350 seconds.
About Northrop Grumman
Northrop Grumman Corporation is a global defense company headquartered in Los Angeles, Calif. Northrop Grumman provides a broad array of technologically advanced, innovative products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding, and space technology. The company has more than 125,000 employees and operates in all 50 states and 25 countries and serves U.S. and international military, government and commercial customers.
Northrop Grumman will webcast its earnings conference call at 12 p.m. EST on Jan. 24, 2006. 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.
Note: Certain statements and assumptions in this release contain or are based on "forward-looking" information that Northrop Grumman Corporation (the "Company") believes to be within the definition in the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties, and include, among others, statements in the future tense, and all statements accompanied by terms such as "project," "expect," "estimate," "assume," "believe," "plan," "guidance" or variations thereof. This information reflects the Company's best estimates when made, but the Company expressly disclaims any duty to update this information if new data becomes available or estimates change after the date of this release.
Such "forward-looking" information includes, among other things, financial guidance regarding sales, segment operating margin, pension expense, employer contributions under pension plans and medical and life benefits plans, and cash flow, and is subject to numerous assumptions and uncertainties, many of which are outside the Company's control. These include the Company's assumptions with respect to future revenues; expected program performance and cash flows; returns on pension plan assets and variability of pension actuarial and related assumptions; the outcome of litigation and appeals; hurricane recoveries; environmental remediation; divestitures of businesses; successful reduction of debt; successful negotiation of contracts with labor unions; effective tax rates and timing and amounts of tax payments; the results of any audit or appeal process with the Internal Revenue Service; and anticipated costs of capital investments, among other things.
The Company's operations are subject to various additional risks and uncertainties resulting from its position as a supplier, either directly or as subcontractor or team member, to the U.S. government and its agencies as well as to foreign governments and agencies; actual outcomes are dependent upon various factors, including, without limitation, the Company's successful performance of internal plans; government customers' budgetary constraints; customer changes in short-range and long-range plans; domestic and international competition in both the defense and commercial areas; product performance; continued development and acceptance of new products and, in connection with any fixed-price development programs, controlling cost growth in meeting production specifications and delivery rates; performance issues with key suppliers and subcontractors; government import and export policies; acquisition or termination of government contracts; the outcome of political and legal processes and of the assertion or prosecution of potential substantial claims by or on behalf of a U.S. government customer; natural disasters, including recent hurricanes affecting the Company's Gulf Coast shipyards and the associated risks underlying the Company's assumptions regarding achieving expected learning-curve progress, amounts and timing of recoveries under insurance contracts, availability of materials and supplies, continuation of the supply chain, contractual performance relief and the application of cost sharing terms, impacts of timing of cash receipts and the availability of other mitigating elements; terrorist acts; legal, financial, and governmental risks related to international transactions and global needs for military aircraft, military and civilian electronic systems and support, information technology, naval vessels, space systems and related technologies, as well as other economic, political and technological risks and uncertainties and other risk factors set out in the Company's filings from time to time with the Securities and Exchange Commission, including, without limitation, Company reports on Form 10-K and Form 10-Q.
NORTHROP GRUMMAN CORPORATION SCHEDULE 1
FINANCIAL HIGHLIGHTS
($ in millions, except per share)
(unaudited)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
OPERATING RESULTS HIGHLIGHTS
Total contract acquisitions (1) $6,556 $11,892 $25,186 $30,487
Total sales 7,860 7,846 30,721 29,853
Total operating margin 534 538 2,178 2,006
Income from continuing operations 331 273 1,383 1,093
Net income 331 272 1,400 1,084
Diluted earnings per share from
continuing operations .92 .74 3.81 2.99
Diluted earnings per share .92 .74 3.85 2.97
Net cash provided by operating
activities 678 324 2,645 1,936
DEC 31, DEC 31,
2005 2004(4)
BALANCE SHEET HIGHLIGHTS
Cash and cash equivalents $1,605 $1,230
Accounts receivable, net 3,656 3,546
Inventoried costs, net 1,174 1,069
Property, plant, and
equipment, net 4,404 4,210
Total debt 5,145 5,158
Net debt (2) 3,540 3,928
Mandatorily redeemable
preferred stock 350 350
Shareholders' equity 16,824 16,700
Total assets 34,211 33,369
Net debt to capitalization
ratio (3) 16% 18%
(1) Contract acquisitions represent orders received during the period
for which funding has been contractually obligated by the
customer.
(2) Total debt less cash and cash equivalents.
(3) Net debt divided by the sum of shareholders' equity and total
debt.
(4) Certain prior year amounts have been reclassified to conform to
the 2005 presentation.
NORTHROP GRUMMAN CORPORATION SCHEDULE 2
OPERATING RESULTS
(in millions, except per share)
(unaudited)
FOURTH QUARTER TOTAL YEAR
2005 2004 2005 2004
Sales
Electronic Systems $1,740 $1,730 $6,642 $6,417
Ships 1,463 1,714 5,786 6,252
Integrated Systems 1,483 1,298 5,612 4,742
Mission Systems 1,332 1,200 5,362 4,947
Information Technology 1,383 1,335 5,254 5,051
Space Technology 815 804 3,395 3,269
Other 11 52 42 230
Intersegment Eliminations (367) (287) (1,372) (1,055)
$7,860 $7,846 $30,721 $29,853
Operating margin
Electronic Systems $169 $196 $710 $670
Ships 104 107 241 389
Integrated Systems 118 101 474 412
Mission Systems 91 77 381 321
Information Technology 88 77 355 301
Space Technology 57 53 255 222
Other (6) (9) (17) (3)
Total segment operating margin (1) 621 602 2,399 2,312
Reconciliation to operating margin
Unallocated expenses (79) (66) (190) (282)
Pension expense (102) (86) (410) (350)
Reversal of CAS pension expense
included above 94 91 389 338
Reversal of royalty income
included above (3) (10) (12)
Operating margin 534 538 2,178 2,006
Interest income 10 6 54 58
Interest expense (101) (96) (388) (431)
Other, net 16 (25) 200 (18)
Income from continuing operations
before income taxes 459 423 2,044 1,615
Federal and foreign income taxes 128 150 661 522
Income from continuing operations 331 273 1,383 1,093
Income from discontinued operations,
net of tax 1 3
(Loss) gain from disposal of
discontinued operations, net of tax (2) 17 (12)
Net income $331 $272 $1,400 $1,084
Weighted-average diluted shares
outstanding 358.05 367.12 363.17 364.95
Diluted earnings per share
Continuing operations $.92 $.74 $3.81 $2.99
Discontinued operations .01
Disposal of discontinued operations .04 (.03)
Diluted earnings per share $.92 $.74 $3.85 $2.97
(1) Non-GAAP measure. Management uses segment operating margin as an
internal measure of financial performance for the individual business
segments.
Pension expense is included in determining the segments' operating
margin to the extent that the cost is currently recognized under U.S.
Government Cost Accounting Standards (CAS). In order to reconcile
from segment operating margin to total company operating margin,
these amounts are reported under the caption "Reversal of CAS pension
expense included above." Total pension expense or income
determined in accordance with accounting principles generally
accepted in the United States is reported separately as a reconciling
item under the caption "Pension expense." The reconciling item
captioned "Unallocated expenses" includes the portion of corporate,
legal, environmental, other retiree benefits, stock compensation, and
other expenses not allocated to the segments.
NORTHROP GRUMMAN CORPORATION SCHEDULE 3
ADDITIONAL SEGMENT INFORMATION
($ in millions)
(unaudited)
CONTRACT FUNDED
ACQUISITIONS(1) BACKLOG(2)
FOURTH QUARTER TOTAL YEAR DECEMBER 31,
2005 2004 2005 2004 2005 2004
Electronic Systems $1,703 $2,157 $6,238 $6,706 $6,374 $6,757
Ships 818 2,944 2,750 5,668 6,129 9,165
Integrated Systems 1,262 2,127 4,669 5,135 3,748 4,691
Mission Systems 1,238 1,896 4,744 5,209 2,549 3,167
Information
Technology 1,227 1,743 5,382 5,300 2,696 2,568
Space Technology 673 1,364 2,645 3,460 999 1,749
Other (22) 38 19 216 5 49
Intersegment
Eliminations (343) (377) (1,261) (1,207) (473) (584)
Total $6,556 $11,892 $25,186 $30,487 $22,027 $27,562
TOTAL BACKLOG, DECEMBER 31, 2005
TOTAL
FUNDED UNFUNDED(3) BACKLOG
Electronic Systems $6,374 $1,971 $8,345
Ships 6,129 5,383 11,512
Integrated Systems 3,748 8,543 12,291
Mission Systems 2,549 7,881 10,430
Information Technology 2,696 3,684 6,380
Space Technology 999 6,807 7,806
Other 5 - 5
Intersegment Eliminations (473) - (473)
Total $22,027 $34,269 $56,296
(1) Contract acquisitions represent orders received during the period
for which funding has been contractually obligated
by the customer.
(2) Funded backlog represents unfilled orders for which funding has
been contractually obligated by the customer.
(3) Unfunded backlog excludes unexercised contract options and unfunded
Indefinite Delivery Indefinite Quantity (IDIQ).
Unfunded backlog represents firm orders for which funding is not
currently contractually obligated by the customer.
NORTHROP GRUMMAN CORPORATION SCHEDULE 4
SALES BY BUSINESS AREA WITHIN SEGMENTS
($ in millions)
(unaudited)
FOURTH QUARTER TOTAL YEAR
2005 2004(1) 2005 2004(1)
Electronic Systems
Defensive & Navigation Systems $563 $497 $2,053 $1,835
Aerospace Systems 350 422 1,590 1,609
Naval & Marine Systems 259 240 887 857
Government Systems 216 223 823 689
C4ISR & Space Systems 159 169 641 652
Defense Other 193 179 648 775
1,740 1,730 6,642 6,417
Ships
Aircraft Carriers 564 520 1,975 1,901
Expeditionary Warfare 378 440 1,411 1,436
Surface Combatants 213 487 1,345 1,921
Submarines 236 210 807 730
Coast Guard & Costal Defense 40 39 154 114
Services 31 26 99 99
Commercial & Other 5 23 38 142
Intrasegment Eliminations (4) (31) (43) (91)
1,463 1,714 5,786 6,252
Integrated Systems
Integrated Systems Western
Region 867 786 3,299 2,874
Airborne Early Warning &
Electronic Warfare Systems 438 366 1,689 1,273
Airborne Ground Surveillance &
Battle Management Systems 182 148 637 600
Intrasegment Eliminations (4) (2) (13) (5)
1,483 1,298 5,612 4,742
Mission Systems
Command, Control &
Intelligence Systems 810 708 3,218 3,014
Missile Systems 376 347 1,517 1,288
Technical & Management
Services 170 154 679 699
Intrasegment Eliminations (24) (9) (52) (54)
1,332 1,200 5,362 4,947
Information Technology
Government Information
Technology 849 761 3,265 3,004
Enterprise Information
Technology 222 269 728 867
Commercial Information
Technology 183 164 711 656
Technology Services 169 174 694 650
Intrasegment Eliminations (40) (33) (144) (126)
1,383 1,335 5,254 5,051
Space Technology
Intelligence, Surveillance &
Reconnaissance 266 267 1,149 1,048
Civil Space 185 169 783 639
Software Defined Radios 121 123 529 546
Satellite Communications 117 113 449 509
Missile & Space Defense 104 109 425 477
Technology 33 28 121 102
Intrasegment Eliminations (11) (5) (61) (52)
815 804 3,395 3,269
Other 11 52 42 230
Intersegment Eliminations (367) (287) (1,372) (1,055)
Total Sales $7,860 $7,846 $30,721 $29,853
(1) Where material, certain prior year amounts have been
reclassified to conform to the 2005 presentation.
NORTHROP GRUMMAN CORPORATION SCHEDULE 5.1
NORTHROP GRUMMAN TECHNICAL SERVICES REALIGNMENT
SEGMENT OPERATING RESULTS
($ in millions)
(unaudited)
AS REPORTED
2005
Three Months Ended Total
SALES Mar 31 Jun 30 Sep 30 Dec 31 Year
Information & Services
Mission Systems $1,305 $1,320 $1,405 $1,332 $5,362
Information Technology 1,229 1,331 1,311 1,383 5,254
Technical Services
Total Information & Services 2,534 2,651 2,716 2,715 10,616
Aerospace
Integrated Systems 1,299 1,404 1,426 1,483 5,612
Space Technology 863 875 842 815 3,395
Total Aerospace 2,162 2,279 2,268 2,298 9,007
Electronics 1,543 1,765 1,594 1,740 6,642
Ships 1,514 1,587 1,222 1,463 5,786
Other 11 11 9 11 42
Intersegment Eliminations (311) (331) (363) (367) (1,372)
Total Sales $7,453 $7,962 $7,446 $7,860 $30,721
SEGMENT OPERATING MARGIN
Information & Services
Mission Systems $91 $99 $100 $91 $381
Information Technology 85 89 93 88 355
Technical Services
Total Information & Services 176 188 193 179 736
Aerospace
Integrated Systems 136 108 112 118 474
Space Technology 62 69 67 57 255
Total Aerospace 198 177 179 175 729
Electronics 161 198 182 169 710
Ships 104 101 (68) 104 241
Other (1) (5) (5) (6) (17)
Intersegment Eliminations
Total Segment
Operating Margin(1) $638 $659 $481 $621 $2,399
(1) Non-GAAP measure. Management uses segment operating margin as an
internal measure of financial performance for the individual
business segments.
NORTHROP GRUMMAN CORPORATION SCHEDULE 5.1
NORTHROP GRUMMAN TECHNICAL SERVICES REALIGNMENT
SEGMENT OPERATING RESULTS
($ in millions)
(unaudited)
REALIGNED
2005
Three Months Ended Total
SALES Mar 31 Jun 30 Sep 30 Dec 31 Year
Information & Services
Mission Systems $1,254 $1,271 $1,356 $1,279 $5,160
Information Technology 1,034 1,127 1,110 1,194 4,465
Technical Services 274 286 276 267 1,103
Total Information & Services 2,562 2,684 2,742 2,740 10,728
Aerospace
Integrated Systems 1,287 1,391 1,417 1,474 5,569
Space Technology 863 875 842 815 3,395
Total Aerospace 2,150 2,266 2,259 2,289 8,964
Electronics 1,547 1,769 1,595 1,743 6,654
Ships 1,514 1,587 1,222 1,463 5,786
Other 11 11 9 11 42
Intersegment Eliminations (331) (355) (381) (386) (1,453)
Total Sales $7,453 $7,962 $7,446 $7,860 $30,721
SEGMENT OPERATING MARGIN
Information & Services
Mission Systems $93 $99 $101 $94 $387
Information Technology 76 77 81 79 313
Technical Services 12 14 17 17 60
Total Information & Services 181 190 199 190 760
Aerospace
Integrated Systems 142 117 120 126 505
Space Technology 67 74 72 61 274
Total Aerospace 209 191 192 187 779
Electronics 162 199 182 169 712
Ships 107 102 (65) 105 249
Other (1) (5) (5) (6) (17)
Intersegment Eliminations (20) (18) (22) (24) (84)
Total Segment
Operating Margin(1) $638 $659 $481 $621 $2,399
(1) Non-GAAP measure. Management uses segment operating margin as an
internal measure of financial performance for the individual
business segments.
NORTHROP GRUMMAN CORPORATION SCHEDULE 5.2
NORTHROP GRUMMAN TECHNICAL SERVICES REALIGNMENT
SEGMENT OPERATING RESULTS
($ in millions)
(unaudited)
AS REPORTED
2003 2004
Total Three Months Ended Total
SALES Year Mar 31 Jun 30 Sep 30 Dec 31 Year
Information & Services
Mission Systems $4,172 $1,183 $1,298 $1,266 $1,200 $4,947
Information
Technology 4,651 1,230 1,225 1,261 1,335 5,051
Technical Services
Total Information &
Services 8,823 2,413 2,523 2,527 2,535 9,998
Aerospace
Integrated Systems 3,847 1,147 1,133 1,164 1,298 4,742
Space Technology 2,823 806 836 823 804 3,269
Total Aerospace 6,670 1,953 1,969 1,987 2,102 8,011
Electronics 6,039 1,538 1,591 1,558 1,730 6,417
Ships 5,451 1,444 1,557 1,537 1,714 6,252
Other 191 59 61 58 52 230
Intersegment
Eliminations (778) (243) (266) (259) (287) (1,055)
Total Sales $26,396 $7,164 $7,435 $7,408 $7,846 $29,853
SEGMENT OPERATING MARGIN
Information & Services
Mission Systems $266 $76 $86 $82 $77 $321
Information
Technology 269 71 73 80 77 301
Technical Services
Total Information &
Services 535 147 159 162 154 622
Aerospace
Integrated Systems 384 116 90 105 101 412
Space Technology 193 51 61 57 53 222
Total Aerospace 577 167 151 162 154 634
Electronics 590 158 138 178 196 670
Ships 295 86 100 96 107 389
Other (74) 2 3 1 (9) (3)
Intersegment
Eliminations
Total Segment
Operating Margin (1) $1,923 $560 $551 $599 $602 $2,312
(1) Non-GAAP measure. Management uses segment operating margin as
an internal measure of financial performance for the individual
business segments.
NORTHROP GRUMMAN CORPORATION SCHEDULE 5.2
NORTHROP GRUMMAN TECHNICAL SERVICES REALIGNMENT
SEGMENT OPERATING RESULTS
($ in millions)
(unaudited)
REALIGNED
2003 2004
Total Three Months Ended Total
SALES Year Mar 31 Jun 30 Sep 30 Dec 31 Year
Information & Services
Mission Systems $3,913 $1,115 $1,233 $1,214 $1,159 $4,721
Information
Technology 3,958 1,050 1,048 1,079 1,141 4,318
Technical Services 1,034 272 266 259 263 1,060
Total Information &
Services 8,905 2,437 2,547 2,552 2,563 10,099
Aerospace
Integrated Systems 3,808 1,134 1,120 1,153 1,286 4,693
Space Technology 2,823 806 836 823 804 3,269
Total Aerospace 6,631 1,940 1,956 1,976 2,090 7,962
Electronics 6,050 1,543 1,599 1,560 1,737 6,439
Ships 5,451 1,444 1,557 1,537 1,714 6,252
Other 191 59 61 58 52 230
Intersegment
Eliminations (832) (259) (285) (275) (310) (1,129)
Total Sales $26,396 $7,164 $7,435 $7,408 $7,846 $29,853
SEGMENT OPERATING MARGIN
Information & Services
Mission Systems $265 $78 $88 $84 $80 $330
Information
Technology 241 60 64 72 70 266
Technical Services 39 12 10 9 9 40
Total Information &
Services 545 150 162 165 159 636
Aerospace
Integrated Systems 403 127 93 109 108 437
Space Technology 207 54 65 61 56 236
Total Aerospace 610 181 158 170 164 673
Electronics 591 158 139 177 196 670
Ships 297 88 101 98 108 395
Other (74) 2 3 1 (9) (3)
Intersegment
Eliminations (46) (19) (12) (12) (16) (59)
Total Segment
Operating Margin (1) $1,923 $560 $551 $599 $602 $2,312
(1) Non-GAAP measure. Management uses segment operating margin as
an internal measure of financial performance for the individual
business segments.
SOURCE Northrop Grumman Corporation
CONTACT: Media, Dan McClain, +1-310-201-3335, or Investors, Gaston Kent, +1-310-201-3423, both of Northrop Grumman Corporation