Form 8-K

 

   

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)

January 24, 2006

 

 

Northrop Grumman Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware   1-16411   95-4840775

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

1840 Century Park East, Los Angeles, CA 90067

(Address of principal executive offices)(Zip Code)

 

 

(310) 553-6262

Registrant’s telephone number, including area code

 

 

 
(Former name or former address, if changed since last report)

 

 

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:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ 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 January 24, 2006, Northrop Grumman Corporation issued a press release announcing its financial results for the quarter and year ended December 31, 2005, under the heading “Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results.” The press release is furnished as Exhibit 99.

 

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

 

(c) Exhibits

 

Furnished    


Exhibit 99 - Press Release dated January 24, 2006


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)

January 24, 2006

          (Date)

 

By:

 

/s/ John H. Mullan


     

(Signature)

       

John H. Mullan

       

Corporate Vice President and Secretary


Exhibit Index

 

Exhibit No.    

   
Exhibit 99   Furnished – Press Release dated January 24, 2006
Press Release dated January 24, 2006

Exhibit 99

 

LOGO

 

    Contact:   

Dan McClain (Media)

    
        

(310) 201-3335

    
        

Gaston Kent (Investors)    

    
        

(310) 201-3423

    

 

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, 2006 – 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.

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

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“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

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

  3

 

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.

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

  4

 

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.

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

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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.

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

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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

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

  7

 

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 %

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

  8

 

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.

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

  9

 

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 Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

  10

 

    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® 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;

 

Northrop Grumman Corporation Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


Northrop Grumman Reports 2005 Fourth Quarter and Year-End Results

  11

 

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 Ÿ 1840 Century Park East Ÿ Los Angeles, CA 90067

 

www.northropgrumman.com


SCHEDULE 1

 

NORTHROP GRUMMAN CORPORATION

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,
2005


    DEC 31,
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.


SCHEDULE 2

 

NORTHROP GRUMMAN CORPORATION

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.


SCHEDULE 3

 

NORTHROP GRUMMAN CORPORATION

ADDITIONAL SEGMENT INFORMATION

($ in millions)

(unaudited)

 

     CONTRACT
ACQUISITIONS(1)


    FUNDED
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

                   
     FUNDED

    UNFUNDED(3)

    TOTAL
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.


SCHEDULE 4

 

NORTHROP GRUMMAN CORPORATION

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.


SCHEDULE 5

 

NORTHROP GRUMMAN CORPORATION

NORTHROP GRUMMAN TECHNICAL SERVICES REALIGNMENT

SEGMENT OPERATING RESULTS

($ in millions)

(unaudited)

 

     AS REPORTED 2005

    REALIGNED 2005

 
     Three Months Ended

   

Total

Year


    Three Months Ended

   

Total

Year


 
     Mar 31

    Jun 30

    Sep 30

    Dec 31

      Mar 31

    Jun 30

    Sep 30

    Dec 31

   

Sales

                                                                                

Information & Services

                                                                                

Mission Systems

   $ 1,305     $ 1,320     $ 1,405     $ 1,332     $ 5,362     $ 1,254     $ 1,271     $ 1,356     $ 1,279     $ 5,160  

Information Technology

     1,229       1,331       1,311       1,383       5,254       1,034       1,127       1,110       1,194       4,465  

Technical Services

                                             274       286       276       267       1,103  
    


 


 


 


 


 


 


 


 


 


Total Information & Services

     2,534       2,651       2,716       2,715       10,616       2,562       2,684       2,742       2,740       10,728  

Aerospace

                                                                                

Integrated Systems

     1,299       1,404       1,426       1,483       5,612       1,287       1,391       1,417       1,474       5,569  

Space Technology

     863       875       842       815       3,395       863       875       842       815       3,395  
    


 


 


 


 


 


 


 


 


 


Total Aerospace

     2,162       2,279       2,268       2,298       9,007       2,150       2,266       2,259       2,289       8,964  

Electronics

     1,543       1,765       1,594       1,740       6,642       1,547       1,769       1,595       1,743       6,654  

Ships

     1,514       1,587       1,222       1,463       5,786       1,514       1,587       1,222       1,463       5,786  

Other

     11       11       9       11       42       11       11       9       11       42  

Intersegment Eliminations

     (311 )     (331 )     (363 )     (367 )     (1,372 )     (331 )     (355 )     (381 )     (386 )     (1,453 )
    


 


 


 


 


 


 


 


 


 


Total Sales

   $ 7,453     $ 7,962     $ 7,446     $ 7,860     $ 30,721     $ 7,453     $ 7,962     $ 7,446     $ 7,860     $ 30,721  
    


 


 


 


 


 


 


 


 


 


Segment Operating Margin

                                                                                

Information & Services

                                                                                

Mission Systems

   $ 91     $ 99     $ 100     $ 91     $ 381     $ 93     $ 99     $ 101     $ 94     $ 387  

Information Technology

     85       89       93       88       355       76       77       81       79       313  

Technical Services

                                             12       14       17       17       60  
    


 


 


 


 


 


 


 


 


 


Total Information & Services

     176       188       193       179       736       181       190       199       190       760  

Aerospace

                                                                                

Integrated Systems

     136       108       112       118       474       142       117       120       126       505  

Space Technology

     62       69       67       57       255       67       74       72       61       274  
    


 


 


 


 


 


 


 


 


 


Total Aerospace

     198       177       179       175       729       209       191       192       187       779  

Electronics

     161       198       182       169       710       162       199       182       169       712  

Ships

     104       101       (68 )     104       241       107       102       (65 )     105       249  

Other

     (1 )     (5 )     (5 )     (6 )     (17 )     (1 )     (5 )     (5 )     (6 )     (17 )

Intersegment Eliminations

                                             (20 )     (18 )     (22 )     (24 )     (84 )
    


 


 


 


 


 


 


 


 


 


Total Segment Operating Margin(1)

   $ 638     $ 659     $ 481     $ 621     $ 2,399     $ 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.


SCHEDULE 5

 

NORTHROP GRUMMAN CORPORATION

NORTHROP GRUMMAN TECHNICAL SERVICES REALIGNMENT

SEGMENT OPERATING RESULTS

($ in millions)

(unaudited)

 

   

2003

Total

Year


    AS REPORTED 2004

   

2003

Total

Year


    REALIGNED 2004

 
      Three Months Ended

   

Total

Year


      Three Months Ended

   

Total

Year


 
      Mar 31

    Jun 30

    Sep 30

    Dec 31

        Mar 31

    Jun 30

    Sep 30

    Dec 31

   

Sales

                                                                                               

Information & Services

                                                                                               

Mission Systems

  $ 4,172     $ 1,183     $ 1,298     $ 1,266     $ 1,200     $ 4,947     $ 3,913     $ 1,115     $ 1,233     $ 1,214     $ 1,159     $ 4,721  

Information Technology

    4,651       1,230       1,225       1,261       1,335       5,051       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

    8,823       2,413       2,523       2,527       2,535       9,998       8,905       2,437       2,547       2,552       2,563       10,099  

Aerospace

                                                                                               

Integrated Systems

    3,847       1,147       1,133       1,164       1,298       4,742       3,808       1,134       1,120       1,153       1,286       4,693  

Space Technology

    2,823       806       836       823       804       3,269       2,823       806       836       823       804       3,269  
   


 


 


 


 


 


 


 


 


 


 


 


Total Aerospace

    6,670       1,953       1,969       1,987       2,102       8,011       6,631       1,940       1,956       1,976       2,090       7,962  

Electronics

    6,039       1,538       1,591       1,558       1,730       6,417       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       5,451       1,444       1,557       1,537       1,714       6,252  

Other

    191       59       61       58       52       230       191       59       61       58       52       230  

Intersegment Eliminations

    (778 )     (243 )     (266 )     (259 )     (287 )     (1,055 )     (832 )     (259 )     (285 )     (275 )     (310 )     (1,129 )
   


 


 


 


 


 


 


 


 


 


 


 


Total Sales

  $ 26,396     $ 7,164     $ 7,435     $ 7,408     $ 7,846     $ 29,853     $ 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     $ 265     $ 78     $ 88     $ 84     $ 80     $ 330  

Information Technology

    269       71       73       80       77       301       241       60       64       72       70       266  

Technical Services

                                                    39       12       10       9       9       40  
   


 


 


 


 


 


 


 


 


 


 


 


Total Information
& Services

    535       147       159       162       154       622       545       150       162       165       159       636  

Aerospace

                                                                                               

Integrated Systems

    384       116       90       105       101       412       403       127       93       109       108       437  

Space Technology

    193       51       61       57       53       222       207       54       65       61       56       236  
   


 


 


 


 


 


 


 


 


 


 


 


Total Aerospace

    577       167       151       162       154       634       610       181       158       170       164       673  

Electronics

    590       158       138       178       196       670       591       158       139       177       196       670  

Ships

    295       86       100       96       107       389       297       88       101       98       108       395  

Other

    (74 )     2       3       1       (9 )     (3 )     (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     $ 1,923     $ 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.