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, 2008

Northrop Grumman Corporation

DELAWARE (State or Other Jurisdiction of Incorporation)		1-16411 (Commission File Number)		95-4840775 (IRS Employer Identification No.)

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, 2008, Northrop Grumman Corporation issued a press release announcing its financial results for the quarter and year ended December 31, 2007, under the heading “Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008”. The press release is furnished as Exhibit 99.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d)    Exhibits

		Furnished
		Exhibit 99 — Press Release dated January 24, 2008

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.

Exhibit Index

Exhibit No.
Exhibit 99		Furnished — Press Release dated January 24, 2008

EXHIBIT 99

News Release     

		Contact:		Dan McClain (Media) (310) 201-3335
				Gaston Kent (Investors) (310) 201-3423

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16;
EPS of $5.50 to $5.75 Expected in 2008

•		Q4 Sales Increase 10 Percent to Record $8.8 Billion; 2007 Sales Increase 6 Percent to Record $32 Billion
•		Q4 Cash from Operations Increases to $734 Million; 2007 Cash from Operations Increases to Record $2.9 Billion After $200 Million Pension Pre-funding
•		2007 Free Cash Flow Doubles to More than $2 Billion
•		2008 Earnings from Continuing Operations Expected to be $5.50 to $5.75 per Share on Sales of Approximately $33 Billion
•		Total Backlog of $64.1 Billion

          LOS ANGELES — Jan. 24, 2008 — Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2007 income from continuing operations of $457 million, or $1.32 per diluted share, unchanged from $457 million, or $1.29 per diluted share, in the fourth quarter of 2006. Fourth quarter 2006 income from continuing operations included a pre-tax gain of $111 million, or $0.21 per diluted share, on the sale of approximately 9.7 million shares of TRW Automotive common stock.

          For 2007, income from continuing operations increased 15 percent to $1.8 billion, or $5.16 per diluted share, from $1.6 billion, or $4.46 per diluted share, in 2006.

          Fourth quarter 2007 sales increased 10 percent to $8.8 billion from $8.0 billion. For 2007, sales increased 6 percent to $32 billion from $30.1 billion in 2006. Fourth quarter and total year operating results for 2007 and 2006 reflect the reclassification of certain operations from continuing to discontinued operations.

          Cash from operations for the 2007 fourth quarter increased to $734 million from $271 million in the 2006 fourth quarter, and cash from operations for the year increased to a record $2.9 billion from $1.8 billion in 2006. Fourth quarter and total year cash from operations was reduced by discretionary pension pre-funding of $200 million in 2007 and $800 million in 2006.

          “This was an outstanding quarter across the board for Northrop Grumman and a great finish to 2007. For the quarter we achieved record sales, strong segment operating margin, and outstanding cash from operations and free cash flow. All four businesses performed well, posting double-digit increases in operating margin,” said Ronald D. Sugar, Northrop Grumman chairman and chief executive officer.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		2

          “For 2007, we achieved record sales, operating margin, earnings per share, cash from operations and free cash flow, while increasing backlog $3 billion to $64 billion. We have a great foundation for the future. For 2008, the focus will continue to be on driving performance and executing our balanced cash deployment strategy. We expect continued sales and EPS growth with strong cash from operations and free cash flow. This solid outlook supports investments for the future and shareholder value-enhancing actions such as our new $2.5 billion share repurchase program,” Sugar concluded.

Operating Highlights*

		Fourth Quarter												Total Year
($ millions except per share data)		2007				2006				Change				2007				2006				Change
Sales			8,824				8,013				10	%			32,018				30,113				6	%
Operating margin			760				623				22	%			3,006				2,464				22	%
as a % of sales			8.6	%			7.8	%		80 bps					9.4	%			8.2	%		120 bps
Income from continuing operations			457				457				—				1,803				1,573				15	%
Diluted EPS from continuing operations			1.32				1.29				2	%			5.16				4.46				16	%
Net income			454				453				—				1,790				1,542				16	%
Diluted EPS			1.31				1.28				2	%			5.12				4.37				17	%
Cash from operations			734				271				171	%			2,890				1,756				65	%
Free cash flow1			432				(7	)							2,068				942				120	%

*Operating results for all periods presented reflect the reclassification of Interconnect Technologies (formerly reported in Electronics) from continuing to discontinued operations.

¹ Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract & related software costs. Management uses free cash flow as an internal measure of financial performance.

2008 Guidance

Sales		~$33B
Segment operating margin1 %		mid to high 9%
Operating margin %		high 9%
Diluted EPS from continuing operations		$5.50 - 5.75
Cash from operations		$2.8 - 3.1B
Free cash flow2		$1.9 - 2.3B

¹Segment operating margin is a non-GAAP measure used as an internal measure of financial performance for the four businesses.

²Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract & related software costs. Management uses free cash flow as an internal measure of financial performance.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		3

Fourth Quarter & 2007 Results

          Fourth quarter 2007 operating margin increased $137 million, or 22 percent, to $760 million from $623 million, and as a percent of sales increased 80 basis points to 8.6 percent from 7.8 percent. Stronger performance for all four businesses and lower pension expense drove the increase. During the quarter the four businesses generated a $103 million, or 15 percent, increase in segment operating margin, and as a percent of sales performance improved 40 basis points to 9.2 percent from 8.8 percent. Net pension adjustment improved by $48 million.

          For 2007, operating margin increased $542 million, or 22 percent, to $3.0 billion from $2.5 billion, and as a percent of sales increased 120 basis points to 9.4 percent from 8.2 percent. Stronger performance for all four businesses, lower pension expense, and lower unallocated expenses drove the increase. During 2007 the four businesses generated a $296 million, or 11 percent, increase in segment operating margin. As a percent of sales, the four businesses improved performance by 40 basis points to 9.7 percent from 9.3 percent in 2006. Net pension adjustment and unallocated expenses improved by $164 million and $82 million, respectively.

          Fourth quarter 2007 other income declined to $10 million from $134 million, and for 2007 declined $137 million to an expense of $12 million. Fourth quarter 2006 other income included a pre-tax gain of $111 million, or $0.21 per diluted share, on the sale of approximately 9.7 million shares of TRW Automotive common stock.

          Federal and foreign income taxes for the 2007 fourth quarter increased to $242 million, an effective tax rate of 34.6 percent, from $231 million in the fourth quarter of 2006, an effective tax rate of 33.6 percent. For 2007, federal and foreign income taxes increased to $883 million, an effective tax rate of 32.9 percent, from $713 million in 2006, an effective tax rate of 31.2 percent.

          Net income for the 2007 fourth quarter increased to $454 million, or $1.31 per diluted share, compared with $453 million, $1.28 per diluted share, for the same period of 2006. Earnings per share are based on weighted average diluted shares outstanding of 351.1 million for the fourth quarter of 2007 and 359 million for the fourth quarter of 2006. For 2007, net income increased 16 percent to $1.8 billion, or $5.12 per diluted share, from $1.5 billion, or $4.37 per diluted share in 2006. Earnings per share are based on weighted average diluted shares outstanding of 354.2 million for 2007 and 358.6 million for 2006. Weighted average shares outstanding include 6.4 million shares for the dilutive effects of the company’s Series B mandatorily redeemable preferred stock.

          New business awards, firm contractual additions to backlog, totaled $8.7 billion in the fourth quarter led by business awards at Mission Systems and Electronics. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $64.1 billion on Dec. 31, 2007. Funded contract acquisitions for the quarter totaled $9.9 billion.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		4

Cash Flow Highlights

		Fourth Quarter												Total Year
($ millions)		2007				2006				Change				2007				2006				Change
Cash from operations			734				271				463				2,890				1,756				1,134
Less:
Capital expenditures			254				244				(10	)			685				737				52
Outsourcing contract & related software costs			48				34				(14	)			137				77				(60	)
Free cash flow1			432				(7	)			439				2,068				942				1,126

¹Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract & related software costs. Management uses free cash flow as an internal measure of financial performance.

          Cash provided by operations in the 2007 fourth quarter totaled $734 million compared with $271 million in the prior year period. For 2007, cash from operations increased to a record $2.9 billion from $1.8 billion in 2006. Fourth quarter and total year cash from operations was reduced by discretionary pension pre-funding of $200 million in 2007 and $800 million in 2006. The improvement in 2007 reflects lower pension expense, higher net income and improved working capital. Fourth quarter 2007 free cash flow increased to $432 million from ($7) million. For the year, free cash flow increased to a record $2.1 billion from $942 million.

Cash, Debt and Capital Deployment

($ millions)		12/31/2007				12/31/2006
Cash & cash equivalents			963				1,015
Total debt			4,055				4,162
Net debt1			3,092				3,147
Mandatorily redeemable preferred stock			350				350
Net debt to total capital ratio2			14	%			15	%

¹Total debt less cash and cash equivalents ²Net debt divided by the sum of shareholders’ equity and total debt.

          Changes in cash and cash equivalents and total debt reflect the following cash deployment and financing actions during 2007:

•		$690 million for business acquisitions, including $584 million for Essex Corporation in January 2007
•		$1.2 billion for share repurchases, including accelerated share repurchases of $500 and $600 million completed in June and September 2007 and open market purchases of approximately $80 million.
•		$685 million capital expenditures and $137 million for outsourcing contract and related software costs
•		$504 million dividends paid
•		$274 million proceeds from exercises of stock options and issuance of common stock

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		5

Business Results

Consolidated Sales & Segment Operating Margin¹

($ millions except per share data)		Fourth Quarter												Total Year
		2007				2006				Change				2007				2006				Change
Sales
Information & Services			3,299				2,959				11	%			12,594				11,314				11	%
Aerospace			2,166				2,137				1	%			8,200				8,423				(3	%)
Electronics			1,926				1,787				8	%			6,906				6,543				6	%
Ships			1,804				1,513				19	%			5,788				5,321				9	%
Intersegment eliminations			(371	)			(383	)							(1,470	)			(1,488	)
			8,824				8,013				10	%			32,018				30,113				6	%
Segment operating margin1
Information & Services			256				229				12	%			1,015				981				3	%
Aerospace			211				186				13	%			852				796				7	%
Electronics			234				202				16	%			813				754				8	%
Ships			142				120				18	%			538				393				37	%
Intersegment eliminations			(33	)			(30	)							(115	)			(117	)
Segment operating margin1			810				707				15	%			3,103				2,807				11	%
as a % of sales			9.2	%			8.8	%		40 bps					9.7	%			9.3	%		40 bps
Reconciliation to operating margin:
Unallocated expenses			(85	)			(71	)							(224	)			(306	)
Net pension adjustment2			35				(13	)							127				(37	)
Operating margin			760				623				22	%			3,006				2,464				22	%
as a % of sales			8.6	%			7.8	%		80 bps					9.4	%			8.2	%		120 bps

¹Segment operating margin is a non-GAAP measure used as an internal measure of financial performance for the four businesses.

²Net pension adjustment includes pension expense determined in accordance with GAAP less pension expense allocated to the business segments under U.S. Government Cost Accounting Standards.

          As previously announced, beginning in the 2007 first quarter, Radio Systems is reported as part of Mission Systems. Schedule 6 of this earnings release provides previously reported quarterly financial results and realigned results reflecting the transfer of certain Electronics businesses to Mission Systems, effective January 1, 2008. Operating results for all periods presented reflect the reclassification of Interconnect Technologies (formerly reported in Electronics) from continuing to discontinued operations.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		6

Information & Services

		Fourth Quarter ($ millions)
						2007													2006
						Operating				%									Operating				%
		Sales				Margin				of Sales					Sales				Margin				of Sales
Mission Systems		$	1,568			$	143				9.1	%			$	1,407			$	119				8.5	%
Information Technology			1,198				81				6.8	%				1,034				86				8.3	%
Technical Services			533				32				6.0	%				518				24				4.6	%
		$	3,299			$	256				7.8	%			$	2,959			$	229				7.7	%
		Total Year ($ millions)
Mission Systems		$	5,931			$	566				9.5	%			$	5,494			$	519				9.5	%
Information Technology			4,486				329				7.3	%				3,962				342				8.6	%
Technical Services			2,177				120				5.5	%				1,858				120				6.5	%
		$	12,594			$	1,015				8.1	%			$	11,314			$	981				8.7	%

     Information & Services fourth quarter 2007 sales increased $340 million and 2007 sales increased $1.3 billion. Sales for both the quarter and year increased 11 percent. Improvements in sales for both the fourth quarter and 2007 reflect higher sales for all three business segments.

     Information & Services fourth quarter operating margin increased $27 million, or 12 percent, and as a percent of sales was comparable to the prior year period. For 2007, operating margin increased $34 million, or 3 percent, and as a percent of sales declined to 8.1 percent from 8.7 percent in 2006. The 2007 operating margin rate reflects the impact of a higher percentage of, and lower margin on, commercial, state and local business than in 2006, as well as the impact of higher revenue for the Nevada Test Site program.

     Mission Systems fourth quarter sales increased $161 million, or 11 percent, and 2007 sales increased $437 million, or 8 percent. Higher sales for both the fourth quarter and 2007 reflect the Essex Corporation acquisition, higher volume for missile defense programs, and higher volume for command, control & communications programs.

     Fourth quarter operating margin rose $24 million, or 20 percent, and as a percent of sales, increased to 9.1 percent from 8.5 percent in the prior year period. For 2007, operating margin rose $47 million or 9 percent, and as a percent of sales was comparable to the prior year period at 9.5 percent. Higher operating margin and margin rate for the fourth quarter are primarily driven by higher volume and improved performance for several programs. Higher operating margin for 2007 is primarily driven by higher volume.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		7

     Information Technology fourth quarter sales rose $164 million, or 16 percent, and 2007 sales increased $524 million, or 13 percent. Higher sales for both the fourth quarter and 2007 are largely due to higher volume for commercial, state and local programs, defense programs, and restricted intelligence programs, which is partially offset by lower volume for civilian agencies programs.

     Information Technology fourth quarter 2007 operating margin declined $5 million, or 6 percent, and as a percent of sales declined to 6.8 percent from 8.3 percent. For 2007, operating margin declined $13 million or 4 percent, and as a percent of sales declined to 7.3 percent from 8.6 percent. The declines in operating margin and margin rate for the fourth quarter and 2007 are principally due to a business mix that includes a higher percentage of lower margin revenue for commercial, state and local programs and higher year-end cost accruals. For 2007, performance on state and local IT outsourcing programs was lower than the prior year periods due to timing of expenses and growth in transition cost (including $22 million in increased amortization of deferred and other outsourcing costs in Q3 2007).

     Technical Services fourth quarter sales rose $15 million, or 3 percent, and 2007 sales rose $319 million, or 17 percent. Higher fourth quarter sales are due to higher volume for life cycle optimization and engineering programs (LCOE). For 2007, higher sales are due to the Nevada Test Site program, which commenced in the second quarter of 2006, and higher volume for LCOE programs.

     Fourth quarter operating margin rose $8 million, or 33 percent, and as a percent of sales, increased to 6 percent from 4.6 percent in the prior year period. Higher operating margin and improved margin rate in the fourth quarter are due to higher volume and favorable contract adjustments. For 2007, operating margin is unchanged at $120 million, and as a percent of sales declined to 5.5 percent from 6.5 percent in 2006. The decline in operating margin rate reflects the impact of revenue for the Nevada Test Site program for a full year, and lower performance on LCOE programs.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		8

Aerospace

		Fourth Quarter ($ millions)
						2007													2006
						Operating				%									Operating				%
		Sales				Margin				of Sales					Sales				Margin				of Sales
Integrated Systems		$	1,306			$	137				10.5	%			$	1,384			$	125				9.0	%
Space Technology			860				74				8.6	%				753				61				8.1	%
		$	2,166			$	211				9.7	%			$	2,137			$	186				8.7	%
		Total Year ($ millions)
Integrated Systems		$	5,067			$	591				11.7	%			$	5,500			$	551				10.0	%
Space Technology			3,133				261				8.3	%				2,923				245				8.4	%
		$	8,200			$	852				10.4	%			$	8,423			$	796				9.5	%

     Aerospace fourth quarter 2007 sales increased $29 million, or 1 percent, and include higher volume for Space Technology, which was partially offset by lower volume for Integrated Systems. For 2007, sales declined $223 million, or 3 percent, from 2006 due to lower volume for Integrated Systems.

     Aerospace fourth quarter 2007 operating margin increased $25 million, or 13 percent, and as a percent of sales increased to 9.7 percent from 8.7 percent in the prior year period. For 2007, operating margin increased $56 million, or 7 percent, and as a percent of sales increased to 10.4 percent from 9.5 percent in 2006. The improvement in fourth quarter 2007 margin rate reflects improved performance for both Integrated Systems and Space Technology, and for 2007 is primarily driven by improved performance for Integrated Systems.

     Integrated Systems fourth quarter sales declined $78 million, or 6 percent. For 2007 sales declined $433 million, or 8 percent. Sales declines for both periods are primarily due to lower volume for the E-2D Advanced Hawkeye, F-35 and EA-18G programs, as these programs transition from development to production, as well as significant customer-directed scope reductions associated with the E-10A platform and related MP-RTIP efforts. Lower volume in these programs is partially offset by higher volume for the B-2, F/A-18 and Global Hawk programs.

     Integrated Systems fourth quarter operating margin rose $12 million, or 10 percent, and as a percent of sales, increased to 10.5 percent from 9 percent in the prior year period. Higher fourth quarter operating margin and margin rate include performance improvements and contract close-outs for several programs, as well as an additional F/A-18 delivery, which more than offset the impact of lower volume.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		9

     For 2007, operating margin increased $40 million, or 7 percent, and as a percent of sales increased to 11.7 percent from 10 percent in 2006. The improvements in operating margin and margin rate include the impact of a $27 million adjustment related to the settlement of prior years overhead costs, performance improvements and contract close-outs for several programs, and three additional F/A-18 deliveries, which more than offset the impact of lower sales.

     Space Technology fourth quarter sales increased $107 million, or 14 percent, and for 2007 increased $210 million or 7 percent. Higher sales volume in both periods is primarily driven by higher volume for restricted programs and civil systems, partially offset by lower volume in the Advanced Extremely High Frequency (AEHF) program.

     Space Technology fourth quarter operating margin increased $13 million, or 21 percent, and as a percent of sales increased to 8.6 percent from 8.1 percent in the prior year period. For 2007, operating margin increased $16 million, or 7 percent, and as a percent of sales is comparable to 2006. The improvement in fourth quarter operating margin and margin rate is driven by higher volume, as well as improved performance on satellite communications programs as a result of risk retirement. For 2007, the increase in operating margin is primarily driven by higher volume.

Electronics

		($ millions)
						2007													2006
						Operating				%									Operating				%
		Sales				Margin				of Sales					Sales				Margin				of Sales
Fourth Quarter		$	1,926			$	234				12.1	%			$	1,787			$	202				11.3	%
Total Year		$	6,906			$	813				11.8	%			$	6,543			$	754				11.5	%

     Electronics fourth quarter 2007 sales rose $139 million, or 8 percent, and for 2007 rose $363 million, or 6 percent. The fourth quarter sales improvement was primarily driven by higher volume for electro-optical targeting and infrared countermeasures programs, communications and ISR programs, and navigation systems. For 2007, the sales increase is primarily driven by higher volume for land forces programs, electro-optical targeting and infrared countermeasures programs, communications and ISR programs, and a restricted program. Higher sales in these programs are partially offset by declining volume on fixed price development programs.

     Electronics fourth quarter 2007 operating margin increased $32 million, or 16 percent, and as a percent of sales, increased to 12.1 percent from 11.3 percent in the prior year period. Fourth quarter 2006 operating margin included a $61 million pre-tax forward loss provision for the MESA radar systems programs. For 2007, operating margin increased $59 million, or 8 percent, and as a percent of sales increased to 11.8

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		10

percent from 11.5 percent in 2006. The increase in operating margin and margin rate reflect higher volume as well as improved performance across several programs.

Ships

		($ millions)
						2007													2006
						Operating				%									Operating				%
		Sales				Margin				of Sales					Sales				Margin				of Sales
Fourth Quarter		$	1,804			$	142				7.9	%			$	1,513			$	120				7.9	%
Total Year		$	5,788			$	538				9.3	%			$	5,321			$	393				7.4	%

     Ships fourth quarter 2007 sales rose $291 million, or 19 percent, and for 2007, sales rose $467 million, or 9 percent from 2006. The increase in fourth quarter sales includes higher revenue for the LPD, LHD, LHA, DDG and submarine programs. Fourth quarter 2007 sales also include $56 million from AMSEC. AMSEC was reorganized in July 2007, and the businesses retained under the reorganization are now reported in the Ships segment. The increase in 2007 sales is primarily driven by higher volume for the LPD and LHA programs, as well as higher volume for U.S. Coast Guard, aircraft carrier and submarine programs. Sales in 2007 include $92 million from AMSEC.

     Ships fourth quarter 2007 operating margin increased $22 million, or 18 percent, from the prior year period, and as a percent of sales was comparable to the prior period at 7.9 percent. The increase in fourth quarter 2007 operating margin over the prior year period is driven by higher volume.

     For 2007, operating margin increased $145 million, or 37 percent, and as a percent of sales increased 190 basis points to 9.3 percent from 7.4 percent in 2006. The increase in 2007 operating margin and margin rate are driven by higher volume, risk reduction upon completion of several contract actions, continued progress in recovery from Hurricane Katrina (including a $62 million pre-tax insurance recovery related to the impact of Hurricane Katrina on the company’s Gulf Coast shipyards), performance improvements, and a $23 million pre-tax gain resulting from the AMSEC reorganization.

Fourth Quarter Highlights

•		Northrop Grumman’s board of directors authorized a new program to repurchase up to $2.5 billion of the company’s outstanding common stock.
•		The Northrop Grumman-built Mesa Verde (LPD 19) was commissioned into the U.S. Navy’s Atlantic Fleet in Dec. 2007.
•		The U.S. Navy awarded Northrop Grumman a $1 billion shipbuilding contract to build Somerset (LPD 25). This 47-month, fixed price incentive contract modification provides funding to begin construction on the ninth San Antonio-class amphibious transport dock ship.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		11

•		The U.S. Army has competitively awarded Northrop Grumman a $331 million cost plus award fee contract to provide logistical support services to the National Training Center at Fort Irwin, Calif.
•		The U.S. Air Force competitively awarded Northrop Grumman a $160 million contract for design and risk reduction on the Global Positioning System Next Generation Control Segment program. If Northrop Grumman’s team is selected to proceed into system development, the program could potentially be valued at more than $1 billion.
•		The National Security Administration competitively awarded Northrop Grumman a $220 million contract to develop an advanced information management and data storage system that will support efforts to modernize the nation’s electronic intelligence and broader signals intelligence capabilities.
•		The U.S. Department of Defense awarded Northrop Grumman an indefinite delivery/indefinite quantity contract to provide technology development application for new products and services to defense and federal civilian agencies, state and local authorities, and partner nations engaged in counter-drug and counter-narcoterrorism operations. Northrop Grumman is one of five companies that will compete for task orders under this contract, which has a total program ceiling of $15 billion over five years.
•		The U.S. General Services Administration awarded Northrop Grumman an Alliant indefinite-delivery/indefinite quantity contract to deliver cost-effective information technology solutions to the federal government for improved service and increased efficiency. Northrop Grumman is one of 29 companies that received awards under the Alliant contract, which is valued at up to $50 billion, collectively.
•		The U.S. Army awarded Northrop Grumman initial funding of $10 million for work under the Global Combat Support System-Army (Field/Tactical) program. The cost-plus-fixed-fee task order, issued via the Information Technology Enterprise Solutions-2 Services indefinite delivery/indefinite quantity contract, is valued at up to $600 million over seven years.
•		The U.S. Air Force awarded Northrop Grumman a 23-month, $176 million contract in October to continue the full-rate production phase of the Intercontinental Ballistic Missile Propulsion Replacement Program. This award represents the seventh and final full-rate production option under the ten-year contract, which began in 1999 and is valued at $1.9 billion.
•		The U.S. Navy awarded Northrop Grumman an indefinite delivery/indefinite quantity, cost-plus-incentive-fee performance based contract for submarine work on the West Coast and in Hawaii. AMSEC LLC, a subsidiary of Northrop Grumman’s Newport News sector, is the prime contractor for the contract, which is valued at $32 million, with four one-year options, which if exercised, would bring the cumulative value to $167 million.
•		The U.S. Navy awarded Northrop Grumman a $90 million contract modification for transition to production activities leading to the construction of one of the first two Zumwalt-class destroyers.

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		12

•		The U.S. Navy awarded Northrop Grumman a contract option for work to support Los Angeles, Ohio, Seawolf, and Virginia-class submarines. This option is valued at $85 million. The total estimated value of the contract is now $248 million.
•		The final Defense Support Program satellite, DSP 23, built by Northrop Grumman for the United States Air Force, launched from Cape Canaveral Air Force Station on Nov. 10 and successfully separated from the Delta IV-Heavy launch vehicle. DSP satellites have operated four times beyond their specified design lives on average, and Flight 23 is expected to serve well into the next decade.

###

About Northrop Grumman

     Northrop Grumman Corporation is a $32 billion global defense and technology company whose 120,000 employees provide innovative systems, products, and solutions in information and services, electronics, aerospace and shipbuilding to government and commercial customers worldwide.

     Northrop Grumman will webcast its earnings conference call at 12:00 p.m. EST on Jan. 24, 2008. 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,” “outlook” 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 become 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, cash flow, and earnings per share, 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, appeals and investigations; hurricane-related insurance recoveries; environmental remediation; acquisitions and divestitures of businesses; joint ventures and other business arrangements; successful reduction of debt; performance issues with key suppliers and subcontractors; product performance and the successful execution of internal plans; 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

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

Northrop Grumman Q4 EPS Increases to $1.32, 2007 EPS Totals $5.16; EPS of $5.50 to $5.75 Expected in 2008		13

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 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, allowability and allocability of costs under U.S. Government contracts, 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, technical services 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.

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0108-036

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

SCHEDULE 1

NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(preliminary and unaudited)

		Year ended December 31
$ in millions, except per share		2007				2006				2005
Sales and Service Revenues
Product sales		$	18,730			$	18,394			$	19,471
Service revenues			13,288				11,719				10,507
Total sales and service revenues			32,018				30,113				29,978
Cost of Sales and Service Revenues
Cost of product sales			14,503				14,380				15,543
Cost of service revenues			11,301				10,242				9,355
General and administrative expenses			3,208				3,027				2,880
Operating margin			3,006				2,464				2,200
Other Income (Expense)
Interest income			28				44				54
Interest expense			(336	)			(347	)			(388	)
Other, net			(12	)			125				199
Income from continuing operations before income taxes			2,686				2,286				2,065
Federal and foreign income taxes			883				713				669
Income from continuing operations			1,803				1,573				1,396
(Loss) gain from discontinued operations, net of tax			(13	)			(31	)			4
Net income		$	1,790			$	1,542			$	1,400
Income from continuing operations		$	1,803			$	1,573			$	1,396
Preferred dividends			24				24
Income from continuing operations available to common shareholders		$	1,827			$	1,597			$	1,396
Basic Earnings (Loss) Per Share
Continuing operations		$	5.28			$	4.55			$	3.92
Discontinued operations			(.04	)			(.09	)			.01
Basic earnings per share		$	5.24			$	4.46			$	3.93
Weighted average common shares outstanding, in millions			341.7				345.7				356.5
Diluted Earnings (Loss) Per Share
Continuing operations		$	5.16			$	4.46			$	3.84
Discontinued operations			(.04	)			(.09	)			.01
Diluted earnings per share		$	5.12			$	4.37			$	3.85
Weighted average diluted shares outstanding, in millions			354.3				358.6				363.2

SCHEDULE 2

NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(preliminary and unaudited)

		December 31,				December 31,
$ in millions		2007				2006
Assets:
Current Assets
Cash and cash equivalents		$	963			$	1,015
Accounts receivable, net			3,813				3,562
Inventoried costs, net			1,045				1,176
Deferred income taxes			542				706
Prepaid expenses and other current assets			409				266
Total current assets			6,772				6,725
Property, Plant, and Equipment
Land and land improvements			605				588
Buildings			2,249				2,079
Machinery and other equipment			4,775				4,415
Leasehold improvements			526				447
			8,155				7,529
Accumulated depreciation			(3,440	)			(3,004	)
Property, plant, and equipment, net			4,715				4,525
Other Assets
Goodwill			17,672				17,219
Other purchased intangibles, net of accumulated amortization of $1,687 in 2007 and $1,555 in 2006			1,074				1,139
Pension and postretirement benefits asset			2,080				1,349
Miscellaneous other assets			1,060				1,052
Total other assets			21,886				20,759
Total assets		$	33,373			$	32,009
Liabilities and Shareholders’ Equity:
Current Liabilities
Notes payable to banks		$	26			$	95
Current portion of long-term debt			111				75
Trade accounts payable			1,901				1,682
Accrued employees’ compensation			1,180				1,176
Advance payments and billings in excess of costs incurred			1,563				1,571
Income tax payable							535
Other current liabilities			1,651				1,619
Total current liabilities			6,432				6,753
Long-term debt, net of current portion			3,918				3,992
Mandatorily redeemable preferred stock			350				350
Pension and postretirement benefits liability			3,008				3,302
Other long-term liabilities			1,978				997
Total liabilities			15,686				15,394
Shareholders’ Equity
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2007 — 337,834,561; 2006 — 345,921,809			338				346
Paid-in capital			10,661				11,346
Retained earnings			7,387				6,183
Accumulated other comprehensive loss			(699	)			(1,260	)
Total shareholders’ equity			17,687				16,615
Total liabilities and shareholders’ equity		$	33,373			$	32,009

SCHEDULE 3

NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited)

		Year ended December 31
$ in millions		2007				2006				2005
Operating Activities
Sources of Cash — Continuing Operations
Cash received from customers
Progress payments		$	7,490			$	6,797			$	6,644
Other collections			24,570				23,303				23,622
Insurance proceeds received			125				100				89
Income tax refunds received			52				60				88
Interest received			21				45				78
Other cash receipts			34				42				51
Total sources of cash — continuing operations			32,292				30,347				30,572
Uses of Cash — Continuing Operations
Cash paid to suppliers and employees			(28,025	)			(27,389	)			(27,028	)
Interest paid			(355	)			(366	)			(404	)
Income taxes paid			(905	)			(678	)			(419	)
Excess tax benefits from stock-based compensation			(51	)			(57	)
Payments for litigation settlements			(33	)			(11	)			(99	)
Other cash payments			(19	)			(12	)			(31	)
Total uses of cash — continuing operations			(29,388	)			(28,513	)			(27,981	)
Cash provided by continuing operations			2,904				1,834				2,591
Cash (used in) provided by discontinued operations			(14	)			(78	)			36
Net cash provided by operating activities			2,890				1,756				2,627
Investing Activities
Proceeds from sale of businesses, net of cash divested							43				57
Payments for businesses purchased, net of cash acquired			(690	)							(361	)
Proceeds from sale of property, plant, and equipment			22				21				11
Additions to property, plant, and equipment			(685	)			(737	)			(823	)
Proceeds from insurance carrier			4				117				38
Proceeds from sale of investments							209				238
Payment for purchase of investment							(35	)
Restriction of cash, net of restrictions released			59				(127	)
Payments for outsourcing contract costs			(137	)			(77	)
Other investing activities, net			(3	)			(15	)			(15	)
Net cash used in investing activities			(1,430	)			(601	)			(855	)
Financing Activities
Borrowings under lines of credit			315				47				62
Repayment of borrowings under lines of credit			(384	)			(3	)			(21	)
Proceeds from issuance of long-term debt							200
Principal payments of long-term debt			(90	)			(1,212	)			(32	)
Proceeds from exercises of stock options and issuances of common stock			274				393				163
Dividends paid			(504	)			(402	)			(359	)
Excess tax benefits from stock-based compensation			52				57
Common stock repurchases			(1,175	)			(825	)			(1,210	)
Net cash used in financing activities			(1,512	)			(1,745	)			(1,397	)
(Decrease) Increase in cash and cash equivalents			(52	)			(590	)			375
Cash and cash equivalents, beginning of year			1,015				1,605				1,230
Cash and cash equivalents, end of year		$	963			$	1,015			$	1,605

SCHEDULE 4

NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited)

		Year ended December 31
$ in millions		2007				2006				2005
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Net Income		$	1,790			$	1,542			$	1,400
Adjustments to reconcile to net cash provided by operating activities
Depreciation			578				569				556
Amortization of assets			152				136				216
Stock-based compensation			196				184				172
Excess tax benefits from stock-based compensation			(52	)			(57	)
Loss on disposals of property, plant, and equipment			19				6				21
Impairment of property, plant, and equipment damaged by Hurricane Katrina							37				61
Amortization of long-term debt premium			(11	)			(14	)			(18	)
Net gain on investments			(23	)			(96	)			(165	)
Decrease (increase) in
Accounts receivable			(6,487	)			(2,222	)			(5,314	)
Inventoried costs			8				(76	)			(234	)
Prepaid expenses and other current assets			9				(10	)			(85	)
Increase (decrease) in
Progress payments			6,513				2,261				5,249
Accounts payable and accruals			108				181				348
Deferred income taxes			175				183				105
Income taxes payable			(59	)			(68	)			295
Retiree benefits			(50	)			(772	)			(22	)
Other non-cash transactions, net			38				50				6
Cash provided by continuing operations			2,904				1,834				2,591
Cash (used in) provided by discontinued operations			(14	)			(78	)			36
Net cash provided by operating activities		$	2,890			$	1,756			$	2,627
Non-Cash Investing and Financing Activities
Investment in unconsolidated affiliate		$	30
Liabilities assumed by purchaser										$	41
Purchase of businesses
Fair value of assets acquired, including goodwill		$	879							$	399
Cash paid for businesses purchased			(691	)							(361	)
Non-cash consideration given for businesses purchased			(53	)
Liabilities assumed		$	135							$	38
Capital leases		$	35							$	9

SCHEDULE 5

NORTHROP GRUMMAN CORPORATION
FUNDED CONTRACT ACQUISITIONS AND TOTAL BACKLOG
($ in millions)
(preliminary and unaudited)

		FUNDED CONTRACT ACQUISITIONS(1)
		FOURTH QUARTER								TOTAL YEAR
		2007				2006 (4)				2007				2006 (4)
Information & Services
Mission Systems		$	1,771			$	1,930			$	6,032			$	6,108
Information Technology			1,081				1,097				4,400				4,613
Technical Services			795				372				2,273				2,292
Total Information & Services			3,647				3,399				12,705				13,013
Aerospace
Integrated Systems			1,549				1,848				4,986				6,108
Space Technology			1,105				1,382				2,770				3,916
Total Aerospace			2,654				3,230				7,756				10,024
Electronics			1,885				2,122				8,776				7,147
Ships			2,121				3,673				5,282				10,045
Intersegment Eliminations			(371	)			(336	)			(1,470	)			(1,495	)
Total		$	9,936			$	12,088			$	33,049			$	38,734

		TOTAL BACKLOG
		December 31, 2007												December 31, 2006 (4)
										TOTAL												TOTAL
		FUNDED (2)				UNFUNDED(3)				BACKLOG				FUNDED (2)				UNFUNDED(3)				BACKLOG
Information & Services
Mission Systems		$	3,220			$	8,985			$	12,205			$	3,119			$	8,488			$	11,607
Information Technology			2,581				2,268				4,849				2,667				1,840				4,507
Technical Services			1,471				3,193				4,664				1,375				3,973				5,348
Total Information & Services			7,272				14,446				21,718				7,161				14,301				21,462
Aerospace
Integrated Systems			4,204				4,525				8,729				4,285				4,934				9,219
Space Technology			1,260				8,266				9,526				1,623				7,138				8,761
Total Aerospace			5,464				12,791				18,255				5,908				12,072				17,980
Electronics			8,446				2,062				10,508				6,576				1,583				8,159
Ships			10,348				3,230				13,578				10,854				2,566				13,420
Total		$	31,530			$	32,529			$	64,059			$	30,499			$	30,522			$	61,021

SCHEDULE 6

		AS REPORTED																												REALIGNED
		2005				2006				2007																				2005				2006				2007
		Total				Total				Three Months Ended																Total				Total				Total				Three Months Ended																Total
NET SALES		Year				Year				Mar 31				Jun 30				Sep 30				Dec 31				Year				Year				Year				Mar 31				Jun 30				Sep 30				Dec 31				Year
Information & Services
Mission Systems		$	5,494			$	5,494			$	1,362			$	1,542			$	1,459			$	1,568			$	5,931			$	5,638			$	5,651			$	1,395			$	1,586			$	1,500			$	1,639			$	6,120
Information Technology			3,736				3,962				1,038				1,143				1,107				1,198				4,486				3,736				3,962				1,038				1,143				1,107				1,198				4,486
Technical Services			1,617				1,858				520				551				573				533				2,177				1,617				1,858				520				551				573				533				2,177
Total Information & Services			10,847				11,314				2,920				3,236				3,139				3,299				12,594				10,991				11,471				2,953				3,280				3,180				3,370				12,783
Aerospace
Integrated Systems			5,489				5,500				1,281				1,225				1,255				1,306				5,067				5,489				5,500				1,281				1,225				1,255				1,306				5,067
Space Technology			2,866				2,923				754				769				750				860				3,133				2,866				2,923				754				769				750				860				3,133
Total Aerospace			8,355				8,423				2,035				1,994				2,005				2,166				8,200				8,355				8,423				2,035				1,994				2,005				2,166				8,200
Electronics (2)			6,513				6,543				1,587				1,720				1,673				1,926				6,906				6,373				6,389				1,554				1,676				1,634				1,854				6,718
Ships			5,786				5,321				1,156				1,359				1,469				1,804				5,788				5,786				5,321				1,156				1,359				1,469				1,804				5,788
Other			42																												42
Intersegment Eliminations			(1,565	)			(1,488	)			(358	)			(383	)			(358	)			(371	)			(1,470	)			(1,569	)			(1,491	)			(358	)			(383	)			(360	)			(370	)			(1,471	)
Total Sales and Service Revenue		$	29,978			$	30,113			$	7,340			$	7,926			$	7,928			$	8,824			$	32,018			$	29,978			$	30,113			$	7,340			$	7,926			$	7,928			$	8,824			$	32,018
SEGMENT OPERATING MARGIN
Information & Services
Mission Systems		$	424			$	519			$	119			$	160			$	144			$	143			$	566			$	435			$	517			$	117			$	163			$	144			$	152			$	576
Information Technology			322				342				86				90				72				81				329				322				342				86				90				72				81				329
Technical Services			100				120				28				32				28				32				120				100				120				28				32				28				32				120
Total Information & Services			846				981				233				282				244				256				1,015				857				979				231				285				244				265				1,025
Aerospace
Integrated Systems			499				551				160				149				145				137				591				499				551				160				149				145				137				591
Space Technology			219				245				59				69				59				74				261				219				245				59				69				59				74				261
Total Aerospace			718				796				219				218				204				211				852				718				796				219				218				204				211				852
Electronics (2)			709				754				185				183				211				234				813				698				756				187				180				212				222				801
Ships			249				393				79				134				183				142				538				249				393				79				134				183				142				538
Other			(17	)																											(17	)
Intersegment Eliminations			(84	)			(117	)			(29	)			(28	)			(25	)			(33	)			(115	)			(84	)			(117	)			(29	)			(28	)			(26	)			(30	)			(113	)
Total Segment Operating Margin (1)		$	2,421			$	2,807			$	687			$	789			$	817			$	810			$	3,103			$	2,421			$	2,807			$	687			$	789			$	817			$	810			$	3,103