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)
October 22, 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 October 22, 2008, Northrop Grumman Corporation (the “Company”) issued a press release announcing its financial results for the quarter ended September 30, 2008, under the heading “Northrop Grumman Reports Third Quarter 2008 Results.” The press release is furnished as Exhibit 99.

ITEM 7.01. REGULATION FD DISCLOSURE.

Recent declines in the financial markets have impacted the market values of assets in the Company’s defined benefit pension plans, and these conditions could lead to significant future increases in pension costs measured in accordance with both accounting principles generally accepted in the United States of America (U.S. GAAP) and U.S. Cost Accounting Standards (CAS). In connection with its scheduled conference call with analysts to discuss third-quarter earnings, the Company plans to discuss the potential effects of these market conditions on its future net pension adjustment amounts. The net pension adjustment represents the difference between pension expense determined in accordance with U.S. GAAP and pension expense allocated to the operating sectors and determined in accordance with CAS.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d)    Exhibits

		Furnished
		Exhibit 99 — Press Release dated October 22, 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		—  Press Release dated October 22, 2008

EXHIBIT 99

News Release

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

Northrop Grumman Reports Third Quarter 2008 Results

•		Earnings Per Share from Continuing Operations Increase 6 Percent to $1.50
•		Guidance for 2008 Earnings from Continuing Operations Raised to $5.10 to $5.20 Per Share
•		Sales Increase 6 Percent to $8.4 Billion
•		Cash from Operations Increases to $1.4 Billion; Free Cash Flow Increases to $1.2 Billion
•		New Business Awards Total $11.5 Billion; Record $70.1 Billion Backlog
•		Stock Repurchases Total 10.8 Million Shares in Q3 2008; 21.2 Million Shares Year-to-Date

     LOS ANGELES — Oct. 22, 2008 — Northrop Grumman Corporation (NYSE: NOC) reported that third quarter 2008 earnings from continuing operations increased to $509 million, or $1.50 per diluted share, compared with $489 million, or $1.41 per diluted share, in the third quarter of 2007. Third quarter 2007 earnings from continuing operations included an after-tax gain of $21 million, or $0.06 per share, for the reorganization of AMSEC LLC. Sales for the 2008 third quarter increased 6 percent to $8.4 billion from $7.9 billion in the 2007 third quarter. Cash provided by operations for the 2008 third quarter increased 35 percent to $1.4 billion compared with $1 billion in the prior year period.

Operating Highlights

		Third Quarter												Nine Months
($ millions except per share data)		2008				2007				Change				2008				2007				Change
Sales		$	8,381			$	7,871				6	%		$	24,733			$	23,063				7	%
Operating income			771				806				(4	%)			2,041				2,259				(10	%)
as a % of sales			9.2	%			10.2	%		(100 bps)					8.3	%			9.8	%		(150 bps)
Earnings from continuing operations		$	509			$	489				4	%		$	1,255			$	1,355				(7	%)
Diluted EPS from continuing operations			1.50				1.41				6	%			3.65				3.86				(5	%)
Net earnings			512				489				5	%			1,271				1,336				(5	%)
Diluted EPS			1.51				1.41				7	%			3.69				3.81				(3	%)
Cash from operations			1,373				1,015				35	%			2,174				2,156				1	%
Free cash flow1			1,183				873				36	%			1,630				1,636				(0	%)

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.

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

Northrop Grumman Reports Third Quarter 2008 Results		2

     “This was a strong quarter for Northrop Grumman,” said Ronald D. Sugar, Northrop Grumman chairman and chief executive officer. “We posted higher sales and earnings, and based on the strength of the quarter we are raising our guidance. New business awards were outstanding and drove our total backlog to a record of more than $70 billion. As expected, cash generation increased dramatically. Our strong cash flow, ample liquidity, and record backlog are a solid foundation for the future and reflect the hard work and dedication of our 120,000 employees.”

     Segment operating income for the 2008 third quarter totaled $768 million compared with $816 million in the prior year period. The decline is primarily due to lower operating income in Shipbuilding and Information Technology than in the prior year period. Third quarter 2007 Shipbuilding operating income included $45 million for favorable contract adjustments and $22 million for a pre-tax gain on the AMSEC reorganization. Third quarter 2008 segment operating income was impacted by a $57 million negative contract adjustment for Information Technology’s New York City wireless program, which was partially offset by patent infringement settlements of $40 million in Electronics.

     Operating income for the 2008 third quarter totaled $771 million compared with $806 million in the prior year period. The decrease is due to the decline in segment operating income and higher reversal of royalty income, which more than offset improvements in corporate unallocated expenses and net pension expense.

     Interest expense improved by $10 million compared with the prior year period. Other income increased by $38 million due to higher royalty income than in the prior year period.

     Federal and foreign income taxes for the 2008 third quarter totaled $233 million compared with $240 million in the third quarter of 2007. During the 2008 third quarter the company recognized tax benefits totaling $21 million, primarily attributable to settlement of audits of TRW tax returns for the years 1999 through 2002. The effective tax rate applied to income from continuing operations for the 2008 third quarter was 31.4 percent compared with 32.9 percent in the 2007 third quarter.

     Net earnings for the 2008 third quarter increased 5 percent to $512 million, or $1.51 per diluted share, from $489 million, or $1.41 per diluted share, for the same period of 2007. Earnings per share are based on weighted average diluted shares outstanding of 340.1 million for the third quarter of 2008 and 352.6 million for the third quarter of 2007. The weighted average share count reflects the net effect of share repurchases and the redemption or conversion of 6.4 million mandatorily redeemable convertible preferred shares into common shares on or before April 4, 2008. Weighted average shares outstanding for the 2007 third quarter include the dilutive effect of 6.4 million shares of the company’s mandatorily redeemable convertible preferred stock.

     New business awards totaled $11.5 billion, resulting in a record total backlog of $70.1 billion for the company as of Sept. 30, 2008. Total backlog includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer.

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

Northrop Grumman Reports Third Quarter 2008 Results		3

Cash Flow Highlights

		Third Quarter												Nine Months
($ millions)		2008				2007				Change				2008				2007				Change
Cash from operations		$	1,373			$	1,015			$	358			$	2,174			$	2,156			$	18
Less:
Capital expenditures			167				133				(34	)			444				431				(13	)
Outsourcing contract & related software costs			23				9				(14	)			100				89				(11	)
Free cash flow1		$	1,183			$	873			$	310			$	1,630			$	1,636			$	(6	)

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 2008 third quarter increased to $1.4 billion from $1 billion in the prior year period, and free cash flow increased to $1.2 billion. The increase reflects substantially improved working capital and lower cash taxes.

Cash Measurements, Debt and Capital Deployment

($ millions)		9/30/2008				12/31/2007
Cash & cash equivalents		$	1,016			$	963
Total debt			3,944				4,055
Net debt1			2,928				3,092
Mandatorily redeemable convertible preferred stock			—				350
Net debt to total capital ratio2			14	%			14	%

¹Total debt less cash and cash equivalents.

²Net debt divided by the sum of shareholders’ equity and total debt.

     Cash and cash equivalents totaled $1 billion at Sept. 30, 2008 compared with $963 million at Dec. 31, 2007, and total debt was $3.9 billion at Sept. 30, 2008. Changes in cash and cash equivalents and total debt include the following cash deployment, investing and financing actions during the first nine months of 2008:

•		$1.5 billion for share repurchases
•		$444 million for capital expenditures and $100 million for outsourcing contract and related software costs
•		$395 million for dividends
•		$110 million principal payments of long-term debt
•		$95 million proceeds from exercises of stock options and issuance of common stock
•		$175 million proceeds from the sale of the company’s Electro-Optical Systems business

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

Northrop Grumman Reports Third Quarter 2008 Results		4

2008 Guidance Raised

		Prior		Current
Sales		~$33B		~$33.4B
Segment operating income1 as % of sales		mid to high 8%		mid 8%
Operating income as % of sales		high 8%		mid 8%
Diluted EPS from continuing operations		$4.90 - 5.15		$5.10 - $5.20
Cash from operations2		$2.6 - 2.9B		$2.6 - 2.9B
Free cash flow 2, 3		$1.7 - 2.1B		$1.8 - 2.1B

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

²After required pension contributions of $120 million forecast for 2008 and before any additional discretionary pension pre-funding contributions in 2008.

³Free 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 Reports Third Quarter 2008 Results		5

Business Results

CONSOLIDATED SALES & SEGMENT OPERATING INCOME¹

($ millions)		Third Quarter												Nine Months
		2008				2007				Change				2008				2007				Change
Sales
Information & Services		$	3,109			$	2,929				6	%		$	9,172			$	8,628				6	%
Aerospace			2,424				2,256				7	%			7,262				6,819				6	%
Electronics			1,814				1,577				15	%			5,044				4,733				7	%
Shipbuilding			1,451				1,469				(1	%)			4,403				3,984				11	%
Intersegment eliminations			(417	)			(360	)							(1,148	)			(1,101	)
Sales			8,381				7,871				6	%			24,733				23,063				7	%
Segment operating income1
Information & Services			196				225				(13	%)			690				706				(2	%)
Aerospace			234				224				4	%			722				696				4	%
Electronics			264				211				25	%			675				592				14	%
Shipbuilding			118				183				(36	%)			26				396				(93	%)
Intersegment eliminations			(44	)			(27	)							(103	)			(84	)
Segment operating income1			768				816				(6	%)			2,010				2,306				(13	%)
as a % of sales			9.2	%			10.4	%		(120 bps)					8.1	%			10.0	%		(190 bps)
Reconciliation to operating Income:
Unallocated expenses			(20	)			(34	)							(95	)			(130	)
Net pension adjustment2			64				31								192				92
Royalty income adjustment			(41	)			(7	)							(66	)			(9	)
Total operating income		$	771			$	806				(4	%)		$	2,041			$	2,259				(10	%)
as a % of sales			9.2	%			10.2	%		(100 bps)					8.3	%			9.8	%		(150 bps)

¹Segment operating income 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.

     Beginning with 2008 second quarter results, the company transferred certain missile systems programs from Mission Systems to Space Technology. Schedule 6 provides previously reported quarterly financial results and the adjustments for first and second quarter 2008 realignments and the second quarter 2008 sale of Electro-Optical Systems.

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

Northrop Grumman Reports Third Quarter 2008 Results		6

Information & Services

		Third Quarter ($ millions)
						2008													2007
						Operating				%									Operating				%
		Sales				Income				of Sales					Sales				Income				of Sales
Mission Systems		$	1,417			$	128				9.0	%			$	1,249			$	125				10.0	%
Information Technology			1,085				37				3.4	%				1,107				72				6.5	%
Technical Services			607				31				5.1	%				573				28				4.9	%
		$	3,109			$	196				6.3	%			$	2,929			$	225				7.7	%

     Information & Services third quarter 2008 sales increased 6 percent, primarily due to a 13 percent increase in Mission Systems sales. Operating income declined 13 percent, and as a percent of sales, totaled 6.3 percent compared with 7.7 percent. Higher sales and operating margin in Mission Systems and Technical Services were offset by a negative contract adjustment in Information Technology.

     Mission Systems sales increased 13 percent due to higher volume for intelligence, surveillance & reconnaissance programs and command, control & communications programs. Operating income increased 2 percent and as a percent of sales, totaled 9 percent compared with 10 percent in the prior year period. Higher operating income reflects higher volume than in the prior year period. The change in rate is attributable to fewer positive performance-related contract adjustments in this quarter than in the prior year period.

     Information Technology sales declined 2 percent. Third quarter 2008 sales include higher volume for defense, intelligence and civilian agencies. Higher sales for these programs were offset by lower sales for commercial, state and local programs. Operating income declined 49 percent and as a percent of sales declined to 3.4 percent from 6.5 percent. The declines in sales, operating income and rate are due to a $57 million negative performance adjustment for the New York City Wireless program. The adjustment includes provisions related to a key supplier as well as a revised estimate of cost to complete the program. Third quarter 2007 operating income included negative adjustments for state and local IT outsourcing programs, including $22 million in increased amortization of deferred and other outsourcing costs.

     Technical Services sales rose 6 percent due to higher volume for life cycle optimization and engineering programs. Operating income increased 11 percent, and as a percent of sales, increased to 5.1 percent from 4.9 percent in the prior year period. The improvement in operating income and rate reflects higher volume, a greater percentage of higher margin life cycle optimization and engineering programs than in the prior year, and improved performance for those programs.

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

Northrop Grumman Reports Third Quarter 2008 Results		7

Aerospace

		Third Quarter ($ millions)
						2008													2007
						Operating				%									Operating				%
		Sales				Income				of Sales					Sales				Income				of Sales
Integrated Systems		$	1,345			$	144				10.7	%			$	1,255			$	145				11.6	%
Space Technology			1,079				90				8.3	%				1,001				79				7.9	%
		$	2,424			$	234				9.7	%			$	2,256			$	224				9.9	%

     Aerospace third quarter 2008 sales increased 7 percent from the prior year period and include higher volume for both Integrated Systems and Space Technology. Aerospace third quarter 2008 operating income increased 4 percent, and as a percent of sales, totaled 9.7 percent compared with 9.9 percent in the prior year period.

     Integrated Systems sales increased 7 percent due to higher volume for the UCAS-D, F/A-18, B-2, and restricted programs, partially offset by lower volume for the F-35 program. Operating income was comparable to the prior year period, and as a percent of sales totaled 10.7 percent compared with 11.6 percent in the prior year period. The decline in margin rate reflects initial lower margin on new programs and higher unallowable expenses than in the prior year period.

     Space Technology sales increased 8 percent, primarily due to higher volume for restricted programs, and the Kinetic Energy Interceptor, NPOESS, and James Webb Space Telescope programs. Higher volume for these programs was partially offset by lower volume for the Advanced Extremely High Frequency and Space Radar programs. Operating income increased 14 percent, and as a percent of sales improved to 8.3 percent from 7.9 percent. The improvement in operating income and rate is due to higher volume as well as the achievement of technical performance milestones and risk reduction on several programs.

Electronics

		Third Quarter ($ Millions)
						2008													2007
						Operating				% of									Operating				% of
		Sales				Income				Sales					Sales				Income				Sales
		$	1,814			$	264				14.6	%			$	1,577			$	211				13.4	%

     Electronics third quarter 2008 sales increased 15 percent from the prior year period principally due to higher unit deliveries of land forces products and combat avionics systems, as well as higher sales for surveillance systems and postal automation programs.

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

Northrop Grumman Reports Third Quarter 2008 Results		8

     Electronics third quarter 2008 operating income increased 25 percent, and as a percent of sales, increased to 14.6 percent from 13.4 percent. Third quarter 2008 operating income includes $40 million of patent infringement settlements. Operating income for the 2007 third quarter included favorable performance adjustments on several programs.

Shipbuilding

		Third Quarter ($ Millions)
						2008													2007
						Operating				% of									Operating				% of
		Sales				Income				Sales					Sales				Income				Sales
		$	1,451			$	118				8.1	%			$	1,469			$	183				12.5	%

     Shipbuilding third quarter 2008 sales declined 1 percent from the prior year due to lower volume for expeditionary warfare and U.S. Coast Guard programs than in the prior year period, primarily due to Gulf Coast shipyards work stoppages caused by Hurricane Gustav. Lower volume for these programs was partially offset by higher volume for aircraft carriers and surface combatants.

     Shipbuilding third quarter 2008 operating income declined 36 percent from the prior year period, and as a percent of sales, totaled 8.1 percent compared with 12.5 percent in the prior year period. Third quarter 2007 operating income and margin rate included $45 million for positive contract adjustments due to recognition of risk reduction upon completion of several contract actions, as well as a $22 million pre-tax gain resulting from the AMSEC reorganization. Third quarter 2008 operating income and rate also reflect the impact of lower volume and a $16 million negative contract adjustment for cost growth and schedule delays resulting from Hurricane Ike disruption to a major subcontractor on the LPD program.

Third Quarter Highlights

•		Northrop Grumman employees Thomas Howes, Marc Gonsalves and Keith Stansell were safely freed in a bold rescue effort and returned to their families in the U.S. after more than five years as captives of the FARC in Colombia.
•		The U.S. Navy awarded Northrop Grumman a $5.1 billion, 7-year cost plus incentive fee contract award for detail design and construction of the Gerald R. Ford (CVN 78) nuclear-powered aircraft carrier.
•		The U.S. Government Accountability Office denied a losing bidder’s protest of the U.S. Navy’s Broad Area Maritime Surveillance (BAMS) Unmanned Aircraft System award to Northrop Grumman, allowing the Navy and Northrop Grumman to move forward on the program.
•		Northrop Grumman was one of eight companies awarded an indefinite delivery/indefinite quantity Contract Field Teams contract with a potential collective value of up to $10.12 billion over seven years to provide modification, maintenance and repair on U.S. Air

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

Northrop Grumman Reports Third Quarter 2008 Results		9

		Force, Army and Navy weapons systems and support equipment at operational installations in the United States and abroad.
•		Northrop Grumman is one of 12 companies that received awards from the U.S. Air Force under the Future Flexible Acquisition and Sustainment Tool (F2AST) program, which has a ceiling value of $6.9 billion over 10 years. The contract was to provide development, modification and depot maintenance of any Air Force system, including support systems, subsystems and components.
•		The U.S. Air Force awarded Northrop Grumman a firm fixed-price contract valued at more than $250 million over four years to provide contractor logistics services to Air Force, Army, Navy and Marine Corps C-20 aircraft.
•		Northrop Grumman received a 56-month contract from Lockheed Martin Corporation worth up to $240 million, if all options are exercised, to provide critical technologies for the Airborne and Maritime/Fixed Station Joint Tactical Radio System.
•		The U.S. Navy ordered from Northrop Grumman a fourth lot of Improved Capability (ICAP) III airborne electronic attack systems for its fleet of EA-6B Prowlers under a firm, fixed-price, 31-month contract potentially valued at more than $125 million.
•		The U.S. Air Force awarded a $120 million contract order to Northrop Grumman for delivery of LITENING Gen 4 targeting and sensor systems and related equipment to support the Air National Guard, Air Force Reserve Command and the U.S. Marine Corps.
•		The U.S. Coast Guard commissioned the Northrop Grumman-built National Security Cutter USCGC Bertholf on August 4, the U.S. Coast Guard’s birthday. The Bertholf is the most capable and technologically-advanced maritime asset in the service’s 218-year existence.
•		The Northrop Grumman-built amphibious transport dock ship USS Green Bay (LPD 20) was delivered to the U.S. Navy on Aug. 29, 2008.
•		Northrop Grumman completed — on budget and on schedule — the center fuselage for the first U.S. Navy F-35 Lightning II aircraft.
•		The Northrop Grumman-led team on the U.S. Missile Defense Agency’s Kinetic Energy Interceptor successfully completed the third of five planned static fire tests of the second stage motor.
•		The Northrop Grumman-built high-energy laser installed on the U.S. Missile Defense Agency’s Airborne Laser (ABL) aircraft fired successfully in a ground test at Edwards Air Force Base, Calif. The ABL’s megawatt-class laser is the most powerful directed energy weapon ever developed for airborne use.

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

Northrop Grumman Reports Third Quarter 2008 Results		10

•

Northrop Grumman and the Virginia Information Technologies Agency were rated first in the nation for Enterprise Information Technology Management Initiatives by the National Association of Chief Information Officers.

About Northrop Grumman

     Northrop Grumman Corporation is a 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 12:30 p.m. EDT on Oct. 22, 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,” “forecast,” “intend,” “anticipate,” “guidance,” “outlook,” “trends,” “target” 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 income, 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 and regulatory requirements; the outcome of litigation, claims, appeals, bid protests, and investigations; hurricane-related insurance recoveries; environmental remediation; acquisitions and divestitures of businesses; joint ventures and other business arrangements; access to capital; performance issues with key suppliers and subcontractors; product performance and the successful execution of internal plans; successful negotiation of contracts with labor unions; allowability and allocability of costs under U.S. Government contracts; effective tax rates and timing and amounts of tax payments; the results of any audit or appeal process with the Internal Revenue Service; the availability and retention of skilled labor; 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; technical, operational or quality setbacks that could adversely affect the profitability or cash flow of the company; 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.

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

Northrop Grumman Reports Third Quarter 2008 Results		11

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 as updated by Form 8-K filed on July 29, 2008 and Form 10-Q.

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1008-578

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

SCHEDULE 1

		Three months ended								Nine months ended
		September 30								September 30
$ in millions, except per share		2008				2007				2008				2007
Sales and Service Revenues
Product sales		$	4,808			$	4,264			$	14,051			$	12,910
Service revenues			3,573				3,607				10,682				10,153
Total sales and service revenues			8,381				7,871				24,733				23,063
Cost of Sales and Service Revenues
Cost of product sales			3,682				3,198				11,204				9,894
Cost of service revenues			3,143				3,084				9,168				8,612
General and administrative expenses			785				783				2,320				2,298
Operating income			771				806				2,041				2,259
Interest expense			(74	)			(84	)			(223	)			(256	)
Other, net			45				7				72				(3	)
Earnings from continuing operations before income taxes			742				729				1,890				2,000
Federal and foreign income taxes			233				240				635				645
Earnings from continuing operations			509				489				1,255				1,355
Income (Loss) from discontinued operations, net of tax			3								16				(19	)
Net earnings		$	512			$	489			$	1,271			$	1,336
Basic Earnings (Loss) Per Share
Continuing operations		$	1.52			$	1.44			$	3.72			$	3.95
Discontinued operations			.01								.05				(.05	)
Basic earnings per share		$	1.53			$	1.44			$	3.77			$	3.90
Weighted-average common shares outstanding, in millions			334.2				340.2				337.1				342.9
Diluted Earnings (Loss) Per Share
Continuing operations		$	1.50			$	1.41			$	3.65			$	3.86
Discontinued operations			.01								.04				(.05	)
Diluted earnings per share		$	1.51			$	1.41			$	3.69			$	3.81
Weighted-average diluted shares outstanding, in millions			340.1				352.6				344.5				355.4

SCHEDULE 2

		September 30,				December 31,
$ in millions		2008				2007
Assets:
Cash and cash equivalents		$	1,016			$	963
Accounts receivable, net of progress payments			3,957				3,790
Inventoried costs, net of progress payments			1,147				1,000
Deferred income taxes			481				542
Prepaid expenses and other current assets			408				502
Total current assets			7,009				6,797
Property, plant, and equipment, net of accumulated depreciation of $3,719 in 2008 and $3,424 in 2007			4,675				4,690
Goodwill			17,475				17,672
Other purchased intangibles, net of accumulated amortization of $1,767 in 2008 and $1,687 in 2007			964				1,074
Pension and post-retirement benefits asset			2,148				2,080
Other assets			983				1,060
Total assets		$	33,254			$	33,373
Liabilities:
Notes payable to banks		$	28			$	26
Current portion of long-term debt			73				111
Trade accounts payable			1,820				1,890
Accrued employees’ compensation			1,370				1,175
Advance payments and billings in excess of costs incurred			1,889				1,563
Other current liabilities			1,632				1,667
Total current liabilities			6,812				6,432
Long-term debt, net of current portion			3,843				3,918
Mandatorily redeemable convertible preferred stock							350
Pension and post-retirement benefits liability			3,102				3,008
Other long-term liabilities			1,934				1,978
Total liabilities			15,691				15,686
Shareholders’ Equity:
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2008 — 327,071,763; 2007 — 337,834,561			327				338
Paid-in capital			9,668				10,661
Retained earnings			8,253				7,387
Accumulated other comprehensive loss			(685	)			(699	)
Total shareholders’ equity			17,563				17,687
Total liabilities and shareholders’ equity		$	33,254			$	33,373

SCHEDULE 3

		Nine months ended
		September 30
$ in millions		2008				2007
Operating Activities
Sources of Cash — Continuing Operations
Cash received from customers
Progress payments		$	5,465			$	5,260
Collections on billings			19,828				18,015
Proceeds from insurance carriers related to operations			5				125
Other cash receipts			82				21
Total sources of cash-continuing operations			25,380				23,421
Uses of Cash — Continuing Operations
Cash paid to suppliers and employees			(22,334	)			(20,215	)
Interest paid, net of interest received			(251	)			(285	)
Income taxes paid, net of refunds received			(569	)			(637	)
Excess tax benefits from stock-based compensation			(47	)			(73	)
Other cash payments			(8	)			(22	)
Total uses of cash-continuing operations			(23,209	)			(21,232	)
Cash provided by continuing operations			2,171				2,189
Cash provided by (used in) discontinued operations			3				(33	)
Net cash provided by operating activities			2,174				2,156
Investing Activities
Proceeds from sale of business, net of cash divested			175
Payment for businesses purchased, net of cash acquired							(685	)
Proceeds from sale of property, plant, and equipment			10				16
Additions to property, plant, and equipment			(444	)			(431	)
Payments for outsourcing contract and related software costs			(100	)			(89	)
Proceeds from insurance carriers related to capital expenditures							3
Decrease in restricted cash			59				45
Other investing activities, net			1				(5	)
Net cash used in investing activities			(299	)			(1,146	)
Financing Activities
Net borrowings (payments) under lines of credit			3				(63	)
Principal payments of long-term debt			(110	)			(96	)
Proceeds from exercises of stock options and issuance of common stock			95				246
Dividends paid			(395	)			(378	)
Excess tax benefits from stock-based compensation			47				73
Common stock repurchases			(1,462	)			(1,094	)
Net cash used in financing activities			(1,822	)			(1,312	)
Increase (decrease) in cash and cash equivalents			53				(302	)
Cash and cash equivalents, beginning of period			963				1,015
Cash and cash equivalents, end of period		$	1,016			$	713

SCHEDULE 4

		Nine months ended
		September 30
$ in millions		2008				2007
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net Earnings		$	1,271			$	1,336
Adjustments to reconcile to net cash provided by operating activities
Depreciation			416				416
Amortization of assets			148				106
Stock-based compensation			126				135
Excess tax benefits from stock-based compensation			(47	)			(73	)
Loss on disposals of property, plant, and equipment			4				14
Amortization of long-term debt premium			(7	)			(8	)
Pre-tax gain on investments							(22	)
Pre-tax gain on sale of business			(58	)
Increase in
Accounts receivable			(4,845	)			(4,493	)
Inventoried costs			(531	)			(90	)
Prepaid expenses and other current assets			(43	)			(17	)
Increase (decrease) in
Progress payments			5,062				4,694
Accounts payable and accruals			313				(29	)
Deferred income taxes			122				25
Income taxes payable			130				59
Retiree benefits			35				96
Other non-cash transactions, net			75				40
Cash provided by continuing operations			2,171				2,189
Cash provided by (used in) discontinued operations			3				(33	)
Net cash provided by operating activities		$	2,174			$	2,156
Non-Cash Investing and Financing Activities
Sale of business
Cash received for business sold		$	175
Pre-tax gain on sale of business			(58	)
Net book value of assets sold, including goodwill			(135	)
Liabilities assumed by purchaser		$	(18	)
Investment in unconsolidated affiliate						$	30
Purchase of businesses
Fair value of assets acquired, including goodwill						$	892
Cash paid for businesses purchased							(685	)
Non-cash consideration given for businesses purchased							(60	)
Liabilities assumed						$	147
Mandatorily redeemable convertible preferred stock converted or redeemed into common stock		$	350
Capital leases						$	21

SCHEDULE 5

		TOTAL BACKLOG
		September 30, 2008												December 31, 2007(3)
										TOTAL												TOTAL
		FUNDED(1)				UNFUNDED(2)				BACKLOG				FUNDED				UNFUNDED(2)				BACKLOG
Information & Services
Mission Systems		$	2,562			$	3,128			$	5,690			$	2,365			$	3,288			$	5,653
Information Technology			2,399				1,967				4,366				2,581				2,268				4,849
Technical Services			1,452				2,690				4,142				1,471				3,193				4,664
Total Information & Services			6,413				7,785				14,198				6,417				8,749				15,166
Aerospace
Integrated Systems			5,221				7,417				12,638				4,204				4,525				8,729
Space Technology			1,608				13,112				14,720				2,295				13,963				16,258
Total Aerospace			6,829				20,529				27,358				6,499				18,488				24,987
Electronics			8,687				2,453				11,140				7,887				2,047				9,934
Shipbuilding			12,374				5,031				17,405				10,348				3,230				13,578
Total		$	34,303			$	35,798			$	70,101			$	31,151			$	32,514			$	63,665

CONTRACT AWARDS

The value of new contract awards during the nine months ended September 30, 2008, is approximately $31.1 billion. Significant new awards during this period include $5.1 billion for CVN 78 Gerald R. Ford aircraft carrier, $1.5 billion for the aerial refueling tanker replacement program (see below), $1.4 billion for the DDG 1000 Zumwalt-class destroyer, $1.2 billion for the Broad Area Maritime Surveillance (BAMS) Unmanned Aircraft System program (see below), $389 million for the Vehicular Intercommunications Systems IDIQ, $356 million for the Intercontinental Ballistic Missile (ICBM) program, and $267 million for the F-35.

On February 29, 2008, the company won a $1.5 billion contract awarded by the U.S. Air Force as an initial step to replace its aerial refueling tanker fleet. The losing bidder for the contract protested the award decision by the U.S. Air Force. A review of the award process was conducted by the Government Accountability Office (GAO), which issued its report on June 18, 2008 upholding the other bidder’s protest. On September 10, 2008, the Secretary of Defense announced that the competition was cancelled pending the determination for a new competitive proposal and evaluation process. The company continues to carry the award in its backlog as of September 30, 2008.

On April 22, 2008, the company was awarded a contract by the U.S. Navy for the BAMS Unmanned Aircraft System. One of the other bidders for the contract subsequently protested the decision by the U.S. Navy to award the contract to the company. The GAO denied the protest on August 12, 2008, the company re-started work on the contract.

The value of new contract awards during the nine months ended September 30, 2007, is approximately $26.2 billion. Significant new awards during this period include $2.2 billion for LHA-6, $875 million for the Flats Sequencing Systems/ Postal Automation program, $623 million for the Unmanned Combat Air System Carrier Demonstration, $510 million for the DDG 1000 Zumwalt-class destroyer program, $270 million for the ICBM program, $227 million for the F-22 program, and $185 million for the Joint National Integration Center Research & Development program.

SCHEDULE 6

		AS REPORTED(2)																												REALIGNED(3)
		2006				2007																				2008				2006				2007																				2008
																										Three Months																												Three Months
		Total				Three Months Ended																Total				Ended				Total				Three Months Ended																Total				Ended
		Year				Mar 31				Jun 30				Sep 30				Dec 31				Year				Mar 31				Year				Mar 31				Jun 30				Sep 30				Dec 31				Year				Mar 31
NET SALES
Information & Services
Mission Systems		$	5,494			$	1,362			$	1,542			$	1,459			$	1,568			$	5,931			$	1,545			$	4,704			$	1,159			$	1,288			$	1,249			$	1,381			$	5,077			$	1,298
Information Technology			3,962				1,038				1,143				1,107				1,198				4,486				1,085				3,962				1,038				1,143				1,107				1,198				4,486				1,085
Technical Services			1,858				520				551				573				533				2,177				505				1,858				520				551				573				533				2,177				505
Total Information & Services			11,314				2,920				3,236				3,139				3,299				12,594				3,135				10,524				2,717				2,982				2,929				3,112				11,740				2,888
Aerospace
Integrated Systems			5,500				1,281				1,225				1,255				1,306				5,067				1,340				5,500				1,281				1,225				1,255				1,306				5,067				1,340
Space Technology			2,923				754				769				750				860				3,133				775				3,869				990				1,067				1,001				1,118				4,176				1,022
Total Aerospace			8,423				2,035				1,994				2,005				2,166				8,200				2,115				9,369				2,271				2,292				2,256				2,424				9,243				2,362
Electronics			6,543				1,587				1,720				1,673				1,926				6,906				1,555				6,267				1,528				1,628				1,577				1,795				6,528				1,555
Ships			5,321				1,156				1,359				1,469				1,804				5,788				1,264				5,321				1,156				1,359				1,469				1,804				5,788				1,264
Intersegment Eliminations			(1,488	)			(358	)			(383	)			(358	)			(371	)			(1,470	)			(345	)			(1,490	)			(358	)			(383	)			(360	)			(370	)			(1,471	)			(345	)
Total Sales and Service Revenue		$	30,113			$	7,340			$	7,926			$	7,928			$	8,824			$	32,018			$	7,724			$	29,991			$	7,314			$	7,878			$	7,871			$	8,765			$	31,828			$	7,724
SEGMENT OPERATING MARGIN
Information & Services
Mission Systems		$	519			$	119			$	160			$	144			$	143			$	566			$	145			$	451			$	103			$	142			$	125			$	138			$	508			$	128
Information Technology			342				86				90				72				81				329				89				342				86				90				72				81				329				89
Technical Services			120				28				32				28				32				120				26				120				28				32				28				32				120				26
Total Information & Services			981				233				282				244				256				1,015				260				913				217				264				225				251				957				243
Aerospace
Integrated Systems			551				160				149				145				137				591				170				551				160				149				145				137				591				170
Space Technology			245				59				69				59				74				261				65				311				73				90				79				87				329				82
Total Aerospace			796				219				218				204				211				852				235				862				233				239				224				224				920				252
Electronics			754				185				183				211				234				813				209				786				192				189				211				221				813				209
Ships			393				79				134				183				142				538				(218	)			393				79				134				183				142				538				(218	)
Intersegment Eliminations			(117	)			(29	)			(28	)			(25	)			(33	)			(115	)			(28	)			(117	)			(29	)			(28	)			(27	)			(29	)			(113	)			(28	)
Total Segment Operating Margin (1)		$	2,807			$	687			$	789			$	817			$	810			$	3,103			$	458			$	2,837			$	692			$	798			$	816			$	809			$	3,115			$	458
CONSOLIDATED HIGHLIGHTS
Income From Continuing Operations		$	1,573			$	390			$	466			$	490			$	457			$	1,803				$    263			$	1,593			$	394			$	472			$	489			$	456			$	1,811				$    263
Diluted Earnings per Share from Continuing Operations		$	4.46			$	1.11			$	1.33			$	1.41			$	1.31			$	5.16				$     .76			$	4.51			$	1.12			$	1.35			$	1.41			$	1.31			$	5.18				$     .76
Weighted Average Diluted Shares Outstanding, in millions			358.6				358.3				355.3				352.6				351.1				354.3				349.3				358.6				358.3				355.3				352.6				351.1				354.3				349.3