UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
July 29, 2010
July 29, 2010
Northrop Grumman Corporation
(Exact name of registrant as specified in its charter)
| DELAWARE (State or Other Jurisdiction of Incorporation) |
1-16411 (Commission File Number) |
95-4840775 (IRS Employer Identification No.) |
1840 Century Park East, Los Angeles, CA 90067
(Address of principal executive offices)(Zip Code)
(Address of principal executive offices)(Zip Code)
(310) 553-6262
Registrant’s telephone number, including area code
Registrant’s telephone number, including area code
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
July 29, 2010, Northrop Grumman Corporation issued a press release announcing its financial
results for the quarter ended June 30, 2010, under the heading
“Northrop Grumman Reports Second Quarter 2010 Financial Results”. The press release is furnished as Exhibit 99.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
| Furnished | |||
| Exhibit 99 — Press Release dated July 29, 2010 |
Signature(s)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned hereunto duly authorized.
| Northrop Grumman Corporation (Registrant) |
||||
| July 29, 2010 | By: | /s/ Joseph F. Coyne, Jr. | ||
| (Date) | (Signature) | |||
| Joseph F. Coyne, Jr. | ||||
| Corporate Vice President, Deputy General Counsel and Secretary | ||||
Exhibit Index
| Exhibit No. | ||
Exhibit 99
|
Furnished — Press Release dated July 29, 2010 |
|
News Release |
| Contact: | Dan McClain (Media) (310) 201-3335 |
|
| Paul Gregory (Investors) | ||
| (310) 201-1634 |
Northrop Grumman Reports Second Quarter 2010 Financial Results
| • | Q2 EPS from Continuing Operations Increase to $2.34 from $1.13 | |
| • | Sales Increase 3 Percent to $8.8 Billion | |
| • | Cash from Operations Totals $619 Million; Free Cash Flow Totals $515 Million | |
| • | Approximately 6.5 Million Shares Repurchased | |
| • | 2010 Guidance for EPS from Continuing Operations Increased to $6.60 – $6.80 | |
| • | 2010 Cash Guidance Updated Principally for Shipbuilding Consolidation Impacts | |
| • | Conference Call Scheduled for 10:30 a.m. EDT at www.northropgrumman.com |
LOS ANGELES – July 29, 2010 – Northrop Grumman Corporation (NYSE: NOC) reported that second
quarter 2010 earnings from continuing operations increased to $711 million, or $2.34 per diluted
share, from $368 million, or $1.13 per diluted share, in the second quarter of 2009. The 2010
second quarter included a tax benefit of $296 million, or $0.97 per diluted share, which was
partially offset by a pre-tax charge of $113 million, or $0.24
per diluted share, related to the company’s decision to consolidate its Gulf Coast shipbuilding operations. The net impact of the
tax benefit and the consolidation charge increased second quarter earnings from continuing
operations by $0.73 per diluted share. Second quarter 2010 sales increased 3.3 percent to $8.8
billion from $8.5 billion.
Cash
provided by operations totaled $619 million in the second quarter of 2010 compared with cash
provided by operations of $830 million in the second quarter of 2009. New business awards for the
2010 second quarter totaled $6.5 billion, bringing total backlog to $66 billion as of June 30,
2010.
“Overall, we’re pleased with our second quarter results. Our focus on performance improvement
is generating positive results across all our businesses. Aerospace, Electronics, Information
Systems and Technical Services each generated solid operating income growth. Shipbuilding, before
the consolidation-related adjustment, demonstrated that they are on a solid path of performance
improvement. The increase in our 2010 EPS guidance reflects the strength of this quarter’s
results. Looking ahead, we foresee a more challenging environment, and we are proactively managing
our businesses to create value for shareholders while supporting our customers’ focus on
affordability,” said Wes Bush, chief executive officer and president.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
Northrop Grumman Reports Second Quarter 2010 Financial Results
|
2 |
Table 1 - Financial Highlights
| Second Quarter | Six Months | |||||||||||||||
| ($ in millions, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Sales |
$ | 8,826 | $ | 8,545 | $ | 17,436 | $ | 16,480 | ||||||||
Operating income |
716 | 614 | 1,481 | 1,233 | ||||||||||||
as % of sales |
8.1% | 7.2% | 8.5% | 7.5% | ||||||||||||
Earnings from continuing operations |
$ | 711 | $ | 368 | $ | 1,173 | $ | 734 | ||||||||
Diluted EPS from continuing operations |
2.34 | 1.13 | 3.85 | 2.23 | ||||||||||||
Net earnings |
711 | 394 | 1,180 | 783 | ||||||||||||
Diluted EPS |
2.34 | 1.21 | 3.87 | 2.38 | ||||||||||||
Cash provided by operations |
619 | 830 | 88 | 658 | ||||||||||||
Free cash flow1 |
515 | 676 | (154 | ) | 324 | |||||||||||
Pension-adjusted Operating Highlights |
||||||||||||||||
Operating income |
$ | 716 | $ | 614 | $ | 1,481 | $ | 1,233 | ||||||||
Net pension adjustment1 |
8 | 76 | 16 | 152 | ||||||||||||
Pension-adjusted operating income1 |
724 | 690 | 1,497 | 1,385 | ||||||||||||
as % of sales1 |
8.2% | 8.1% | 8.6% | 8.4% | ||||||||||||
Pension-adjusted Per Share Data |
||||||||||||||||
Diluted EPS from continuing operations |
$ | 2.34 | $ | 1.13 | $ | 3.85 | $ | 2.23 | ||||||||
After-tax net pension adjustment per share1 |
0.02 | 0.15 | 0.03 | 0.30 | ||||||||||||
Pension-adjusted diluted EPS from continuing operations1 |
2.36 | 1.28 | 3.88 | 2.53 | ||||||||||||
Weighted average shares outstanding - Basic |
299.6 | 322.0 | 301.1 | 324.4 | ||||||||||||
Dilutive effect of stock options and stock awards |
4.2 | 3.8 | 3.9 | 4.5 | ||||||||||||
Weighted average shares outstanding - Diluted |
303.8 | 325.8 | 305.0 | 328.9 | ||||||||||||
1 Non-GAAP metric - see definitions and reconciliations at the end of this press
release.
During the second quarter of 2010 the company recognized a $113 million pre-tax charge in
Shipbuilding related to its decision to consolidate its Gulf Coast operations. Despite the charge,
second quarter 2010 operating income increased 17 percent to $716 million from $614 million in the
prior year period, and as a percent of sales increased 90 basis points to 8.1 percent from 7.2
percent. The improvement over the prior year reflects higher segment operating income and lower
net pension adjustment, partially offset by higher unallocated corporate expenses. Second quarter
2010 segment operating income increased $92 million, or 14 percent, driven by improved performance
in four of the company’s five businesses. As a percent of sales, second quarter 2010 segment
operating income improved 70 basis points to 8.7 percent from 8 percent. Net pension adjustment
declined to an expense of $8 million from an expense of $76 million in the prior year period.
Unallocated corporate expenses totaled $46 million in the 2010 second quarter compared with income
of $21 million in the 2009 second quarter. The quarter-over-quarter increase is due to a $64
million pre-tax gain for legal costs and provisions for litigation matters recognized in the 2009
second quarter.
Federal and foreign income taxes represented a benefit of $73 million in the second quarter of
2010 compared with expense of $189 million in the prior year. Second quarter 2010 income taxes
include a $296 million benefit primarily related to final
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
| Northrop Grumman Reports Second Quarter 2010 Financial Results | 3 |
approval by the Internal Revenue Service
(IRS) and the U.S. Congressional Joint Committee on Taxation of the IRS’ examination of tax returns
for the years 2004 through 2006. The cash impact of the settlement is $66 million in the second
quarter. Adjusted for the $296 million settlement, the company’s effective tax rate for the second
quarter of 2010 would have been 35 percent compared with an effective tax rate of 33.9 percent in
the prior year period.
Second quarter 2010 diluted earnings per share are based on 303.8 million weighted average
shares outstanding compared with 325.8 million shares in the second quarter of 2009.
Table 2 - Cash Flow Highlights
| Second Quarter | Six Months | |||||||||||||||||||||||
| ($ millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||
Cash provided by operations before |
||||||||||||||||||||||||
discretionary pension contributions1 |
$ | 895 | $ | 742 | $ | 153 | $ | 394 | $ | 784 | $ | (390 | ) | |||||||||||
Discretionary pension pre-funding impact, net
of tax |
(276 | ) | 88 | (364 | ) | (306 | ) | (126 | ) | (180 | ) | |||||||||||||
Cash provided by operations |
619 | 830 | (211 | ) | 88 | 658 | (570 | ) | ||||||||||||||||
Less: |
||||||||||||||||||||||||
Capital expenditures |
(103 | ) | (135 | ) | 32 | (238 | ) | (297 | ) | 59 | ||||||||||||||
Outsourcing contract & related software costs |
(1 | ) | (19 | ) | 18 | (4 | ) | (37 | ) | 33 | ||||||||||||||
Free cash flow1 |
$ | 515 | $ | 676 | $ | (161 | ) | $ | (154 | ) | $ | 324 | $ | (478 | ) | |||||||||
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release
Free cash flow totaled $515 million in the 2010 second quarter compared with $676 million in
the prior year period. The change in free cash flow in the 2010 period includes higher levels of
working capital, pension pre-funding, and tax payments, which were partially offset by higher net
earnings. Second quarter 2010 cash from operations included a $300 million discretionary
contribution to the company’s pension plans. Second quarter 2009 cash from operations
included $53 million for discontinued operations, principally for TASC Inc., which was divested in
December 2009.
Table 3 – 2010 Guidance Updated
| ($ in millions, except per share amounts) | Prior | Current | ||||||
Sales |
~$34,500 | ~$34,800 | ||||||
Segment operating margin %1 |
Low 9% | Low 9% | ||||||
Operating margin % |
Mid 8% | Mid 8% | ||||||
Diluted EPS from continuing operations |
$ | 5.75 - $ 6.00 | $ | 6.60 - $ 6.80 | ||||
Cash provided by operations before |
||||||||
discretionary pension contributions1 |
2,500 - 3,000 | 2,300 - 2,800 | ||||||
Free cash flow before |
||||||||
discretionary pension contributions1 |
1,700 - 2,200 | 1,500 - 2,000 | ||||||
1 Non-GAAP metric - see definitions
and reconciliations at the end of this press release.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
| Northrop Grumman Reports Second Quarter 2010 Financial Results | 4 |
The company now expects 2010 earnings from continuing operations to range between $6.60 and
$6.80 per diluted share to reflect the benefit of the second quarter tax settlement, the
consolidation-related charge in Shipbuilding, and improved performance. The company has also
updated its 2010 cash guidance principally to reflect the anticipated cash impacts of the
consolidation of its Gulf Coast shipyards.
Table 4 - Cash Measurements, Debt and Capital Deployment
| ($ millions) | 6/30/2010 | 12/31/2009 | ||||||
Cash & cash equivalents |
$ | 2,044 | $ | 3,275 | ||||
Total debt |
4,211 | 4,294 | ||||||
Net debt1 |
2,167 | 1,019 | ||||||
Net debt to total capital ratio2 |
13% | 6% | ||||||
1 Total debt less cash and cash equivalents.
2 Net debt divided by the sum of shareholders’ equity and total debt.
Changes in cash and cash equivalents include the following items for cash from operations,
investing and financing through June 30, 2010:
Operations
| • | $330 million discretionary pension contributions | |
| • | $88 million provided by operations after discretionary pension contributions above |
Investing
| • | $238 million for capital expenditures and $4 million for outsourcing contract and related software costs |
Financing
| • | $855 million for repurchase of common stock | |
| • | $103 million proceeds from exercises of stock options and issuance of common stock | |
| • | $90 million principal payments of long term debt | |
| • | $270 million for dividends |
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
| Northrop Grumman Reports Second Quarter 2010 Financial Results | 5 |
Table 5 - Business Results
Consolidated Sales & Segment Operating Income1
Consolidated Sales & Segment Operating Income1
| Second Quarter | Six Months | |||||||||||||||||||||||
| ($ millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||
Sales |
||||||||||||||||||||||||
Aerospace Systems |
$ | 2,842 | $ | 2,673 | 6% | $ | 5,538 | $ | 5,129 | 8% | ||||||||||||||
Electronic Systems |
1,984 | 1,967 | 1% | 3,866 | 3,755 | 3% | ||||||||||||||||||
Information Systems |
2,123 | 2,151 | (1% | ) | 4,187 | 4,244 | (1% | ) | ||||||||||||||||
Shipbuilding |
1,598 | 1,524 | 5% | 3,319 | 2,899 | 14% | ||||||||||||||||||
Technical Services |
801 | 702 | 14% | 1,564 | 1,334 | 17% | ||||||||||||||||||
Intersegment eliminations |
(522 | ) | (472 | ) | (1,038 | ) | (881 | ) | ||||||||||||||||
| $ | 8,826 | $ | 8,545 | 3% | $ | 17,436 | $ | 16,480 | 6% | |||||||||||||||
Segment operating income (loss) 1 |
||||||||||||||||||||||||
Aerospace Systems |
$ | 335 | $ | 257 | 30% | $ | 631 | $ | 515 | 23% | ||||||||||||||
Electronic Systems |
264 | 251 | 5% | 490 | 480 | 2% | ||||||||||||||||||
Information Systems |
205 | 163 | 26% | 388 | 349 | 11% | ||||||||||||||||||
Shipbuilding |
(16 | ) | 14 | NM | 90 | 98 | (8% | ) | ||||||||||||||||
Technical Services |
52 | 43 | 21% | 101 | 80 | 26% | ||||||||||||||||||
Intersegment eliminations |
(68 | ) | (48 | ) | (118 | ) | (87 | ) | ||||||||||||||||
Segment operating income1 |
$ | 772 | $ | 680 | 14% | $ | 1,582 | $ | 1,435 | 10% | ||||||||||||||
as a % of sales1 |
8.7% | 8.0% | 70 bps | 9.1% | 8.7% | 40 bps | ||||||||||||||||||
Reconciliation to operating income |
||||||||||||||||||||||||
Unallocated corporate (expenses) income |
$ | (46 | ) | $ | 21 | (319% | ) | $ | (79 | ) | $ | (32 | ) | (147% | ) | |||||||||
Net pension adjustment1 |
(8 | ) | (76 | ) | 89% | (16 | ) | (152 | ) | 89% | ||||||||||||||
Reversal of royalty income included above |
(2 | ) | (11 | ) | 82% | (6 | ) | (18 | ) | 67% | ||||||||||||||
Operating income |
716 | 614 | 17% | 1,481 | 1,233 | 20% | ||||||||||||||||||
as a % of sales |
8.1% | 7.2% | 90 bps | 8.5% | 7.5% | 100 bps | ||||||||||||||||||
Net interest expense |
(68 | ) | (70 | ) | 3% | (148 | ) | (143 | ) | (3% | ) | |||||||||||||
Other, net |
(10 | ) | 13 | NM | (3 | ) | 21 | (114%) | ||||||||||||||||
Earnings from continuing operations before
income taxes |
638 | 557 | 15% | 1,330 | 1,111 | 20% | ||||||||||||||||||
Federal and foreign income taxes benefit
(expense) |
73 | (189 | ) | 139% | (157 | ) | (377 | ) | 58% | |||||||||||||||
Earnings from continuing operations |
711 | 368 | 93% | 1,173 | 734 | 60% | ||||||||||||||||||
Earnings from discontinued operations |
- | 26 | NM | 7 | 49 | (86%) | ||||||||||||||||||
Net earnings |
$ | 711 | $ | 394 | 80% | $ | 1,180 | $ | 783 | 51% | ||||||||||||||
1 Non-GAAP metric - see
definitions and reconciliations at the end
of this press release.
Results for the company’s advisory services business (TASC), divested in December 2009, are
reported as discontinued operations for all periods presented.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
| Northrop Grumman Reports Second Quarter 2010 Financial Results | 6 |
Aerospace Systems ($ millions)
| Second Quarter | Six Months | |||||||||||||||||||||||
| 2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
Sales |
$ | 2,842 | $ | 2,673 | 6.3% | $ | 5,538 | $ | 5,129 | 8.0% | ||||||||||||||
Operating income |
335 | 257 | 30.4% | 631 | 515 | 22.5% | ||||||||||||||||||
as % of sales |
11.8% | 9.6% | 11.4% | 10.0% | ||||||||||||||||||||
Aerospace Systems second quarter 2010 sales increased 6 percent, principally due to higher
volume for manned and unmanned aircraft, space and restricted programs. Higher volume for these
programs was partially offset by lower volume for missile defense programs. Aerospace Systems
second quarter 2010 operating income increased 30 percent, and as a percent of sales increased to
11.8 percent from 9.6 percent in the prior year period. Higher operating income and margin rate
are due to higher volume and improved program performance primarily in manned aircraft programs.
Electronic Systems ($ millions)
Second Quarter
Six Months
2010
2009
% Change
2010
2009
% Change
Sales
$
1,984
$
1,967
0.9%
$
3,866
$
3,755
3.0%
Operating income
264
251
5.2%
490
480
2.1%
as a % of sales
13.3%
12.8%
12.7%
12.8%
Electronic Systems second quarter 2010 sales increased 1 percent due to higher sales for
targeting systems programs. Electronic Systems second quarter 2010 operating income increased 5
percent, and as a percent of sales increased to 13.3 percent from 12.8 percent. Higher operating
income and margin rate reflects slightly higher volume and improved program performance for
targeting systems and land and self protection systems programs, partially offset by lower
performance for postal automation.
Information Systems ($ millions)
Second Quarter
Six Months
2010
2009
% Change
2010
2009
% Change
Sales
$
2,123
$
2,151
(1.3%)
$
4,187
$
4,244
(1.3%)
Operating income
205
163
25.8%
388
349
11.2%
as a % of sales
9.7%
7.6%
9.3%
8.2%
Information Systems second quarter 2010 sales were slightly lower than the prior year period
principally due to lower volume for civil systems and intelligence programs, which more than offset
higher volume for defense programs. Second quarter 2010 operating income increased 26 percent and
as a percent of sales totaled 9.7 percent compared with 7.6 percent in the prior year period.
Higher operating income and rate reflect improved performance across several programs as well as
$18 million of risk retirement related to a subcontractor on the New York City Wireless program;
these items more than offset lower volume.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
| Northrop Grumman Reports Second Quarter 2010 Financial Results | 7 |
Shipbuilding
($ millions)
Second Quarter
Six Months
2010
2009
% Change
2010
2009
% Change
Sales
$
1,598
$
1,524
4.9%
$
3,319
$
2,899
14.5%
Operating (loss) income
(16
)
14
NM
90
98
(8.2%
)
as % of sales
NM
0.9%
2.7%
3.4%
Shipbuilding second quarter 2010 sales increased 5 percent due to higher volume for aircraft
carriers, expeditionary warfare, and submarine programs. Shipbuilding recorded a $16 million
operating loss in the 2010 second quarter due to a $113 million pre-tax charge related to the
company’s decision to consolidate its Gulf Coast shipyards. As previously announced the company
will consolidate future new Gulf Coast ship construction in Mississippi and will wind down
construction at its Avondale facility in 2013. As a result, the company increased its estimates to
complete LPDs 23 and 25 currently under construction at Avondale by approximately $210 million. Of
that amount, $113 million was recognized in the 2010 second quarter as a pre-tax charge to
operating income. The balance will be recognized as lower margin in future periods, principally on
the LPD 25. The adjustment to estimates to complete LPDs 23 and 25 reduced Shipbuilding’s 2010
second quarter sales by $115 million.
Before the consolidation charge, Shipbuilding operating income totaled $97 million, or 5.7
percent of sales, compared with $14 million in the second quarter of 2009. Shipbuilding 2009
second quarter operating income included a $105 million pre-tax charge to reflect higher estimates
to complete expeditionary warfare ships.
Technical
Services ($ millions)
Second Quarter
Six Months
2010
2009
% Change
2010
2009
% Change
Sales
$
801
$
702
14.1%
$
1,564
$
1,334
17.2%
Operating income
52
43
20.9%
101
80
26.3%
as a % of Sales
6.5%
6.1%
6.5%
6.0%
Technical Services second quarter 2010 sales increased 14 percent due to higher volume for new
and existing programs. Technical Services second quarter 2010 operating income increased 21
percent, and as a percent of sales increased to 6.5 percent from 6.1 percent. The improvements in
operating income and rate are due to higher volume and improved business mix.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
| Northrop Grumman Reports Second Quarter 2010 Financial Results | 8 |
About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at 10:30 a.m. EDT on July 29, 2010.
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.
Northrop Grumman Corporation is a leading global security company whose 120,000 employees
provide innovative systems, products, and solutions in aerospace, electronics, information systems,
shipbuilding and technical services to government and commercial customers worldwide. Please visit
www.northropgrumman.com for more information.
Statements in this release and the attachments, other than statements of historical fact,
constitute “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. Words such as “anticipate,” “expect,” “intend,” “plan,” “project,” “forecast,”
“believe,” “estimate,” “outlook,” “guidance,” and similar expressions generally identify these
forward-looking statements. Forward-looking statements in this release and the attachments
include, among other things, financial guidance regarding future sales, segment operating income,
pension expense, employer contributions under pension plans and medical and life benefits plans,
cash flow and earnings. These statements are not guarantees of future performance and involve
certain risks and uncertainties. Actual results could differ materially due to factors such as:
timing and execution of Shipbuilding’s Gulf Coast consolidation; execution of any strategic
alternative for the Shipbuilding business; the effect of economic conditions in the United States
and globally; access to capital; future sales and cash flows; timing of cash receipts; effective
tax rates and timing and amounts of tax payments; returns on pension plan assets, interest and
discount rates and other changes that may impact pension plan assumptions; retiree medical expense;
the outcome of litigation, claims, audits, appeals, bid protests and investigations; hurricane and
earthquake-related insurance coverage and recoveries; costs of environmental remediation; our
relationships with labor unions; availability and retention of qualified personnel; costs of
capital investments; changes in organizational structure and reporting segments; risks associated
with acquisitions, dispositions, joint ventures, strategic alliances and other business
arrangements; possible impairments of goodwill or other intangible assets; effects of legislation,
rulemaking, and changes in accounting, tax or defense procurement; changes in government and
customer priorities and requirements (including, government budgetary constraints, shifts in
defense spending, changes in import and export policies, changes in customer short-range and
long-range plans); acquisition or termination of contracts; technical, operation or quality
setbacks in contract performance; protection of intellectual property rights; risks associated with
our nuclear operations; issues with, and financial viability of, key suppliers and subcontractors;
availability of materials and supplies; controlling costs of fixed-price development programs;
contractual performance relief and the application of cost sharing terms; allowability and
allocability of costs under U.S. Government contracts; progress and acceptance of new products and
technology; domestic and international competition; legal, financial and governmental risks related
to international transactions; potential security threats, natural disasters and other disruptions
not under our control; and other risk factors disclosed in our filings with the Securities and
Exchange Commission.
These forward-looking statements speak only as of the date of this release and we undertake no
obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by applicable law.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
| Northrop Grumman Reports Second Quarter 2010 Financial Results | 9 |
This release and the attachments also contain non-GAAP financial measures. A reconciliation to the
nearest GAAP measure and a discussion of the company’s use of these measures are included in this
release or the attachments.
# # #
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30 | June 30 | |||||||||||||||
| $ in millions, except per share amounts | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Sales and Service Revenues |
||||||||||||||||
Product sales |
$ | 5,544 | $ | 5,420 | $ | 11,070 | $ | 9,990 | ||||||||
Service revenues |
3,282 | 3,125 | 6,366 | 6,490 | ||||||||||||
Total sales and service revenues |
8,826 | 8,545 | 17,436 | 16,480 | ||||||||||||
Cost of Sales and Service Revenues |
||||||||||||||||
Cost of product sales |
4,367 | 4,345 | 8,663 | 7,980 | ||||||||||||
Cost of service revenues |
2,973 | 2,845 | 5,754 | 5,808 | ||||||||||||
General and administrative expenses |
770 | 741 | 1,538 | 1,459 | ||||||||||||
Operating income |
716 | 614 | 1,481 | 1,233 | ||||||||||||
Other (expense) income |
||||||||||||||||
Interest expense |
(68 | ) | (70 | ) | (148 | ) | (143 | ) | ||||||||
Other, net |
(10 | ) | 13 | (3 | ) | 21 | ||||||||||
Earnings from continuing operations before income taxes |
638 | 557 | 1,330 | 1,111 | ||||||||||||
Federal and foreign income tax (benefit) expense |
(73 | ) | 189 | 157 | 377 | |||||||||||
Earnings from continuing operations |
711 | 368 | 1,173 | 734 | ||||||||||||
Earnings from discontinued operations, net of tax |
26 | 7 | 49 | |||||||||||||
Net Earnings |
$ | 711 | $ | 394 | $ | 1,180 | $ | 783 | ||||||||
Basic Earnings Per Share |
||||||||||||||||
Continuing operations |
$ | 2.37 | $ | 1.14 | $ | 3.90 | $ | 2.26 | ||||||||
Discontinued operations |
.08 | .02 | .15 | |||||||||||||
Basic earnings per share |
$ | 2.37 | $ | 1.22 | $ | 3.92 | $ | 2.41 | ||||||||
Weighted-average common shares outstanding, in millions |
299.6 | 322.0 | 301.1 | 324.4 | ||||||||||||
Diluted Earnings Per Share |
||||||||||||||||
Continuing operations |
$ | 2.34 | $ | 1.13 | $ | 3.85 | $ | 2.23 | ||||||||
Discontinued operations |
.08 | .02 | .15 | |||||||||||||
Diluted earnings per share |
$ | 2.34 | $ | 1.21 | $ | 3.87 | $ | 2.38 | ||||||||
Weighted-average diluted shares outstanding, in millions |
303.8 | 325.8 | 305.0 | 328.9 | ||||||||||||
Net earnings (from above) |
$ | 711 | $ | 394 | $ | 1,180 | $ | 783 | ||||||||
Other comprehensive income |
||||||||||||||||
Change in cumulative translation adjustment |
(24 | ) | 38 | (52 | ) | 24 | ||||||||||
Change in unrealized gain on marketable securities
and cash flow hedges, net of tax |
28 | 35 | ||||||||||||||
Change in unamortized benefit plan costs, net of tax |
39 | 53 | 79 | 106 | ||||||||||||
Other comprehensive income, net of tax |
15 | 119 | 27 | 165 | ||||||||||||
Comprehensive income |
$ | 726 | $ | 513 | $ | 1,207 | $ | 948 | ||||||||
SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
| June 30, | December 31, | |||||||
| $ in millions | 2010 | 2009 | ||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 2,044 | $ | 3,275 | ||||
Accounts receivable, net of progress payments |
4,160 | 3,394 | ||||||
Inventoried costs, net of progress payments |
1,148 | 1,170 | ||||||
Deferred tax assets |
648 | 524 | ||||||
Prepaid expenses and other current assets |
384 | 272 | ||||||
Total current assets |
8,384 | 8,635 | ||||||
Property, plant, and equipment, net of accumulated depreciation of $4,465 in 2010
and $4,216 in 2009 |
4,763 | 4,868 | ||||||
Goodwill |
13,517 | 13,517 | ||||||
Other purchased intangibles, net of accumulated amortization of $1,921 in 2010
and $1,871 in 2009 |
823 | 873 | ||||||
Pension and post-retirement plan assets |
308 | 300 | ||||||
Long-term deferred tax assets |
844 | 1,010 | ||||||
Miscellaneous other assets |
1,055 | 1,049 | ||||||
Total assets |
$ | 29,694 | $ | 30,252 | ||||
Liabilities |
||||||||
Notes payable to banks |
$ | 13 | $ | 12 | ||||
Current portion of long-term debt |
760 | 91 | ||||||
Trade accounts payable |
1,643 | 1,921 | ||||||
Accrued employees’ compensation |
1,229 | 1,281 | ||||||
Advance payments and billings in excess of costs incurred |
1,979 | 1,954 | ||||||
Other current liabilities |
2,042 | 1,726 | ||||||
Total current liabilities |
7,666 | 6,985 | ||||||
Long-term debt, net of current portion |
3,438 | 4,191 | ||||||
Pension and post-retirement plan liabilities |
4,487 | 4,874 | ||||||
Other long-term liabilities |
1,200 | 1,515 | ||||||
Total liabilities |
16,791 | 17,565 | ||||||
Shareholders’ Equity |
||||||||
Common stock, $1 par value; 800,000,000 shares authorized; issued and
outstanding: 2010 — 294,979,243; 2009 — 306,865,201 |
295 | 307 | ||||||
Paid-in capital |
7,949 | 8,657 | ||||||
Retained earnings |
7,646 | 6,737 | ||||||
Accumulated other comprehensive loss |
(2,987 | ) | (3,014 | ) | ||||
Total shareholders’ equity |
12,903 | 12,687 | ||||||
Total liabilities and shareholders’ equity |
$ | 29,694 | $ | 30,252 | ||||
SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended | ||||||||
| June 30 | ||||||||
| $ in millions | 2010 | 2009 | ||||||
Operating Activities |
||||||||
Sources of Cash — Continuing Operations |
||||||||
Cash received from customers |
||||||||
Progress payments |
$ | 2,746 | $ | 3,560 | ||||
Collections on billings |
14,002 | 12,499 | ||||||
Other cash receipts |
3 | 20 | ||||||
Total sources of cash — continuing operations |
16,751 | 16,079 | ||||||
Uses of Cash — Continuing Operations |
||||||||
Cash paid to suppliers and employees |
(15,499 | ) | (14,616 | ) | ||||
Pension contributions |
(364 | ) | (236 | ) | ||||
Interest paid, net of interest received |
(144 | ) | (141 | ) | ||||
Income taxes paid, net of refunds received |
(632 | ) | (467 | ) | ||||
Excess tax benefits from stock-based compensation |
(10 | ) | ||||||
Other cash payments |
(14 | ) | (58 | ) | ||||
Total uses of cash — continuing operations |
(16,663 | ) | (15,518 | ) | ||||
Cash provided by continuing operations |
88 | 561 | ||||||
Cash provided by discontinued operations |
97 | |||||||
Net cash provided by operating activities |
88 | 658 | ||||||
Investing Activities |
||||||||
Payments for businesses purchased |
(33 | ) | ||||||
Additions to property, plant, and equipment |
(238 | ) | (297 | ) | ||||
Payments for outsourcing contract costs and related software costs |
(4 | ) | (37 | ) | ||||
Other investing activities, net |
24 | 5 | ||||||
Net cash used in investing activities |
(218 | ) | (362 | ) | ||||
Financing Activities |
||||||||
Net borrowings under lines of credit |
1 | 3 | ||||||
Principal payments of long-term debt |
(90 | ) | (72 | ) | ||||
Proceeds from exercises of stock options and issuances of common stock |
103 | 17 | ||||||
Dividends paid |
(270 | ) | (269 | ) | ||||
Excess tax benefits from stock-based compensation |
10 | |||||||
Common stock repurchases |
(855 | ) | (423 | ) | ||||
Net cash used in financing activities |
(1,101 | ) | (744 | ) | ||||
Decrease in cash and cash equivalents |
(1,231 | ) | (448 | ) | ||||
Cash and cash equivalents, beginning of period |
3,275 | 1,504 | ||||||
Cash and cash equivalents, end of period |
$ | 2,044 | $ | 1,056 | ||||
SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended | ||||||||
| June 30 | ||||||||
| $ in millions | 2010 | 2009 | ||||||
Reconciliation of Net Earnings to Net Cash Provided by Operating
Activities |
||||||||
Net earnings
|
$ | 1,180 | $ | 783 | ||||
Adjustments to reconcile to net cash provided by operating activities |
||||||||
Depreciation
|
284 | 278 | ||||||
Amortization of assets
|
70 | 75 | ||||||
Stock-based compensation
|
69 | 55 | ||||||
Excess tax benefits from stock-based compensation
|
(10 | ) | ||||||
Pre-tax gain on sale of business
|
(10 | ) | ||||||
(Increase) decrease in |
||||||||
Accounts receivable, net
|
(766 | ) | (347 | ) | ||||
Inventoried costs, net
|
(14 | ) | (96 | ) | ||||
Prepaid expenses and other current assets
|
(19 | ) | (74 | ) | ||||
Increase (decrease) in |
||||||||
Accounts payable and accruals
|
(549 | ) | (287 | ) | ||||
Deferred income taxes
|
(8 | ) | 63 | |||||
Income taxes payable
|
(71 | ) | (48 | ) | ||||
Retiree benefits
|
(69 | ) | 171 | |||||
Other non-cash transactions, net
|
1 | (12 | ) | |||||
Cash provided by continuing operations
|
88 | 561 | ||||||
Cash provided by discontinued operations
|
97 | |||||||
Net cash provided by operating activities
|
$ | 88 | $ | 658 | ||||
Non-Cash Investing and Financing Activities |
||||||||
Capital expenditures accrued in accounts payable
|
$ | 47 | $ | 34 | ||||
SCHEDULE 5
NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(unaudited)
TOTAL BACKLOG AND CONTRACT AWARDS
(unaudited)
| $ in millions | June 30, 2010 | December 31, 2009 | ||||||||||||||||||||||
| TOTAL | TOTAL | |||||||||||||||||||||||
| FUNDED (1) | UNFUNDED(2) | BACKLOG | FUNDED (1) | UNFUNDED(2) | BACKLOG | |||||||||||||||||||
Aerospace Systems |
$ | 9,526 | $ | 13,124 | $ | 22,650 | $ | 8,320 | $ | 16,063 | $ | 24,383 | ||||||||||||
Electronic Systems |
7,907 | 2,024 | 9,931 | 7,591 | 2,784 | 10,375 | ||||||||||||||||||
Information Systems |
4,581 | 5,547 | 10,128 | 4,319 | 4,508 | 8,827 | ||||||||||||||||||
Shipbuilding |
11,085 | 7,333 | 18,418 | 11,294 | 9,151 | 20,445 | ||||||||||||||||||
Technical Services |
2,893 | 1,992 | 4,885 | 2,352 | 2,804 | 5,156 | ||||||||||||||||||
Total |
$ | 35,992 | $ | 30,020 | $ | 66,012 | $ | 33,876 | $ | 35,310 | $ | 69,186 | ||||||||||||
| (1) | Funded backlog represents firm orders for which funding is contractually obligated by the customer. | |
| (2) | Unfunded backlog represents firm orders for which funding is not currently contractually obligated by the customer. | |
| Unfunded backlog excludes unexercised contract options and unfunded Indefinite Delivery Indefinite Quantity (IDIQ) orders. |
New
Awards – The estimated value of contract awards included in backlog during the six
months ended June 30, 2010, was approximately $13.4 billion.
During the second quarter the company reached an agreement with the Commonwealth of Virginia
that modified certain aspects of the Virginia IT outsourcing contract. As a result of these
modifications, total backlog at June 30, 2010 includes an $824 million adjustment to reflect
minimum values for years 2011 through 2016, which are now provided for in the contract.
SCHEDULE
6
NORTHROP GRUMMAN CORPORATION
DISCONTINUED OPERATIONS RECLASSIFICATION AND REALIGNED SEGMENT
($ in million)
(unaudited)
DISCONTINUED OPERATIONS RECLASSIFICATION AND REALIGNED SEGMENT
($ in million)
(unaudited)
| NET SALES(2) | SEGMENT OPERATING INCOME (LOSS)(3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2008 | 2009 | 2009 | 2007 | 2008 | 2009 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Total | Total | Three Months Ended | Total | Total | Total | Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| Year | Year | Year | Mar 31 | Jun 30 | Sep 30 | Dec 31 | Year | Year | Year | Mar 31 | Jun 30 | Sep 30 | Dec 31 | |||||||||||||||||||||||||||||||||||||||||||
AS REPORTED (1) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aerospace Systems |
$ | 9,234 | $ | 9,825 | $ | 10,419 | $ | 2,456 | $ | 2,673 | $ | 2,527 | $ | 2,763 | $ | 919 | $ | 416 | $ | 1,071 | $ | 258 | $ | 257 | $ | 265 | $ | 291 | ||||||||||||||||||||||||||||
Electronic Systems |
6,466 | 7,048 | 7,671 | 1,788 | 1,967 | 1,839 | 2,077 | 809 | 947 | 969 | 229 | 251 | 215 | 274 | ||||||||||||||||||||||||||||||||||||||||||
Information Systems |
7,758 | 8,205 | 8,611 | 2,491 | 2,585 | 2,513 | 2,195 | 725 | 629 | 631 | 223 | 204 | 206 | 109 | ||||||||||||||||||||||||||||||||||||||||||
Shipbuilding |
5,788 | 6,145 | 6,213 | 1,375 | 1,524 | 1,650 | 1,664 | 538 | (2,307 | ) | 299 | 84 | 14 | 113 | 88 | |||||||||||||||||||||||||||||||||||||||||
Technical Services |
2,422 | 2,535 | 2,776 | 632 | 702 | 692 | 750 | 139 | 144 | 161 | 37 | 43 | 41 | 40 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment Eliminations |
(1,327 | ) | (1,443 | ) | (1,935 | ) | (422 | ) | (494 | ) | (495 | ) | (524 | ) | (105 | ) | (128 | ) | (202 | ) | (40 | ) | (50 | ) | (54 | ) | (58 | ) | ||||||||||||||||||||||||||||
Total |
$ | 30,341 | $ | 32,315 | 33,755 | $ | 8,320 | $ | 8,957 | $ | 8,726 | $ | 8,925 | $ | 3,025 | $ | (299 | ) | $ | 2,929 | $ | 791 | $ | 719 | $ | 786 | $ | 744 | ||||||||||||||||||||||||||||
RECASTED AND REALIGNED (2) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aerospace Systems |
$ | 9,234 | $ | 9,825 | $ | 10,419 | $ | 2,456 | $ | 2,673 | $ | 2,527 | $ | 2,763 | $ | 919 | $ | 416 | $ | 1,071 | $ | 258 | $ | 257 | $ | 265 | $ | 291 | ||||||||||||||||||||||||||||
Electronic Systems |
6,466 | 7,048 | 7,671 | 1,788 | 1,967 | 1,839 | 2,077 | 809 | 947 | 969 | 229 | 251 | 215 | 274 | ||||||||||||||||||||||||||||||||||||||||||
Information Systems |
7,717 | 8,174 | 8,536 | 2,093 | 2,151 | 2,118 | 2,174 | 722 | 626 | 624 | 186 | 163 | 168 | 107 | ||||||||||||||||||||||||||||||||||||||||||
Shipbuilding |
5,788 | 6,145 | 6,213 | 1,375 | 1,524 | 1,650 | 1,664 | 538 | (2,307 | ) | 299 | 84 | 14 | 113 | 88 | |||||||||||||||||||||||||||||||||||||||||
Technical Services |
2,422 | 2,535 | 2,776 | 632 | 702 | 692 | 750 | 139 | 144 | 161 | 37 | 43 | 41 | 40 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment Eliminations |
(1,286 | ) | (1,412 | ) | (1,860 | ) | (409 | ) | (472 | ) | (476 | ) | (503 | ) | (102 | ) | (125 | ) | (195 | ) | (39 | ) | (48 | ) | (52 | ) | (56 | ) | ||||||||||||||||||||||||||||
Total |
$ | 30,341 | $ | 32,315 | 33,755 | $ | 7,935 | $ | 8,545 | $ | 8,350 | $ | 8,925 | $ | 3,025 | $ | (299 | ) | $ | 2,929 | $ | 755 | $ | 680 | $ | 750 | $ | 744 | ||||||||||||||||||||||||||||
| (1) | “As reported” Total Year 2007, Total Year 2008, Total Year 2009, and Three Months ended Dec. 31 amounts reflect the presentation of the Advisory Services Division (ASD) as a discontinued operation and were previously disclosed in the 2009 Form 10-K and the Fourth Quarter 2009 Earnings Release. 2009 quarterly results for three months ended Mar. 31, Jun. 30, and Sep. 30 were previously reported in the company’s 2009 Earnings Releases and 2009 Form 10-Qs. As a result, the sum of the four quarters in 2009 will not equal the reported 2009 total year. | |
| (2) | Reported amounts for total years 2007 through 2009, and the three months ended Dec. 31 were adjusted to reflect the January 2010 transfer of the company’s internal information technology services unit from the Information Systems segment to the company’s shared services group. Reported amounts for the three months ended Mar. 31, Jun. 30, and Sep. 30 were adjusted to reflect the presentation of ASD as a discontinued operation and the January 2010 transfer. | |
| (3) | Non-GAAP measure. Management uses segment operating income (loss) as an internal measure of financial performance for the individual operating segments. |
Non-GAAP Financial Measures Disclosure: Today’s press release contains non-GAAP
(accounting principles generally accepted in the United States of America) financial measures, as
defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the
text of the release. While we believe that these non-GAAP financial measures may be useful in
evaluating Northrop Grumman’s financial information, they should be considered as supplemental in
nature and not as a substitute for financial information prepared in accordance with GAAP.
Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of
the release and in attached schedules. References to a “Table” in the definitions below relate to
tables in the body of this press release. Other companies may define these measures differently or
may utilize different non-GAAP measures.
Cash provided by operations before discretionary pension contributions: Cash provided by
operations before the after-tax impact of discretionary pension contributions. Cash provided by
operations before discretionary pension contributions has been provided for consistency and
comparability of 2010 and 2009 financial performance and is reconciled on Table 2.
Free cash flow: Cash provided by operations less capital expenditures and outsourcing
contract and related software costs. We use free cash flow as a key factor in our planning for and
consideration of strategic acquisitions, stock repurchases and the payment of dividends. This
measure should not be considered in isolation, as a measure of residual cash flow available for
discretionary purposes, or as an alternative to operating results presented in accordance with
GAAP. Free cash flow is reconciled in Table 2.
Free cash flow before discretionary pension contributions: Free cash flow before the
after-tax impact of discretionary pension contributions. We use free cash flow before
discretionary pension contributions as a key factor in our planning for and consideration of
strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be
considered in isolation, as a measure of residual cash flow available for discretionary purposes,
or as an alternative to operating results presented in accordance with GAAP.
Net pension adjustment: Pension expense determined in accordance with GAAP less pension
expense allocated to the operating segments under U.S. Government Cost Accounting Standards (CAS).
After-tax net pension adjustment per share: The per share impact of the net pension
adjustment as defined above, after tax at the statutory rate of 35%, provided for consistency and
comparability of 2010 and 2009 financial performance and reconciled on Table 1.
Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing
operations excluding the after-tax net pension adjustment per share. These per share amounts are
provided for consistency and comparability of operating results. Management uses pension-adjusted
diluted EPS from continuing operations, as reconciled in Table 1, as an internal measure of
financial performance.
Pension-adjusted operating income: Operating income before net pension adjustment as
reconciled in Table 1 and used as an internal measure of financial performance.
Pension-adjusted operating margin % / Pension-adjusted operating income as a % of sales:
Pension-adjusted operating income as defined above, divided by sales. Management uses
pension-adjusted operating income %, as reconciled in Table 1, as an internal measure of financial
performance.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
Segment operating income (loss): Total earnings from our five segments including allocated
pension expense recognized under CAS. Reconciling items to operating income are unallocated
corporate expenses, which include management and administration, legal, environmental, certain
compensation and retiree benefits, and other expenses; net pension adjustment; and reversal of
royalty income included in segment operating income. Management uses segment operating income, as
reconciled in Table 5, as an internal measure of financial performance of our individual operating
segments.
Segment operating margin % / Segment operating income as a % of sales: Segment operating
income as defined above, divided by sales. Management uses segment operating income %, as
reconciled in Table 5, as an internal measure of financial performance.
####
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com