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 27, 2010

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 27, 2010, Northrop Grumman Corporation issued a press release announcing its financial results for the quarter ended September 30, 2010, under the heading “Northrop Grumman Reports Third 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 October 27, 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.

Exhibit Index

Exhibit No.
Exhibit 99		Furnished — Press Release dated October 27, 2010

		News Release

	Contact:	Dan McClain (Media) (310) 201-3335
		Paul Gregory (Investors)
		(310) 201-1634

Northrop Grumman Reports Third Quarter 2010 Financial Results

•

Q3 EPS from Continuing Operations Increase 13 Percent to $1.64

•

Sales Increase 4 Percent to $8.7 Billion

•

Cash from Operations Totals $978 Million; Free Cash Flow Totals $817 Million

•

Approximately 3 Million Shares Repurchased

•

2010 Guidance for EPS from Continuing Operations Increased to $6.85 – $7.00

•

Conference Call Scheduled for 10:30 a.m. ET at www.northropgrumman.com

          LOS ANGELES – Oct. 27, 2010 – Northrop Grumman Corporation (NYSE: NOC) reported that third quarter 2010 earnings from continuing operations increased to $489 million, or $1.64 per diluted share, from $464 million, or $1.45 per diluted share, in the third quarter of 2009. Net earnings for the 2010 third quarter increased to $497 million, or $1.67 per diluted share, from $490 million, or $1.53 per diluted share, in the prior year period. The 2009 third quarter included a net tax benefit of $75 million, or $0.23 per diluted share. Third quarter 2010 sales increased 4 percent to $8.7 billion from $8.35 billion.

          Cash provided by operations totaled $978 million in the third quarter of 2010 compared with $544 million in the third quarter of 2009. New business awards for the 2010 third quarter totaled $7.4 billion, bringing total backlog to $64.6 billion as of Sept. 30, 2010.

          “This was a strong quarter for Northrop Grumman. Third quarter results demonstrate that our focus on sustainable performance improvement continues to gain traction across the corporation. All our businesses performed well, and based on year-to-date results, we are raising our 2010 EPS guidance to $6.85 to $7.00 per share. We are also confirming our guidance for cash from operations and free cash flow. Looking ahead, we continue to position the company to generate value for shareholders, customers and employees,” said Wes Bush, chief executive officer and president.

          

1840 Century Park East • Los Angeles, CA 90067

www.northropgrumman.com

Northrop Grumman Reports Third Quarter 2010 Financial Results		2

Table 1 - Financial Highlights

		Third Quarter								Nine Months
($ in millions, except per share amounts)		2010				2009				2010				2009
Sales		$	8,714			$	8,350			$	26,150			$	24,830
Operating income			801				619				2,282				1,852
as % of sales			9.2%				7.4%				8.7%				7.5%
Earnings from continuing operations		$	489			$	464			$	1,662			$	1,198
Diluted EPS from continuing operations			1.64				1.45				5.49				3.67
Net earnings			497				490				1,677				1,273
Diluted EPS			1.67				1.53				5.54				3.90
Cash provided by operations			978				544				1,066				1,202
Free cash flow1			817				384				663				708
Pension-adjusted Operating Highlights
Operating income		$	801			$	619			$	2,282			$	1,852
Net pension adjustment1			8				72				24				224
Pension-adjusted operating income1			809				691				2,306				2,076
as % of sales1			9.3%				8.3%				8.8%				8.4%
Pension-adjusted Per Share Data
Diluted EPS from continuing operations		$	1.64			$	1.45			$	5.49			$	3.67
After-tax net pension adjustment per share1			0.02				0.14				0.06				0.45
Pension-adjusted diluted EPS from continuing operations1			1.66				1.59				5.55				4.12
Weighted average shares outstanding - Basic			293.5				317.1				298.6				322.0
Dilutive effect of stock options and stock awards			4.1				3.5				3.9				4.1
Weighted average shares outstanding - Diluted			297.6				320.6				302.5				326.1

             Third quarter 2010 operating income increased 29 percent to $801 million from $619 million in the prior year period, and as a percent of sales increased 180 basis points to 9.2 percent from 7.4 percent. The improvement principally reflects higher segment operating income and lower net pension adjustment. Third quarter 2010 segment operating income increased $107 million, or 14 percent, driven by double-digit increases in operating income for four of five businesses. As a percent of sales, third quarter 2010 segment operating income improved 80 basis points to 9.8 percent from 9 percent. Net pension adjustment improved to an expense of $8 million from an expense of $72 million in the prior year period. Unallocated corporate expenses totaled $46 million in the 2010 third quarter and $55 million in the 2009 third quarter.

             Federal and foreign income taxes increased to $257 million from $120 million in the third quarter of 2009. Third quarter 2009 earnings included a net tax benefit of $75 million, primarily for final settlement of the Internal Revenue Service’s examination of the company’s 2001, 2002 and 2003 tax returns. The effective tax rate for the 2010 third quarter was 34.5 percent compared with 20.5 percent in the 2009 third quarter.

          

1840 Century Park East • Los Angeles, CA 90067

www.northropgrumman.com

Northrop Grumman Reports Third Quarter 2010 Financial Results		3

             Third quarter 2010 diluted earnings per share are based on 297.6 million weighted average shares outstanding compared with 320.6 million shares in the third quarter of 2009.

Table 2 - Cash Flow Highlights

		Third Quarter												Nine Months
($ millions)		2010				2009				Change				2010				2009				Change
Cash provided by operations before discretionary pension contributions1		$	1,013			$	1,021			$	(8	)		$	1,407			$	1,805			$	(398	)
Discretionary pension pre-funding impact, net of tax			(35	)			(477	)			442				(341	)			(603	)			262
Cash provided by operations			978				544				434				1,066				1,202				(136	)
Less:
Capital expenditures			(160	)			(139	)			(21	)			(398	)			(436	)			38
Outsourcing contract & related software costs			(1	)			(21	)			20				(5	)			(58	)			53
Free cash flow1		$	817			$	384			$	433			$	663			$	708			$	(45	)

             Free cash flow totaled $817 million in the 2010 third quarter compared with $384 million in the prior year period. The improvement in 2010 third quarter free cash flow reflects lower pension pre-funding and improved working capital. Third quarter 2010 cash from operations included a $60 million discretionary contribution to the company’s pension plans. Third quarter 2009 cash from operations included discretionary pension contributions of $586 million and $47 million from discontinued operations, principally for the Advisory Services business (TASC), which was divested in December of 2009.

          

1840 Century Park East • Los Angeles, CA 90067

www.northropgrumman.com

Northrop Grumman Reports Third Quarter 2010 Financial Results		4

Table 3 – 2010 Guidance Updated

 

($ in millions, except per share amounts)		Prior		Current
Sales		~$34,800		~$34,900
Segment operating margin %1		Low 9%		Low to mid 9%
Operating margin %		Mid 8%		Mid 8%
Diluted EPS from continuing operations		$6.60 - $6.80		$6.85 - $7.00
Cash provided by operations before discretionary pension contributions1		2,300 - 2,800		2,300 - 2,800
Free cash flow before discretionary pension contributions1		1,500 - 2,000		1,500 - 2,000

Table 4 - Cash Measurements, Debt and Capital Deployment

 

($ millions)		9/30/2010				12/31/2009
Cash & cash equivalents		$	2,528			$	3,275
Total debt			4,209				4,294
Net debt1			1,681				1,019
Net debt to total capital ratio2			10%				6%

        Changes in cash and cash equivalents include the following items for cash from operations, investing and financing through Sept. 30, 2010:

Operations

•

$390 million discretionary pension contributions

•

$1.1 billion provided by operations after discretionary pension contributions above

Investing

•

$398 million for capital expenditures and $5 million for outsourcing contract and related software costs

          

1840 Century Park East • Los Angeles, CA 90067

www.northropgrumman.com

Northrop Grumman Reports Third Quarter 2010 Financial Results		5

Financing

•

$1.1 billion for repurchase of approximately 17.8 million shares of common stock

•

$112 million proceeds from exercises of stock options and issuance of common stock

•

$91 million principal payments of long term debt

•

$408 million for dividends

1840 Century Park East • Los Angeles, CA 90067

www.northropgrumman.com

Northrop Grumman Reports Third Quarter 2010 Financial Results		6

Table 5 - Business Results

Consolidated Sales & Segment Operating Income¹

		Third Quarter												Nine Months
($ millions)		2010				2009				Change				2010				2009				Change
Sales
Aerospace Systems		$	2,706			$	2,527				7	%		$	8,244			$	7,656				8	%
Electronic Systems			1,874				1,839				2	%			5,740				5,594				3	%
Information Systems			2,123				2,118				0	%			6,310				6,362				(1	%)
Shipbuilding			1,670				1,650				1	%			4,989				4,549				10	%
Technical Services			871				692				26	%			2,435				2,026				20	%
Intersegment eliminations			(530	)			(476	)							(1,568	)			(1,357	)
		$	8,714			$	8,350				4	%		$	26,150			$	24,830				5	%
Segment operating income 1
Aerospace Systems		$	303			$	265				14	%		$	934			$	780				20	%
Electronic Systems			261				215				21	%			751				695				8	%
Information Systems			190				168				13	%			578				517				12	%
Shipbuilding			101				113				(11	%)			191				211				(9	%)
Technical Services			56				41				37	%			157				121				30	%
Intersegment eliminations			(54	)			(52	)							(172	)			(139	)
Segment operating income1		$	857			$	750				14	%		$	2,439			$	2,185				12	%
as a % of sales1			9.8	%			9.0	%		80 bps					9.3	%			8.8	%		50 bps
Reconciliation to operating income
Unallocated corporate expenses		$	(46	)		$	(55	)			16	%		$	(125	)		$	(87	)			(44	%)
Net pension adjustment1			(8	)			(72	)			89	%			(24	)			(224	)			89	%
Reversal of royalty income included above			(2	)			(4	)			50	%			(8	)			(22	)			64	%
Operating income			801				619				29	%			2,282				1,852				23	%
as a % of sales			9.2	%			7.4	%		180 bps					8.7	%			7.5	%		120 bps
Net interest expense			(68	)			(76	)			11	%			(216	)			(219	)			1	%
Other, net			13				41				(68	%)			10				62				(84	%)
Earnings from continuing operations before income taxes			746				584				28	%			2,076				1,695				22	%
Federal and foreign income taxes			(257	)			(120	)			(114	%)			(414	)			(497	)			17	%
Earnings from continuing operations			489				464				5	%			1,662				1,198				39	%
Earnings from discontinued operations			8				26				(69	%)			15				75				(80	%)
Net earnings		$	497			$	490				1	%		$	1,677			$	1,273				32	%

               Results for TASC, divested in December 2009, are reported as discontinued operations for all periods presented.

          

1840 Century Park East • Los Angeles, CA 90067

www.northropgrumman.com

Northrop Grumman Reports Third Quarter 2010 Financial Results		7

          Aerospace Systems third quarter 2010 sales increased 7 percent, principally due to higher volume for manned and unmanned aircraft programs. Higher volume for these programs was partially offset by lower volume for civil space and missile defense programs. Aerospace Systems third quarter 2010 operating income increased 14 percent, and as a percent of sales increased to 11.2 percent from 10.5 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 third quarter 2010 sales increased 2 percent due to higher sales of targeting and postal automation systems, partially offset by lower sales of land and self protection systems. Electronic Systems third quarter 2010 operating income increased 21 percent, and as a percent of sales increased to 13.9 percent from 11.7 percent. Higher operating income and margin rate are primarily due to improved program performance for postal automation and land and self protection systems programs.

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

Northrop Grumman Reports Third Quarter 2010 Financial Results		8

          Information Systems third quarter 2010 sales were comparable to the prior year period. Sales in the period included higher volume for defense systems, which was largely offset by lower sales for intelligence and civil systems programs. Third quarter 2010 operating income increased 13 percent and as a percent of sales totaled 8.9 percent compared with 7.9 percent in the prior year period. Higher operating income and rate primarily reflect improved program performance for civil systems.

          Shipbuilding third quarter 2010 sales increased 1 percent. Third quarter 2010 operating income declined 11 percent, and as a percent of sales totaled 6 percent compared with 6.8 percent in the third quarter of 2009. The declines in operating income and rate are primarily due to lower performance for expeditionary warfare programs, partially offset by milestone incentives on the LPD program.

          Technical Services third quarter 2010 sales increased 26 percent primarily due to higher volume for integrated logistics and modernization programs. Technical Services third quarter 2010 operating income increased 37 percent, and as a percent of sales increased to 6.4 percent from 5.9 percent. The improvements in operating income and rate are due to higher volume, improved business mix and improved performance.

# # #

Northrop Grumman Reports Third Quarter 2010 Financial Results		9

          Northrop Grumman will webcast its earnings conference call at 10:30 a.m. ET on Oct. 27, 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 Website 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.

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 Third Quarter 2010 Financial Results		10

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.

LEARN MORE ABOUT US: Northrop Grumman news releases, product information, photos and video clips are available on the Internet at: http://www.northropgrumman.com

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)

		Three Months Ended								Nine Months Ended
		September 30								September 30
$ in millions, except per share amounts		2010				2009				2010				2009
Sales and Service Revenues
Product sales		$	5,303			$	4,982			$	16,373			$	14,972
Service revenues			3,411				3,368				9,777				9,858
Total sales and service revenues			8,714				8,350				26,150				24,830
Cost of Sales and Service Revenues
Cost of product sales			4,096				4,027				12,759				12,007
Cost of service revenues			3,092				2,960				8,846				8,768
General and administrative expenses			725				744				2,263				2,203
Operating income			801				619				2,282				1,852
Other (expense) income
Interest expense			(68	)			(76	)			(216	)			(219	)
Other, net			13				41				10				62
Earnings from continuing operations before income taxes			746				584				2,076				1,695
Federal and foreign income taxes			257				120				414				497
Earnings from continuing operations			489				464				1,662				1,198
Earnings from discontinued operations, net of tax			8				26				15				75
Net earnings		$	497			$	490			$	1,677			$	1,273
Basic Earnings Per Share
Continuing operations		$	1.67			$	1.46			$	5.57			$	3.72
Discontinued operations			.02				.09				.05				.23
Basic earnings per share		$	1.69			$	1.55			$	5.62			$	3.95
Weighted-average common shares outstanding, in millions			293.5				317.1				298.6				322.0
Diluted Earnings Per Share
Continuing operations		$	1.64			$	1.45			$	5.49			$	3.67
Discontinued operations			.03				.08				.05				.23
Diluted earnings per share		$	1.67			$	1.53			$	5.54			$	3.90
Weighted-average diluted shares outstanding, in millions			297.6				320.6				302.5				326.1
Net earnings (from above)		$	497			$	490			$	1,677			$	1,273
Other comprehensive income
Change in cumulative translation adjustment			18				20				(34	)			44
Change in unrealized gain on marketable securities and cash flow hedges, net of tax															35
Change in unamortized benefit plan costs, net of tax			39				53				118				159
Other comprehensive income, net of tax			57				73				84				238
Comprehensive income		$	554			$	563			$	1,761			$	1,511

SCHEDULE 2

NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)

		September 30,				December 31,
$ in millions		2010				2009
Assets
Cash and cash equivalents		$	2,528			$	3,275
Accounts receivable, net of progress payments			4,172				3,394
Inventoried costs, net of progress payments			1,193				1,170
Deferred tax assets			718				524
Prepaid expenses and other current assets			392				272
Total current assets			9,003				8,635
Property, plant, and equipment, net of accumulated depreciation of $4,608 in 2010 and $4,216 in 2009			4,767				4,868
Goodwill			13,517				13,517
Other purchased intangibles, net of accumulated amortization of $1,943 in 2010 and $1,871 in 2009			801				873
Pension and post-retirement plan assets			324				300
Long-term deferred tax assets			654				1,010
Miscellaneous other assets			1,110				1,049
Total assets		$	30,176			$	30,252
Liabilities
Notes payable to banks		$	15			$	12
Current portion of long-term debt			757				91
Trade accounts payable			1,677				1,921
Accrued employees’ compensation			1,238				1,281
Advance payments and billings in excess of costs incurred			2,069				1,954
Other current liabilities			2,007				1,726
Total current liabilities			7,763				6,985
Long-term debt, net of current portion			3,437				4,191
Pension and post-retirement plan liabilities			4,511				4,874
Other long-term liabilities			1,271				1,515
Total liabilities			16,982				17,565
Shareholders’ Equity
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2010 — 292,228,109; 2009 — 306,865,201			292				307
Paid-in capital			7,827				8,657
Retained earnings			8,005				6,737
Accumulated other comprehensive loss			(2,930	)			(3,014	)
Total shareholders’ equity			13,194				12,687
Total liabilities and shareholders’ equity		$	30,176			$	30,252

SCHEDULE 3

NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended
		September 30
$ in millions		2010				2009
Operating Activities
Sources of Cash — Continuing Operations
Cash received from customers
Progress payments		$	4,361			$	5,472
Collections on billings			21,145				19,013
Other cash receipts			28				32
Total sources of cash — continuing operations			25,534				24,517
Uses of Cash — Continuing Operations
Cash paid to suppliers and employees			(22,796	)			(21,681	)
Pension contributions			(438	)			(832	)
Interest paid, net of interest received			(254	)			(240	)
Income taxes paid, net of refunds received			(933	)			(675	)
Excess tax benefits from stock-based compensation			(12	)			(2	)
Other cash payments			(35	)			(29	)
Total uses of cash — continuing operations			(24,468	)			(23,459	)
Cash provided by continuing operations			1,066				1,058
Cash provided by discontinued operations							144
Net cash provided by operating activities			1,066				1,202
Investing Activities
Payments for businesses purchased							(33	)
Additions to property, plant, and equipment			(398	)			(436	)
Payments for outsourcing contract costs and related software costs			(5	)			(58	)
Other investing activities, net			22				(12	)
Net cash used in investing activities			(381	)			(539	)
Financing Activities
Net borrowings under lines of credit			3				4
Proceeds from issuance of long-term debt							850
Principal payments of long-term debt			(91	)			(73	)
Proceeds from exercises of stock options and issuances of common stock			112				29
Dividends paid			(408	)			(405	)
Excess tax benefits from stock-based compensation			12				2
Common stock repurchases			(1,060	)			(650	)
Net cash used in financing activities			(1,432	)			(243	)
(Decrease) increase in cash and cash equivalents			(747	)			420
Cash and cash equivalents, beginning of period			3,275				1,504
Cash and cash equivalents, end of period		$	2,528			$	1,924

SCHEDULE 4

NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended
		September 30
$ in millions		2010				2009
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net earnings		$	1,677			$	1,273
Adjustments to reconcile to net cash provided by operating activities
Depreciation			436				424
Amortization of assets			101				113
Stock-based compensation			103				83
Excess tax benefits from stock-based compensation			(12	)			(2	)
(Increase) decrease in
Accounts receivable, net			(779	)			(64	)
Inventoried costs, net			(46	)			(239	)
Prepaid expenses and other current assets			(9	)			(39	)
Increase (decrease) in
Accounts payable and accruals			(332	)			(182	)
Deferred income taxes			87				136
Income taxes payable			(121	)			(158	)
Retiree benefits			4				(208	)
Other non-cash transactions, net			(43	)			(79	)
Cash provided by continuing operations			1,066				1,058
Cash provided by discontinued operations							144
Net cash provided by operating activities		$	1,066			$	1,202
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable		$	55			$	38

SCHEDULE 5

NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(Unaudited)

$ in millions		September 30, 2010												December 31, 2009
										TOTAL												TOTAL
		FUNDED (1)				UNFUNDED (2)				BACKLOG				FUNDED (1)				UNFUNDED (2)				BACKLOG
Aerospace Systems		$	8,541			$	13,337			$	21,878			$	8,320			$	16,063			$	24,383
Electronic Systems			8,237				2,083				10,320				7,591				2,784				10,375
Information Systems			4,951				5,536				10,487				4,319				4,508				8,827
Shipbuilding			9,900				7,210				17,110				11,294				9,151				20,445
Technical Services			2,855				1,997				4,852				2,352				2,804				5,156
Total		$	34,484			$	30,163			$	64,647			$	33,876			$	35,310			$	69,186

New Awards — The estimated value of contract awards included in backlog during the nine months ended September 30, 2010, was $20.8 billion.

During the second quarter of 2010, 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 September 30, 2010 includes an $824 million favorable adjustment to reflect minimum values for years 2011 through 2016, which are now provided for in the contract.

SCHEDULE 6

NORTHROP GRUMMAN CORPORATION
SCHEDULE OF REALIGNED SEGMENT
(Unaudited)

		NET SALES																SEGMENT OPERATING INCOME (LOSS)(2)
														Three																Three
														Months Ended																Months Ended
$ in millions		Year Ended December 31												Dec 31				Year Ended December 31												Dec 31
		2007				2008				2009				2009				2007				2008				2009				2009
AS REPORTED
Aerospace Systems		$	9,234			$	9,825			$	10,419			$	2,763			$	919			$	416			$	1,071			$	291
Electronic Systems			6,466				7,048				7,671				2,077				809				947				969				274
Information Systems			7,758				8,205				8,611				2,195				725				629				631				109
Shipbuilding			5,788				6,145				6,213				1,664				538				(2,307	)			299				88
Technical Services			2,422				2,535				2,776				750				139				144				161				40
Intersegment Eliminations			(1,327	)			(1,443	)			(1,935	)			(524	)			(105	)			(128	)			(202	)			(58	)
Total		$	30,341			$	32,315			$	33,755			$	8,925			$	3,025			$	(299	)		$	2,929			$	744
RECASTED AND REALIGNED (1)
Aerospace Systems		$	9,234			$	9,825			$	10,419			$	2,763			$	919			$	416			$	1,071			$	291
Electronic Systems			6,466				7,048				7,671				2,077				809				947				969				274
Information Systems			7,717				8,174				8,536				2,174				722				626				624				107
Shipbuilding			5,788				6,145				6,213				1,664				538				(2,307	)			299				88
Technical Services			2,422				2,535				2,776				750				139				144				161				40
Intersegment Eliminations			(1,286	)			(1,412	)			(1,860	)			(503	)			(102	)			(125	)			(195	)			(56	)
Total		$	30,341			$	32,315			$	33,755			$	8,925			$	3,025			$	(299	)		$	2,929			$	744

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. Free cash flow before discretionary pension contributions is presented in Table 3.

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). Net pension adjustment is presented in Table 1.

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 income as a % of sales: Pension-adjusted operating income as defined above, divided by sales. Management uses pension-adjusted operating income as a % of sales, as reconciled in Table 1, as an internal measure of financial performance.

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 a % of sales, as reconciled in Table 5, as an internal measure of financial performance.

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