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 27, 2011
July 27, 2011
Northrop Grumman Corporation
(Exact name of registrant as specified in its charter)
| DELAWARE (State or Other Jurisdiction of Incorporation) |
1-16411 (Commission File Number) |
80-0640649 (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 27, 2011, Northrop Grumman Corporation issued a press release announcing its financial
results for the quarter ended June 30, 2011, under the heading
“Northrop Grumman Reports Second Quarter 2011 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 27, 2011 | |||
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 27, 2011 | By: | /s/ Jennifer C. McGarey | ||
| (Date) | (Signature) | |||
| Jennifer C. McGarey | ||||
| Corporate Vice President and Secretary | ||||
Exhibit Index
| Exhibit No. | ||
Exhibit 99
|
Furnished — Press Release dated July 27, 2011 | |
Exhibit
99
 |
News Release |
| Contact: | Randy Belote (Media) | |||
| (703) 875-8525 | ||||
| randy.belote@ngc.com | ||||
| Paul Gregory (Investors) | ||||
| (310) 201-1634 | ||||
| paul.gregory@ngc.com |
Northrop Grumman Reports Second Quarter 2011 Financial Results
| • | Q2 EPS from Continuing Operations of $1.81 | |
| • | 2011 Guidance for EPS from Continuing Operations Increased to $6.75 to $6.90 from $6.50 to $6.70 | |
| • | Sales Total $6.56 Billion; Company Now Expects 2011 Sales of Approximately $27 Billion |
LOS ANGELES – July 27, 2011 – Northrop Grumman Corporation (NYSE: NOC) reported that second
quarter 2011 earnings from continuing operations totaled $520 million, or $1.81 per diluted share,
compared with $740 million, or $2.44 per diluted share in the second quarter of 2010. The 2010
second quarter included a tax benefit of $298 million, or $0.98 per diluted share.
Second quarter 2011 sales totaled $6.56 billion compared with $7.26 billion in the prior year
period. New business awards for the 2011 second quarter totaled $5.1 billion, and total backlog as
of June 30, 2011, was $41.8 billion. Lower second quarter 2011 sales and the total backlog
reflect the impact of lower U.S. Department of Defense investment outlays (including announced force
reductions in overseas contingency operations), the company’s reduced participation in the Nevada
National Security Site joint venture (NSTec), and delayed awards for manned aircraft programs.
Second quarter 2010 sales included NSTec revenue of $152 million, and total backlog reflects an
adjustment of $2.2 billion, for the reduction in the company’s NSTec joint venture participation
and the restructuring of the National Polar-orbiting Operational Environmental Satellite System
(NPOESS).
“Our focus on performance, our portfolio and effective cash deployment continues to generate
value in a challenging budget environment. While sales for the quarter were impacted by several
factors, the strong margin rates generated by our businesses largely offset the effects of lower
sales. Based on our year-to-date results we are increasing our EPS guidance and maintaining our
guidance for cash generation, despite a reduced top line outlook that reflects the realities of our
current budget environment,” said Wes Bush, chairman, chief executive officer and president.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
Northrop Grumman Reports Second Quarter 2011 Financial Results
Table 1 — Financial Highlights
| Second Quarter | Six Months | |||||||||||||||
| ($ in millions, except per share amounts) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Sales |
$ | 6,560 | $ | 7,255 | $ | 13,294 | $ | 14,169 | ||||||||
Operating income |
841 | 750 | 1,652 | 1,429 | ||||||||||||
as % of sales |
12.8 | % | 10.3 | % | 12.4 | % | 10.1 | % | ||||||||
Earnings from continuing operations |
$ | 520 | $ | 740 | $ | 1,016 | $ | 1,150 | ||||||||
Diluted EPS from continuing operations |
1.81 | 2.44 | 3.48 | 3.77 | ||||||||||||
Net earnings |
520 | 711 | 1,050 | 1,180 | ||||||||||||
Diluted EPS |
1.81 | 2.34 | 3.59 | 3.87 | ||||||||||||
Cash (used in) provided by continuing operations |
(34 | ) | 552 | 78 | 100 | |||||||||||
Free cash flow from continuing operations1 |
(128 | ) | 476 | (139 | ) | (82 | ) | |||||||||
Pension-adjusted Operating Highlights |
||||||||||||||||
Operating income |
$ | 841 | $ | 750 | $ | 1,652 | $ | 1,429 | ||||||||
Net pension adjustment1 |
(99 | ) | (1 | ) | (202 | ) | (3 | ) | ||||||||
Pension-adjusted operating income1 |
$ | 742 | $ | 749 | $ | 1,450 | $ | 1,426 | ||||||||
as % of sales1 |
11.3 | % | 10.3 | % | 10.9 | % | 10.1 | % | ||||||||
Adjusted Per Share Data |
||||||||||||||||
Diluted EPS from continuing operations |
$ | 1.81 | $ | 2.44 | $ | 3.48 | $ | 3.77 | ||||||||
Tax benefit |
(0.98 | ) | (0.98 | ) | ||||||||||||
After-tax net pension adjustment per share1 |
(0.22 | ) | (0.45 | ) | (0.01 | ) | ||||||||||
Adjusted diluted EPS from continuing operations1 |
$ | 1.59 | $ | 1.46 | $ | 3.03 | $ | 2.78 | ||||||||
Weighted average shares outstanding — Basic |
282.6 | 299.6 | 287.2 | 301.1 | ||||||||||||
Dilutive effect of stock options and stock awards |
4.6 | 4.2 | 5.0 | 3.9 | ||||||||||||
Weighted average shares outstanding — Diluted |
287.2 | 303.8 | 292.2 | 305.0 | ||||||||||||
| 1 | Non-GAAP metric — see definitions at the end of this press release. |
Second quarter 2011 operating income increased $91 million or 12 percent, and as a
percent of sales increased 250 basis points to 12.8 percent. The improvement over the prior year
principally reflects a $98 million increase in net pension income. Second quarter 2011 segment
operating income was comparable to the prior year period at $784 million and as a percent of sales
improved 110 basis points to 12 percent.
Interest expense for the 2011 second quarter declined to $53 million due to the issuance of
$1.5 billion of lower coupon debt in the 2010 fourth quarter and the retirement of $1.4 billion of
higher coupon debt.
Federal and foreign income taxes totaled $268 million in the second quarter of 2011 compared
to a benefit of $65 million in the prior year period. Second quarter 2010 income taxes included a
$298 million benefit primarily related to final 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 effective tax rate for the 2011 second quarter was 34 percent, and
adjusted for the $298 million settlement, the effective tax rate for the second quarter of 2010
would have been 34.5 percent.
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
2
Northrop Grumman Reports Second Quarter 2011 Financial Results
Second quarter 2011 net earnings totaled $520 million, or $1.81 per diluted share, compared
with $711 million, or $2.34 per diluted share, in the second quarter of 2010. Results for both
periods reflect the spin-off of Huntington Ingalls Industries, Inc. (HII), the company’s former
shipbuilding business, effective March 31, 2011; shipbuilding financial results are reported as
discontinued operations for all periods presented. Second quarter 2011 diluted earnings per share
are based on 287.2 million weighted average shares outstanding compared with 303.8 million shares
in the second quarter of 2010.
Table 2 — Cash Flow Highlights
| Second Quarter | Six Months | |||||||||||||||||||||||
| ($ millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Cash provided by continuing operations before
discretionary pension contributions1 |
$ | 378 | $ | 828 | $ | (450 | ) | $ | 490 | $ | 406 | $ | 84 | |||||||||||
After-tax discretionary pension pre-funding impact |
(412 | ) | (276 | ) | (136 | ) | (412 | ) | (306 | ) | (106 | ) | ||||||||||||
Cash (used in) provided by continuing operations |
(34 | ) | 552 | (586 | ) | 78 | 100 | (22 | ) | |||||||||||||||
Less: |
||||||||||||||||||||||||
Capital expenditures |
(94 | ) | (75 | ) | (19 | ) | (216 | ) | (178 | ) | (38 | ) | ||||||||||||
Outsourcing contract & related software costs |
(1 | ) | 1 | (1 | ) | (4 | ) | 3 | ||||||||||||||||
Free cash flow from continuing operations1 |
$ | (128 | ) | $ | 476 | $ | (604 | ) | $ | (139 | ) | $ | (82 | ) | $ | (57 | ) | |||||||
After-tax discretionary pension pre-funding impact |
412 | 276 | 136 | 412 | 306 | 106 | ||||||||||||||||||
Pension-adjusted free cash flow from continuing operations1 |
$ | 284 | $ | 752 | $ | (468 | ) | $ | 273 | $ | 224 | $ | 49 | |||||||||||
| 1 | Non-GAAP metric — see definitions at the end of this press release |
Cash provided by continuing operations before discretionary pension contributions totaled
$378 million in the 2011 second quarter compared with $828 million in the second quarter of 2010.
Cash provided by continuing operations before discretionary pension contributions in the first six
months of 2011 increased 21 percent to $490 million from $406 million in the first six months of
2010.
Free cash flow used in continuing operations totaled $128 million in the 2011 second quarter
compared with free cash flow of $476 million in the prior year period. The change in free cash
flow in the second quarter of 2011 reflects higher working capital and a higher discretionary
pension contribution than in the prior year period. Second quarter 2011 cash provided by
continuing operations included a $500 million discretionary contribution to the company’s pension
plans compared with a $300 million in the prior year period.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
3
Northrop Grumman Reports Second Quarter 2011 Financial Results
Table
3 — 2011 Guidance Updated
| ($ in millions, except per share amounts) | Prior | Current | ||
Sales |
~ $27,500 | ~ $27,000 | ||
Segment operating margin %1 |
Mid 10% | ~11% | ||
Operating margin % |
~11% | Mid 11% | ||
Diluted EPS from continuing operations |
$6.50 - $6.70 | $6.75 - $6.90 | ||
Cash provided by operations before
discretionary pension contributions1 |
2,300 - 2,700 | 2,300 - 2,700 | ||
Free cash flow from continuing operations before
discretionary pension contributions1 |
1,700 - 2,000 | 1,700 - 2,000 |
| 1 | Non-GAAP metric — see definitions at the end of this press release. |
Based on year-to-date results, the company now expects 2011 sales of approximately $27
billion and earnings from continuing operations of $6.75 to $6.90 per diluted share. The increase
in expected 2011 earnings per share reflects lower sales, a higher expected segment margin rate and net pension income of approximately $400 million.
Table 4 — Cash Measurements, Debt and Capital Deployment
| ($ millions) | 6/30/2011 | 12/31/2010 | ||||||
Cash & cash equivalents |
$ | 2,810 | $ | 3,701 | ||||
Total debt |
3,979 | 4,724 | ||||||
Net debt1 |
1,169 | 1,023 | ||||||
Net debt to total capital ratio2 |
7 | % | 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, 2011:
Operations |
| • | $500 million discretionary pension contributions | |
| • | $78 million provided by continuing operations after discretionary pension contributions noted above | |
| • | $613 million for taxes |
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
4
Northrop Grumman Reports Second Quarter 2011 Financial Results
Investing
| • | $216 million for capital expenditures |
Financing
| • | $1 billion for repurchases of common stock | |
| • | $86 million in proceeds from exercises of stock options and issuance of common stock | |
| • | $750 million of principal payments of long term debt | |
| • | $277 million for dividends |
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
5
Northrop Grumman Reports Second Quarter 2011 Financial Results
Table 5 — Business Results
Consolidated Sales & Segment Operating Income1
| Second Quarter | Six Months | |||||||||||||||||||||||
| ($ millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Sales |
||||||||||||||||||||||||
Aerospace Systems |
$ | 2,592 | $ | 2,842 | (9 | %) | $ | 5,328 | $ | 5,538 | (4 | %) | ||||||||||||
Electronic Systems |
1,791 | 1,984 | (10 | %) | 3,599 | 3,866 | (7 | %) | ||||||||||||||||
Information Systems |
2,031 | 2,123 | (4 | %) | 4,056 | 4,187 | (3 | %) | ||||||||||||||||
Technical Services |
656 | 801 | (18 | %) | 1,344 | 1,564 | (14 | %) | ||||||||||||||||
Intersegment eliminations |
(510 | ) | (495 | ) | (1,033 | ) | (986 | ) | ||||||||||||||||
| $ | 6,560 | $ | 7,255 | (10 | %) | $ | 13,294 | $ | 14,169 | (6 | %) | |||||||||||||
Segment operating income1 |
||||||||||||||||||||||||
Aerospace Systems |
$ | 331 | $ | 335 | (1 | %) | $ | 632 | $ | 631 | ||||||||||||||
Electronic Systems |
284 | 264 | 8 | % | 521 | 490 | 6 | % | ||||||||||||||||
Information Systems |
189 | 205 | (8 | %) | 383 | 388 | (1 | %) | ||||||||||||||||
Technical Services |
51 | 52 | (2 | %) | 105 | 101 | 4 | % | ||||||||||||||||
Intersegment eliminations |
(71 | ) | (65 | ) | (136 | ) | (113 | ) | ||||||||||||||||
Segment operating income1 |
$ | 784 | $ | 791 | (1 | %) | $ | 1,505 | $ | 1,497 | 1 | % | ||||||||||||
as a % of sales1 |
12.0 | % | 10.9 | % | 110 bps | 11.3 | % | 10.6 | % | 70 bps | ||||||||||||||
Reconciliation to operating income |
||||||||||||||||||||||||
Unallocated corporate expenses |
$ | (38 | ) | $ | (40 | ) | 5 | % | $ | (48 | ) | $ | (65 | ) | 26 | % | ||||||||
Net pension adjustment1 |
99 | 1 | NM | 202 | 3 | NM | ||||||||||||||||||
Reversal of royalty income included above |
(4 | ) | (2 | ) | (100 | %) | (7 | ) | (6 | ) | (17 | %) | ||||||||||||
Operating income |
$ | 841 | $ | 750 | 12 | % | $ | 1,652 | $ | 1,429 | 16 | % | ||||||||||||
as a % of sales |
12.8 | % | 10.3 | % | 250 bps | 12.4 | % | 10.1 | % | 230 bps | ||||||||||||||
Net interest expense |
$ | (53 | ) | $ | (65 | ) | 18 | % | $ | (111 | ) | $ | (142 | ) | 22 | % | ||||||||
Other, net |
(10 | ) | NM | 5 | (3 | ) | NM | |||||||||||||||||
Earnings from continuing operations before
income taxes |
788 | 675 | 17 | % | 1,546 | 1,284 | 20 | % | ||||||||||||||||
Federal and foreign income tax (expense) benefit |
(268 | ) | 65 | NM | (530 | ) | (134 | ) | (296 | %) | ||||||||||||||
Earnings from continuing operations |
520 | 740 | (30 | %) | 1,016 | 1,150 | (12 | %) | ||||||||||||||||
Earnings (loss) from discontinued operations |
(29 | ) | NM | 34 | 30 | 13 | % | |||||||||||||||||
Net earnings |
$ | 520 | $ | 711 | (27 | %) | $ | 1,050 | $ | 1,180 | (11 | %) | ||||||||||||
| 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
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
6
Northrop Grumman Reports Second Quarter 2011 Financial Results
Aerospace Systems ($ millions)
| Second Quarter | Six Months | |||||||||||||||||||||||
| 2011 | 2010 | %Change | 2011 | 2010 | %Change | |||||||||||||||||||
Sales |
$ | 2,592 | $ | 2,842 | (8.8 | %) | $ | 5,328 | $ | 5,538 | (3.8 | %) | ||||||||||||
Operating income |
331 | 335 | (1.2 | %) | 632 | 631 | 0.2 | % | ||||||||||||||||
as a % of sales |
12.8 | % | 11.8 | % | 11.9 | % | 11.4 | % | ||||||||||||||||
Aerospace Systems second quarter 2011 sales declined 9 percent due to lower volume for manned
aircraft programs and civil space programs. Lower volume for manned aircraft programs is
principally due to timing of awards for the F-35 and E-2 programs, and lower civil space volume
principally reflects the NPOESS restructuring. Aerospace Systems second quarter 2011 operating
income declined slightly due to lower sales, but as a percent of sales increased to 12.8 percent
from 11.8 percent due to improved performance.
Electronic Systems ($ millions)
| Second Quarter | Six Months | |||||||||||||||||||||||
| 2011 | 2010 | %Change | 2011 | 2010 | %Change | |||||||||||||||||||
Sales |
$ | 1,791 | $ | 1,984 | (9.7 | %) | $ | 3,599 | $ | 3,866 | (6.9 | %) | ||||||||||||
Operating income |
284 | 264 | 7.6 | % | 521 | 490 | 6.3 | % | ||||||||||||||||
as a % of sales |
15.9 | % | 13.3 | % | 14.5 | % | 12.7 | % | ||||||||||||||||
Electronic Systems second quarter 2011 sales declined 10 percent principally due to lower
volume for land and self protection systems and targeting systems programs.
Lower volume for land and self protection systems ID/IQ contracts, such as Large Aircraft Infrared
Countermeasures (LAIRCM) and Vehicular Intercommunication Systems (VIS), is due to announced force reductions
in overseas contingency operations. Lower volume for targeting systems reflects lower volume for
international F-16 activities.
Electronic Systems second quarter 2011 operating income increased 8 percent, and as a percent
of sales increased to 15.9 percent from 13.3 percent. Higher operating income and margin rate
reflect improved performance on several land and self protection systems and targeting systems
contracts nearing completion and performance improvement for intelligence, surveillance and
reconnaissance programs.
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
7
Northrop Grumman Reports Second Quarter 2011 Financial Results
Information Systems ($ millions)
| Second Quarter | Six Months | |||||||||||||||||||||||
| 2011 | 2010 | %Change | 2011 | 2010 | %Change | |||||||||||||||||||
Sales |
$ | 2,031 | $ | 2,123 | (4.3 | %) | $ | 4,056 | $ | 4,187 | (3.1 | %) | ||||||||||||
Operating income |
189 | 205 | (7.8 | %) | 383 | 388 | (1.3 | %) | ||||||||||||||||
as a % of sales |
9.3 | % | 9.7 | % | 9.4 | % | 9.3 | % | ||||||||||||||||
Information Systems second quarter 2011 sales declined 4 percent principally due to lower
volume for defense systems programs. Second quarter 2011 operating income declined 8 percent and
as a percent of sales totaled 9.3 percent compared with 9.7 percent in the prior year period. The
decline in operating income reflects lower volume and the change in rate is principally due to an
$18 million benefit in the 2010 second quarter for risk retirement related to a subcontractor on
the New York City Wireless program.
Technical Services ($ millions)
| Second Quarter | Six Months | |||||||||||||||||||||||
| 2011 | 2010 | %Change | 2011 | 2010 | %Change | |||||||||||||||||||
Sales |
$ | 656 | $ | 801 | (18.1 | %) | $ | 1,344 | $ | 1,564 | (14.1 | %) | ||||||||||||
Operating income |
51 | 52 | (1.9 | %) | 105 | 101 | 4.0 | % | ||||||||||||||||
as a % of Sales |
7.8 | % | 6.5 | % | 7.8 | % | 6.5 | % | ||||||||||||||||
Technical Services second quarter 2011 sales declined 18 percent due to the change in the
NSTec joint venture, which more than offset higher volume for integrated logistics and
modernization programs. As previously announced, effective Jan. 1, 2011, the company reduced its
participation in the NSTec joint venture, and as a result did not record any sales for the joint
venture in the 2011 second quarter. NSTec sales totaled $152 million in the second quarter of
2010. Second quarter 2011 operating income was comparable to the prior year, and as a percent of
sales increased to 7.8 percent from 6.5 percent principally due to the change in revenue
consolidation for the NSTec joint venture.
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
8
Northrop Grumman Reports Second Quarter 2011 Financial Results
About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at 11:30 a.m. ET on July 27, 2011.
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 is a leading global security company providing innovative systems, products
and solutions in aerospace, electronics, information systems, 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,” “believe,” “estimate,” “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. Forward-looking
statements involve risks, uncertainties and assumptions. Actual results may differ materially from
those expressed in these forward-looking statements due to factors such as: the effect of
economic conditions in the United States and globally (including the impact of uncertainty
regarding U.S. debt limits and actions taken related thereto); 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; earthquake-related insurance coverage and recoveries;
costs of environmental remediation; availability and retention of qualified personnel; costs of
capital investments; changes in organizational structure and reporting segments; risks associated
with acquisitions, dispositions, spin-off transactions, 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,
operational 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.
You should not put undue reliance on any forward-looking statements in this release. These
forward-looking statements speak only as of the date of this release and we undertake no
obligation to update or revise any forward-looking statements after we distribute this release.
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
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com
9
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
SCHEDULE 1
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30 | June 30 | |||||||||||||||
| $ in millions, except per share amounts | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Sales and Service Revenues |
||||||||||||||||
Product sales |
$ | 3,709 | $ | 4,167 | $ | 7,572 | $ | 8,191 | ||||||||
Service revenues |
2,851 | 3,088 | 5,722 | 5,978 | ||||||||||||
Total sales and service revenues |
6,560 | 7,255 | 13,294 | 14,169 | ||||||||||||
Cost of Sales and Service Revenues |
||||||||||||||||
Cost of product sales |
2,662 | 3,078 | 5,504 | 6,068 | ||||||||||||
Cost of service revenues |
2,501 | 2,806 | 5,014 | 5,427 | ||||||||||||
General and administrative expenses |
556 | 621 | 1,124 | 1,245 | ||||||||||||
Operating income |
841 | 750 | 1,652 | 1,429 | ||||||||||||
Other (expense) income |
||||||||||||||||
Interest expense |
(53 | ) | (65 | ) | (111 | ) | (142 | ) | ||||||||
Other, net |
(10 | ) | 5 | (3 | ) | |||||||||||
Earnings from continuing operations before income taxes |
788 | 675 | 1,546 | 1,284 | ||||||||||||
Federal and foreign income tax expense (benefit) |
268 | (65 | ) | 530 | 134 | |||||||||||
Earnings from continuing operations |
520 | 740 | 1,016 | 1,150 | ||||||||||||
(Loss) Earnings from discontinued operations, net of tax |
(29 | ) | 34 | 30 | ||||||||||||
Net earnings |
$ | 520 | $ | 711 | $ | 1,050 | $ | 1,180 | ||||||||
Basic Earnings Per Share |
||||||||||||||||
Continuing operations |
$ | 1.84 | $ | 2.47 | $ | 3.54 | $ | 3.82 | ||||||||
Discontinued operations |
(.10 | ) | .12 | .10 | ||||||||||||
Basic earnings per share |
$ | 1.84 | $ | 2.37 | $ | 3.66 | $ | 3.92 | ||||||||
Weighted-average common shares outstanding, in millions |
282.6 | 299.6 | 287.2 | 301.1 | ||||||||||||
Diluted Earnings Per Share |
||||||||||||||||
Continuing operations |
$ | 1.81 | $ | 2.44 | $ | 3.48 | $ | 3.77 | ||||||||
Discontinued operations |
(.10 | ) | .11 | .10 | ||||||||||||
Diluted earnings per share |
$ | 1.81 | $ | 2.34 | $ | 3.59 | $ | 3.87 | ||||||||
Weighted-average diluted shares outstanding, in millions |
287.2 | 303.8 | 292.2 | 305.0 | ||||||||||||
Net earnings (from above) |
$ | 520 | $ | 711 | $ | 1,050 | $ | 1,180 | ||||||||
Other comprehensive income |
||||||||||||||||
Change in cumulative translation adjustment |
(24 | ) | 27 | (52 | ) | |||||||||||
Change in unrealized gain on marketable securities
and cash flow hedges, net of tax |
(2 | ) | ||||||||||||||
Change in unamortized benefit plan costs, net of tax |
14 | 39 | 35 | 79 | ||||||||||||
Other comprehensive income, net of tax |
14 | 15 | 60 | 27 | ||||||||||||
Comprehensive income |
$ | 534 | $ | 726 | $ | 1,110 | $ | 1,207 | ||||||||
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
SCHEDULE 2
| June 30, | December 31, | |||||||
| $ in millions | 2011 | 2010 | ||||||
Assets |
||||||||
Cash and cash equivalents
|
$ | 2,810 | $ | 3,701 | ||||
Accounts receivable, net of progress payments
|
3,474 | 3,329 | ||||||
Inventoried costs, net of progress payments
|
902 | 896 | ||||||
Current deferred tax assets
|
465 | 419 | ||||||
Prepaid expenses and other current assets
|
163 | 244 | ||||||
Assets of discontinued operations
|
5,212 | |||||||
Total current assets
|
7,814 | 13,801 | ||||||
Property, plant, and equipment, net of accumulated depreciation of
$3,864 in 2011
and $3,712 in 2010
|
3,028 | 3,045 | ||||||
Goodwill
|
12,376 | 12,376 | ||||||
Other purchased intangibles, net of accumulated amortization of
$1,631 in 2011
and $1,613 in 2010
|
174 | 192 | ||||||
Pension and post-retirement plan assets
|
344 | 320 | ||||||
Non-current deferred tax assets
|
555 | 721 | ||||||
Miscellaneous other assets
|
1,086 | 1,076 | ||||||
Total assets
|
$ | 25,377 | $ | 31,531 | ||||
Liabilities |
||||||||
Notes payable to banks
|
$ | 19 | $ | 10 | ||||
Current portion of long-term debt
|
23 | 774 | ||||||
Trade accounts payable
|
1,259 | 1,573 | ||||||
Accrued employees’ compensation
|
1,062 | 1,146 | ||||||
Advance payments and billings in excess of costs incurred
|
1,820 | 1,969 | ||||||
Other current liabilities
|
1,612 | 1,763 | ||||||
Liabilities of discontinued operations
|
2,792 | |||||||
Total current liabilities
|
5,795 | 10,027 | ||||||
Long-term debt, net of current portion
|
3,937 | 3,940 | ||||||
Pension and post-retirement plan liabilities
|
2,597 | 3,089 | ||||||
Other long-term liabilities
|
899 | 918 | ||||||
Total liabilities
|
13,228 | 17,974 | ||||||
Shareholders’ Equity |
||||||||
Common stock, $1 par value; 800,000,000 shares authorized; issued and
outstanding: 2011 — 277,981,571; 2010 — 290,956,752
|
278 | 291 | ||||||
Paid-in capital
|
5,026 | 7,778 | ||||||
Retained earnings
|
9,018 | 8,245 | ||||||
Accumulated other comprehensive loss
|
(2,173 | ) | (2,757 | ) | ||||
Total shareholders’ equity
|
12,149 | 13,557 | ||||||
Total liabilities and shareholders’ equity
|
$ | 25,377 | $ | 31,531 | ||||
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SCHEDULE 3
| Six Months Ended | ||||||||
| June 30 | ||||||||
| $ in millions | 2011 | 2010 | ||||||
Operating Activities |
||||||||
Sources of Cash — Continuing Operations |
||||||||
Cash received from customers |
||||||||
Progress payments |
$ | 1,975 | $ | 1,976 | ||||
Collections on billings |
11,028 | 11,653 | ||||||
Other cash receipts |
80 | 3 | ||||||
Total sources of cash — continuing operations |
13,083 | 13,632 | ||||||
Uses of Cash — Continuing Operations |
||||||||
Cash paid to suppliers and employees |
(11,692 | ) | (12,374 | ) | ||||
Pension contributions |
(550 | ) | (363 | ) | ||||
Interest paid, net of interest received |
(119 | ) | (138 | ) | ||||
Income taxes paid, net of refunds received |
(613 | ) | (632 | ) | ||||
Excess tax benefits from stock-based compensation |
(21 | ) | (10 | ) | ||||
Other cash payments |
(10 | ) | (15 | ) | ||||
Total uses of cash — continuing operations |
(13,005 | ) | (13,532 | ) | ||||
Cash provided by continuing operations |
78 | 100 | ||||||
Cash used in discontinued operations |
(232 | ) | (12 | ) | ||||
Net cash (used in) provided by operating activities |
(154 | ) | 88 | |||||
Investing Activities |
||||||||
Continuing Operations |
||||||||
Contribution received from the spin-off of Shipbuilding business |
1,429 | |||||||
Additions to property, plant, and equipment |
(216 | ) | (178 | ) | ||||
Decrease in restricted cash |
31 | 5 | ||||||
Proceeds from sale of business, net of cash divested |
13 | |||||||
Other investing activities, net |
9 | 1 | ||||||
Cash provided by (used in) investing activities by continuing operations |
1,253 | (159 | ) | |||||
Cash used in investing activities by discontinued operations |
(63 | ) | (59 | ) | ||||
Net cash provided by (used in) investing activities |
1,190 | (218 | ) | |||||
Financing Activities |
||||||||
Common stock repurchases |
(1,013 | ) | (855 | ) | ||||
Payments of long-term debt |
(750 | ) | (90 | ) | ||||
Dividends paid |
(277 | ) | (270 | ) | ||||
Proceeds from exercises of stock options and issuances of common stock |
86 | 103 | ||||||
Excess tax benefits from stock-based compensation |
21 | 10 | ||||||
Other financing activities, net |
6 | 1 | ||||||
Net cash used in financing activities |
(1,927 | ) | (1,101 | ) | ||||
Decrease in cash and cash equivalents |
(891 | ) | (1,231 | ) | ||||
Cash and cash equivalents, beginning of period |
3,701 | 3,275 | ||||||
Cash and cash equivalents, end of period |
$ | 2,810 | $ | 2,044 | ||||
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SCHEDULE 4
| Six Months Ended | ||||||||
| June 30 | ||||||||
| $ in millions | 2011 | 2010 | ||||||
Reconciliation of Net Earnings to Net Cash (Used in) Provided by Operating Activities |
||||||||
Net earnings |
$ | 1,050 | $ | 1,180 | ||||
Net earnings from discontinued operations |
(34 | ) | (30 | ) | ||||
Adjustments to reconcile to net cash (used in) provided by operating activities |
||||||||
Depreciation |
218 | 202 | ||||||
Amortization of assets |
37 | 57 | ||||||
Stock-based compensation |
66 | 69 | ||||||
Excess tax benefits from stock-based compensation |
(21 | ) | (10 | ) | ||||
(Increase) decrease in |
||||||||
Accounts receivable, net |
(164 | ) | (589 | ) | ||||
Inventoried costs, net |
6 | (23 | ) | |||||
Prepaid expenses and other current assets |
5 | (5 | ) | |||||
Increase (decrease) in |
||||||||
Accounts payable and accruals |
(757 | ) | (546 | ) | ||||
Deferred income taxes |
79 | 22 | ||||||
Income taxes payable |
9 | (71 | ) | |||||
Retiree benefits |
(440 | ) | (135 | ) | ||||
Other, net |
24 | (21 | ) | |||||
Cash provided by continuing operations |
78 | 100 | ||||||
Cash used in discontinued operations |
(232 | ) | (12 | ) | ||||
Net cash (used in) provided by operating activities |
$ | (154 | ) | $ | 88 | |||
Non-Cash Investing and Financing Activities |
||||||||
Capital expenditures accrued in accounts payable |
$ | 24 | $ | 20 | ||||
Capital expenditures accrued in liabilities from discontinued operations |
27 | |||||||
NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(Unaudited)
TOTAL BACKLOG AND CONTRACT AWARDS
(Unaudited)
SCHEDULE 5
| $ in millions | June 30, 2011 | December 31, 2010 | ||||||||||||||||||||||
| FUNDED (1) | UNFUNDED(2) | TOTAL BACKLOG | FUNDED (1) | UNFUNDED(2) | TOTAL BACKLOG | |||||||||||||||||||
Aerospace Systems |
$ | 8,750 | $ | 10,355 | $ | 19,105 | (3) | $ | 9,185 | $ | 11,683 | $ | 20,868 | |||||||||||
Electronic Systems |
7,701 | 1,806 | 9,507 | 8,093 | 2,054 | 10,147 | ||||||||||||||||||
Information Systems |
4,369 | 5,497 | 9,866 | 4,711 | 5,879 | 10,590 | ||||||||||||||||||
Technical Services |
2,561 | 765 | 3,326 | (4) | 2,763 | 2,474 | 5,237 | |||||||||||||||||
Total |
$ | 23,381 | $ | 18,423 | $ | 41,804 | $ | 24,752 | $ | 22,090 | $ | 46,842 | ||||||||||||
| (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. | ||
| (3) | Total backlog as of June 30, 2011, was reduced by $409 million to reflect the restructure of the NPOESS program. | |
| (4) | Total backlog as of June 30, 2011, was reduced by $1.745 billion to reflect a change in the company’s participation in the NSTec joint venture. Effective January 1, 2011, NSTec joint venture results are no longer consolidated in the company’s financial statements. |
New Awards — The estimated value of contract awards included in backlog during the three months
ended June 30, 2011, was $5.1 billion.
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. 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.
Adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations
excluding the after-tax net pension adjustment per share, as defined below, and the per share tax
benefit recorded in the 2010 second quarter. These per share amounts are provided for consistency
and comparability of operating results. Management uses adjusted diluted EPS from continuing
operations, as reconciled in Table 1, as an internal measure of financial performance.
Cash provided by continuing operations before discretionary pension contributions: Cash
provided by operations before the after-tax impact of discretionary pension contributions. Cash
provided by continuing operations before discretionary pension contributions has been provided for
consistency and comparability of 2011 and 2010 financial performance and is reconciled on Table 2.
Free cash flow from continuing operations: Cash provided by continuing operations less
capital expenditures and outsourcing contract and related software costs. We use free cash flow
from continuing operations 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 from
continuing operations is reconciled in Table 2.
Free cash flow from continuing operations before discretionary pension contributions: Free
cash flow from continuing operations before the after-tax impact of discretionary pension
contributions. We use free cash flow from continuing operations 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 from continuing operations
before discretionary pension contributions, also referred to as pension-adjusted free cash flow
from continuing operations, is reconciled in Table 2.
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 2011 and 2010 financial performance as presented in Table 1.
Pension-adjusted operating income: Operating income before net pension adjustment as
reconciled in Table 1. Management uses pension-adjusted operating income 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
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: Total earnings from our four 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.
####
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