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8-K


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)
April 27, 2016
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.)

2980 Fairview Park Drive, Falls Church, VA 22042
(Address of principal executive offices)(Zip Code)
(703) 280-2900
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:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o    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 April 27, 2016, Northrop Grumman Corporation issued an earnings release announcing its financial results for the quarter ended March 31, 2016, under the heading “Northrop Grumman Reports First Quarter 2016 Financial Results.” The earnings release is furnished as Exhibit 99.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d)
 
Exhibits
 
 
 
 
 
 
 
Furnished
 
 
 
 
 
 
 
Exhibit 99 — Earnings Release dated April 27, 2016
 
 




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)
 
 
 
 
 
 
April 27, 2016
 
By:
 
/s/ Jennifer C. McGarey
 
 
(Date)
 
 
 
(Signature)
Jennifer C. McGarey
Corporate Vice President and Secretary




Exhibit Index
 
 
 
 
Exhibit No.
 
Exhibit 99 Furnished — Earnings Release dated April 27, 2016



Exhibit

 
 
Exhibit 99
 
 
 
 
News Release
 
 
 
 
 
 
 
Contact:
  
Randy Belote (Media)
 
 
 
  
703-280-2720
 
 
 
  
randy.belote@ngc.com
 
 
 
  
 
 
 
 
  
Steve Movius (Investors)
 
 
 
  
703-280-4575
 
 
 
  
steve.movius@ngc.com
Northrop Grumman Reports First Quarter 2016 Financial Results
•
Q1 EPS Increase 26 Percent to $3.03, including $0.44 per Share Tax Benefit
•
Q1 Sales Total $6.0 Billion
•
2016 EPS Guidance Increased to $10.40 to $10.70

FALLS CHURCH, Va. – April 27, 2016 – Northrop Grumman Corporation (NYSE: NOC) reported first quarter 2016 net earnings increased 15 percent to $556 million, or $3.03 per diluted share, from $484 million, or $2.41 per diluted share in the first quarter of 2015. In the first quarter of 2016 the company adopted an accounting standard update regarding treatment of share-based compensation, which resulted in a tax benefit of $80 million, or $0.44 per diluted share. First quarter 2016 diluted earnings per share are based on 183.4 million weighted average shares outstanding compared with 200.5 million shares in the prior year period, an 8.5 percent decline. The company repurchased 1.5 million shares of its common stock in the first quarter of 2016. As of March 31, 2016, approximately $4.0 billion remained on the company's share repurchase authorization.
“Our first quarter operational results support our outlook for 2016. We are positioned to achieve profitable growth over the long term. Congratulations to our entire team for another quarter of solid performance,” said Wes Bush, chairman, chief executive officer and president.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
2


Table 1 — Financial Highlights
 
First Quarter
($ in millions, except per share amounts)
2016
 
2015
Sales
$
5,956

 
$
5,957

Segment operating income1
701

 
735

Segment operating margin rate1
11.8
%
 
12.3
%
Operating income
739

 
780

Operating margin rate
12.4
%
 
13.1
%
Net earnings
556

 
484

Diluted EPS
3.03

 
2.41

Net cash used in operating activities
(60
)
 
(654
)
Free cash flow1
(358
)
 
(771
)
 
 
 
 
Pension-adjusted Operating Highlights
 
 
 
Operating income
739

 
780

Net FAS/CAS pension adjustment1
(74
)
 
(83
)
Pension-adjusted operating income1
$
665

 
$
697

Pension-adjusted operating margin rate1
11.2
%
 
11.7
%
 
 
 
 
Pension-adjusted Per Share Data
 
 
 
Diluted EPS
$
3.03

 
$
2.41

After-tax net pension adjustment per share1
(0.26
)
 
(0.27
)
Pension-adjusted diluted EPS1
$
2.77

 
$
2.14

Weighted average shares outstanding — Basic
181.3

 
197.7

Dilutive effect of stock awards and options
2.1

 
2.8

Weighted average shares outstanding — Diluted
183.4

 
200.5

1 

Non-GAAP metric — see definitions at the end of this earnings release.
First quarter 2016 segment operating income decreased to $701 million, and segment operating margin rate decreased 50 basis points to 11.8 percent primarily due to lower operating income for Aerospace Systems than in the prior year period. Operating income decreased 5 percent and operating margin rate decreased 70 basis points to 12.4 percent. Lower operating income reflects the decline in segment operating income and a lower net FAS/CAS pension adjustment than in the prior year period.
During the first quarter of 2016, the company’s total backlog increased and reflects higher backlog at Aerospace Systems and Mission Systems and a modest decline in backlog at Technology Services. The company recorded various awards during the quarter, including a portion of the B-21 Long-Range Strike Bomber program.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
3


Table 2 — Cash Flow Highlights
 
 
First Quarter
($ millions)
 
2016
 
2015
Cash used in operating activities before after-tax discretionary pension contributions1
 
$
(60
)
 
$
(329
)
After-tax discretionary pension pre-funding impact
 
—

 
(325
)
Net cash used in operating activities
 
$
(60
)
 
$
(654
)
Less:
 
 
 
 
Capital expenditures
 
(298
)
 
(117
)
Free cash flow1
 
$
(358
)
 
$
(771
)
After-tax discretionary pension pre-funding impact
 
—

 
325

Free cash flow before after-tax discretionary pension contributions1
 
$
(358
)
 
$
(446
)
1 

Non-GAAP metric — see definitions at the end of this earnings release.
First quarter 2016 cash used in operating activities totaled $60 million compared to a use of $654 million in the first quarter of 2015, which included a $500 million pre-tax discretionary pension pre-funding contribution. In addition, first quarter 2016 results benefited from an improvement in working capital and the previously described $80 million tax benefit. As a result of the accounting standard update the tax benefit is now presented in operating activities.
First quarter 2016 free cash flow was a use of $358 million and includes capital expenditures of $298 million. First quarter 2016 capital expenditures included $159 million for the purchase of a building previously leased by Mission Systems. Changes in cash and cash equivalents include the following for cash from operating, investing and financing activities through March 31, 2016:
Operating
•
$60 million used in operations

Investing
•
$298 million used for capital expenditures

Financing
•
$282 million used for repurchase of common stock
•
$107 million used for repayment of long-term debt
•
$159 million used for dividends

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
4


2016 Guidance
The company’s 2016 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2015 and the Consolidated Appropriations Act of 2016. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations. Guidance for 2016 also assumes adequate appropriations and funding for the company’s programs in the first quarter of the U.S. government’s fiscal year 2017.
2016 Guidance
($ in millions, except per share amounts)
As of 1/28/16
As of 4/27/16
 
 
 
 
 
 
 
Sales
23,500
—
24,000
23,500
—
24,000
 
 
 
 
 
 
 
Segment operating margin %1
High 11%
High 11%
 
 
 
 
 
 
 
Net FAS/CAS pension adjustment1
~275
~275
 
 
 
 
 
 
 
Operating margin %
~12%
~12%
 
 
 
 
 
 
 
Effective tax rate %
~30%
~27%
 
 
 
 
 
 
 
Diluted EPS
9.90
—
10.20
10.40
—
10.70
 
 
 
 
 
 
 
Capital expenditures
700
—
1,000
700
—
1,000
 
 
 
 
 
 
 
Free cash flow1
1,500
—
1,800
1,500
—
1,800
 
 
 
 
 
 
 
1 Non-GAAP metric - see definitions at the end of this earnings release.
 
 
 
Estimated capital expenditures in 2016 reflect increased programmatic requirements and approximately $300 million for the purchase of facilities currently occupied by the Mission Systems sector. These investments support the company's continued focus on cost reduction, affordability and competitiveness.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
5


Table 3 — Business Results
Effective Jan. 1, 2016, the company realigned from four to three segments: Aerospace Systems, Mission Systems and Technology Services. Operating results for all periods presented have been recast to reflect this realignment.
Consolidated Sales & Segment Operating Income1,2 
 
First Quarter
 
 
($ millions)
2016
 
2015
 
Change
Sales
 
 
 
 
 
Aerospace Systems
$
2,574

 
$
2,498

 
3
%
Mission Systems
2,693

 
2,711

 
(1
%)
Technology Services
1,214

 
1,267

 
(4
%)
Intersegment eliminations
(525
)
 
(519
)
 
 
 
5,956

 
5,957

 
—

Segment operating income1
 
 
 
 
 
Aerospace Systems
286

 
312

 
(8
%)
Mission Systems
353

 
344

 
3
%
Technology Services
126

 
133

 
(5
%)
Intersegment eliminations
(64
)
 
(54
)
 
 
Segment operating income1
701

 
735

 
(5
%)
Segment operating margin rate1
11.8
%
 
12.3
%
 
(50) bps

Reconciliation to operating income
 
 
 
 
 
Net FAS/CAS pension adjustment1
74

 
83

 
(11
%)
Unallocated corporate expenses
(33
)
 
(38
)
 
13
%
Other
(3
)
 
—

 
NM

Operating income
739

 
780

 
(5
%)
Operating margin rate
12.4
%
 
13.1
%
 
(70) bps

Interest expense
(76
)
 
(76
)
 
—

Other, net
13

 
—

 
NM

Earnings before income taxes
676

 
704

 
(4
%)
Federal and foreign income tax expense
(120
)
 
(220
)
 
45
%
Net earnings
$
556

 
$
484

 
15
%
1 

Non-GAAP metric — see definitions at the end of this earnings release.
2 

Schedule 4 provides annual segment information in the realigned structure for years 2013-2015 and quarterly information for 2015
First quarter 2016 operating income decreased 5 percent primarily due to lower segment operating income and lower net FAS/CAS pension adjustment than in the prior year period. Lower segment operating income reflects lower operating income at Aerospace Systems and Technology Services, which more than offset higher operating income at Mission Systems. Net FAS/CAS pension adjustment decreased $9 million.
For the first quarter of 2016, federal and foreign income tax expense decreased to $120 million from $220 million in 2015; the company's effective tax rate declined to 17.8 percent from 31.3 percent. Lower federal and foreign income tax expense and effective tax rate are due to the company's adoption of an accounting standard update, as well as the extension of the research tax credit. The accounting standard

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
6


update requires excess tax benefits and tax deficiencies related to share-based compensation be recognized in the income statement and resulted in an $80 million tax benefit in the quarter.
Aerospace Systems ($ millions)
 
First Quarter
 
 
 
2016
 
2015
 
Change
Sales
$
2,574

 
$
2,498

 
3.0
%
Operating income
286

 
312

 
(8.3
%)
Operating margin rate
11.1
%
 
12.5
%
 
 
Aerospace Systems first quarter 2016 sales increased 3 percent due to higher volume for manned aircraft and autonomous systems programs. Manned aircraft sales rose due to production ramp-up on the E-2D program and higher F-35 deliveries, partially offset by lower volume for the B-2 program and fewer F/A-18 deliveries. Autonomous systems sales rose due to higher volume on the Global Hawk and Triton programs, partially offset by lower volume on NATO Alliance Ground Surveillance. Space sales were comparable to the prior year period.
Aerospace Systems first quarter 2016 operating income decreased 8 percent and operating margin rate decreased to 11.1 percent. Operating income and margin rate decreased due to lower margins on several manned aircraft programs, principally due to the timing of risk reductions, which more than offset higher sales.
Mission Systems ($ millions)
 
First Quarter
 
 
 
2016
 
2015
 
Change
Sales
$
2,693

 
$
2,711

 
(0.7
%)
Operating income
353

 
344

 
2.6
%
Operating margin rate
13.1
%
 
12.7
%
 
 
Mission Systems first quarter 2016 sales decreased 1 percent due to lower volume for cyber and ISR programs, partially offset by higher volume for sensors and processing programs and advanced capabilities programs. Lower sales for cyber and ISR programs is primarily due to lower volume on the Counter Narcoterrorism Technology program and lower volume for restricted programs. Higher sales in sensors and processing reflect higher volume for fixed wing avionics and C4ISR programs, as well as production ramp-up on the G/ATOR program. These increases were partially offset by lower volume for international programs. Higher sales for advanced capabilities programs reflect ramp-up on several navigation and maritime programs, including the SEWIP (Surface Electronic Warfare Improvement Program) Block III.
Mission Systems first quarter 2016 operating income increased 3 percent and operating margin rate was 13.1 percent. Higher operating income and margin rate reflect higher margins on advanced capabilities programs, partially offset by lower margins on cyber and ISR programs.


Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
7


Technology Services ($ millions)
 
First Quarter
 
 
 
2016
 
2015
 
Change
Sales
$
1,214

 
$
1,267

 
(4.2
%)
Operating income
126

 
133

 
(5.3
%)
Operating margin rate
10.4
%
 
10.5
%
 
 
Technology Services first quarter 2016 sales decreased 4 percent primarily due to lower volume for Global Logistics and Modernization (GLM) and Advanced Defense Services (ADS) programs. GLM sales decreased mainly due to ramp-down activities on the Intercontinental Ballistic Missile (ICBM) program and lower volume for restricted programs. ADS sales declined primarily due to program completions in 2015, partially offset by ramp-up on the Passenger Systems Program Directorate program and higher volume on the Saudi Arabian Ministry of National Guard Training Support program.
Technology Services first quarter 2016 operating income decreased $7 million due to lower sales, and operating margin rate was comparable to the prior year period at 10.4 percent.

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
8


About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at noon Eastern time on April 27, 2016. A live audio broadcast of the conference call will be available on the investor relations page of the company’s website at www.northropgrumman.com.
Northrop Grumman is a leading global security company providing innovative systems, products and solutions in autonomous systems, cyber, C4ISR, strike, and logistics and modernization to government and commercial customers worldwide. Please visit www.northropgrumman.com for more information.

Forward-Looking Statements
This earnings release and the information we are incorporating by reference contain statements, other than statements of historical fact, that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “intend,” “may,” “could,” “plan,” “project,” “forecast,” “believe,” “estimate,” “guidance,” “outlook,” “anticipate,” “trends,” “goals,” and similar expressions generally identify these forward-looking statements.
Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and cash flows. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified and discussed more fully in the section entitled “Risk Factors” in our 2015 Annual Report on Form 10-K. They include:
•
our dependence on a single customer, the U.S. Government
•
delays or reductions in appropriations for our programs and U.S. Government funding
•
investigations, claims and/or litigation
•
our international business
•
the improper conduct of employees, agents, business partners or joint ventures in which we participate
•
the use of accounting estimates for our contracts
•
cyber and other security threats or disruptions
•
the future investment performance of plan assets and changes in actuarial assumptions associated with our pension and other post-retirement benefit plans
•
the performance and financial viability of our suppliers and the availability and pricing of raw materials and components
•
competition within our markets
•
changes in procurement and other laws, regulations and practices applicable to our industry
•
natural and/or environmental disasters
•
the adequacy of our insurance coverage, customer indemnifications or other liability protections
•
the products and services we provide related to nuclear and other hazardous and high risk operations

Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media

Northrop Grumman Reports First Quarter 2016 Financial Results
9


•
changes in business conditions that could impact recorded goodwill or the value of other long-lived assets
•
our ability to develop new products and technologies and maintain technologies, facilities, equipment and a qualified workforce
•
our ability to meet performance obligations under our contracts
•
unforeseen environmental costs
•
our ability to protect our intellectual property rights
•
changes in our tax provisions or exposure to additional tax liabilities
•
the spin-off of our former Shipbuilding business
Additional information regarding these risks and other important factors can be found in the section entitled “Risk Factors” in our 2015 Annual Report on Form 10-K and as disclosed in this report and from time to time in our other filings with the SEC.
You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this report is first filed or, in the case of any document incorporated by reference, the date of that document. 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.
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
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media


SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)


 
Three Months Ended
March 31
$ in millions, except per share amounts
2016
 
2015
Sales
 
 
 
Product
$
3,478

 
$
3,429

Service
2,478

 
2,528

Total sales
5,956

 
5,957

Operating costs and expenses
 
 
 
Product
2,611

 
2,542

Service
1,950

 
2,000

General and administrative expenses
656

 
635

Operating income
739

 
780

Other (expense) income
 
 
 
Interest expense
(76
)
 
(76
)
Other, net
13

 
—

Earnings before income taxes
676

 
704

Federal and foreign income tax expense
120

 
220

Net earnings
$
556

 
$
484

 
 
 
 
Basic earnings per share
$
3.07

 
$
2.45

Weighted-average common shares outstanding, in millions
181.3

 
197.7

 
 
 
 
Diluted earnings per share
$
3.03

 
$
2.41

Weighted-average diluted shares outstanding, in millions
183.4

 
200.5

 
 
 
 
Net earnings (from above)
$
556

 
$
484

Other comprehensive income
 
 
 
Change in unamortized benefit plan costs, net of tax
101

 
96

Change in cumulative translation adjustment
(4
)
 
(29
)
Other, net
(1
)
 
(1
)
Other comprehensive income, net of tax
96

 
66

Comprehensive income
$
652

 
$
550



SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)


 
March 31,
2016
 
December 31,
2015
$ in millions
 
Assets
 
 
 
Cash and cash equivalents
$
1,277

 
$
2,319

Accounts receivable, net
3,346

 
2,841

Inventoried costs, net
898

 
807

Prepaid expenses and other current assets
185

 
367

Total current assets
5,706

 
6,334

Property, plant and equipment, net of accumulated depreciation of $4,877 in 2016 and $4,849 in 2015
3,230

 
3,064

Goodwill
12,462

 
12,460

Deferred tax assets
1,383

 
1,409

Other non-current assets
1,152

 
1,157

Total assets
$
23,933

 
$
24,424

 
 
 
 
Liabilities
 
 
 
Trade accounts payable
$
1,204

 
$
1,282

Accrued employee compensation
1,071

 
1,195

Advance payments and amounts in excess of costs incurred
1,409

 
1,537

Other current liabilities
1,271

 
1,443

Total current liabilities
4,955

 
5,457

Long-term debt, net of current portion
6,387

 
6,386

Pension and other post-retirement benefit plan liabilities
6,117

 
6,172

Other non-current liabilities
853

 
887

Total liabilities
18,312

 
18,902

 
 
 
 
Shareholders’ equity
 
 
 
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding
—

 
—

Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2016—180,828,855 and 2015—181,303,083
181

 
181

Paid-in capital
—

 
—

Retained earnings
10,664

 
10,661

Accumulated other comprehensive loss
(5,224
)
 
(5,320
)
Total shareholders’ equity
5,621

 
5,522

Total liabilities and shareholders’ equity
$
23,933

 
$
24,424



SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
Three Months Ended
March 31
$ in millions
 
2016
 
2015
Operating activities
 
 
 
 
Net earnings
 
$
556

 
$
484

Adjustments to reconcile to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
103

 
99

Stock-based compensation
 
14

 
24

Excess tax benefits from stock-based compensation
 
—

 
(105
)
Deferred income taxes
 
(35
)
 
204

Changes in assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(514
)
 
(325
)
Inventoried costs, net
 
(89
)
 
(76
)
Prepaid expenses and other assets
 
(4
)
 
16

Accounts payable and other liabilities
 
(364
)
 
(889
)
Income taxes payable
 
174

 
366

Retiree benefits
 
105

 
(440
)
Other, net
 
(6
)
 
(12
)
Net cash used in operating activities
 
$
(60
)
 
$
(654
)
 
 
 
 
 
Investing activities
 
 
 
 
Capital expenditures
 
(298
)
 
(117
)
Other, net
 
—

 
2

Net cash used in investing activities
 
(298
)
 
(115
)
 
 
 
 
 
Financing activities
 
 
 
 
Common stock repurchases
 
(282
)
 
(825
)
Net proceeds from issuance of long-term debt
 
—

 
600

Payments of long-term debt
 
(107
)
 
—

Cash dividends paid
 
(159
)
 
(156
)
Payments of employee taxes withheld from share-based awards
 
(137
)
 
(171
)
Other, net
 
1

 
104

Net cash used in financing activities
 
(684
)
 
(448
)
Decrease in cash and cash equivalents
 
(1,042
)
 
(1,217
)
Cash and cash equivalents, beginning of year
 
2,319

 
3,863

Cash and cash equivalents, end of period
 
$
1,277

 
$
2,646




SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
REALIGNED SEGMENTS
SUMMARY OPERATING RESULTS
(Unaudited)


 
SALES
 
SEGMENT OPERATING INCOME 1
 
2013
 
2014
 
2015
 
2015
 
2013
 
2014
 
2015
 
2015
 
Total
 
Total
 
Total
 
Three Months Ended
 
Total
 
Total
 
Total
 
Three Months Ended
($ in millions)
Year
 
Year
 
Year
 
Mar 31
 
Jun 30
 
Sep 30
 
Dec 31
 
Year
 
Year
 
Year
 
Mar 31
 
Jun 30
 
Sep 30
 
Dec 31
AS REPORTED 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
$
10,014

 
$
9,997

 
$
10,004

 
$
2,498

 
$
2,512

 
$
2,563

 
$
2,431

 
$
1,215

 
$
1,315

 
$
1,220

 
$
315

 
$
322

 
$
303

 
$
280

Electronic Systems
7,149

 
6,951

 
6,842

 
1,681

 
1,683

 
1,767

 
1,711

 
1,226

 
1,148

 
1,068

 
247

 
265

 
275

 
281

Information Systems
6,596

 
6,222

 
5,894

 
1,574

 
1,485

 
1,472

 
1,363

 
633

 
611

 
616

 
166

 
150

 
146

 
154

Technical Services
2,843

 
2,799

 
2,838

 
770

 
720

 
695

 
653

 
262

 
261

 
254

 
68

 
67

 
64

 
55

Intersegment Eliminations
(1,941
)
 
(1,990
)
 
(2,052
)
 
(566
)
 
(504
)
 
(518
)
 
(464
)
 
(256
)
 
(236
)
 
(238
)
 
(61
)
 
(62
)
 
(62
)
 
(53
)
Total
$
24,661


$
23,979


$
23,526


$
5,957


$
5,896


$
5,979


$
5,694

 
$
3,080


$
3,099


$
2,920


$
735


$
742


$
726


$
717

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REALIGNED 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
$
9,999

 
$
9,910

 
$
9,940

 
$
2,498

 
$
2,498

 
$
2,544

 
$
2,400

 
$
1,214

 
$
1,285

 
$
1,205

 
$
312

 
$
319

 
$
298

 
$
276

Mission Systems
11,468

 
11,001

 
10,674

 
2,711

 
2,628

 
2,723

 
2,612

 
1,619

 
1,557

 
1,410

 
344

 
348

 
355

 
363

Technology Services
4,992

 
4,902

 
4,819

 
1,267

 
1,238

 
1,193

 
1,121

 
464

 
461

 
514

 
133

 
128

 
128

 
125

Intersegment Eliminations
(1,798
)
 
(1,834
)
 
(1,907
)
 
(519
)
 
(468
)
 
(481
)
 
(439
)
 
(217
)
 
(204
)
 
(209
)
 
(54
)
 
(53
)
 
(55
)
 
(47
)
Total
$
24,661


$
23,979


$
23,526


$
5,957


$
5,896


$
5,979


$
5,694

 
$
3,080


$
3,099


$
2,920


$
735


$
742


$
726


$
717

1
Non-GAAP metric — see definitions at the end of this earnings release.
2
"As reported" summary operating results for the years ended December 31, 2013, 2014 and 2015 and the three months ended March 31, June 30, September 30 and December 31, 2015 reflect our former organizational structure and reportable segments and were previously disclosed in the company's filings with the Securities and Exchange Commission (SEC).
3
"Realigned" summary operating results for the years ended December 31, 2013, 2014 and 2015 and the three months ended March 31, June 30, September 30 and December 31, 2015 were recast to reflect the changes in the company's organizational structure and reportable segments from four to three effective January 1, 2016 as described in the company's Form 8-K to be filed with the SEC immediately after the filing of the Form 10-Q for the quarter ended March 31, 2016. The three current sectors are Aerospace Systems, Mission Systems and Technology Services.


Northrop Grumman Reports First Quarter 2016 Financial Results
14


Non-GAAP Financial Measures Disclosure: Today’s earnings 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 the company believes that these non-GAAP financial measures may be useful in evaluating our 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 earnings release. Other companies may define these measures differently or may utilize different non-GAAP measures.
Pension-adjusted diluted EPS: Diluted EPS excluding the after-tax net pension adjustment per share, as defined below. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS, as reconciled in Table 1, as an internal measure of financial performance.
Cash used in operating activities before after-tax discretionary pension contributions: Cash used in operating activities before the after-tax impact of discretionary pension contributions. Cash used in operating activities before discretionary pension contributions has been provided for consistency and comparability of financial performance and is reconciled in Table 2.
Free cash flow: Net cash used in operating activities less capital expenditures. 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 after-tax 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 reconciled in Table 2.
Net FAS/CAS pension adjustment: The difference between pension expense charged to contracts and included as cost in segment operating income in accordance with U.S. Government Cost Accounting Standards (CAS) and pension expense determined in accordance with FAS (GAAP Financial Accounting Standards). Net FAS/CAS pension adjustment is presented in Table 1.
After-tax net pension adjustment per share: The per share impact of the net FAS/CAS pension adjustment as defined above, after tax at the statutory rate of 35 percent, provided for consistency and comparability of financial performance as presented in Table 1.
Pension-adjusted operating income: Operating income before the net FAS/CAS pension adjustment as reconciled in Table 1. Management uses pension-adjusted operating income as an internal measure of financial performance.
Pension-adjusted operating margin rate: Pension-adjusted operating income as defined above, divided by sales. Management uses pension-adjusted operating margin rate, as reconciled in Table 1, as an internal measure of financial performance.
Segment operating income: Total earnings from our three segments including allocated pension expense recognized under CAS. Reconciling items to operating income include the net FAS/CAS pension adjustment, as defined above, as well as certain corporate-level expenses, which are not considered allowable or allocable under applicable CAS or FAR. Management uses segment operating income, as reconciled in Table 3, as an internal measure of financial performance.
Segment operating margin rate: Segment operating income as defined above, divided by sales. Management uses segment operating margin rate, as reconciled in Table 3, as an internal measure of financial performance.
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Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media