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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 29549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ___________________
For Quarter Ended March 31, 1995
Commission File Number 1-3229
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE No. 95-1055798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Century Park East, Los Angeles, California 90067
(address of principal executive offices)
(310) 553-6262
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock outstanding as of April 28, 1995 49,336,970 shares
Part I. Financial Information
Item 1. Financial Statements
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three months ended March 31
$ in millions, except per share 1995 1994
Net Sales $1,617 $1,218
Cost of sales
Operating costs 1,299 1,021
Administrative and general expenses 201 116
Operating margin 117 81
Other, net 5 3
Interest expense (34) (5)
Income before income taxes 88 79
Federal and foreign income taxes 34 27
Net income $ 54 $ 52
Weighted average shares outstanding, in millions 49.3 49.1
Earnings per share $ 1.10 $ 1.05
Dividends per share $ .40 $ .40
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
March 31 December 31
$ in millions 1995 1994
Assets:
Cash and cash equivalents $ 10 $ 17
Accounts receivable, net of progress payments
of $2,420 in 1995 and $2,532 in 1994 1,122 1,202
Inventoried costs, net of progress payments
of $575 in 1995 and $611 in 1994 1,076 1,043
Refundable federal income taxes 84 84
Deferred income taxes 37 38
Prepaid expenses 65 47
Total current assets 2,394 2,431
Property, plant and equipment 3,160 3,146
Accumulated depreciation (1,788) (1,768)
1,372 1,378
Goodwill, net of amortization of $36 in 1995
and $27 in 1994 1,431 1,359
Other purchased intangibles, net of amortization
of $20 in 1995 and $15 in 1994 371 376
Prepaid pension cost, intangible
pension asset and benefit trust fund 225 222
Deferred income taxes 226 203
Investments in and advances to
affiliates and sundry assets 71 78
2,324 2,238
$ 6,090 $ 6,047
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March 31 December 31
$ in millions 1995 1994
Liabilities and Shareholders' Equity:
Notes payable to banks $ 94 $ 171
Current portion of long-term debt 127 130
Trade accounts payable 451 396
Accrued employees' compensation 223 228
Advances on contracts 120 184
Income taxes payable, including deferred
income taxes of $422 in 1995 and $413 in 1994 488 468
Other current liabilities 422 387
Total current liabilities 1,925 1,964
Long-term debt 1,566 1,633
Accrued retiree benefits 1,202 1,070
Other long-term obligations 52 54
Deferred gain on sale/leaseback 19 20
Deferred income taxes 16
Paid-in capital
Preferred stock, 10,000,000 shares
authorized and none issued
Common stock, 200,000,000 shares
authorized; issued and outstanding:
1995 -- 49,322,881; 1994 -- 49,241,642 266 265
Retained earnings 1,061 1,026
Unvested employee restricted award shares (1) (1)
1,326 1,290
$6,090 $6,047
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31
$ in millions 1995 1994
Operating Activities
Sources of Cash
Cash received from customers
Progress payments $ 618 $ 581
Other collections 1,100 625
Income tax refunds received 6
Other cash receipts 8 1
Cash provided by operating activities 1,732 1,207
Uses of Cash
Cash paid to suppliers and employees 1,505 1,052
Interest paid 23 1
Income taxes paid 11 4
Other cash payments 2
Cash used in operating activities 1,541 1,057
Net cash provided by operating activities 191 150
Investing Activities
Additions to property, plant and equipment (45) (25)
Proceeds from sale of property, plant and equipment 10
Proceeds from sale of affiliate 3
Other investing activities (1) (4)
Net cash used in investing activities (33) (29)
Financing Activities
Borrowings under lines of credit 94
Repayment of borrowings under lines of credit (171)
Principal payments of long-term debt (70)
Proceeds from issuance of stock 1 5
Dividends paid (19) (20)
Net cash used in financing activities (165) (15)
Increase(decrease) in cash and cash equivalents (7) 106
Cash and cash equivalents balance at
beginning of period 17 100
Cash and cash equivalents balance at end of period $ 10 $ 206
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Three months ended March 31
$ in millions 1995 1994
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 54 $ 52
Adjustments to reconcile net income
to net cash provided
Depreciation 53 42
Amortization of intangible assets 14
Loss(gain)on disposals of property,
plant and equipment (2) 1
Noncash retiree benefits (29) (6)
Amortization of deferred gain on sale/leaseback (1) (1)
Decrease(increase) in
Accounts receivable 260 568
Inventoried costs 12 42
Prepaid expenses 11 (2)
Increase(decrease) in
Progress payments (148) (581)
Accounts payable and accruals 30 30
Provisions for contract losses (96) (20)
Income taxes 33 25
Net cash provided by operating activities $ 191 $ 150
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31
$ in millions 1995 1994
Paid-in Capital:
At beginning of year $ 265 $ 256
Employee stock awards and options exercised,
net of forfeitures 1 5
$ 266 $ 261
Retained Earnings:
At beginning of year $1,026 $1,070
Net income 54 52
Cash dividends (19) (20)
$1,061 $1,102
Unvested Employee Restricted Award Shares:
At beginning of year $ (1) $ (2)
Amortization 1
$ (1) $ (1)
Unfunded pension losses, net of taxes $ $ (2)
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Northrop Grumman Corporation and Subsidiaries
SELECTED INDUSTRY SEGMENT INFORMATION
Three months ended March 31
$ in millions 1995 1994
Net Sales:
Military and Commercial Aircraft $ 1,027 $ 974
Electronics and Systems Integration 458 160
Data Systems and Other Services 138 20
Missiles and Unmanned Vehicle Systems 61 88
Intersegment sales (67) (24)
$ 1,617 $ 1,218
Operating Profit:
Military and Commercial Aircraft $ 90 $ 78
Electronics and Systems Integration 28 16
Data Systems and Other Services 5 1
Missiles and Unmanned Vehicle Systems 3 3
Total operating profit 126 98
Adjustments to reconcile
operating profit to operating margin:
Other income included above (4) (1)
State and local income taxes (7) (3)
General corporate expenses (27) (23)
Retiree benefit cost included in contract costs 47 5
Retiree benefit income(cost) (18) 5
Operating margin $ 117 $ 81
Contract Acquisitions:
Military and Commercial Aircraft $ 99 $ 3,130
Electronics and Systems Integration 953 141
Data Systems and Other Services 82 10
Missiles and Unmanned Vehicle Systems (145) 62
Intersegment acquisitions (68) (36)
$ 921 $ 3,307
Funded Order Backlog:
Military and Commercial Aircraft $ 8,261 $ 7,806
Electronics and Systems Integration 2,930 742
Data Systems and Other Services 174 33
Missiles and Unmanned Vehicle Systems 169 501
Intersegment backlog (57) (74)
$11,477 $ 9,008
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Northrop Grumman Corporation and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared by management in accordance with the instructions to
Form 10-Q of the Securities and Exchange Commission. They do not include
all information and notes necessary for a complete presentation of
financial position, results of operations, changes in shareholders'
equity, and cash flows in conformity with generally accepted accounting
principles. They do, however, in the opinion of management, include all
adjustments (all of which were normal recurring accruals) necessary for a
fair statement of the results for the periods presented. The financial
statements should be read in conjunction with the Notes and Independent
Auditors' Report contained in the company's 1994 Annual Report.
Inventories
The company's inventories consist primarily of work in process related to
long-term contracts with customers; therefore further breakdown is
considered inapplicable.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AND THE RESULTS OF ITS OPERATIONS
Sales for the first quarter of 1995 were 33% higher than the first quarter
of 1994. Sales increased in all of the company's industry segments, except
missiles and unmanned vehicle systems (MUVS). Comparative results for 1994
do not include Grumman Corporation or Vought Aircraft Company data as these
companies were acquired in April 1994 and August 1994, respectively.
Military and commercial aircraft segment (MCA) sales increased because
of higher revenues on Boeing jetliners, and the inclusion in 1995 of the
C-17 military transport aircraft and various other aircraft programs, which
more than offset the lower overall revenue on the B-2 and F/A-18 programs.
Sales in the electronics and systems integration (ESI) segment rose
primarily as a result of E-8 Joint STARS and E-2 Hawkeye revenues, which
more than offset lower electronic countermeasures(ECM)and BAT program
sales.
The sales decrease in the MUVS segment resulted from reduced volume on
the AGM-137 Tri-Service Standoff Attack Missile (TSSAM), which was
cancelled in February 1995.
Sales by major program and units delivered in the first quarter were:
$ in millions 1995 1994
B-2 $ 456 $ 674
F/A-18C/D 62 80
F/A-18E/F 119 107
Boeing Jetliners 140 100
E-2 60
ECM 75 92
E-8 Joint STARS 146
Data Systems and Other Services 138 20
TSSAM 44 67
C-17 67
BAT 19 21
All other 291 57
$1,617 $1,218
Units
1995 1994
F/A-18C/D 8 12
747 6 9
B-2 1
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The amount and the rate of operating profit increased in the MCA
segment in the first quarter of 1995 compared with the first quarter of
1994. All of the company's major aircraft production programs - B-2,
F/A-18, Boeing Jetliners and C-17 contributed to the favorable variance.
The effect of lower volume on the B-2 program was offset by the delivery of
one aircraft in the first quarter of 1995 compared to no deliveries in
last year's first quarter. This year's first quarter included a
$4 million charge as a result of an arbitration ruling related to the
F/A-18. Higher sales volume was the primary cause of the increased
operating profit for the balance of the MCA segment.
The ESI segment and data systems and other services segment operating
profit increases resulted from higher sales volume in both segments. The
lower rate of operating profit in these industry segments was due to the
change in business mix, and the impact of the amortization of goodwill and
other purchased intangibles charged in 1995 compared with none charged in
the first quarter of 1994.
Interest expense in the first quarter of 1995 was $29 million higher
than the first quarter of 1994, following the $1.7 billion increase in
average debt outstanding between the two year's first quarters.
During the first quarter of 1995, $191 million of cash was generated
from operations versus $150 million for last year's first quarter, and was
more than sufficient to finance capital expenditures and dividends. The
company's liquidity and financial flexibility will continue to be provided
by cash flow generated from operating activities, which is not expected to
continue for the balance of this year at the level achieved in the first
quarter, supplemented by the unused borrowing capacity available under the
company's credit agreement and other short-term credit facilities.
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Part II OTHER INFORMATION
Item 1. Legal proceedings
False Claims Act Litigation
As previously disclosed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, the lawsuit entitled Janssen v. Northrop was
submitted to binding arbitration. Under the procedures agreed to by the
parties, in addition to presenting evidence regarding the merits of the
allegations, each party submitted a dollar amount representing the
potential value of the action. After listening to the parties'
presentations, the arbitrators chose, from the two submitted amounts, the
amount which most closely reflected their evaluation of the merits of the
lawsuit. Without admitting any liability, Northrop Grumman submitted the
amount of $4 million which was chosen by the arbitrators.
Walsh, et al. v. Northrop Grumman Corporation
This matter was previously reported on in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994. On April 7, 1995, the
Court granted Plaintiff's motion to amend their complaint to add a claim
for damages based on post-acquisition changes to the Grumman pension and
other benefit plans. The Court took under submission the Plaintiff's
motion for class certification. As previously stated, the defendants
intend to vigorously defend this litigation and the Company does not expect
this matter to have a material adverse effect on its financial condition.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11. Statement re Computation of Per Share Earnings
Exhibit 27. Financial Data Schedule
(b) No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended March 31, 1995.
SIGNATURES
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 thereunto duly authorized.
Northrop Grumman Corporation (Registrant)
Date: May 2, 1995 &&PINAZ2928
Nelson F. Gibbs
Vice President and Controller
Date: May 2, 1995 &&PINAD1368
Sheila M. Gibbons
Vice President and Secretary
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Northrop Grumman Corporation and Subsidiaries
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share)
Three months ended March 31
1995 1994
Primary:
Average shares outstanding 49,268 49,051
Common stock equivalents 833 733
Totals 50,101 49,784
Net income $54,122 $51,643
Earnings per share(1) $ 1.08 $ 1.04
Fully diluted:
Average shares outstanding 49,268 49,051
Common stock equivalents 1,065 755
Totals 50,333 49,806
Net income $54,122 $51,643
Earnings per share(1) $ 1.08 $ 1.04
_____________
(1) This calculation was made in compliance with Item 601 of Regulation
S-K. Earnings per share presented elsewhere in this report exclude
from their calculation shares issuable under employee stock options,
since their dilutive effect is less than 3%.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.