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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 June 30, 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 June 30, 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 July 21, 1995 49,373,825 shares
Northrop Grumman Corporation and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS
OF INCOME
Three months ended Six months ended
June 30 June 30
$ in millions, except per share 1995 1994 1995 1994
Net Sales $1,759 $1,686 $3,376 $2,904
Cost of sales
Operating costs 1,360 1,357 2,659 2,378
Administrative and
general expenses 232 203 433 319
Operating margin 167 126 284 207
Other, net (3) 13 2 16
Interest expense (36) (33) (70) (38)
Income before income taxes 128 106 216 185
Federal and foreign
income taxes 49 41 83 68
Net income $ 79 $ 65 $ 133 $ 117
Weighted average shares
outstanding, in millions 49.3 49.1 49.3 49.1
Earnings per share $ 1.59 $ 1.33 $ 2.69 $ 2.39
Dividends per share $ .40 $ .40 $ .80 $ .80
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF FINANCIAL POSITION
June 30 December 31
$ in millions 1995 1994
Assets:
Cash and cash equivalents $ 3 $ 17
Accounts receivable, net of progress payments
of $2,508 in 1995 and $2,532 in 1994 1,250 1,202
Inventoried costs, net of progress payments
of $560 in 1995 and $611 in 1994 978 1,043
Refundable federal income taxes 84 84
Deferred income taxes 36 38
Prepaid expenses 61 47
Total current assets 2,412 2,431
Property, plant and equipment 3,126 3,146
Accumulated depreciation (1,796) (1,768)
1,330 1,378
Goodwill, net of amortization of $45 in 1995
and $27 in 1994 1,422 1,359
Other purchased intangibles, net of amortization
of $25 in 1995 and $15 in 1994 366 376
Prepaid pension cost, intangible
pension asset and benefit trust fund 241 222
Deferred income taxes 206 203
Investments in and advances to
affiliates and sundry assets 68 78
2,303 2,238
$ 6,045 $ 6,047
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June 30 December 31
$ in millions 1995 1994
Liabilities and Shareholders' Equity:
Notes payable to banks $ 150 $ 171
Current portion of long-term debt 188 130
Trade accounts payable 395 396
Accrued employees' compensation 227 228
Advances on contracts 96 184
Income taxes payable, including deferred
income taxes of $471 in 1995 and $413 in 1994 489 468
Other current liabilities 350 387
Total current liabilities 1,895 1,964
Long-term debt 1,496 1,633
Accrued retiree benefits 1,195 1,070
Other long-term obligations 53 54
Deferred gain on sale/leaseback 18 20
Deferred income taxes 2 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 -- 49,368,903; 1994 -- 49,241,642 267 265
Retained earnings 1,120 1,026
Unvested employee restricted award shares (1) (1)
1,386 1,290
$ 6,045 $ 6,047
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
Six months ended June 30
$ in millions 1995 1994
Operating Activities
Sources of Cash
Cash received from customers
Progress payments $ 1,254 $ 1,354
Other collections 2,066 2,365
Income tax refunds received 7
Other cash receipts 7 11
Cash provided by operating activities 3,334 3,730
Uses of Cash
Cash paid to suppliers and employees 3,040 3,302
Interest paid 74 30
Income taxes paid 44 44
Other cash payments 3
Cash used in operating activities 3,161 3,376
Net cash provided by operating activities 173 354
Investing Activities
Payment for purchase of Grumman Corporation,
net of cash acquired (1,841)
Additions to property, plant and equipment (71) (60)
Proceeds from sale of property, plant
and equipment 16 4
Proceeds from sale of affiliates 4
Funding of retiree benefit trust (30)
Dividends from affiliate 5
Other investing activities (7) 6
Net cash used in investing activities (58) (1,916)
Financing Activities
Borrowings under lines of credit 150 1,800
Repayment of borrowings under lines of credit (171) (200)
Principal payments of long-term debt (71) (3)
Proceeds from issuance of stock 2 5
Dividends paid (39) (39)
Net cash provided by (used in)
financing activities (129) 1,563
Increase(decrease) in cash and cash equivalents (14) 1
Cash and cash equivalents balance at
beginning of period 17 100
Cash and cash equivalents balance
at end of period $ 3 $ 101
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Six months ended June 30
$ in millions 1995 1994
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 133 $ 117
Adjustments to reconcile net income
to net cash provided
Depreciation 115 105
Amortization of intangible assets 28 13
Loss(gain) on disposals of property,
plant and equipment (3) 8
Noncash retiree benefits (51) (25)
Amortization of deferred gain on
sale/leaseback (2) (1)
Decrease(increase) in
Accounts receivable 55 676
Inventoried costs 116 (587)
Prepaid expenses 24 (12)
Increase(decrease) in
Progress payments (75) 163
Accounts payable and accruals (108) (109)
Provisions for contract losses (117) (33)
Income taxes 56 44
Other noncash transactions 2 (5)
Net cash provided by operating activities $ 173 $ 354
Noncash Investing and Financing Activites:
Purchase of Grumman Corporation
Fair value of assets acquired $ 3,530
Cash paid (2,128)
Liabilities assumed $ 1,402
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended June 30
$ in millions 1995 1994
Paid-in Capital:
At beginning of year $ 265 $ 256
Employee stock awards and options exercised,
net of forfeitures 2 5
$ 267 $ 261
Retained Earnings:
At beginning of year $1,026 $1,070
Net income 133 117
Cash dividends (39) (39)
$1,120 $1,148
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 Six months ended
June 30 June 30
$ in millions 1995 1994 1995 1994
Net Sales:
Military and Commercial Aircraft $1,164 $ 1,118 $ 2,191 $ 2,092
Electronics and Systems Integration 545 403 1,003 563
Data Systems and Other Services 93 108 231 128
Missiles and Unmanned Vehicle Systems 32 108 93 196
Intersegment sales (75) (51) (142) (75)
$1,759 $ 1,686 $ 3,376 $ 2,904
Operating Profit:
Military and Commercial Aircraft $ 127 $ 118 $ 217 $ 196
Electronics and Systems Integration 47 31 75 47
Data Systems and Other Services 3 3 8 4
Missiles and Unmanned Vehicle Systems 1 3 4 6
Total operating profit 178 155 304 253
Adjustments to reconcile
operating profit to operating margin:
Other income included above 4 (8) (9)
State and local income taxes (7) (12) (14) (15)
General corporate expenses (30) (33) (57) (56)
Retiree benefit cost included
in contract costs 42 36 89 41
Retiree benefit cost (20) (12) (38) (7)
Operating margin $ 167 $ 126 $ 284 $ 207
Contract Acquisitions:
Military and Commercial Aircraft $ 552 $2,619 $ 651 $ 5,749
Electronics and Systems Integration 584 1,946 1,537 2,087
Data Systems and Other Services 125 249 207 259
Missiles and Unmanned Vehicle Systems 6 91 (139) 153
Intersegment acquisitions (72) (101) (140) (137)
$1,195 $4,804 $ 2,116 $ 8,111
Funded Order Backlog:
Military and Commercial Aircraft $ 7,649 $ 9,307
Electronics and Systems Integration 2,969 2,285
Data Systems and Other Services 206 174
Missiles and Unmanned Vehicle Systems 143 484
Intersegment backlog (54) (124)
$10,913 $12,126
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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 were 4 percent higher in the second quarter of 1995 versus
the second quarter of 1994. Sales rose 16 percent in the first
six months of 1995 when compared to the first half of 1994.
Comparative results do not include operating results of acquired
companies prior to acquisition (Grumman Corporation - April 1994
and Vought Aircraft Company (VAC) - August 1994).
Military and commercial aircraft (MCA) segment sales
increased in the second quarter and first half of 1995 versus
comparable periods of 1994 because of higher revenues on the
F/A-18, Boeing jetliners, C-17 military transport aircraft and
various other programs associated with the VAC acquisition in
1994. The increases more than offset the lower overall revenue
on the B-2 program.
Electronics and systems integration (ESI) segment sales
increased in the second quarter and first six months of 1995 as
compared to the same periods of 1994 as a result of higher
revenues recorded on the E-8 Joint STARS and E-2 Hawkeye
programs.
The sales increase in the data systems and other services
segment in the first six months of 1995 versus the first half of
last year is principally due to the programs acquired in
connection with the Grumman Corporation acquisition.
Lower sales in the missiles and unmanned vehicle system
segment resulted from the cancellation of the Tri-Service
Standoff Attack Missile (TSSAM) program in February 1995.
Sales by major program and units delivered were as shown in
the following table:
Three months Six months
$ in millions 1995 1994 1995 1994
B-2 $ 518 597 $ 974 $1,271
F/A-18 C/D 104 69 166 149
F/A-18 E/F 109 130 228 237
Boeing Jetliners 157 97 297 197
E-2 183 89 243 89
ECM 78 81 153 173
E-8 Joint STARS 139 114 285 114
Data Systems and Other Services 93 108 231 128
TSSAM 16 87 60 154
C-17 72 5 139 5
BAT 18 21 37 42
All Other 272 288 563 345
$1,759 $1,686 $3,376 $2,904
Units
Three months Six months
1995 1994 1995 1994
F/A-18 C/D 15 10 23 22
747 Fuselage 7 9 13 18
B-2 1 2
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The amount and rate of operating margin earned on sales
during the second quarter and first half of 1995 increased as
compared with the same periods in 1994. Operating profit in the
MCA segment benefited from a net $34 million in cumulative
operating margin adjustments recorded in the second quarter of
1995. Positive adjustments on the B-2 stealth bomber and C-17
military transport programs were partially offset by a downward
adjustment on the Boeing 747 jetliner program. The 747
adjustment reflected cost increases related to the stretch out of
the current production contract, which is now scheduled to
conclude in the summer of 1996. The B-2 adjustment was made as a
result of negotiated contract adjustments and a revised estimate
of the overall operating margin expected to be earned on the B-2
production contract. The positive adjustment on the C-17
reflected improved operating performance on this program. This
year's first six months also benefited from the delivery of two
B-2s, versus none in the first half of 1994, and an increase in
F/A-18 C/D deliveries. The MCA results for the first six months of
1995 were impacted by $8 million of company sponsored research
and development expenditures, primarily incurred on commercial
aerostructures, and a $4 million charge in the first quarter as a
result of an arbitration ruling related to the F/A-18. The ESI
segment operating profit increased principally as a result of
higher sales recorded on the E-8 Joint STARS and E-2 Hawkeye
programs.
Other income was lower in the first half of 1995 compared to
the same period of last year as the first six months of 1994
included $10 million of nonrecurring royalty and dividend income.
Interest expense for the second quarter of 1995 was $3
million higher than the corresponding quarter in 1994. Interest
expense for the first six months of 1995 was $32 million higher
than the first half of 1994 following the $800 million increase
in average debt outstanding between the two years' first halves
and a slightly higher rate of interest incurred on borrowed funds
in 1995.
The company's effective federal income tax rate was 38.4
percent for the first six months of 1995 versus 36.8 percent for
the comparable period in 1994. The change in the 1995 rate was
caused by an increase in the amount of expenses not deductible
for income taxes, primarily the amortization of goodwill which
began in the second quarter of 1994 as a result of the
acquisition of Grumman Corporation.
During the first half of 1995, $173 million of cash was
generated from operations versus $354 million in last years first
six months 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, supplemented by the
borrowing capacity available under its $800 million revolving
credit agreement and other short-term credit facilities.
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Part II OTHER INFORMATION
Item 1. Legal Proceedings
Walsh, et al. v. Northrop Grumman Corporation
The Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1995 updated the discussion of this matter in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994. This litigation is being defended vigorously and the
Company does not expect it to have a material adverse effect on
the Company's financial condition.
U.S. Government Investigation
On May 3, 1995 federal agents executed search warrants at the
Military Aircraft Division facilities in Hawthorne and El
Segundo, California. Since that time, the Company has learned
that the United States Attorney for the Central District of
California is conducting a Grand Jury investigation of the F/A 18
and Targets Programs at the Military Aircraft Division. Although
the Government has declined to inform the Company of the details
of the investigation, it has confirmed that there are no issues
regarding flight safety.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting --
The annual meeting of stockholders of stockholders of
Northrop Corporation was held on May 17, 1995.
(b) Election of Directors --
The Following Class I Director nominees were elected at the
annual meeting:
Jack R. Borsting
Aulana L. Peters
Richard M. Rosenberg
Wallace C. Solberg
Richard J. Stegemeier
The Directors whose term of office continues are:
John T. Chain, Jr.
Jack Edwards
Barbara C. Jordan
Kent Kresa
John E. Robson
William F. Schmied
John Brooks Slaughter
Brent Scowcroft
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(c) The matters voted upon at the meeting and the results of
each vote are as follows:
For Directors Votes Votes Shares
For Withheld Abstaining
Jack R. Borsting 43,393,776 687,832 -
Aulana L. Peters 43,099,865 981,743 -
Richard M. Rosenberg 43,330,192 751,416 -
Wallace C. Solberg 43,295,620 785,988 -
Richard J. Stegemeier 43,386,901 694,707 -
Votes Votes Shares
For Against Abstaining
Ratification of the
appointment of Deloitte
& Touche LLP as the
Company's independent
auditors 43,555,691 287,794 238,123
Approval of the Northrop
Grumman 1995 Stock Option
Plan for Non-Employee
Directors 36,633,181 6,869,554 578,873
Amendments to the
Northrop Grumman 1993
Long-Term Incentive
Stock Plan 36,176,646 7,504,734 400,228
There were no Broker Non-Votes with respect to any of the
proposals at the 1995 Annual Meeting.
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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 June 30, 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: July 28, 1995 by/s/Nelson F. Gibbs
Nelson F. Gibbs
Vice President and Controller
Date: July 28, 1995 by/s/James C. Johnson
James C. Johnson
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 Six months ended
June 30 June 30
Primary: 1995 1994 1995 1994
Average shares outstanding 49,350 49,138 49,309 49,094
Common stock equivalents 1,057 649 945 692
Totals 50,407 49,787 50,254 49,786
Net income $78,408 $65,535 $132,530 $117,178
Earnings per share(1) $ 1.56 $ 1.32 $ 2.64 $ 2.35
Fully diluted:
Average shares outstanding 49,350 49,138 49,309 49,094
Common stock equivalents 1,092 736 1,092 746
Totals 50,442 49,874 50,401 49,840
Net income $78,408 $65,535 $132,530 $117,178
Earnings per share(1) $ 1.55 $ 1.31 $ 2.63 $ 2.35
_________
(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.