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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 September 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 September 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 October 19, 1995 49,416,405 shares
Northrop Grumman Corporation and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
$ in millions, except per share
Net Sales $1,630 $1,927 $5,006 $4,831
Cost of sales
Operating costs 1,269 1,561 3,928 3,939
Administrative and general expenses 230 267 663 586
Operating margin 131 99 415 306
Other, net 5 (2) 7 14
Interest expense (36) (35) (106) (73)
Income before income taxes 100 62 316 247
Federal and foreign income taxes 39 23 122 91
Net income $ 61 $ 39 $ 194 $ 156
Weighted average shares outstanding,
in millions 49.4 49.2 49.3 49.1
Earnings per share $ 1.25 $ .79 $ 3.93 $ 3.17
Dividends per share $ .40 $ .40 $ 1.20 $ 1.20
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
September 30 December 31
$ in millions 1995 1994
Assets:
Cash and cash equivalents $ 32 $ 17
Accounts receivable, net of progress payments
of $2,314 in 1995 and $2,532 in 1994 1,248 1,202
Inventoried costs, net of progress payments
of $506 in 1995 and $611 in 1994 922 1,043
Refundable federal income taxes 41 84
Deferred income taxes 36 38
Prepaid expenses 92 47
Total current assets 2,371 2,431
Property, plant and equipment 3,033 3,146
Accumulated depreciation (1,756) (1,768)
1,277 1,378
Goodwill, net of accumulated amortization of $55
in 1995 and $27 in 1994 1,412 1,359
Other purchased intangibles, net of accumulated
amortization of $30 in 1995 and $15 in 1994 361 376
Deferred income taxes 236 203
Prepaid pension cost, intangible
pension asset and benefit trust fund 95 222
Investments in and advances to
affiliates and sundry assets 50 78
2,154 2,238
$ 5,802 $6,047
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Northrop Grumman Corporation and Subsidiaries
September 30 December 31
$ in millions 1995 1994
Liabilities and Shareholders' Equity:
Notes payable to banks $ 62 $ 171
Current portion of long-term debt 251 130
Trade accounts payable 339 396
Accrued employees' compensation 224 228
Advances on contracts 106 184
Income taxes payable, including deferred
income taxes of $492 in 1995 and $413 in 1994 510 468
Other current liabilities 376 387
Total current liabilities 1,868 1,964
Long-term debt 1,433 1,633
Accrued retiree benefits 1,011 1,070
Other long-term obligations 27 54
Deferred gain on sale/leaseback 17 20
Deferred income taxes 17 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 -- 49,414,352; 1994 -- 49,241,642 269 265
Retained earnings 1,161 1,026
Unvested employee restricted award shares (1) (1)
1,429 1,290
$ 5,802 $6,047
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Northrop Grumman Corporation and Subsidiaries
Nine months ended September 30
$ in millions 1995 1994
Operating Activities
Sources of Cash
Cash received from customers
Progress payments $ 1,708 $ 2,092
Other collections 3,195 3,433
Income tax refunds received 7
Other cash receipts 10 15
Cash provided by operating activities 4,920 5,540
Uses of Cash
Cash paid to suppliers and employees 4,460 4,999
Interest paid 102 64
Income taxes paid 48 76
Other cash payments 3 8
Cash used in operating activities 4,613 5,147
Net cash provided by operating activities 307 393
Investing Activities
Payment for purchase, net of cash acquired, of
Grumman Corporation (1,841)
Vought Aircraft Company (12)
Additions to property, plant and equipment (97) (99)
Proceeds from sale of property, plant and equipment 31 11
Proceeds from sale of affiliates 29
Funding of retiree benefit trust (31)
Dividend from affiliate 5
Other investing activities (20) 13
Net cash used in investing activities (57) (1,954)
Financing Activities
Borrowings under lines of credit 150 2,223
Repayment of borrowings under lines of credit (259) (500)
Principal payments of long-term debt (70) (195)
Proceeds from issuance of stock 3 6
Dividends paid (59) (59)
Net cash provided by (used in) financing activities (235) 1,475
Increase(decrease) in cash and cash equivalents 15 (86)
Cash and cash equivalents balance at beginning of period 17 100
Cash and cash equivalents balance at end of period $ 32 $ 14
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Northrop Grumman Corporation and Subsidiaries
Nine months ended September 30
$ in millions 1995 1994
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 194 $ 156
Adjustments to reconcile net income
to net cash provided
Depreciation 165 175
Amortization of intangible assets 43 26
Loss(gain) on disposals of property,
plant and equipment (6) 14
Noncash retiree benefits (43) (18)
Amortization of deferred gain on sale/leaseback (3) (2)
Decrease(increase) in
Accounts receivable 244 445
Inventoried costs 200 (471)
Prepaid expenses 135 (23)
Refundable income taxes 43
Increase(decrease) in
Progress payments (323) 276
Accounts payable and accruals (273) (144)
Provisions for contract losses (132) (81)
Income taxes 63 45
Other noncash transactions (5)
Net cash provided by operating activities $ 307 $ 393
Noncash Investing and Financing Activites:
Purchase of Grumman Corporation
Fair value of assets acquired $ 3,508
Cash paid (2,128)
Liabilities assumed $ 1,380
Purchase of Vought Aircraft Company
Fair value of assets acquired
(less $45 invested in VAC in 1992) $ 711
Cash paid (130)
Liabilities assumed $ 581
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30
$ in millions 1995 1994
Paid-in Capital:
At beginning of year $ 265 $ 256
Employee stock awards and options exercised,
net of forfeitures 4 5
$ 269 $ 261
Retained Earnings:
At beginning of year $1,026 $1,070
Net income 194 156
Cash dividends (59) (59)
$1,161 $ 1,167
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 Nine months ended
September 30 September 30
$ in millions 1995 1994 1995 1994
Net Sales:
Military and Commercial Aircraft $ 1,091 $ 1,320 $ 3,282 $ 3,412
Electronics and Systems Integration 485 484 1,488 1,047
Data Systems and Other Services 100 94 331 222
Missiles and Unmanned Vehicle Systems 36 68 129 264
Intersegment sales (82) (39) (224) (114)
$ 1,630 $ 1,927 $ 5,006 $ 4,831
Operating Profit:
Military and Commercial Aircraft $ 131 $ 121 $ 348 $ 317
Electronics and Systems Integration 42 40 117 87
Data Systems and Other Services 4 4 12 8
Missiles and Unmanned Vehicle Systems (3) (20) 1 (14)
Total operating profit 174 145 478 398
Adjustments to reconcile
operating profit to operating margin:
Other income included above (1) (2) (1) (11)
State and local income taxes (13) (14) (27) (29)
General corporate expenses (21) (28) (78) (84)
Retiree benefit cost included in
contract costs 11 6 100 17
Retiree benefit cost (19) (8) (57) 15
Operating margin $ 131 $ 99 $ 415 $ 306
Contract Acquisitions:
Military and Commercial Aircraft $ 877 $ 1,528 $ 1,528 $ 7,277
Electronics and Systems Integration 628 507 2,165 2,594
Data Systems and Other Services 94 144 301 403
Missiles and Unmanned Vehicle Systems (4) 7 (143) 160
Intersegment acquisitions (66) (21) (206) (158)
$ 1,529 $ 2,165 $ 3,645 $10,276
Funded Order Backlog:
Military and Commercial Aircraft $ 7,435 $ 9,515
Electronics and Systems Integration 3,112 2,308
Data Systems and Other Services 200 224
Missiles and Unmanned Vehicle Systems 103 423
Intersegment backlog (38) (106)
$10,812 $12,364
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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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Northrop Grumman Corporation and Subsidiaries
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL CONDITION AND THE RESULTS OF ITS OPERATIONS.
Sales for the third quarter of 1995 were 15 percent lower than
last year's third quarter. Lower revenue in the military and commercial
aircraft (MCA) and missiles and unmanned vehicle (MUVS) industry
segments more than offset the small increases in the electronics and
systems integration (ESI) and data systems and other services segments.
The MCA sales decrease was a result of lower overall revenue on the B-2
program, C-17 military transport aircraft and Boeing jetliners.
Sales increased 4 percent in the first nine months of 1995 versus
the first nine months 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).
MCA segment sales for the first nine months of 1995 decreased
versus the comparable period in 1994 as a result of lower overall
revenue on the B-2 program, which more than offset higher revenues on
the C-17 military transport aircraft, Boeing jetliners and various
other programs associated with the VAC acquisition in 1994.
ESI segment sales increased in the first nine months of 1995 as
compared to the same period in 1994 as a result of higher revenues
recorded on the E-8 Joint Stars and E-2 Hawkeye programs.
Sales increased in the data systems and other services segment in
the first nine months of 1995 versus the first nine months of 1994
principally due to the programs acquired in connection with the Grumman
Corporation acquisition.
Lower Sales in the MUVS segment in the third quarter and first
nine months in 1995 as compared to the same periods in 1994 resulted
from the cancellation of the Tri-Service Standoff Attack Missile
(TSSAM) program in February 1995.
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Northrop Grumman Corporation and Subsidiaries
Sales by major program and units delivered were as shown in the
following table:
Three months Nine months
$ in millions 1995 1994 1995 1994
B-2 $ 478 $ 629 $1,452 $1,900
F/A-18 C/D 127 84 293 233
F/A-18 E/F 101 133 329 370
Boeing Jetliners 124 133 421 330
E-2 114 170 357 259
ECM 87 71 240 244
E-8 Joint STARS 151 122 436 236
Data Systems and Other Services 100 94 331 222
TSSAM 18 66 78 220
C-17 56 62 195 67
BAT 25 21 62 63
All Other 249 342 812 687
$1,630 $1,927 $5,006 $4,831
AIRCRAFT UNITS DELIVERED Three months Nine months
1995 1994 1995 1994
F/A-18 C/D 16 10 39 32
747 Fuselage 5 7 18 25
B-2 1 2 3 2
The amount and rate of operating margin earned on sales increased
in the third quarter and first nine months of 1995 as compared to the
same period of 1994. Operating profit in the third quarter of 1995
increased in the MCA segment as a result of higher operating margin on
the F/A-18 program (which included a margin rate increase on the F/A-18E/F),
C-17 and Boeing jetliners, which more than offset a lower amount of operating
margin on the B-2 stealth bomber program. The decrease in the B-2 was due
to lower volume on all phases of the program and the delivery of one B-2 in
the third quarter of 1995 versus two in the third quarter of 1994. The MCA
results for the third quarter and first nine months of 1995 were impacted by
$15 million and $23 million, respectively, for company sponsored research and
development expenditures 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. MCA operating profit for the first nine
months of 1995 benefited from a net $34 million in cumulative operating
margin adjustments recorded in the second quarter of 1995. Positive
adjustments on the B-2 and C-17 programs were partially offset by a
downward adjustment on the Boeing 747 jetliner programs This year's
first nine months also benefited from the delivery of three B-2s,
versus two in the comparable period of 1994. The ESI segment operating
profit increased in the third quarter and first nine months of 1995
principally as a result of higher sales recorded on the E-8 Joint
STARS. Higher volume on the E-2 for the first nine months of 1995 also
contributed to increased operating profit. Last year's third quarter
MUVS segment results included a $20 million loss provision for TSSAM.
The third quarter of 1995 results included a $3 million provision for
unrecoverable inventories related to the company's line of aerial
targets.
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Northrop Grumman Corporation and Subsidiaries
The company announced in September 1995 that it was merging three
of the company's major retirement plans. As a result of this merger,
net income for the third quarter of 1995 was approximately $10 million,
or 20 cents per share, and the fourth quarter of 1995 is estimated to
be approximately $5 million of net income, or 10 cents per share, lower
than would have been reported had the plans not been merged.
Other income was lower in the first nine months of 1995 compared
to the same period of last year as 1994 included $10 million of
nonrecurring royalty and dividend income recorded in the second
quarter.
Interest expense for the third quarter of 1995 was $1 million
higher than the corresponding quarter of 1994. Interest expense for
the first nine months of 1995 was $33 million higher than the first
nine months of 1995 following the $500 million increase in average debt
outstanding between the two years' first nine months and a slightly
higher rate of interest incurred on borrowed funds in 1995.
The company's effective federal income tax rate was 38.6 percent
for the first nine months of 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 nine months of 1995, $307 million of cash was
generated from operations versus $393 million in last year's first
three quarters 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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Northrop Grumman Corporation and Subsidiaries
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. In
August, the Court granted the plaintiffs' motion for class
certification. As previously stated, 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.
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Northrop Grumman Corporation and Subsidiaries
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 September
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: November 3, 1995 by/s/Nelson F. Gibbs
Nelson F. Gibbs
Vice President and Controller
Date: November 3, 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 Nine months ended
September 30 September 30
Primary: 1995 1994 1995 1994
Average shares outstanding 49,399 49,157 49,339 49,115
Common stock equivalents 1,265 811 1,052 732
Totals 50,664 49,968 50,391 49,847
Net income $61,606 $38,719 $194,136 $155,897
Earnings per share(1) $ 1.22 $ .77 $ 3.85 $ 3.13
Fully diluted:
Average shares outstanding 49,399 49,157 49,339 49,115
Common stock equivalents 1,322 879 1,322 79
Totals 50,72 50,036 50,661 9,994
Net income $61,606 $38,719 $194,136 $155,897
Earnings per share(1) $ 1.21 $ .77 $ 3.83 $ 3.12
(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.