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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, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to__________________
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 24, 1998 68,796,037 shares
Northrop Grumman Corporation and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS
OF INCOME
Three months Six months
ended June 30, ended June 30,
Dollars in millions, except per share 1998 1997 1998 1997
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Net sales $2,139 $2,228 $4,153 $4,346
Cost of sales
Operating costs 1,710 1,746 3,328 3,451
Administrative and general expenses 221 249 410 466
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Operating margin 208 233 415 429
Merger costs (6) (2) (186) (2)
Interest expense (59) (65) (114) (129)
Other, net 4 5 13 7
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Income before income taxes 147 171 128 305
Federal and foreign income taxes 54 63 47 113
- -----------------------------------------------------------------------------
Net income $ 93 $ 108 $ 81 $ 192
=============================================================================
Weighted average shares outstanding,
in millions 68.6 66.7 68.2 66.5
Basic earnings per share $ 1.36 $ 1.62 $ 1.19 $ 2.89
Diluted earnings per share $ 1.34 $ 1.59 $ 1.17 $ 2.84
Dividends per share $ .40 $ .40 $ .80 $ .80
=============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
I-1
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF FINANCIAL POSITION
June 30, December 31,
Dollars in millions 1998 1997
- ------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 40 $ 63
Accounts receivable, net of progress payments
of $3,254 in 1998 and $2,772 in 1997 1,432 1,441
Inventoried costs, net of progress payments
of $550 in 1998 and $495 in 1997 1,582 1,283
Deferred income taxes 80 82
Prepaid expenses 82 67
- ------------------------------------------------------------------------------
Total current assets 3,216 2,936
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Property, plant and equipment 3,105 3,109
Accumulated depreciation (1,784) (1,763)
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1,321 1,346
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Goodwill, net of accumulated amortization of
$290 in 1998 and $244 in 1997 3,375 3,421
Other purchased intangibles, net of accumulated
amortization of $254 in 1998 and $208 in 1997 850 896
Deferred income taxes 456 485
Prepaid pension cost, intangible pension asset
and benefit trust funds 625 452
Investments in and advances to affiliates and
sundry assets 134 141
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5,440 5,395
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$ 9,977 $ 9,677
===============================================================================
I-2
Northrop Grumman Corporation and Subsidiaries
June 30, December 31,
Dollars in millions 1998 1997
- ------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Notes payable to banks $ 36 $ 91
Current portion of long-term debt 150 200
Trade accounts payable 465 463
Accrued employees' compensation 364 366
Advances on contracts 421 410
Income taxes payable, including deferred
income taxes of $689 in 1998 and $717 in 1997 737 733
Other current liabilities 454 452
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Total current liabilities 2,627 2,715
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Long-term debt 2,706 2,500
Accrued retiree benefits 1,740 1,716
Other long-term liabilities 45 48
Deferred income taxes 88 75
Paid-in capital
Preferred stock, 10,000,000 shares authorized; none issued
Common stock, 200,000,000 shares authorized; issued and outstanding:
1998 -- 68,743,309; 1997 -- 67,278,876 959 838
Retained earnings 1,834 1,807
Unfunded pension losses, net of taxes (22) (22)
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2,771 2,623
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$9,977 $9,677
============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
I-3
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six months ended June 30,
Dollars in millions 1998 1997
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Operating Activities
Sources of Cash
Cash received from customers
Progress payments $ 861 $1,112
Other collections 3,354 3,101
Income tax refunds received 8 1
Interest received 1 3
Other cash receipts 4 2
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Cash provided by operating activities 4,228 4,219
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Uses of Cash
Cash paid to suppliers and employees 4,092 3,927
Interest paid 106 119
Income taxes paid 29 30
Other cash disbursements 29 3
- -----------------------------------------------------------------------------
Cash used in operating activities 4,256 4,079
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Net cash provided by (used in) operating activities (28) 140
- ------------------------------------------------------------------------------
Investing Activities
Additions to property, plant and equipment (86) (88)
Proceeds from sale of property, plant and equipment 13 46
Proceeds from sale of affiliates/operations 20
Other investing activities (1) (1)
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Net cash used in investing activities (74) (23)
- -----------------------------------------------------------------------------
Financing Activities
Borrowings under lines of credit 251 278
Repayment of borrowings under lines of credit (247)
Principal payments of long-term debt (150) (100)
Proceeds from issuance of stock 32 5
Dividends paid (54) (48)
- -----------------------------------------------------------------------------
Net cash provided by (used in) financing activities 79 (112)
- -----------------------------------------------------------------------------
Increase(decrease) in cash and cash equivalents (23) 5
Cash and cash equivalents balance at beginning of period 63 123
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Cash and cash equivalents balance at end of period $ 40 $ 128
=============================================================================
I-4
Northrop Grumman Corporation and Subsidiaries
Six months ended June 30,
Dollars in millions 1998 1997
- ------------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash
Provided by(used in) Operating Activities
Net income $ 81 $ 192
Adjustments to reconcile net income to net
cash provided(used)
Depreciation 95 114
Amortization of intangible assets 92 93
Common stock issued to employees 88 1
Loss on disposals of property, plant and equipment 4 1
Retiree benefits income (97) (24)
Decrease(increase) in
Accounts receivable (261) (403)
Inventoried costs (354) (216)
Prepaid expenses (16) 5
Increase(decrease) in
Progress payments 310 254
Accounts payable and accruals 42 107
Provisions for contract losses 24 15
Deferred income taxes 16 63
Income taxes payable 32 23
Retiree benefits (88) (90)
Other transactions 4 5
- -------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $ (28) $ 140
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
I-5
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended June 30,
Dollars in millions 1998 1997
- ------------------------------------------------------------------------------
Paid-in Capital
At beginning of year $ 838 $ 784
Employee stock awards and options exercised 121 7
- -----------------------------------------------------------------------------
959 791
- -----------------------------------------------------------------------------
Retained Earnings
At beginning of year 1,807 1,502
Net income 81 192
Cash dividends (54) (48)
- -----------------------------------------------------------------------------
1,834 1,646
- -----------------------------------------------------------------------------
Unfunded Pension Losses, Net of Taxes (22) (4)
- ------------------------------------------------------------------------------
Total shareholders' equity $2,771 $2,433
=============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
I-6
Northrop Grumman Corporation and Subsidiaries
SELECTED INDUSTRY SEGMENT INFORMATION