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Filed by Northrop Grumman Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14 d-2
of the Securities Exchange Act of 1934
Subject Company: Comptek Research, Inc.
Commission File Number: 001-08502
THE FOLLOWING UNEDITED TRANSCRIPT OF A CONFERENCE CALL IS A PRELIMINARY
COMMUNICATION PRIOR TO THE COMMENCEMENT OF THE TENDER OFFER.
COMPTEK RESEARCH, INC. SECURITY HOLDERS SHOULD READ THE TENDER
OFFER STATEMENT WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN
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STATEMENT WHEN FILED AND OTHER FILED DOCUMENTS AT NO CHARGE AT
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Note: This transcript contains forward-looking statements
concerning, among other things, the company's expectations as to
the financial results of this transaction and the future results
of operations, deliveries, trends, cash flows, markets and
programs are projections and are necessarily subject to various
risks and uncertainties. Actual outcomes are dependent upon the
company's successful performance of internal plans, government
customers' budgetary restraints, customer changes in short-range
and long-range plans, domestic and international competition in
both the defense and commercial areas, product performance,
continued development and acceptance of new products, performance
issues with key suppliers and subcontractors, government import
and export policies, termination of government contracts,
political processes, legal, financial and governmental risks
related to international transactions and global needs for
military and commercial aircraft and electronic systems and
support as well as other economic, political, and technological
risks and uncertainties and other risk factors set out in the
company's filings from time to time with the Securities and
Exchange Commission, including, without limitation, the company's
report on form 10-K.
Northrop Grumman, #743992
June 12, 2000, 10:00 a.m., PDT
Moderator: Gaston Kent
Operator Good morning, ladies and gentlemen, and welcome to
the Northrop Grumman conference call. At this time
all participants are in a listen only mode. Later we
will conduct a question and answer session and
instructions will follow at that time. If anyone
should require assistance during the call, please
press the star followed by the zero on your
touchtone phone. As a reminder, ladies and
gentlemen, this conference is being recorded.
I would now like to introduce your host for today's
conference, Mr. Gaston Kent. Please go ahead, sir.
G. Kent Thank you very much, Jennifer, and welcome, ladies
and gentlemen. For the financial community, please
be advised that there may be may be press on the
call today. The purpose for this conference call is
to give you information regarding our two
announcements this morning about the sale of
Northrop Grumman's Aerostructures business to the
Carlyle Group and our acquisition of Comptek
Corporation. Our comments will be relatively short
and then we'll go to a Q&A session. We'll be
reviewing the proposed transactions and their
implications for our expectations for the year and
beyond.
Before we start we would like you to understand that
some of the matters and especially expectations
discussed on this call constitute forward looking
statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These
statements reflect the company's views with respect
to future events and prospective financial
performance. Forward looking statements involve
risks and uncertainties and the actual results of
the company may vary materially from the results
expressed or implied by the forward looking
statements. A more complete expression of these
risks and uncertainties is contained in the
company's filings including the Form 10-K and Forms
10-Q among others. Particular attention should be
paid to the MD&A sections of these filings.
With that I'll turn this conference call over to our
Chief Financial Officer, Dick Waugh. Dick?
D. Waugh Thank you, Gaston, and good morning, everyone. I
want to welcome you and thank you for joining us
today on such short notice. I will go over our
strategy for the sale of Aerostructures and the
acquisition of Comptek and how they fit into our
overall strategic direction for the company. I will
also give you a perspective on the transactions and
their implications for the future.
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NORTHROP GRUMMAN PAGE 1
The Carlyle Group is a well recognized player in the
commercial Aerostructures arena with an aerospace
defense portfolio already in excess of $4 billion in
revenues. We expect this transaction to close within
the next 30 days following normal government
reviews. From a financial reporting perspective we
are selling what we call our Aerostructures
business. As most of you know, this includes all of
our commercial Aerostuctures work performed for
Boeing, as well as the C-17 Globe Master and the
integrated wing for the Gulf Stream IV business jet.
Let me add that I am pleased to report that Carlyle
officials have stated that most of the workforce,
approximately 6,000 commercial Aerostructures
employees, will be retained.
We also announced today that we have signed a
definitive agreement to acquire Comptek Research,
Inc.. of Buffalo, New York, in a stock for stock
transaction. The acquisition of Comptek Research, an
electronic warfare and information dominance company
with 2000 revenues of $145 million, supports
Northrop Grumman's continuing strategic thrust into
electronic battle management, C4I and information
warfare. I'll discuss the financial elements of
these transactions in more detail in a moment.
Nearly a decade ago we developed a business plan to
reposition Northrop Grumman for post cold war
defense spending and the rapidly evolving advances
in defense electronics and information technology.
Our growth strategy was and continues to be focused
on strategic acquisitions in these new business
areas as well as on superior performance from
existing businesses. Today's announcements provide
continuing proof of how we are sharpening our
company's strategic focus on high growth business
areas that not only enhance shareholder value, but
also we believe are certain to play integral roles
in meeting the future needs of our customers.
While commercial Aerostructures is a solid business
and has been and can be very profitable, it is not
where we are focusing our growth today. As Ken Kresa
and I have communicated to you, our growth is
focused on select high growth business areas:
defense electronics, information technology and
systems integration which includes manned and
unmanned military aircraft, design and development.
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NORTHROP GRUMMAN PAGE 2
The aerostructures transaction is an important
strategic move for Northrop Grumman and will provide
the company with additional cash, adding to an
already strong balance sheet. These additional
financial resources will allow us to grow our core
business both internally and through select
strategic acquisitions. And although we do not
comment on M&A activities today's announcement
demonstrates that we routinely evaluate and when
appropriate, aggressively pursue acquisitions that
provide an excellent strategic fit for our main
growth engines.
Following the sale, ISA will be renamed the
Integrated System Sector or ISS, to more accurately
reflect its ongoing business operations as a leader
in systems integration, battle management and
unmanned aerial vehicle systems. The sector will
also relocate its headquarter staff to the
Washington, D.C., metropolitan area later this year
in an effort to be closer to our primary customers.
As most of you know, key sector programs include
Joint STARS, F/18 ES Super Hornet, UAVs including
the Global Hawk, B2 Spirits self bomber, D2C and the
EA-60 Prowler.
The acquisition of Comptek is an excellent strategic
fit and enhances our leadership position in advanced
battle management and EW Systems integration.
Comptek's expertise in electronic warfare simulation
and stimulation, threat analysis, mission planning
and precision targeting will help create exciting
new business opportunities for us. Comptek employs
approximately 1,200 employees across the U.S. and
Canada and provides military systems and services to
meet the needs of its national and international
defense customers. The company's major business
areas include tactical systems, EW
stimulation/simulation and technical services. These
business areas will be integrated into the operating
elements of Northrop Grumman Corporation. Today's
announcements are certainly a promising next step in
Northrop Grumman's evolution as a leader in defense,
aerospace and cyberspace.
I'd like to now walk you through the financials of
today's announcements. Starting with the
Aerostructure sale, the total value of the
transaction is $1.2 billion, comprised of $843
million in cash and securities and the assumption by
the acquirer of approximately $400 million of post
employment benefit liability. This assumption of
liabilities is an important component of the
valuation. It significantly lowers the cash expense
of the corporation to fund these liabilities into
the future. Unlike our non-cash using pension fund,
this liability must be covered by cash from
operations. In the case of Aerostructures. the
annual cash outlay is over $30 million per year. The
$400 million figure is the actuarial calculation of
the present value of their cash stream. Had Northrop
Grumman retained the liability for these costs, the
total valuation of the transaction most likely would
have been the same, just in a different form.
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NORTHROP GRUMMAN PAGE 3
The assumption of pension liability is significantly
different. For pension the liability is satisfied
largely from existing trust funds. Sufficient funds
will be transferred to the new entity trust to
adequately cover the corresponding liabilities;
however, there is no cash impact to Northrop
Grumman. The impact of the sale on Northrop Grumman
from truly a financial standpoint is that we will
have about $1.2 billion less sales this year than we
otherwise would. Aerostructure's operating results
including sales and operating margin for the prior
periods and through the closing will be reclassified
and included in discontinued operations for
financial reporting purposes.
It is too early to tell whether we will report an
overall gain or loss on this transaction. There
will in all likelihood be a pretax gain on the sale,
but it will have very little impact on the bottom
line because a significant amount of goodwill that
has been assigned to this operation will be written
off and is nondeductible for tax. You should
understand that we cannot give you absolute numbers
until after the transaction closes. Because we will
be transferring assets out of the Northrop Grumman
pension trust to the new entity, we will be required
to revalue the fund after closing so there will in
all likelihood be some movement up or down from that
revaluation which incidentally will also affect the
run rate for pension income for the balance of this
year. Even if the transaction closes in 30 days, we
would not expect to have final numbers for some time
after that. Therefore we expect to report the final
accounting and restated pension income rate in our
third quarter results.
Going forward, we will obviously lose the
anticipated margin on the business being sold, but
we will have a reduction in interest expense and an
increase in interest income. These elements
essentially wash for this year.
Largely to reflect our decision to realign and move
the remainder of the integrated systems sector
headquarters, we now expect that our EPS for the
year will be in the range of $8.80 to $9.30. This
range also includes consideration for the Comptek
acquisition. We anticipate expenses for the
realignment and moving of this sector on the order
of $70 million this year. The timing of these costs
will be refined as we further define and implement
these plans.
From a balance sheet perspective, we will obtain
$665 million cash from this transaction, lowering
net debt. The face value of the security instrument
is $175 million. I anticipate that this value will
be discounted on our balance sheet, but it's not yet
known to exactly what extent. The total stated value
for the transaction of approximately $1.2 billion
takes such a discount into consideration. Net PP&E
will decrease by about $280 million. Working
capital, excluding cash, will decrease by about $570
million. Goodwill and other intangibles will
decrease by about $160 million of which $125 million
is nondeductible. The post employment benefit
liability will decrease, as we stated, by about $400
million.
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NORTHROP GRUMMAN PAGE 4
Now regarding the Comptek transaction. Stockholders
of Comptek will receive for each share of Comptek
common stock a fraction of a Northrop Grumman share.
The amount will be determined by dividing $20.75 by
the average closing price for Northrop Grumman
common stock during the 20 trading days and ending
two business days before the mailing date of the
exchange materials to contact shareholders. In no
event will the exchange ratio be more than .2804:1
or less than .2470:1. Should the average closing
price of Northrop Grumman common stock be less than
$74 per share during this 20 day period, Comptek has
the right to terminate the transaction subject to
Northrop Grumman's discretionary right to adjust the
value.
These transactions allow us to better focus on the
growth areas of business we have been pursuing for
the last several years. Looking forward, our 2003
target for revenues is now about $10.5 billion,
representing an implied compound growth rate of over
11% from continuing operations. Next year we expect
to grow from this year's $7.6 billion in sales to
about $8.4 billion. And we expect earnings per share
from continuing operations to grow in the low double
digits over this year's range of $8.80 to $9.30,
holding pension income constant with this year's
$600 million. Maybe even more significantly for
2001, EBITDAP, our internal acronym for earnings
before interest, taxes, depreciation, amortization
and pension income, should be up by over 20%.
Now I know that you all have one common question.
What are the company's plans for the use of cash?
The answer to that is whatever creates the greatest
long term value for our shareholders. We continue to
evaluate the marketplace for strategic acquisitions
which will bring greater returns to our shareholders
and our cost of capital. But we all understand and I
can't entertain any question regarding specific
properties which might or might not be of interest
to Northrop Grumman.
With the sale of Aerostructures, Northrop Grumman
will be a significantly different company with a
significantly different business profile. This
represents a definitive change to the product mix
going forward. Aerostructures carries with it the
wonderful heritage and a lot of friends, but we
believe this is the right thing to do for Northrop
Grumman. Obviously Carlyle needs a talented and
energetic workforce to be successful and therefore
they will do what they believe is in the best
interest of their employees. We believe this
transaction makes for a stronger Northrop Grumman
that can now focus on our long term strategic
objectives in defense electronics, systems
integration, including military aircraft, design and
development, and information technology.
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NORTHROP GRUMMAN PAGE 5
With that, I will turn this back over to Gaston for
your questions.
G. Kent Thank you, Dick. Jennifer, we're ready for Q&A now.
Operator Thank you, Mr. Kent. Ladies and gentlemen, at this
time if you have a question, you will need to press
the one on your touchtone phone and you will hear a
tone acknowledging your request. Your questions
will be taken in the order that they are received.
If your question has already been answered, you may
remove yourself from queue by pressing the pound
key. Also, if you are using a speakerphone, please
pick up your handset before pressing the buttons.
One moment please for the first question.
Cai Von Rumohr, please state your company name
followed by your question.
C. Von Rumohr SG Cowan. Good transaction, guys. Can you give us
some of the specifics regarding how much
depreciation you would lose both taxable and
nontaxable on an annualized basis from the sale of
Comptek, excuse me, from the sale of
Aerostructures?
D. Waugh Cai, quite frankly, I don't have those numbers here
with me. We gave you the goodwill which is about ...
goodwill and amortization is about $160.
C. Von Rumohr And then the term over which that's amortized?
D. Waugh It's over 40 years for the goodwill part, for the
goodwill piece.
C. Von Rumohr But the nontaxable I thought was over 15. A
shorter period?
D. Waugh The purchased intangibles is over a shorter period,
right.
K. Kresa I think we've been running on average about $6
million a year from this operation.
C. Von Rumohr In goodwill? Okay, I'll follow up on that. The
$8.4 billion of revenue in '01, does that include
Comptek?
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NORTHROP GRUMMAN PAGE 6
D. Waugh I'm sorry, Cai, I was over-speaking you. Would you
repeat that again?
C. Von Rumohr Yes, your revenue guidance for '01 of $8.4 billion,
does that include Comptek?
D. Waugh Yes.
C. Von Rumohr That does include Comptek?
D. Waugh Yes.
C. Von Rumohr Okay and the 20% plus gain in EBITDAP excludes
Aerostructures from both years and includes
Comptek from the point of acquisition?
D. Waugh Yes.
C. Von Rumohr Okay great. Thanks a lot.
Management You're welcome. Thank you.
Operator Rusty Raykov, please state your company name
followed by your question.
R. Raykov Tiedemann Investment Group. Congratulations on the
transaction, guys.
K. Kresa Thank you.
R. Raykov I've just got a quick question regarding the
acquisition today. I understand they're expecting a
couple of pretty big contracts actually, one from
Australia and one from Malaysia. Say, for some
reason that those contracts don't come in in a
reasonable timeframe here, did we in our evaluation
for the company, did we expect those contracts to
come in or that was excluded from the evaluation?
K. Kresa Let me say we've taken into account a wide number of
contracts and we put our own probability on those in
terms of whether they're going to be awarded and our
chance of getting them. I really can't specifically
speak to these two particular contracts you're
talking about. Obviously our team looks at the whole
portfolio they have and then gives their best
estimate of what's the sales and acquisitions are
going to be. I really can't speak to those two
contracts. I'm sorry.
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NORTHROP GRUMMAN PAGE 7
R. Raykov Right, but it is a condition to the transaction?
K. Kresa No.
R. Raykov When are you guys filing the proxy?
K. Kresa They file the proxy. We would expect that they'll
file their proxy as soon as they can. You'll have to
speak to them as to how soon they expect to file
their proxy.
R. Raykov Thank you.
G. Kresa Okay, thank you.
Operator Sam Pearlstein, please state your company name
followed by your question.
S. Pearlstein First Union. The $70 million worth of cost to move
the headquarters, is that all cash?
G. Kresa Yes, it will be all cash at some point, yes.
S. Pearlstein But I mean is that all in 2000, is that a use of
cash?
G. Kresa Well that's one of the things we're studying. Our
estimate at this point in time, yes it is, and it's
in the guidance that we're giving you that yes it
is. To the extent that something slides over in
2001, then obviously there'll be some adjustments
between this year and next year, but our guidance
... we're assuming, if you will, that we spend it
all this year.
S. Pearlstein Okay and the Aerostructure's business in total,
was it cash flow positive?
G. Kresa Yes, I believe it was cash flow positive, yes.
S. Pearlstein Okay and then when you removed the nondeductible
goodwill, what does the ongoing tax rate look like
for the company?
K. Kresa I quite frankly don't have that number, but it
shouldn't be that big a ... it shouldn't affect it
that much at all. I don't know if it'll move it even
a couple hundreds of points. It's not ...
S. Pearlstein Okay and the post-retirement benefits that you
were paying for Aerostructures, was that included
within the segment reporting or would that have
shown up in a corporate line?
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NORTHROP GRUMMAN PAGE 8
K. Kresa No, it was in the segment.
S. Pearlstein Okay, so when we net that out, we wouldn't be
moving it from another line? And then do you have
any estimate in terms of what the cash proceeds
for the sale will be after you make a tax payment?
Should there be a gain?
K. Kresa Yes, we're estimating somewhere around $550 million.
That's net of the taxes we're going to owe.
S. Pearlstein Thank you.
K. Kresa And the transaction costs. I'm being corrected here.
G. Kent Let me also say with regards to Cai, if he's still
on, I've been notified that our deprecation expense
for Aerostructure's been running about $35 million a
year. Okay, next question, please.
Operator Byron Callan, please state your company name
followed by your question.
B. Callan Merrill Lynch. Hi, Dick, congratulations.
D. Waugh Thanks, Byron.
B. Callan Sam touched on this but I just want to kind of roll
up all the cash flow implications for the
transactions. You guys had offered some prior
guidance on cashflow for 2000. Has that changed as a
result of these?
D. Waugh No, we would expect to still achieve our cash ...
well obviously we're going to better this year in
cash than what we otherwise expected because of the
proceeds that were received ...
B. Callan Oh, yeah, yeah. No, I'm thinking from a cash from
operations, less cap ex type of number because it
sounds like you've got a little bit of pension cost
savings on this. You mentioned the $30 million.
D. Waugh Again, that isn't pension, that's OPED.
B. Callan OPED, yeah, okay. And then you've got the $70 million
outlay but that'll probably be spread ...
some of that'll hit in 2001 and then ...
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NORTHROP GRUMMAN PAGE 9
D. Waugh Let me say it wouldn't move the needle enough for us
to change our guidance.
B. Callan Okay fine, and then just one other question on
Comptek. Will that be run as a freestanding
subsidiary or are you just going to fold that into
ESS or is that going to be kind of parceled up and
... I mean there are a couple of different divisions
or operations they have that really kind of dovetail
nicely with the three separate organizations of the
company, but I'm curious if you're going to continue
to kind of operate Comptek as a free standing
subsidiary.
D. Waugh Quite frankly we're studying that at this point.
B. Callan Okay, great.
Management Thank you, Byron.
Operator Steve Binder, please state your company name
followed by your question.
V. Davidson This is Valerie Davidson from Bear Sterns. Are you
retaining any over-funded pension assets? Or will
all the over-funded pension assets be transferred
with the sale?
K. Kresa Oh, no, we've got a surplus of $4 billion in there.
Heavens no. What we're transferring is the amount of
assets associated with this operation, what we would
see as their prorata share.
V. Davidson Okay, so all the over-funded pension assets
associated with this operation is going with Carlyle
though?
K. Kresa No, it's not the full funding, it's not the full
amount, no. It's what we see as the value of the
liabilities going forward as we and our customer
would view the full value of the liabilities going
forward.
So in that context we're not transferring any
"surplus."
V. Davidson Okay, the 50 cent decrement to earnings, is that in
2001, the decreased earnings because of the sale of
ISA?
D. Waugh Yeah we will have some decreased earnings next year.
But we say the guidance on the 70 is associated with
this year.
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NORTHROP GRUMMAN PAGE 10
V. Davidson Right, for next year though, the decrease in
earnings associated with the sale of the business,
what portion of that is offset by Comptek?
D. Waugh What portion if offset by Comptek?
V. Davidson Right, what will the Comptek transaction add next
year to earnings?
D. Waugh Well I'm not sure we're going to speak to what we
expect our Comptek earnings to be next year. You
know that's almost getting into a business area for
this point in time in terms of the context of
Northrop Grumman.
K. Kresa We obviously don't have the margin on the
Aerostructure's business next year that we otherwise
planned. That's why the guidance is slightly
different than it was before.
D. Waugh Kresa And let me say, we envision the margin rates
going up next year on the Aerostructure's
business. That was our plan.
V. Davidson Okay, thank you.
Operator Bryon Callan of Merrill Lynch, please state your
follow up question.
B. Callan Yeah, Dick, can you go a little bit through the
background of the Aerostructure's transaction? Was
this kind of a formal auction process, was this
something just negotiated with the Carlyle Group?
Could you elaborate on that?
D. Waugh Well I will say that we took into account who we
thought were qualified candidates, qualified buyers.
I don't know if I want to go into the full
background, but I will say that we were standing
ready with a full auction.
B. Callan Okay and then just going forward you've talked about
capital structure, you're comfortable kind of in the
40% range. Has that changed in any way, shape or
form, a debt to capital ratio of 40%?
D. Waugh No, I don't know why.
B. Callan Okay, thought I'd ask. That's all.
D. Waugh Okay. Thank you.
Operator Sam Pearlstein of First Union, please state your
question.
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NORTHROP GRUMMAN PAGE 11
S. Pearlstein Can you just tell us a little bit more about what
the security you're going to be receiving in the
transaction is?
D. Waugh Yes, it's a debt instrument, it's a short term
instrument and if I recall correctly it's payment in
kind for the first four years and then we'll start
to earn interest and I believe the note is, the
duration of the note is seven years.
S. Pearlstein Can you turn it into ... can you liquidate it
earlier?
D. Waugh Yes, we can trade the security any time we care to.
We're not limited in any way with regards to trading
it.
S. Pearlstein Okay and when you re-baseline the pension later in
the year, does this change at all in terms of some
of the assumptions with regard to the moving
average over the return of the pension or any of
the underlying assumptions as to why it might be a
significant change?
D. Waugh Are you asking whether we'd be changing any of our
assumptions that we currently have? At least I'm
going to restate your question that way so I can
answer it. The assumptions that we currently have
quite frankly we haven't sat down to go through
whether or not we'd change any of those, but I'm not
aware of why we would change any at this point in
time. We've have to take a close look at the
interest element to see if there's anything that's
changed there. But I don't think that we'd be
changing anything at this point in time, but again,
it's not ... I really haven't focused on that piece
at this moment.
S. Pearlstein Okay, thank you.
Operator Ladies and gentlemen, if there are any additional
questions, please press the one at this time.
Remember to pick up your handset before doing so.
Greg Tuorto, please state your company name followed
by your question.
G. Tuorto [Tocqueville] Good morning, gentlemen. It's an
interesting day. That's two deals in one day.
D. Waugh Thank you.
G. Tuorto I'm sure you guys are busy. Quick question on the
contact. If you could just ... I know a little bit
about the company, I'm sure everybody knows a little
bit about the company. Could you give us some detail
on some of their major programs that attracted you
to them and if you could, a word on how they kind of
fit in with some of the electronics programs you do
for your major customers?
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NORTHROP GRUMMAN PAGE 12
D. Waugh Insofar as program, that's a little tough.
G. Tuorto Technologies.
D. Waugh The technologies really are EW, when you get down to
it, EW and EW simulation and stimulation and the
various, both hardware, integrated systems and
information technology that flows around that.
That's sort of the easiest way to describe them.
They sort of look like a little mini us almost in
that aspect, although they're sort of a level down
the food chain.
G. Tuorto In what respect down the food chain? Do they deal
with ... a unit level down the food chain or is it
just where the application fits into the war
fighters planning?
D. Waugh Quite frankly, they supply us and a number of other
contractors with threat simulations, analysis and we
all, the whole industry relies on them for the kind
of work that they do.
K. Kresa Let me tell you, I happened to look at their webpage
recently. They have a very nice webpage. You might
want to look at it.
G. Tuorto I was on it this morning. I just wanted to get a
little bit more from you guys. Well thanks a lot,
gentlemen.
D. Waugh You're welcome.
Operator George Shapiro, please state your company name
followed by your question.
G. Shapiro Salomon Smith Barney.
Management Good morning, George.
G. Shapiro Good morning. Are there any profit on profit issues
with Comptek because they're a supplier to you on
some programs?
D. Waugh Well let me say obviously for existing contracts
there shouldn't be, but as we go forward there could
be some minor overlap. But of course that's not
taking into account, if you will, what we hope to
gain in terms of top line synergies either.
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NORTHROP GRUMMAN PAGE 13
G. Shapiro Okay and then on the earnings guidance, Dick, I
missed part of what you said for next year relative
to this year.
D. Waugh Well we said that we expect to have healthy double-
digit earnings year-over-year.
G. Shapiro Okay and that's off of the 880?
D. Waugh Yes, that's off of the 880s and 930 spread that we
would expect to have healthy double-digit for next
year.
G. Shapiro Okay, thanks very much. Congratulations.
Management Thank you, George.
Operator Louis Meyer, please state your company name followed
by your question.
L. Meyer ING Asset Management. I had a quick question on the
Comptek transaction. Is there going to be a
shareholders vote required or is this an exchange
offer? It wasn't clarified in the press release.
D. Waugh Let me say it's a straight tender offer.
L. Meyer It's a straight tender offer?
D. Waugh Yeah, so they'll be voting with their shares.
L. Meyer Okay, thank you very much.
D. Waugh Thank you.
Operator Mangipudi Rao, please state your company name
followed by your question.
M. Rao First Union Securities. I missed the first part of
the call. I don't know if you already mentioned, but
if you expect better margins for the Aero Tech
business, what is the rationale for getting out of
the business because as the Asian countries start
getting their feedback and then they start growing,
you expect better orders for Boeing and of course
better business for you, so is there's a rationale
for this transaction?
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NORTHROP GRUMMAN PAGE 14
D. Waugh Let me say that you know, typically you don't sell
things that make money and it falls in your
strategic focus and you sell things that aren't
making money. But I will say to you that we in
essence looked at our strategic focus for the future
and to the extent that we see an expanding value and
if you will, the others and more importantly, the
buyers see an expanding value, that expanding value
is reflected in the sales price that you get for the
unit, so hopefully you're selling things that do
have bright prospects because that's the only way
you're going to get value from them.
M. Rao Excuse me, is this sort of redeploying your assets
or your investments?
D. Waugh Yes, in other words we took a look at our allocation
of resources and where we want to go in the future
and we believe that this is ... as you know, we've
changed this company dramatically over the last
eight to ten years and we're not stopping.
M. Rao Okay, thank you.
D. Waugh You're welcome.
Operator Bill Shiland, please state your company name
followed by your question.
B. Shiland Dalton Management. Taking off from your last answer,
does this mean that you're going to continue to make
acquisitions in the electronic warfare area?
D. Waugh Well I think we've stated as our policy and I think
I even stated in my prepared text that we do
actively look at what opportunity sets exist out
there and to the extent that we think it fits our
strategic direction for the company and enhances the
products that we can deliver to our customers, so we
take a very serious look at those things.
B. Shiland So we should expect more acquisitions along this
line?
D. Waugh I would say that if there are things that fit in
that kind of category for the right value, I guess
our history would demonstrate where we're going in
the future.
B. Shiland Great. Thank you very much.
D. Waugh Thank you.
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NORTHROP GRUMMAN PAGE 15
Operator Byron Callan of Merrill Lynch, please state your
follow up question.
B. Callan My question's been answered. Thank you.
Operator Rusty Raykov, please state your follow up question.
R. Raykov Hi, I just wanted to clarify one thing very quickly.
You said it was a merger because they were the ones
that had to send us a proxy. Now you also said that
it's an exchange offer. It's a little unclear. If
it's an exchange offer, aren't you guys sending out
information to us? Which one is it? Is it a full
blown merger or would it be an exchange offer for
your shares?
D. Waugh It's an exchange offer.
R. Raykov So therefore you would be the ones sending the
information and therefore when would the exchange
offer begin?
D. Waugh Well we're going to have to file ... quite frankly I
don't know the niceties of this at this point, so
I'm not going to try to struggle through it. We
would expect in a couple of weeks.
R. Raykov Okay well ... I'll call your investor relations
department afterwards and clarify that a little bit.
D. Waugh That'd be fine.
R. Raykov Thank you.
D. Waugh Thank you.
Operator Bill Shiland, please state your follow up question.
B. Shiland I forgot to ask you one more question. Would there
be a debt impact from all this buying and selling or
would you reduce the [inaudible] proceeds? Are you
assuming any debt of [inaudible]? What will be your
debt position?
D. Waugh Any cash we get, we apply to debt. And we only do
things going forward if it makes sense in terms of
the utilization of that, of our balance sheet, if
you will. So out of the box it's obviously going to
go to reduce our debt going forward.
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NORTHROP GRUMMAN PAGE 16
B. Shiland Are you expecting any improvement in your ratings
because of this change and because of getting out of
the Aerostructures business? Did you talk to the
rating agencies, by any chance?
D. Waugh Well I don't want to say anything of what we expect
from the rating agencies. You probably need to check
with them on what our expectations are. I must quite
frankly say personally I would have expected maybe
some change even prior to this.
B. Shiland Alright, thank you.
D. Waugh Thank you.
Operator Once again, ladies and gentlemen, if there are any
other questions, please press the one at this time.
Remember to pick up your handset before doing so.
One moment please.
Mr. Kent, there are no further questions at this
time. Please continue with any closing comments.
G. Kent Well I want to thank everybody for joining us. It's
an exciting day for Northrop. Clearly it's an
exciting day for Carlyle and our Aerostructures
Group and we hope it's an exciting day for Comptek.
We want to welcome them to our company and we see
them as an extremely valuable component that's going
to enhance the value of Northrop Grumman overall and
I will say that as I've been saying here that
Northrop Grumman is an active company that's trying
to position itself for a long term future and to
grow the value of our company for our shareholders
and management is dedicated to doing that. And with
that I thank you all.
Operator Ladies and gentlemen, that does conclude our
conference for today. You may all disconnect and
thank you for participating.
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NORTHROP GRUMMAN PAGE 17
Investors and security holders are advised to read the
prospectus to be filed by Northrop Grumman Corporation
with the Securities and Exchange Commission regarding
the business combination transaction referred to in the
foregoing information when the prospectus becomes
available because it will contain important
information. Investors and security holders may obtain
a free copy of the prospectus (when available) and
other related documents filed by Northrop Grumman
Corporation and Comptek Research, Inc. at the
Commission's website at www.sec.gov. The prospectus
and the other documents may also be obtained by
contacting Northrop Grumman Corporation, 1840 Century
Park East, Los Angeles, CA 90067, Attn: Office of the
Secretary.