* Sales Increase 4 Percent to $8.96 Billion * GAAP EPS from Continuing Operations of $1.21 * 2009 GAAP EPS Guidance Confirmed at $4.65 to $4.90 * Pension-adjusted EPS Increase 7 Percent to $1.36 * Cash from Operations of $830 Million * Free Cash Flow of $676 Million * 5.8 Million Shares Repurchased
LOS ANGELES - July 23, 2009 - Northrop Grumman Corporation (NYSE: NOC) reported that second quarter 2009 earnings from continuing operations totaled $394 million, or $1.21 per diluted share, compared with $483 million, or $1.40 per diluted share, in the second quarter of 2008. Second quarter 2009 net pension adjustment (FAS/CAS) reduced earnings from continuing operations by $49 million, or $0.15 per diluted share, compared with an increase to earnings from continuing operations of $45 million, or $0.13 per diluted share, in the second quarter of 2008.
Second quarter 2009 earnings included a net $64 million pre-tax gain, or $0.13 per diluted share, for legal matters, as well as a $105 million pre-tax charge, or $0.21 per diluted share, for cost increases in the estimates to complete several ships under construction at the company's Gulf Coast shipyards.
Sales for the 2009 second quarter increased 4 percent to $8.96 billion from $8.63 billion in the 2008 second quarter. Second quarter 2009 sales were reduced by $100 million due to the estimate to complete adjustments in Shipbuilding. In the 2009 second quarter, $830 million of cash was provided by operations, compared with $607 million of cash provided by operations in the prior year period.
"Overall, our portfolio continues to perform well. This quarter's financial results reflect higher pension costs and the aggressive actions we are taking to drive improvement in our Gulf Coast shipbuilding programs. Our year-to-date performance is on-track and we are confirming our 2009 guidance for sales, EPS and cash generation," said Ronald D. Sugar, chairman and chief executive officer.
Financial Highlights
--------------------
($ in millions except
per share amounts) Second Quarter Six Months
------------------ --------------------
2009 2008 2009 2008
------------------ --------------------
Sales $ 8,957 $ 8,628 $ 17,277 $ 16,352
Segment operating income(1) $ 719 $ 784 $ 1,510 $ 1,242
as a % of sales 8.0% 9.1% 8.7% 7.6%
Operating income $ 653 $ 806 $ 1,308 $ 1,270
as a % of sales 7.3% 9.3% 7.6% 7.8%
Diluted EPS from continuing
operations $ 1.21 $ 1.40 $ 2.38 $ 2.15
Average diluted shares
outstanding, in millions 325.8 344.1 328.9 346.7
Cash provided by operations $ 830 $ 607 $ 658 $ 801
Free cash flow(2) $ 676 $ 431 $ 324 $ 447
(1) Segment operating income is a non-GAAP measure used as an
internal measure of financial performance for the five
sectors and is reconciled to operating income in the "Business
Results" table presented later in this press release.
(2) Free cash flow is a non-GAAP measure defined as cash from
operations less capital expenditures and outsourcing contract
& related software costs. Management uses free cash flow as
an internal measure of financial performance. Free cash flow
is reconciled to cash from operations in the "Cash Flow
Highlights" table presented later in this press release.
Operating income for the 2009 second quarter totaled $653 million compared with $806 million in the prior year period. The change reflects a $145 million increase in net pension expense and a $112 million decrease in Shipbuilding operating income, which were partially offset by a $64 million improvement in unallocated expenses principally due to the settlement of certain legal matters. As a percent of sales, operating income declined to 7.3 percent from 9.3 percent in the prior year period.
As reconciled below, pension-adjusted operating income totaled 8.1 percent of sales for the second quarter 2009 compared with 8.5 percent of sales for the second quarter 2008. Second quarter 2009 pension-adjusted earnings per share from continuing operations increased 7 percent to $1.36 from $1.27 for the prior year period.
Federal and foreign income taxes for the 2009 second quarter declined to $202 million from $256 million in the second quarter of 2008. The effective tax rate applied to earnings from continuing operations for the 2009 second quarter was 33.9 percent compared with 34.6 percent in the 2008 second quarter.
Earnings per share are based on weighted average diluted shares outstanding of 325.8 million for the second quarter of 2009 and 344.1 million for the second quarter of 2008. During the second quarter of 2009 the company repurchased approximately 5.8 million shares of its common stock.
New business awards totaled $7.5 billion in the second quarter 2009. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $70.4 billion as of June 30, 2009, compared with $76.9 billion at March 31, 2009. During the second quarter the U.S. government terminated for convenience the Kinetic Energy Interceptor program. As a result of the termination, total backlog was reduced by $5.1 billion.
Pension-adjusted Results
------------------------
($ in millions except per
share amounts) Second Quarter Six Months
---------------- ------------------
2009 2008 2009 2008
---------------- ------------------
Sales $ 8,957 $ 8,628 $ 17,277 $ 16,352
Operating income $ 653 $ 806 $ 1,308 $ 1,270
as a % of sales 7.3% 9.3% 7.6% 7.8%
Net pension adjustment(1) 76 (69) 152 (128)
------- ------- -------- --------
Pension-adjusted operating
income(2) $ 729 $ 737 $ 1,460 $ 1,142
Pension-adjusted operating
margin %(2) 8.1% 8.5% 8.5% 7.0%
Earnings from continuing
operations $ 394 $ 483 $ 783 $ 746
Net pension adjustment,
after-tax 49 (45) 99 (83)
------- ------- -------- --------
Pension-adjusted earnings from
continuing operations(3) $ 443 $ 438 $ 882 $ 663
Diluted EPS from continuing
operations $ 1.21 $ 1.40 $ 2.38 $ 2.15
Net pension adjustment 0.15 (0.13) 0.30 (0.24)
------- ------- -------- --------
Pension-adjusted diluted EPS
from continuing operations(4) $ 1.36 $ 1.27 $ 2.68 $ 1.91
Weighted average diluted shares
outstanding, in millions 325.8 344.1 328.9 346.7
----------------------------------------------------------------------
(1) Net pension adjustment is a non-GAAP measure defined as
pension expense determined in accordance with GAAP less
pension expense allocated to the business segments under
U.S. Government Cost Accounting Standards.
(2) Pension-adjusted operating income and margin % are non-GAAP
measures defined as operating income before net pension
adjustment and as a % of sales. Both are reconciled above.
Management uses pension-adjusted operating income and margin
% as internal measures of the financial performance of the
company.
(3) Pension-adjusted earnings from continuing operations is a
non-GAAP measure defined as earnings from continuing
operations excluding net pension adjustment, after-tax at
the statutory rate of 35%. Management uses pension-adjusted
earnings from continuing operations as a performance metric
for operating results.
(4) Pension-adjusted diluted EPS from continuing operations is
a non-GAAP measure defined as diluted EPS from continuing
operations available to common shareholders excluding net
pension adjustment, after-tax at the statutory rate of 35%.
Management uses pension-adjusted diluted EPS as a performance
metric for operating results.
Cash Flow Highlights
--------------------
Second Quarter Six Months
----------------------- -------------------------
($ millions) 2009 2008 Change 2009 2008 Change
----------------------- -------------------------
Before
discretionary
pension
pre-funding $ 742 $ 607 $ 135 $ 784 $ 801 $ (17)
Discretionary
pension
pre-funding
impact 88 88 (126) (126)
----------------------- -------------------------
Cash provided
by operations 830 607 223 658 801 (143)
Less:
Capital
expenditures 135 134 (1) 297 277 (20)
Outsourcing
contract
& related
software
costs 19 42 23 37 77 40
-----------------------------------------------------
Free cash
flow $ 676 $ 431 $ 245 $ 324 $ 447 $(123)
Discretionary pension pre-funding impact is the impact to cash
provided by operations resulting from the company's discretionary
pension contributions. The company made a discretionary pension
contribution of $214 million in the first quarter of 2009, and
anticipates total discretionary pension contributions of $500
million for the year. Cash income taxes were reduced by $88
million in the second quarter of 2009, for these anticipated
contributions resulting in a net impact to cash provided by
operations of $126 million through June 30, 2009.
Cash provided by operations in the 2009 second quarter totaled $830 million compared with $607 million in the prior year period. The improvement is due to lower working capital than in the prior year period. Second quarter 2009 free cash flow totaled $676 million compared with free cash flow of $431 million in the prior year period.
Cash Measurements, Debt and Capital Deployment
----------------------------------------------
($ millions) 6/30/2009 12/31/2008
---------------------------------------------------------------------
Cash & cash equivalents $ 1,056 $ 1,504
Total debt 3,868 3,944
Net debt(1) 2,812 2,440
Net debt to total capital ratio(2) 18% 15%
(1) Total debt less cash and cash equivalents.
(2) Net debt divided by the sum of shareholders' equity and
total debt.
Changes in cash and cash equivalents include the following cash deployment and financing actions during the quarter:
* $273 million for share repurchases * $135 million for capital expenditures and $19 million for outsourcing contract and related software costs * $138 million for dividends * $72 million principal payments of long term debt * $33 million for businesses purchased, net of cash acquired
Settlement of Legal Matters
As previously reported, on April 2 the company reached an agreement with the U.S. government to settle two legal matters: the Department of Justice's microelectronics claim and the company's claim against the U.S. government related to the award, performance and termination of the Tri-Service Standoff Attack Missile (TSSAM) program. While the stated settlement amounts for the two claims were equal and therefore offset each other, the company had previously recorded a provision for the microelectronics claim. After legal costs and provisions for litigation matters, the company recorded a net pre-tax gain of $64 million in the 2009 second quarter.
2009 Guidance Confirmed
------------------------
Sales ~$34.5B
Diluted EPS from continuing operations $4.65 - $4.90
Cash from operations* $2.7B - 3.2B
Free cash flow* $1.9B - 2.4B
* Before $500 million discretionary pension plan contribution.
Business Results
----------------
Consolidated Sales & Segment Operating Income
($ millions)
Second Quarter Six Months
-------------------------- --------------------------
2009 2008 Change 2009 2008 Change
-------------------------- --------------------------
Sales
Aerospace
Systems $2,673 $2,472 8% $ 5,129 $4,833 6%
Electronic
Systems 1,967 1,665 18% 3,755 3,210 17%
Information
Systems 2,585 2,512 3% 5,076 4,810 6%
Shipbuilding 1,524 1,688 (10%) 2,899 2,952 (2%)
Technical
Services 702 634 11% 1,334 1,192 12%
Intersegment
eliminations (494) (343) (916) (645)
-------------------------- --------------------------
$8,957 $8,628 4% $17,277 $16,352 6%
Segment operating
income
Aerospace
Systems $ 257 $ 236 9% $ 515 $ 488 6%
Electronic
Systems 251 201 25% 480 410 17%
Information
Systems 204 207 (1%) 427 419 2%
Shipbuilding 14 126 (89%) 98 (92) NM
Technical
Services 43 42 2% 80 71 13%
Intersegment
eliminations (50) (28) (90) (54)
-------------------------- --------------------------
Segment
operating
income $ 719 $ 784 (8%) $ 1,510 $1,242 22%
as a % of
sales 8.0% 9.1% (110 bps) 8.7% 7.6% 110 bps
Reconciliation to
operating income:
Unallocated
expenses $ 21 $ (43) $ (32) $ (75)
Net pension
adjustment (76) 69 (152) 128
Reversal
of royalty
income
included
above (11) (4) (18) (25)
-------------------------- --------------------------
Operating
income $ 653 $ 806 (19%) $ 1,308 $1,270 3%
as a % of
sales 7.3% 9.3% (200 bps) 7.6% 7.8% (20 bps)
----------------------------------------------------------------------
Beginning in the first quarter of 2009, operating results for all periods presented reflect the realignment of the former Mission Systems and Information Technology sectors into Information Systems and the realignment of the former Integrated Systems and Space Technology sectors into Aerospace Systems. In addition, the presentation reflects the transfer of certain businesses from Information Systems and Electronic Systems to Technical Services. Schedule 6 provides previously reported quarterly financial results revised to reflect the current reporting structure.
Aerospace Systems
Second Quarter ($ millions)
---------------------------------------------------------------------
2009 2008
Operating % of Operating % of
Sales Income Sales Sales Income Sales
---------------------------------------------------------------------
$2,673 $257 9.6% $2,472 $236 9.5%
---------------------------------------------------------------------
Aerospace Systems second quarter 2009 sales increased 8 percent, principally due to higher volume for manned aircraft programs such as F/A-18, F-35, Joint STARS, E-2C, and B-2; unmanned aircraft programs, including Broad Area Maritime Surveillance (BAMS) Unmanned Aerial System, Global Hawk, and Navy Unmanned Combat Air Systems Carrier (N-UCAS); and restricted programs. Higher volume for these programs was partially offset by lower volume for the Intercontinental Ballistic Missile (ICBM) and the National Polar-orbiting Operational Environmental Satellite System (NPOESS) programs.
Aerospace Systems operating income rose 9 percent, and as a percent of sales, was comparable to the prior year period at 9.6 percent. The increase in operating income is due to higher volume.
Electronic Systems
Second Quarter ($ millions)
---------------------------------------------------------------------
2009 2008
Operating % of Operating % of
Sales Income Sales Sales Income Sales
---------------------------------------------------------------------
$1,967 $251 12.8% $1,665 $201 12.1%
---------------------------------------------------------------------
Electronic Systems second quarter 2009 sales increased 18 percent. The increase reflects higher deliveries of Large Aircraft Infrared Countermeasures (LAIRCM) systems; higher volume for the Space Based Infrared System (SBIRS) program; higher volume for postal automation programs, and higher intercompany sales for aerospace and naval & marine programs.
Electronic Systems second quarter 2009 operating income rose 25 percent, and as a percent of sales increased to 12.8 percent from 12.1 percent in the prior year period. The increases in operating income and margin rate are due to higher volume and improved program performance.
Information Systems
Second Quarter ($ millions)
---------------------------------------------------------------------
2009 2008
Operating % of Operating % of
Sales Income Sales Sales Income Sales
---------------------------------------------------------------------
$2,585 $204 7.9% $2,512 $207 8.2%
---------------------------------------------------------------------
Information Systems second quarter 2009 sales increased 3 percent due to higher sales for intelligence and defense programs. The higher volume for these programs was partially offset by lower volume for state and local programs.
Information Systems operating income declined slightly in the 2009 second quarter. As a percent of sales, operating income was 7.9 percent compared with 8.2 percent in the prior year period. The declines were principally due to lower performance for state and local programs.
Shipbuilding
Second Quarter ($ millions)
---------------------------------------------------------------------
2009 2008
Operating % of Operating % of
Sales Income Sales Sales Income Sales
---------------------------------------------------------------------
$1,524 $14 0.9% $1,688 $126 7.5%
---------------------------------------------------------------------
Shipbuilding second quarter 2009 sales decreased 10 percent primarily due to lower volume for expeditionary warfare programs than in the prior year period. These declines were partially offset by higher volume for submarine programs. Lower expeditionary warfare volume was principally due to a $100 million revenue reduction related to the revised estimates to complete LPD-class ships and the LHA 6. Lower expeditionary warfare volume also reflects the delivery of the LHD 8.
Shipbuilding operating income for the 2009 second quarter declined to $14 million from $126 million in the second quarter of 2008. Second quarter 2009 operating income includes a $105 million pre-tax charge to reflect higher estimates to complete LPD-class ships and the LHA 6. These adjustments reflect additional expense to improve design, engineering, production and quality processes. The adjustments for the LPD class primarily reflect increased production cost estimates. The LHA 6 adjustment reflects increased investment to mature the ship's engineering and design work and reduce future production risk.
Technical Services
Second Quarter ($ millions)
---------------------------------------------------------------------
2009 2008
Operating % of Operating % of
Sales Income Sales Sales Income Sales
---------------------------------------------------------------------
$702 $43 6.1% $634 $42 6.6%
---------------------------------------------------------------------
Technical Services sales increased 11 percent due to higher volume for life cycle optimization & engineering, and training & simulation programs. Operating income increased 2 percent, and as a percent of sales, was 6.1 percent compared with 6.6 percent in the prior year period. The lower margin rate in the second quarter of 2009 reflects a change in program mix from the prior year period.
Second Quarter Highlights
* The U.S. Army awarded a 10-year ID/IQ contract potentially
valued at $2.4 billion to Northrop Grumman Cobham Intercoms
LLC, a company formed by Northrop Grumman and Cobham, to
provide the VIS-X Vehicular Intercommunication System
Expanded for the service's Communications and Electronics
Command. One of the losing competitors subsequently filed
a protest with the General Accounting Office, which has until
October 28, 2009 to issue a decision regarding the protest.
* The U.S. Navy awarded Northrop Grumman a follow-on contract
valued at $432 million for production of four E-2D Advanced
Hawkeye aircraft, as well as associated engineering and testing.
* Northrop Grumman was one of three contractors selected by
the U.S. Air Force to provide weapon system sustainment for
the A-10 Thunderbolt II. The company will support both A-10As
and Cs under the 10-year Thunderbolt Life-cycle Program
Support ID/IQ quantity contract. The contract has a total
ceiling value of $1.6 billion, collectively.
* The U.S. Air Force awarded Northrop Grumman a $276 million
contract for fielding and operational deployment of the
Battlefield Airborne Communications Node (BACN), an airborne
communications system that provides warfighters with critical
real-time battlefield information. The tasking includes
installing BACN on two Global Hawk Block 20 unmanned aircraft.
* Northrop Grumman received a U.S. Army Intelligence and
Security Command contract potentially worth $430 million to
continue providing information operations support to the
Army and other military forces.
* The U.S. Navy awarded Northrop Grumman a $214 million
cost-plus-fixed-fee advance procurement contract for long
lead materials for LPD 26, the tenth amphibious transport
dock ship of the USS San Antonio (LPD 17) class.
* The U.S. Department of Defense selected Northrop Grumman
as one of four companies to receive a contract to provide
radio frequency identification (RFID) hardware, software,
and engineering services under the RFID III contract. RFID
III is a multiple award, ID/IQ contract with a $429 million
ceiling available for task order awards.
* Northrop Grumman was one of 59 companies that received
awards to deliver cost-effective information technology
solutions to the U.S. federal government under the U.S.
General Services Administration (GSA) Alliant contract.
Alliant's ceiling is valued at up to $50 billion for all
task order awards.
* The U.S. Navy awarded Northrop Grumman a $98 million ID/IQ
contract for the Maritime Laser Demonstration Program
technology demonstration.
* Northrop Grumman delivered the nation's newest and most
advanced nuclear-powered aircraft carrier, USS George H. W.
Bush (CVN 77). The 10th and final Nimitz-class aircraft
carrier was constructed by the company's Shipbuilding sector
in Newport News, Va.
* In a historic milestone for municipal first responder
communications, New York City and Northrop Grumman announced
that the New York City Wireless Network (NYCWiN) is
operational citywide. NYCWiN is a high-speed, mobile data
network representing the most aggressive commitment by any
municipality in the United States to provide a next-generation
public safety infrastructure. The network is now operational
across New York City's more than 300 square miles and
exceeds requirements for coverage and data throughput speed.
* Northrop Grumman delivered to the U.S. Navy one of the
nation's newest and most advanced ships, the amphibious-assault
ship Makin Island (LHD 8).
* Northrop Grumman completed delivery of both Space Tracking
and Surveillance System (STSS) demonstration satellites on
June 25, 2009, when the second satellite arrived at the U.S.
Air Force's Cape Canaveral Air Station for launch preparation.
* Northrop Grumman christened the company's 27th Aegis guided
missile destroyer Gravely (DDG 107).
* Northrop Grumman delivered the center/aft fuselage section
for the first F/A-18F Super Hornet for the Royal Australian
Air Force (RAAF), the first international customer for the
multirole fighter aircraft.
* Northrop Grumman reached a major milestone in the development
and production of the F-35 Lightning II Joint Strike Fighter
by delivering the center fuselage for the first production
F-35 aircraft. The delivery extended Northrop Grumman's
unbroken record of on-time center fuselage deliveries to 19.
* Northrop Grumman delivered the second geosynchronous orbit
payload for integration and final system-level testing for
the Space Based Infrared System, the nation's next-generation
missile warning system.
* The Northrop Grumman-built Lunar Crater Observation and
Sensing Satellite (LCROSS) was successfully launched and
completed a critical swing-by maneuver of the moon. This
maneuver put LCROSS, built under contract to NASA Ames
Research Center, on a trajectory to complete its mission
to search for water ice on the moon in early October.
* Northrop Grumman and the U.S. Air Force unveiled the next
generation of high-flying unmanned aircraft, the RQ-4 Block
40 Global Hawk, in a ceremony at Northrop Grumman's Palmdale,
Calif., manufacturing facility.
* The board of directors increased Northrop Grumman's
quarterly dividend 7.5 percent to $0.43 per share on
Northrop Grumman common stock, from $0.40 per share. The
company has increased its quarterly dividend in each of the
last five years, and it has more than doubled since 2003.
About Northrop Grumman
Northrop Grumman Corporation is a leading global security company whose 120,000 employees provide innovative systems, products, and solutions in aerospace, electronics, information systems, shipbuilding and technical services to government and commercial customers worldwide.
Northrop Grumman will webcast its earnings conference call at 11:30 a.m. EDT on July 23, 2009. A live audio broadcast of the conference call along with a supplemental presentation will be available on the investor relations page of the company's Web site at http://www.northropgrumman.com.
Statements in this release and the attachments, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expect," "intend," "plan," "project," "forecast," "believe," "estimate," "outlook," "guidance," "target," "trends," and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, financial guidance regarding future sales, segment operating income, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow and earnings. These statements are not guarantees of future performance and involve certain risks and uncertainties. Actual results could differ materially due to factors such as: the effect of economic conditions in the United States and globally; access to capital; future sales and cash flows; timing of cash receipts; effective tax rates and timing and amounts of tax payments; returns on pension plan assets, interest and discount rates and other changes that may impact pension plan assumptions; the outcome of litigation, claims, audits, appeals, bid protests and investigations; hurricane-related insurance recoveries; costs of environmental remediation; our relationships with labor unions; availability and retention of qualified personnel; costs of capital investments; changes in organizational structure and reporting segments; risks associated with acquisitions, dispositions, joint ventures and other business arrangements; possible impairments of goodwill or other intangible assets; effects of legislation, rulemaking, and changes in accounting, tax or defense procurement; changes in government and customer priorities and requirements (including, government budgetary constraints, shifts in defense spending, changes in import and export policies, changes in customer short-range and long-range plans); acquisition or termination of contracts; technical, operational or quality setbacks in contract performance; issues with, and financial viability of, key suppliers and subcontractors; availability of materials and supplies; controlling costs of fixed-price development programs; contractual performance relief and the application of cost sharing terms; allowability and allocability of costs under U.S. Government contracts; progress and acceptance of new products and technology; domestic and international competition; legal, financial and governmental risks related to international transactions; potential security threats, natural disasters and other disruptions not under our control; and other risk factors disclosed in our filings with the Securities and Exchange Commission.
These forward-looking statements speak only as of the date of this release and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this release or the attachments.
LEARN MORE ABOUT US: Northrop Grumman news releases, product information, photos and video clips are available on the Internet at: http://www.northropgrumman.com
NORTHROP GRUMMAN CORPORATION SCHEDULE 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months Six months
ended June 30 ended June 30
-------------------------------------
$ in millions, except per
share amounts 2009 2008 2009 2008
---------------------------------------------------------------------
Sales and Service Revenues
Product sales $ 5,420 $ 4,849 $ 9,990 $ 9,243
Service revenues 3,537 3,779 7,287 7,109
---------------------------------------------------------------------
Total sales and service
revenues 8,957 8,628 17,277 16,352
---------------------------------------------------------------------
Cost of Sales and Service
Revenues
Cost of product sales 4,345 3,793 7,980 7,522
Cost of service revenues 3,185 3,232 6,466 6,025
General and administrative
expenses 774 797 1,523 1,535
---------------------------------------------------------------------
Operating income 653 806 1,308 1,270
Other (expense) income
Interest expense (70) (72) (143) (149)
Other, net 13 5 21 27
---------------------------------------------------------------------
Earnings from continuing
operations before income
taxes 596 739 1,186 1,148
Federal and foreign income
taxes 202 256 403 402
---------------------------------------------------------------------
Earnings from continuing
operations 394 483 783 746
Earnings from discontinued
operations, net of tax 12 13
---------------------------------------------------------------------
Net earnings $ 394 $ 495 $ 783 $ 759
---------------------------------------------------------------------
Basic Earnings Per Share
Continuing operations $ 1.22 $ 1.42 $ 2.41 $ 2.20
Discontinued operations 0.04 0.04
---------------------------------------------------------------------
Basic earnings per share $ 1.22 $ 1.46 $ 2.41 $ 2.24
---------------------------------------------------------------------
Weighted-average common
shares outstanding, in
millions 322.0 339.0 324.4 338.7
---------------------------------------------------------------------
Diluted Earnings Per Share
Continuing operations $ 1.21 $ 1.40 $ 2.38 $ 2.15
Discontinued operations 0.04 0.04
---------------------------------------------------------------------
Diluted earnings per share $ 1.21 $ 1.44 $ 2.38 $ 2.19
---------------------------------------------------------------------
Weighted-average diluted shares
outstanding, in millions 325.8 344.1 328.9 346.7
---------------------------------------------------------------------
NORTHROP GRUMMAN CORPORATION SCHEDULE 2
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
June 30, Dec. 31,
$ in millions 2009 2008
---------------------------------------------------------------------
Assets
Cash and cash equivalents $ 1,056 $ 1,504
Accounts receivable, net of progress payments 4,251 3,904
Inventoried costs, net of progress payments 1,099 1,003
Deferred tax assets 487 549
Prepaid expenses and other current assets 363 229
---------------------------------------------------------------------
Total current assets 7,256 7,189
Property, plant, and equipment, net of
accumulated depreciation of $4,053 in 2009
and $3,803 in 2008 4,778 4,810
Goodwill 14,536 14,518
Other purchased intangibles, net of
accumulated amortization of $1,847 in 2009
and $1,795 in 2008 925 947
Pension and post-retirement plan assets 292 290
Long-term deferred tax assets 1,414 1,510
Miscellaneous other assets 947 933
---------------------------------------------------------------------
Total assets $ 30,148 $ 30,197
---------------------------------------------------------------------
Liabilities
Notes payable to banks $ 27 $ 24
Current portion of long-term debt 493 477
Trade accounts payable 1,774 1,943
Accrued employees' compensation 1,325 1,284
Advance payments and billings in excess of
costs incurred 2,050 2,036
Other current liabilities 1,574 1,660
---------------------------------------------------------------------
Total current liabilities 7,243 7,424
Long-term debt, net of current portion 3,348 3,443
Pension and post-retirement plan liabilities 5,816 5,823
Other long-term liabilities 1,552 1,587
---------------------------------------------------------------------
Total liabilities 17,959 18,277
---------------------------------------------------------------------
Shareholders' Equity
Common stock, $1 par value; 800,000,000
shares authorized; issued and outstanding:
2009 - 319,156,206; 2008 - 327,012,663 319 327
Paid-in capital 9,243 9,645
Retained earnings 6,104 5,590
Accumulated other comprehensive loss (3,477) (3,642)
---------------------------------------------------------------------
Total shareholders' equity 12,189 11,920
---------------------------------------------------------------------
Total liabilities and shareholders' equity $ 30,148 $ 30,197
---------------------------------------------------------------------
NORTHROP GRUMMAN CORPORATION SCHEDULE 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30
-------------------
$ in millions 2009 2008
---------------------------------------------------------------------
Operating Activities
Sources of Cash - Continuing Operations
Cash received from customers
Progress payments $ 3,560 $ 3,319
Collections on billings 13,298 12,983
Other cash receipts 20 37
---------------------------------------------------------------------
Total sources of cash - continuing
operations 16,878 16,339
---------------------------------------------------------------------
Uses of Cash - Continuing Operations
Cash paid to suppliers and employees (15,554) (14,855)
Interest paid, net of interest received (141) (153)
Income taxes paid, net of refunds received (467) (482)
Excess tax benefits from stock-based
compensation (45)
Other cash payments (58) (7)
---------------------------------------------------------------------
Total uses of cash - continuing operations (16,220) (15,542)
---------------------------------------------------------------------
Cash provided by continuing operations 658 797
Cash provided by discontinued operations 4
---------------------------------------------------------------------
Net cash provided by operating activities 658 801
---------------------------------------------------------------------
Investing Activities
Proceeds from sale of business, net of cash
divested 175
Payments for businesses purchased (33)
Additions to property, plant, and equipment (297) (277)
Payments for outsourcing contract costs and
related software costs (37) (77)
Decrease in restricted cash 3 37
Other investing activities, net 2 10
---------------------------------------------------------------------
Net cash used in investing activities (362) (132)
---------------------------------------------------------------------
Financing Activities
Net borrowings (payments) under lines of
credit 3 (3)
Principal payments of long-term debt (72) (109)
Proceeds from exercises of stock options
and issuances of common stock 17 82
Dividends paid (269) (261)
Excess tax benefits from stock-based
compensation 45
Common stock repurchases (423) (805)
---------------------------------------------------------------------
Net cash used in financing activities (744) (1,051)
---------------------------------------------------------------------
Decrease in cash and cash equivalents (448) (382)
Cash and cash equivalents, beginning of period 1,504 963
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Cash and cash equivalents, end of period $ 1,056 $ 581
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NORTHROP GRUMMAN CORPORATION SCHEDULE 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30
-----------------
$ in millions 2009 2008
---------------------------------------------------------------------
Reconciliation of Net Earnings to Net Cash Provided
by Operating Activities
Net earnings $ 783 $ 759
Adjustments to reconcile to net cash provided
by operating activities
Depreciation 280 276
Amortization of assets 75 109
Stock-based compensation 55 83
Excess tax benefits from stock-based
compensation (45)
Pre-tax gain on sale of business (58)
Decrease (increase) in
Accounts receivable (3,340) (3,691)
Inventoried costs (354) (304)
Prepaid expenses and other current assets (75) (40)
Increase (decrease) in
Progress payments 3,252 3,370
Accounts payable and accruals (241) 215
Deferred income taxes 61 121
Income taxes payable (48) (84)
Retiree benefits 171 46
Other non-cash transactions, net 39 40
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Cash provided by continuing operations 658 797
Cash provided by discontinued operations 4
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Net cash provided by operating activities $ 658 $ 801
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Non-Cash Investing and Financing Activities
Sale of business
Liabilities assumed by purchaser $ (18)
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Mandatorily redeemable convertible preferred
stock converted into common stock $ 350
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NORTHROP GRUMMAN CORPORATION SCHEDULE 5
TOTAL BACKLOG AND CONTRACT AWARDS
(unaudited)
$ in millions June 30, 2009 December 31, 2008 (3)
---------------------------------------------------------------------
FUNDED UNFUNDED TOTAL FUNDED UNFUNDED TOTAL
(1) (2) BACKLOG (1) (2) BACKLOG
---------------------------- --------------------------
Aerospace
Systems $ 8,408 $16,340 $24,748 $ 7,648 $22,883 $30,531
Electronic
Systems 7,962 2,809 10,771 8,391 2,124 10,515
Information
Systems 4,934 4,677 9,611 5,310 4,672 9,982
Shipbuilding 12,587 8,426 21,013 14,205 8,148 22,353
Technical
Services 1,836 2,383 4,219 1,840 2,831 4,671
---------------------------- --------------------------
Total $35,727 $34,635 $70,362 $37,394 $40,658 $78,052
---------------------------- --------------------------
(1) Funded backlog represents firm orders for which funding is
contractually obligated by the customer.
(2) Unfunded backlog represents firm orders for which funding is not
currently contractually obligated by the customer. Unfunded
backlog excludes unexercised contract options and unfunded
Indefinite Delivery Indefinite Quantity (IDIQ) orders.
(3) Certain prior period amounts have been reclassified to
conform to the 2009 presentation.
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New Awards - The estimated value of contract awards included in
backlog during the six months ended June 30, 2009, was approximately
$14.6 billion.
Backlog Adjustment - In the second quarter of 2009, the company was
notified that the Kinetic Energy Interceptor (KEI) program was
terminated for convenience by the Missile Defense Agency. The KEI
termination was recorded as a reduction to total backlog of $5.1
billion at Aerospace Systems.
NORTHROP GRUMMAN CORPORATION SCHEDULE 6
REALIGNED SEGMENT OPERATING RESULTS
($ in millions)
(unaudited)
NET SALES
---------------------------------------------------------------------
2006 2007 2008
------ ----- --------------------------------------
Total Total Three Months Ended Total
Year Year Mar 31 Jun 30 Sep 30 Dec 31 Year
---------------------------------------------------------------------
AS REPORTED(1)
Information
& Services
Mission
Systems 4,704 $ 5,077 $1,298 $1,388 $1,417 $1,537 $ 5,640
Information
Technology 3,962 4,486 1,085 1,215 1,085 1,133 4,518
Technical
Services 1,858 2,177 505 572 607 612 2,296
--------------------------------------------------------
10,524 11,740 2,888 3,175 3,109 3,282 12,454
Aerospace
Integrated
Systems 5,500 5,067 1,340 1,358 1,345 1,461 5,504
Space
Technology 3,869 4,176 1,022 1,118 1,079 1,117 4,336
--------------------------------------------------------
9,369 9,243 2,362 2,476 2,424 2,578 9,840
Electronics 6,267 6,528 1,555 1,675 1,814 2,046 7,090
Shipbuilding 5,321 5,788 1,264 1,688 1,451 1,742 6,145
Intersegment
Eliminations (1,490) (1,471) (345) (386) (417) (494) (1,642)
--------------------------------------------------------
Total $29,991 $31,828 $7,724 $8,628 $8,381 $9,154 $33,887
--------------------------------------------------------
REALIGNED(2)
Aerospace
Systems $ 9,358 $ 9,234 $2,361 $2,472 $2,417 $2,575 $ 9,825
Electronic
Systems 6,201 6,466 1,545 1,665 1,808 2,030 7,048
Information
Systems 8,383 9,245 2,298 2,512 2,410 2,557 9,777
Shipbuilding 5,321 5,788 1,264 1,688 1,451 1,742 6,145
Technical
Services 2,090 2,422 558 634 665 678 2,535
Intersegment
Eliminations (1,362) (1,327) (302) (343) (370) (428) (1,443)
--------------------------------------------------------
Total $29,991 $31,828 $7,724 $8,628 $8,381 $9,154 $33,887
--------------------------------------------------------
SEGMENT OPERATING INCOME(3)
---------------------------------------------------------------------
2006 2007 2008
------ ----- --------------------------------------
Total Total Three Months Ended Total
Year Year Mar 31 Jun 30 Sep 30 Dec 31 Year
---------------------------------------------------------------------
AS REPORTED(1)
Information
& Services
Mission
Systems $ 451 $ 508 $ 128 $ 133 $ 128 $ 119 $ 508
Information
Technology 342 329 89 82 37 97 305
Technical
Services 120 120 26 36 31 28 121
------- ----- --------------------------------------
913 957 243 251 196 244 934
Aerospace
Integrated
Systems 551 591 170 143 144 156 613
Space
Technology 311 329 82 93 90 (461) (196)
------- ----- --------------------------------------
862 920 252 236 234 (305) 417
Electronics 786 813 209 202 264 277 952
Shipbuilding 393 538 (218) 126 118 (2,333) (2,307)
Intersegment
Eliminations (117) (113) (28) (31) (44) (38) (141)
---------------------------------------------------------
Total $2,837 $3,115 $ 458 $ 784 $ 768 $(2,155) $ (145)
---------------------------------------------------------
REALIGNED(2)
Aerospace
Systems $ 861 $ 919 $ 252 $ 236 $ 233 $ (305) $ 416
Electronic
Systems 783 809 209 201 261 276 947
Information
Systems 771 815 212 207 156 208 783
Shipbuilding 393 538 (218) 126 118 (2,333) (2,307)
Technical
Services 139 139 29 42 39 34 144
Intersegment
Eliminations (110) (105) (26) (28) (39) (35) (128)
---------------------------------------------------------
Total $2,837 $3,115 $ 458 $ 784 $ 768 $(2,155) $ (145)
---------------------------------------------------------
NOTE: There have been no changes to the realigned segment operating results since this schedule was first made available with the First Quarter 2009 earnings release filed on April 22, 2009.
(1) "As reported" amounts are as of December 31, 2008, which reflects
the Park Air / Remotec realignment, Missile Systems realignment,
and the presentation of Electro-Optical Systems as a discontinued
operation and are reported in the 2008 Form 10-K. 2008 quarterly
results for the three months ended Mar. 31, Jun. 30, and Sep. 30
were previously reported in Schedule 6 of the Third Quarter 2008
earnings release.
(2) Reported amounts adjusted to reflect the realignment of certain
logistics, services, and technical support programs and assets
from the Information Systems and Electronic Systems segments to
the Technical Services segment and the streamlining of the
company's organizational structure by reducing the number of
operating segments from seven to five.
(3) Non-GAAP measure. Management uses segment operating income as an
internal measure of financial performance for the individual
business segments.