EX-99.1 2 v54667exv99w1.htm EX-99.1 exv99w1
Exhibit 99
(NORTHROP GRUMMAN LOGO)
         
 
       News Release
 
        
 
   Contact:   Dan McClain (Media)
 
       (310) 201-3335
 
        
 
       Paul Gregory (Investors)
 
       (310) 201-1634
Northrop Grumman Reports Fourth Quarter and 2009 Financial Results
•   Q4 EPS of $1.31; 2009 EPS of $5.21
 
•   2010 Guidance for EPS from Continuing Operations of $5.70 to $5.95
 
•   TASC, Inc. Divestiture Completed; Reported as Discontinued Operations
 
•   Q4 Share Repurchases of $450 Million; 2009 Share Repurchases Total $1.1 Billion
          LOS ANGELES – Feb. 4, 2010 – Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2009 net earnings of $413 million, or $1.31 per diluted share, and 2009 net earnings of $1.7 billion, or $5.21 per diluted share. In 2008, the company reported a fourth quarter net loss of $2.5 billion, or $7.75 per diluted share, and a net loss for the year of $1.3 billion, or $3.77 per diluted share. 2008 fourth quarter and full year results were significantly impacted by a goodwill impairment charge.
          In December 2009, the company completed the sale of TASC, Inc. (TASC), its advisory services business, for $1.65 billion in cash and a net gain of $0.05 per share. TASC’s operating results are accounted for as discontinued operations, and results for all periods presented in this release have been adjusted for the divestiture. Fourth quarter 2009 earnings from continuing operations totaled $375 million, or $1.19 per diluted share. For 2009, earnings from continuing operations totaled $1.6 billion, or $4.87 per diluted share.
          Fourth quarter 2009 sales, restated for the TASC divestiture, increased 2 percent to $8.9 billion from $8.8 billion, and 2009 sales increased more than 4 percent to $33.8 billion from $32.3 billion. Reported sales for 2009 and 2008 exclude TASC sales of approximately $1.5 billion and $1.6 billion, respectively.
          Cash provided by operations in the fourth quarter of 2009 totaled $931 million compared with $1 billion in the fourth quarter of 2008. Cash provided by operations totaled $2.1 billion in 2009 compared with $3.2 billion in 2008. The change was primarily driven by a $538 million increase in pension plan contributions and $508 million in taxes paid in the fourth quarter of 2009 on the gain on the sale of TASC. Cash proceeds of $1.65 billion from the sale of TASC are reported in investing activities.
          “We’re pleased to report strong 2009 results that demonstrate continued improvement in operating performance. Looking ahead, the focus of our leadership team
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   2
and our 120,000 employees will be on driving performance improvements that create value for our shareholders and our customers,” said Wes Bush, chief executive officer and president, “Our guidance for 2010 calls for EPS from continuing operations to grow by 17 to 22 percent and to be accompanied by continued strong cash generation,” continued Bush.
Table 1 - Financial Highlights
                                 
    Fourth Quarter   Total Year
 ($ in millions, except per share amounts)   2009     2008     2009     2008  
 
Sales
   $ 8,925     $ 8,775     $    33,755     $    32,315  
Operating income (loss)
     631       (2,191 )     2,483       (263 )
Earnings (loss) from continuing operations
     375       (2,561 )     1,573       (1,379 )
Earnings from discontinued operations, net of tax
     38       28       113       117  
Net earnings (loss)
     413       (2,533 )     1,686       (1,262 )
Diluted earnings (loss) per share
     1.31       (7.75 ) 2     5.21       (3.77 ) 2
Cash provided by operations
     931       1,037       2,133       3,211  
Free cash flow1
     703       790       1,411       2,420  
 
                                
Adjusted Operating Highlights
                                
Operating income (loss)
   $ 631     $ (2,191 )   $ 2,483     $ (263 )
Goodwill impairment
             3,060               3,060  
Net pension adjustment1
     87       (71 )     311       (263 )
 
                
Adjusted operating income1
     718       798       2,794       2,534  
as % of sales1
        8.0%         9.1%             8.3%         7.8%  
 
                                
Earnings Reconciliation
                                
Earnings (loss) from continuing operations
   $ 375     $ (2,561 )   $ 1,573     $ (1,379 )
Goodwill impairment
             3,060               3,060  
 
                
Adjusted earnings from continuing operations1
     375       499       1,573       1,681  
 
                                
Adjusted Per Share Data
                                
Diluted EPS from continuing operations
   $ 1.19     $ (7.83 ) 2   $ 4.87     $ (4.12 ) 2
 
                                
Adjusted diluted EPS from continuing operations1
     1.19       1.50       4.87       4.92  
After-tax net pension adjustment per share1
     0.18       (0.14 )     0.63       (0.50 )
 
                
Pension-adjusted diluted EPS from continuing operations1
     1.37       1.36       5.50       4.42  
 
                                
Weighted average shares outstanding - Basic2
     311.8       326.9       319.2       334.5  
Dilutive effect of stock options and stock awards
     3.7       6.7       4.1       7.1  
 
                
Weighted average shares outstanding - Diluted
     315.5       333.6       323.3       341.6  
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release.
2 2008 per share amounts computed using weighted average basic shares outstanding as the use of
weighted average diluted shares outstanding results in a lesser per share amount.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   3
          Fourth quarter 2009 operating income increased to $631 million from a loss of $2.2 billion in the 2008 fourth quarter. For 2009, operating income increased to $2.5 billion from a loss of $263 million in 2008. In the fourth quarter of 2008 the company recorded a $3.1 billion goodwill impairment charge. Results for 2009 also include a $574 million change in net pension adjustment from income of $263 million in 2008 to an expense of $311 million in 2009. As a percent of sales, operating income totaled 7.1 percent in the 2009 fourth quarter and 7.4 percent for 2009. For purposes of comparison, Table 1 presents operating income adjusted for the goodwill impairment charge and the effect of net pension adjustments.
          Federal and foreign income taxes totaled $195 million in the fourth quarter of 2009 compared with $264 million in the prior year. The effective tax rate for the 2009 fourth quarter was 34.2 percent and the federal tax rate applied to adjusted earnings in the fourth quarter of 2008 was 34.6 percent. For 2009, federal and foreign income taxes totaled $693 million compared with $859 million for 2008. The effective tax rate for 2009 was 30.6 percent and the effective tax rate applied to earnings adjusted for goodwill in 2008 was 33.8 percent. In 2009 federal and foreign income taxes included a net tax benefit of $75 million, primarily for final settlement of the Internal Revenue Service’s (IRS) examination of the company’s 2001, 2002 and 2003 tax returns.
Backlog and New Business Awards
     Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $69.2 billion on Dec. 31, 2009, compared with $76.4 billion on Dec. 31, 2008. Total backlog for both periods has been adjusted by $1.6 billion for the divestiture of TASC Inc. The change in backlog reflects new business awards totaling $32.3 billion during the year as well as a decrease of $5.8 billion for the Kinetic Energy Interceptor program termination for convenience and the DDG 1000 program restructure.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   4
Table 2 — Guidance
                           
($ in millions, except per share amounts)   2009     2010E  
 
Sales
     $  33,755       $  34,000   -     $  34,600  
 
                          
Segment operating margin %1
        8.7%     Low 9%
 
                          
Operating margin %
       7.4%     Mid 8%
 
                          
Diluted EPS from continuing operations
     $ 4.87       $ 5.70   -     $ 5.95  
 
                          
Cash provided by operations before
discretionary pension contributions1
     2,595       2,500   -     3,000  
 
                          
Free cash flow before
discretionary pension contributions1
     1,873       1,700   -     2,200  
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release.
          Guidance for 2010 segment operating margin rate calls for margin rate expansion across the businesses. Operating margin rate guidance for 2010 includes improved segment performance, an expense of approximately $35 million for net pension adjustment, and some consideration for potential program performance risks and opportunities. Net pension adjustment represents the difference between pension expense determined in accordance with Generally Accepted Accounting Principles (GAAP) and pension expense allocated to the business segments under U.S. Government Cost Accounting Standards (CAS).
          Guidance for 2010 earnings per share from continuing operations of $5.70 - $5.95 includes the operating margin rate improvements discussed above and assumes a lower share count consistent with the company’s previously announced intention to repurchase enough shares to offset the loss of TASC’s earnings. These items were partially offset by a higher effective tax rate assumption of approximately 34.5 percent.
Table 3 - Cash Flow Highlights
                                                 
         
($ millions)   2009     2008     Change     2009     2008     Change  
     
 
Cash provided by operations before discretionary pension contributions1
     $   790       $   1,219     $   (429 )     $   2,595       $   3,341     $   (746 )
 
                                                
Discretionary pension pre-funding impact
     141       (182 )     323       (462 )     (130 )     (332 )
     
 
Cash provided by operations
     931       1,037       (106 )     2,133       3,211       (1,078 )
 
                                                
Less:
                                                
 
                                                
Capital expenditures
     218       237       19       654       681       27  
 
                                                
Outsourcing contract & related software
costs
     10       10       -       68       110       42  
     
 
Free cash flow1
     $ 703       $ 790     $ (87 )     $ 1,411       $ 2,420     $ (1,009 )
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release.
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   5     
          Free cash flow totaled $703 million in the 2009 fourth quarter compared with $790 million in the prior year period. For 2009, free cash flow totaled $1.4 billion compared with $2.4 billion in 2008. The change in free cash flow in the 2009 periods reflects higher net pension plan contributions and taxes paid on the gain on the sale of TASC.
Table 4 — Cash Measurements, Debt and Capital Deployment
                 
 ($ millions)   12/31/2009     12/31/2008  
 
 
                
 Cash & cash equivalents
     $ 3,275         $ 1,504   
 
                
 Total debt
     4,294        3,944    
 
                
 Net debt1
     1,019        2,440   
 
                
 Net debt to total capital ratio2     
              6%               15%   
1Total debt less cash and cash equivalents.
2Net debt divided by the sum of shareholders’ equity and total debt.
     Changes in cash and cash equivalents include the following items for cash from operations, investing and financing during 2009:
Operations
Ÿ     $1.3 billion taxes paid, including $508 million for federal and state taxes for the gain on the sale of TASC
 
Ÿ     $858 million pension plan contributions
Investing
Ÿ     $1.65 billion proceeds from sale of TASC
 
Ÿ     $654 million for capital expenditures and $68 million for outsourcing contract and related software costs
Financing
Ÿ     $1.1 billion for repurchase of 23.1 million shares
 
Ÿ     $850 million proceeds from issuance of long term debt
 
Ÿ     $474 million principal payments of long-term debt
 
Ÿ     $539 million for dividends

 

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   6     
Table 5 — Business Results
Consolidated Sales & Segment Operating Income (Loss)1
                                                 
($ millions)   Fourth Quarter     Total Year
    2009     2008     Change   2009     2008     Change 
Sales
                                                
Aerospace Systems
     $ 2,763       $ 2,575       7 %     $ 10,419       $ 9,825       6 % 
Electronic Systems
     2,077       2,030       2 %     7,671       7,048       9 % 
Information Systems
     2,195       2,178       1 %     8,611       8,205       5 % 
Shipbuilding
     1,664       1,742       (4%)      6,213       6,145       1 %
Technical Services
     750       678       11 %      2,776       2,535       10 %
Intersegment eliminations
     (524 )     (428 )             (1,935 )     (1,443 )        
     
 
     $    8,925       $    8,775       2 %      $    33,755       $    32,315       4 %
 
                                                
Segment operating income (loss)1
                                                
Aerospace Systems
     $ 291       $ (305 )   NM     $ 1,071       $ 416       157 % 
Electronic Systems
     274       276       (1 %)     969       947       2 %
Information Systems
     109       167       (35 %)     631       629       0 % 
Shipbuilding
     88       (2,333 )   NM     299       (2,307 )   NM 
Technical Services
     40       34       18 %     161       144       12 % 
Intersegment eliminations
     (58 )     (35 )             (202 )     (128 )        
     
Segment operating income (loss)1
     $ 744       $ (2,196 )   NM     $ 2,929       $ (299 )   NM 
as a % of sales1
     8.3%     NM    NM     8.7%     NM    NM 
 
                                                
Reconciliation to operating income (loss)
                                                
Unallocated expenses
     $ (24 )     $ (62 )             $   (111 )     $ (157 )        
Net pension adjustment1
     (87 )     71               (311 )     263          
Reversal of royalty income included above
     (2 )     (4 )             (24 )     (70 )        
     
Operating income (loss)
     631       (2,191 )   NM     2,483       (263 )   NM 
as a % of sales
     7.1%     NM    NM     7.4%     NM    NM 
 
Net interest expense
     (62 )     (72 )             (281 )     (295 )        
Other, income / (expense)
     1       (34 )             64       38          
     
 
                                                
Earnings (loss) from continuing operations before income taxes
     570       (2,297 )             2,266       (520 )        
Federal and foreign income taxes
     (195 )     (264 )             (693 )     (859 )        
     
 
                                                
Earnings (loss) from continuing operations
     375       (2,561 )             1,573       (1,379 )        
Earnings (loss) from discontinued operations
     38       28               113       117          
     
 
                                                
Net earnings (loss)
     $ 413       $ (2,533 )   NM     $ 1,686       $ (1,262 )   NM 
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release.
     Fourth quarter and 2008 operating income for Aerospace Systems and Shipbuilding were reduced by goodwill impairment charges. Aerospace Systems and Shipbuilding segments operating income and trends, adjusted for the goodwill impairment impacts, are detailed below.

 

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   7     
     
Aerospace Systems ($ millions)
   
                                                 
    Fourth Quarter     Total Year  
 
                                                
     
 
                                                
    2009   2008   % Change   2009   2008   % Change
 
                                                
 
                        
 
                                                
Sales
   $2,763       $2,575       7.3 %     $10,419       $9,825       6.0 % 
 
                                                
Operating income (loss)
     291       (305 )   NM     1,071       416       157.5 % 
 
                                                
Goodwill impairment
             570                       570          
 
                                                
 
                        
 
                                                
Adjusted
     291       265       9.8 %     1,071       986       8.6 % 
 
                                                
 
                                                
Operating income
as % of sales
     10.5%     NM               10.3%       4.2%          
 
                                                
 
                                                
Adjusted operating income
as % of sales
     10.5%       10.3%               10.3%       10.0%          
          Aerospace Systems fourth quarter 2009 sales increased 7 percent, and 2009 sales increased 6 percent, principally due to higher volume for unmanned and manned aircraft, and restricted programs. Higher volume for these programs was partially offset by lower volume for missile programs.
          Aerospace Systems fourth quarter 2009 operating income increased to $291 million from a loss of $305 million in the fourth quarter of 2008, and 2009 operating income increased to $1.1 billion from $416 million. As a percent of sales, fourth quarter 2009 operating income totaled 10.5 percent, and 2009 operating income totaled 10.3 percent. Higher volume and favorable net performance adjustments contributed to the higher operating income and rate in the fourth quarter and 2009; the improvement over prior year results was primarily driven by the $570 million goodwill impairment charge recorded in the fourth quarter of 2008.
 
Electronic Systems ($ millions)
                                                 
    Fourth Quarter     Total Year  
 
                                                
         
 
                                                
    2009   2008   % Change   2009   2008   % Change
 
                                                
 
                        
 
                                                
Sales
     $2,077       $2,030       2.3%     $7,671       $7,048       8.8 %
 
                                                
Operating Income
     274       276       (0.7%)     969       947       2.3 %
 
                                                
as a % of sales
     13.2%       13.6%               12.6%       13.4%          
          Electronic Systems fourth quarter 2009 sales increased 2 percent, and 2009 sales increased 9 percent. The fourth quarter increase reflects higher volume for F-35, postal automation, and navigation programs. The 2009 increase includes higher deliveries of Large Aircraft Infrared Countermeasures (LAIRCM) systems, higher volume for the Space Based Infrared Systems (SBIRS) follow-on production and F-35 programs, and higher intercompany sales for aerospace programs.
          Electronic Systems fourth quarter 2009 operating income was comparable to the prior year period, and as a percent of sales was 13.2 percent compared with 13.6 percent. The change in margin rate reflects lower performance for government systems programs than in the prior year period. For 2009, operating income increased 2 percent, and as a percent of sales was 12.6 percent compared with 13.4 percent in 2008. Results for 2009

 

Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results
  
8
reflect higher volume, partially offset by lower performance in government systems programs. In addition, operating income for 2008 included $60 million of royalty income related to patent infringement settlements. Before royalty income, Electronic Systems 2008 operating income was 12.6 percent of sales.
 
Information Systems ($ millions)
                                                 
    Fourth Quarter     Total Year  
 
                                                
         
 
                                                
    2009   2008   % Change   2009   2008   % Change
 
                                                
 
                        
 
                                                
Sales
     $2,195       $2,178       0.8%     $8,611       $8,205       4.9 %
 
                                                
Operating Income
     109       167       (34.7 %)     631       629       0.3 %
 
                                                
as a % of sales
     5.0%       7.7%               7.3%       7.7%          
          Information Systems fourth quarter 2009 sales were comparable to the prior year period, and 2009 sales increased 5 percent due to higher volume for intelligence and defense programs.
          Information Systems fourth quarter 2009 operating income declined 35 percent, and as a percent of sales totaled 5 percent compared with 7.7 percent in the prior year period. For 2009, operating income was comparable to the prior year, and as a percent of sales totaled 7.3 percent compared with 7.7 percent in 2008. The change in rate for both the fourth quarter and 2009 reflects the impact of non-recurring costs associated with the sale of TASC that reduced operating income by $37 million. Margin rates before the non-recurring costs were 6.8 percent for the fourth quarter and 7.8 percent for 2009. The change in rate also includes lower performance for state and local programs, principally the outsourcing program for the Commonwealth of Virginia.
 
Shipbuilding ($ millions)
                                                 
    Fourth Quarter     Total Year  
 
                                                
         
 
                                                
    2009   2008   % Change   2009   2008   % Change
 
                                                
 
                        
 
                                                
Sales
     $1,664       $1,742       (4.5 %)     $6,213       $6,145       1.1 %
 
                                                
Operating income (loss)
     88       (2,333 )   NM     299       (2,307 )   NM
 
                                                
Goodwill impairment
             2,490                       2,490          
 
                                                
 
                            
 
                                                
Adjusted
     88       157       (43.9 %)     299       183       63.4 %
 
                                                
Operating income
as % of sales
     5.3%     NM             4.8%     NM        
 
                                                
Adjusted operating income
as % of sales
     5.3%       9.0%               4.8%       3.0%          
          Shipbuilding fourth quarter 2009 sales decreased 4 percent primarily due to lower volume for the DDG and fleet support programs and delivery of the LHD 8 in 2009, which was partially offset by higher volume for aircraft carriers, submarines, LPD and LHA programs. 2009 sales were slightly higher than the prior year and included higher volume for submarine, LPD, and aircraft carrier refueling programs, partially offset by lower volume for DDG 51 and fleet support programs.
 
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   9
          Shipbuilding fourth quarter 2009 operating income increased to $88 million from a loss of $2.3 billion in the fourth quarter of 2008, and 2009 operating income increased to $299 million from a loss of $2.3 billion for 2008. Prior year results included a goodwill impairment charge that reduced fourth quarter and 2008 results by $2.5 billion.
          Adjusted for the goodwill impairment charge, as a percent of sales, Shipbuilding 2009 fourth quarter operating income totaled 5.3 percent compared with 9 percent for the 2008 fourth quarter. The change in rate for the quarter is primarily due to lower performance for the LPD program. Adjusted for the goodwill impairment charge, 2009 operating income improved to 4.8 percent of sales from 3 percent of sales in 2008.
 
Technical Services ($ millions)
                                                 
    Fourth Quarter     Total Year  
 
                                                
         
 
                                                
    2009   2008   % Change   2009   2008   % Change
 
                                                
 
                        
 
                                                
Sales
     $750       $678       10.6 %     $2,776       $2,535       9.5 %
 
                                                
Operating Income
     40       34       17.6 %     161       144       11.8 %
 
                                                
as a % of Sales
     5.3%       5.0%               5.8%       5.7%          
          Technical Services fourth quarter 2009 sales increased 11 percent, and 2009 sales increased 10 percent, due to higher volume for life cycle optimization & engineering programs. Technical Services fourth quarter 2009 operating income increased 18 percent, and 2009 operating income increased 12 percent. As a percent of sales fourth quarter 2009 operating income improved to 5.3 percent from 5 percent, and 2009 operating income improved to 5.8 percent from 5.7 percent. The improvements in operating income and rate are due to higher volume and improved program performance.
# # #
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 10:30 a.m. ET on Feb. 4, 2010. 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 “anticipate,” “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
     
 
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

 

Northrop Grumman Reports Fourth Quarter and 2009 Financial Results   10
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; retiree medical expense; the outcome of litigation, claims, audits, appeals, bid protests and investigations; hurricane and earthquake-related insurance coverage and 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, strategic alliances 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, operation or quality setbacks in contract performance; protection of intellectual property rights; risks associated with our nuclear operations; 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
0210-046
     
 
Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com

 

 

         
    NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(preliminary and unaudited) 		  SCHEDULE 1
                         
    Year Ended December 31
$ in millions, except per share amounts   2009     2008     2007  
 
Sales and Service Revenues
                        
Product sales
     $ 20,914       $ 19,634       $ 18,577  
Service revenues
     12,841       12,681       11,764  
 
Total sales and service revenues
     33,755       32,315       30,341  
 
Cost of Sales and Service Revenues
                        
Cost of product sales
     16,591       15,490       14,340  
Cost of service revenues
     11,539       10,885       10,014  
General and administrative expenses
     3,142       3,143       3,062  
Goodwill impairment
             3,060          
 
Operating income (loss)
     2,483       (263 )     2,925  
Other (expense) income
                        
Interest expense
     (281 )     (295 )     (336 )
Other, net
     64       38       17  
 
Earnings (loss) from continuing operations before income taxes
     2,266       (520 )     2,606  
Federal and foreign income taxes
     693       859       855  
 
Earnings (loss) from continuing operations
     1,573       (1,379 )     1,751  
Earnings from discontinued operations, net of tax
     113       117       39  
 
Net earnings (loss)
     $ 1,686       $ (1,262 )     $ 1,790  
 
Basic Earnings (Loss) Per Share
                        
Continuing operations
     $ 4.93       $ (4.12 )     $ 5.12  
Discontinued operations
     .35       .35       .12  
 
Basic earnings (loss) per share
     $ 5.28       $ (3.77 )     $ 5.24  
 
Weighted-average common shares outstanding, in millions
     319.2       334.5       341.7  
 
Diluted Earnings (Loss) Per Share
                        
Continuing operations
     $ 4.87       $ (4.12 )     $ 5.01  
Discontinued operations
     .34       .35       .11  
 
Diluted earnings (loss) per share
     $ 5.21       $ (3.77 )     $ 5.12  
 
Weighted-average diluted shares outstanding, in millions
     323.3       334.5       354.3  
 
Net earnings (loss) from above
     $ 1,686       $ (1,262 )     $ 1,790  
Other comprehensive income (loss)
                        
Change in cumulative translation adjustment
     31       (24 )     12  
Change in unrealized gain (loss) on marketable securities and cash flow hedges, net of tax (expense) benefit of $(23) in 2009, $22 in 2008 and $(1) in 2007
     36       (35 )     1  
Change in unamortized benefit plan costs, net of tax (expense) benefit of $(374) in 2009, $1,888 in 2008 and $(384) in 2007
     561       (2,884 )     594  
 
Other comprehensive income (loss), net of tax
     628       (2,943 )     607  
 
Comprehensive income (loss)
     $ 2,314       $ (4,205 )     $ 2,397  
 

 

 

         
 
  NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(preliminary and unaudited) 		  SCHEDULE 2
                 
    December 31,   December 31,  
$ in millions   2009   2008  
 
Assets
                
Current Assets
                
Cash and cash equivalents
     $ 3,275       $ 1,504  
Accounts receivable, net of progress payments
     3,394       3,701  
Inventoried costs, net of progress payments
     1,170       1,003  
Deferred tax assets
     524       585  
Prepaid expenses and other current assets
     272       219  
Assets of discontinued operations
             1,231  
 
Total current assets
     8,635       8,243  
 
Property, Plant, and Equipment
                
Land and land improvements
     649       619  
Buildings and improvements
     2,422       2,326  
Machinery and other equipment
     4,759       4,547  
Capitalized software costs
     624       530  
Leasehold improvements
     630       545  
 
 
     9,084       8,567  
Accumulated depreciation
     (4,216 )     (3,782 )
 
Property, plant, and equipment, net
     4,868       4,785  
 
Other Assets
                
Goodwill
     13,517       13,509  
Other purchased intangibles, net of accumulated amortization of $1,871 in 2009 and $1,767 in 2008
     873       947  
Pension and post-retirement plan assets
     300       290  
Long-term deferred tax assets
     1,010       1,497  
Miscellaneous other assets
     1,049       926  
 
Total other assets
     16,749       17,169  
 
Total assets
     $ 30,252       $ 30,197  
 
 
                
Liabilities and Shareholders’ Equity
                
 
                
Current Liabilities
                
Notes payable to banks
     $ 12       $ 24  
Current portion of long-term debt
     91       477  
Trade accounts payable
     1,921       1,887  
Accrued employees’ compensation
     1,281       1,231  
Advance payments and billings in excess of costs incurred
     1,954       2,028  
Other current liabilities
     1,726       1,637  
Liabilities of discontinued operations
             165  
 
Total current liabilities
     6,985       7,449  
 
Long-term debt, net of current portion
     4,191       3,443  
Pension and post-retirement plan liabilities
     4,874       5,823  
Other long-term liabilities
     1,515       1,562  
 
Total liabilities
     17,565       18,277  
 
Shareholders’ Equity
                
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2009 —306,865,201; 2008 — 327,012,663
     307       327  
Paid-in capital
     8,657       9,645  
Retained earnings
     6,737       5,590  
Accumulated other comprehensive loss
     (3,014 )     (3,642 )
 
Total shareholders’ equity
     12,687       11,920  
 
Total liabilities and shareholders’ equity
     $ 30,252       $ 30,197  
 

 

 

         
    NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited) 		  SCHEDULE 3
                         
    Year Ended December 31  
$ in millions   2009     2008     2007  
 
Operating Activities
                        
Sources of Cash — Continuing Operations
                        
Cash received from customers
                        
Progress payments
     $ 8,561     $ 6,219     $ 5,860  
Collections on billings
     25,099       26,938       24,570  
Insurance proceeds received
     25       5       125  
Other cash receipts
     37       83       34  
 
Total sources of cash — continuing operations
     33,722       33,245       30,589  
 
Uses of Cash — Continuing Operations
                        
Cash paid to suppliers and employees
     (29,250 )     (28,817 )     (26,144 )
Pension contributions
     (858 )     (320 )     (342 )
Interest paid, net of interest received
     (269 )     (287 )     (334 )
Income taxes paid, net of refunds received
     (774 )     (712 )     (853 )
Income taxes paid on sale of businesses
     (508 )     (7 )        
Excess tax benefits from stock-based compensation
     (2 )     (48 )     (52 )
Other cash payments
     (30 )     (16 )     (52 )
 
Total uses of cash — continuing operations
     (31,691 )     (30,207 )     (27,777 )
 
Cash provided by continuing operations
     2,031       3,038       2,812  
Cash provided by discontinued operations
     102       173       78  
 
Net cash provided by operating activities
     2,133       3,211       2,890  
 
Investing Activities
                        
Proceeds from sale of businesses, net of cash divested
     1,650       175          
Payments for businesses purchased
     (33 )     (92 )     (690 )
Additions to property, plant, and equipment
     (654 )     (681 )     (681 )
Payments for outsourcing contract costs and related software costs
     (68 )     (110 )     (137 )
(Increase) decrease in restricted cash
     (28 )     61       59  
Other investing activities, net
             21       19  
 
Net cash provided by (used in) investing activities
     867       (626 )     (1,430 )
 
Financing Activities
                        
Net borrowings under lines of credit
     (12 )     (2 )     (69 )
Proceeds from issuance of long-term debt
     843                  
Principal payments of long-term debt
     (474 )     (113 )     (90 )
Proceeds from exercises of stock options and issuances of common stock
     51       103       274  
Dividends paid
     (539 )     (525 )     (504 )
Excess tax benefits from stock-based compensation
     2       48       52  
Common stock repurchases
     (1,100 )     (1,555 )     (1,175 )
 
Net cash used in financing activities
     (1,229 )     (2,044 )     (1,512 )
 
Increase (decrease) in cash and cash equivalents
     1,771       541       (52 )
Cash and cash equivalents, beginning of year
     1,504       963       1,015  
 
Cash and cash equivalents, end of year
     $ 3,275     $ 1,504     $ 963  
 

 

 

         
 
  NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited) 		  SCHEDULE 4
                         
    Year Ended December 31  
$ in millions   2009     2008     2007  
 
Reconciliation of Net Earnings (Loss) to Net Cash Provided by Operating Activities
                        
                         
Net earnings (loss)
     $ 1,686     $ (1,262 )   $ 1,790  
                         
Net earnings from discontinued operations
     (95 )     (91 )     (39 )
                         
Adjustments to reconcile to net cash provided by operating activities
                        
                         
Depreciation
     585       567       570  
                         
Amortization of assets
     151       189       152  
                         
Impairment of goodwill
             3,060          
                         
Stock-based compensation
     105       118       196  
                         
Excess tax benefits from stock-based compensation
     (2 )     (48 )     (52 )
                         
Pre-tax gain on sale of businesses
     (446 )     (58 )        
                         
Pre-tax gain on sale of investments
                     (23 )
                         
(Increase) decrease in
                        
                         
Accounts receivable
     (6,313 )     (378 )     (6,439 )
                         
Inventoried costs
     (291 )     (521 )     4  
                         
Prepaid expenses and other current assets
     (6 )     (20 )     9  
                         
Increase (decrease) in
                        
                         
Progress payments
     6,655       764       6,513  
                         
Accounts payable and accruals
     (151 )     383       (2 )
                         
Deferred income taxes
     112       167       195  
                         
Income taxes payable
     65       241       (59 )
                         
Retiree benefits
     (20 )     (167 )     (50 )
                         
Other non-cash transactions, net
     (4 )     94       47  
 
Cash provided by continuing operations
     2,031       3,038       2,812  
                         
Cash provided by discontinued operations
     102       173       78  
 
Net cash provided by operating activities
     $ 2,133     $ 3,211     $ 2,890  
 
Non-Cash Investing and Financing Activities
                        
Investment in unconsolidated affiliate
                   $ 30  
Sale of businesses
                        
Liabilities assumed by purchaser
     $ 167     $ (18 )        
 
Purchase of businesses
                        
Liabilities assumed by the company
           $ 20     $ 136  
 
Mandatorily redeemable convertible preferred stock converted or redeemed into common stock
           $ 350          
 
Capital leases
                   $ 35  
 
Capital expenditures accrued in accounts payable
     $ 104     $ 84     $ 80  
 

 

 

    NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(preliminary and unaudited) 		  SCHEDULE 5
                                                            
$ in millions   December 31, 2009     December 31, 2008 (3)  
 
  FUNDED (1) UNFUNDED(2) TOTAL
BACKLOG		   FUNDED (1) UNFUNDED(2) TOTAL
BACKLOG
           
Aerospace Systems
   $  8,320     $  16,063     $  24,383       $  7,648     $  22,883     $  30,531  
Electronic Systems
     7,591       2,784       10,375         8,391       2,124       10,515  
Information Systems
     4,319       4,508       8,827         4,480       3,865       8,345  
Shipbuilding
     11,294       9,151       20,445         14,205       8,148       22,353  
Technical Services
     2,352       2,804       5,156         1,840       2,831       4,671  
       
Total
   $  33,876     $  35,310     $  69,186       $  36,564     $  39,851     $  76,415  
       
  (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.
 
New Awards – The estimated value of contract awards included in backlog during the year ended December 31, 2009, was approximately $32.3 billion.
Change in backlog includes a decrease of $5.8 billion for the Kinetic Energy Interceptor program termination for convenience, and the DDG 1000 program restructure.

 

    NORTHROP GRUMMAN CORPORATION
SUMMARY OPERATING RESULTS
DISCONTINUED OPERATIONS RECLASSIFICATION
(preliminary and unaudited) 		  SCHEDULE 6
                                                         
    2007   2008   2009  
        Three Months              
    Total   Ended   Total     Three Months Ended     YTD  
$ in millions, except per share amounts   Year       Dec 31     Year     Mar 31     Jun 30     Sep 30     Sep  
               
 
                                                        
Sales and Services Revenues
                                                        
As Previously Reported
     $ 31,828       $ 9,154       $ 33,887       $ 8,320       $ 8,957       $ 8,726       $ 26,003  
Advisory Services Division
     (1,487 )     (379 )     (1,572 )     (385 )     (412 )     (376 )     (1,173 )
               
 
                                                        
Restated sales and services revenues
     $ 30,341       $ 8,775       $ 32,315       $ 7,935       $ 8,545       $ 8,350       $ 24,830  
               
 
                                                        
Segment Operating Income (Loss) (1)
                                                        
As Previously Reported
     $ 3,115       $ (2,155 )     $ (145 )     $ 791       $ 719       $ 786       $ 2,296  
Advisory Services Division
     (90 )     (41 )     (154 )     (36 )     (39 )     (36 )     (111 )
               
 
                                                        
Restated segment operating income (loss)
     $ 3,025       $ (2,196 )     $ (299 )     $ 755       $ 680       $ 750       $ 2,185  
               
 
                                                        
Earnings (Loss) From Continuing Operations
                                                        
As Previously Reported
     $ 1,811       $ (2,536 )     $ (1,281 )     $ 389       $ 394       $ 487       $ 1,270  
Advisory Services Division
     (60 )     (25 )     (98 )     (23 )     (26 )     (23 )     (72 )
               
 
                                                        
Restated earnings (loss) from continuing operations
     $ 1,751       $ (2,561 )     $ (1,379 )     $ 366       $ 368       $ 464       $ 1,198  
               
 
                                                        
Diluted Earnings (Loss) Per Share from Continuing Operations
                                                        
 
                                                        
As Previously Reported
     $ 5.18       $ (7.76 )     $ (3.83 )     $ 1.17       $ 1.21       $ 1.52       $ 3.89  
 
                                                        
Advisory Services Division, Net of Tax
     (0.17 )     (0.07 )     (0.29 )     (0.07 )     (0.08 )     (0.07 )     (0.22 )
               
 
                                                        
Restated diluted earnings (loss) per share from continuing operations
     $ 5.01       $ (7.83 )     $ (4.12 )     $ 1.10       $ 1.13       $ 1.45       $ 3.67  
               
 
                                                        
Weighted-average diluted shares outstanding, in millions
     354.3       326.9       334.5       332.1       325.8       320.6       326.1  
(1)   Non-GAAP measure. Management uses segment operating income as an internal measure of financial performance for the individual business segments.

 

 

Non-GAAP Financial Measures Disclosure: Today’s press release contains non-GAAP (Generally Accepted Accounting Principles) financial measures, as defined by SEC Regulation G and indicated by a footnote in the text of the release. While we believe that these non-GAAP financial measures may be useful in evaluating Northrop Grumman’s financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release and in attached schedules. References to a “Table” in the definitions below relate to tables in the body of this press release. Other companies may define these measures differently or may utilize different non-GAAP measures.
Adjusted operating income: Operating income (loss) before the net pension adjustment and, for 2008, the $3.060 billion goodwill impairment charge. Adjusted operating income has been provided for consistency and comparability of 2009 and 2008 operating results and is reconciled in Table 1.
Adjusted operating income as a % of sales: Operating income (loss) before the net pension adjustment and, for 2008, the $3.060 billion goodwill impairment charge, divided by sales. Adjusted operating income as a % of sales has been provided for consistency and comparability of 2009 and 2008 operating results and is reconciled on Table 1.
Adjusted earnings from continuing operations: Earnings (loss) from continuing operations excluding, in 2008, the $3.060 billion goodwill impairment charge. Adjusted earnings from continuing operations has been provided for consistency and comparability of 2009 and 2008 operating results and is reconciled on Table 1.
Adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding, in 2008, the per share impact of the goodwill impairment charge. Adjusted diluted EPS from continuing operations has been provided for consistency and comparability of 2009 and 2008 operating results and are reconciled in Table 1.
Cash provided by operations before discretionary pension contributions: Cash provided by operations plus after-tax discretionary pension pre-funding. Cash provided by operations before discretionary pension contributions has been provided for consistency and comparability of 2009 and 2008 financial performance and is reconciled on Table 3.
Net pension adjustment: Pension expense determined in accordance with GAAP less pension expense allocated to the business segments under U.S. Government Cost Accounting Standards (CAS).
After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at the statutory rate of 35% - provided for consistency and comparability of 2009 and 2008 financial performance and is reconciled on Table 1.
Free cash flow: Cash provided by operations less capital expenditures and outsourcing contract and related software costs. Management uses free cash flow as an internal measure of financial performance. Free cash flow is reconciled in Table 3.
Free cash flow before discretionary pension contributions: Free cash flow plus after-tax discretionary pension pre-funding. Management uses free cash flow before discretionary pension contributions, as reconciled in Table 3, as an internal measure of financial performance.
Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pension adjustment and, for 2008, the goodwill impairment charge of $3.060 billion. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS from continuing operations, as reconciled in Table 1, as a performance metric for operating results.
Segment operating income (loss): Total earnings (loss) from our five segments including allocated pension expense recognized under CAS. Reconciling items to operating income are unallocated expenses, which include unallocated corporate, legal, environmental, state income tax, and other retiree benefits expenses; net pension adjustment, and reversal of royalty income included in segment operating income. Management uses segment operating income, as reconciled in Table 5, as an internal measure of financial performance of our individual business segments.
Segment operating margin rate % / Segment operating income as a % of sales: Segment operating income as defined above, divided by sales. Management uses segment operating income (loss) %, as reconciled in Table 5, as an internal measure of financial performance.
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Northrop Grumman Corporation
1840 Century Park East • Los Angeles, CA 90067
www.northropgrumman.com