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Northrop Grumman Reports First Quarter 2009 Financial Results

Posted on: Wednesday, 22 April 2009, 07:00 CDT

- Sales Increase to $8.3 Billion

- GAAP EPS from Continuing Operations Increase to $1.17; Pension-adjusted EPS of $1.32

- All Operating Sectors Generate Higher Sales and Operating Income

- 4.2 Million Shares Repurchased

- 2009 EPS Guidance Raised - GAAP EPS Increased to $4.65 to $4.90; Pension-adjusted EPS Increased to $5.30 to $5.55

LOS ANGELES, April 22 /PRNewswire-FirstCall/ -- Northrop Grumman Corporation (NYSE: NOC) reported that first quarter 2009 earnings from continuing operations increased 48 percent to $389 million, or $1.17 per diluted share, compared with $263 million, or $0.76 per diluted share, in the first quarter of 2008. First quarter 2008 earnings were reduced by a pre-tax charge of $326 million, or $0.61 per diluted share, in the company's Shipbuilding sector.

Sales for the 2009 first quarter increased 8 percent to $8.3 billion from $7.7 billion in the 2008 first quarter. First quarter 2008 sales were reduced by $134 million due to the $326 million charge in the Shipbuilding sector.

In the 2009 first quarter, $172 million of cash was used in operations, including discretionary pension pre-funding of $214 million, compared with $194 million of cash provided by operations in the prior year period.

"We're pleased with our first quarter financial results, and we're confident that our products and capabilities continue to be extremely well aligned with current and emerging national security priorities," said Ronald D. Sugar, chairman and chief executive officer.

Financial Highlights -------------------- First Quarter ------------ ($ in millions except per share amounts) 2009 2008 ---- ---- Sales $8,320 $7,724 Segment operating income(1) $791 $458 as a % of sales 9.5% 5.9% Operating income $655 $464 as a % of sales 7.9% 6.0% Diluted EPS from continuing operations $1.17 $0.76 Average diluted shares outstanding, in millions 332.1 349.3 Cash (used in) provided by operations $(172) $194 Free cash flow(2) $(352) $16 (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 first quarter increased 41 percent to $655 million from $464 million in the 2008 first quarter due to higher segment operating income, which was partially offset by a $135 million change in net pension adjustment and a $21 million increase in unallocated expense. The first quarter 2009 net pension adjustment is an expense of $76 million compared to income of $59 million in the first quarter of 2008. The increase in unallocated expenses is principally due to higher post-retirement benefit plan and litigation costs. As a percent of sales, operating income increased to 7.9 percent from 6 percent in the prior year period.

The higher segment operating income reflects higher sales and operating income for all five operating sectors. As a percent of sales, segment operating income increased to 9.5 percent from 5.9 percent in the prior year period. Segment operating income and margin rate for the 2008 first quarter were reduced by a $326 million charge in the Shipbuilding sector.

Federal and foreign income taxes for the 2009 first quarter increased to $201 million from $146 million in the first quarter of 2008. The effective tax rate applied to earnings from continuing operations for the 2009 first quarter was 34.1 percent compared with 35.7 percent in the 2008 first quarter.

Earnings per share are based on weighted average diluted shares outstanding of 332.1 million for the first quarter of 2009 and 349.3 million for the first quarter of 2008. Weighted average shares outstanding for the 2009 first quarter include share repurchases of approximately 4.2 million, and for the 2008 first quarter include the dilutive effect of approximately 4.5 million shares of preferred stock.

New business awards totaled $7.1 billion in the 2009 first quarter. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $76.9 billion as of March 31, 2009.

Pension-adjusted Results ------------------------ First Quarter ------------ ($ in millions except per share amounts) 2009 2008 ---- ---- Sales $8,320 $7,724 Operating income $655 $464 as a % of sales 7.9% 6.0% Net pension adjustment 76 (59) --- --- Pension-adjusted operating income(1) $731 $405 Pension-adjusted operating margin %(1) 8.8% 5.2% Earnings from continuing operations $389 $263 Net pension adjustment, after-tax 49 (38) --- --- Pension-adjusted earnings from continuing operations(2) $438 $225 Diluted EPS from continuing operations $1.17 $0.76 Adjustment for net pension 0.15 (0.12) ---- ----- Pension-adjusted diluted EPS from continuing operations(3) $1.32 $0.64 Weighted average diluted shares outstanding, in millions 332.1 349.3 (1) 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. 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. Management uses pension-adjusted operating income and margin % as internal measures of the financial performance of the company. (2) 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. (3) 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.

As reconciled in the table above, first quarter 2009 operating income totaled 8.8 percent of sales when adjusted for the first quarter 2009 net pension adjustment of $76 million expense. First quarter 2008 operating income totaled 5.2 percent of sales when adjusted for the 2008 first quarter net pension adjustment of $59 million income. Pension-adjusted earnings per share from continuing operations increased to $1.32 for the first quarter of 2009 from $0.64 for the first quarter of 2008.

Cash Flow Highlights -------------------- First Quarter ----------------------- ($ millions) 2009 2008 Change ---- ---- ------ Before discretionary pension pre-funding $42 $194 $(152) Discretionary pension pre-funding (214) (214) ---- --- ---- Cash (used in) provided by operations (172) 194 (366) Less: Capital expenditures 162 143 (19) Outsourcing contract & related software costs 18 35 17 --- --- --- Free cash flow(1) $(352) $16 $(368) (1) 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.

Cash used in operations in the 2009 first quarter totaled $172 million compared with $194 million provided by operations in the prior year period. The $366 million change includes the impact of $214 million of discretionary pension plan pre-funding as well as higher working capital than in the prior year period. First quarter 2009 free cash outflow totaled $352 million compared with free cash flow of $16 million in the prior year period.

Cash Measurements, Debt and Capital Deployment ---------------------------------------------- ($ millions) 3/31/2009 12/31/2008 ------------ --------- ---------- Cash & cash equivalents $882 $1,504 Total debt 3,941 3,944 Net debt(1) 3,059 2,440 Net debt to total capital ratio(2) 19% 15% (1) Total debt less cash and cash equivalents. (2) Net debt divided by the sum of shareholders' equity and total debt.

Cash and cash equivalents totaled $882 million at March 31, 2009 compared with $1.5 billion at Dec. 31, 2008, and total debt was comparable to the year end 2008. Changes in cash and cash equivalents include the following cash deployment and financing actions during the quarter:

• $150 million for share repurchases
• $214 million for discretionary pension pre-funding
• $162 million for capital expenditures and $18 million for outsourcing contract and related software costs
• $131 million for dividends
• $8 million proceeds from exercises of stock options and issuance of common stock

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 settlement amounts for the two claims were equal and therefore offset each other, the company had previously recorded a provision for the microelectronics claim. The company expects that the final impact of the agreement, after other litigation matters and legal costs, will be a pre-tax gain of $60 to $70 million in its second quarter 2009 financial results, and is considered in the 2009 guidance provided below.

2009 EPS Guidance Raised ------------------------ Previous Current Diluted EPS from continuing operations $4.50 - 4.75 $4.65 - 4.90 Pension-adjusted diluted EPS from continuing operations $5.15 - 5.40 $5.30 - 5.55

The company will provide additional 2009 guidance detail at its Institutional Investor Conference to be held on May 5, 2009 at its Electronic Systems facility in Baltimore. The Conference will be webcast.

Business Results ---------------- Consolidated Sales & Segment Operating Income ($ millions) First Quarter ------------------------- 2009 2008 Change ---- ---- ------ Sales Information Systems $2,491 $2,298 8% Aerospace Systems 2,456 2,361 4% Electronic Systems 1,788 1,545 16% Shipbuilding 1,375 1,264 9% Technical Services 632 558 13% Intersegment eliminations (422) (302) ---- ---- --- $8,320 $7,724 8% Segment operating income Information Systems $223 $212 5% Aerospace Systems 258 252 2% Electronic Systems 229 209 10% Shipbuilding 84 (218) NM Technical Services 37 29 28% Intersegment eliminations (40) (26) --- --- -- Segment operating income $791 $458 73% as a % of sales 9.5% 5.9% 360 bps Reconciliation to operating income: Unallocated expenses $(53) $(32) Net pension adjustment(1) (76) 59 Reversal of royalty income included above (7) (21) --- --- --- Operating income $655 $464 41% as a % of sales 7.9% 6.0% 190 bps (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.

Operating results for all periods presented reflect the realignment of the former Mission Systems and Information Technology into the Information Systems sector and the realignment of the former Integrated Systems and Space Technology into the Aerospace Systems sector. In addition, the presentation reflects the transfer of certain businesses from Information Systems and Electronic Systems to the Technical Services sector. Schedule 6 provides previously reported quarterly financial results revised to reflect the current reporting structure.

Information Systems First Quarter ($ millions) --------------------------- 2009 2008 Operating Operating Sales Income % of Sales Sales Income % of Sales ----- ---------- ---------- ------ ---------- ---------- $2,491 $223 9.0% $2,298 $212 9.2% ------ ---- --- ------ ---- ---

Information Systems first quarter 2009 sales increased 8 percent due to higher sales for command, control & communications, ISR, and intelligence programs. The higher volume for these programs was partially offset by lower volume for commercial, state & local programs.

Information Systems operating income rose 5 percent in the 2009 first quarter. As a percent of sales, operating income was 9 percent compared with 9.2 percent in the prior year period. The increase in operating income is due to higher volume. The slightly lower margin rate principally reflects lower performance for commercial, state and local programs.

Aerospace Systems First Quarter ($ millions) --------------------------- 2009 2008 Operating Operating Sales Income % of Sales Sales Income % of Sales ----- ---------- ---------- ------ ---------- ---------- $2,456 $258 10.5% $2,361 $252 10.7% ------ --- ---- ------ ---- ----

Aerospace Systems first quarter 2009 sales increased 4 percent, principally due to higher volume for unmanned aircraft programs, including Broad Area Maritime Surveillance (BAMS) Unmanned Aerial System, Unmanned Combat Air Systems Carrier Demonstration (UCAS-D), and Global Hawk; manned programs such as F-35, Joint STARS, B-2, and F/A-18; and restricted programs. Higher volume for these programs was partially offset by the cancellation of the Air Mobility Tanker replacement program and lower volume for the Intercontinental Ballistic Missile (ICBM), E-2D Advanced Hawkeye, and Airborne Laser programs.

Aerospace Systems operating income rose 2 percent, and as a percent of sales, was 10.5 percent, slightly lower than the prior year period. The increase in operating income reflects higher volume, and the margin rate for the period reflects the impact of higher positive program adjustments in the 2008 first quarter.

Electronic Systems First Quarter ($ millions) --------------------------- 2009 2008 Operating Operating Sales Income % of Sales Sales Income % of Sales ----- ---------- ---------- ------ ---------- ---------- $1,788 $229 12.8% $1,545 $209 13.5% ------ ---- ---- ------ ---- ----

Electronic Systems first quarter 2009 sales increased 16 percent from the prior year period and included higher deliveries for LAIRCM, and higher volume for aerospace systems and postal automation programs, the Space Based Infrared System (SBIRS) program, and intercompany programs.

Electronic Systems first quarter 2009 operating income rose 10 percent, and as a percent of sales was 12.8 percent compared with 13.5 percent in the prior year period. The increase in operating income is due to higher volume. The decline in margin rate reflects a net positive impact to royalty income of $15 million for patent infringement settlements in the 2008 first quarter compared to the 2009 first quarter.

Shipbuilding First Quarter ($ millions) --------------------------- 2009 2008 Operating Operating Sales Income % of Sales Sales (Loss) % of Sales ----- ---------- ---------- ------ ---------- ---------- $1,375 $84 6.1% $1,264 ($218) NM ------ --- --- ------ ----- ---

Shipbuilding first quarter 2009 sales increased 9 percent, principally due to higher volume for the LHD 8 amphibious assault ship, Virginia-class submarine, and aircraft carrier programs. Higher volume for these programs was partially offset by lower volume on the DDG 51 program. Shipbuilding revenue in the 2008 first quarter was reduced by $134 million due to the revision of the LHD 8 contract's estimate to complete.

Shipbuilding operating income for the 2009 first quarter totaled $84 million, or 6.1 percent of sales, compared to a loss of $218 million in the first quarter of 2008. First quarter 2009 operating income includes adjustments for cost growth on the DDG 51 program and LPD 22, as well as positive performance for risk retirement and escalation adjustments on the LHD 8 program. During the 2008 first quarter the company recorded a $326 million charge primarily related to the LHD 8 contract performance and operating impacts to other programs.

Technical Services First Quarter ($ millions) --------------------------- 2009 2008 Operating Operating Sales Income % of Sales Sales Income % of Sales ----- ---------- ---------- ----- ---------- ---------- $632 $37 5.9% $558 $29 5.2% ---- --- --- ----- --- ---

Technical Services sales increased 13 percent due to higher volume for life cycle optimization & engineering, and training & simulation programs. Operating income increased 28 percent, and as a percent of sales, increased to 5.9 percent from 5.2 percent in the prior year period. The comparison to first quarter 2008 reflects the higher volume as well as improved performance on several programs.

First Quarter Highlights

• Northrop Grumman shipbuilders and U.S. Navy personnel joined forces aboard the amphibious assault ship Makin Island (LHD 8) to complete a successful U.S. Navy acceptance sea trial in the Gulf of Mexico. The LHD 8 was subsequently delivered to the Navy on April 16th.
• Northrop Grumman Electronic Systems received a contract valued at $637 million from General Dynamics Electric Boat to provide main propulsion units (MPUs) and ship service turbine generators (SSTGs) for Virginia-class submarines. This contract represents a follow-on production order for Block III of the Virginia-class submarine program.
• The U.S. Army increased the ceiling of a Northrop Grumman indefinite delivery/indefinite quantity contract by $574 million to provide installation kits, cables and related hardware for the Force XXI Battle Command Brigade and Below program, bringing the ceiling of the current six-year contract to $908 million.
• The U.S. Navy awarded Northrop Grumman a $374 million cost-type contract award for construction preparation of the nuclear-powered aircraft carrier CVN 79, the second ship of the Gerald R. Ford class.
• The U.S. Air Force awarded Northrop Grumman an indefinite-delivery/indefinite-quantity contract valued at $276 million for operations and maintenance support of the RQ-4 Global Hawk unmanned reconnaissance aircraft.
• Northrop Grumman successfully redelivered the Los Angeles-class submarine USS Toledo (SSN 769) to the U.S. Navy on Feb. 21, following successful sea trials.
• Northrop Grumman successfully completed thermal vacuum testing of the second geosynchronous orbit (GEO-2) payload for the SBIRS program.
• Northrop Grumman shipped the Lunar CRater Observation and Sensing Satellite (LCROSS) to NASA's Kennedy Space Center in Florida to be integrated with the Lunar Reconnaissance Orbiter onto an Atlas V launch vehicle.
• Northrop Grumman delivered the payload module for the third Advanced Extremely High Frequency military communications satellite on Feb. 27, marking three consecutive early deliveries of the sophisticated flight hardware and software.
• The first Marine Corp UH-1Y helicopter with Northrop Grumman Integrated Cockpit was deployed in the 13th Marine Expeditionary Unit. Northrop Grumman's Integrated Avionics System and integration support were key parts of preparing the helicopters for initial deployment early in 2009 with the unit.
• Northrop Grumman delivered its 400th fuselage section for the F/A-18E/F Super Hornet, the U.S. Navy's combat-proven multi-role strike fighter.
• Northrop Grumman delivered the 500th Command Post Platform shelter system to the U.S. Army.
• Guinness World Records(TM) notified Northrop Grumman that its ultra-fast, one-terahertz transistor set a new world record for transistor speed.
• Northrop Grumman produced the most powerful beam yet created by an electric laser, measured at more than 105 kilowatts (kW), completing the final demonstration milestone of the U.S. military's Joint High Power Solid State Laser program, Phase 3.
• The board of directors declared a quarterly dividend of $0.40 per share on Northrop Grumman common stock.

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 April 22, 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.

Note: Certain statements and assumptions in this release contain or are based on "forward-looking" information that Northrop Grumman Corporation (the "Company") believes to be within the definition in the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties, and include, among others, statements in the future tense, and all statements accompanied by terms such as "preliminary," "project," "expect," "estimate," "assume," "believe," "plan," "forecast," "intend," "anticipate," "guidance," "outlook," "trends," "target" or variations thereof. This information reflects the Company's best estimates when made, but the Company expressly disclaims any duty to update this information if new data become available or estimates change after the date of this release.

Such "forward-looking" information includes, among other things, financial guidance regarding sales, segment operating income, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow, and earnings per share, and is subject to numerous assumptions and uncertainties, many of which are outside the Company's control. These include the Company's assumptions with respect to the impact of domestic and global economic uncertainties on financial markets, access to capital, value of goodwill and other long-lived assets; changes in government spending; future revenues; expected program performance and cash flows; returns on pension plan assets and variability of pension actuarial and related assumptions and regulatory requirements; the outcome of litigation, claims, appeals, bid protests, and investigations; hurricane-related insurance recoveries; environmental remediation; acquisitions and divestitures of businesses; joint ventures and other business arrangements; performance issues with, and financial viability of, key suppliers and subcontractors; product performance and the successful execution of internal plans; successful negotiation of contracts with labor unions; allowability and allocability of costs under U.S. Government contracts; effective tax rates and timing and amounts of tax payments; the results of any audit or appeal process with the Internal Revenue Service; the availability and retention of skilled labor; and anticipated costs of capital investments, among other things.

The Company's operations are subject to various additional risks and uncertainties resulting from its position as a supplier, either directly or as subcontractor or team member, to the U.S. government and its agencies as well as to foreign governments and agencies; actual outcomes are dependent upon various factors, including, without limitation, the Company's successful performance of internal plans; government customers' budgetary constraints; customer changes in short-range and long-range plans; domestic and international competition in both the defense and commercial areas; technical, operational or quality setbacks that could adversely affect the profitability or cash flow of the Company; product performance; continued development and acceptance of new products and, in connection with any fixed-price development programs, controlling cost growth in meeting production specifications and delivery rates; performance issues with key suppliers and subcontractors; government import and export policies; acquisition or termination of government contracts; the outcome of political and legal processes and of the assertion or prosecution of potential substantial claims by or on behalf of a U.S. government customer; natural disasters, including amounts and timing of recoveries under insurance contracts, availability of materials and supplies, continuation of the supply chain, contractual performance relief and the application of cost sharing terms, allowability and allocability of costs under U.S. Government contracts, impacts of timing of cash receipts and the availability of other mitigating elements; terrorist acts; legal, financial and governmental risks related to international transactions and global needs for military aircraft, military and civilian electronic systems and support, information technology, naval vessels, space systems, technical services and related technologies, as well as other economic, political and technological risks and uncertainties and other risk factors set out in the Company's filings from time to time with the Securities and Exchange Commission, including, without limitation, Company reports on Form 10-K and Form 10-Q. This release and its attachments also contain non-GAAP financial measures and include a GAAP reconciliation of the Company's use of these financial measures.

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 ended March 31, ------------------- $ in millions, except per share amounts 2009 2008 --------------------------------------- ---- ---- Sales and Service Revenues Product sales $4,570 $4,394 Service revenues 3,750 3,330 ---------------- ----- ----- Total sales and service revenues $8,320 $7,724 -------------------------------- ------ ------ Cost of Sales and Service Revenues Cost of product sales 3,635 3,729 Cost of service revenues 3,281 2,793 General and administrative expenses 749 738 ----------------------------------- --- --- Operating income $655 $464 Other (expense) income Interest expense (73) (77) Other, net 8 22 ---------- --- --- Earnings from continuing operations before income taxes 590 409 Federal and foreign income taxes 201 146 -------------------------------- --- --- Earnings from continuing operations 389 263 Income from discontinued operations, net of tax 1 ----------------------------------------------- --- --- Net earnings $389 $264 ------------ ---- ---- Basic Earnings Per Share Continuing operations $1.19 $.78 Discontinued operations ----------------------- --- --- Basic earnings per share $1.19 $.78 ------------------------ ----- ---- Weighted-average common shares outstanding, in millions 326.9 338.8 ------------------------------- ----- ----- Diluted Earnings Per Share Continuing operations $1.17 $.76 Discontinued operations ----------------------- --- --- Diluted earnings per share $1.17 $.76 -------------------------- ----- ---- Weighted-average diluted shares outstanding, in millions 332.1 349.3 ------------------------- ----- ----- NORTHROP GRUMMAN CORPORATION SCHEDULE 2 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited) March 31, December 31, $ in millions 2009 2008 ------------- -------- ----------- Assets Cash and cash equivalents $882 $1,504 Accounts receivable, net of progress payments 4,416 3,904 Inventoried costs, net of progress payments 1,178 1,003 Deferred income taxes 520 549 Prepaid expenses and other current assets 256 229 ---------------------------------- --- --- Total current assets 7,252 7,189 Property, plant, and equipment, net of accumulated depreciation of $3,925 in 2009 and $3,803 in 2008 4,777 4,810 Goodwill 14,524 14,518 Other purchased intangibles, net of accumulated amortization of $1,821 in 2009 and $1,795 in 2008 921 947 Pension and postretirement plan assets 292 290 Long-term deferred tax assets 1,455 1,510 Miscellaneous other assets 921 933 -------------------------- --- --- Total assets $30,142 $30,197 ------------ ------- ------- Liabilities Notes payable to banks $24 $24 Current portion of long-term debt 565 477 Trade accounts payable 1,924 1,943 Accrued employees' compensation 1,280 1,284 Advance payments and billings in excess of costs incurred 1,953 2,036 Other current liabilities 1,763 1,660 ------------------------- ----- ----- Total current liabilities 7,509 7,424 Long-term debt, net of current portion 3,352 3,443 Pension and postretirement plan liabilities 5,721 5,823 Other long-term liabilities 1,503 1,587 --------------------------- ----- ----- Total liabilities 18,085 18,277 ----------------- ------ ------ Commitments and Contingencies Shareholders' Equity Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2009 - 324,674,859; 2008 - 327,012,663 325 327 Paid-in capital 9,482 9,645 Retained earnings 5,846 5,590 Accumulated other comprehensive loss (3,596) (3,642) ------------------------------------ ------ ------ Total shareholders' equity 12,057 11,920 -------------------------- ------ ------ Total liabilities and shareholders' equity $30,142 $30,197 ------------------------------------------ ------- ------- NORTHROP GRUMMAN CORPORATION SCHEDULE 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, ----------------- $ in millions 2009 2008 ------------- ---- ---- Operating Activities Sources of Cash - Continuing Operations Cash received from customers Progress payments $1,174 $1,608 Collections on billings 6,326 5,950 Other cash receipts 51 33 ------------------- --- --- Total sources of cash - continuing operations 7,551 7,591 ------------------------ ----- ----- Uses of Cash - Continuing Operations Cash paid to suppliers and employees (7,530) (7,189) Interest paid, net of interest received (98) (106) Income taxes paid, net of refunds received (73) (52) Excess tax benefits from stock-based compensation (44) Other cash payments (22) (3) ------------------- --- --- Total uses of cash - continuing operations (7,723) (7,394) ---------------------- ------ ------ Cash (used in) provided by continuing operations (172) 197 Cash used in discontinued operations (3) ------------------------------------ --- Net cash (used in) provided by operating activities (172) 194 ---------------------------- ---- --- Investing Activities Additions to property, plant, and equipment (162) (143) Payments for outsourcing contract costs and related software costs (18) (35) Decrease in restricted cash 3 26 Other investing activities, net 1 4 ------------------------------- --- --- Net cash used in investing activities (176) (148) ------------------------------------- ---- ---- Financing Activities Net (payments) borrowings under lines of credit (1) 33 Proceeds from exercises of stock options and issuances of common stock 8 69 Dividends paid (131) (126) Excess tax benefits from stock-based compensation 44 Common stock repurchases (150) (600) ------------------------ ---- ---- Net cash used in financing activities (274) (580) ------------------------------------- ---- ---- Decrease in cash and cash equivalents (622) (534) Cash and cash equivalents, beginning of period 1,504 963 -------------------------- ----- --- Cash and cash equivalents, end of period $882 $429 ---------------------------------------- ---- ---- NORTHROP GRUMMAN CORPORATION SCHEDULE 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, ----------------- $ in millions 2009 2008 ------------- ---- ---- Reconciliation of Net Earnings to Net Cash (used in) Provided by Operating Activities Net Earnings $389 $264 Adjustments to reconcile to net cash (used in) provided by operating activities Depreciation 137 136 Amortization of assets 38 62 Stock-based compensation 35 44 Excess tax benefits from stock-based compensation (44) Decrease (increase) in Accounts receivable (1,762) (2,080) Inventoried costs (355) (266) Prepaid expenses and other current assets (33) (15) Increase (decrease) in Progress payments 1,431 1,642 Accounts payable and accruals (230) 254 Deferred income taxes 45 26 Income taxes payable 131 112 Retiree benefits (5) 31 Other non-cash transactions, net 7 31 -------------------------------- --- --- Cash (used in) provided by continuing operations (172) 197 Cash used in discontinued operations (3) ------------------------------------ ----- --- Net cash (used in) provided by operating activities $(172) $194 ---------------------------------------- ----- ---- Non-Cash Investing and Financing Activities Mandatorily redeemable convertible preferred stock converted into common stock $304 -------------------------------------------------- ---- NORTHROP GRUMMAN CORPORATION SCHEDULE 5 TOTAL BACKLOG AND CONTRACT AWARDS (unaudited) $ in millions March 31, 2009 December 31, 2008 (3) ------------- ----------------------- ------------------------ FUNDED UNFUNDED TOTAL FUNDED UNFUNDED TOTAL (1) (2) BACKLOG (1) (2) BACKLOG ------ -------- ------- ------ -------- -------- Information Systems $5,188 $4,549 $9,737 $5,310 $4,672 $9,982 Aerospace Systems 8,967 21,315 30,282 7,648 22,883 30,531 Electronic Systems 8,355 2,355 10,710 8,391 2,124 10,515 Shipbuilding 13,415 8,411 21,826 14,205 8,148 22,353 Technical Services 1,728 2,595 4,323 1,840 2,831 4,671 ----- ----- ----- ----- ----- ----- Total $37,653 $39,225 $76,878 $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. CONTRACT AWARDS --------------- The estimated value of contract awards included in backlog during the three months ended March 31, 2009, was approximately $7.1 billion. Significant new awards during this period include $637 million for Virginia-class MPU & SSTG programs, $374 million for construction preparation of the Gerald R. Ford class aircraft carrier, $325 million for the B-2 program, $255 million for LAIRCM IDIQ, and various restricted awards. In the three months ended March 31, 2008, the company was awarded a $1.5 billion contract by the U.S. Air Force to replace its aerial refueling tanker fleet. However, the losing bidder for the contract successfully protested the award decision by the U.S. Air Force, and in the fourth quarter of 2008, the company reduced total backlog by $1.5 billion to reflect the termination of the U.S. Air Force refueling tanker program, pending a recompete by the DoD. NORTHROP GRUMMAN CORPORATION SCHEDULE 6 REALIGNED SEGMENT OPERATING RESULTS ($ 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) Information Systems $8,383 $9,245 $2,298 $2,512 $2,410 $2,557 $9,777 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 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) Information Systems $771 $815 $212 $207 $156 $208 $783 Aerospace Systems 861 919 252 236 233 (305) 416 Electronic Systems 783 809 209 201 261 276 947 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) ------ ------ ---- ---- ---- ------- ----- (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.

SOURCE Northrop Grumman Corporation

Source: PR Newswire

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