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Northrop Grumman Third Quarter 2007 Net Income Increases 62 Percent; 2007 Guidance Raised- Sales Up 7 Percent to $7.9 Billion
LOS ANGELES, Oct. 24 /PRNewswire-FirstCall/ -- Northrop Grumman
Corporation (NYSE: NOC) reported that third quarter 2007 income from
continuing operations rose 59 percent to $490 million, or $1.41 per diluted
share, from $308 million, or $0.88 per diluted share, in the third quarter of
2006. Third quarter 2007 includes an after-tax gain of $21 million, or $0.06
per diluted share, for the reorganization of AMSEC LLC. Third quarter 2006
results included a $112.5 million pre-tax, or $0.20 per diluted share, legal
provision. Sales for the 2007 third quarter increased 7 percent to $7.9
billion from $7.4 billion in the 2006 third quarter. Third quarter 2007 cash
from operations increased to $1 billion from $962 million in the prior year
period.
Operating Highlights*
($ millions except per Third Quarter Nine Months
share data) 2007 2006 Change 2007 2006 Change
Sales 7,928 7,429 7% 23,194 22,100 5%
Operating margin 807 549 47% 2,246 1,841 22%
as a % of sales 10.2% 7.4% 280 bps 9.7% 8.3% 140 bps
Income from continuing
operations 490 308 59% 1,346 1,116 21%
Diluted EPS from
continuing operations 1.41 .88 60% 3.84 3.17 21%
Net income 489 302 62% 1,336 1,089 23%
Diluted EPS 1.41 .86 64% 3.81 3.09 23%
Cash from operations 1,015 962 6% 2,156 1,485 45%
* Operating results for all periods presented reflect the reclassification of Interconnect Technologies (formerly reported in Electronics) from continuing to discontinued operations. "Higher sales, higher segment operating margin, and lower corporate expenses drove this quarter's EPS increase. Our four businesses performed well, expanding segment operating margin rate to more than 10 percent, led by a very strong performance at Ships. Cash from operations of more than $1 billion was a record and brought us to more than $2.1 billion year-to-date. We ended the quarter with a $64 billion total backlog, another record for the company," said Ronald D. Sugar, Northrop Grumman chairman and chief executive officer. "Based on year-to-date double-digit growth in net income and EPS, we are raising guidance for 2007 earnings per share to approximately $5.10 on a sales base of approximately $31.5 billion. Our focus on performance is generating sales growth, higher margin rates, double-digit EPS growth and solid cash generation in 2007, and we are driving performance to ensure this strength continues in 2008," Sugar concluded. Third quarter 2007 operating margin increased $258 million, or 47 percent, to $807 million from $549 million in the prior year period, driven by higher segment operating margin, substantially lower unallocated expense, and lower net pension adjustment. Segment operating margin increased $118 million, or 17 percent, and as a percent of sales increased 90 basis points to 10.3 percent from 9.4 percent in the prior year period. Third quarter 2007 unallocated expenses declined $107 million from the prior year period, which included a $112.5 million legal provision. Third quarter 2007 net pension adjustment declined $33 million. As a percent of sales, operating margin increased 280 basis points to 10.2 percent from 7.4 percent. Federal and foreign income taxes for the 2007 third quarter increased to $241 million from $169 million in the third quarter of 2006. The effective tax rate applied to income from continuing operations for the 2007 third quarter was 33.0 percent compared with 35.4 percent in the 2006 third quarter. Net income for the 2007 third quarter increased 62 percent to $489 million, or $1.41 per diluted share, from $302 million, or $0.86 per diluted share, for the same period of 2006. Earnings per share are based on weighted average diluted shares outstanding of 352.6 million for the third quarter of 2007 and 351 million for the third quarter of 2006. For both the three months and nine months in 2007, weighted average shares outstanding include 6.4 million shares for the dilutive effects of the company's Series B mandatorily redeemable preferred stock; the effects of these mandatorily redeemable preferred shares were not included in weighted average shares outstanding for the three and nine months in 2006 because they were not dilutive. New business awards in the 2007 third quarter totaled $11.5 billion led by business awards at Aerospace and Electronics. New business awards are firm contractual additions to backlog received during the period. Funded contract acquisitions for the 2007 third quarter totaled $7.5 billion compared with $6.2 billion for the same period of 2006. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $64.1 billion on Sept. 30, 2007.
Cash Flow Highlights
Third Quarter Nine Months
($ millions) 2007 2006 Change 2007 2006 Change
Cash from operations 1,015 962 53 2,156 1,485 671
Less:
Capital expenditures 133 169 36 431 493 62
Outsourcing contract & related
software costs 9 43 34 89 43 (46)
Free cash flow(1) 873 750 123 1,636 949 687
(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 provided by operations in the 2007 third quarter totaled more than $1 billion compared with $962 million in the prior year period. The year-over-year improvement is primarily driven by higher net income, partially offset by an increase in cash income taxes paid. Third quarter 2007 capital spending totaled $133 million and included $30 million for Hurricane Katrina, compared with capital spending of $169 million in the third quarter of 2006, which included $26 million for Hurricane Katrina. Third quarter 2007 free cash flow increased to $873 million from $750 million. Year-to-date free cash flow increased to $1.6 billion from $949 million reflecting improved cash from operations and reductions in cash used in discontinued operations.
Cash Measurements, Debt and Capital Deployment
($ millions) 9/30/2007 12/31/2006
Cash & cash equivalents 713 1,015
Total debt 4,037 4,162
Net debt(1) 3,324 3,147
Mandatorily redeemable preferred stock 350 350
Net debt to total capital ratio(2) 16% 15%
(1) Total debt less cash and cash equivalents
(2) Net debt divided by the sum of shareholders' equity and total debt.
Changes in cash and cash equivalents and total debt reflect the following cash deployment and financing actions during 2007:
* $685 million for business acquisitions, including $584 million for
Essex Corporation in January 2007
* $1.1 billion accelerated share repurchases completed in June and
September 2007
* $431 million capital expenditures and $89 million for outsourcing
contract and related software costs
* $378 million dividends paid
* $246 million proceeds from exercises of stock options and issuance of
common stock
2007 Guidance Updated
($ billions except
per share amounts) Prior Current
Sales ~31.5 +/- 250 Million Same
Segment
operating
margin(1)% Mid 9% Same
Operating
margin % Low 9% Mid 9%
Diluted EPS from
continuing
operations 4.90 - 5.05 ~5.10
Cash from
operations Upper end 2.5 - 2.8 Same
of range
Free cash
flow(2) Upper end 1.6 - 2.0 Same
of range
(1) Segment operating margin is a non-GAAP measure used as an internal
measure of financial performance for the four businesses.
(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.
Business Results
Consolidated Sales & Segment
Operating Margin(1)
($ millions except
per share data) Third Quarter Nine Months
2007 2006 Change 2007 2006 Change
Sales
Information & Services 3,139 2,889 9% 9,295 8,355 11%
Aerospace 2,005 2,016 - 6,034 6,286 (4%)
Electronics 1,673 1,665 - 4,980 4,756 5%
Ships 1,469 1,238 19% 3,984 3,808 5%
Intersegment eliminations (358) (379) (1,099) (1,105)
Sales 7,928 7,429 7% 23,194 22,100 5%
Segment operating margin(1)
Information & Services 244 257 (5%) 759 752 1%
Aerospace 204 203 - 641 610 5%
Electronics 211 198 7% 579 552 5%
Ships 183 76 141% 396 273 45%
Intersegment eliminations (25) (35) (82) (87)
Segment operating margin(1) 817 699 17% 2,293 2,100 9%
as a % of sales 10.3% 9.4% 90 bps 9.9% 9.5% 40 bps
Reconciliation to operating
margin:
Unallocated & other expenses (41) (148) (139) (235)
Net pension adjustment(2) 31 (2) 92 (24)
Operating margin 807 549 47% 2,246 1,841 22%
as a % of sales 10.2% 7.4% 280 bps 9.7% 8.3% 140 bps
(1) Segment operating margin is a non-GAAP measure used as an internal
measure of financial performance for the four businesses.
(2) Net pension adjustment includes pension expense determined in
accordance with GAAP less pension expense allocated to the business
segments under U.S. Government Cost Accounting Standards.
As previously announced, beginning in the 2007 first quarter, Radio
Systems is reported as part of Mission Systems. Operating results for all
periods presented reflect the reclassification of Interconnect Technologies
(formerly reported in Electronics) from continuing to discontinued operations.
Schedule 6 provides previously reported quarterly financial results reflecting
discontinued operations.
Information & Services
Third Quarter ($ millions)
2007 2006
Operating % Operating %
Sales Margin of Sales Sales Margin of Sales
Mission Systems $1,459 $144 9.9% $1,340 $131 9.8%
Information
Technology 1,107 72 6.5% 1,023 92 9.0%
Technical Services 573 28 4.9% 526 34 6.5%
$3,139 $244 7.8% $2,889 $257 8.9%
Information & Services third quarter 2007 sales increased $250 million, or 9 percent, from the prior year period driven by higher sales for all three reporting segments. Although sales increased, Information & Services operating margin declined by $13 million or 5 percent, and as a percent of sales declined to 7.8 percent from 8.9 percent in the prior year period. Mission Systems sales increased $119 million, or 9 percent, due to the Essex Corporation acquisition, higher volume for several missile defense programs, and higher volume for several command, control & communications programs. Operating margin rose $13 million, or 10 percent, and as a percent of sales, was 9.9 percent compared with 9.8 percent in the prior year's third quarter. The increase in margin was primarily driven by higher volume, and includes improved performance for several programs, which was partially offset by an increase in amortization of purchased intangibles. Information Technology sales rose $84 million, or 8 percent, largely due to higher volume for state and local programs and restricted intelligence programs. Higher volume for these programs was partially offset by lower volume for civilian agencies programs. Information Technology third quarter 2007 operating margin declined $20 million, or 22 percent. As a percent of sales, operating margin declined to 6.5 percent from 9 percent principally due to lower performance for state and local IT outsourcing programs. The lower performance is due to growth in transition cost (including $22 million in increased amortization of deferred and other outsourcing costs). Third quarter operating margin also included improved performance for intelligence programs and discretionary spending for shared internal information systems infrastructure. Technical Services sales rose $47 million, or 9 percent, primarily due to the Nevada Test Site program. Operating margin decreased $6 million, or 18 percent from the prior year period, which included performance improvements for several programs. As a percent of sales, operating margin declined to 4.9 percent from 6.5 percent in the prior year period.
Aerospace
Third Quarter ($ millions)
2007 2006
Operating % Operating %
Sales Margin of Sales Sales Margin of Sales
Integrated Systems $1,255 $145 11.6% $1,317 $137 10.4%
Space Technology 750 59 7.9% 699 66 9.4%
$2,005 $204 10.2% $2,016 $203 10.1%
Aerospace third quarter 2007 sales declined slightly from the prior year period due to lower volume in Integrated Systems, partially offset by higher volume in Space Technology. Aerospace third quarter 2007 operating margin was comparable to the prior year period, and as a percent of sales, increased to 10.2 percent from 10.1 percent. Integrated Systems sales declined $62 million, or 5 percent, primarily due to lower volume for the E-2D Advanced Hawkeye, F-35 and EA-18G programs, as these programs transition from development to production, as well as significant customer-directed scope reductions associated with the E-10A platform and related MP-RTIP efforts. Lower volume in these programs was partially offset by higher volume for the F/A-18 and Global Hawk programs. Integrated Systems operating margin rose $8 million, or 6 percent, and as a percent of sales, increased to 11.6 percent from 10.4 percent in the prior year period. The operating margin increase includes performance improvements for E-2 programs, which more than offset the impact of lower sales volume. Space Technology sales increased $51 million, or 7 percent, primarily due to higher volume for restricted programs and the James Webb Space Telescope. Increases in these programs were partially offset by lower volume in the Advanced Extremely High Frequency program. Space Technology operating margin decreased $7 million, or 11 percent, and as a percent of sales declined to 7.9 percent from 9.4 percent in the prior year period. Space Technology operating
margin in the 2006 third quarter included several favorable performance
adjustments.
Electronics
Third Quarter ($ millions)
2007 2006
Operating % Operating %
Sales Margin of Sales Sales Margin of Sales
$1,673 $211 12.6% $1,665 $198 11.9%
Electronics third quarter 2007 sales were slightly higher than the prior year period and include higher volume for electro-optical and infrared countermeasures programs, a restricted program and commercial products, which was partially offset by declining volume on fixed price development programs. Electronics third quarter 2007 operating margin increased $13 million, or 7 percent, and as a percent of sales, increased to 12.6 percent from 11.9 percent in the prior year period. Operating margin for the 2007 third quarter includes favorable performance adjustments on several programs.
Ships
Third Quarter ($ millions)
2007 2006
Operating % Operating %
Sales Margin of Sales Sales Margin of Sales
$1,469 $183 12.5% $1,238 $76 6.1%
Ships third quarter 2007 sales rose $231 million, or 19 percent, from the prior year period. The increase primarily includes higher volume for the LPD, DDG, LHA and U.S. Coast Guard programs. Third quarter 2007 sales also include $36 million from AMSEC. AMSEC was reorganized in July 2007, and the businesses retained under the reorganization are now reported in the Ships segment. Ships third quarter 2007 operating margin increased $107 million, or 141 percent, from the prior year period. As a percent of sales, operating margin rate more than doubled to 12.5 percent from 6.1 percent in the prior year period. The increase in third quarter 2007 operating margin over the prior year period reflects risk reduction upon completion of several contract actions, higher volume, performance improvements, and a $22 million pre-tax gain resulting from the AMSEC reorganization.
Third Quarter Highlights
* The U.S. Navy awarded Northrop Grumman a six-year, $636 million
contract for the Unmanned Combat Air System Carrier Demonstration
program, which will demonstrate the capability of the X-47B, an
autonomous, low-observable air vehicle and conduct the first ever
at-sea carrier launches and recoveries with a fixed-wing unmanned air
system.
* The U.S. Army awarded Northrop Grumman a system integration contract
for the Guardrail Modernization program to continue upgrading and
enhancing the system and extend Guardrail's operational life beyond
2020. The indefinite delivery/indefinite quantity contract is
potentially valued at $462 million.
* The U.S. Navy awarded Northrop Grumman a $408 million pilot production
contract to produce the next three E-2D Advanced Hawkeye airborne early
warning and battle management command and control aircraft for the
Navy.
* The U.S. Army has awarded Northrop Grumman a $331 million cost plus
award fee contract to provide logistical support services to the
National Training Center at Fort Irwin, Calif.
* The U.S. Coast Guard awarded Northrop Grumman a $286 million contract
for construction of the third National Security Cutter (WMSL 752), the
newest and most capable multi-mission cutter in the Coast Guard fleet.
* The National Security Administration awarded Northrop Grumman a $220
million contract to develop an advanced information management and data
storage system that will support efforts to modernize the nation's
electronic intelligence and broader signals intelligence capabilities.
* The U.S. Navy awarded Northrop Grumman two contracts with a potential
value of more than $120 million for maintenance and modernization work
on aircraft carriers based in San Diego and Yokosuka, Japan.
* The Northrop Grumman-built amphibious transport dock ship Mesa Verde
(LPD 19) successfully completed acceptance trials for the U.S. Navy,
passing all major testing events and proving its readiness to be
delivered to the Navy. The ship was delivered to the Navy on Sept. 28,
2007, and is scheduled to be commissioned in Panama City, Fla., on Dec.
15, 2007.
* The U.S. Navy awarded Northrop Grumman a contract potentially valued at
more than $98 million for the procurement of nearly 940 Special
Operations Forces Laser Acquisition Marker/Special Operations Forces
Laser Rangefinder Designators, associated data and provisioning items.
* The U.S. Army awarded a $95 million contract to Northrop Grumman to
provide more than 300 of the company's battle-proven Lightweight Laser
Designator Rangefinder systems that provide targeting capability for
laser-guided, GPS-guided and conventional munitions.
* Northrop Grumman, in conjunction with the NPOESS Integrated Program
Office, completed the restructure of the National Polar-orbiting
Operational Environmental Satellite System (NPOESS). The restructured
contract value has increased by $2.3 billion and represents a rigorous
year-long effort to re-plan virtually every aspect of the NPOESS
program.
* The U.S. Department of Defense awarded Northrop Grumman an indefinite
delivery/indefinite quantity contract to provide technology development
application for new products and services to defense and federal
civilian agencies, state and local authorities, and partner nations
engaged in counter-drug and counter-narcoterrorism operations.
Northrop Grumman is one of five companies that will compete for task
orders under this contract, which has a total program ceiling of $15
billion over five years.
* The U.S. General Services Administration awarded Northrop Grumman an
Alliant indefinite-delivery/indefinite quantity contract to deliver
cost-effective information technology solutions to the federal
government for improved service and increased efficiency. Northrop
Grumman is one of 29 companies that received awards under the Alliant
contract, which is valued at up to $50 billion, collectively.
* The U.S. Centers for Medicare and Medicaid Services awarded Northrop
Grumman a contract to help the agency modernize its services, improve
health care quality and reduce costs. Northrop Grumman will compete
with 15 other companies for task orders under the 10-year, $4 billion
Enterprise System Development indefinite delivery/indefinite quantity
contract.
* The U.S. Department of State awarded Northrop Grumman a blanket
purchase agreement (BPA) to provide security support services for the
department's computer systems and networks. Northrop Grumman is one of
eight companies awarded under the BPA program, which has a ceiling of
$710 million, in the aggregate.
* In October, the U.S. Citizenship and Immigration Services selected a
team that includes Northrop Grumman to provide large operations
management services at its California and Vermont service centers. The
three-year indefinite delivery/indefinite quantity contract has a total
ceiling value of $225 million to the team, on which Northrop Grumman
will be a subcontractor to Stanley, Inc. of Arlington, Va.
* The first KC-30 Tanker aircraft completed its maiden flight,
underscoring the production strategy selected by Northrop Grumman's
KC-30 industry team for the U.S. Air Force's KC-135 tanker replacement
program.
* In a major program milestone, Northrop Grumman delivered the first
Space Based Infrared System geosynchronous orbit payload to prime
contractor Lockheed Martin for integration into the U.S. Air Force
spacecraft and final system-level testing.
* Northrop Grumman announced the achievement of more than 10,000
on-aircraft operational hours for the Guardian(TM) Counter-Man Portable
Air Defense System currently installed on nine wide-body cargo aircraft
flying daily in commercial revenue service as part of the U.S.
Department of Homeland Security's C-MANPADS program.
* Northrop Grumman entered into a $500 million accelerated share
repurchase agreement with JPMorgan Chase Bank, NA, London Branch in
which the company repurchased approximately 6.5 million shares of
Northrop Grumman common stock from JPMorgan Chase.
* Northrop Grumman increased its ownership in Scaled Composites to 100
percent and acquired Xinetics, Inc.
* Northrop Grumman's board of directors elected Gary W. Ervin corporate
vice president and president of the company's Integrated Systems
sector, effective Jan. 1, 2008.
About Northrop Grumman Northrop Grumman Corporation is a $30 billion global defense and technology company whose 120,000 employees provide innovative systems, products, and solutions in information and services, electronics, aerospace and shipbuilding to government and commercial customers worldwide. Northrop Grumman will webcast its earnings conference call at 12:30 p.m. EDT on Oct. 24, 2007. 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 "project," "expect," "estimate," "assume," "believe," "plan," "guidance" 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 margin, 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 future revenues; expected program performance and cash flows; returns on pension plan assets and variability of pension actuarial and related assumptions; the outcome of litigation, appeals and investigations; hurricane-related insurance recoveries; environmental remediation; acquisitions and divestitures of businesses; successful reduction of debt; performance issues with key suppliers and subcontractors; product performance and the successful execution of internal plans; successful negotiation of contracts with labor unions; effective tax rates and timing and amounts of tax payments; the results of any audit or appeal process with the Internal Revenue Service; 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; 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. Members of the news media may receive our releases via e-mail by registering at: http://www.irconnect.com/noc/press/pages/register.html LEARN MORE ABOUT US: Northrop Grumman news releases, product information, photos and video clips are available on the Internet at: http://www.northropgrumman.com
SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
Three months ended Nine months ended
September 30 September 30
$ in millions,
except per share
2007 2006 2007 2006
Sales and Service
Revenues
Product sales $4,310 $4,404 $13,015 $13,550
Service revenues 3,618 3,025 10,179 8,550
Total sales and service
revenues 7,928 7,429 23,194 22,100
Cost of Sales and Service
Revenues
Cost of product sales 3,236 3,518 9,987 10,631
Cost of service revenues 3,094 2,576 8,635 7,406
General and administrative
expenses 791 786 2,326 2,222
Operating margin 807 549 2,246 1,841
Other Income (Expense)
Interest income 6 13 19 29
Interest expense (84) (86) (256) (263)
Other, net 2 1 (22) (9)
Income from continuing
operations before income
taxes 731 477 1,987 1,598
Federal and foreign
income taxes 241 169 641 482
Income from continuing
operations 490 308 1,346 1,116
Loss from discontinued
operations, net of tax (1) (6) (10) (27)
Net income $489 $302 $1,336 $1,089
Income from continuing
operations $490 $308 $1,346 $1,116
Preferred dividends 6 18
Income available to
common shareholders from
continuing operations $496 $308 $1,364 $1,116
Basic Earnings (Loss) Per
Share
Continuing operations $1.44 $.89 $3.93 $3.23
Discontinued operations (.01) (.03) (.08)
Basic earnings per share $1.44 $.88 $3.90 $3.15
Weighted average common
shares outstanding, in
millions 340.2 344.7 342.9 345.8
Diluted Earnings (Loss)
Per Share
Continuing operations $1.41 $.88 $3.84 $3.17
Discontinued operations (.02) (.03) (.08)
Diluted earnings per
share $1.41 $.86 $3.81 $3.09
Weighted average diluted
shares outstanding, in
millions 352.6 351.0 355.4 352.1
SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(unaudited)
September 30, December 31,
$ in millions 2007 2006
Assets:
Cash and cash equivalents $713 $1,015
Accounts receivable, net of progress
payments of $38,611 in 2007
and $34,085 in 2006 3,666 3,562
Inventoried costs, net of progress payments
of $1,394 in 2007 and $1,225 in 2006 1,102 1,176
Deferred income taxes 691 706
Prepaid expenses and other current assets 282 266
Total current assets 6,454 6,725
Property, plant, and equipment, net of
accumulated depreciation of $3,330 in 2007
and $3,005 in 2006 4,539 4,525
Goodwill 17,658 17,219
Other purchased intangibles, net of
accumulated amortization of $1,654 in 2007
and $1,555 in 2006 1,109 1,139
Pension and postretirement benefits asset 1,357 1,349
Other assets 1,106 1,052
Total assets $32,223 $32,009
Liabilities:
Notes payable to banks $40 $95
Current portion of long-term debt 111 75
Trade accounts payable 1,540 1,682
Accrued employees' compensation 1,273 1,176
Advance payments and billings in excess of
costs incurred 1,532 1,571
Income tax payable 6 535
Other current liabilities 1,698 1,619
Total current liabilities 6,200 6,753
Long-term debt, net of current portion 3,886 3,992
Mandatorily redeemable preferred stock 350 350
Pension and postretirement benefits liability 3,385 3,302
Other long-term liabilities 1,637 997
Total liabilities 15,458 15,394
Shareholders' Equity:
Common stock, $1 par value; 800,000,000
shares authorized; issued and
outstanding: 2007 - 338,217,941; 2006
- 345,921,809 338 346
Paid-in capital 10,643 11,346
Retained earnings 7,063 6,183
Accumulated other comprehensive loss (1,279) (1,260)
Total shareholders' equity 16,765 16,615
Total liabilities and shareholders' equity $32,223 $32,009
SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(unaudited)
Nine months ended
September 30
$ in millions 2007 2006
Operating Activities
Sources of Cash - Continuing
Operations
Cash received from customers
Progress payments $5,384 $5,044
Collections on billings 18,015 16,942
Proceeds from insurance carriers
related to operations 125 46
Other cash receipts 83 82
Total sources of cash-continuing
operations 23,607 22,114
Uses of Cash - Continuing Operations
Cash paid to suppliers and employees (20,357) (19,589)
Interest paid (300) (309)
Income taxes paid (684) (555)
Excess tax benefits from stock-based
compensation (73) (52)
Other cash payments (22) (43)
Total uses of cash-continuing
operations (21,436) (20,548)
Cash provided by continuing
operations 2,171 1,566
Cash used in discontinued operations (15) (81)
Net cash provided by operating
activities 2,156 1,485
Investing Activities
Proceeds from sale of businesses, net
of cash divested 43
Payment for businesses purchased (685)
Proceeds from sale of property,
plant, and equipment 16 10
Additions to property, plant, and
equipment (431) (493)
Payments for outsourcing contract and
related software costs (89) (43)
Proceeds from insurance carriers
related to capital expenditures 3 90
Payment for purchase of investment (35)
Decrease in restricted cash 45
Other investing activities, net (5) (14)
Net cash used in investing activities (1,146) (442)
Financing Activities
Net (payments) borrowings under lines
of credit (63) 36
Principal payments of long-term debt (96) (522)
Proceeds from exercises of stock
options and issuance of common stock 246 372
Dividends paid (378) (298)
Excess tax benefits from stock-based
compensation 73 52
Common stock repurchases (1,094) (825)
Net cash used in financing activities (1,312) (1,185)
Decrease in cash and cash equivalents (302) (142)
Cash and cash equivalents, beginning
of period 1,015 1,605
Cash and cash equivalents, end of period $713 $1,463
SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(unaudited)
Nine months ended
September 30
$ in millions 2007 2006
Reconciliation of Net Income to Net
Cash Provided by Operating
Activities
Net Income $1,336 $1,089
Adjustments to reconcile to net cash
provided by operating activities
Depreciation 416 415
Amortization of assets 106 104
Stock-based compensation 135 155
Excess tax benefits from stock-based
compensation (73) (52)
Loss on disposals of property, plant,
and equipment 14 8
Amortization of long-term debt premium (8) (11)
(Gain) loss on investments (22) 15
Decrease (increase) in
Accounts receivable (4,500) (3,924)
Inventoried costs (95) (158)
Prepaid expenses and other current assets (17) (15)
Increase (decrease) in
Progress payments 4,694 3,821
Accounts payable and accruals (35) 15
Deferred income taxes 25 105
Income taxes payable 59 (122)
Retiree benefits 96 68
Other non-cash transactions, net 40 53
Cash provided by continuing operations 2,171 1,566
Cash used in discontinued operations (15) (81)
Net cash provided by operating activities $2,156 $1,485
Non-Cash Investing and Financing Activities
Sale of businesses
Investment in unconsolidated affiliate $30
Liabilities assumed by purchaser $18
Purchase of businesses
Fair value of assets acquired, including
goodwill $892
Cash paid for businesses purchased (685)
Non-cash consideration given for businesses
purchased (60)
Liabilities assumed $147
SCHEDULE 5
NORTHROP GRUMMAN CORPORATION
FUNDED CONTRACT ACQUISITIONS AND TOTAL BACKLOG
($ in millions)
(unaudited)
FUNDED CONTRACT ACQUISITIONS(1)
THIRD QUARTER NINE MONTHS
2007 2006(4) 2007 2006(4)
Information & Services
Mission Systems $1,360 $1,136 $4,261 $4,178
Information Technology 1,360 1,384 3,319 3,516
Technical Services 441 712 1,478 1,888
Total Information & Services 3,161 3,232 9,058 9,582
Aerospace
Integrated Systems 990 705 3,437 4,259
Space Technology 475 409 1,665 2,534
Total Aerospace 1,465 1,114 5,102 6,793
Electronics 2,320 1,632 6,891 4,925
Ships 895 578 3,161 6,372
Intersegment Eliminations (358) (378) (1,099) (1,109)
Total $7,483 $6,178 $23,113 $26,563
TOTAL BACKLOG
SEPTEMBER 30, 2007 DECEMBER 31, 2006
UNFUNDED TOTAL UNFUNDED TOTAL
FUNDED(2) (3) BACKLOG FUNDED(2) (3) BACKLOG
Information &
Services
Mission Systems $3,017 $8,938 $11,955 $3,119 $8,488 $11,607
Information
Technology 2,698 2,143 4,841 2,667 1,840 4,507
Technical Services 1,209 3,251 4,460 1,375 3,973 5,348
Total Information &
Services 6,924 14,332 21,256 7,161 14,301 21,462
Aerospace
Integrated Systems 3,961 5,151 9,112 4,285 4,934 9,219
Space Technology 1,015 8,735 9,750 1,623 7,138 8,761
Total Aerospace 4,976 13,886 18,862 5,908 12,072 17,980
Electronics 8,487 1,981 10,468 6,576 1,583 8,159
Ships 10,031 3,466 13,497 10,854 2,566 13,420
Total $30,418 $33,665 $64,083 $30,499 $30,522 $61,021
(1) Funded contract acquisitions represent amounts funded during the
period on customer contractually obligated orders.
(2) Funded backlog represents unfilled orders for which funding has been
contractually obligated by the customer.
(3) Unfunded backlog represents firm orders for which funding is not
currently contractually obligated by the customer.
Unfunded backlog excludes unexercised contract options and unfunded
Indefinite Delivery Indefinite Quantity contract awards.
(4) Certain prior period amounts have been reclassified to conform to the
2007 presentation.
SCHEDULE 6
Northrop Grumman Corporation
Summary Operating Results
Discontinued Operations Reclassification
($ in millions)
(unaudited)
2006
Three Months Ended Total
Mar 31 Jun 30 Sep 30 Dec 31 Year
Sales and Service Revenues
As reported $7,093 $7,601 $7,433 $8,021 $30,148
Interconnect Technologies (1) (18) (5) (4) (8) (35)
Restated sales and service
revenues $7,075 $7,596 $7,429 $8,013 $30,113
Segment Operating Margin (2)
As reported $653 $742 $696 $706 $2,797
Interconnect Technologies (1) 2 4 3 1 10
Restated segment operating
margin $655 $746 $699 $707 $2,807
Income From Continuing
Operations, Net of Tax
As reported $362 $442 $306 $457 $1,567
Interconnect Technologies, net
of tax (1) 1 3 2 6
Restated income from continuing
operations, net of tax $363 $445 $308 457 1,573
Preferred Dividends 6 24
Income available to common
shareholders from
continuing operations $463 $1,597
Diluted Earnings Per Share from
Continuing Operations
As reported $1.03 $1.26 $.87 $1.29 $4.44
Interconnect Technologies, net
of tax (1) 0.00 .01 .01 .02
Restated diluted earnings per
share from continuing
operations $1.03 $1.27 $.88 $1.29 $4.46
Weighted Average Diluted Shares
Outstanding, in millions 350.8 350.1 351.0 359.0 358.6
2007
Three Months Ended
Mar 31 Jun 30
Sales and Service Revenues
As reported $7,344 $7,929
Interconnect Technologies (1) (4) (3)
Restated sales and service revenues $7,340 $7,926
Segment Operating Margin (2)
As reported $683 $779
Interconnect Technologies (1) 4 10
Restated segment operating margin $687 $789
Income From Continuing Operations, Net
of Tax
As reported $387 $460
Interconnect Technologies, net of
tax (1) 3 6
Restated income from continuing
operations, net of tax 390 466
Preferred Dividends 6 6
Income available to common
shareholders from continuing
operations $396 $472
Diluted Earnings Per Share from
Continuing Operations
As reported $1.10 $1.31
Interconnect Technologies, net of
tax (1) .01 .02
Restated diluted earnings per share
from continuing operations $1.11 $1.33
Weighted Average Diluted Shares
Outstanding, in millions 358.3 355.3
(1) The adjustment reflects the reclassification of the operating results
of the Interconnect Technologies (ITD) businesses formerly reported in
the Electronics segment. The assembly business of ITD was sold in the
first quarter of 2006 and the remaining ITD business was shut down
during the third quarter of 2007. All prior financial information has
been reclassified to reflect the business as discontinued operations.
(2) Non-GAAP measure. Management uses segment operating margin as an
internal measure of financial performance for the individual business
segments.
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