News Releases
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Northrop Grumman Reports Fourth Quarter and 2008 Results |
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* Q4 Sales Increase 4 Percent to Record $9.2 Billion; 2008 Sales Increase 6 Percent to Record $33.9 Billion * Record $78 Billion Total Backlog; New Business Awards Total Record $48.3 Billion in 2008 * Q4 Cash from Operations Increases to $1 Billion; 2008 Cash from Operations Increases to Record $3.2 Billion After $200 Million Pension Pre-funding * Q4 Free Cash Flow Increases to $790 Million; 2008 Free Cash Flow Increases to Record $2.4 Billion * Q4 and 2008 Loss from Continuing Operations of $7.76 and $3.83 per Share Driven by Non-Cash Goodwill Impairment Charge of $3.1 Billion * Excluding Goodwill Impairment Charge, Q4 Earnings per Share from Continuing Operations Increases 19 Percent to $1.57 and for 2008 Increases 1 Percent to $5.21 per Share LOS ANGELES - Feb. 3, 2009 - Northrop Grumman Corporation (NYSE: NOC) reported a fourth quarter loss from continuing operations of $2.5 billion and a 2008 loss from continuing operations of $1.3 billion driven by a non-cash, after-tax charge of $3.1 billion for impairment of goodwill in accordance with Statement of Financial Accounting Standards (SFAS) 142 "Goodwill and Other Intangible Assets." Fourth quarter 2008 sales increased 4 percent to $9.2 billion from $8.8 billion in the 2007 fourth quarter. 2008 sales increased 6 percent to $33.9 billion from $31.8 billion in 2007. Cash from operations for the 2008 fourth quarter increased to $1 billion from $734 million in the 2007 fourth quarter, and cash from operations for the year increased to a record $3.2 billion from $2.9 billion in 2007. Cash from operations, for both the fourth quarter and total year, was reduced by discretionary pension pre-funding of $200 million in both 2008 and 2007. "Our underlying fourth quarter operating results were outstanding and represent a strong finish to the year. We begin 2009 with a $78 billion dollar backlog, the highest in Northrop Grumman's history, and a tribute to the dedication and talent of our 120,000 employees," said Ronald D. Sugar, Northrop Grumman chairman and chief executive officer. "Looking ahead, we continue to position our organization to be more agile and competitive. Our priorities are flawless execution for our customers and superior returns for our shareholders through the generation of outstanding cash flow and solid growth in pension-adjusted earnings," Sugar concluded. Fourth quarter 2008 adjusted earnings from continuing operations increased 15 percent to $524 million, or $1.57 per diluted share, from $457 million, or $1.32 per diluted share, in the fourth quarter of 2007. For 2008, earnings from continuing operations before the goodwill impairment charge was comparable to the prior year period at $1.8 billion, or $5.21 per diluted share in 2008, compared with $5.18 per diluted share in 2007.
Operating Highlights
--------------------
Fourth Quarter Total Year
($ in millions except ------------------ ------------------
per share amounts) 2008 2007 2008 2007
------------------ ------------------
Sales $ 9,154 $ 8,765 $33,887 $31,828
Operating income (loss) (2,152) 759 (111) 3,018
as % of sales NM 8.7% NM 9.5%
Earnings (loss) from
continuing operations $(2,536) $ 457 $(1,281) $ 1,811
Diluted EPS from
continuing operations (7.76) 1.32 (3.83) 5.18
Average shares
outstanding(1), in millions 326.9 351.1 334.5 354.3
Cash from operations $ 1,037 $ 734 $ 3,211 $ 2,890
Free cash flow(2) 790 435 2,420 2,071
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Operating Highlights - Adjusted for Goodwill Impairment
-------------------------------------------------------
Fourth Quarter Total Year
($ in millions except ------------------ ------------------
per share amounts) 2008 2007 2008 2007
------------------ ------------------
Sales $ 9,154 $ 8,765 $33,887 $31,828
Operating income (loss) (2,152) 759 (111) 3,018
Goodwill impairment charge 3,060 3,060
------- ------- ------- -------
Adjusted operating income(3) 908 759 2,949 3,018
as a % of sales 9.9% 8.7% 8.7% 9.5%
Earnings (loss) from
continuing operations $(2,536) $ 457 $(1,281) $ 1,811
Goodwill impairment charge 3,060 3,060
------- ------- ------- -------
Adjusted earnings from
continuing operations(3) 524 457 1,779 1,811
Adjusted diluted EPS from
continuing operations(4) 1.57 1.32 5.21 5.18
Average shares
outstanding(1), in millions 333.6 351.1 341.6 354.3
(1) See Schedules 7 and 8 for reconciliation of average diluted
share amounts.
(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.
(3) Adjusted operating income is a non-GAAP measure defined as
operating income (loss) before the $3.060 billion 2008 goodwill
impairment charge. Adjusted earnings from continuing operations
is a non-GAAP measure defined as earnings (loss) from continuing
operations before the $3.060 billion goodwill impairment charge.
Both measures have been provided for consistency and
comparability of the 2008 results with results of operations
from prior periods.
(4) Adjusted diluted EPS from continuing operations is a non-GAAP
measure defined as diluted EPS from continuing operations before
the per share 2008 goodwill impairment charge impact. Adjusted
diluted EPS from continuing operations has been provided for
consistency and comparability of the 2008 results with results
of operations from prior periods and is reconciled in
Schedule 7.
Adjusted Fourth Quarter and 2008 Financial Results Fourth quarter adjusted operating income increased 20 percent to $908 million from $759 million, and as a percent of sales increased 120 basis points to 9.9 percent from 8.7 percent primarily due to higher segment operating income and lower net pension adjustment and lower unallocated expenses. Before the goodwill impairment charge, the four businesses combined to generate a $96 million, or 12 percent, increase in segment operating income. As a percent of sales, operating performance improved 70 basis points to 9.9 percent from 9.2 percent. Net pension adjustment improved by $36 million and unallocated expenses improved by $12 million. For 2008, adjusted operating income declined to $2.9 billion from $3.0 billion, and as a percent of sales totaled 8.7 percent compared with 9.5 percent. The decline reflects lower Shipbuilding margin driven by the net impact of the LHD-8 related Shipbuilding charge during the year, largely offset by higher operating income for Aerospace and Electronics, and lower net pension adjustment and lower unallocated expense. Net pension adjustment and unallocated expenses improved by $136 million and $47 million, respectively. Fourth quarter 2008 other expense totaled $34 million compared with other income of $21 million. The decline in other income reflects negative mark-to-market adjustments on investments in marketable securities used as a funding source for non-qualified employee benefits. For 2008, other income increased $22 million, to $38 million, primarily due to $59 million in patent infringement settlements at Electronics in 2008, partially offset by the fourth quarter mark-to-market adjustments on investments. Federal and foreign income taxes for the 2008 fourth quarter totaled $278 million compared with $243 million in the fourth quarter of 2007. The effective tax rate applied to adjusted earnings from continuing operations for the 2008 fourth quarter was 34.7 percent, unchanged from the effective tax rate for the 2007 fourth quarter. For 2008 federal and foreign income taxes totaled $913 million compared with $887 million for 2007. The effective tax rate applied to 2008 adjusted earnings from continuing operations was 33.9 percent compared with 32.9 percent in 2007. The company's net loss for the fourth quarter and 2008 totaled $2.5 billion and $1.3 billion respectively. Fourth quarter adjusted net earnings totaled $527 million or $1.58 per diluted share, compared with net earnings of $454 million, $1.31 per diluted share, for the same period of 2007. Adjusted earnings per share are based on weighted average diluted shares outstanding of 333.6 million for the fourth quarter of 2008 and 351.1 million for the fourth quarter of 2007. For 2008, adjusted net earnings were comparable to the prior year period at $1.8 billion, and on a per share basis increased 3 percent to $5.26 per diluted share from $5.12 per diluted share. Adjusted earnings per share are based on weighted average diluted shares outstanding of 341.6 million for 2008 and 354.3 million for 2007. Weighted average shares outstanding for 2008 include 1 million shares for the dilutive effects of the company's Series B mandatorily redeemable preferred stock. Weighted average shares outstanding for 2007 include 6.4 million shares for the dilutive effects of the company's Series B mandatorily redeemable preferred stock. These shares were redeemed or converted to common shares on or before April 4, 2008. Record 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 $78 billion on Dec. 31, 2008, compared with $63.7 billion on Dec. 31, 2007. The Shipbuilding, Space Technology, Integrated Systems and Electronics segments ended 2008 with substantially higher backlogs. New business awards for 2008 totaled $48.3 billion and included nearly $15 billion for Shipbuilding programs as well as substantial restricted awards. In addition, in the fourth quarter the company reduced total backlog by $1.5 billion to reflect the termination of the U.S. Air Force aerial refueling tanker program.
2009 Guidance
-------------
Sales ~$34.5B
Segment operating margin %(1) low to mid 9%
Operating margin % mid 7%
Pension-adjusted operating margin %(2) mid 8%
Diluted EPS from continuing operations $4.50 - 4.75
Pension-adjusted diluted EPS from continuing
operations(3) $5.15 - 5.40
Cash from operations(4) $2.7B - 3.2B
Free cash flow(4) $1.9B - 2.4B
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(1) Segment operating margin % is a non-GAAP measure defined as
operating income before unallocated expenses, net pension
adjustment and reversal of royalty income, divided by sales.
Management uses segment operating margin % as an internal
measure of financial performance.
(2) Pension-adjusted operating margin % is a non-GAAP measure
defined as operating income before net pension adjustment. 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
margin % as an internal measure of the financial performance of
the company.
(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. Management uses pension-adjusted
EPS as a performance metric for operating results.
(4) Before discretionary pre-funding of pension funds.
Guidance for 2009 includes the GAAP measures of sales, operating margin, diluted earnings per share from continuing operations, and cash from operations. In addition the company provides guidance for the non-GAAP measures of segment operating margin percent, pension-adjusted operating margin percent, pension-adjusted diluted earnings per share from continuing operations, and free cash flow. Management uses these non-GAAP measures as internal measures of performance and believes they provide valuable information regarding the consolidated performance of the company's businesses. Pension Update Due to adverse capital market conditions the company's pension plan assets experienced a negative return of approximately 16 percent in 2008 compared with a long-term estimated rate of return of 8.5 percent. As a result of plan returns, the company estimates that its 2009 net pension adjustment will be a pre-tax expense of approximately $335 million (approximately $0.65 on a per share diluted basis), compared with income of $263 million for 2008 net pension adjustment. The 2009 estimate is based on a 6.25 percent discount rate and a long-term rate of return of 8.5 percent. Goodwill Impairment Charge Northrop Grumman reported fourth quarter and 2008 operating losses due to a non-cash, after-tax charge of $3.1 billion for impairment of goodwill. Testing of goodwill as of Nov. 30, 2008, using discounted cash flow analysis supported by comparative market multiples to determine the fair values, indicated that the book values of Shipbuilding and Space Technology were impaired. To reflect the goodwill impairment, operating income for Shipbuilding was reduced by $2.5 billion and operating income for Space Technology was reduced by $570 million. The goodwill impairment charges for these businesses are primarily driven by adverse equity market conditions that caused a decrease in current market multiples and the company's stock price as of Nov. 30, 2008. The charge reduces goodwill recorded in connection with acquisitions made in 2001 and 2002 and does not impact the company's normal business operations.
Cash Flow Highlights
--------------------
Fourth Quarter Total Year
---------------------- ----------------------
($ in millions) 2008 2007 Change 2008 2007 Change
---------------------- ----------------------
Cash from
operations $1,037 $ 734 $ 303 $3,211 $2,890 $ 321
Less:
Capital expenditures 237 251 14 681 682 1
Outsourcing contract
& related software
costs 10 48 38 110 137 27
----------------------------------------------
Free cash flow $ 790 $ 435 $ 355 $2,420 $2,071 $ 349
Cash provided by operations for both fourth quarter and total year improved by $303 million and $321 million, respectively, primarily due to strong fourth quarter cash collections that resulted in improved working capital. Fourth quarter and full year cash from operations were reduced by discretionary pension pre-funding of $200 million in 2008 and 2007.
Cash, Debt and Capital Deployment
---------------------------------
($ in millions) 12/31/2008 12/31/2007
--------------------------------------------------------------------
Cash & cash equivalents $1,504 $ 963
Total debt 3,944 4,055
Net debt(1) 2,440 3,092
Mandatorily redeemable preferred stock -- 350
Net debt to total capital ratio(2) 15% 14%
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(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 2008: * $1.6 billion for share repurchases * $681 million capital expenditures and $110 million for outsourcing contract and related software costs * $525 million dividends paid * $113 million principal payments of long-term debt * $175 million proceeds from the sale of Electro-Optical Systems * $92 million payments for purchases of businesses * $103 million proceeds from exercises of stock options and issuance of common stock Segment Operating Results Beginning with 2008 second quarter results, the company transferred certain missile systems programs from Mission Systems to Space Technology. Schedule 6 provides previously reported quarterly financial results and the adjustments for first and second quarter 2008 realignments and the second quarter 2008 sale of Electro-Optical Systems.
Consolidated Sales & Segment Operating Income (Loss)
($ in millions except per share amounts)
Fourth Quarter Total Year
-------------------------- --------------------------
2008 2007 Change 2008 2007 Change
-------------------------- --------------------------
Sales
Information &
Services $ 3,282 $ 3,112 5% $12,454 $11,740 6%
Aerospace 2,578 2,424 6% 9,840 9,243 6%
Electronics 2,046 1,795 14% 7,090 6,528 9%
Shipbuilding 1,742 1,804 (3%) 6,145 5,788 6%
Intersegment
eliminations (494) (370) (1,642) (1,471)
-------------------------- --------------------------
$ 9,154 $ 8,765 4% $33,887 $31,828 6%
Segment
operating
income
(loss)(1)
Information &
Services $ 244 $ 251 (3%) $ 934 $ 957 (2%)
Aerospace (305) 224 NM 417 920 (55%)
Electronics 277 221 25% 952 813 17%
Shipbuilding (2,333) 142 NM (2,307) 538 NM
Intersegment
eliminations (38) (29) (141) (113)
-------------------------- --------------------------
Segment
operating
income
(loss) $(2,155) $ 809 -- $ (145) $ 3,115 --
as a % of
sales NM 9.2% NM NM 9.8% NM
Reconciliation
to operating
income (loss):
Unallocated
expenses $ (64) $ (76) $ (159) $ (206)
Net pension
adjustment 71 35 263 127
Reversal of
royalty
income
included
above (4) (9) (70) (18)
-------------------------- --------------------------
Total
operating
income
(loss) $(2,152) $ 759 NM $ (111) $ 3,018 NM
as a % of
sales NM 8.7% NM 9.5%
Net interest
expense $ (72) $ (80) $ (295) $ (336)
Other,
income/
expense (34) 21 38 16
-------------------------- --------------------------
Earnings
(Loss) from
continuing
operations
before taxes (2,258) 700 (368) 2,698
Federal and
foreign
income taxes (278) (243) (913) (887)
-------------------------- --------------------------
Earnings
(Loss) from
continuing
operations $(2,536) $ 457 NM $(1,281) $ 1,811 NM
(1) Segment operating income is a non-GAAP measure defined as
operating income before unallocated expenses, net pension
adjustment and reversal of royalty income and is reconciled
above. Management uses segment operating income as an internal
measure of financial performance.
Segment Operating Results Adjusted for Goodwill Impairment Fourth quarter and 2008 operating income for Shipbuilding and Aerospace were dramatically reduced by the goodwill impairment charges recorded in the fourth quarter. Segment operating income and its trends adjusted for the goodwill impairment impacts are detailed below.
Consolidated Adjusted Segment Operating Income
($ in millions except per share amounts)
Fourth Quarter Total Year
-------------------------- --------------------------
2008 2007 Change 2008 2007 Change
-------------------------- --------------------------
Information &
Services $ 244 $ 251 (3%) $ 934 $ 957 (2%)
Aerospace 265 224 18% 987 920 7%
Electronics 277 221 25% 952 813 17%
Shipbuilding 157 142 11% 183 538 (66%)
Intersegment
eliminations (38) (29) (141) (113)
-------------------------- --------------------------
Adjusted
segment
operating
income(1) $ 905 $ 809 12% $ 2,915 $ 3,115 (6%)
as a % of
sales 9.9% 9.2% 70 bps 8.6% 9.8% (120 bps)
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(1) Adjusted segment operating income is a non-GAAP measure defined
as operating income before goodwill impairment charge,
unallocated expenses, net pension adjustment and reversal of
royalty income. Adjusted segment operating income has been
provided for consistency and comparability of the 2008 results
with results of operations from prior periods and is reconciled
above. Reconciliations of Aerospace and Shipbuilding adjusted
operating income to operating income are provided in tables
presented later in this release.
Information & Services
---------------------------------------------------------------------
Fourth Quarter ($ in millions)
--------------------------------------------------
2008 2007
Operating % of Operating % of
Sales Income Sales Sales Income Sales
--------------------------------------------------
Mission Systems $ 1,537 $119 7.7% $ 1,381 $138 10.0%
Information
Technology 1,133 97 8.6% 1,198 81 6.8%
Technical Services 612 28 4.6% 533 32 6.0%
--------------------------------------------------
$ 3,282 $244 7.4% $ 3,112 $251 8.1%
--------------------------------------------------
Total Year ($ in millions)
--------------------------------------------------
Mission Systems $ 5,640 $508 9.0% $ 5,077 $508 10.0%
Information
Technology 4,518 305 6.8% 4,486 329 7.3%
Technical Services 2,296 121 5.3% 2,177 120 5.5%
--------------------------------------------------
$12,454 $934 7.5% $11,740 $957 8.2%
--------------------------------------------------
Information & Services fourth quarter 2008 sales increased 5 percent and 2008 sales increased 6 percent. Sales increases for both the quarter and year are due to higher sales for Mission Systems and Technical Services. Information & Services fourth quarter operating income declined 3 percent from the prior year period, and as a percent of sales declined to 7.4 percent from 8.1 percent. The decline from the 2007 fourth quarter is primarily due to lower operating income for Mission Systems. For 2008, operating income declined 2 percent, reflecting lower operating income for Information Technology. As a percent of sales, 2008 operating income declined to 7.5 percent from 8.2 percent primarily due to lower margin rates for Mission Systems and Information Technology. Mission Systems fourth quarter and 2008 sales increased 11 percent. Higher sales for both the fourth quarter and 2008 are due to higher volume for intelligence, surveillance & reconnaissance programs and command, control & communication programs. Fourth quarter operating income declined 14 percent and 230 basis points as a percent of sales. For the fourth quarter, operating income from higher sales was offset by final allocation of current and prior year overhead items and higher planned internal investment for a new business opportunity. For 2008, operating income was unchanged from the prior year period and as a percent of sales declined to 9 percent from 10 percent, reflecting lower performance for command, control & communications programs, including higher planned internal investment, and final allocations described above. Information Technology fourth quarter sales declined 5 percent and include higher volume for intelligence programs, which was offset by lower sales volume for commercial, state & local, defense, and civilian agencies programs. Sales for 2008 were comparable to the prior year period and include higher volume for intelligence, defense and civilian agencies programs offset by lower volume for commercial, state & local programs. Information Technology fourth quarter 2008 operating income increased 20 percent, and as a percent of sales improved to 8.6 percent from 6.8 percent. The improvement in rate is due to final allocation of current and prior year overhead items and improved performance for several defense programs, including NETCENTS. For 2008, operating income declined 7 percent, and as a percent of sales declined to 6.8 percent from 7.3 percent. The declines in 2008 operating income and margin rate are principally due to performance on commercial, state & local programs, including a $57 million negative performance adjustment for the New York City Wireless program. Technical Services fourth quarter sales rose 15 percent, and 2008 sales rose 5 percent. Sales increases for both periods include higher volume for life cycle optimization and engineering programs and training and simulation programs. Technical Services fourth quarter operating income declined by $4 million, and as a percent of sales, declined to 4.6 percent from 6 percent in the prior year period. Higher operating income due to increased volume was offset by a higher level of planned internal investment and final allocation of current and prior year overhead items than in the prior year period. For 2008, operating income increased as a result of higher volume and as a percent of sales is comparable to the prior year.
Aerospace
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Fourth Quarter ($ in millions)
--------------------------------------------------
2008
Operating 2007
Income % of Operating % of
Sales (Loss) Sales Sales Income Sales
--------------------------------------------------
Integrated Systems $ 1,461 $156 10.7% $ 1,306 $137 10.5%
Space Technology 1,117 (461) NM 1,118 87 7.8%
Goodwill
Impairment 570
--- --- --- ---
Adjusted 1,117 109 9.8% 1,118 87 7.8%
--------------------------------------------------
Aerospace adjusted $ 2,578 $265 10.3% $2,424 $224 9.2%
--------------------------------------------------
Total Year ($ in millions)
--------------------------------------------------
Integrated Systems $5,504 $613 11.1% $ 5,067 $591 11.7%
Space Technology 4,336 (196) NM 4,176 329 7.9%
Goodwill
Impairment 570
--- --- --- ---
Adjusted 4,336 374 8.6% 4,176 329 7.9%
--------------------------------------------------
Aerospace adjusted $ 9,840 $987 10.0% $ 9,243 $920 10.0%
--------------------------------------------------
Aerospace fourth quarter 2008 sales increased 6 percent, and include higher volume for Integrated Systems and comparable sales for Space Technology. For 2008, sales increased 6 percent and include higher volume for both Integrated Systems and Space Technology. Fourth quarter and 2008 operating income for Aerospace includes a goodwill impairment charge of $570 million resulting from annual impairment testing required by SFAS 142. Adjusted Aerospace fourth quarter 2008 operating income increased 18 percent, and as a percent of sales increased to 10.3 percent from 9.2 percent, reflecting improved program performance for both Integrated Systems and Space Technology. For 2008, adjusted operating income increased 7 percent, and as a percent of sales was unchanged at 10 percent. Integrated Systems fourth quarter sales increased 12 percent primarily due to higher volume for BAMS, F-35, UCAS-D, and restricted programs. Sales for 2008 increased by 9 percent and include higher volume for UCAS-D, Global Hawk, B-2, Joint STARS, BAMS, and restricted programs. Integrated Systems fourth quarter operating income rose 14 percent, and as a percent of sales, increased to 10.7 percent from 10.5 percent. Higher fourth quarter operating income is principally due to higher volume than in the prior year period. Operating income for 2008 increased 4 percent, and as a percent of sales declined to 11.1 percent from 11.7 percent. The higher margin rate in 2007 includes the impact of a $27 million positive adjustment related to the settlement of prior year overhead costs. Space Technology fourth quarter sales were comparable to the prior year period, and 2008 sales increased 4 percent. Higher 2008 sales are primarily attributable to higher volume for restricted and civil systems programs, which more than offset lower volume in the military systems programs, primarily the Advanced Extremely High Frequency program. Fourth quarter and 2008 operating income for Space Technology includes a goodwill impairment charge of $570 million resulting from annual impairment testing required by SFAS 142. Space Technology fourth quarter adjusted operating income increased 25 percent, and as a percent of sales increased to 9.8 percent from 7.8 percent. The higher margin rate on comparable sales reflects performance improvements for missile systems and restricted programs as a result of risk retirement. Adjusted operating income for 2008 increased 14 percent and as a percent of sales increased to 8.6 percent from 7.9 percent. The improvement in 2008 operating income and margin rate reflects higher volume and improved performance for several programs as a result of risk retirement.
Electronics
---------------------------------------------------------------------
($ in millions)
--------------------------------------------------
2008 2007
Operating % of Operating % of
Sales Income Sales Sales Income Sales
--------------------------------------------------
Fourth Quarter $ 2,046 $277 13.5% $ 1,795 $221 12.3%
--------------------------------------------------
--------------------------------------------------
Total Year $ 7,090 $952 13.4% $ 6,528 $813 12.5%
--------------------------------------------------
Electronics fourth quarter 2008 sales increased 14 percent. The fourth quarter sales improvement was primarily driven by increased deliveries for restricted programs, infrared countermeasures programs and commercial marine products, as well as higher volume for the COBRA Judy, Multi-role Electronically Scanned Array (MESA) Korea, and EA-18 programs. Sales for 2008 increased 9 percent primarily due to higher deliveries of electronics for the F-16 international radar kit programs and the Large Aircraft Infrared Countermeasures (LAIRCM) program, as well as higher volume for the MESA Korea, VIS, Ground / Air Task Oriented Radar (G/ATOR) and inertial navigation programs. Electronics fourth quarter 2008 operating income increased 25 percent, and as a percent of sales, increased to 13.5 percent from 12.3 percent. The fourth quarter increases in operating income and margin rate are primarily attributable to higher sales volume and improved performance. In addition, fourth quarter 2007 operating income was reduced by an $18 million provision for a legal matter that has subsequently been settled. Operating income for 2008 increased 17 percent, and as a percent of sales increased to 13.4 percent from 12.5 percent in 2007. The improvement in 2008 operating income reflects higher volume as well as $59 million of patent infringement settlements.
Shipbuilding
---------------------------------------------------------------------
Fourth Quarter ($ in millions)
--------------------------------------------------
2008
Operating 2007
Income % of Operating % of
Sales (Loss) Sales Sales Income Sales
--------------------------------------------------
Shipbuilding $ 1,742 ($2,333) NM $ 1,804 $142 7.9%
Goodwill
Impairment $2,490
--------------------------------------------------
Shipbuilding
adjusted $ 1,742 $ 157 9.0% $ 1,804 $142 7.9%
--------------------------------------------------
Total Year ($ in millions)
--------------------------------------------------
Shipbuilding $ 6,145 ($2,307) NM $ 5,788 $538 9.3%
Goodwill
Impairment $2,490
--------------------------------------------------
Shipbuilding
adjusted $ 6,145 $ 183 3.0% $ 5,788 $538 9.3%
--------------------------------------------------
Shipbuilding fourth quarter 2008 sales declined 3 percent. The decrease in fourth quarter reflects lower volume for the LPD and U.S. Coast Guard National Security Cutter program as well as lower service sales. Sales for 2008 increased 6 percent primarily due to higher volume for aircraft carrier programs, including the Gerald R. Ford (CVN 78) and the USS Enterprise programs, and the addition of AMSEC. Fourth quarter and 2008 operating income for Shipbuilding includes a goodwill impairment charge of $2.5 billion resulting from annual impairment testing required by SFAS 142. Shipbuilding fourth quarter 2008 adjusted operating income increased 11 percent, and as a percent of sales increased to 9 percent from 7.9 percent. The increase in fourth quarter 2008 adjusted operating income and margin rate is due to risk retirement on the LHD-8 program, which more than offset the impact of lower revenue and cost growth on the USS George H. W. Bush. For 2008, adjusted operating income declined by 66 percent due to a $326 million pre-tax charge in first quarter of 2008 primarily for cost growth and schedule extension in the company's LHD-8 amphibious assault ship program. The LHD-8 program achieved several important milestones toward its planned delivery date, and as a result $63 million of the first quarter 2008 charge was reversed.
Fourth Quarter Highlights
-------------------------
-- The U.S. Navy awarded a contract for the construction of eight
Virginia-class submarines, and Northrop Grumman received a
$5.6 billion subcontract from the prime contractor. The
multi-year contract allows the team to proceed with the
construction of one ship per year in 2009 and 2010, and two ships
per year from 2011 through 2013. The eighth ship to be procured
under this contract is scheduled for delivery in 2019.
-- The U.S. Department of Energy/National Nuclear Security Agency
awarded the Northrop Grumman-led joint venture National Security
Technologies, LLC a one-year, cost-reimbursement type contract
extension valued at approximately $450 million to manage and
operate the Nevada Test Site through 2012.
-- The U.S. Army awarded Northrop Grumman a $128 million firm
fixed-priced contract to provide Lightweight Laser Designator
Rangefinder systems, which provide battle-proven targeting
capability for laser-guided, GPS-guided and conventional
munitions.
-- The U.S. Army awarded Northrop Grumman a $97 million contract to
procure, modify and deliver 12 Hunter MQ-5B Unmanned Aerial
Vehicle aircraft and related ground control stations, tactical
common data link and ground data link terminal sets; ground
support equipment and spare parts.
-- Northrop Grumman was selected to provide a new computer-aided
dispatch system for the London Ambulance Service to handle
emergency calls and ambulance movements, which will be introduced
in 2010. The system will be fully operational to support the
London Ambulance Service during the 2012 London Olympics.
-- Northrop Grumman delivered its 25th Aegis guided missile
destroyer to the U.S. Navy. The company announced that Truxtun
(DDG 103) had completed U.S. Navy acceptance trials in the Gulf
of Mexico.
-- Northrop Grumman christened the sixth submarine of the Virginia
class, New Mexico (SSN 779), at the company's shipyard in Newport
News, Va.
-- Northrop Grumman unveiled the first of the U.S. Navy's new
unmanned combat aircraft, designated the X-47B Navy Unmanned
Combat Air System. It is the first of two aircraft Northrop
Grumman will produce for the Navy to demonstrate unmanned combat
aircraft operations from the deck of an aircraft carrier.
-- Northrop Grumman successfully conducted the first demonstration
flight of the company's newest Active Electronically Scanned
Array fighter sensor, the Scalable Agile Beam Radar (SABR). SABR
is being developed as a significant avionics enhancement for the
existing fleet of F-16s and other fighter aircraft worldwide.
-- Northrop Grumman and AREVA announced a plan to build a new
manufacturing and engineering facility in Newport News, Va., to
supply the growing American nuclear energy sector. The joint
venture is known as AREVA Newport News, LLC.
-- Northrop Grumman completed the acquisition of 3001 International,
Inc., which provides geospatial data production and analysis,
including airborne imaging, surveying, mapping and geographic
information systems for domestic and international government
intelligence, defense and civilian customers.
-- Northrop Grumman announced on Jan. 7, 2009 a streamlining of its
organizational structure, reducing the number of sectors from
seven to five. The five sectors will be Aerospace Systems;
Electronic Systems; Information Systems; Shipbuilding; and
Technical Services. Gary W. Ervin was named to head the Aerospace
Systems sector, Linda A. Mills was named to lead the Information
Systems sector, and Alexis C. Livanos was named corporate vice
president and Chief Technology Officer.
-- Northrop Grumman's board of directors elected Stephen D. Yslas
corporate vice president and general counsel effective Jan. 1,
2009.
-- Madeleine Kleiner, former executive vice president and general
counsel for Hilton Hotels Corporation, and Bruce S. Gordon, Lead
Director of Tyco International LTD and Director of CBS
Corporation, were elected to the board of directors. Northrop
Grumman's board now totals 14 members, 13 of whom are
non-employee directors.
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 10:00 a.m. EST on Feb. 3, 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 as updated by Form 8-K filed on July 29, 2008 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
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
(preliminary and unaudited)
Year ended December 31
$ in millions, except per share -----------------------------
amounts 2008 2007 2006
--------------------------------------------------------------------
Sales and Service Revenues
Product sales $19,634 $18,577 $18,294
Service revenues 14,253 13,251 11,697
--------------------------------------------------------------------
Total sales and service revenues 33,887 31,828 29,991
--------------------------------------------------------------------
Cost of Sales and Service Revenues
Cost of product sales 15,490 14,340 14,275
Cost of service revenues 12,208 11,297 10,220
General and administrative expenses 3,240 3,173 3,002
Goodwill impairment 3,060
--------------------------------------------------------------------
Operating (loss) income (111) 3,018 2,494
Other (expense) income
Interest expense (295) (336) (347)
Other, net 38 16 169
--------------------------------------------------------------------
(Loss) earnings from continuing
operations before income taxes (368) 2,698 2,316
Federal and foreign income taxes 913 887 723
--------------------------------------------------------------------
(Loss) earnings from continuing
operations (1,281) 1,811 1,593
Income (loss) from discontinued
operations, net of tax 19 (21) (51)
--------------------------------------------------------------------
Net (loss) earnings $(1,262) $ 1,790 $ 1,542
--------------------------------------------------------------------
Basic (loss) Earnings Per Share
Continuing operations $ (3.83) $ 5.30 $ 4.61
Discontinued operations .06 (.06) (.15)
--------------------------------------------------------------------
Basic (loss) earnings per share $ (3.77) $ 5.24 $ 4.46
--------------------------------------------------------------------
Weighted-average common shares
outstanding, in millions 334.5 341.7 345.7
--------------------------------------------------------------------
Diluted (loss) Earnings Per Share
Continuing operations $ (3.83) $ 5.18 $ 4.51
Discontinued operations .06 (.06) (.14)
--------------------------------------------------------------------
Diluted (loss) earnings per share $ (3.77) $ 5.12 $ 4.37
--------------------------------------------------------------------
Weighted-average diluted shares
outstanding, in millions 334.5 354.3 358.6
--------------------------------------------------------------------
Net (loss) earnings (from above) $(1,262) $ 1,790 $ 1,542
Other comprehensive (loss) income
Change in cumulative translation
adjustment (24) 12 22
Change in unrealized (loss) gain on
marketable securities and cash flow
hedges, net of tax benefit (expense)
of $22 in 2008, ($1) in 2007, and
$2 in 2006 (35) 1 (5)
Reclassification adjustment on
write-down of marketable securities,
net of tax expense of ($5) 10
Additional minimum pension liability
adjustment, net of tax expense of
($32) 40
Change in unamortized benefit plan
costs, net of tax benefit (expense)
of $1,888 in 2008 and ($384) in
2007 (2,884) 594
--------------------------------------------------------------------
Other comprehensive (loss) income,
net of tax (2,943) 607 67
--------------------------------------------------------------------
Comprehensive (loss) income $(4,205) $ 2,397 $ 1,609
--------------------------------------------------------------------
NORTHROP GRUMMAN CORPORATION SCHEDULE 2
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(preliminary and unaudited)
Dec. 31, Dec. 31,
$ in millions 2008 2007
--------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 1,504 $ 963
Accounts receivable, net 3,904 3,790
Inventoried costs, net 1,003 1,000
Deferred income taxes 549 542
Prepaid expenses and other current assets 229 502
--------------------------------------------------------------------
Total current assets 7,189 6,797
--------------------------------------------------------------------
Property, Plant, and Equipment
Land and land improvements 619 602
Buildings 2,326 2,237
Machinery and other equipment 5,080 4,749
Leasehold improvements 588 526
--------------------------------------------------------------------
8,613 8,114
Accumulated depreciation (3,803) (3,424)
--------------------------------------------------------------------
Property, plant, and equipment, net 4,810 4,690
--------------------------------------------------------------------
Other Assets
Goodwill 14,518 17,672
Other purchased intangibles, net of
accumulated amortization of $1,795 in 2008
and $1,687 in 2007 947 1,074
Pension and postretirement benefits asset 290 2,080
Long-term deferred tax asset 1,510 65
Miscellaneous other assets 933 995
--------------------------------------------------------------------
Total other assets 18,198 21,886
--------------------------------------------------------------------
Total assets $30,197 $33,373
--------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable to banks $ 24 $ 26
Current portion of long-term debt 477 111
Trade accounts payable 1,943 1,890
Accrued employees' compensation 1,284 1,175
Advance payments and billings in excess of
costs incurred 2,036 1,563
Other current liabilities 1,660 1,667
--------------------------------------------------------------------
Total current liabilities 7,424 6,432
--------------------------------------------------------------------
Long-term debt, net of current portion 3,443 3,918
Mandatorily redeemable preferred stock 350
Pension and postretirement benefits liability 5,823 3,008
Other long-term liabilities 1,587 1,978
--------------------------------------------------------------------
Total liabilities 18,277 15,686
--------------------------------------------------------------------
Shareholders' Equity
Common stock, $1 par value; 800,000,000
shares authorized; issued and outstanding:
2008 -- 327,012,663; 2007 -- 337,834,561 327 338
Paid-in capital 9,645 10,661
Retained earnings 5,590 7,387
Accumulated other comprehensive loss (3,642) (699)
--------------------------------------------------------------------
Total shareholders' equity 11,920 17,687
--------------------------------------------------------------------
Total liabilities and shareholders' equity $30,197 $33,373
--------------------------------------------------------------------
NORTHROP GRUMMAN CORPORATION SCHEDULE 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited)
Year ended December 31
-----------------------------
$ in millions 2008 2007 2006
--------------------------------------------------------------------
Operating Activities
Sources of Cash -- Continuing
Operations
Cash received from customers
Progress payments $ 7,818 $ 7,312 $ 6,670
Collections on billings 26,938 24,570 23,303
Insurance proceeds received 5 125 100
Other cash receipts 83 34 42
--------------------------------------------------------------------
Total sources of cash --
continuing operations 34,844 32,041 30,115
--------------------------------------------------------------------
Uses of Cash -- Continuing Operations
Cash paid to suppliers and
employees (30,566) (27,835) (27,242)
Interest paid, net of interest
received (287) (334) (321)
Income taxes paid, net of refunds
received (719) (853) (618)
Excess tax benefits from
stock-based compensation (48) (52) (57)
Payments for litigation settlements (4) (33) (11)
Other cash payments (12) (19) (12)
--------------------------------------------------------------------
Total uses of cash -- continuing
operations (31,636) (29,126) (28,261)
--------------------------------------------------------------------
Cash provided by continuing
operations 3,208 2,915 1,854
Cash provided by (used in)
discontinued operations 3 (25) (98)
--------------------------------------------------------------------
Net cash provided by operating
activities 3,211 2,890 1,756
--------------------------------------------------------------------
Investing Activities
Proceeds from sale of businesses,
net of cash divested 175 43
Payments for businesses purchased,
net of cash acquired (92) (690)
Proceeds from sale of property,
plant, and equipment 19 22 21
Additions to property, plant, and
equipment (681) (682) (732)
Payments for outsourcing contract
costs and related software costs (110) (137) (77)
Proceeds from insurance carriers
related to capital expenditures 4 117
Proceeds from sale of investments 209
Payment for purchase of investment (35)
Decrease (increase) in restricted cash 61 59 (127)
Other investing activities, net 2 (6) (20)
--------------------------------------------------------------------
Net cash used in investing activities (626) (1,430) (601)
--------------------------------------------------------------------
Financing Activities
Net borrowings (payments) under
lines of credit (2) (69) 44
Proceeds from issuance of long-term
debt 200
Principal payments of long-term debt (113) (90) (1,212)
Proceeds from exercises of stock
options and issuances of common stock 103 274 393
Dividends paid (525) (504) (402)
Excess tax benefits from stock-based
compensation 48 52 57
Common stock repurchases (1,555) (1,175) (825)
--------------------------------------------------------------------
Net cash used in financing
activities (2,044) (1,512) (1,745)
--------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 541 (52) (590)
Cash and cash equivalents, beginning
of year 963 1,015 1,605
--------------------------------------------------------------------
Cash and cash equivalents, end of
year $ 1,504 $ 963 $ 1,015
--------------------------------------------------------------------
NORTHROP GRUMMAN CORPORATION SCHEDULE 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited)
Year ended December 31
-----------------------------
$ in millions 2008 2007 2006
--------------------------------------------------------------------
Reconciliation of Net (Loss) Earnings
to Net Cash Provided by Operating
Activities
Net (Loss) Earnings $(1,262) $ 1,790 $ 1,542
Adjustments to reconcile to net cash
provided by operating activities
Depreciation 572 575 567
Amortization of assets 189 152 136
Impairment of goodwill 3,060
Stock-based compensation 118 196 184
Excess tax benefits from stock-based
compensation (48) (52) (57)
Loss on disposals of property,
plant, and equipment 13 19 6
Impairment of property, plant, and
equipment damaged by Hurricane
Katrina 37
Amortization of long-term debt premium (9) (11) (14)
Pre-tax gain on sale of businesses (58) (9)
Pre-tax gain on sale of investments (23) (96)
Decrease (increase) in
Accounts receivable (351) (6,475) (2,228)
Inventoried costs (521) 4 (70)
Prepaid expenses and other current
assets (21) 9 (10)
Increase (decrease) in
Progress payments 764 6,513 2,261
Accounts payable and accruals 416 114 203
Deferred income taxes 183 175 183
Income taxes payable 241 (59) (68)
Retiree benefits (167) (50) (772)
Other non-cash transactions, net 89 38 59
--------------------------------------------------------------------
Cash provided by continuing
operations 3,208 2,915 1,854
Cash provided by (used in)
discontinued operations 3 (25) (98)
--------------------------------------------------------------------
Net cash provided by operating
activities $ 3,211 $ 2,890 $ 1,756
--------------------------------------------------------------------
Non-Cash Investing and Financing
Activities
Investment in unconsolidated affiliate $ 30
Sale of business
Liabilities assumed by purchaser $ (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
--------------------------------------------------------------------
NORTHROP GRUMMAN CORPORATION SCHEDULE 5
TOTAL BACKLOG AND CONTRACT AWARDS
(preliminary and unaudited)
$ in millions December 31, 2008 December 31, 2007(3)
---------------------------------------------------------------------
FUNDED UNFUNDED TOTAL FUNDED UNFUNDED TOTAL
(1) (2) BACKLOG (1) (2) BACKLOG
------------------------- -------------------------
Information &
Services
Mission
Systems $ 2,646 $ 3,004 $ 5,650 $ 2,365 $ 3,288 $ 5,653
Information
Technology 2,724 1,899 4,623 2,581 2,268 4,849
Technical
Services 1,734 2,600 4,334 1,471 3,193 4,664
------------------------- -------------------------
Total Information
& Services 7,104 7,503 14,607 6,417 8,749 15,166
Aerospace
Integrated
Systems 5,759 5,122 10,881 4,204 4,525 8,729
Space
Technology 1,889 17,761 19,650 2,295 13,963 16,258
------------------------- -------------------------
Total Aerospace 7,648 22,883 30,531 6,499 18,488 24,987
Electronics 8,437 2,124 10,561 7,887 2,047 9,934
Shipbuilding 14,205 8,148 22,353 10,348 3,230 13,578
------------------------- -------------------------
Total $37,394 $40,658 $78,052 $31,151 $32,514 $63,665
------------------------- -------------------------
(1) Funded backlog represents unfilled orders for which funding has
been 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 contract awards.
(3) Certain prior period amounts have been reclassified to conform
to the 2008 presentation.
---------------------------------------------------------------------
CONTRACT AWARDS
---------------
The value of new contract awards during the year ended December 31,
2008, was approximately $48.3 billion. Significant new awards during
this period include $5.6 billion for the VCS Block III Submarine
programs, $5.1 billion for CVN 78 Gerald R. Ford aircraft carrier,
$1.4 billion for the DDG 1000 Zumwalt-class destroyer, $1.2 billion
for the Broad Area Maritime Surveillance (BAMS) Unmanned Aircraft
System program, $402 million for the Vehicular Intercommunications
Systems IDIQ, $385 million for the Intercontinental Ballistic
Missile (ICBM) program, and various restricted programs.
On February 29, 2008, the company won a $1.5 billion contract awarded
by the U.S. Air Force as an initial step to replace its aerial
refueling tanker fleet. The losing bidder for the contract protested
the award decision by the U.S. Air Force. In the fourth quarter the
company reduced total backlog by $1.5 billion to reflect the
termination of the U.S. Air Force aerial refueling tanker program.
The value of new contract awards during the year ended December 31,
2007, was approximately $35.1 billion. Significant new awards during
this period include $2.4 billion for National Polar-orbiting
Operational Environmental Satellite System, $2.2 billion for LHA-6,
$1 billion for LPD-25, $875 million for the Flats Sequencing
Systems/Postal Automation program, $636 million for the Unmanned
Combat Air System Carrier Demonstration, $628 million for the DDG
1000 Zumwalt-class destroyer program, $607 million for the ICBM
program, $272 million for the Joint National Integration Center
Research & Development program, $234 million for the F-22 program,
and various restricted programs.
NORTHROP GRUMMAN CORPORATION SCHEDULE 6
REALIGNED SELECTED OPERATING RESULTS
(preliminary and unaudited)
$ in
millions AS REPORTED(1)
except per ---------------------------------------------------------
share 2006 2007 2008
amounts ------- ---------------------------------------- ------
Three
Months
Total Three Months Ended Total Ended
NET SALES Year Mar 31 Jun 30 Sep 30 Dec 31 Year Mar 31
------------------------------------------------- ------
Information
& Services
Mission
Systems $ 5,494 $ 1,362 $1,542 $1,459 $1,568 $ 5,931 $1,545
Information
Technology 3,962 1,038 1,143 1,107 1,198 4,486 1,085
Technical
Services 1,858 520 551 573 533 2,177 505
------------------------------------------------- ------
Total
Information
& Services 11,314 2,920 3,236 3,139 3,299 12,594 3,135
Aerospace
Integrated
Systems 5,500 1,281 1,225 1,255 1,306 5,067 1,340
Space
Technology 2,923 754 769 750 860 3,133 775
------------------------------------------------- ------
Total
Aerospace 8,423 2,035 1,994 2,005 2,166 8,200 2,115
Electronics 6,543 1,587 1,720 1,673 1,926 6,906 1,555
Shipbuilding 5,321 1,156 1,359 1,469 1,804 5,788 1,264
Intersegment
Elimina-
tions (1,488) (358) (383) (358) (371) (1,470) (345)
------------------------------------------------- ------
Total
Sales and
Service
Revenues $30,113 $ 7,340 $7,926 $7,928 $8,824 $32,018 $7,724
------------------------------------------------- ------
SEGMENT
OPERATING
INCOME
Information
& Services
Mission
Systems $ 519 $ 119 $ 160 $ 144 $ 143 $ 566 $ 145
Information
Technology 342 86 90 72 81 329 89
Technical
Services 120 28 32 28 32 120 26
------------------------------------------------- ------
Total
Information
& Services 981 233 282 244 256 1,015 260
Aerospace
Integrated
Systems 551 160 149 145 137 591 170
Space
Technology 245 59 69 59 74 261 65
------------------------------------------------- ------
Total
Aerospace 796 219 218 204 211 852 235
Electronics 754 185 183 211 234 813 209
Shipbuilding 393 79 134 183 142 538 (218)
Intersegment
Eliminations (117) (29) (28) (25) (33) (115) (28)
------------------------------------------------- ------
Total
Segment
Operating
Income(3) $ 2,807 $ 687 $ 789 $ 817 $ 810 $ 3,103 $ 458
------------------------------------------------- ------
CONSOLIDATED
HIGHLIGHTS
Earnings From
Continuing
Operations $ 1,573 $ 390 $ 466 $ 490 $ 457 $ 1,803 $ 263
Diluted
Earnings per
Share from
Continuing
Operations $ 4.46 $ 1.11 $ 1.33 $ 1.41 $ 1.31 $ 5.16 $ 0.76
Weighted
Average
Diluted
Shares
Outstanding,
in millions 358.6 358.3 355.3 352.6 351.1 354.3 349.3
$ in
millions REALIGNED (2)
except per ---------------------------------------------------------
share 2006 2007 2008
amounts ------- ---------------------------------------- ------
Three
Months
Total Three Months Ended Total Ended
NET SALES Year Mar 31 Jun 30 Sep 30 Dec 31 Year Mar 31
------------------------------------------------- ------
Information
& Services
Mission
Systems $ 4,704 $ 1,159 $1,288 $1,249 $1,381 $ 5,077 $1,298
Information
Technology 3,962 1,038 1,143 1,107 1,198 4,486 1,085
Technical
Services 1,858 520 551 573 533 2,177 505
------------------------------------------------- ------
Total
Information
& Services 10,524 2,717 2,982 2,929 3,112 11,740 2,888
Aerospace
Integrated
Systems 5,500 1,281 1,225 1,255 1,306 5,067 1,340
Space
Technology 3,869 990 1,067 1,001 1,118 4,176 1,022
------------------------------------------------- ------
Total
Aerospace 9,369 2,271 2,292 2,256 2,424 9,243 2,362
Electronics 6,267 1,528 1,628 1,577 1,795 6,528 1,555
Shipbuilding 5,321 1,156 1,359 1,469 1,804 5,788 1,264
Intersegment
Elimina-
tions (1,490) (358) (383) (360) (370) (1,471) (345)
------------------------------------------------- ------
Total
Sales and
Service
Revenues $29,991 $ 7,314 $7,878 $7,871 $8,765 $31,828 $7,724
------------------------------------------------- ------
SEGMENT
OPERATING
INCOME
Information
& Services
Mission
Systems $ 451 $ 103 $ 142 $ 125 $ 138 $ 508 $ 128
Information
Technology 342 86 90 72 81 329 89
Technical
Services 120 28 32 28 32 120 26
------------------------------------------------- ------
Total
Information
& Services 913 217 264 225 251 957 243
Aerospace
Integrated
Systems 551 160 149 145 137 591 170
Space
Technology 311 73 90 79 87 329 82
------------------------------------------------- ------
Total
Aerospace 862 233 239 224 224 920 252
Electronics 786 192 189 211 221 813 209
Shipbuilding 393 79 134 183 142 538 (218)
Intersegment
Eliminations (117) (29) (28) (27) (29) (113) (28)
------------------------------------------------- ------
Total
Segment
Operating
Income(3) $ 2,837 $ 692 $ 798 $ 816 $ 809 $ 3,115 $ 458
------------------------------------------------- ------
CONSOLIDATED
HIGHLIGHTS
Earnings From
Continuing
Operations $ 1,593 $ 394 $ 472 $ 488 $ 457 $ 1,811 $ 263
Diluted
Earnings per
Share from
Continuing
Operations $ 4.51 $ 1.12 $ 1.35 $ 1.40 $ 1.32 $ 5.18 $ 0.76
Weighted
Average
Diluted
Shares
Outstanding,
in millions 358.6 358.3 355.3 352.6 351.1 354.3 349.3
(1) "As Reported" amounts are as of December 31, 2007, which reflect
the results of Interconnect Technologies as a discontinued
operation.
(2) Reported amounts adjusted to reflect the Park Air / Remotec
realignment, Missile Systems realignment, and the presentation
of Electro-Optical Systems as a discontinued operation. These
events were previously reported in Schedule 6 of the Year End
December 2007, First Quarter 2008, and Second Quarter 2008
earnings releases.
(3) Non-GAAP measure. Management uses segment operating income as an
internal measure of financial performance for the individual
business segments.
NORTHROP GRUMMAN CORPORATION SCHEDULE 7
NON-GAAP RECONCILIATION: ADJUSTED EARNINGS PER SHARE
FROM CONTINUING OPERATIONS
(preliminary and unaudited)
December 31
-------------------------------------------
$ in millions, except
per share amounts 2008 2007
--------------------------------------------------------------------
FOURTH FOURTH
Earnings Reconciliation QUARTER YTD QUARTER YTD
------------------- -------------------
(Loss) earnings from
continuing operations $(2,536) $(1,281) $ 457 $ 1,811
Add back: Goodwill
impairment charge 3,060 3,060 -- --
Add back: Dividends on
mandatorily redeemable
convertible preferred
stock -- -- 6 24
------------------- -------------------
Adjusted earnings
from continuing
operations(1) $ 524 $ 1,779 $ 463 $ 1,835
------------------- -------------------
Per Share Amounts
Weighted average common
shares outstanding 326.9 334.5 338.2 341.7
Dilutive effect of stock
options, stock awards,
and mandatorily
redeemable convertible
preferred stock 6.7 7.1 12.9 12.6
------------------- -------------------
Adjusted diluted average
common shares
outstanding(2) 333.6 341.6 351.1 354.3
------------------- -------------------
Earnings Per Share (EPS)
Calculations
Adjusted earnings from
continuing operations
from above(1) $ 524 $ 1,779 $ 463 $ 1,835
Adjusted diluted
average common shares
outstanding from
above(2) 333.6 341.6 351.1 354.3
Adjusted diluted EPS
from continuing
operations(3) $ 1.57 $ 5.21 $ 1.32 $ 5.18
Loss from continuing
operations from above $(2,536) $(1,281)
Weighted average common
shares outstanding(4) 326.9 334.5
Loss per share from
continuing operations $ (7.76) $ (3.83)
Goodwill impairment
charge $(3,060) $(3,060)
Weighted average common
shares outstanding(4) 326.9 334.5
Impairment charge per
share $ (9.36) $ (9.15)
(1) Adjusted earnings from continuing operations is a non-GAAP
measure defined as earnings (loss) from continuing operations
before the $3.060 billion goodwill impairment charge. This
measure has been provided for consistency and comparability of
the 2008 results with results of operations from prior periods.
(2) Adjusted diluted average common shares outstanding is a non-GAAP
measure defined as weighted average common shares outstanding
plus the dilutive effect of stock options, stock awards, and
mandatorily redeemable convertible preferred stock. This measure
has been provided for consistency and comparability of the 2008
results with earnings per share from prior periods.
(3) Adjusted diluted EPS from continuing operations is a non-GAAP
measure defined as diluted EPS from continuing operations before
the per share 2008 goodwill impairment charge impact. Adjusted
diluted EPS from continuing operations has been provided for
consistency and comparability of the 2008 results with results
of operations from prior periods.
(4) Per share amounts are based on basic weighted average shares
outstanding, as use of dilutive securities (ie. stock options,
stock awards, and mandatorily redeemable convertible preferred
stock outstanding) would result in a lesser per share loss.
NORTHROP GRUMMAN CORPORATION SCHEDULE 8
NON-GAAP RECONCILIATION: ADJUSTED NET EARNINGS PER SHARE
(preliminary and unaudited)
December 31
-------------------------------------------
$ in millions, except
per share amounts 2008 2007
--------------------------------------------------------------------
FOURTH FOURTH
Earnings Reconciliation QUARTER YTD QUARTER YTD
------------------- -------------------
Net (loss) earnings $(2,533) $(1,262) $ 454 $ 1,790
Add back: Goodwill
impairment charge 3,060 3,060 -- --
Add back: Dividends on
mandatorily redeemable
convertible preferred
stock -- -- 6 24
------------------- -------------------
Adjusted net earnings(1) $ 527 $ 1,798 $ 460 $ 1,814
------------------- -------------------
Per Share Amounts
Weighted average common
shares outstanding 326.9 334.5 338.2 341.7
Dilutive effect of stock
options, stock awards,
and mandatorily
redeemable convertible
preferred stock 6.7 7.1 12.9 12.6
------------------- -------------------
Adjusted diluted average
common shares
outstanding(2) 333.6 341.6 351.1 354.3
------------------- -------------------
Earnings Per Share (EPS)
Calculations
Adjusted net earnings
from above(1) $ 527 $ 1,798 $ 460 $ 1,814
Adjusted diluted
average common shares
outstanding from
above(2) 333.6 341.6 351.1 354.3
Adjusted diluted EPS(3) $ 1.58 $ 5.26 $ 1.31 $ 5.12
Net loss from above $(2,533) $(1,262)
Weighted average common
shares outstanding(4) 326.9 334.5
Net loss per share $ (7.75) $ (3.77)
Goodwill impairment
charge $(3,060) $(3,060)
Weighted average common
shares outstanding(4) 326.9 334.5
Impairment charge per
share $ (9.36) $ (9.15)
(1) Adjusted net earnings is a non-GAAP measure defined as net
earnings (loss) before the $3.060 billion goodwill impairment
charge. This measure has been provided for consistency and
comparability of the 2008 results with results of operations
from prior periods.
(2) Adjusted diluted average common shares outstanding is a non-GAAP
measure defined as weighted average common shares outstanding
plus the dilutive effect of stock options, stock awards, and
mandatorily redeemable convertible preferred stock. This measure
has been provided for consistency and comparability of the 2008
results with earnings per share from prior periods.
(3) Adjusted diluted EPS is a non-GAAP measure defined as earnings
per share before the per share 2008 goodwill impairment charge
impact. Adjusted diluted EPS from continuing operations has been
provided for consistency and comparability of the 2008 results
with results of operations from prior periods.
(4) Per share amounts are based on basic weighted average shares
outstanding, as use of dilutive securities (ie. stock options,
stock awards, and mandatorily redeemable convertible preferred
stock outstanding) would result in a lesser per share loss.
CONTACT: Dan McClain (Media)
(310) 201-3335
Gaston Kent (Investors)
(310) 201-3423
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