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Northrop Grumman Reports Third Quarter 2010 Financial Results

  • Q3 EPS from Continuing Operations Increase 13 Percent to $1.64
  • Sales Increase 4 Percent to $8.7 Billion
  • Cash from Operations Totals $978 Million; Free Cash Flow Totals $817 Million
  • Approximately 3 Million Shares Repurchased
  • 2010 Guidance for EPS from Continuing Operations Increased to $6.85 – $7.00
  • Conference Call Scheduled for 10:30 a.m. ET at www.northropgrumman.com

LOS ANGELES – Oct. 27, 2010 – Northrop Grumman Corporation (NYSE:NOC) reported that third quarter 2010 earnings from continuing operations increased to $489 million, or $1.64 per diluted share, from $464 million, or $1.45 per diluted share, in the third quarter of 2009. Net earnings for the 2010 third quarter increased to $497 million, or $1.67 per diluted share, from $490 million, or $1.53 per diluted share, in the prior year period. The 2009 third quarter included a net tax benefit of $75 million, or $0.23 per diluted share. Third quarter 2010 sales increased 4 percent to $8.7 billion from $8.35 billion.

Cash provided by operations totaled $978 million in the third quarter of 2010 compared with $544 million in the third quarter of 2009. New business awards for the 2010 third quarter totaled $7.4 billion, bringing total backlog to $64.6 billion as of Sept. 30, 2010.

"This was a strong quarter for Northrop Grumman. Third quarter results demonstrate that our focus on sustainable performance improvement continues to gain traction across the corporation. All our businesses performed well, and based on year-to-date results, we are raising our 2010 EPS guidance to $6.85 to $7.00 per share. We are also confirming our guidance for cash from operations and free cash flow. Looking ahead, we continue to position the company to generate value for shareholders, customers and employees," said Wes Bush, chief executive officer and president.

Table 1 - Financial Highlights

  Third Quarter Nine Months
($ in millions, except per share amounts) 2010 2009 2010 2009
Sales  $ 8,714  $ 8,350  $ 26,150  $ 24,830
Operating income  801  619  2,282  1,852
as % of sales 9.2% 7.4% 8.7% 7.5%
Earnings from continuing operations  $ 489  $ 464  $ 1,662  $ 1,198
Diluted EPS from continuing operations  1.64  1.45  5.49  3.67
Net earnings  497  490  1,677  1,273
Diluted EPS  1.67  1.53  5.54  3.90
Cash provided by operations  978  544  1,066  1,202
Free cash flow1  817  384  663  708
         
Pension-adjusted Operating Highlights        
Operating income  $ 801  $ 619  $ 2,282  $ 1,852
Net pension adjustment1  8  72  24  224
Pension-adjusted operating income1  809  691  2,306  2,076
as % of sales1 9.3% 8.3% 8.8% 8.4%
         
Pension-adjusted Per Share Data        
Diluted EPS from continuing operations  $ 1.64  $ 1.45  $ 5.49  $ 3.67
After-tax net pension adjustment per share1  0.02  0.14  0.06  0.45
Pension-adjusted diluted EPS from continuing operations1  1.66  1.59  5.55  4.12
         
Weighted average shares outstanding - Basic 293.5  317.1 298.6  322.0
Dilutive effect of stock options and stock awards 4.1  3.5 3.9  4.1
Weighted average shares outstanding - Diluted 297.6  320.6 302.5  326.1
         
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release.

Third quarter 2010 operating income increased 29 percent to $801 million from $619 million in the prior year period, and as a percent of sales increased 180 basis points to 9.2 percent from 7.4 percent. The improvement principally reflects higher segment operating income and lower net pension adjustment.  Third quarter 2010 segment operating income increased $107 million, or 14 percent, driven by double-digit increases in operating income for four of five businesses. As a percent of sales, third quarter 2010 segment operating income improved 80 basis points to 9.8 percent from 9 percent. Net pension adjustment improved to an expense of $8 million from an expense of $72 million in the prior year period. Unallocated corporate expenses totaled $46 million in the 2010 third quarter and $55 million in the 2009 third quarter.

Federal and foreign income taxes increased to $257 million from $120 million in the third quarter of 2009. Third quarter 2009 earnings included a net tax benefit of $75 million, primarily for final settlement of the Internal Revenue Service's examination of the company's 2001, 2002 and 2003 tax returns. The effective tax rate for the 2010 third quarter was 34.5 percent compared with 20.5 percent in the 2009 third quarter.

Third quarter 2010 diluted earnings per share are based on 297.6 million weighted average shares outstanding compared with 320.6 million shares in the third quarter of 2009.

Table 2 - Cash Flow Highlights

  Third Quarter Nine Months
($ millions) 2010 2009 Change 2010 2009 Change
Cash provided by operations before discretionary pension contributions1  $ 1,013  $ 1,021  $ (8)  $ 1,407  $ 1,805  $ (398)
Discretionary pension pre-funding impact, net of tax  (35)  (477)  442  (341)  (603)  262
Cash provided by operations  978  544  434  1,066  1,202  (136)
Less:             
Capital expenditures  (160)  (139)  (21)  (398)  (436)  38
Outsourcing contract & related software costs  (1)  (21)  20  (5)  (58)  53
Free cash flow1  $ 817  $ 384  $ 433  $ 663  $ 708  $ (45)
             
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release

Free cash flow totaled $817 million in the 2010 third quarter compared with $384 million in the prior year period. The improvement in 2010 third quarter free cash flow reflects lower pension pre-funding and improved working capital. Third quarter 2010 cash from operations included a $60 million discretionary contribution to the company's pension plans. Third quarter 2009 cash from operations included discretionary pension contributions of $586 million and $47 million from discontinued operations, principally for the Advisory Services business (TASC), which was divested in December of 2009.

Table 3 – 2010 Guidance Updated

     
($ in millions, except per share amounts) Prior Current
     
Sales  ~$34,800   ~$34,900 
     
Segment operating margin %1 Low 9% Low to mid 9%
     
Operating margin % Mid 8% Mid 8%
     
Diluted EPS from continuing operations  $ 6.60 - $ 6.80   $ 6.85 - $ 7.00 
     
Cash provided by operations before discretionary pension contributions1  2,300 - 2,800   2,300 - 2,800 
     
Free cash flow before discretionary pension contributions1  1,500 - 2,000   1,500 - 2,000 
     
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release. 

Table 4 - Cash Measurements, Debt and Capital Deployment

($ millions) 9/30/2010 12/31/2009
Cash & cash equivalents  $ 2,528  $ 3,275
Total debt  4,209  4,294
Net debt1 1,681  1,019
Net debt to total capital ratio2 10% 6%
     
1 Total debt less cash and cash equivalents.
2 Net debt divided by the sum of shareholders' equity and total debt. 

Changes in cash and cash equivalents include the following items for cash from operations, investing and financing through Sept. 30, 2010:

Operations

  • $390 million discretionary pension contributions
  • $1.1 billion provided by operations after discretionary pension contributions above

Investing

  • $398 million for capital expenditures and $5 million for outsourcing contract and related software costs

Financing

  • $1.1 billion for repurchase of approximately 17.8 million shares of common stock  
  • $112 million proceeds from exercises of stock options and issuance of common stock
  • $91 million principal payments of long term debt
  • $408 million for dividends

Table 5 - Business Results

Consolidated Sales & Segment Operating Income1            
  Third Quarter Nine Months
($ millions) 2010 2009 Change 2010 2009 Change
Sales            
Aerospace Systems  $ 2,706  $ 2,527 7%  $ 8,244  $ 7,656 8%
Electronic Systems  1,874  1,839 2%  5,740  5,594 3%
Information Systems  2,123  2,118 0%  6,310  6,362 (1%)
Shipbuilding  1,670  1,650 1%  4,989  4,549 10%
Technical Services  871  692 26%  2,435  2,026 20%
Intersegment eliminations  (530)  (476)    (1,568)  (1,357)  
   $ 8,714  $ 8,350 4%  $ 26,150  $ 24,830 5%
Segment operating income 1            
Aerospace Systems  $ 303  $ 265 14%  $ 934  $ 780 20%
Electronic Systems  261  215 21%  751  695 8%
Information Systems  190  168 13%  578  517 12%
Shipbuilding  101  113 (11%)  191  211 (9%)
Technical Services  56  41 37%  157  121 30%
Intersegment eliminations  (54)  (52)    (172)  (139)  
Segment operating income1  $ 857  $ 750 14%  $ 2,439  $ 2,185 12%
as a % of sales1 9.8% 9.0%  80 bps  9.3% 8.8%  50 bps 
             
Reconciliation to operating income            
Unallocated corporate expenses  $ (46)  $ (55) 16%  $ (125)  $ (87) (44%)
Net pension adjustment1  (8)  (72) 89%  (24)  (224) 89%
Reversal of royalty income included above  (2)  (4) 50%  (8)  (22) 64%
Operating income  801  619 29%  2,282  1,852 23%
as a % of sales 9.2% 7.4%  180 bps  8.7% 7.5%  120 bps 
             
Net interest expense  (68)  (76) 11%  (216)  (219) 1%
Other, net  13  41 (68%)  10  62 (84%)
             
Earnings from continuing operations before income taxes  746  584 28%  2,076  1,695 22%
Federal and foreign income taxes   (257)  (120) (114%)  (414)  (497) 17%
             
Earnings from continuing operations  489  464 5%  1,662  1,198 39%
Earnings from discontinued operations  8  26 (69%)  15  75 (80%)
             
Net earnings  $ 497  $ 490 1%  $ 1,677  $ 1,273 32%
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release.

Results for TASC, divested in December 2009, are reported as discontinued operations for all periods presented.

Aerospace Systems ($ millions)
  Third Quarter Nine Months
  2010 2009 % Change 2010 2009 % Change
Sales  $ 2,706  $ 2,527 7.1%  $ 8,244  $ 7,656 7.7%
Operating income  303  265 14.3%  934  780 19.7%
as % of sales 11.2% 10.5%   11.3% 10.2%  

Aerospace Systems third quarter 2010 sales increased 7 percent, principally due to higher volume for manned and unmanned aircraft programs. Higher volume for these programs was partially offset by lower volume for civil space and missile defense programs. Aerospace Systems third quarter 2010 operating income increased 14 percent, and as a percent of sales increased to 11.2 percent from 10.5 percent in the prior year period.  Higher operating income and margin rate are due to higher volume and improved program performance primarily in manned aircraft programs.

Electronic Systems ($ millions)
  Third Quarter Nine Months
  2010 2009 % Change 2010 2009 % Change
Sales  $ 1,874  $ 1,839 1.9%  $ 5,740  $ 5,594 2.6%
Operating income  261  215 21.4%  751  695 8.1%
as a % of sales 13.9% 11.7%   13.1% 12.4%  

Electronic Systems third quarter 2010 sales increased 2 percent due to higher sales of targeting and postal automation systems, partially offset by lower sales of land and self protection systems.  Electronic Systems third quarter 2010 operating income increased 21 percent, and as a percent of sales increased to 13.9 percent from 11.7 percent. Higher operating income and margin rate are primarily due to improved program performance for postal automation and land and self protection systems programs.

Information Systems ($ millions)
  Third Quarter Nine Months
  2010 2009 % Change 2010 2009 % Change
Sales  $ 2,123  $ 2,118 0.2%  $ 6,310  $ 6,362 (0.8%)
Operating income  190  168 13.1%  578  517 11.8%
as a % of sales 8.9% 7.9%   9.2% 8.1%  

Information Systems third quarter 2010 sales were comparable to the prior year period. Sales in the period included higher volume for defense systems, which was largely offset by lower sales for intelligence and civil systems programs. Third quarter 2010 operating income increased 13 percent and as a percent of sales totaled 8.9 percent compared with 7.9 percent in the prior year period.  Higher operating income and rate primarily reflect improved program performance for civil systems.

Shipbuilding ($ millions)
  Third Quarter Nine Months
  2010 2009 % Change 2010 2009 % Change
Sales  $ 1,670  $ 1,650 1.2%  $ 4,989  $ 4,549 9.7%
Operating income  101  113 (10.6%)  191  211 (9.5%)
as % of sales 6.0% 6.8%   3.8% 4.6%  

Shipbuilding third quarter 2010 sales increased 1 percent. Third quarter 2010 operating income declined 11 percent, and as a percent of sales totaled 6 percent compared with 6.8 percent in the third quarter of 2009. The declines in operating income and rate are primarily due to lower performance for expeditionary warfare programs, partially offset by milestone incentives on the LPD program.

Technical Services ($ millions)
  Third Quarter Nine Months
  2010 2009 % Change 2010 2009 % Change
Sales  $ 871  $ 692 25.9%  $ 2,435  $ 2,026 20.2%
Operating income  56  41 36.6%  157  121 29.8%
as a % of Sales 6.4% 5.9%   6.4% 6.0%  

Technical Services third quarter 2010 sales increased 26 percent primarily due to higher volume for integrated logistics and modernization programs. Technical Services third quarter 2010 operating income increased 37 percent, and as a percent of sales increased to 6.4 percent from 5.9 percent. The improvements in operating income and rate are due to higher volume, improved business mix and improved performance.

About Northrop Grumman

Northrop Grumman will webcast its earnings conference call at 10:30 a.m. ET on Oct. 27, 2010. A live audio broadcast of the conference call along with a supplemental presentation will be available on the investor relations page of the company's Website at http://www.northropgrumman.com.

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.  Please visit www.northropgrumman.com for more information.

Statements in this release and the attachments, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "expect," "intend," "plan," "project," "forecast," "believe," "estimate," "outlook," "guidance," and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, financial guidance regarding future sales, segment operating income, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow and earnings. These statements are not guarantees of future performance and involve certain risks and uncertainties. Actual results could differ materially due to factors such as: the effect of the government's newly announced plans to change its current procurement practices; timing and execution of Shipbuilding's Gulf Coast consolidation; execution of any strategic alternative for the Shipbuilding business; the effects of changes to capital structure; the effect of economic conditions in the United States and globally; access to capital; future sales and cash flows; timing of cash receipts; effective tax rates and timing and amounts of tax payments; returns on pension plan assets, interest and discount rates and other changes that may impact pension plan assumptions; retiree medical expense; the outcome of litigation, claims, audits, appeals, bid protests and investigations; hurricane and earthquake-related insurance coverage and recoveries; costs of environmental remediation; our relationships with labor unions; availability and retention of qualified personnel; costs of capital investments; changes in organizational structure and reporting segments; risks associated with acquisitions, dispositions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other intangible assets; effects of legislation, rulemaking, and changes in accounting, tax or defense procurement; changes in government and customer priorities and requirements (including, government budgetary constraints, shifts in defense spending, changes in import and export policies, changes in customer short-range and long-range plans); acquisition or termination of contracts; technical, operation or quality setbacks in contract performance; protection of intellectual property rights; risks associated with our nuclear operations; issues with, and financial viability of, key suppliers and subcontractors; availability of materials and supplies; controlling costs of fixed-price development programs; contractual performance relief and the application of cost sharing terms; allowability and allocability of costs under U.S. Government contracts; progress and acceptance of new products and technology; domestic and international competition; legal, financial and governmental risks related to international transactions; potential security threats, natural disasters and other disruptions not under our control; and other risk factors disclosed in our filings with the Securities and Exchange Commission.

These forward-looking statements speak only as of the date of this release and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this release or the attachments.

LEARN MORE ABOUT US: Northrop Grumman news releases, product information, photos and video clips are available on the Internet at: http://www.northropgrumman.com

  SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
         
  Three Months Ended Nine Months Ended
  September 30 September 30
$ in millions, except per share amounts 2010 2009 2010 2009
Sales and Service Revenues        
Product sales  $ 5,303  $ 4,982  $ 16,373  $ 14,972
Service revenues  3,411  3,368  9,777  9,858
Total sales and service revenues  8,714  8,350  26,150  24,830
Cost of Sales and Service Revenues        
Cost of product sales  4,096  4,027  12,759  12,007
Cost of service revenues  3,092  2,960  8,846  8,768
General and administrative expenses  725  744  2,263  2,203
Operating income  801  619  2,282  1,852
Other (expense) income        
Interest expense  (68)  (76)  (216)  (219)
Other, net  13  41  10  62
Earnings from continuing operations before income taxes  746  584  2,076  1,695
Federal and foreign income taxes  257  120  414  497
Earnings from continuing operations  489  464  1,662  1,198
Earnings from discontinued operations, net of tax  8  26  15  75
Net earnings  $ 497  $ 490  $ 1,677  $ 1,273
Basic Earnings Per Share        
Continuing operations  $ 1.67  $ 1.46  $ 5.57  $ 3.72
Discontinued operations  .02  .09  .05  .23
Basic earnings per share  $ 1.69  $ 1.55  $ 5.62  $ 3.95
Weighted-average common shares outstanding, in millions  293.5  317.1  298.6  322.0
Diluted Earnings Per Share        
Continuing operations  $ 1.64  $ 1.45  $ 5.49  $ 3.67
Discontinued operations  .03  .08  .05  .23
Diluted earnings per share  $ 1.67  $ 1.53  $ 5.54  $ 3.90
Weighted-average diluted shares outstanding, in millions  297.6  320.6  302.5  326.1
Net earnings (from above)  $ 497  $ 490  $ 1,677  $ 1,273
Other comprehensive income        
Change in cumulative translation adjustment  18  20  (34)  44
Change in unrealized gain on marketable securities and cash flow hedges, net of tax        35
Change in unamortized benefit plan costs, net of tax  39  53  118  159
Other comprehensive income, net of tax  57  73  84  238
Comprehensive income  $ 554  $ 563  $ 1,761  $ 1,511
     
    SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
     
   September 30,  December 31,
$ in millions 2010 2009
Assets    
Cash and cash equivalents   $ 2,528  $ 3,275
Accounts receivable, net of progress payments  4,172  3,394
Inventoried costs, net of progress payments  1,193  1,170
Deferred tax assets  718  524
Prepaid expenses and other current assets  392  272
Total current assets  9,003  8,635
Property, plant, and equipment, net of accumulated depreciation of $4,608 in 2010 and $4,216 in 2009   4,767  4,868
Goodwill  13,517  13,517
Other purchased intangibles, net of accumulated amortization of $1,943 in 2010 and $1,871 in 2009   801  873
Pension and post-retirement plan assets  324  300
Long-term deferred tax assets  654  1,010
Miscellaneous other assets  1,110  1,049
Total assets  $ 30,176  $ 30,252
     
Liabilities    
Notes payable to banks  $ 15  $ 12
Current portion of long-term debt  757  91
Trade accounts payable  1,677  1,921
Accrued employees' compensation  1,238  1,281
Advance payments and billings in excess of costs incurred  2,069  1,954
Other current liabilities  2,007  1,726
Total current liabilities  7,763  6,985
Long-term debt, net of current portion  3,437  4,191
Pension and post-retirement plan liabilities  4,511  4,874
Other long-term liabilities  1,271  1,515
Total liabilities  16,982  17,565
     
Shareholders' Equity    
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2010 — 292,228,109; 2009 — 306,865,201  292  307
Paid-in capital  7,827  8,657
Retained earnings  8,005  6,737
Accumulated other comprehensive loss  (2,930)  (3,014)
Total shareholders' equity  13,194  12,687
Total liabilities and shareholders' equity  $ 30,176  $ 30,252
     
    SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
     
  Nine Months Ended
  September 30
$ in millions 2010 2009
Operating Activities    
Sources of Cash — Continuing Operations    
Cash received from customers    
Progress payments  $ 4,361  $ 5,472
Collections on billings  21,145  19,013
Other cash receipts  28  32
Total sources of cash — continuing operations  25,534  24,517
Uses of Cash — Continuing Operations    
Cash paid to suppliers and employees  (22,796)  (21,681)
Pension contributions  (438)  (832)
Interest paid, net of interest received  (254)  (240)
Income taxes paid, net of refunds received  (933)  (675)
Excess tax benefits from stock-based compensation  (12)  (2)
Other cash payments  (35)  (29)
Total uses of cash — continuing operations  (24,468)  (23,459)
Cash provided by continuing operations  1,066  1,058
Cash provided by discontinued operations    144
Net cash provided by operating activities  1,066  1,202
Investing Activities    
Payments for businesses purchased    (33)
Additions to property, plant, and equipment  (398)  (436)
Payments for outsourcing contract costs and related software costs  (5)  (58)
Other investing activities, net  22  (12)
Net cash used in investing activities  (381)  (539)
Financing Activities    
Net borrowings under lines of credit  3  4
Proceeds from issuance of long-term debt    850
Principal payments of long-term debt  (91)  (73)
Proceeds from exercises of stock options and issuances of common stock  112  29
Dividends paid  (408)  (405)
Excess tax benefits from stock-based compensation  12  2
Common stock repurchases  (1,060)  (650)
Net cash used in financing activities  (1,432)  (243)
(Decrease) increase in cash and cash equivalents  (747)  420
Cash and cash equivalents, beginning of period  3,275  1,504
Cash and cash equivalents, end of period  $ 2,528  $ 1,924
     
    SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
     
  Nine Months Ended
  September 30
$ in millions 2010 2009
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities  
Net earnings  $ 1,677  $ 1,273
Adjustments to reconcile to net cash provided by operating activities    
Depreciation  436  424
Amortization of assets  101  113
Stock-based compensation  103  83
Excess tax benefits from stock-based compensation  (12)  (2)
(Increase) decrease in    
Accounts receivable, net  (779)  (64)
Inventoried costs, net  (46)  (239)
Prepaid expenses and other current assets  (9)  (39)
Increase (decrease) in    
Accounts payable and accruals  (332)  (182)
Deferred income taxes  87  136
Income taxes payable  (121)  (158)
Retiree benefits  4  (208)
Other non-cash transactions, net  (43)  (79)
Cash provided by continuing operations  1,066  1,058
Cash provided by discontinued operations    144
Net cash provided by operating activities  $ 1,066  $ 1,202
Non-Cash Investing and Financing Activities    
Capital expenditures accrued in accounts payable  $ 55  $ 38
             
            SCHEDULE 5
NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(Unaudited)
   
$ in millions  September 30, 2010  December 31, 2009
  FUNDED (1) UNFUNDED(2) TOTAL BACKLOG FUNDED (1) UNFUNDED(2) TOTAL BACKLOG
Aerospace Systems  $ 8,541  $ 13,337  $ 21,878  $ 8,320  $ 16,063  $ 24,383
Electronic Systems  8,237  2,083  10,320  7,591  2,784  10,375
Information Systems  4,951  5,536  10,487  4,319  4,508  8,827
Shipbuilding  9,900  7,210  17,110  11,294  9,151  20,445
Technical Services  2,855  1,997  4,852  2,352  2,804  5,156
Total  $ 34,484  $ 30,163  $ 64,647  $ 33,876  $ 35,310  $ 69,186
             
(1) Funded backlog represents firm orders for which funding is contractually obligated by the customer.
(2) Unfunded backlog represents firm orders for which funding is not currently contractually obligated by the customer. 
Unfunded backlog excludes unexercised contract options and unfunded indefinite delivery indefinite quantity (IDIQ) orders.
         
 
New Awards – The estimated value of contract awards included in backlog during the nine months ended September 30, 2010, was $20.8 billion. 
             
During the second quarter of 2010, the company reached an agreement with the Commonwealth of Virginia that modified certain aspects of the Virginia IT outsourcing contract. As a result of these modifications, total backlog at September 30, 2010 includes an $824 million favorable adjustment to reflect minimum values for years 2011 through 2016, which are now provided for in the contract. 
             
                SCHEDULE 6
NORTHROP GRUMMAN CORPORATION
SCHEDULE OF REALIGNED SEGMENT
(Unaudited)
                 
  NET SALES SEGMENT OPERATING INCOME (LOSS)(2)
    Three   Three
        Months Ended       Months Ended
$ in millions Year Ended December 31 Dec 31 Year Ended December 31 Dec 31
  2007 2008 2009 2009 2007 2008 2009 2009
AS REPORTED                
                 
Aerospace Systems  $ 9,234  $ 9,825  $ 10,419  $ 2,763  $ 919  $ 416  $ 1,071  $ 291
                 
Electronic Systems  6,466  7,048  7,671  2,077  809  947  969  274
                 
Information Systems  7,758  8,205  8,611  2,195  725  629  631  109
                 
Shipbuilding  5,788  6,145  6,213  1,664  538  (2,307)  299  88
                 
Technical Services  2,422  2,535  2,776  750  139  144  161  40
                 
Intersegment Eliminations  (1,327)  (1,443)  (1,935)  (524)  (105)  (128)  (202)  (58)
                 
Total  $ 30,341  $ 32,315  $ 33,755  $ 8,925  $ 3,025  $ (299)  $ 2,929  $ 744
                 
                 
RECASTED AND REALIGNED (1)                
                 
Aerospace Systems  $ 9,234  $ 9,825  $ 10,419  $ 2,763  $ 919  $ 416  $ 1,071  $ 291
                 
Electronic Systems  6,466  7,048  7,671  2,077  809  947  969  274
                 
Information Systems  7,717  8,174  8,536  2,174  722  626  624  107
                 
Shipbuilding  5,788  6,145  6,213  1,664  538  (2,307)  299  88
                 
Technical Services  2,422  2,535  2,776  750  139  144  161  40
                 
Intersegment Eliminations  (1,286)  (1,412)  (1,860)  (503)  (102)  (125)  (195)  (56)
                 
Total  $ 30,341  $ 32,315  $ 33,755  $ 8,925  $ 3,025  $ (299)  $ 2,929  $ 744
                 
                 
 (1) Reported amounts for total years 2007 through 2009 (previously reported in the 2009 Form 10-K), and the three months ended Dec. 31, 2009 (previously reported in the Fourth Quarter 2009 earnings release filed on Feb. 4, 2010) were adjusted to reflect the January 2010 transfer of the company's internal information technology services unit from the Information Systems segment to the company's corporate shared services group. 
 (2) Non-GAAP measure. Management uses segment operating income as an internal measure of financial performance for the individual operating segments.

Non-GAAP Financial Measures Disclosure: Today's press release contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the text of the release. While we believe that these non-GAAP financial measures may be useful in evaluating Northrop Grumman's financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release and in attached schedules.  References to a "Table" in the definitions below relate to tables in the body of this press release.  Other companies may define these measures differently or may utilize different non-GAAP measures.

Cash provided by operations before discretionary pension contributions: Cash provided by operations before the after-tax impact of discretionary pension contributions. Cash provided by operations before discretionary pension contributions has been provided for consistency and comparability of 2010 and 2009 financial performance and is reconciled on Table 2.

Free cash flow: Cash provided by operations less capital expenditures and outsourcing contract and related software costs. We use free cash flow as a key factor in our planning for and consideration of strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow is reconciled in Table 2.

Free cash flow before discretionary pension contributions: Free cash flow before the after-tax impact of discretionary pension contributions. We use free cash flow before discretionary pension contributions as a key factor in our planning for and consideration of strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP.  Free cash flow before discretionary pension contributions is presented in Table 3.

Net pension adjustment:  Pension expense determined in accordance with GAAP less pension expense allocated to the operating segments under U.S. Government Cost Accounting Standards (CAS). Net pension adjustment is presented in Table 1.

After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at the statutory rate of 35%, provided for consistency and comparability of 2010 and 2009 financial performance and reconciled on Table 1.

Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pension adjustment per share. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS from continuing operations, as reconciled in Table 1, as an internal measure of financial performance.

Pension-adjusted operating income: Operating income before net pension adjustment as reconciled in Table 1 and used as an internal measure of financial performance.

Pension-adjusted operating income as a % of sales: Pension-adjusted operating income as defined above, divided by sales. Management uses pension-adjusted operating income as a % of sales, as reconciled in Table 1, as an internal measure of financial performance.

Segment operating income (loss): Total earnings from our five segments including allocated pension expense recognized under CAS.  Reconciling items to operating income are unallocated corporate expenses, which include management and administration, legal, environmental, certain compensation and retiree benefits, and other expenses; net pension adjustment; and reversal of royalty income included in segment operating income. Management uses segment operating income, as reconciled in Table 5, as an internal measure of financial performance of our individual operating segments.

Segment operating margin % / Segment operating income as a % of sales: Segment operating income as defined above, divided by sales. Management uses segment operating income as a % of sales, as reconciled in Table 5, as an internal measure of financial performance.

CONTACT:  Dan McClain (Media)
          (310) 201-3335

          Paul Gregory (Investors)
          (310) 201-1634