Northrop Grumman Reports Fourth Quarter and 2009 Financial Results
- Q4 EPS of $1.31; 2009 EPS of $5.21
- 2010 Guidance for EPS from Continuing Operations of $5.70 to $5.95
- TASC, Inc. Divestiture Completed; Reported as Discontinued Operations
- Q4 Share Repurchases of $450 Million; 2009 Share Repurchases Total $1.1 Billion
LOS ANGELES, Feb. 4 /PRNewswire-FirstCall/ -- Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2009 net earnings of $413 million, or $1.31 per diluted share, and 2009 net earnings of $1.7 billion, or $5.21 per diluted share. In 2008, the company reported a fourth quarter net loss of $2.5 billion, or $7.75 per diluted share, and a net loss for the year of $1.3 billion, or $3.77 per diluted share. 2008 fourth quarter and full year results were significantly impacted by a goodwill impairment charge.
In December 2009, the company completed the sale of TASC, Inc. (TASC), its advisory services business, for $1.65 billion in cash and a net gain of $0.05 per share. TASC's operating results are accounted for as discontinued operations, and results for all periods presented in this release have been adjusted for the divestiture. Fourth quarter 2009 earnings from continuing operations totaled $375 million, or $1.19 per diluted share. For 2009, earnings from continuing operations totaled $1.6 billion, or $4.87 per diluted share.
Fourth quarter 2009 sales, restated for the TASC divestiture, increased 2 percent to $8.9 billion from $8.8 billion, and 2009 sales increased more than 4 percent to $33.8 billion from $32.3 billion. Reported sales for 2009 and 2008 exclude TASC sales of approximately $1.5 billion and $1.6 billion, respectively.
Cash provided by operations in the fourth quarter of 2009 totaled $931 million compared with $1 billion in the fourth quarter of 2008. Cash provided by operations totaled $2.1 billion in 2009 compared with $3.2 billion in 2008. The change was primarily driven by a $538 million increase in pension plan contributions and $508 million in taxes paid in the fourth quarter of 2009 on the gain on the sale of TASC. Cash proceeds of $1.65 billion from the sale of TASC are reported in investing activities.
"We're pleased to report strong 2009 results that demonstrate continued improvement in operating performance. Looking ahead, the focus of our leadership team and our 120,000 employees will be on driving performance improvements that create value for our shareholders and our customers," said Wes Bush, chief executive officer and president, "Our guidance for 2010 calls for EPS from continuing operations to grow by 17 to 22 percent and to be accompanied by continued strong cash generation," continued Bush.
Table 1 - Financial Highlights
Fourth Quarter Total Year
($ in millions, except -------------- ----------
per share amounts) 2009 2008 2009 2008
---------------------- ---- ---- ---- ----
Sales $8,925 $8,775 $33,755 $32,315
Operating income (loss) 631 (2,191) 2,483 (263)
Earnings (loss) from
continuing operations 375 (2,561) 1,573 (1,379)
Earnings from discontinued
operations, net of tax 38 28 113 117
Net earnings (loss) 413 (2,533) 1,686 (1,262)
Diluted earnings (loss)
per share 1.31 (7.75) (2) 5.21 (3.77) (2)
Cash provided by operations 931 1,037 2,133 3,211
Free cash flow(1) 703 790 1,411 2,420
Adjusted Operating Highlights
Operating income (loss) $631 $(2,191) $2,483 $(263)
Goodwill impairment 3,060 3,060
Net pension adjustment(1) 87 (71) 311 (263)
--- --- --- ----
Adjusted operating income(1) 718 798 2,794 2,534
as % of sales(1) 8.0% 9.1% 8.3% 7.8%
Earnings Reconciliation
Earnings (loss) from
continuing operations $375 $(2,561) $1,573 $(1,379)
Goodwill impairment 3,060 3,060
--- ----- ----- -----
Adjusted earnings from
continuing operations(1) 375 499 1,573 1,681
Adjusted Per Share Data
Diluted EPS from
continuing operations $1.19 $(7.83) (2) $4.87 $(4.12) (2)
Adjusted diluted EPS from
continuing operations(1) 1.19 1.50 4.87 4.92
After-tax net pension
adjustment per share(1) 0.18 (0.14) 0.63 (0.50)
---- ----- ---- -----
Pension-adjusted diluted EPS
from continuing operations(1) 1.37 1.36 5.50 4.42
Weighted average shares
outstanding - Basic(2) 311.8 326.9 319.2 334.5
Dilutive effect of stock
options and stock awards 3.7 6.7 4.1 7.1
--- --- --- ---
Weighted average shares
outstanding - Diluted 315.5 333.6 323.3 341.6
(1) Non-GAAP metric - see definitions and reconciliations at the end
of this press release.
(2) 2008 per share amounts computed using weighted average basic
shares outstanding as the use of weighted average diluted shares
outstanding results in a lesser per share amount.
Fourth quarter 2009 operating income increased to $631 million from a loss of $2.2 billion in the 2008 fourth quarter. For 2009, operating income increased to $2.5 billion from a loss of $263 million in 2008. In the fourth quarter of 2008 the company recorded a $3.1 billion goodwill impairment charge. Results for 2009 also include a $574 million change in net pension adjustment from income of $263 million in 2008 to an expense of $311 million in 2009. As a percent of sales, operating income totaled 7.1 percent in the 2009 fourth quarter and 7.4 percent for 2009. For purposes of comparison, Table 1 presents operating income adjusted for the goodwill impairment charge and the effect of net pension adjustments.
Federal and foreign income taxes totaled $195 million in the fourth quarter of 2009 compared with $264 million in the prior year. The effective tax rate for the 2009 fourth quarter was 34.2 percent and the federal tax rate applied to adjusted earnings in the fourth quarter of 2008 was 34.6 percent. For 2009, federal and foreign income taxes totaled $693 million compared with $859 million for 2008. The effective tax rate for 2009 was 30.6 percent and the effective tax rate applied to earnings adjusted for goodwill in 2008 was 33.8 percent. In 2009 federal and foreign income taxes included a net tax benefit of $75 million, primarily for final settlement of the Internal Revenue Service's (IRS) examination of the company's 2001, 2002 and 2003 tax returns.
Backlog and New Business Awards
Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $69.2 billion on Dec. 31, 2009, compared with $76.4 billion on Dec. 31, 2008. Total backlog for both periods has been adjusted by $1.6 billion for the divestiture of TASC Inc. The change in backlog reflects new business awards totaling $32.3 billion during the year as well as a decrease of $5.8 billion for the Kinetic Energy Interceptor program termination for convenience and the DDG 1000 program restructure.
Table 2 – Guidance
($ in millions, except per share amounts) 2009 2010E
----------------------------------------- ---- -----
Sales $33,755 $34,000 - $34,600
Segment operating margin %1 8.7% Low 9%
Operating margin % 7.4% Mid 8%
Diluted EPS from continuing operations $4.87 $5.70 - $5.95
Cash provided by operations before
discretionary pension contributions(1) 2,595 2,500 - 3,000
Free cash flow before
discretionary pension contributions(1) 1,873 1,700 - 2,200
(1) Non-GAAP metric - see definitions and reconciliations at the end
of this press release.
Guidance for 2010 segment operating margin rate calls for margin rate expansion across the businesses. Operating margin rate guidance for 2010 includes improved segment performance, an expense of approximately $35 million for net pension adjustment, and some consideration for potential program performance risks and opportunities. Net pension adjustment represents the difference between pension expense determined in accordance with Generally Accepted Accounting Principles (GAAP) and pension expense allocated to the business segments under U.S. Government Cost Accounting Standards (CAS).
Guidance for 2010 earnings per share from continuing operations of $5.70 - $5.95 includes the operating margin rate improvements discussed above and assumes a lower share count consistent with the company's previously announced intention to repurchase enough shares to offset the loss of TASC's earnings. These items were partially offset by a higher effective tax rate assumption of approximately 34.5 percent.
Table 3 - Cash Flow Highlights
($ millions) 2009 2008 Change 2009 2008 Change
---- ---- ------ ---- ---- ------
Cash provided by
operations before
discretionary pension
contributions(1) $790 $1,219 $(429) $2,595 $3,341 $(746)
Discretionary pension
pre-funding impact 141 (182) 323 (462) (130) (332)
--- ---- --- ---- ---- ----
Cash provided
by operations 931 1,037 (106) 2,133 3,211 (1,078)
Less:
Capital expenditures 218 237 19 654 681 27
Outsourcing contract &
related software costs 10 10 - 68 110 42
--- --- --- --- --- ---
Free cash flow(1) $703 $790 $(87) $1,411 $2,420 $(1,009)
(1) Non-GAAP metric - see definitions and reconciliations at the end of
this press release.
Free cash flow totaled $703 million in the 2009 fourth quarter compared with $790 million in the prior year period. For 2009, free cash flow totaled $1.4 billion compared with $2.4 billion in 2008. The change in free cash flow in the 2009 periods reflects higher net pension plan contributions and taxes paid on the gain on the sale of TASC.
Table 4 - Cash Measurements, Debt and Capital Deployment
($ millions) 12/31/2009 12/31/2008
------------ ---------- ----------
Cash & cash equivalents $3,275 $1,504
Total debt 4,294 3,944
Net debt(1) 1,019 2,440
Net debt to total capital ratio(2) 6% 15%
(1) Total debt less cash and cash equivalents.
(2) Net debt divided by the sum of shareholders' equity and total debt.
Changes in cash and cash equivalents include the following items for cash from operations, investing and financing during 2009:
Operations
- $1.3 billion taxes paid, including $508 million for federal and state taxes for the gain on the sale of TASC
- $858 million pension plan contributions
Investing
- $1.65 billion proceeds from sale of TASC
- $654 million for capital expenditures and $68 million for outsourcing contract and related software costs
Financing
- $1.1 billion for repurchase of 23.1 million shares
- $850 million proceeds from issuance of long term debt
- $474 million principal payments of long-term debt
- $539 million for dividends
Table 5 - Business Results
Consolidated Sales & Segment Operating Income (Loss)(1)
($ millions)
Fourth Quarter Total Year
-------------- ----------
2009 2008 Change 2009 2008 Change
---- ---- ------ ---- ---- ------
Sales
Aerospace Systems $2,763 $2,575 7% $10,419 $9,825 6%
Electronic Systems 2,077 2,030 2% 7,671 7,048 9%
Information Systems 2,195 2,178 1% 8,611 8,205 5%
Shipbuilding 1,664 1,742 (4%) 6,213 6,145 1%
Technical Services 750 678 11% 2,776 2,535 10%
Intersegment
eliminations (524) (428) (1,935) (1,443)
---- ---- --- ------ ------ ---
$8,925 $8,775 2% $33,755 $32,315 4%
Segment operating
income (loss)(1)
Aerospace Systems $291 $(305) NM $1,071 $416 157%
Electronic Systems 274 276 (1%) 969 947 2%
Information Systems 109 167 (35%) 631 629 0%
Shipbuilding 88 (2,333) NM 299 (2,307) NM
Technical Services 40 34 18% 161 144 12%
Intersegment
eliminations (58) (35) (202) (128)
--- --- --- ---- ---- ---
Segment operating
income (loss)(1) $744 $(2,196) NM $2,929 $(299) NM
as a % of sales(1) 8.3% NM NM 8.7% NM NM
Reconciliation to
operating income
(loss)
Unallocated
expenses $(24) $(62) $(111) $(157)
Net pension
adjustment(1) (87) 71 (311) 263
Reversal of
royalty income
included above (2) (4) (24) (70)
--- --- --- --- --- ---
Operating income
(loss) 631 (2,191) NM 2,483 (263) NM
as a % of sales 7.1% NM NM 7.4% NM NM
Net interest
expense (62) (72) (281) (295)
Other, income /
(expense) 1 (34) 64 38
--- --- --- --- --- ---
Earnings (loss)
from continuing
operations before
income taxes 570 (2,297) 2,266 (520)
Federal and foreign
income taxes (195) (264) (693) (859)
---- ---- --- ---- ---- ---
Earnings (loss)
from continuing
operations 375 (2,561) 1,573 (1,379)
Earnings (loss)
from discontinued
operations 38 28 113 117
--- --- --- --- --- ---
Net earnings (loss) $413 $(2,533) NM $1,686 $(1,262) NM
(1) Non-GAAP metric - see definitions and reconciliations at the end
of this press release.
Fourth quarter and 2008 operating income for Aerospace Systems and Shipbuilding were reduced by goodwill impairment charges. Aerospace Systems and Shipbuilding segments operating income and trends, adjusted for the goodwill impairment impacts, are detailed below.
Aerospace Systems ($ millions)
Fourth Quarter Total Year
-------------- ----------
2009 2008 % Change 2009 2008 % Change
---- ---- -------- ---- ---- --------
Sales $2,763 $2,575 7.3% $10,419 $9,825 6.0%
Operating income
(loss) 291 (305) NM 1,071 416 157.5%
Goodwill impairment 570 570
--- --- --- ----- --- ---
Adjusted operating
income 291 265 9.8% 1,071 986 8.6%
Operating income
as % of sales 10.5% NM 10.3% 4.2%
Adjusted operating
income as % of sales 10.5% 10.3% 10.3% 10.0%
Aerospace Systems fourth quarter 2009 sales increased 7 percent, and 2009 sales increased 6 percent, principally due to higher volume for unmanned and manned aircraft, and restricted programs. Higher volume for these programs was partially offset by lower volume for missile programs.
Aerospace Systems fourth quarter 2009 operating income increased to $291 million from a loss of $305 million in the fourth quarter of 2008, and 2009 operating income increased to $1.1 billion from $416 million. As a percent of sales, fourth quarter 2009 operating income totaled 10.5 percent, and 2009 operating income totaled 10.3 percent. Higher volume and favorable net performance adjustments contributed to the higher operating income and rate in the fourth quarter and 2009; the improvement over prior year results was primarily driven by the $570 million goodwill impairment charge recorded in the fourth quarter of 2008.
Electronic Systems ($ millions)
Fourth Quarter Total Year
-------------- ----------
2009 2008 % Change 2009 2008 % Change
---- ---- -------- ---- ---- --------
Sales $2,077 $2,030 2.3% $7,671 $7,048 8.8%
Operating Income 274 276 (0.7%) 969 947 2.3%
as a % of sales 13.2% 13.6% 12.6% 13.4%
Electronic Systems fourth quarter 2009 sales increased 2 percent, and 2009 sales increased 9 percent. The fourth quarter increase reflects higher volume for F-35, postal automation, and navigation programs. The 2009 increase includes higher deliveries of Large Aircraft Infrared Countermeasures (LAIRCM) systems, higher volume for the Space Based Infrared Systems (SBIRS) follow-on production and F-35 programs, and higher intercompany sales for aerospace programs.
Electronic Systems fourth quarter 2009 operating income was comparable to the prior year period, and as a percent of sales was 13.2 percent compared with 13.6 percent. The change in margin rate reflects lower performance for government systems programs than in the prior year period. For 2009, operating income increased 2 percent, and as a percent of sales was 12.6 percent compared with 13.4 percent in 2008. Results for 2009 reflect higher volume, partially offset by lower performance in government systems programs. In addition, operating income for 2008 included $60 million of royalty income related to patent infringement settlements. Before royalty income, Electronic Systems 2008 operating income was 12.6 percent of sales.
Information Systems ($ millions)
Fourth Quarter Total Year
-------------- ----------
2009 2008 % Change 2009 2008 % Change
---- ---- -------- ---- ---- --------
Sales $2,195 $2,178 0.8% $8,611 $8,205 4.9%
Operating Income 109 167 (34.7%) 631 629 0.3%
as a % of sales 5.0% 7.7% 7.3% 7.7%
Information Systems fourth quarter 2009 sales were comparable to the prior year period, and 2009 sales increased 5 percent due to higher volume for intelligence and defense programs.
Information Systems fourth quarter 2009 operating income declined 35 percent, and as a percent of sales totaled 5 percent compared with 7.7 percent in the prior year period. For 2009, operating income was comparable to the prior year, and as a percent of sales totaled 7.3 percent compared with 7.7 percent in 2008. The change in rate for both the fourth quarter and 2009 reflects the impact of non-recurring costs associated with the sale of TASC that reduced operating income by $37 million. Margin rates before the non-recurring costs were 6.8 percent for the fourth quarter and 7.8 percent for 2009. The change in rate also includes lower performance for state and local programs, principally the outsourcing program for the Commonwealth of Virginia.
Shipbuilding ($ millions)
Fourth Quarter Total Year
-------------- ----------
2009 2008 % Change 2009 2008 % Change
---- ---- -------- ---- ---- --------
Sales $1,664 $1,742 (4.5%) $6,213 $6,145 1.1%
Operating income
(loss) 88 (2,333) NM 299 (2,307) NM
Goodwill impairment 2,490 2,490
--- ----- --- -----
Adjusted operating
income 88 157 (43.9%) 299 183 63.4%
Operating income
as % of sales 5.3% NM 4.8% NM
Adjusted operating
income as % of sales 5.3% 9.0% 4.8% 3.0%
Shipbuilding fourth quarter 2009 sales decreased 4 percent primarily due to lower volume for the DDG and fleet support programs and delivery of the LHD 8 in 2009, which was partially offset by higher volume for aircraft carriers, submarines, LPD and LHA programs. 2009 sales were slightly higher than the prior year and included higher volume for submarine, LPD, and aircraft carrier refueling programs, partially offset by lower volume for DDG 51 and fleet support programs.
Shipbuilding fourth quarter 2009 operating income increased to $88 million from a loss of $2.3 billion in the fourth quarter of 2008, and 2009 operating income increased to $299 million from a loss of $2.3 billion for 2008. Prior year results included a goodwill impairment charge that reduced fourth quarter and 2008 results by $2.5 billion.
Adjusted for the goodwill impairment charge, as a percent of sales, Shipbuilding 2009 fourth quarter operating income totaled 5.3 percent compared with 9 percent for the 2008 fourth quarter. The change in rate for the quarter is primarily due to lower performance for the LPD program. Adjusted for the goodwill impairment charge, 2009 operating income improved to 4.8 percent of sales from 3 percent of sales in 2008.
Technical Services ($ millions)
Fourth Quarter Total Year
-------------- ----------
2009 2008 % Change 2009 2008 % Change
---- ---- -------- ---- ---- --------
Sales $750 $678 10.6% $2,776 $2,535 9.5%
Operating Income 40 34 17.6% 161 144 11.8%
as a % of Sales 5.3% 5.0% 5.8% 5.7%
Technical Services fourth quarter 2009 sales increased 11 percent, and 2009 sales increased 10 percent, due to higher volume for life cycle optimization & engineering programs. Technical Services fourth quarter 2009 operating income increased 18 percent, and 2009 operating income increased 12 percent. As a percent of sales fourth quarter 2009 operating income improved to 5.3 percent from 5 percent, and 2009 operating income improved to 5.8 percent from 5.7 percent. The improvements in operating income and rate are due to higher volume and improved program performance.
About Northrop Grumman
Northrop Grumman Corporation is a leading global security company whose 120,000 employees provide innovative systems, products, and solutions in aerospace, electronics, information systems, shipbuilding and technical services to government and commercial customers worldwide.
Northrop Grumman will webcast its earnings conference call at 10:30 a.m. ET on Feb. 4, 2010. A live audio broadcast of the conference call along with a supplemental presentation will be available on the investor relations page of the company's Web site at http://www.northropgrumman.com.
Statements in this release and the attachments, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "expect," "intend," "plan," "project," "forecast," "believe," "estimate," "outlook," "guidance," "target," "trends" and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, financial guidance regarding future sales, segment operating income, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow and earnings. These statements are not guarantees of future performance and involve certain risks and uncertainties. Actual results could differ materially due to factors such as: the effect of economic conditions in the United States and globally; access to capital; future sales and cash flows; timing of cash receipts; effective tax rates and timing and amounts of tax payments; returns on pension plan assets, interest and discount rates and other changes that may impact pension plan assumptions; retiree medical expense; the outcome of litigation, claims, audits, appeals, bid protests and investigations; hurricane and earthquake-related insurance coverage and recoveries; costs of environmental remediation; our relationships with labor unions; availability and retention of qualified personnel; costs of capital investments; changes in organizational structure and reporting segments; risks associated with acquisitions, dispositions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other intangible assets; effects of legislation, rulemaking, and changes in accounting, tax or defense procurement; changes in government and customer priorities and requirements (including, government budgetary constraints, shifts in defense spending, changes in import and export policies, changes in customer short-range and long-range plans); acquisition or termination of contracts; technical, operation or quality setbacks in contract performance; protection of intellectual property rights; risks associated with our nuclear operations; issues with, and financial viability of, key suppliers and subcontractors; availability of materials and supplies; controlling costs of fixed-price development programs; contractual performance relief and the application of cost sharing terms; allowability and allocability of costs under U.S. Government contracts; progress and acceptance of new products and technology; domestic and international competition; legal, financial and governmental risks related to international transactions; potential security threats, natural disasters and other disruptions not under our control; and other risk factors disclosed in our filings with the Securities and Exchange Commission.
These forward-looking statements speak only as of the date of this release and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this release or the attachments.
LEARN MORE ABOUT US: Northrop Grumman news releases, product information, photos and video clips are available on the Internet at: http://www.northropgrumman.com
SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(preliminary and unaudited)
Year Ended December 31
$ in millions, except ----------------------
per share amounts 2009 2008 2007
-----------------------------------------------------------------
Sales and Service Revenues
Product sales $20,914 $19,634 $18,577
Service revenues 12,841 12,681 11,764
-----------------------------------------------------------------
Total sales and
service revenues 33,755 32,315 30,341
-----------------------------------------------------------------
Cost of Sales and
Service Revenues
Cost of product
sales 16,591 15,490 14,340
Cost of service
revenues 11,539 10,885 10,014
General and
administrative expenses 3,142 3,143 3,062
Goodwill impairment 3,060
-----------------------------------------------------------------
Operating income (loss) 2,483 (263) 2,925
Other (expense) income
Interest expense (281) (295) (336)
Other, net 64 38 17
-----------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes 2,266 (520) 2,606
Federal and foreign
income taxes 693 859 855
-----------------------------------------------------------------
Earnings (loss) from
continuing operations 1,573 (1,379) 1,751
Earnings from discontinued
operations, net of tax 113 117 39
-----------------------------------------------------------------
Net earnings (loss) $1,686 $(1,262) $1,790
=================================================================
Basic Earnings (Loss)
Per Share
Continuing operations $4.93 $(4.12) $5.12
Discontinued operations .35 .35 .12
-----------------------------------------------------------------
Basic earnings (loss)
per share $5.28 $(3.77) $5.24
-----------------------------------------------------------------
Weighted-average common
shares outstanding, in
millions 319.2 334.5 341.7
=================================================================
Diluted Earnings (Loss)
Per Share
Continuing operations $4.87 $(4.12) $5.01
Discontinued operations .34 .35 .11
-----------------------------------------------------------------
Diluted earnings (loss)
per share $5.21 $(3.77) $5.12
-----------------------------------------------------------------
Weighted-average
diluted shares
outstanding, in
millions 323.3 334.5 354.3
=================================================================
Net earnings (loss)
from above $1,686 $(1,262) $1,790
Other comprehensive
income (loss)
Change in cumulative
translation adjustment 31 (24) 12
Change in unrealized
gain (loss) on
marketable securities
and cash flow hedges,
net of tax (expense)
benefit of $(23) in
2009, $22 in 2008 and
$(1) in 2007 36 (35) 1
Change in unamortized
benefit plan costs, net
of tax (expense)
benefit of $(374) in
2009, $1,888 in 2008,
and $(384) in 2007 561 (2,884) 594
=================================================================
Other comprehensive
income (loss),
net of tax 628 (2,943) 607
-----------------------------------------------------------------
Comprehensive income (loss) $2,314 $(4,205) $2,397
=================================================================
SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(preliminary and unaudited)
December 31, December 31,
$ in millions 2009 2008
-----------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $3,275 $1,504
Accounts receivable, net
of progress payments 3,394 3,701
Inventoried costs, net of
progress payments 1,170 1,003
Deferred tax assets 524 585
Prepaid expenses and
other current assets 272 219
Assets of discontinued operations - 1,231
-----------------------------------------------------------------
Total current assets 8,635 8,243
-----------------------------------------------------------------
Property, Plant, and Equipment
Land and land improvements 649 619
Buildings and improvements 2,422 2,326
Machinery and other equipment 4,759 4,547
Capitalized software costs 624 530
Leasehold improvements 630 545
-----------------------------------------------------------------
9,084 8,567
Accumulated depreciation (4,216) (3,782)
-----------------------------------------------------------------
Property, plant, and equipment,
net 4,868 4,785
-----------------------------------------------------------------
Other Assets
Goodwill 13,517 13,509
Other purchased intangibles,
net of accumulated
amortization of $1,871 in
2009 and $1,767 in 2008 873 947
Pension and post-retirement
plan assets 300 290
Long-term deferred tax assets 1,010 1,497
Miscellaneous other assets 1,049 926
-----------------------------------------------------------------
Total other assets 16,749 17,169
-----------------------------------------------------------------
Total assets $30,252 $30,197
=================================================================
Liabilities and Shareholders'
Equity
Current Liabilities
Notes payable to banks $12 $24
Current portion of long-term debt 91 477
Trade accounts payable 1,921 1,887
Accrued employees’ compensation 1,281 1,231
Advance payments and billings in
excess of costs incurred 1,954 2,028
Other current liabilities 1,726 1,637
Liabilities of discontinued
operations - 165
-----------------------------------------------------------------
Total current liabilities 6,985 7,449
-----------------------------------------------------------------
Long-term debt, net of current
portion 4,191 3,443
Pension and post-retirement plan
liabilities 4,874 5,823
Other long-term liabilities 1,515 1,562
-----------------------------------------------------------------
Total liabilities 17,565 18,277
-----------------------------------------------------------------
Shareholders' Equity
Common stock, $1 par value;
800,000,000 shares authorized;
issued and outstanding:
2009 - 306,865,201;
2008 - 327,012,663 307 327
Paid-in capital 8,657 9,645
Retained earnings 6,737 5,590
Accumulated other comprehensive
loss (3,014) (3,642)
-----------------------------------------------------------------
Total shareholders’ equity 12,687 11,920
-----------------------------------------------------------------
Total liabilities and
shareholders’ equity $30,252 $30,197
=================================================================
SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited)
Year Ended December 31
----------------------
$ in millions 2009 2008 2007
--------------------------------------------------------------------
Operating Activities
Sources of Cash - Continuing Operations
Cash received from customers
Progress payments $8,561 $6,219 $5,860
Collections on billings 25,099 26,938 24,570
Insurance proceeds received 25 5 125
Other cash receipts 37 83 34
--------------------------------------------------------------------
Total sources of cash - continuing
operations 33,722 33,245 30,589
--------------------------------------------------------------------
Uses of Cash - Continuing Operations
Cash paid to suppliers and
employees (29,250) (28,817) (26,144)
Pension contributions (858) (320) (342)
Interest paid, net of interest
received (269) (287) (334)
Income taxes paid, net of
refunds received (774) (712) (853)
Income taxes paid on sale of
businesses (508) (7)
Excess tax benefits from stock-
based compensation (2) (48) (52)
Other cash payments (30) (16) (52)
--------------------------------------------------------------------
Total uses of cash - continuing
operations (31,691) (30,207) (27,777)
--------------------------------------------------------------------
Cash provided by continuing operations 2,031 3,038 2,812
Cash provided by discontinued
operations 102 173 78
--------------------------------------------------------------------
Net cash provided by operating
activities 2,133 3,211 2,890
--------------------------------------------------------------------
Investing Activities
Proceeds from sale of businesses,
net of cash divested 1,650 175
Payments for businesses purchased (33) (92) (690)
Additions to property, plant,
and equipment (654) (681) (681)
Payments for outsourcing
contract costs and related
software costs (68) (110) (137)
(Increase) decrease in
restricted cash (28) 61 59
Other investing activities, net 21 19
--------------------------------------------------------------------
Net cash provided by (used in)
investing activities 867 (626) (1,430)
--------------------------------------------------------------------
Financing Activities
Net borrowings under lines of credit (12) (2) (69)
Proceeds from issuance of long-term
debt 843
Principal payments of long-term
debt (474) (113) (90)
Proceeds from exercises of stock
options and issuances of common stock 51 103 274
Dividends paid (539) (525) (504)
Excess tax benefits from stock-based
compensation 2 48 52
Common stock repurchases (1,100) (1,555) (1,175)
--------------------------------------------------------------------
Net cash used in financing
activities (1,229) (2,044) (1,512)
--------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 1,771 541 (52)
Cash and cash equivalents,
beginning of year 1,504 963 1,015
--------------------------------------------------------------------
Cash and cash equivalents, end of year $3,275 $1,504 $963
====================================================================
SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited)
Year Ended
December 31
------------
$ in millions 2009 2008 2007
-------------------------------------------------------------------------
Reconciliation of Net Earnings (Loss) to Net Cash
Provided by Operating Activities
Net earnings (loss) $1,686 $(1,262) $1,790
Net earnings from discontinued operations (95) (91) (39)
Adjustments to reconcile to net cash provided
by operating activities
Depreciation 585 567 570
Amortization of assets 151 189 152
Impairment of goodwill 3,060
Stock-based compensation 105 118 196
Excess tax benefits from stock-based
compensation (2) (48) (52)
Pre-tax gain on sale of businesses (446) (58)
Pre-tax gain on sale of investments (23)
(Increase) decrease in
Accounts receivable (6,313) (378) (6,439)
Inventoried costs (291) (521) 4
Prepaid expenses and other current assets (6) (20) 9
Increase (decrease) in
Progress payments 6,655 764 6,513
Accounts payable and accruals (151) 383 (2)
Deferred income taxes 112 167 195
Income taxes payable 65 241 (59)
Retiree benefits (20) (167) (50)
Other non-cash transactions, net (4) 94 47
-------------------------------------------------------------------------
Cash provided by continuing operations 2,031 3,038 2,812
Cash provided by discontinued operations 102 173 78
-------------------------------------------------------------------------
Net cash provided by operating activities $2,133 $3,211 $2,890
=========================================================================
Non-Cash Investing and Financing Activities
Investment in unconsolidated affiliate $30
Sale of businesses
Liabilities assumed by purchaser $167 $(18)
=========================================================================
Purchase of businesses
Liabilities assumed by the company $20 $136
=========================================================================
Mandatorily redeemable convertible
preferred stock converted or redeemed
into common stock $350
=========================================================================
Capital leases $35
=========================================================================
Capital expenditures accrued in
accounts payable $104 $84 $80
=========================================================================
SCHEDULE 5
NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(preliminary and unaudited)
$ in millions December 31, 2009 December 31, 2008 (3)
------------------------------------------------------------------------
FUNDED UNFUNDED TOTAL FUNDED UNFUNDED TOTAL
(1) (2) BACKLOG (1) (2) BACKLOG
----------------------- -----------------------
Aerospace Systems $8,320 $16,063 $24,383 $7,648 $22,883 $30,531
Electronic Systems 7,591 2,784 10,375 8,391 2,124 10,515
Information Systems 4,319 4,508 8,827 4,480 3,865 8,345
Shipbuilding 11,294 9,151 20,445 14,205 8,148 22,353
Technical Services 2,352 2,804 5,156 1,840 2,831 4,671
---------------------- ----------------------
Total $33,876 $35,310 $69,186 $36,564 $39,851 $76,415
======================== ========================
(1) Funded backlog represents firm orders for which funding is
contractually obligated by the customer.
(2) Unfunded backlog represents firm orders for which funding is not
currently contractually obligated by the customer.
Unfunded backlog excludes unexercised contract options and unfunded
Indefinite Delivery Indefinite Quantity (IDIQ) orders.
(3) Certain prior period amounts have been reclassified to conform to
the 2009 presentation.
New Awards – The estimated value of contract awards included in backlog
during the year ended December 31, 2009, was approximately $32.3 billion.
Change in backlog includes a decrease of $5.8 billion for the Kinetic
Energy Interceptor program termination for convenience, and the DDG 1000
program restructure.
SCHEDULE 6
NORTHROP GRUMMAN CORPORATION
SUMMARY OPERATING RESULTS
DISCONTINUED OPERATIONS RECLASSIFICATION
(preliminary and unaudited)
2007 2008 2009
---- -------------- -------------------------------
Three
$ in Months
millions, Ended Three Months Ended
except per Total ------ Total ---------------------- YTD
share Year Dec 31 Year Mar 31 Jun 30 Sep 30 Sep
amounts ---- --------------- ---------------------- -----
Sales and
Services
Revenues
As Previously
Reported $31,828 $9,154 $33,887 $8,320 $8,957 $8,726 $26,003
Advisory
Services
Division (1,487) (379) (1,572) (385) (412) (376) (1,173)
------ ---- ------ ---- ---- ---- ------
Restated
sales and
services
revenues $30,341 $8,775 $32,315 $7,935 $8,545 $8,350 $24,830
------- ------ ------- ------ ------ ------ -------
Segment
Operating
Income (Loss)(1)
As Previously
Reported $3,115 $(2,155) $(145) $791 $719 $786 $2,296
Advisory
Services
Division (90) (41) (154) (36) (39) (36) (111)
--- --- ---- --- --- --- ----
Restated
segment
operating
income
(loss) $3,025 $(2,196) $(299) $755 $680 $750 $2,185
------ ------- ----- ---- ---- ---- ------
Earnings
(Loss) From
Continuing
Operations
As Previously
Reported $1,811 $(2,536) $(1,281) $389 $394 $487 $1,270
Advisory
Services
Division (60) (25) (98) (23) (26) (23) (72)
--- --- --- --- --- --- ---
Restated
earnings
(loss) from
continuing
operations $1,751 $(2,561) $(1,379) $366 $368 $464 $1,198
------ ------- ------- ---- ---- ---- ------
Diluted Earnings
(Loss) Per
Share from
Continuing
Operations
As Previously
Reported $5.18 $(7.76) $(3.83) $1.17 $1.21 $1.52 $3.89
Advisory
Services
Division,
Net of Tax (0.17) (0.07) (0.29) (0.07) (0.08) (0.07) (0.22)
----- ----- ----- ----- ----- ----- -----
Restated
diluted
earnings
(loss) per
share from
continuing
operations $5.01 $(7.83) $(4.12) $1.10 $1.13 $1.45 $3.67
----- ------ ------ ----- ----- ----- -----
Weighted-
average
diluted
shares
outstanding,
in
millions 354.3 326.9 334.5 332.1 325.8 320.6 326.1
(1) Non-GAAP measure. Management uses segment operating income as an
internal measure of financial performance for the individual
business segments.
Non-GAAP Financial Measures Disclosure: Today’s press release contains non-GAAP (Generally Accepted Accounting Principles) financial measures, as defined by SEC Regulation G and indicated by a footnote in the text of the release. While we believe that these non-GAAP financial measures may be useful in evaluating Northrop Grumman’s financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release and in attached schedules. References to a “Table” in the definitions below relate to tables in the body of this press release. Other companies may define these measures differently or may utilize different non-GAAP measures.
Adjusted operating income: Operating income (loss) before the net pension adjustment and, for 2008, the $3.060 billion goodwill impairment charge. Adjusted operating income has been provided for consistency and comparability of 2009 and 2008 operating results and is reconciled in Table 1.
Adjusted operating income as a % of sales: Operating income (loss) before the net pension adjustment and, for 2008, the $3.060 billion goodwill impairment charge, divided by sales. Adjusted operating income as a % of sales has been provided for consistency and comparability of 2009 and 2008 operating results and is reconciled on Table 1.
Adjusted earnings from continuing operations: Earnings (loss) from continuing operations excluding, in 2008, the $3.060 billion goodwill impairment charge. Adjusted earnings from continuing operations has been provided for consistency and comparability of 2009 and 2008 operating results and is reconciled on Table 1.
Adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding, in 2008, the per share impact of the goodwill impairment charge. Adjusted diluted EPS from continuing operations has been provided for consistency and comparability of 2009 and 2008 operating results and are reconciled in Table 1.
Cash provided by operations before discretionary pension contributions: Cash provided by operations plus after-tax discretionary pension pre-funding. Cash provided by operations before discretionary pension contributions has been provided for consistency and comparability of 2009 and 2008 financial performance and is reconciled on Table 3.
Net pension adjustment: Pension expense determined in accordance with GAAP less pension expense allocated to the business segments under U.S. Government Cost Accounting Standards (CAS).
After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at the statutory rate of 35% - provided for consistency and comparability of 2009 and 2008 financial performance and is reconciled on Table 1.
Free cash flow: Cash provided by operations less capital expenditures and outsourcing contract and related software costs. Management uses free cash flow as an internal measure of financial performance. Free cash flow is reconciled in Table 3.
Free cash flow before discretionary pension contributions: Free cash flow plus after-tax discretionary pension pre-funding. Management uses free cash flow before discretionary pension contributions, as reconciled in Table 3, as an internal measure of financial performance.
Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pension adjustment and, for 2008, the goodwill impairment charge of $3.060 billion. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS from continuing operations, as reconciled in Table 1, as a performance metric for operating results.
Segment operating income (loss): Total earnings (loss) from our five segments including allocated pension expense recognized under CAS. Reconciling items to operating income are unallocated expenses, which include unallocated corporate, legal, environmental, state income tax, and other retiree benefits expenses; net pension adjustment, and reversal of royalty income included in segment operating income. Management uses segment operating income, as reconciled in Table 5, as an internal measure of financial performance of our individual business segments.
Segment operating margin rate % / Segment operating income as a % of sales: Segment operating income as defined above, divided by sales. Management uses segment operating income (loss) %, as reconciled in Table 5, as an internal measure of financial performance.
SOURCE Northrop Grumman Corporation
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