Northrop Grumman Reports Fourth Quarter and 2008 Results

- 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...


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

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.