- Q4 Sales Increase 4 Percent to Record
- Q4 Cash from Operations Increases to
- Q4 Free Cash Flow Increases to
- Q4 and 2008 Loss from Continuing Operations of
- Excluding Goodwill Impairment Charge, Q4 Earnings per Share from Continuing Operations Increases 19 Percent to
LOS ANGELES , Feb. 3 /PRNewswire-FirstCall/ -- Northrop Grumman Corporation (NYSE: NOC) reported a fourth quarter loss from continuing operations of
Fourth quarter 2008 sales increased 4 percent to
"Our underlying fourth quarter operating results were outstanding and represent a strong finish to the year. We begin 2009 with a
"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
Operating Highlights - Adjusted for Goodwill Impairment
Adjusted Fourth Quarter and 2008 Financial Results
Fourth quarter adjusted operating income increased 20 percent to
For 2008, adjusted operating income declined to
Fourth quarter 2008 other expense totaled
Federal and foreign income taxes for the 2008 fourth quarter totaled
The company's net loss for the fourth quarter and 2008 totaled
For 2008, adjusted net earnings were comparable to the prior year period at
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
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.
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
Goodwill Impairment Charge
Northrop Grumman reported fourth quarter and 2008 operating losses due to a non-cash, after-tax charge of
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
Cash provided by operations for both fourth quarter and total year improved by
Cash, Debt and Capital Deployment
Changes in cash and cash equivalents and total debt reflect the following cash deployment and financing actions during 2008:
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.
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.
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
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
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
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
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
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
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
For 2008, adjusted operating income declined by 66 percent due to a
Fourth Quarter Highlights
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.
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