LOS ANGELES , Oct. 22 /PRNewswire-FirstCall/ -- Northrop Grumman
Corporation (NYSE: NOC) reported that third quarter 2008 earnings from
continuing operations increased to
"This was a strong quarter for Northrop Grumman," said Ronald D. Sugar ,
Northrop Grumman chairman and chief executive officer. "We posted higher sales
and earnings, and based on the strength of the quarter we are raising our
guidance. New business awards were outstanding and drove our total backlog to
a record of more than
Segment operating income for the 2008 third quarter totaled
Operating income for the 2008 third quarter totaled
Interest expense improved by
Federal and foreign income taxes for the 2008 third quarter totaled
Net earnings for the 2008 third quarter increased 5 percent to
New business awards totaled
Cash provided by operations in the 2008 third quarter increased to
Cash and cash equivalents totaled
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.
Information & Services Third Quarter ($ millions) 2008 2007 Operating % Operating % Sales Income of Sales Sales Income of Sales Mission Systems $1,417 $128 9.0% $1,249 $125 10.0% Information Technology 1,085 37 3.4% 1,107 72 6.5% Technical Services 607 31 5.1% 573 28 4.9% $3,109 $196 6.3% $2,929 $225 7.7%Information & Services third quarter 2008 sales increased 6 percent, primarily due to a 13 percent increase in Mission Systems sales. Operating income declined 13 percent, and as a percent of sales, totaled 6.3 percent compared with 7.7 percent. Higher sales and operating margin in Mission Systems and Technical Services were offset by a negative contract adjustment in Information Technology.
Mission Systems sales increased 13 percent due to higher volume for intelligence, surveillance & reconnaissance programs and command, control & communications programs. Operating income increased 2 percent and as a percent of sales, totaled 9 percent compared with 10 percent in the prior year period. Higher operating income reflects higher volume than in the prior year period. The change in rate is attributable to fewer positive performance-related contract adjustments in this quarter than in the prior year period.
Information Technology sales declined 2 percent. Third quarter 2008 sales
include higher volume for defense, intelligence and civilian agencies. Higher
sales for these programs were offset by lower sales for commercial, state and
local programs. Operating income declined 49 percent and as a percent of sales
declined to 3.4 percent from 6.5 percent. The declines in sales, operating
income and rate are due to a
Technical Services sales rose 6 percent due to higher volume for life cycle optimization and engineering programs. Operating income increased 11 percent, and as a percent of sales, increased to 5.1 percent from 4.9 percent in the prior year period. The improvement in operating income and rate reflects higher volume, a greater percentage of higher margin life cycle optimization and engineering programs than in the prior year, and improved performance for those programs.
Aerospace Third Quarter ($ millions) 2008 2007 Operating % Operating % Sales Income of Sales Sales Income of Sales Integrated Systems $1,345 $144 10.7% $1,255 $145 11.6% Space Technology 1,079 90 8.3% 1,001 79 7.9% $2,424 $234 9.7% $2,256 $224 9.9%Aerospace third quarter 2008 sales increased 7 percent from the prior year period and include higher volume for both Integrated Systems and Space Technology. Aerospace third quarter 2008 operating income increased 4 percent, and as a percent of sales, totaled 9.7 percent compared with 9.9 percent in the prior year period.
Integrated Systems sales increased 7 percent due to higher volume for the UCAS-D, F/A-18, B-2, and restricted programs, partially offset by lower volume for the F-35 program. Operating income was comparable to the prior year period, and as a percent of sales totaled 10.7 percent compared with 11.6 percent in the prior year period. The decline in margin rate reflects initial lower margin on new programs and higher unallowable expenses than in the prior year period.
Space Technology sales increased 8 percent, primarily due to higher volume for restricted programs, and the Kinetic Energy Interceptor, NPOESS, and James Webb Space Telescope programs. Higher volume for these programs was partially offset by lower volume for the Advanced Extremely High Frequency and Space Radar programs. Operating income increased 14 percent, and as a percent of sales improved to 8.3 percent from 7.9 percent. The improvement in operating income and rate is due to higher volume as well as the achievement of technical performance milestones and risk reduction on several programs.
Electronics Third Quarter ($ millions) 2008 2007 Operating % of Operating % of Sales Income Sales Sales Income Sales $1,814 $264 14.6% $1,577 $211 13.4%Electronics third quarter 2008 sales increased 15 percent from the prior year period principally due to higher unit deliveries of land forces products and combat avionics systems, as well as higher sales for surveillance systems and postal automation programs.
Electronics third quarter 2008 operating income increased 25 percent, and
as a percent of sales, increased to 14.6 percent from 13.4 percent. Third
quarter 2008 operating income includes
Shipbuilding third quarter 2008 sales declined 1 percent from the prior year due to lower volume for expeditionary warfare and U.S. Coast Guard programs than in the prior year period, primarily due to Gulf Coast shipyards work stoppages caused by Hurricane Gustav. Lower volume for these programs was partially offset by higher volume for aircraft carriers and surface combatants.
Shipbuilding third quarter 2008 operating income declined 36 percent from
the prior year period, and as a percent of sales, totaled 8.1 percent compared
with 12.5 percent in the prior year period. Third quarter 2007 operating
income and margin rate included
About Northrop Grumman
Northrop Grumman Corporation is a global defense and technology company whose 120,000 employees provide innovative systems, products, and solutions in information and services, electronics, aerospace and shipbuilding to government and commercial customers worldwide.
Northrop Grumman will webcast its earnings conference call at 12:30 p.m. EDT on Oct. 22, 2008 . 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 "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 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; access to capital; performance issues with 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.
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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 2008 2007 2008 2007 Sales and Service Revenues Product sales $4,808 $4,264 $14,051 $12,910 Service revenues 3,573 3,607 10,682 10,153 Total sales and service revenues 8,381 7,871 24,733 23,063 Cost of Sales and Service Revenues Cost of product sales 3,682 3,198 11,204 9,894 Cost of service revenues 3,143 3,084 9,168 8,612 General and administrative expenses 785 783 2,320 2,298 Operating income 771 806 2,041 2,259 Interest expense (74) (84) (223) (256) Other, net 45 7 72 (3) Earnings from continuing operations before income taxes 742 729 1,890 2,000 Federal and foreign income taxes 233 240 635 645 Earnings from continuing operations 509 489 1,255 1,355 Income (Loss) from discontinued operations, net of tax 3 16 (19) Net earnings $512 $489 $1,271 $1,336 Basic Earnings (Loss) Per Share Continuing operations $1.52 $1.44 $3.72 $3.95 Discontinued operations .01 .05 (.05) Basic earnings per share $1.53 $1.44 $3.77 $3.90 Weighted-average common shares outstanding, in millions 334.2 340.2 337.1 342.9 Diluted Earnings (Loss) Per Share Continuing operations $1.50 $1.41 $3.65 $3.86 Discontinued operations .01 .04 (.05) Diluted earnings per share $1.51 $1.41 $3.69 $3.81 Weighted-average diluted shares outstanding, in millions 340.1 352.6 344.5 355.4 SCHEDULE 2 NORTHROP GRUMMAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited) September 30, December 31, $ in millions 2008 2007 Assets: Cash and cash equivalents $1,016 $963 Accounts receivable, net of progress payments 3,957 3,790 Inventoried costs, net of progress payments 1,147 1,000 Deferred income taxes 481 542 Prepaid expenses and other current assets 408 502 Total current assets 7,009 6,797 Property, plant, and equipment, net of accumulated depreciation of $3,719 in 2008 and $3,424 in 2007 4,675 4,690 Goodwill 17,475 17,672 Other purchased intangibles, net of accumulated amortization of $1,767 in 2008 and $1,687 in 2007 964 1,074 Pension and post-retirement benefits asset 2,148 2,080 Other assets 983 1,060 Total assets $33,254 $33,373 Liabilities: Notes payable to banks $28 $26 Current portion of long-term debt 73 111 Trade accounts payable 1,820 1,890 Accrued employees' compensation 1,370 1,175 Advance payments and billings in excess of costs incurred 1,889 1,563 Other current liabilities 1,632 1,667 Total current liabilities 6,812 6,432 Long-term debt, net of current portion 3,843 3,918 Mandatorily redeemable convertible preferred stock 350 Pension and post-retirement benefits liability 3,102 3,008 Other long-term liabilities 1,934 1,978 Total liabilities 15,691 15,686 Shareholders' Equity: Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2008 - 327,071,763; 2007 - 337,834,561 327 338 Paid-in capital 9,668 10,661 Retained earnings 8,253 7,387 Accumulated other comprehensive loss (685) (699) Total shareholders' equity 17,563 17,687 Total liabilities and shareholders' equity $33,254 $33,373 SCHEDULE 3 NORTHROP GRUMMAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine months ended September 30 $ in millions 2008 2007 Operating Activities Sources of Cash - Continuing Operations Cash received from customers Progress payments $5,465 $5,260 Collections on billings 19,828 18,015 Proceeds from insurance carriers related to operations 5 125 Other cash receipts 82 21 Total sources of cash-continuing operations 25,380 23,421 Uses of Cash - Continuing Operations Cash paid to suppliers and employees (22,334) (20,215) Interest paid, net of interest received (251) (285) Income taxes paid, net of refunds received (569) (637) Excess tax benefits from stock-based compensation (47) (73) Other cash payments (8) (22) Total uses of cash-continuing operations (23,209) (21,232) Cash provided by continuing operations 2,171 2,189 Cash provided by (used in) discontinued operations 3 (33) Net cash provided by operating activities 2,174 2,156 Investing Activities Proceeds from sale of business, net of cash divested 175 Payment for businesses purchased, net of cash acquired (685) Proceeds from sale of property, plant, and equipment 10 16 Additions to property, plant, and equipment (444) (431) Payments for outsourcing contract and related software costs (100) (89) Proceeds from insurance carriers related to capital expenditures 3 Decrease in restricted cash 59 45 Other investing activities, net 1 (5) Net cash used in investing activities (299) (1,146) Financing Activities Net borrowings (payments) under lines of credit 3 (63) Principal payments of long-term debt (110) (96) Proceeds from exercises of stock options and issuance of common stock 95 246 Dividends paid (395) (378) Excess tax benefits from stock-based compensation 47 73 Common stock repurchases (1,462) (1,094) Net cash used in financing activities (1,822) (1,312) Increase (decrease) in cash and cash equivalents 53 (302) Cash and cash equivalents, beginning of period 963 1,015 Cash and cash equivalents, end of period $1,016 $713 SCHEDULE 4 NORTHROP GRUMMAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine months ended September 30 $ in millions 2008 2007 Reconciliation of Net Earnings to Net Cash Provided by Operating Activities Net Earnings $1,271 $1,336 Adjustments to reconcile to net cash provided by operating activities Depreciation 416 416 Amortization of assets 148 106 Stock-based compensation 126 135 Excess tax benefits from stock-based compensation (47) (73) Loss on disposals of property, plant, and equipment 4 14 Amortization of long-term debt premium (7) (8) Pre-tax gain on investments (22) Pre-tax gain on sale of business (58) Increase in Accounts receivable (4,845) (4,493) Inventoried costs (531) (90) Prepaid expenses and other current assets (43) (17) Increase (decrease) in Progress payments 5,062 4,694 Accounts payable and accruals 313 (29) Deferred income taxes 122 25 Income taxes payable 130 59 Retiree benefits 35 96 Other non-cash transactions, net 75 40 Cash provided by continuing operations 2,171 2,189 Cash provided by (used in) discontinued operations 3 (33) Net cash provided by operating activities $2,174 $2,156 Non-Cash Investing and Financing Activities Sale of business Cash received for business sold $175 Pre-tax gain on sale of business (58) Net book value value of assets sold, including goodwill (135) Liabilities assumed by purchaser $(18) Investment in unconsolidated affiliate $30 Purchase of businesses Fair value of assets acquired, including goodwill $892 Cash paid for businesses purchased (685) Non-cash consideration given for businesses purchased (60) Liabilities assumed $147 Mandatorily redeemable convertible preferred stock converted or redeemed into common stock $350 Capital leases $21 SCHEDULE 5 NORTHROP GRUMMAN CORPORATION TOTAL BACKLOG AND CONTRACT AWARDS ($ in millions) (unaudited) TOTAL BACKLOG September 30, 2008 December 31, 2007(3) TOTAL TOTAL FUNDED(1) UNFUNDED(2) BACKLOG FUNDED UNFUNDED(2) BACKLOG Information & Services Mission Systems $2,562 $3,128 $5,690 $2,365 $3,288 $5,653 Information Technology 2,399 1,967 4,366 2,581 2,268 4,849 Technical Services 1,452 2,690 4,142 1,471 3,193 4,664 Total Information & Services 6,413 7,785 14,198 6,417 8,749 15,166 Aerospace Integrated Systems 5,221 7,417 12,638 4,204 4,525 8,729 Space Technology 1,608 13,112 14,720 2,295 13,963 16,258 Total Aerospace 6,829 20,529 27,358 6,499 18,488 24,987 Electronics 8,687 2,453 11,140 7,887 2,047 9,934 Shipbuilding 12,374 5,031 17,405 10,348 3,230 13,578 Total $34,303 $35,798 $70,101 $31,151 $32,514 $63,665 (1) Funded backlog represents unfilled orders for which funding has been contractually obligated by the customer. (2) Unfunded backlog represents firm orders for which funding is not currently contractually obligated by the customer. Unfunded backlog excludes unexercised contract options and unfunded Indefinite Delivery Indefinite Quantity contract awards. (3) Certain prior period amounts have been reclassified to conform to the 2008 presentation. CONTRACT AWARDS The value of new contract awards during the nine months ended September 30, 2008, is approximately $31.1 billion. Significant new awards during this period include $5.1 billion for CVN 78 Gerald R. Ford aircraft carrier, $1.5 billion for the aerial refueling tanker replacement program (see below), $1.4 billion for the DDG 1000 Zumwalt-class destroyer, $1.2 billion for the Broad Area Maritime Surveillance (BAMS) Unmanned Aircraft System program (see below), $389 million for the Vehicular Intercommunications Systems IDIQ, $356 million for the Intercontinental Ballistic Missile (ICBM) program, and $267 million for the F-35. On February 29, 2008, the company won a $1.5 billion contract awarded by the U.S. Air Force as an initial step to replace its aerial refueling tanker fleet. The losing bidder for the contract protested the award decision by the U.S. Air Force. A review of the award process was conducted by the Government Accountability Office (GAO), which issued its report on June 18, 2008 upholding the other bidder's protest. On September 10, 2008, the Secretary of Defense announced that the competition was cancelled pending the determination for a new competitive proposal and evaluation process. The company continues to carry the award in its backlog as of September 30, 2008. On April 22, 2008, the company was awarded a contract by the U.S. Navy for the BAMS Unmanned Aircraft System. One of the other bidders for the contract subsequently protested the decision by the U.S. Navy to award the contract to the company. The GAO denied the protest on August 12, 2008, the company re-started work on the contract. The value of new contract awards during the nine months ended September 30, 2007, is approximately $26.2 billion. Significant new awards during this period include $2.2 billion for LHA-6, $875 million for the Flats Sequencing Systems/ Postal Automation program, $623 million for the Unmanned Combat Air System Carrier Demonstration, $510 million for the DDG 1000 Zumwalt-class destroyer program, $270 million for the ICBM program, $227 million for the F-22 program, and $185 million for the Joint National Integration Center Research & Development program. SCHEDULE 6 NORTHROP GRUMMAN CORPORATION REALIGNED SELECTED OPERATING RESULTS ($ in millions, except per share) (preliminary and unaudited) AS REPORTED (2) 2006 2007 2008 Three Months Total Three Months Ended Total Ended NET SALES Year Mar 31 Jun 30 Sep 30 Dec 31 Year Mar 31 Information & Services Mission Systems $5,494 $1,362 $1,542 $1,459 $1,568 $5,931 $1,545 Information Technology 3,962 1,038 1,143 1,107 1,198 4,486 1,085 Technical Services 1,858 520 551 573 533 2,177 505 Total Information & Services 11,314 2,920 3,236 3,139 3,299 12,594 3,135 Aerospace Integrated Systems 5,500 1,281 1,225 1,255 1,306 5,067 1,340 Space Technology 2,923 754 769 750 860 3,133 775 Total Aerospace 8,423 2,035 1,994 2,005 2,166 8,200 2,115 Electronics 6,543 1,587 1,720 1,673 1,926 6,906 1,555 Ships 5,321 1,156 1,359 1,469 1,804 5,788 1,264 Intersegment Eliminations (1,488) (358) (383) (358) (371) (1,470) (345) Total Sales and Service Revenue $30,113 $7,340 $7,926 $7,928 $8,824 $32,018 $7,724 SEGMENT OPERATING MARGIN Information & Services Mission Systems $519 $119 $160 $144 $143 $566 $145 Information Technology 342 86 90 72 81 329 89 Technical Services 120 28 32 28 32 120 26 Total Information & Services 981 233 282 244 256 1,015 260 Aerospace Integrated Systems 551 160 149 145 137 591 170 Space Technology 245 59 69 59 74 261 65 Total Aerospace 796 219 218 204 211 852 235 Electronics 754 185 183 211 234 813 209 Ships 393 79 134 183 142 538 (218) Intersegment Eliminations (117) (29) (28) (25) (33) (115) (28) Total Segment Operating Margin (1) $2,807 $687 $789 $817 $810 $3,103 $458 CONSOLIDATED HIGHLIGHTS Income From Continuing Operations $1,573 $390 $466 $490 $457 $1,803 $263 Diluted Earnings per Share from Continuing Operations $4.46 $1.11 $1.33 $1.41 $1.31 $5.16 $.76 Weighted Average Diluted Shares Outstanding, in millions 358.6 358.3 355.3 352.6 351.1 354.3 349.3 REALIGNED (2) 2006 2007 2008 Three Months Total Three Months Ended Total Ended NET SALES Year Mar 31 Jun 30 Sep 30 Dec 31 Year Mar 31 Information & Services Mission Systems $4,704 $1,159 $1,288 $1,249 $1,381 $5,077 $1,298 Information Technology 3,962 1,038 1,143 1,107 1,198 4,486 1,085 Technical Services 1,858 520 551 573 533 2,177 505 Total Information & Services 10,524 2,717 2,982 2,929 3,112 11,740 2,888 Aerospace Integrated Systems 5,500 1,281 1,225 1,255 1,306 5,067 1,340 Space Technology 3,869 990 1,067 1,001 1,118 4,176 1,022 Total Aerospace 9,369 2,271 2,292 2,256 2,424 9,243 2,362 Electronics 6,267 1,528 1,628 1,577 1,795 6,528 1,555 Ships 5,321 1,156 1,359 1,469 1,804 5,788 1,264 Intersegment Eliminations (1,490) (358) (383) (360) (370) (1,471) (345) Total Sales and Service Revenue $29,991 $7,314 $7,878 $7,871 $8,765 $31,828 $7,724 SEGMENT OPERATING MARGIN Information & Services Mission Systems $451 $103 $142 $125 $138 $508 $128 Information Technology 342 86 90 72 81 329 89 Technical Services 120 28 32 28 32 120 26 Total Information & Services 913 217 264 225 251 957 243 Aerospace Integrated Systems 551 160 149 145 137 591 170 Space Technology 311 73 90 79 87 329 82 Total Aerospace 862 233 239 224 224 920 252 Electronics 786 192 189 211 221 813 209 Ships 393 79 134 183 142 538 (218) Intersegment Eliminations (117) (29) (28) (27) (29) (113) (28) Total Segment Operating Margin (1) $2,837 $692 $798 $816 $809 $3,115 $458 CONSOLIDATED HIGHLIGHTS Income From Continuing Operations $1,593 $394 $472 $489 $456 $1,811 $263 Diluted Earnings per Share from Continuing Operations $4.51 $1.12 $1.35 $1.41 $1.31 $5.18 $.76 Weighted Average Diluted Shares Outstanding, in millions 358.6 358.3 355.3 352.6 351.1 354.3 349.3 (1) Non-GAAP measure. Management uses segment operating margin as an internal measure of financial performance for the individual business segments. (2) "As Reported" amounts are as of December 31, 2007, which reflect the results of Interconnect Technologies as a discontinued operation. (3) Reported amounts adjusted to reflect the Park Air / Remotec realignment, Missile Systems realignment, and the presentation of Electro-Optical Systems as a discontinued operation. These events were previously reported in Schedule 6 of the Fourth Quarter and Year End December 2007, First Quarter 2008, and Second Quarter 2008 earnings releases.SOURCE Northrop Grumman Corporation