- Press Release
- August 18, 2022
Northrop Grumman Reports First Quarter 2008 Financial Results, Updates Guidance and Raises Dividend
LOS ANGELES, April 24 Northrop Grumman
Corporation reported that first quarter 2008 earnings from
continuing operations declined to $263 million, or $0.76 per diluted share,
from $394 million, or $1.12 per diluted share, in the first quarter of 2007.
First quarter 2008 earnings were reduced by a pre-tax charge of $326 million,
or $0.61 per diluted share, primarily for cost growth and schedule extension
in the company’s LHD-8 amphibious assault ship program, as announced on
April 15, 2008. Sales for the 2008 first quarter increased 6 percent to
$7.7 billion from $7.3 billion in the 2007 first quarter. Cash provided by
operations for the 2008 first quarter totaled $194 million compared with
$400 million in the prior year period.
The company also announced that it is increasing its quarterly dividend to
$0.40 per share from $0.37 per share. The company has increased its quarterly
dividend in each of the last five years, and with the increase to $0.40 per
share the company has doubled its quarterly common stock dividend since 2003.
Operating Highlights First Quarter ($ millions except per share data) 2008 2007 Change Sales 7,724 7,314 6% Operating income 464 690 -33% as a % of sales 6.0% 9.4% (340) bps Earnings from continuing operations 263 394 -33% Diluted EPS from continuing operations .76 1.12 -32% Net earnings 264 387 -32% Diluted EPS .76 1.10 -31% Cash from operations 194 400 -52% Free cash flow(1) 16 212 -92% (1) Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract & related software costs. Management uses free cash flow as an internal measure of financial performance.
“Although the LHD-8 charge is disappointing, the remainder of our first
quarter performance was strong. Total backlog increased more than $4 billion
to a record $68 billion. We demonstrated strong growth and performance in our
Information & Services, Aerospace and Electronics businesses, and we won the
KC-45 tanker program. These positives demonstrate the solid, underlying
business trends we expect and reinforce our confidence in our long-term
financial targets,” said Ronald D. Sugar, Northrop Grumman chairman and chief
“Based on the strength of that long-term outlook, we continue to execute
our balanced cash deployment strategy. During the quarter we purchased
$600 million of our shares, and today we announced an increase in our
quarterly dividend. This is our fifth annual increase and represents a
doubling of our dividend since the TRW acquisition.”
Operating income for the 2008 first quarter decreased 33 percent to
$464 million from $690 million for the 2007 first quarter. As a percent of
sales, operating income decreased to 6 percent from 9.4 percent in the prior
year period. The $326 million pre-tax charge in Shipbuilding caused the
decline in operating income in the quarter and as a percent of sales, impacted
operating income by approximately 400 basis points.
Federal and foreign income taxes for the 2008 first quarter declined to
$146 million from $206 million in the first quarter of 2007. The effective tax
rate applied to earnings from continuing operations for the 2008 first quarter
was 35.7 percent compared with 34.3 percent in the 2007 first quarter.
Net earnings for the 2008 first quarter declined to $264 million, or
$0.76 per diluted share, from $387 million, or $1.10 per diluted share, for
the same period in 2007. Earnings per share are based on weighted average
diluted shares outstanding of 349.3 million for the first quarter of 2008 and
358.3 million for the first quarter of 2007. Weighted average shares
outstanding for both periods include the dilutive effects of the company’s
mandatorily redeemable Series B convertible preferred stock and the impact of
share repurchases during the quarter.
New business awards totaled $12.1 billion in the first quarter. Total
backlog, which includes funded backlog and firm orders for which funding is
not currently contractually obligated by the customer, increased to a record
$68 billion as of March 31, 2008.
Cash Flow Highlights First Quarter ($ millions) 2008 2007 Change Cash from operations 194 400 (206) Less: Capital expenditures 143 158 15 Outsourcing contract & related software costs 35 30 (5) Free cash flow(1) 16 212 (196) (1) Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract & related software costs. Management uses free cash flow as an internal measure of financial performance.
Cash provided by operations in the 2008 first quarter totaled $194 million
compared with $400 million in the prior year period. The decline in cash
provided by operations reflects an increase in accounts receivable. The
increase in receivables is due to timing of billing and collection resulting
from the transition to a common internal accounting software system. The
transition impacted working capital by approximately $200 million, which is
largely expected to be recovered in the second quarter of 2008. First quarter
2008 capital spending totaled $143 million compared with capital spending of
$158 million in the prior year period. First quarter 2008 free cash flow
totaled $16 million compared with $212 million in the prior year period.
Cash Measurements, Debt and Capital Deployment ($ millions) 3/31/2008 12/31/2007 Cash & cash equivalents 429 963 Total debt 4,097 4,055 Net debt(1) 3,668 3,092 Mandatorily redeemable preferred stock 46 350 Net debt to total capital ratio(2) 17% 14% (1) Total debt less cash and cash equivalents (2) Net debt divided by the sum of shareholders' equity and total debt.
Cash and cash equivalents totaled $429 million at March 31, 2008 compared
with $963 million at Dec. 31, 2007, and total debt was $4.1 billion at
March 31, 2008. Changes in cash and cash equivalents and total debt include
the following cash deployment and financing actions during the quarter:
-- $600 million for share repurchases -- $143 million for capital expenditures and $35 million for outsourcing contract and related software costs -- $126 million for dividends -- $69 million proceeds from exercises of stock options and issuance of common stock
During the first quarter of 2008 the company announced its intention to
redeem its mandatorily redeemable Series B convertible preferred stock on
April 4, 2008. The reduction in mandatorily redeemable preferred stock
reflects the voluntary conversion by holders of approximately 3 million shares
during the first quarter of 2008.
During the first quarter of 2008 the company also announced the sale of
its Electro-Optical Systems business for $175 million in cash. This sale was
completed on April 21, 2008, and a small after-tax gain is anticipated to be
recognized in discontinued operations in the second quarter of 2008.
2008 Guidance Prior Current Sales ~$33B ~$33B Segment operating income(1) as % of sales mid to high 9% mid to high 8% Operating income as % of sales high 9% high 8% Diluted EPS from continuing operations $5.50 - 5.75 $4.90 - 5.15 Cash from operations $2.8 - 3.1B $2.6 - 2.9B Free cash flow(2) $1.9 - 2.3B $1.7 - 2.1B (1) Segment operating income is a non-GAAP measure used as an internal measure of financial performance for the four businesses. (2) Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract & related software costs. Management uses free cash flow as an internal measure of financial performance.
The company continues to expect sales of approximately $33 billion in
2008. The company has revised its guidance for segment operating income,
operating income, and earnings per share to reflect the impacts of the charge
in Shipbuilding, $326 million or $0.61 per diluted share, respectively.
Guidance for 2008 cash from operations and free cash flow has been revised to
include a $200 million negative impact from the charge.
Business Results Consolidated Sales & Segment Operating Income(1) ($ millions except per share data) First Quarter 2008 2007 Change Sales Information & Services 3,135 2,953 6% Aerospace 2,115 2,035 4% Electronics 1,555 1,528 2% Shipbuilding 1,264 1,156 9% Intersegment eliminations (345) (358) 7,724 7,314 6% Segment operating income(1) Information & Services 260 231 13% Aerospace 235 219 7% Electronics 209 192 9% Shipbuilding (218) 79 NM Intersegment eliminations (28) (29) Segment operating income(1) 458 692 (34%) as a % of sales 5.9% 9.5% (460) bps Reconciliation to operating income: Unallocated expenses (32) (32) Net pension adjustment(2) 59 33 Reversal of royalty income included above (21) (3) Operating income 464 690 -33% as a % of sales 6.0% 9.4% (340) bps (1) Segment operating income is a non-GAAP measure used as an internal measure of financial performance for the four businesses. (2) Net pension adjustment includes pension expense determined in accordance with GAAP less pension expense allocated to the business segments under U.S. Government Cost Accounting Standards.
Operating results for all periods presented reflect the reclassification
of Electro-Optical Systems (formerly reported in Electronics) from continuing
to discontinued operations, as well as the transfer of the Park Air and
Remotec businesses from Electronics to Mission Systems effective Jan. 1, 2008.
Schedule 6 provides previously reported quarterly financial results revised to
reflect discontinued operations.
Information & Services First Quarter ($ millions) 2008 2007 Operating % Operating % Sales Income of Sales Sales Income of Sales Mission Systems $1,545 $145 9.4 % $1,395 $117 8.4 % Information Technology 1,085 89 8.2 % 1,038 86 8.3 % Technical Services 505 26 5.1 % 520 28 5.4 % $3,135 $260 8.3 % $2,953 $231 7.8 %
Information & Services first quarter 2008 sales increased 6 percent from
the prior year period due to higher sales for Mission Systems and Information
Technology. Operating income for Information & Services rose 13 percent in
the 2008 first quarter. As a percent of sales, operating income increased 50
basis points to 8.3 percent from 7.8 percent in the prior year period. The
increase in operating income is due to higher volume, and the increase in
operating income rate reflects improved program performance for Mission
Mission Systems sales increased 11 percent due to higher volume for
intelligence, surveillance & reconnaissance programs, higher volume for
command, control & communications programs and higher volume for the Kinetic
Energy Interceptor program. Operating income rose 24 percent, and as a percent
of sales, increased 100 basis points to 9.4 percent from 8.4 percent in the
prior year period. The increase in operating income reflects higher volume
and improved program performance.
Information Technology sales rose 5 percent due to higher volume for
intelligence programs, the New York City Wireless program, the Virginia IT
outsourcing program, and the Network Centric Solutions program. Operating
income rose 3 percent, and as a percent of sales was comparable to the prior
year period at 8.2 percent compared with 8.3 percent.
Technical Services sales declined 3 percent due to completion of the
Western Range Operations program in 2007 and lower volume for the Joint Base
Operations Support program than in the prior year period. Operating income
decreased 7 percent, and as a percent of sales, declined to 5.1 percent from
5.4 percent in the prior year period. The comparison to first quarter 2007
reflects lower volume as well as contract mix.
Aerospace First Quarter ($ millions) 2008 2007 Operating % Operating % Sales Income of Sales Sales Income of Sales Integrated Systems $1,340 $170 12.7 % $1,281 $160 12.5 % Space Technology 775 65 8.4 % 754 59 7.8 % $2,115 $235 11.1 % $2,035 $219 10.8 %
Aerospace first quarter 2008 sales increased 4 percent from the prior year
period and includes higher volume for both Integrated Systems and Space
Technology. Aerospace first quarter 2008 operating income increased
7 percent, and as a percent of sales, increased to 11.1 percent from
10.8 percent in the prior year period.
Integrated Systems sales rose 5 percent. The increase includes higher
volume for restricted, Global Hawk, Navy UCAS-D, and KC-45 air mobility tanker
programs, which was partially offset by lower volume for the F-35,
Multi-Platform Radar Technology Insertion program, and the E-10A. Integrated
Systems operating income rose 6 percent, and as a percent of sales, increased
to 12.7 percent from 12.5 percent in the prior year period. The increase in
operating income and rate reflect higher volume and improved program
Space Technology sales increased 3 percent, primarily due to higher volume
for restricted and James Webb Space Telescope programs. Increases in these
programs were partially offset by lower volume in the Advanced Extremely High
Frequency, Space Tracking and Surveillance System, and Transformational
Satellite Communications System programs. Space Technology operating income
increased 10 percent, and as a percent of sales increased to 8.4 percent from
7.8 percent, reflecting improved program performance and higher sales volume.
Electronics First Quarter ($ Millions) 2008 2007 Operating % of Operating % of Sales Income Sales Sales Income Sales $1,555 $209 13.4 % $1,528 $192 12.6 %
Electronics first quarter 2008 sales increased 2 percent from the prior
year period principally due to higher sales for Army and navigation systems
programs. These sales increases were partially offset by declining volume for
naval and marine systems programs.
Electronics first quarter 2008 operating income rose 9 percent, and as a
percent of sales, increased to 13.4 percent from 12.6 percent. Operating
income primarily reflects improved program performance, higher volume, and
higher royalty income than in the prior year period.
Shipbuilding First Quarter ($ millions) 2008 2007 Operating % of Operating % of Sales income Sales Sales income Sales $1,264 ($218) NM $1,156 $79 6.8 %
Shipbuilding first quarter 2008 sales increased 9 percent from the prior
year period primarily due to higher volume in surface combatants and fleet
support. Higher surface combatant volume includes production ramp-up for the
DDG 107 and the DDG 110. The increase in fleet support reflects revenue from
the July 2007 reorganization of AMSEC. Shipbuilding revenue in the 2008 first
quarter was reduced by $134 million due to the revision of the LHD-8
contract’s estimate to complete (EAC).
Shipbuilding recorded a $218 million operating loss in the first quarter
of 2008 compared with income of $79 million in the first quarter of 2007.
During the quarter the company recorded a $326 million charge that reduced
Shipbuilding income by the following:
— $272 million — LHD-8 EAC adjustment for the additional time and materials needed to complete ship rework and the six-month delivery extension from the fourth quarter of 2008 to the second quarter of 2009.
— $35 million — EAC adjustments for other Gulf Coast programs to reflect resource impacts caused by delay in the LHD-8 delivery, as well as risk adjustments based on recently concluded EAC evaluations.
— $19 million — non-cash write-down of purchased intangibles to reflect the impairment of purchased intangibles resulting from the EAC adjustments described above.
First Quarter Highlights
— The U.S. Air Force selected Northrop Grumman to provide the KC-45 aerial refueling tanker for the KC-135 tanker replacement program. The initial contract provides four System Design and Development aircraft and is valued at $1.5 billion. The contract has a potential value of $35 billion. The unsuccessful bidder has filed an appeal of this award with the U.S. Government Accountability Office.
— The U.S. Navy awarded Northrop Grumman a $1.4 billion cost plus incentive fee contract by the U.S. Navy for the construction of a Zumwalt-class destroyer, DDG 1001, as well as major components for the DDG 1000.
— The U.S. Navy awarded Northrop Grumman a planning contract option for the refueling and complex overhaul of the nuclear-powered aircraft carrier USS Theodore Roosevelt (CVN 71). This option is valued at $186.4 million and continues work awarded in 2006. The total estimated value of the contract is $558 million.
— The U.S. Air Force awarded Northrop Grumman the Weather Agency Systems Engineering, Management and Sustainment II contract to increase effectiveness, reliability, and performance, while reducing total cost of ownership for a variety of classified and unclassified Air Force weather systems. The $239 million cost plus award fee contract includes a one-year base and four option years.
— A large European postal customer awarded Solystic, a French subsidiary of Northrop Grumman, a $100 million firm fixed price contract to provide compact sequence sorters. The contract is for an initial order of 400 letter sequencing machines with options for an additional 400 machines.
— MBDA Italia selected Northrop Grumman to provide the navigation and localization systems within the design and development phase for NATO’s Medium Extended Air Defense System (MEADS) program intended to replace Hawk and Patriot systems worldwide.
— Northrop Grumman delivered the fourth submarine of the Virginia class, North Carolina (SSN 777), to the Navy on Feb. 21.
— The Northrop Grumman-built National Security Cutter Bertholf (WMSL 750) successfully completed builder’s trials in the Gulf of Mexico.
— Northrop Grumman delivered the payload module for the second Advanced Extremely High Frequency military communications satellite ahead of schedule to Lockheed Martin, prime contractor for the program.
— The Northrop Grumman-built amphibious transport dock ship New York (LPD 21) was christened in New Orleans on Feb. 29. The ship is unique in that its bow stem contains seven-and-a-half tons of steel recovered from the World Trade Center following the terrorist attacks of Sept. 11, 2001.
— The Northrop Grumman-built guided missile destroyer Dewey (DDG 105) was christened in Pascagoula, Mississippi, on Jan. 26.
— Northrop Grumman celebrated the 10th anniversary of the first flight of the RQ-4 Global Hawk unmanned aerial system after delivering a record five production aircraft to the U.S. Air Force in 2007. In addition, the Global Hawk set an endurance record for a full-scale, operational unmanned aircraft on March 22, 2008, when it completed a flight of 33.1 hours at altitudes up to 60,000 feet over Edwards Air Force Base, Calif.
— Northrop Grumman and the University of Illinois at Urbana-Champaign announced the creation of the first fully-functional, all-carbon nanotube transistor radio, demonstrating that carbon nanotubes can be used as high-speed transistors, while consuming only one-thousandth the power required by current transistor technology.
— Northrop Grumman announced the sale of its Electro-Optical Systems business for $175 million in cash to L-3 Communications. The transaction was completed on April 21, 2008.
— The Northrop Grumman board of directors declared a quarterly dividend of $0.37 per share on Northrop Grumman common stock.
— Northrop Grumman realigned its two shipbuilding sectors, Newport News and Ship Systems, into Northrop Grumman Shipbuilding. It also realigned the reporting of portions of its missiles business from Mission Systems to Space Technology, effective July 1, 2008.
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 noon EDT on
April 24, 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,” “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 margin, 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; 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; 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, in development and production programs, 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 and Form 10-Q.
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NORTHROP GRUMMAN CORPORATION SCHEDULE 1 CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited) Three months ended March 31 $ in millions, except per share 2008 2007 Sales and Service Revenues Product sales $4,394 $4,140 Service revenues 3,330 3,174 Total sales and service revenues 7,724 7,314 Cost of Sales and Service Revenues Cost of product sales 3,729 3,168 Cost of service revenues 2,793 2,749 General and administrative expenses 738 707 Operating income 464 690 Other Income (Expense) Interest income 7 7 Interest expense (77) (89) Other, net 15 (8) Earnings from continuing operations before income taxes 409 600 Federal and foreign income taxes 146 206 Earnings from continuing operations 263 394 Income (Loss) from discontinued operations, net of tax 1 (7) Net earnings $264 $387 Basic Earnings (Loss) Per Share Continuing operations $.78 $1.14 Discontinued operations (.02) Basic earnings per share $.78 $1.12 Weighted-average common shares outstanding, in millions 338.8 345.3 Diluted Earnings (Loss) Per Share Continuing operations $.76 $1.12 Discontinued operations (.02) Diluted earnings per share $.76 $1.10 Weighted-average diluted shares outstanding, in millions 349.3 358.3 NORTHROP GRUMMAN CORPORATION SCHEDULE 2 CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (unaudited) March 31, December 31, $ in millions 2008 2007 Assets: Cash and cash equivalents $429 $963 Accounts receivable, net of progress payments 4,358 3,790 Inventoried costs, net of progress payments 1,132 1,000 Deferred income taxes 529 542 Prepaid expenses and other current assets 501 502 Total current assets 6,949 6,797 Property, plant, and equipment, net of accumulated depreciation of $3,552 in 2008 and $3,424 in 2007 4,645 4,690 Goodwill 17,620 17,672 Other purchased intangibles, net of accumulated amortization of $1,711 in 2008 and $1,687 in 2007 1,020 1,074 Pension and postretirement benefits asset 2,103 2,080 Other assets 1,038 1,060 Total assets $33,375 $33,373 Liabilities: Notes payable to banks $59 $26 Current portion of long-term debt 110 111 Trade accounts payable 1,806 1,890 Accrued employees' compensation 1,248 1,175 Advance payments and billings in excess of costs incurred 1,834 1,563 Other current liabilities 1,680 1,667 Total current liabilities 6,737 6,432 Long-term debt, net of current portion 3,928 3,918 Mandatorily redeemable preferred stock 46 350 Pension and postretirement benefits liability 3,059 3,008 Other long-term liabilities 2,004 1,978 Total liabilities 15,774 15,686 Shareholders' Equity: Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2008 -- 339,155,655; 2007 -- 337,834,561 339 338 Paid-in capital 10,438 10,661 Retained earnings 7,518 7,387 Accumulated other comprehensive loss (694) (699) Total shareholders' equity 17,601 17,687 Total liabilities and shareholders' equity $33,375 $33,373 NORTHROP GRUMMAN CORPORATION SCHEDULE 3 CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (unaudited) Three months ended March 31 $ in millions 2008 2007 Operating Activities Sources of Cash - Continuing Operations Cash received from customers Progress payments $1,608 $1,532 Collections on billings 5,950 5,745 Income tax refunds received 2 1 Interest received 7 7 Proceeds from insurance carriers related to operations 5 Other cash receipts 28 15 Total sources of cash-continuing operations 7,600 7,300 Uses of Cash - Continuing Operations Cash paid to suppliers and employees (7,189) (6,676) Interest paid (113) (127) Income taxes paid (54) (22) Excess tax benefits from stock-based compensation (44) (52) Other cash payments (3) (9) Total uses of cash-continuing operations (7,403) (6,886) Cash provided by continuing operations 197 414 Cash used in discontinued operations (3) (14) Net cash provided by operating activities 194 400 Investing Activities Payment for businesses purchased, net of cash acquired (578) Additions to property, plant, and equipment (143) (158) Payments for outsourcing contract and related software costs (35) (30) Proceeds from insurance carriers related to capital expenditures 3 Proceeds from disposals of property, plant and equipment 3 Decrease in restricted cash 26 15 Other investing activities, net 1 1 Net cash used in investing activities (148) (747) Financing Activities Net borrowings under lines of credit 33 230 Principal payments of long-term debt (23) Proceeds from exercises of stock options and issuance of common stock 69 156 Dividends paid (126) (121) Excess tax benefits from stock-based compensation 44 52 Common stock repurchases (600) (600) Net cash used in financing activities (580) (306) Decrease in cash and cash equivalents (534) (653) Cash and cash equivalents, beginning of period 963 1,015 Cash and cash equivalents, end of period $429 $362 NORTHROP GRUMMAN CORPORATION SCHEDULE 4 CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (unaudited) Three months ended March 31 $ in millions 2008 2007 Reconciliation of Net Earnings to Net Cash Provided by Operating Activities Net Earnings $264 $387 Adjustments to reconcile to net cash provided by operating activities Depreciation 136 135 Amortization of assets 62 34 Stock-based compensation 44 38 Excess tax benefits from stock-based compensation (44) (52) Loss on disposals of property, plant, and equipment 1 Amortization of long-term debt premium (3) (3) Decrease (increase) in Accounts receivable (2,080) (1,436) Inventoried costs (266) (89) Prepaid expenses and other current assets (15) 18 Increase (decrease) in Progress payments 1,642 1,390 Accounts payable and accruals 254 (264) Deferred income taxes 26 (4) Income taxes payable 112 177 Retiree benefits 31 47 Other non-cash transactions, net 33 36 Cash provided by continuing operations 197 414 Cash used in discontinued operations (3) (14) Net cash provided by operating activities $194 $400 Non-Cash Investing and Financing Activities Purchase of business Fair value of assets acquired, including goodwill $682 Cash paid for businesses purchased (578) Liabilities assumed $104 Mandatorily redeemable preferred stock converted into common stock $304 Capital Leases $21 NORTHROP GRUMMAN CORPORATION SCHEDULE 5 TOTAL BACKLOG AND CONTRACT AWARDS ($ in millions) (unaudited) TOTAL BACKLOG(3) March 31, 2008 TOTAL FUNDED(1) UNFUNDED(2) BACKLOG Information & Services Mission Systems $3,847 $8,751 $12,598 Information Technology 2,606 2,024 4,630 Technical Services 1,655 2,898 4,553 Total Information & Services 8,108 13,673 21,781 Aerospace Integrated Systems 5,342 6,603 11,945 Space Technology 1,173 8,066 9,239 Total Aerospace 6,515 14,669 21,184 Electronics 8,518 2,200 10,718 Shipbuilding 12,075 2,252 14,327 Total $35,216 $32,794 $68,010 March 31, 2007 TOTAL FUNDED(1) UNFUNDED(2) BACKLOG Information & Services Mission Systems $3,674 $8,402 $12,076 Information Technology 2,609 1,673 4,282 Technical Services 1,317 3,667 4,984 Total Information & Services 7,600 13,742 21,342 Aerospace Integrated Systems 4,749 4,100 8,849 Space Technology 1,663 6,689 8,352 Total Aerospace 6,412 10,789 17,201 Electronics 7,123 1,463 8,586 Shipbuilding 10,674 2,122 12,796 Total $31,809 $28,116 $59,925 December 31, 2007 TOTAL FUNDED(1) UNFUNDED(2) BACKLOG Information & Services Mission Systems $3,399 $8,985 $12,384 Information Technology 2,581 2,268 4,849 Technical Services 1,471 3,193 4,664 Total Information & Services 7,451 14,446 21,897 Aerospace Integrated Systems 4,204 4,525 8,729 Space Technology 1,260 8,266 9,526 Total Aerospace 5,464 12,791 18,255 Electronics 7,887 2,047 9,934 Shipbuilding 10,348 3,230 13,578 Total $31,150 $32,514 $63,664 (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.
The estimated value of contract awards included in backlog during the
three months ended March 31, 2008, is approximately $12.1 billion. Significant
new awards during this period include $1.5 billion for the Air Mobility tanker
program, $1.4 billion for the Zumwalt-class destroyer, $596 million for the
CVN 78 bridge contract, $208 million for the VIS IDIQ program, $195 million
for the LAIRCM IDIQ program, and $183 million for the ICBM program. In
addition, the company was awarded approximately $2.6 billion for restricted
programs during this period.
On February 29, 2008, the company was awarded a contract by the
U.S. Air Force to replace its aerial refueling tanker fleet. Included in
backlog is approximately $1.5 billion for this contract to provide four System
Design and Development aircraft of which $61 million has been funded. The
other bidder for the contract subsequently protested the decision by the
U.S. Air Force to award the contract to the company. The U.S. Air Force
issued a stop work order to the company pending the resolution of this matter.
The Government Accountability Office is currently reviewing the protest and is
expected to reach its decision in June 2008.
The estimated value of contract awards during the three months ended
March 31, 2007, is approximately $7.3 billion. Significant new awards during
this period include $1 billion for LPD 25, $875 million for the Flat
Sequencing System program, $235 million for the Intercontinental Ballistic
Missile program, $133 million for the Euro Hawk program, and $118 million for
the Large Aircraft Infrared Counter-measures Indefinite Delivery and
Indefinite Quantity program. In addition, the company was awarded
approximately $688 million for restricted programs during this period.
Northrop Grumman Corporation Schedule 6 Summary Operating Results Discontinued Operations Reclassification ($ in millions) (unaudited) 2006 2007 Three Months Ended Total Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Year Sales and Service Revenues As reported $30,113 $7,340 $7,926 $7,928 $8,824 $32,018 Electro-Optical Systems(1) (122) (26) (48) (57) (59) (190) Restated sales and service revenues $29,991 $7,314 $7,878 $7,871 $8,765 $31,828 Segment Operating Margin (2) As reported $2,807 $687 $789 $817 $810 $3,103 Electro-Optical Systems(1) 30 5 9 (1) (1) 12 Restated segment operating margin $2,837 $692 $798 $816 $809 $3,115 Income From Continuing Operations, Net of Tax As reported $1,573 $390 $466 $490 $457 $1,803 Electro-Optical Systems, net of tax (1) 19 3 6 (2) - 7 Restated income from continuing operations, net of tax $1,592 $393 $472 $488 $457 $1,810 Preferred Dividends 24 6 6 6 6 24 Income available to common shareholders from continuing operations $1,616 $399 $478 $494 $463 $1,834 Diluted Earnings Per Share from Continuing Operations As reported $4.46 $1.11 $1.33 $1.41 $1.31 $5.16 Electro-Optical Systems, net of tax (1) .05 .01 .02 (.01) .02 Restated diluted earnings per share from continuing operations $4.51 $1.12 $1.35 $1.40 $1.31 $5.18 Weighted Average Diluted Shares Outstanding, in millions 358.6 358.3 355.3 352.6 351.1 354.3 (1) The adjustment reflects the reclassification of the operating results of the Electro-Optical business area formerly reported in the Electronics segment. The definitive sale agreement was signed March 2008, and the company reclassified the first quarter of 2008 and all prior financial information to reflect the business as discontinued operations. (2) Non-GAAP measure. Management uses segment operating margin as an internal measure of financial performance for the individual business segments.