- Sales Up 7 Percent to $7.9 Billion LOS ANGELES, Oct. 24
/PRNewswire-FirstCall/ -- Northrop Grumman Corporation (NYSE:NOC)
reported that third quarter 2007 income from continuing operations
rose 59 percent to $490 million, or $1.41 per diluted share, from
$308 million, or $0.88 per diluted share, in the third quarter of
2006. Third quarter 2007 includes an after-tax gain of $21 million,
or $0.06 per diluted share, for the reorganization of AMSEC LLC.
Third quarter 2006 results included a $112.5 million pre-tax, or
$0.20 per diluted share, legal provision. Sales for the 2007 third
quarter increased 7 percent to $7.9 billion from $7.4 billion in
the 2006 third quarter. Third quarter 2007 cash from operations
increased to $1 billion from $962 million in the prior year period.
Operating Highlights* ($ millions except per Third Quarter Nine
Months share data) 2007 2006 Change 2007 2006 Change Sales 7,928
7,429 7% 23,194 22,100 5% Operating margin 807 549 47% 2,246 1,841
22% as a % of sales 10.2% 7.4% 280 bps 9.7% 8.3% 140 bps Income
from continuing operations 490 308 59% 1,346 1,116 21% Diluted EPS
from continuing operations 1.41 .88 60% 3.84 3.17 21% Net income
489 302 62% 1,336 1,089 23% Diluted EPS 1.41 .86 64% 3.81 3.09 23%
Cash from operations 1,015 962 6% 2,156 1,485 45% * Operating
results for all periods presented reflect the reclassification of
Interconnect Technologies (formerly reported in Electronics) from
continuing to discontinued operations. "Higher sales, higher
segment operating margin, and lower corporate expenses drove this
quarter's EPS increase. Our four businesses performed well,
expanding segment operating margin rate to more than 10 percent,
led by a very strong performance at Ships. Cash from operations of
more than $1 billion was a record and brought us to more than $2.1
billion year-to-date. We ended the quarter with a $64 billion total
backlog, another record for the company," said Ronald D. Sugar,
Northrop Grumman chairman and chief executive officer. "Based on
year-to-date double-digit growth in net income and EPS, we are
raising guidance for 2007 earnings per share to approximately $5.10
on a sales base of approximately $31.5 billion. Our focus on
performance is generating sales growth, higher margin rates,
double-digit EPS growth and solid cash generation in 2007, and we
are driving performance to ensure this strength continues in 2008,"
Sugar concluded. Third quarter 2007 operating margin increased $258
million, or 47 percent, to $807 million from $549 million in the
prior year period, driven by higher segment operating margin,
substantially lower unallocated expense, and lower net pension
adjustment. Segment operating margin increased $118 million, or 17
percent, and as a percent of sales increased 90 basis points to
10.3 percent from 9.4 percent in the prior year period. Third
quarter 2007 unallocated expenses declined $107 million from the
prior year period, which included a $112.5 million legal provision.
Third quarter 2007 net pension adjustment declined $33 million. As
a percent of sales, operating margin increased 280 basis points to
10.2 percent from 7.4 percent. Federal and foreign income taxes for
the 2007 third quarter increased to $241 million from $169 million
in the third quarter of 2006. The effective tax rate applied to
income from continuing operations for the 2007 third quarter was
33.0 percent compared with 35.4 percent in the 2006 third quarter.
Net income for the 2007 third quarter increased 62 percent to $489
million, or $1.41 per diluted share, from $302 million, or $0.86
per diluted share, for the same period of 2006. Earnings per share
are based on weighted average diluted shares outstanding of 352.6
million for the third quarter of 2007 and 351 million for the third
quarter of 2006. For both the three months and nine months in 2007,
weighted average shares outstanding include 6.4 million shares for
the dilutive effects of the company's Series B mandatorily
redeemable preferred stock; the effects of these mandatorily
redeemable preferred shares were not included in weighted average
shares outstanding for the three and nine months in 2006 because
they were not dilutive. New business awards in the 2007 third
quarter totaled $11.5 billion led by business awards at Aerospace
and Electronics. New business awards are firm contractual additions
to backlog received during the period. Funded contract acquisitions
for the 2007 third quarter totaled $7.5 billion compared with $6.2
billion for the same period of 2006. Total backlog, which includes
funded backlog and firm orders for which funding is not currently
contractually obligated by the customer, was $64.1 billion on Sept.
30, 2007. Cash Flow Highlights Third Quarter Nine Months ($
millions) 2007 2006 Change 2007 2006 Change Cash from operations
1,015 962 53 2,156 1,485 671 Less: Capital expenditures 133 169 36
431 493 62 Outsourcing contract & related software costs 9 43
34 89 43 (46) Free cash flow(1) 873 750 123 1,636 949 687 (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 2007 third quarter totaled more than $1 billion compared with
$962 million in the prior year period. The year-over-year
improvement is primarily driven by higher net income, partially
offset by an increase in cash income taxes paid. Third quarter 2007
capital spending totaled $133 million and included $30 million for
Hurricane Katrina, compared with capital spending of $169 million
in the third quarter of 2006, which included $26 million for
Hurricane Katrina. Third quarter 2007 free cash flow increased to
$873 million from $750 million. Year-to-date free cash flow
increased to $1.6 billion from $949 million reflecting improved
cash from operations and reductions in cash used in discontinued
operations. Cash Measurements, Debt and Capital Deployment ($
millions) 9/30/2007 12/31/2006 Cash & cash equivalents 713
1,015 Total debt 4,037 4,162 Net debt(1) 3,324 3,147 Mandatorily
redeemable preferred stock 350 350 Net debt to total capital
ratio(2) 16% 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 and total debt reflect the
following cash deployment and financing actions during 2007: * $685
million for business acquisitions, including $584 million for Essex
Corporation in January 2007 * $1.1 billion accelerated share
repurchases completed in June and September 2007 * $431 million
capital expenditures and $89 million for outsourcing contract and
related software costs * $378 million dividends paid * $246 million
proceeds from exercises of stock options and issuance of common
stock 2007 Guidance Updated ($ billions except per share amounts)
Prior Current Sales ~31.5 +/- 250 Million Same Segment operating
margin(1)% Mid 9% Same Operating margin % Low 9% Mid 9% Diluted EPS
from continuing operations 4.90 - 5.05 ~5.10 Cash from operations
Upper end 2.5 - 2.8 Same of range Free cash flow(2) Upper end 1.6 -
2.0 Same of range (1) Segment operating margin 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.
Business Results Consolidated Sales & Segment Operating
Margin(1) ($ millions except per share data) Third Quarter Nine
Months 2007 2006 Change 2007 2006 Change Sales Information &
Services 3,139 2,889 9% 9,295 8,355 11% Aerospace 2,005 2,016 -
6,034 6,286 (4%) Electronics 1,673 1,665 - 4,980 4,756 5% Ships
1,469 1,238 19% 3,984 3,808 5% Intersegment eliminations (358)
(379) (1,099) (1,105) Sales 7,928 7,429 7% 23,194 22,100 5% Segment
operating margin(1) Information & Services 244 257 (5%) 759 752
1% Aerospace 204 203 - 641 610 5% Electronics 211 198 7% 579 552 5%
Ships 183 76 141% 396 273 45% Intersegment eliminations (25) (35)
(82) (87) Segment operating margin(1) 817 699 17% 2,293 2,100 9% as
a % of sales 10.3% 9.4% 90 bps 9.9% 9.5% 40 bps Reconciliation to
operating margin: Unallocated & other expenses (41) (148) (139)
(235) Net pension adjustment(2) 31 (2) 92 (24) Operating margin 807
549 47% 2,246 1,841 22% as a % of sales 10.2% 7.4% 280 bps 9.7%
8.3% 140 bps (1) Segment operating margin 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. As previously announced, beginning in the 2007 first
quarter, Radio Systems is reported as part of Mission Systems.
Operating results for all periods presented reflect the
reclassification of Interconnect Technologies (formerly reported in
Electronics) from continuing to discontinued operations. Schedule 6
provides previously reported quarterly financial results reflecting
discontinued operations. Information & Services Third Quarter
($ millions) 2007 2006 Operating % Operating % Sales Margin of
Sales Sales Margin of Sales Mission Systems $1,459 $144 9.9% $1,340
$131 9.8% Information Technology 1,107 72 6.5% 1,023 92 9.0%
Technical Services 573 28 4.9% 526 34 6.5% $3,139 $244 7.8% $2,889
$257 8.9% Information & Services third quarter 2007 sales
increased $250 million, or 9 percent, from the prior year period
driven by higher sales for all three reporting segments. Although
sales increased, Information & Services operating margin
declined by $13 million or 5 percent, and as a percent of sales
declined to 7.8 percent from 8.9 percent in the prior year period.
Mission Systems sales increased $119 million, or 9 percent, due to
the Essex Corporation acquisition, higher volume for several
missile defense programs, and higher volume for several command,
control & communications programs. Operating margin rose $13
million, or 10 percent, and as a percent of sales, was 9.9 percent
compared with 9.8 percent in the prior year's third quarter. The
increase in margin was primarily driven by higher volume, and
includes improved performance for several programs, which was
partially offset by an increase in amortization of purchased
intangibles. Information Technology sales rose $84 million, or 8
percent, largely due to higher volume for state and local programs
and restricted intelligence programs. Higher volume for these
programs was partially offset by lower volume for civilian agencies
programs. Information Technology third quarter 2007 operating
margin declined $20 million, or 22 percent. As a percent of sales,
operating margin declined to 6.5 percent from 9 percent principally
due to lower performance for state and local IT outsourcing
programs. The lower performance is due to growth in transition cost
(including $22 million in increased amortization of deferred and
other outsourcing costs). Third quarter operating margin also
included improved performance for intelligence programs and
discretionary spending for shared internal information systems
infrastructure. Technical Services sales rose $47 million, or 9
percent, primarily due to the Nevada Test Site program. Operating
margin decreased $6 million, or 18 percent from the prior year
period, which included performance improvements for several
programs. As a percent of sales, operating margin declined to 4.9
percent from 6.5 percent in the prior year period. Aerospace Third
Quarter ($ millions) 2007 2006 Operating % Operating % Sales Margin
of Sales Sales Margin of Sales Integrated Systems $1,255 $145 11.6%
$1,317 $137 10.4% Space Technology 750 59 7.9% 699 66 9.4% $2,005
$204 10.2% $2,016 $203 10.1% Aerospace third quarter 2007 sales
declined slightly from the prior year period due to lower volume in
Integrated Systems, partially offset by higher volume in Space
Technology. Aerospace third quarter 2007 operating margin was
comparable to the prior year period, and as a percent of sales,
increased to 10.2 percent from 10.1 percent. Integrated Systems
sales declined $62 million, or 5 percent, primarily due to lower
volume for the E-2D Advanced Hawkeye, F-35 and EA-18G programs, as
these programs transition from development to production, as well
as significant customer-directed scope reductions associated with
the E-10A platform and related MP-RTIP efforts. Lower volume in
these programs was partially offset by higher volume for the F/A-18
and Global Hawk programs. Integrated Systems operating margin rose
$8 million, or 6 percent, and as a percent of sales, increased to
11.6 percent from 10.4 percent in the prior year period. The
operating margin increase includes performance improvements for E-2
programs, which more than offset the impact of lower sales volume.
Space Technology sales increased $51 million, or 7 percent,
primarily due to higher volume for restricted programs and the
James Webb Space Telescope. Increases in these programs were
partially offset by lower volume in the Advanced Extremely High
Frequency program. Space Technology operating margin decreased $7
million, or 11 percent, and as a percent of sales declined to 7.9
percent from 9.4 percent in the prior year period. Space Technology
operating margin in the 2006 third quarter included several
favorable performance adjustments. Electronics Third Quarter ($
millions) 2007 2006 Operating % Operating % Sales Margin of Sales
Sales Margin of Sales $1,673 $211 12.6% $1,665 $198 11.9%
Electronics third quarter 2007 sales were slightly higher than the
prior year period and include higher volume for electro-optical and
infrared countermeasures programs, a restricted program and
commercial products, which was partially offset by declining volume
on fixed price development programs. Electronics third quarter 2007
operating margin increased $13 million, or 7 percent, and as a
percent of sales, increased to 12.6 percent from 11.9 percent in
the prior year period. Operating margin for the 2007 third quarter
includes favorable performance adjustments on several programs.
Ships Third Quarter ($ millions) 2007 2006 Operating % Operating %
Sales Margin of Sales Sales Margin of Sales $1,469 $183 12.5%
$1,238 $76 6.1% Ships third quarter 2007 sales rose $231 million,
or 19 percent, from the prior year period. The increase primarily
includes higher volume for the LPD, DDG, LHA and U.S. Coast Guard
programs. Third quarter 2007 sales also include $36 million from
AMSEC. AMSEC was reorganized in July 2007, and the businesses
retained under the reorganization are now reported in the Ships
segment. Ships third quarter 2007 operating margin increased $107
million, or 141 percent, from the prior year period. As a percent
of sales, operating margin rate more than doubled to 12.5 percent
from 6.1 percent in the prior year period. The increase in third
quarter 2007 operating margin over the prior year period reflects
risk reduction upon completion of several contract actions, higher
volume, performance improvements, and a $22 million pre-tax gain
resulting from the AMSEC reorganization. Third Quarter Highlights *
The U.S. Navy awarded Northrop Grumman a six-year, $636 million
contract for the Unmanned Combat Air System Carrier Demonstration
program, which will demonstrate the capability of the X-47B, an
autonomous, low-observable air vehicle and conduct the first ever
at-sea carrier launches and recoveries with a fixed-wing unmanned
air system. * The U.S. Army awarded Northrop Grumman a system
integration contract for the Guardrail Modernization program to
continue upgrading and enhancing the system and extend Guardrail's
operational life beyond 2020. The indefinite delivery/indefinite
quantity contract is potentially valued at $462 million. * The U.S.
Navy awarded Northrop Grumman a $408 million pilot production
contract to produce the next three E-2D Advanced Hawkeye airborne
early warning and battle management command and control aircraft
for the Navy. * The U.S. Army has awarded Northrop Grumman a $331
million cost plus award fee contract to provide logistical support
services to the National Training Center at Fort Irwin, Calif. *
The U.S. Coast Guard awarded Northrop Grumman a $286 million
contract for construction of the third National Security Cutter
(WMSL 752), the newest and most capable multi-mission cutter in the
Coast Guard fleet. * The National Security Administration awarded
Northrop Grumman a $220 million contract to develop an advanced
information management and data storage system that will support
efforts to modernize the nation's electronic intelligence and
broader signals intelligence capabilities. * The U.S. Navy awarded
Northrop Grumman two contracts with a potential value of more than
$120 million for maintenance and modernization work on aircraft
carriers based in San Diego and Yokosuka, Japan. * The Northrop
Grumman-built amphibious transport dock ship Mesa Verde (LPD 19)
successfully completed acceptance trials for the U.S. Navy, passing
all major testing events and proving its readiness to be delivered
to the Navy. The ship was delivered to the Navy on Sept. 28, 2007,
and is scheduled to be commissioned in Panama City, Fla., on Dec.
15, 2007. * The U.S. Navy awarded Northrop Grumman a contract
potentially valued at more than $98 million for the procurement of
nearly 940 Special Operations Forces Laser Acquisition
Marker/Special Operations Forces Laser Rangefinder Designators,
associated data and provisioning items. * The U.S. Army awarded a
$95 million contract to Northrop Grumman to provide more than 300
of the company's battle-proven Lightweight Laser Designator
Rangefinder systems that provide targeting capability for
laser-guided, GPS-guided and conventional munitions. * Northrop
Grumman, in conjunction with the NPOESS Integrated Program Office,
completed the restructure of the National Polar-orbiting
Operational Environmental Satellite System (NPOESS). The
restructured contract value has increased by $2.3 billion and
represents a rigorous year-long effort to re-plan virtually every
aspect of the NPOESS program. * The U.S. Department of Defense
awarded Northrop Grumman an indefinite delivery/indefinite quantity
contract to provide technology development application for new
products and services to defense and federal civilian agencies,
state and local authorities, and partner nations engaged in
counter-drug and counter-narcoterrorism operations. Northrop
Grumman is one of five companies that will compete for task orders
under this contract, which has a total program ceiling of $15
billion over five years. * The U.S. General Services Administration
awarded Northrop Grumman an Alliant indefinite-delivery/indefinite
quantity contract to deliver cost-effective information technology
solutions to the federal government for improved service and
increased efficiency. Northrop Grumman is one of 29 companies that
received awards under the Alliant contract, which is valued at up
to $50 billion, collectively. * The U.S. Centers for Medicare and
Medicaid Services awarded Northrop Grumman a contract to help the
agency modernize its services, improve health care quality and
reduce costs. Northrop Grumman will compete with 15 other companies
for task orders under the 10-year, $4 billion Enterprise System
Development indefinite delivery/indefinite quantity contract. * The
U.S. Department of State awarded Northrop Grumman a blanket
purchase agreement (BPA) to provide security support services for
the department's computer systems and networks. Northrop Grumman is
one of eight companies awarded under the BPA program, which has a
ceiling of $710 million, in the aggregate. * In October, the U.S.
Citizenship and Immigration Services selected a team that includes
Northrop Grumman to provide large operations management services at
its California and Vermont service centers. The three-year
indefinite delivery/indefinite quantity contract has a total
ceiling value of $225 million to the team, on which Northrop
Grumman will be a subcontractor to Stanley, Inc. of Arlington, Va.
* The first KC-30 Tanker aircraft completed its maiden flight,
underscoring the production strategy selected by Northrop Grumman's
KC-30 industry team for the U.S. Air Force's KC-135 tanker
replacement program. * In a major program milestone, Northrop
Grumman delivered the first Space Based Infrared System
geosynchronous orbit payload to prime contractor Lockheed Martin
for integration into the U.S. Air Force spacecraft and final
system-level testing. * Northrop Grumman announced the achievement
of more than 10,000 on-aircraft operational hours for the
Guardian(TM) Counter-Man Portable Air Defense System currently
installed on nine wide-body cargo aircraft flying daily in
commercial revenue service as part of the U.S. Department of
Homeland Security's C-MANPADS program. * Northrop Grumman entered
into a $500 million accelerated share repurchase agreement with
JPMorgan Chase Bank, NA, London Branch in which the company
repurchased approximately 6.5 million shares of Northrop Grumman
common stock from JPMorgan Chase. * Northrop Grumman increased its
ownership in Scaled Composites to 100 percent and acquired
Xinetics, Inc. * Northrop Grumman's board of directors elected Gary
W. Ervin corporate vice president and president of the company's
Integrated Systems sector, effective Jan. 1, 2008. About Northrop
Grumman Northrop Grumman Corporation is a $30 billion 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. 24, 2007. 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" 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, appeals and investigations;
hurricane-related insurance recoveries; environmental remediation;
acquisitions and divestitures of businesses; successful reduction
of debt; performance issues with key suppliers and subcontractors;
product performance and the successful execution of internal plans;
successful negotiation of contracts with labor unions; 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;
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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http://www.northropgrumman.com/ SCHEDULE 1 NORTHROP GRUMMAN
CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
Three months ended Nine months ended September 30 September 30 $ in
millions, except per share 2007 2006 2007 2006 Sales and Service
Revenues Product sales $4,310 $4,404 $13,015 $13,550 Service
revenues 3,618 3,025 10,179 8,550 Total sales and service revenues
7,928 7,429 23,194 22,100 Cost of Sales and Service Revenues Cost
of product sales 3,236 3,518 9,987 10,631 Cost of service revenues
3,094 2,576 8,635 7,406 General and administrative expenses 791 786
2,326 2,222 Operating margin 807 549 2,246 1,841 Other Income
(Expense) Interest income 6 13 19 29 Interest expense (84) (86)
(256) (263) Other, net 2 1 (22) (9) Income from continuing
operations before income taxes 731 477 1,987 1,598 Federal and
foreign income taxes 241 169 641 482 Income from continuing
operations 490 308 1,346 1,116 Loss from discontinued operations,
net of tax (1) (6) (10) (27) Net income $489 $302 $1,336 $1,089
Income from continuing operations $490 $308 $1,346 $1,116 Preferred
dividends 6 18 Income available to common shareholders from
continuing operations $496 $308 $1,364 $1,116 Basic Earnings (Loss)
Per Share Continuing operations $1.44 $.89 $3.93 $3.23 Discontinued
operations (.01) (.03) (.08) Basic earnings per share $1.44 $.88
$3.90 $3.15 Weighted average common shares outstanding, in millions
340.2 344.7 342.9 345.8 Diluted Earnings (Loss) Per Share
Continuing operations $1.41 $.88 $3.84 $3.17 Discontinued
operations (.02) (.03) (.08) Diluted earnings per share $1.41 $.86
$3.81 $3.09 Weighted average diluted shares outstanding, in
millions 352.6 351.0 355.4 352.1 SCHEDULE 2 NORTHROP GRUMMAN
CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(unaudited) September 30, December 31, $ in millions 2007 2006
Assets: Cash and cash equivalents $713 $1,015 Accounts receivable,
net of progress payments of $38,611 in 2007 and $34,085 in 2006
3,666 3,562 Inventoried costs, net of progress payments of $1,394
in 2007 and $1,225 in 2006 1,102 1,176 Deferred income taxes 691
706 Prepaid expenses and other current assets 282 266 Total current
assets 6,454 6,725 Property, plant, and equipment, net of
accumulated depreciation of $3,330 in 2007 and $3,005 in 2006 4,539
4,525 Goodwill 17,658 17,219 Other purchased intangibles, net of
accumulated amortization of $1,654 in 2007 and $1,555 in 2006 1,109
1,139 Pension and postretirement benefits asset 1,357 1,349 Other
assets 1,106 1,052 Total assets $32,223 $32,009 Liabilities: Notes
payable to banks $40 $95 Current portion of long-term debt 111 75
Trade accounts payable 1,540 1,682 Accrued employees' compensation
1,273 1,176 Advance payments and billings in excess of costs
incurred 1,532 1,571 Income tax payable 6 535 Other current
liabilities 1,698 1,619 Total current liabilities 6,200 6,753
Long-term debt, net of current portion 3,886 3,992 Mandatorily
redeemable preferred stock 350 350 Pension and postretirement
benefits liability 3,385 3,302 Other long-term liabilities 1,637
997 Total liabilities 15,458 15,394 Shareholders' Equity: Common
stock, $1 par value; 800,000,000 shares authorized; issued and
outstanding: 2007 - 338,217,941; 2006 - 345,921,809 338 346 Paid-in
capital 10,643 11,346 Retained earnings 7,063 6,183 Accumulated
other comprehensive loss (1,279) (1,260) Total shareholders' equity
16,765 16,615 Total liabilities and shareholders' equity $32,223
$32,009 SCHEDULE 3 NORTHROP GRUMMAN CORPORATION CONSOLIDATED
CONDENSED STATEMENTS OF FINANCIAL POSITION (unaudited) Nine months
ended September 30 $ in millions 2007 2006 Operating Activities
Sources of Cash - Continuing Operations Cash received from
customers Progress payments $5,384 $5,044 Collections on billings
18,015 16,942 Proceeds from insurance carriers related to
operations 125 46 Other cash receipts 83 82 Total sources of
cash-continuing operations 23,607 22,114 Uses of Cash - Continuing
Operations Cash paid to suppliers and employees (20,357) (19,589)
Interest paid (300) (309) Income taxes paid (684) (555) Excess tax
benefits from stock-based compensation (73) (52) Other cash
payments (22) (43) Total uses of cash-continuing operations
(21,436) (20,548) Cash provided by continuing operations 2,171
1,566 Cash used in discontinued operations (15) (81) Net cash
provided by operating activities 2,156 1,485 Investing Activities
Proceeds from sale of businesses, net of cash divested 43 Payment
for businesses purchased (685) Proceeds from sale of property,
plant, and equipment 16 10 Additions to property, plant, and
equipment (431) (493) Payments for outsourcing contract and related
software costs (89) (43) Proceeds from insurance carriers related
to capital expenditures 3 90 Payment for purchase of investment
(35) Decrease in restricted cash 45 Other investing activities, net
(5) (14) Net cash used in investing activities (1,146) (442)
Financing Activities Net (payments) borrowings under lines of
credit (63) 36 Principal payments of long-term debt (96) (522)
Proceeds from exercises of stock options and issuance of common
stock 246 372 Dividends paid (378) (298) Excess tax benefits from
stock-based compensation 73 52 Common stock repurchases (1,094)
(825) Net cash used in financing activities (1,312) (1,185)
Decrease in cash and cash equivalents (302) (142) Cash and cash
equivalents, beginning of period 1,015 1,605 Cash and cash
equivalents, end of period $713 $1,463 SCHEDULE 4 NORTHROP GRUMMAN
CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(unaudited) Nine months ended September 30 $ in millions 2007 2006
Reconciliation of Net Income to Net Cash Provided by Operating
Activities Net Income $1,336 $1,089 Adjustments to reconcile to net
cash provided by operating activities Depreciation 416 415
Amortization of assets 106 104 Stock-based compensation 135 155
Excess tax benefits from stock-based compensation (73) (52) Loss on
disposals of property, plant, and equipment 14 8 Amortization of
long-term debt premium (8) (11) (Gain) loss on investments (22) 15
Decrease (increase) in Accounts receivable (4,500) (3,924)
Inventoried costs (95) (158) Prepaid expenses and other current
assets (17) (15) Increase (decrease) in Progress payments 4,694
3,821 Accounts payable and accruals (35) 15 Deferred income taxes
25 105 Income taxes payable 59 (122) Retiree benefits 96 68 Other
non-cash transactions, net 40 53 Cash provided by continuing
operations 2,171 1,566 Cash used in discontinued operations (15)
(81) Net cash provided by operating activities $2,156 $1,485
Non-Cash Investing and Financing Activities Sale of businesses
Investment in unconsolidated affiliate $30 Liabilities assumed by
purchaser $18 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 $147 SCHEDULE 5 NORTHROP GRUMMAN CORPORATION
FUNDED CONTRACT ACQUISITIONS AND TOTAL BACKLOG ($ in millions)
(unaudited) FUNDED CONTRACT ACQUISITIONS(1) THIRD QUARTER NINE
MONTHS 2007 2006(4) 2007 2006(4) Information & Services Mission
Systems $1,360 $1,136 $4,261 $4,178 Information Technology 1,360
1,384 3,319 3,516 Technical Services 441 712 1,478 1,888 Total
Information & Services 3,161 3,232 9,058 9,582 Aerospace
Integrated Systems 990 705 3,437 4,259 Space Technology 475 409
1,665 2,534 Total Aerospace 1,465 1,114 5,102 6,793 Electronics
2,320 1,632 6,891 4,925 Ships 895 578 3,161 6,372 Intersegment
Eliminations (358) (378) (1,099) (1,109) Total $7,483 $6,178
$23,113 $26,563 TOTAL BACKLOG SEPTEMBER 30, 2007 DECEMBER 31, 2006
UNFUNDED TOTAL UNFUNDED TOTAL FUNDED(2) (3) BACKLOG FUNDED(2) (3)
BACKLOG Information & Services Mission Systems $3,017 $8,938
$11,955 $3,119 $8,488 $11,607 Information Technology 2,698 2,143
4,841 2,667 1,840 4,507 Technical Services 1,209 3,251 4,460 1,375
3,973 5,348 Total Information & Services 6,924 14,332 21,256
7,161 14,301 21,462 Aerospace Integrated Systems 3,961 5,151 9,112
4,285 4,934 9,219 Space Technology 1,015 8,735 9,750 1,623 7,138
8,761 Total Aerospace 4,976 13,886 18,862 5,908 12,072 17,980
Electronics 8,487 1,981 10,468 6,576 1,583 8,159 Ships 10,031 3,466
13,497 10,854 2,566 13,420 Total $30,418 $33,665 $64,083 $30,499
$30,522 $61,021 (1) Funded contract acquisitions represent amounts
funded during the period on customer contractually obligated
orders. (2) Funded backlog represents unfilled orders for which
funding has been contractually obligated by the customer. (3)
Unfunded backlog represents firm orders for which funding is not
currently contractually obligated by the customer. Unfunded backlog
excludes unexercised contract options and unfunded Indefinite
Delivery Indefinite Quantity contract awards. (4) Certain prior
period amounts have been reclassified to conform to the 2007
presentation. SCHEDULE 6 Northrop Grumman Corporation Summary
Operating Results Discontinued Operations Reclassification ($ in
millions) (unaudited) 2006 Three Months Ended Total Mar 31 Jun 30
Sep 30 Dec 31 Year Sales and Service Revenues As reported $7,093
$7,601 $7,433 $8,021 $30,148 Interconnect Technologies (1) (18) (5)
(4) (8) (35) Restated sales and service revenues $7,075 $7,596
$7,429 $8,013 $30,113 Segment Operating Margin (2) As reported $653
$742 $696 $706 $2,797 Interconnect Technologies (1) 2 4 3 1 10
Restated segment operating margin $655 $746 $699 $707 $2,807 Income
From Continuing Operations, Net of Tax As reported $362 $442 $306
$457 $1,567 Interconnect Technologies, net of tax (1) 1 3 2 6
Restated income from continuing operations, net of tax $363 $445
$308 457 1,573 Preferred Dividends 6 24 Income available to common
shareholders from continuing operations $463 $1,597 Diluted
Earnings Per Share from Continuing Operations As reported $1.03
$1.26 $.87 $1.29 $4.44 Interconnect Technologies, net of tax (1)
0.00 .01 .01 .02 Restated diluted earnings per share from
continuing operations $1.03 $1.27 $.88 $1.29 $4.46 Weighted Average
Diluted Shares Outstanding, in millions 350.8 350.1 351.0 359.0
358.6 2007 Three Months Ended Mar 31 Jun 30 Sales and Service
Revenues As reported $7,344 $7,929 Interconnect Technologies (1)
(4) (3) Restated sales and service revenues $7,340 $7,926 Segment
Operating Margin (2) As reported $683 $779 Interconnect
Technologies (1) 4 10 Restated segment operating margin $687 $789
Income From Continuing Operations, Net of Tax As reported $387 $460
Interconnect Technologies, net of tax (1) 3 6 Restated income from
continuing operations, net of tax 390 466 Preferred Dividends 6 6
Income available to common shareholders from continuing operations
$396 $472 Diluted Earnings Per Share from Continuing Operations As
reported $1.10 $1.31 Interconnect Technologies, net of tax (1) .01
.02 Restated diluted earnings per share from continuing operations
$1.11 $1.33 Weighted Average Diluted Shares Outstanding, in
millions 358.3 355.3 (1) The adjustment reflects the
reclassification of the operating results of the Interconnect
Technologies (ITD) businesses formerly reported in the Electronics
segment. The assembly business of ITD was sold in the first quarter
of 2006 and the remaining ITD business was shut down during the
third quarter of 2007. All prior financial information has been
reclassified 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. DATASOURCE: Northrop Grumman Corporation
CONTACT: Media, Dan McClain, +1-310-201-3335, or Investors, Gaston
Kent, +1-310-201-3423, both of Northrop Grumman Corporation Web
site: http://www.northropgrumman.com/
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