- Q2 EPS from Continuing Operations of $1.81
- 2011 Guidance for EPS from Continuing Operations Increased to $6.75 to $6.90 from $6.50 to $6.70
- Sales Total $6.56 Billion; Company Now Expects 2011 Sales of Approximately $27 Billion
LOS ANGELES, July 27, 2011 -- Northrop Grumman Corporation (NYSE:NOC) reported that second quarter 2011 earnings from continuing operations totaled $520 million, or $1.81 per diluted share, compared with $740 million, or $2.44 per diluted share in the second quarter of 2010. The 2010 second quarter included a tax benefit of $298 million, or $0.98 per diluted share.
Second quarter 2011 sales totaled $6.56 billion compared with $7.26 billion in the prior year period. New business awards for the 2011 second quarter totaled $5.1 billion, and total backlog as of June 30, 2011, was $41.8 billion. Lower second quarter 2011 sales and the total backlog reflect the impact of lower U.S. Department of Defense investment outlays (including announced force reductions in overseas contingency operations), the company's reduced participation in the Nevada National Security Site joint venture (NSTec), and delayed awards for manned aircraft programs. Second quarter 2010 sales included NSTec revenue of $152 million, and total backlog reflects an adjustment of $2.2 billion, for the reduction in the company's NSTec joint venture participation and the restructuring of the National Polar-orbiting Operational Environmental Satellite System (NPOESS).
"Our focus on performance, our portfolio and effective cash deployment continues to generate value in a challenging budget environment. While sales for the quarter were impacted by several factors, the strong margin rates generated by our businesses largely offset the effects of lower sales. Based on our year-to-date results we are increasing our EPS guidance and maintaining our guidance for cash generation, despite a reduced top line outlook that reflects the realities of our current budget environment," said Wes Bush, chairman, chief executive officer and president.
Table 1 - Financial Highlights
Second Quarter | Six Months | ||||||
($ in millions, except per share amounts) | 2011 | 2010 | 2011 | 2010 | |||
Sales | $ 6,560 | $ 7,255 | $ 13,294 | $ 14,169 | |||
Operating income | 841 | 750 | 1,652 | 1,429 | |||
as % of sales | 12.8% | 10.3% | 12.4% | 10.1% | |||
Earnings from continuing operations | $ 520 | $ 740 | $ 1,016 | $ 1,150 | |||
Diluted EPS from continuing operations | 1.81 | 2.44 | 3.48 | 3.77 | |||
Net earnings | 520 | 711 | 1,050 | 1,180 | |||
Diluted EPS | 1.81 | 2.34 | 3.59 | 3.87 | |||
Cash (used in) provided by continuing operations | (34) | 552 | 78 | 100 | |||
Free cash flow from continuing operations 1 | (128) | 476 | (139) | (82) | |||
Pension-adjusted Operating Highlights | |||||||
Operating income | $ 841 | $ 750 | $ 1,652 | $ 1,429 | |||
Net pension adjustment 1 | (99) | (1) | (202) | (3) | |||
Pension-adjusted operating income 1 | $ 742 | $ 749 | $ 1,450 | $ 1,426 | |||
as % of sales 1 | 11.3% | 10.3% | 10.9% | 10.1% | |||
Adjusted Per Share Data | |||||||
Diluted EPS from continuing operations | $ 1.81 | $2.44 | $ 3.48 | $3.77 | |||
Tax benefit | (0.98) | (0.98) | |||||
After-tax net pension adjustment per share 1 | (0.22) | (0.45) | (0.01) | ||||
Adjusted diluted EPS from continuing operations 1 | $ 1.59 | $ 1.46 | $ 3.03 | $ 2.78 | |||
Weighted average shares outstanding - Basic | 282.6 | 299.6 | 287.2 | 301.1 | |||
Dilutive effect of stock options and stock awards | 4.6 | 4.2 | 5.0 | 3.9 | |||
Weighted average shares outstanding - Diluted | 287.2 | 303.8 | 292.2 | 305.0 | |||
1 Non-GAAP metric - see definitions at the end of this press release. |
Second Quarter | Six Months | ||||||
($ millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | |
Cash provided by continuing operations before discretionary pension contributions 1 | $ 378 | $ 828 | $ (450) | $ 490 | $ 406 | $ 84 | |
After-tax discretionary pension pre-funding impact | (412) | (276) | (136) | (412) | (306) | (106) | |
Cash (used in) provided by continuing operations | (34) | 552 | (586) | 78 | 100 | (22) | |
Less: | |||||||
Capital expenditures | (94) | (75) | (19) | (216) | (178) | (38) | |
Outsourcing contract & related software costs | (1) | 1 | (1) | (4) | 3 | ||
Free cash flow from continuing operations 1 | $ (128) | $ 476 | $ (604) | $ (139) | $ (82) | $ (57) | |
After-tax discretionary pension pre-funding impact | 412 | 276 | 136 | 412 | 306 | 106 | |
Pension-adjusted free cash flow from continuing operations 1 | $ 284 | $ 752 | $ (468) | $ 273 | $ 224 | $ 49 | |
1 Non-GAAP metric - see definitions at the end of this press release |
($ in millions, except per share amounts) | Prior | Current | |||||
Sales | ~$27,500 | ~$27,000 | |||||
Segment operating margin % 1 | Mid 10% | ~11% | |||||
Operating margin % | ~11% | Mid 11% | |||||
Diluted EPS from continuing operations | $ 6.50 | -- | $ 6.70 | $ 6.75 | -- | $ 6.90 | |
Cash provided by operations before discretionary pension contributions 1 | 2,300 | -- | 2,700 | 2,300 | -- | 2,700 | |
Free cash flow from continuing operations before discretionary pension contributions 1 | 1,700 | -- | 2,000 | 1,700 | -- | 2,000 | |
1 Non-GAAP metric - see definitions at the end of this press release. |
($ millions) | 6/30/2011 | 12/31/2010 | |||||
Cash & cash equivalents | $ 2,810 | $ 3,701 | |||||
Total debt | 3,979 | 4,724 | |||||
Net debt 1 | 1,169 | 1,023 | |||||
Net debt to total capital ratio 2 | 7% | 6% | |||||
1 Total debt less cash and cash equivalents. | |||||||
2 Net debt divided by the sum of shareholders' equity and total debt. |
Consolidated Sales & Segment Operating Income 1 | |||||||
Second Quarter | Six Months | ||||||
($ millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | |
Sales | |||||||
Aerospace Systems | $ 2,592 | $ 2,842 | (9%) | $ 5,328 | $ 5,538 | (4%) | |
Electronic Systems | 1,791 | 1,984 | (10%) | 3,599 | 3,866 | (7%) | |
Information Systems | 2,031 | 2,123 | (4%) | 4,056 | 4,187 | (3%) | |
Technical Services | 656 | 801 | (18%) | 1,344 | 1,564 | (14%) | |
Intersegment eliminations | (510) | (495) | (1,033) | (986) | |||
$ 6,560 | $ 7,255 | (10%) | $ 13,294 | $ 14,169 | (6%) | ||
Segment operating income 1 | |||||||
Aerospace Systems | $ 331 | $ 335 | (1%) | $ 632 | $ 631 | ||
Electronic Systems | 284 | 264 | 8% | 521 | 490 | 6% | |
Information Systems | 189 | 205 | (8%) | 383 | 388 | (1%) | |
Technical Services | 51 | 52 | (2%) | 105 | 101 | 4% | |
Intersegment eliminations | (71) | (65) | (136) | (113) | |||
Segment operating income 1 | $ 784 | $ 791 | (1%) | $ 1,505 | $ 1,497 | 1% | |
as a % of sales 1 | 12.0% | 10.9% | 110 bps | 11.3% | 10.6% | 70 bps | |
Reconciliation to operating income | |||||||
Unallocated corporate expenses | $ (38) | $ (40) | 5% | $ (48) | $ (65) | 26% | |
Net pension adjustment 1 | 99 | 1 | NM | 202 | 3 | NM | |
Reversal of royalty income included above | (4) | (2) | (100%) | (7) | (6) | (17%) | |
Operating income | $ 841 | $ 750 | 12% | $ 1,652 | $ 1,429 | 16% | |
as a % of sales | 12.8% | 10.3% | 250 bps | 12.4% | 10.1% | 230 bps | |
Net interest expense | $ (53) | $ (65) | 18% | $ (111) | $ (142) | 22% | |
Other, net | (10) | NM | 5 | (3) | NM | ||
Earnings from continuing operations before
income taxes |
788 | 675 | 17% | 1,546 | 1,284 | 20% | |
Federal and foreign income tax (expense) benefit | (268) | 65 | NM | (530) | (134) | (296%) | |
Earnings from continuing operations | 520 | 740 | (30%) | 1,016 | 1,150 | (12%) | |
Earnings (loss) from discontinued operations | (29) | NM | 34 | 30 | 13% | ||
Net earnings | $ 520 | $ 711 | (27%) | $ 1,050 | $ 1,180 | (11%) | |
1 Non-GAAP metric - see definitions and reconciliations at the end of this press release. |
Aerospace Systems ($ millions) | |||||||
Second Quarter | Six Months | ||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | ||
Sales | $ 2,592 | $ 2,842 | (8.8%) | $ 5,328 | $ 5,538 | (3.8%) | |
Operating income | 331 | 335 | (1.2%) | 632 | 631 | 0.2% | |
as a % of sales | 12.8% | 11.8% | 11.9% | 11.4% |
Electronic Systems ($ millions) | |||||||
Second Quarter | Six Months | ||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | ||
Sales | $ 1,791 | $ 1,984 | (9.7%) | $ 3,599 | $ 3,866 | (6.9%) | |
Operating income | 284 | 264 | 7.6% | 521 | 490 | 6.3% | |
as a % of sales | 15.9% | 13.3% | 14.5% | 12.7% |
Information Systems ($ millions) | |||||||
Second Quarter | Six Months | ||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | ||
Sales | $ 2,031 | $ 2,123 | (4.3%) | $ 4,056 | $ 4,187 | (3.1%) | |
Operating income | 189 | 205 | (7.8%) | 383 | 388 | (1.3%) | |
as a % of sales | 9.3% | 9.7% | 9.4% | 9.3% |
Technical Services ($ millions) | |||||||
Second Quarter | Six Months | ||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | ||
Sales | $ 656 | $ 801 | (18.1%) | $ 1,344 | $ 1,564 | (14.1%) | |
Operating income | 51 | 52 | (1.9%) | 105 | 101 | 4.0% | |
as a % of Sales | 7.8% | 6.5% | 7.8% | 6.5% |
NORTHROP GRUMMAN CORPORATION | SCHEDULE 1 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
(Unaudited) | |||||||
Three Months Ended | Six Months Ended | ||||||
June 30 | June 30 | ||||||
$ in millions, except per share amounts | 2011 | 2010 | 2011 | 2010 | |||
Sales and Service Revenues | |||||||
Product sales | $ 3,709 | $ 4,167 | $ 7,572 | $ 8,191 | |||
Service revenues | 2,851 | 3,088 | 5,722 | 5,978 | |||
Total sales and service revenues | 6,560 | 7,255 | 13,294 | 14,169 | |||
Cost of Sales and Service Revenues | |||||||
Cost of product sales | 2,662 | 3,078 | 5,504 | 6,068 | |||
Cost of service revenues | 2,501 | 2,806 | 5,014 | 5,427 | |||
General and administrative expenses | 556 | 621 | 1,124 | 1,245 | |||
Operating income | 841 | 750 | 1,652 | 1,429 | |||
Other (expense) income | |||||||
Interest expense | (53) | (65) | (111) | (142) | |||
Other, net | -- | (10) | 5 | (3) | |||
Earnings from continuing operations before income taxes | 788 | 675 | 1,546 | 1,284 | |||
Federal and foreign income tax expense (benefit) | 268 | (65) | 530 | 134 | |||
Earnings from continuing operations | 520 | 740 | 1,016 | 1,150 | |||
(Loss) Earnings from discontinued operations, net of tax | -- | (29) | 34 | 30 | |||
Net earnings | $ 520 | $ 711 | $ 1,050 | $ 1,180 | |||
Basic Earnings Per Share | |||||||
Continuing operations | $ 1.84 | $ 2.47 | $ 3.54 | $ 3.82 | |||
Discontinued operations | -- | (.10) | .12 | .10 | |||
Basic earnings per share | $ 1.84 | $ 2.37 | $ 3.66 | $ 3.92 | |||
Weighted-average common shares outstanding, in millions | 282.6 | 299.6 | 287.2 | 301.1 | |||
Diluted Earnings Per Share | |||||||
Continuing operations | $ 1.81 | $ 2.44 | $ 3.48 | $ 3.77 | |||
Discontinued operations | -- | (.10) | .11 | .10 | |||
Diluted earnings per share | $ 1.81 | $ 2.34 | $ 3.59 | $ 3.87 | |||
Weighted-average diluted shares outstanding, in millions | 287.2 | 303.8 | 292.2 | 305.0 | |||
Net earnings (from above) | $ 520 | $ 711 | $ 1,050 | $ 1,180 | |||
Other comprehensive income | |||||||
Change in cumulative translation adjustment | -- | (24) | 27 | (52) | |||
Change in unrealized gain on marketable securities and cash flow hedges, net of tax | (2) | ||||||
Change in unamortized benefit plan costs, net of tax | 14 | 39 | 35 | 79 | |||
Other comprehensive income, net of tax | 14 | 15 | 60 | 27 | |||
Comprehensive income | $ 534 | $ 726 | $ 1,110 | $ 1,207 |
NORTHROP GRUMMAN CORPORATION | SCHEDULE 2 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | |||||||
(Unaudited) | |||||||
June 30, | December 31, | ||||||
$ in millions | 2011 | 2010 | |||||
Assets | |||||||
Cash and cash equivalents | $ 2,810 | $ 3,701 | |||||
Accounts receivable, net of progress payments | 3,474 | 3,329 | |||||
Inventoried costs, net of progress payments | 902 | 896 | |||||
Current deferred tax assets | 465 | 419 | |||||
Prepaid expenses and other current assets | 163 | 244 | |||||
Assets of discontinued operations | 5,212 | ||||||
Total current assets | 7,814 | 13,801 | |||||
Property, plant, and equipment, net of accumulated depreciation of $3,864 in 2011 and $3,712 in 2010 | 3,028 | 3,045 | |||||
Goodwill | 12,376 | 12,376 | |||||
Other purchased intangibles, net of accumulated amortization of $1,631 in 2011 and $1,613 in 2010 | 174 | 192 | |||||
Pension and post-retirement plan assets | 344 | 320 | |||||
Non-current deferred tax assets | 555 | 721 | |||||
Miscellaneous other assets | 1,086 | 1,076 | |||||
Total assets | $ 25,377 | $ 31,531 | |||||
Liabilities | |||||||
Notes payable to banks | $ 19 | $ 10 | |||||
Current portion of long-term debt | 23 | 774 | |||||
Trade accounts payable | 1,259 | 1,573 | |||||
Accrued employees' compensation | 1,062 | 1,146 | |||||
Advance payments and billings in excess of costs incurred | 1,820 | 1,969 | |||||
Other current liabilities | 1,612 | 1,763 | |||||
Liabilities of discontinued operations | 2,792 | ||||||
Total current liabilities | 5,795 | 10,027 | |||||
Long-term debt, net of current portion | 3,937 | 3,940 | |||||
Pension and post-retirement plan liabilities | 2,597 | 3,089 | |||||
Other long-term liabilities | 899 | 918 | |||||
Total liabilities | 13,228 | 17,974 | |||||
Shareholders' Equity | |||||||
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2011 — 277,981,571; 2010 — 290,956,752 | 278 | 291 | |||||
Paid-in capital | 5,026 | 7,778 | |||||
Retained earnings | 9,018 | 8,245 | |||||
Accumulated other comprehensive loss | (2,173) | (2,757) | |||||
Total shareholders' equity | 12,149 | 13,557 | |||||
Total liabilities and shareholders' equity | $ 25,377 | $ 31,531 |
NORTHROP GRUMMAN CORPORATION | SCHEDULE 3 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
Six Months Ended | |||||||
June 30 | |||||||
$ in millions | 2011 | 2010 | |||||
Operating Activities | |||||||
Sources of Cash — Continuing Operations | |||||||
Cash received from customers | |||||||
Progress payments | $ 1,975 | $ 1,976 | |||||
Collections on billings | 11,028 | 11,653 | |||||
Other cash receipts | 80 | 3 | |||||
Total sources of cash — continuing operations | 13,083 | 13,632 | |||||
Uses of Cash — Continuing Operations | |||||||
Cash paid to suppliers and employees | (11,692) | (12,374) | |||||
Pension contributions | (550) | (363) | |||||
Interest paid, net of interest received | (119) | (138) | |||||
Income taxes paid, net of refunds received | (613) | (632) | |||||
Excess tax benefits from stock-based compensation | (21) | (10) | |||||
Other cash payments | (10) | (15) | |||||
Total uses of cash — continuing operations | (13,005) | (13,532) | |||||
Cash provided by continuing operations | 78 | 100 | |||||
Cash used in discontinued operations | (232) | (12) | |||||
Net cash (used in) provided by operating activities | (154) | 88 | |||||
Investing Activities | |||||||
Continuing Operations | |||||||
Contribution received from the spin-off of Shipbuilding business | 1,429 | ||||||
Additions to property, plant, and equipment | (216) | (178) | |||||
Decrease in restricted cash | 31 | 5 | |||||
Proceeds from sale of business, net of cash divested | 13 | ||||||
Other investing activities, net | 9 | 1 | |||||
Cash provided by (used in) investing activities by continuing operations | 1,253 | (159) | |||||
Cash used in investing activities by discontinued operations | (63) | (59) | |||||
Net cash provided by (used in) investing activities | 1,190 | (218) | |||||
Financing Activities | |||||||
Common stock repurchases | (1,013) | (855) | |||||
Payments of long-term debt | (750) | (90) | |||||
Dividends paid | (277) | (270) | |||||
Proceeds from exercises of stock options and issuances of common stock | 86 | 103 | |||||
Excess tax benefits from stock-based compensation | 21 | 10 | |||||
Other financing activities, net | 6 | 1 | |||||
Net cash used in financing activities | (1,927) | (1,101) | |||||
Decrease in cash and cash equivalents | (891) | (1,231) | |||||
Cash and cash equivalents, beginning of period | 3,701 | 3,275 | |||||
Cash and cash equivalents, end of period | $ 2,810 | $ 2,044 |
NORTHROP GRUMMAN CORPORATION | SCHEDULE 4 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
Six Months Ended | |||||||
June 30 | |||||||
$ in millions | 2011 | 2010 | |||||
Reconciliation of Net Earnings to Net Cash (Used in) Provided by Operating Activities | |||||||
Net earnings | $ 1,050 | $ 1,180 | |||||
Net earnings from discontinued operations | (34) | (30) | |||||
Adjustments to reconcile to net cash (used in) provided by operating activities | |||||||
Depreciation | 218 | 202 | |||||
Amortization of assets | 37 | 57 | |||||
Stock-based compensation | 66 | 69 | |||||
Excess tax benefits from stock-based compensation | (21) | (10) | |||||
(Increase) decrease in | |||||||
Accounts receivable, net | (164) | (589) | |||||
Inventoried costs, net | 6 | (23) | |||||
Prepaid expenses and other current assets | 5 | (5) | |||||
Increase (decrease) in | |||||||
Accounts payable and accruals | (757) | (546) | |||||
Deferred income taxes | 79 | 22 | |||||
Income taxes payable | 9 | (71) | |||||
Retiree benefits | (440) | (135) | |||||
Other, net | 24 | (21) | |||||
Cash provided by continuing operations | 78 | 100 | |||||
Cash used in discontinued operations | (232) | (12) | |||||
Net cash (used in) provided by operating activities | $ (154) | $ 88 | |||||
Non-Cash Investing and Financing Activities | |||||||
Capital expenditures accrued in accounts payable | $ 24 | $ 20 | |||||
Capital expenditures accrued in liabilities from discontinued operations | 27 |
NORTHROP GRUMMAN CORPORATION | SCHEDULE 5 | ||||||
TOTAL BACKLOG AND CONTRACT AWARDS | |||||||
(Unaudited) | |||||||
$ in millions | June 30, 2011 | December 31, 2010 | |||||
FUNDED (1) | UNFUNDED (2) |
TOTAL
BACKLOG |
FUNDED (1) | UNFUNDED (2) |
TOTAL
BACKLOG |
||
Aerospace Systems | $ 8,750 | $ 10,355 | $ 19,105 | (3) | $ 9,185 | $ 11,683 | $ 20,868 |
Electronic Systems | 7,701 | 1,806 | 9,507 | 8,093 | 2,054 | 10,147 | |
Information Systems | 4,369 | 5,497 | 9,866 | 4,711 | 5,879 | 10,590 | |
Technical Services | 2,561 | 765 | 3,326 | (4) | 2,763 | 2,474 | 5,237 |
Total | $ 23,381 | $ 18,423 | $ 41,804 | $ 24,752 | $ 22,090 | $ 46,842 | |
(1) Funded backlog represents firm orders for which funding is 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 (IDIQ) orders. | |||||||
(3) Total backlog as of June 30, 2011, was reduced by $409 million to reflect the restructure of the NPOESS program. | |||||||
(4) Total backlog as of June 30, 2011, was reduced by $1.745 billion to reflect a change in the company's participation in the NSTec joint venture. Effective January 1, 2011, NSTec joint venture results are no longer consolidated in the company's financial statements. | |||||||
New Awards – The estimated value of contract awards included in backlog during the three months ended June 30, 2011, was $5.1 billion. |