- EPS Increase 9 Percent to $2.05
- Sales Total $6.3 Billion
- Free Cash Flow Before Voluntary Pension Contributions $692 Million
- 6.1 Million Shares Repurchased in Q2; 12.6 Million Shares Year-to-Date
- 2013 Sales Guidance Increased to Approximately $24.3 Billion
- 2013 EPS Guidance Increased to $7.60 to $7.80
FALLS CHURCH, Va. – July 24, 2013 – Northrop Grumman Corporation (NYSE:NOC) second quarter 2013 net earnings increased 2 percent to $488 million, or $2.05 per diluted share, from $480 million, or $1.88 per diluted share, in the second quarter of 2012. Second quarter 2013 earnings include a $30 million pre-tax charge, or $0.08 per share, principally related to "make-whole" premiums paid to redeem $850 million of senior notes on June 27, 2013. Second quarter 2013 diluted earnings per share are based on 237.5 million weighted average shares outstanding compared with 254.7 million shares in the second quarter of 2012, a 7 percent decrease. The company repurchased 6.1 million shares of its common stock in the 2013 second quarter, and 12.6 million shares year-to-date, consistent with its previously announced goal of repurchasing approximately 60 million shares of its common stock by the end of 2015, market conditions permitting.
"Second quarter and year-to-date financial results reflect the hard work and dedication of the entire Northrop Grumman team. As a company, we remain focused on program performance, effective cash deployment and portfolio alignment as we continue to create value for our shareholders, customers and employees," said Wes Bush, chairman, chief executive officer and president.
Table 1 — Financial Highlights | ||||||
Second Quarter | Six Months | |||||
($ in millions, except per share amounts) | 2013 | 2012 | 2013 | 2012 | ||
Sales | $ 6,294 | $ 6,274 | $ 12,398 | $ 12,472 | ||
Segment operating income 1 | 797 | 782 | 1,545 | 1,571 | ||
Segment operating margin rate 1 | 12.7% | 12.5% | 12.5% | 12.6% | ||
Operating income | 806 | 774 | 1,565 | 1,570 | ||
Operating margin rate | 12.8% | 12.3% | 12.6% | 12.6% | ||
Net earnings | 488 | 480 | 977 | 986 | ||
Diluted EPS | 2.05 | 1.88 | 4.08 | 3.84 | ||
Cash provided by operations | 328 | 876 | 329 | 771 | ||
Free cash flow 1 | 280 | 825 | 241 | 639 | ||
Pension-adjusted Operating Highlights | ||||||
Operating income | 806 | 774 | 1,565 | 1,570 | ||
Net FAS/CAS pension adjustment 1 | (31) | (35) | (64) | (67) | ||
Pension-adjusted operating income 1 | $ 775 | $ 739 | $ 1,501 | $ 1,503 | ||
Pension-adjusted operating margin rate 1 | 12.3% | 11.8% | 12.1% | 12.1% | ||
Pension-adjusted Per Share Data | ||||||
Diluted EPS | $ 2.05 | $ 1.88 | $ 4.08 | $ 3.84 | ||
After-tax net pension adjustment per share 1 | (0.08) | (0.09) | (0.17) | (0.17) | ||
Pension-adjusted diluted EPS 1 | $ 1.97 | $ 1.79 | $ 3.91 | $ 3.67 | ||
Weighted average shares outstanding — Basic | 234.0 | 250.8 | 235.2 | 252.0 | ||
Dilutive effect of stock options and stock awards | 3.5 | 3.9 | 4.0 | 4.5 | ||
Weighted average shares outstanding — Diluted | 237.5 | 254.7 | 239.2 | 256.5 | ||
1 Non-GAAP metric — see definitions at the end of this press release. |
Table 2 — Cash Flow Highlights | ||||||
Second Quarter | Six Months | |||||
($ millions) | 2013 | 2012 | 2013 | 2012 | ||
Cash provided by operating activities before discretionary pension contributions 1 | $ 740 | $ 876 | $ 741 | $ 771 | ||
After-tax discretionary pension pre-funding impact | (412) | — | (412) | — | ||
Net cash provided by operating activities | $ 328 | $ 876 | $ 329 | $ 771 | ||
Less: | ||||||
Capital expenditures | (48) | (51) | (88) | (132) | ||
Free cash flow 1 | $ 280 | $ 825 | $ 241 | $ 639 | ||
After-tax discretionary pension pre-funding impact | 412 | — | 412 | — | ||
Free cash flow provided by operating activities before discretionary pension contributions 1 | $ 692 | $ 825 | $ 653 | $ 639 | ||
1 Non-GAAP metric — see definitions at the end of this press release. |
2013 Guidance Updated | ||||||
($ in millions, except per share amounts) | Prior | Current | ||||
Sales | ~24,000 | ~24,300 | ||||
Segment operating margin % 1 | Low to mid 11% | ~12% | ||||
Operating margin % | High 10% to Low 11% | ~12% | ||||
Diluted EPS | 6.85 | — | 7.15 | 7.60 | — | 7.80 |
Cash provided by operations before after-tax impact of discretionary pension pre-funding contributions 1 | 2,100 | — | 2,400 | 2,100 | — | 2,400 |
Free cash flow before after-tax impact of discretionary pension pre-funding contributions 1 | 1,700 | — | 2,000 | 1,700 | — | 2,000 |
1 Non-GAAP metric - see definitions at the end of this press release. |
Table 3 — Business Results | ||||||
Consolidated Sales & Segment Operating Income 1 | ||||||
Second Quarter | Six Months | |||||
($ millions) | 2013 | 2012 | Change | 2013 | 2012 | Change |
Sales | ||||||
Aerospace Systems | $ 2,613 | $ 2,404 | 9% | $ 5,098 | $ 4,787 | 6% |
Electronic Systems | 1,771 | 1,744 | 2% | 3,492 | 3,468 | 1% |
Information Systems | 1,689 | 1,856 | (9%) | 3,363 | 3,700 | (9%) |
Technical Services | 722 | 783 | (8%) | 1,439 | 1,533 | (6%) |
Intersegment eliminations | (501) | (513) | (994) | (1,016) | ||
6,294 | 6,274 | — | 12,398 | 12,472 | (1%) | |
Segment operating income 1 | ||||||
Aerospace Systems | 336 | 292 | 15% | 606 | 571 | 6% |
Electronic Systems | 322 | 276 | 17% | 618 | 580 | 7% |
Information Systems | 141 | 202 | (30%) | 312 | 407 | (23%) |
Technical Services | 69 | 74 | (7%) | 134 | 144 | (7%) |
Intersegment eliminations | (71) | (62) | (125) | (131) | ||
Segment operating income 1 | 797 | 782 | 2% | 1,545 | 1,571 | (2%) |
Segment operating margin rate 1 | 12.7% | 12.5% | 20 bps | 12.5% | 12.6% | (10) bps |
Reconciliation to operating income | ||||||
Net pension adjustment 1 | 31 | 35 | (11%) | 64 | 67 | (4%) |
Unallocated corporate expenses | (21) | (39) | 46% | (40) | (62) | 35% |
Other | (1) | (4) | 75% | (4) | (6) | 33% |
Operating income | 806 | 774 | 4% | 1,565 | 1,570 | — |
Operating margin rate | 12.8% | 12.3% | 50 bps | 12.6% | 12.6% | — |
Interest expense | (60) | (52) | (15%) | (113) | (105) | (8%) |
Other, net | (22) | 5 | (540%) | (16) | 18 | (189%) |
Earnings before income taxes | 724 | 727 | — | 1,436 | 1,483 | (3%) |
Federal and foreign income tax expense | (236) | (247) | 4% | (459) | (497) | 8% |
Net earnings | $ 488 | $ 480 | 2% | $ 977 | $ 986 | (1%) |
1 Non-GAAP metric — see definitions at the end of this press release. |
Aerospace Systems ($ millions) | ||||||
Second Quarter | Six Months | |||||
2013 | 2012 | Change | 2013 | 2012 | Change | |
Sales | $ 2,613 | $ 2,404 | 8.7% | $ 5,098 | $ 4,787 | 6.5% |
Operating income | 336 | 292 | 15.1% | 606 | 571 | 6.1% |
Operating margin rate | 12.9% | 12.1% | 11.9% | 11.9% | ||
Electronic Systems ($ millions) | ||||||
Second Quarter | Six Months | |||||
2013 | 2012 | Change | 2013 | 2012 | Change | |
Sales | $ 1,771 | $ 1,744 | 1.5% | $ 3,492 | $ 3,468 | 0.7% |
Operating income | 322 | 276 | 16.7% | 618 | 580 | 6.6% |
Operating margin rate | 18.2% | 15.8% | 17.7% | 16.7% | ||
Information Systems ($ millions) | ||||||
Second Quarter | Six Months | |||||
2013 | 2012 | Change | 2013 | 2012 | Change | |
Sales | $ 1,689 | $ 1,856 | (9.0%) | $ 3,363 | $ 3,700 | (9.1%) |
Operating income | 141 | 202 | (30.2%) | 312 | 407 | (23.3%) |
Operating margin rate | 8.3% | 10.9% | 9.3% | 11.0% | ||
Technical Services ($ millions) | ||||||
Second Quarter | Six Months | |||||
2013 | 2012 | Change | 2013 | 2012 | Change | |
Sales | $ 722 | $ 783 | (7.8%) | $ 1,439 | $ 1,533 | (6.1%) |
Operating income | 69 | 74 | (6.8%) | 134 | 144 | (6.9%) |
Operating margin rate | 9.6% | 9.5% | 9.3% | 9.4% | ||
SCHEDULE 1 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME | ||||
(Unaudited) | ||||
Three Months Ended
June 30 |
Six Months Ended
June 30 |
|||
$ in millions, except per share amounts | 2013 | 2012 | 2013 | 2012 |
Sales | ||||
Product | $ 3,593 | $ 3,399 | $ 7,014 | $ 6,740 |
Service | 2,701 | 2,875 | 5,384 | 5,732 |
Total sales | 6,294 | 6,274 | 12,398 | 12,472 |
Operating costs and expenses | ||||
Product | 2,703 | 2,604 | 5,334 | 5,131 |
Service | 2,203 | 2,316 | 4,359 | 4,630 |
General and administrative expenses | 582 | 580 | 1,140 | 1,141 |
Operating income | 806 | 774 | 1,565 | 1,570 |
Other (expense) income | ||||
Interest expense | (60) | (52) | (113) | (105) |
Other, net | (22) | 5 | (16) | 18 |
Earnings before income taxes | 724 | 727 | 1,436 | 1,483 |
Federal and foreign income tax expense | 236 | 247 | 459 | 497 |
Net earnings | $ 488 | $ 480 | $ 977 | $ 986 |
Basic earnings per share | $ 2.09 | $ 1.91 | $ 4.15 | $ 3.91 |
Weighted-average common shares outstanding, in millions | 234.0 | 250.8 | 235.2 | 252.0 |
Diluted earnings per share | $ 2.05 | $ 1.88 | $ 4.08 | $ 3.84 |
Weighted-average diluted shares outstanding, in millions | 237.5 | 254.7 | 239.2 | 256.5 |
Net earnings (from above) | $ 488 | $ 480 | $ 977 | $ 986 |
Other comprehensive income | ||||
Change in unamortized benefit plan costs, net of tax | 79 | 54 | 159 | 104 |
Change in cumulative translation adjustment | 9 | (15) | (7) | (9) |
Other comprehensive income, net of tax | 88 | 39 | 152 | 95 |
Comprehensive income | $ 576 | $ 519 | $ 1,129 | $ 1,081 |
SCHEDULE 2 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||
(Unaudited) | ||||
$ in millions |
June 30,
2013 |
December 31,
2012 |
||
Assets | ||||
Cash and cash equivalents | $4,904 | $3,862 | ||
Accounts receivable, net of progress payments | 3,124 | 2,858 | ||
Inventoried costs, net of progress payments | 745 | 798 | ||
Deferred tax assets | 551 | 574 | ||
Prepaid expenses and other current assets | 240 | 300 | ||
Total current assets | 9,564 | 8,392 | ||
Property, plant and equipment, net of accumulated depreciation of $4,283 in 2013 and $4,146 in 2012 | 2,783 | 2,887 | ||
Goodwill | 12,437 | 12,431 | ||
Non-current deferred tax assets | 1,429 | 1,542 | ||
Other non-current assets | 1,295 | 1,291 | ||
Total assets | $27,508 | $26,543 | ||
Liabilities | ||||
Trade accounts payable | $1,195 | $1,392 | ||
Accrued employee compensation | 1,001 | 1,173 | ||
Advance payments and billings in excess of costs incurred | 1,802 | 1,759 | ||
Other current liabilities | 1,641 | 1,732 | ||
Total current liabilities | 5,639 | 6,056 | ||
Long-term debt, net of current portion | 5,929 | 3,930 | ||
Pension and post-retirement benefit plan liabilities | 5,426 | 6,085 | ||
Other non-current liabilities | 956 | 958 | ||
Total liabilities | 17,950 | 17,029 | ||
Shareholders' equity | ||||
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding | — | — | ||
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2013—230,801,552 and 2012—239,209,812 | 231 | 239 | ||
Paid-in capital | 2,124 | 2,924 | ||
Retained earnings | 11,838 | 11,138 | ||
Accumulated other comprehensive loss | (4,635) | (4,787) | ||
Total shareholders' equity | 9,558 | 9,514 | ||
Total liabilities and shareholders' equity | $27,508 | $26,543 | ||
SCHEDULE 3 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(Unaudited) | ||||
Six Months Ended
June 30 |
||||
$ in millions | 2013 | 2012 | ||
Operating activities | ||||
Sources of cash | ||||
Cash received from customers | ||||
Collections on billings | $ 9,558 | $ 9,911 | ||
Progress payments | 2,554 | 2,553 | ||
Other cash receipts | 32 | 38 | ||
Total sources of cash | 12,144 | 12,502 | ||
Uses of cash | ||||
Cash paid to suppliers and employees | (10,702) | (10,969) | ||
Pension contributions | (543) | (33) | ||
Interest paid, net of interest received | (111) | (102) | ||
Income taxes paid, net of refunds received | (412) | (584) | ||
Other cash payments | (47) | (43) | ||
Total uses of cash | (11,815) | (11,731) | ||
Net cash provided by operating activities | 329 | 771 | ||
Investing activities | ||||
Capital expenditures | (88) | (132) | ||
Maturities of short-term investments | — | 250 | ||
Other investing activities, net | 6 | 44 | ||
Net cash (used in) provided by investing activities | (82) | 162 | ||
Financing activities | ||||
Net proceeds from issuance of long-term debt | 2,841 | — | ||
Common stock repurchases | (921) | (555) | ||
Payments of long-term debt | (877) | — | ||
Cash dividends paid | (272) | (265) | ||
Proceeds from exercises of stock options | 110 | 67 | ||
Other financing activities, net | (86) | (34) | ||
Net cash provided by (used in) financing activities | 795 | (787) | ||
Increase in cash and cash equivalents | 1,042 | 146 | ||
Cash and cash equivalents, beginning of year | 3,862 | 3,002 | ||
Cash and cash equivalents, end of period | $ 4,904 | $ 3,148 | ||
SCHEDULE 4 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(Unaudited) | ||||
Six Months Ended
June 30 |
||||
$ in millions | 2013 | 2012 | ||
Reconciliation of net earnings to net cash provided by operating activities | ||||
Net earnings | $ 977 | $ 986 | ||
Adjustments to reconcile to net cash provided by operating activities: | ||||
Depreciation and amortization | 225 | 243 | ||
Stock-based compensation | 71 | 76 | ||
Excess tax benefits from stock-based compensation | (27) | (29) | ||
Deferred income taxes | 33 | (21) | ||
(Increase) decrease in assets: | ||||
Accounts receivable, net | (268) | (175) | ||
Inventoried costs, net | 62 | 143 | ||
Prepaid expenses and other assets | 6 | (95) | ||
Increase (decrease) in liabilities: | ||||
Accounts payable and accruals | (430) | (453) | ||
Income taxes payable | 60 | (22) | ||
Retiree benefits | (397) | 137 | ||
Other, net | 17 | (19) | ||
Net cash provided by operating activities | $ 329 | $ 771 | ||
SCHEDULE 5 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
TOTAL BACKLOG AND CONTRACT AWARDS | ||||
(Unaudited) | ||||
June 30,
2013 |
December 31,
2012 |
|||
$ in millions |
FUNDED (1) |
UNFUNDED (2) |
TOTAL
BACKLOG |
TOTAL
BACKLOG |
Aerospace Systems | $ 10,437 | $ 8,376 | $ 18,813 | $ 19,594 |
Electronic Systems | 7,251 | 1,732 | 8,983 | 9,471 |
Information Systems (3) | 3,146 | 3,930 | 7,076 | 8,541 |
Technical Services | 2,372 | 478 | 2,850 | 3,203 |
Total | $ 23,206 | $ 14,516 | $ 37,722 | $ 40,809 |
(1) Funded backlog represents firm orders for which funding is authorized and appropriated by the customer. | ||||
(2) Unfunded backlog represents firm orders for which as of the reporting date, funding is not authorized and appropriated by the customer. Unfunded backlog excludes unexercised contract options and indefinite delivery, indefinite quantity (IDIQ) contracts until the time the option or IDIQ task order is exercised or awarded. | ||||
(3) Information Systems backlog as of June 30, 2013 includes a $1.0 billion adjustment primarily to reduce unfunded backlog for expired periods of performance on active contracts, including task orders on IDIQ contracts. | ||||