Northrop Grumman Reports Third Quarter 2012 Financial Results

• EPS from Continuing Operations of $1.82
• Guidance for 2012 EPS from Continuing Operations Increased to $7.35 to $7.40
• Cash Provided by Operations of $812 Million and Free Cash Flow of $748 Million
• Guidance Increased for 2012 Cash Provided by Operations and Free Cash Flow
• Sales Total $6.3 Billion
• 4.4 Million Shares Repurchased

FALLS CHURCH, Va. – Oct. 25, 2012 – Northrop Grumman Corporation (NYSE:NOC) reported third quarter 2012 earnings from continuing operations of $459 million, or $1.82 per diluted share, compared with $520 million, or $1.86 per diluted share, in the third quarter of 2011. The change in earnings and earnings per share is largely due to a $66 million decrease in net pension income in the 2012 third quarter. On a pension-adjusted basis, earnings per diluted share from continuing operations increased 6 percent to $1.73 from $1.63. During the third quarter the company repurchased 4.4 million shares of its common stock for approximately $290 million. Year to date through Sept. 30, 2012, the company has repurchased 13.6 million shares of its common stock, and $2.0 billion remains on its current share repurchase authorization.

"Our focus on performance, effective cash deployment, and portfolio alignment continues to create value for our shareholders, customers and employees. We are working closely with our customers to bring innovative, affordable solutions to support their needs in today's fiscally constrained environment," said Wes Bush, chairman, chief executive officer and president.

Third quarter 2012 operating income decreased $89 million, or 11 percent, and operating margin rate was 11.7 percent compared with 12.5 percent in the prior year period. The change in both operating income and operating margin rate is principally due to a $66 million decrease in net FAS/CAS pension adjustment in the 2012 third quarter. On a pension-adjusted basis, operating income was $702 million, and pension-adjusted operating margin rate expanded 20 basis points to 11.2 percent from 11.0 percent.

Third quarter 2012 net earnings totaled $459 million, or $1.82 per diluted share, compared with $520 million, or $1.86 per diluted share, in the third quarter of 2011. Third quarter 2012 diluted earnings per share are based on 252.1 million weighted average shares outstanding compared with 279.3 million shares in the third quarter of 2011, a 10 percent decrease.

As of Sept. 30, 2012, total backlog was $41.0 billion compared with total backlog of $39.5 billion on Dec. 31, 2011. Total backlog as of Sept. 30, 2012, includes new business awards of $20.2 billion.

Cash provided by continuing operations through Sept. 30, 2012, increased to $1.6 billion from $1.0 billion in the prior year, due to lower discretionary pension funding and working capital requirements than in the prior year period. In the third quarter of 2012 the company made a $300 million discretionary contribution to its pension plans that impacted cash flows through Sept. 30, 2012, by $221 million on an after-tax basis, compared with a discretionary contribution of $500 million in 2011 that impacted cash flows by $367 million on an after-tax basis. Free cash flow from continuing operations through Sept. 30, 2012, totaled $1.4 billion compared with $700 million in the prior year due to the cash trends mentioned above and lower capital spending than in the prior year period.

Before the impact of discretionary pension plan contributions, cash provided by continuing operations totaled $1.0 billion for the 2012 third quarter and $1.8 billion for the nine months ended Sept. 30, 2012, and free cash flow totaled $969 million for the 2012 third quarter and $1.6 billion for the nine months ended Sept. 30, 2012.

Changes in cash and cash equivalents described in Schedule 3 of this press release include the following items for cash from operations, investing and financing through Sept. 30, 2012:

Operations

• $1.6 billion provided by continuing operations

Investing

• $196 million for capital expenditures

Financing

• $846 million for repurchases of common stock
• $401 million for dividends
• $153 million from exercises of stock options

Federal and foreign income tax expense totaled $236 million in the third quarter of 2012 compared with $235 million in the prior year period. The third quarter 2012 effective tax rate was 34 percent compared with 31.1 percent for the prior year period. In the third quarter of 2011 the company recognized net tax benefits of $14 million related to adjustments to prior year tax returns.

Effective Jan. 1, 2012, the company transferred its missile business, principally the Intercontinental Ballistic Missile (ICBM) program, previously reported in Aerospace Systems to Technical Services. Schedule 6 presents the previously reported and recast results following the realignment.

Aerospace Systems third quarter 2012 sales increased 5 percent due to higher volume for unmanned systems, including NATO AGS and Fire Scout, and military aircraft programs, principally the F-35. Higher volume for these areas was partially offset by lower volume for restricted programs and the termination of a weather satellite program in space systems.

Aerospace Systems third quarter 2012 operating income declined 2 percent and operating margin rate declined to 11.1 percent from 12 percent. The change in operating income and margin rate is principally due to the F/A-18 program's transition from the multiyear 2 contract to the lower margin multiyear 3 contract.

Electronic Systems third quarter 2012 sales declined 10 percent, which reflects lower volume for combat avionics and postal automation programs, including the de-emphasis of the company's domestic postal automation business. Volume for infrared countermeasures and laser systems programs also declined due to force reductions in overseas contingency operations. Declines in these programs were partially offset by higher volume for space systems programs.

Electronic Systems third quarter 2012 operating income declined 5 percent, and operating margin rate increased 90 basis points to 16.3 percent. Lower operating income is due to lower volume and higher margin rate reflects improved program performance. Third quarter 2011 operating income included a provision for a dispute on a domestic postal automation program.

Information Systems third quarter 2012 sales declined 9 percent due to lower volume for defense and intelligence systems programs. Lower volume for defense systems primarily reflects the termination of the Joint Tactical Radio System Airborne, Maritime and Fixed (JTRS AMF) program, as well as lower volume across several other programs. Lower intelligence systems sales are primarily due to lower volume for several restricted programs.

Information Systems third quarter 2012 operating income decreased 9 percent, consistent with the decline in volume, and operating margin rate of 9.6 percent was consistent with the prior year period.

Technical Services third quarter 2012 sales decreased 6 percent due to lower volume for logistics and modernization programs, principally the KC-10 program, as well as portfolio shaping actions for defense and government services programs.

Technical Services third quarter 2012 operating income decreased 2 percent, and operating margin rate increased to 8.3 percent from 7.9 percent.

About Northrop Grumman

Northrop Grumman will webcast its earnings conference call at 11:30 a.m. Eastern time on Oct. 24, 2012. 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 website at www.northropgrumman.com .

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cybersecurity, C4ISR, and logistics and modernization to government and commercial customers worldwide. Please visit www.northropgrumman.com for more information.

This release and the attachments contain statements, other than statements of historical fact, that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expect," "intend," "may," "could," "plan," "project," "forecast," "believe," "estimate," "outlook," "anticipate," "trends," "guidance," and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, financial guidance regarding future sales, segment operating income, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow and earnings. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Actual results may differ materially from those expressed or implied in these forward-looking statements due to factors such as: the effect of economic conditions in the United States and globally; changes in government and customer priorities and requirements (including, government budgetary constraints, shifts or reductions in defense spending, changes in import and export policies, and changes in customer short-range and long-range plans); access to capital; future sales and cash flows; the timing of cash receipts; effective tax rates and timing and amounts of tax payments; returns on pension plan assets, interest and discount rates and other changes that may impact pension plan assumptions; retiree medical expense; the outcome of litigation, claims, audits, appeals, bid protests and investigations; the adequacy of our insurance coverage and recoveries (including earthquake-related coverage); the costs of environmental remediation; our ability to attract and retain qualified personnel; the costs of capital investments; changes in organizational structure and reporting segments; risks associated with acquisitions, dispositions, spin-off transactions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other intangible assets; the effects of legislation, rulemaking, and changes in accounting, tax or defense procurement rules or regulations; the acquisition or termination of contracts; technical, operational or quality setbacks in contract performance; our ability to protect intellectual property rights; risks associated with our nuclear operations; issues with, and financial viability of, key suppliers and subcontractors; availability of materials and supplies; controlling costs of fixed-price development programs; contractual performance relief and the application of cost sharing terms; allowability and allocability of costs under U.S. Government contracts; progress and acceptance of new products and technology; domestic and international competition; legal, financial and governmental risks related to international transactions; potential security threats, information technology attacks, natural disasters and other disruptions not under our control; and other risk factors disclosed in our filings with the Securities and Exchange Commission.

You should not put undue reliance on any forward-looking statements in this release. These forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise any forward-looking statements after we distribute this release. This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this release or the attachments.

Non-GAAP Financial Measures Disclosure: Today's press release contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the text of the release. While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release. References to a "Table" in the definitions below relate to tables in the body of this press release. Other companies may define these measures differently or may utilize different non-GAAP measures.

Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pension adjustment per share, as defined below. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS from continuing operations, as reconciled in Table 1, as an internal measure of financial performance.

Cash provided by continuing operations before discretionary pension contributions: Cash provided by continuing operations before the after-tax impact of discretionary pension contributions. Cash provided by continuing operations before discretionary pension contributions has been provided for consistency and comparability of 2012 and 2011 financial performance and is reconciled in Table 2.

Free cash flow provided by continuing operations: Cash provided by continuing operations less capital expenditures (including outsourcing contract & related software costs). We use free cash flow from continuing operations as a key factor in our planning for, and consideration of, strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow from continuing operations is reconciled in Table 2.

Free cash flow provided by continuing operations before discretionary pension contributions: Free cash flow from continuing operations before the after-tax impact of discretionary pension contributions. We use free cash flow from continuing operations before discretionary pension contributions as a key factor in our planning for, and consideration of, strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow from continuing operations before discretionary pension contributions is reconciled in Table 2.

Net FAS/CAS pension adjustment: Pension expense determined in accordance with GAAP less pension expense allocated to the operating segments under U.S. Government Cost Accounting Standards (CAS). Net pension adjustment is presented in Table 1.

After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at the statutory rate of 35%, provided for consistency and comparability of 2012 and 2011 financial performance as presented in Table 1.

Pension-adjusted operating income: Operating income before net pension adjustment as reconciled in Table 1. Management uses pension-adjusted operating income as an internal measure of financial performance.

Pension-adjusted operating margin rate: Pension-adjusted operating income as defined above, divided by sales. Management uses pension-adjusted operating margin rate, as reconciled in Table 1, as an internal measure of financial performance.

Segment operating income: Total earnings from our four segments including allocated pension expense recognized under CAS. Reconciling items to operating income are unallocated corporate expenses, including unallowable or unallocable portions of management and administration, legal, environmental, certain compensation and retiree benefits, and other expenses; net pension adjustment; and reversal of royalty income included in segment operating income. Management uses segment operating income, as reconciled in Table 3, as an internal measure of financial performance of our individual operating segments.

Segment operating margin rate: Segment operating income as defined above, divided by sales. Management uses segment operating margin rate, as reconciled in Table 3, as an internal measure of financial performance.

  CONTACT: Randy Belote (Media)
         +1-703-280-2720
         randy.belote@ngc.com
         
         Steve Movius (Investors)
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