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Published:April 24th, 2007 09:40 EST
Northrop Grumman Reports First Quarter 2007 Results

Northrop Grumman Reports First Quarter 2007 Results

By SOP newswire

LOS ANGELES, April 24 /PRNewswire-FirstCall/ -- Northrop Grumman Corporation (NYSE: NOC) reported that first quarter 2007 income from continuing operations rose 7 percent to $387 million, or $1.10 per diluted share, from $362 million, or $1.03 per diluted share, in the first quarter of 2006. Sales for the 2007 first quarter increased 4 percent to $7.3 billion from $7.1 billion in the 2006 first quarter. Cash provided by operations for the 2007 first quarter totaled $400 million, $515 million higher than in the prior year period. First quarter 2006 operating results reflect the reclassification of certain operations from continuing to discontinued operations.

"In the first quarter we increased sales, operating margin and earnings per share, improved our cash from operations, and generated robust funded contract acquisitions. All our businesses continue to perform well," said Ronald D. Sugar, Northrop Grumman chairman and chief executive officer.

"Although results were slightly impacted by a strike in Pascagoula, our employees are now back at work building great ships. With this quarter's sound operating performance and strong cash from operations, we are well positioned to achieve our 2007 financial targets. Our performance continues to support a balanced cash deployment strategy, which in the first quarter included a 23 percent increase in our dividend and a $600 million accelerated share repurchase, retiring approximately 8 million shares," Sugar concluded.

2007 Guidance Confirmed

The company expects 2007 sales to range between $31 and $32 billion. Earnings per diluted share from continuing operations are expected to range between $4.80 and $5.05. Net cash provided by operating activities is expected to range between $2.5 and $2.8 billion in 2007.

First Quarter 2007 Results

First quarter 2007 sales totaled $7.3 billion, an increase of 4 percent over the prior year period. Total segment operating margin for the first quarter of 2007 rose 5 percent to $683 million from $653 million.

Total operating margin for the 2007 first quarter increased 13 percent to $681 million from $604 million for the 2006 first quarter, reflecting growth in segment sales and margin rate, as well as lower net pension cost ($43 million improvement in net pension adjustment).

Federal and foreign income taxes for the 2007 first quarter increased to $203 million from $164 million in the first quarter of 2006. During the first quarter of 2006, the company recognized a net tax benefit of $18 million related to tax credits associated with qualified wages paid to employees affected by Hurricane Katrina. The effective tax rate applied to income from continuing operations for the 2007 first quarter was 34.4 percent compared with 31.2 percent in the 2006 first quarter.

Net income for the 2007 first quarter increased 8 percent to $387 million, or $1.10 per diluted share, from $358 million, or $1.02 per diluted share, for the same period of 2006. Earnings per share are based on weighted average diluted shares outstanding of 358.3 million for the first quarter of 2007 and 350.8 million for the first quarter of 2006. First quarter 2007 weighted average shares outstanding include the dilutive impact of 6.4 million shares of the company's Series B mandatorily redeemable preferred stock.

Funded contract acquisitions for the 2007 first quarter totaled $9 billion compared with $12.3 billion for the same period of 2006. First quarter 2006 funded contract acquisitions were positively impacted by the receipt of awards deferred from the fourth quarter of 2005 due to the delay in the passage of the 2006 defense budget. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $60.3 billion at March 31, 2007.

Cash Measurements, Debt and Share Repurchases

Cash provided by operations in the 2007 first quarter totaled $400 million, an increase of $515 million over the same period a year ago. The year-over-year improvement includes higher net collections on programs in progress and less cash expended for discontinued operations. First quarter 2007 capital spending totaled $158 million and included $17 million for Hurricane Katrina damage repair, compared with capital spending of $173 million in the first quarter of 2006, which included $54 million for Hurricane Katrina damage repair.

Cash and cash equivalents totaled $362 million at March 31, 2007 compared with $1 billion at Dec. 31, 2006, principally reflecting the $578 million acquisition of Essex Corporation in January 2007 and the $600 million accelerated share repurchase agreement executed in February 2007, partially offset by the effect of additional borrowings during the quarter. Approximately $575 million remains on the current share repurchase authorization, which the company expects to complete by the end of 2008.

Total debt increased to $4.4 billion at March 31, 2007 from $4.2 billion at Dec. 31, 2006.

Business Results

As previously announced, beginning in the first quarter of 2007 the Radio Systems business is reported as part of Mission Systems. Schedule 4 of this earnings release provides previously reported quarterly financial results and realigned results reflecting the transfer of Radio Systems from Space Technology to Mission Systems. First quarter 2006 operating results reflect the reclassification of the company's reseller business from continuing to discontinued operations.

Information & Services first quarter 2007 sales increased 10 percent from the prior year period and include higher revenue for all three segments. The Mission Systems sales increase reflects revenue from the January 2007 acquisition of the Essex Corporation and higher volume for several Missile Systems programs, which was partially offset by lower volume in Command, Control and Intelligence programs. Information Technology sales rose 12 percent due to new state and local programs, including Virginia IT and San Diego County outsourcing and New York City Wireless programs, as well as higher volume for Intelligence programs. Technical Services sales increased 36 percent primarily due to the Nevada Test Site program.

Information & Services first quarter 2007 operating margin increased 2 percent from the first quarter of 2006 and includes higher operating margin in Information Technology and Technical Services and lower operating margin for Mission Systems. Mission Systems operating margin declined 5 percent primarily due to a favorable performance adjustment recorded in the 2006 first quarter for risk retirement on the ICBM program. For Information Technology, the higher operating margin and lower operating margin rate reflect a higher percentage of newly commenced state and local programs. The higher operating margin and lower operating margin rate for Technical Services are largely due to the impact of the Nevada Test Site program.

Aerospace first quarter 2007 sales declined 5 percent from the prior year period due to lower volume in Integrated Systems, partially offset by higher sales in Space Technology. Integrated Systems sales declined 10 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. Lower volume on these programs was partially offset by higher volume for the F/A-18 (due to delivery of one additional unit), Euro Hawk and B-2 Support programs. Space Technology sales increased 3 percent, primarily due to higher volume for Satellite Communications, and Missile & Space Defense programs, partially offset by lower volume for Civil Space programs.

Aerospace first quarter 2007 operating margin increased 6 percent from the prior year period. Integrated Systems operating margin rose 8 percent and operating margin rate improved over the prior year period. The improvement reflects the additional F/A-18 delivery and favorable adjustments on the F/A-18 (due to completion of production lot 5 and improved performance on production lot 6) and B-2 programs, which more than offset the impact of lower sales. Space Technology operating margin increased 2 percent.

Electronics first quarter 2007 sales increased 6 percent from the prior year period principally due to higher sales for undersea, postal automation, and intelligence, surveillance and reconnaissance programs.

Electronics first quarter 2007 operating margin increased 3 percent and reflects higher volume as well as lower amortization expense for purchased intangibles than in the prior year period. The decline in operating margin rate reflects the timing of favorable program performance adjustments. First quarter 2006 operating margin included favorable adjustments for improved program performance and contract closeouts.

Ships first quarter 2007 sales rose 2 percent from the prior year period and included higher aircraft carrier, LPD, Coast Guard Deepwater and submarine revenues. Sales increases for these programs were partially offset by lower volume in the DDG 51 and LHD programs due to a now-concluded labor strike at the company's Pascagoula, Mississippi shipyard, and lower volume on the DDG 1000 program as it transitions from development to detail design and production.

Ships first quarter 2007 operating margin increased 16 percent from the prior year period due to higher volume and improved performance on the LPD and Virginia-class Block II submarine programs, which was partially offset by the impact of the labor strike.

Earnings Per Share From Continuing Operations Increase 7 Percent to $1.10
Sales Increase 4 Percent to $7.3 Billion
Operating Margin Increases 13 Percent to $681 Million
Funded Contract Acquisitions Total $9 Billion
Cash From Operations Increases by $515 Million