10-QPeriod: Q3 FY2006

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2006

Filed October 24, 2006For Securities:NOC

Summary

Northrop Grumman Corporation (NOC) reported its financial results for the nine months ended September 30, 2006. The company experienced a slight decrease in total sales and service revenues for the nine-month period compared to the prior year, primarily driven by lower sales in the Ships segment. However, operating margin as a percentage of revenue improved year-over-year for both the three and nine-month periods, indicating enhanced operational efficiency. Financially, the company generated $1.485 billion in net cash from operating activities for the nine months ended September 30, 2006, a decrease from the prior year. This was supported by significant capital expenditures and substantial common stock repurchases, funded through operating cash flow and debt. The company also highlighted its continued commitment to shareholder returns through dividend increases and ongoing share repurchase programs. The company is navigating several legal matters, including a significant settlement offer to the U.S. Department of Justice related to microelectronic parts, which resulted in a substantial pre-tax charge for the current quarter.

Key Highlights

  • 1Total sales and service revenues for the nine months ended September 30, 2006, were $22.127 billion, a slight decrease of 1% from $22.400 billion in the same period of 2005.
  • 2Operating margin for the nine months ended September 30, 2006, improved to 8.3% from 7.4% in the prior year's comparable period.
  • 3Net cash provided by operating activities for the nine months ended September 30, 2006, was $1.485 billion, down from $1.967 billion in the same period of 2005.
  • 4The company made significant common stock repurchases totaling $825 million in the nine months ended September 30, 2006.
  • 5A pre-tax charge of $112.5 million was recognized in the third quarter of 2006 for a settlement offer related to microelectronic parts produced by a former TRW Inc. sector.
  • 6Diluted earnings per share from continuing operations for the nine months ended September 30, 2006, increased to $3.15 from $2.90 in the prior year's comparable period.
  • 7The company established a new reportable segment, 'Technical Services', effective January 1, 2006, by consolidating various logistics and technical services programs.

Frequently Asked Questions

For the nine months ended September 30, 2006, Northrop Grumman's total sales and service revenues were $22.127 billion, representing a slight decrease of 1% from $22.400 billion in the same period of 2005. The decrease was primarily attributed to lower sales in the Ships segment.

The company generated $1.485 billion in net cash from operating activities for the nine months ended September 30, 2006. While this was a decrease from the prior year's $1.967 billion, it was sufficient to cover significant capital expenditures of $493 million and common stock repurchases totaling $825 million during the same period. The company expects operating cash flow and borrowings to be sufficient for its obligations.

Yes, Northrop Grumman recognized a pre-tax charge of $112.5 million in the third quarter of 2006 related to a settlement offer to the U.S. Department of Justice and a classified customer concerning microelectronic parts. The company also noted ongoing litigation and potential future liabilities, but believes, based on available information, that these will not materially adversely affect its financial position, except for the specified charge.

Northrop Grumman showed improved profitability, with its operating margin as a percentage of total sales and service revenues increasing to 8.3% for the nine months ended September 30, 2006, up from 7.4% in the comparable period of 2005. This improvement was driven by double-digit operating margin increases in several segments, including Technical Services, Mission Systems, and Integrated Systems.