10-QPeriod: Q1 FY2011

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2011

Filed April 27, 2011For Securities:NOC

Summary

Northrop Grumman Corporation reported a slight decrease in sales for the first quarter of 2011 compared to the prior year, reaching $6.73 billion from $6.91 billion. Despite the revenue dip, the company saw an increase in operating income to $811 million from $679 million, driven by performance improvements in its Electronic Systems, Information Systems, and Technical Services segments. Diluted earnings per share from continuing operations improved to $1.67 from $1.34. A significant event during the quarter was the completion of the spin-off of its Shipbuilding segment, Huntington Ingalls Industries, Inc. (HII), which is now reported as discontinued operations. This transaction resulted in the company receiving a $1.429 billion cash contribution. The company also reduced its participation in the NSTec joint venture, leading to a $1.745 billion reduction in contract backlog. The company's overall backlog stands at $43.7 billion as of March 31, 2011.

Financial Highlights

48 data points
Beta

Revenue

$6.73B

55.4% Gross Margin

Net Income

$530.00M

7.9% Net Margin

EPS (Diluted)

$1.79

Total Assets

$26.79B

Cash & Equivalents

$4.02B

Free Cash Flow

-$243.00M

Financial Statements
Beta
Revenue$6.73B
Cost of Revenue$3.00B
Gross Profit$3.73B
Operating Income$811.00M
Net Income$530.00M
EPS (Basic)$1.82
EPS (Diluted)$1.79
Shares Outstanding (Basic)291.80M
Shares Outstanding (Diluted)296.90M

Key Highlights

  • 1Sales for Q1 2011 decreased by 2.6% to $6.734 billion from $6.914 billion in Q1 2010.
  • 2Operating income increased by 19.6% to $811 million in Q1 2011, from $679 million in Q1 2010.
  • 3Diluted earnings per share from continuing operations rose to $1.67 in Q1 2011, from $1.34 in Q1 2010.
  • 4The company completed the spin-off of its Shipbuilding segment (Huntington Ingalls Industries, Inc.) in March 2011, reporting it as discontinued operations.
  • 5Received a $1.429 billion cash contribution in connection with the HII spin-off.
  • 6Total backlog decreased to $43.7 billion as of March 31, 2011, from $46.8 billion as of December 31, 2010, primarily due to reduced participation in the NSTec joint venture.
  • 7Net cash provided by continuing operations improved significantly to $112 million in Q1 2011, compared to cash used of $452 million in Q1 2010.

Frequently Asked Questions

The spin-off of HII, completed in March 2011, resulted in the Shipbuilding segment being reported as discontinued operations. The company received a cash contribution of $1.429 billion in connection with this transaction. This event also led to a reduction in the company's overall contract backlog and required adjustments to contractual obligations.

Sales for the first quarter of 2011 slightly decreased by 2.6% to $6.734 billion from $6.914 billion in the same period of 2010. However, operating income saw a significant increase of 19.6% to $811 million from $679 million, driven by improved performance across several key segments, particularly Electronic Systems, Information Systems, and Technical Services.

The company operates in a complex national security environment with ongoing U.S. federal budget deficits and national debt. While it believes the U.S. Government will continue to prioritize defense spending, there are ongoing discussions and potential for changes in priorities and budget allocations. Initiatives by the DoD to improve efficiency and potentially reduce spending create uncertainty, although Northrop Grumman expects continued investment in areas like surveillance, intelligence, and advanced systems. The company is also exposed to risks related to contract terminations and changes in government procurement regulations.

Net cash provided by continuing operations showed a substantial improvement, moving from a cash usage of $452 million in the first quarter of 2010 to a net cash provided of $112 million in the first quarter of 2011. This increase is primarily attributed to lower working capital requirements.