UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2004
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File Number 1-16411 |
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
| DELAWARE | 95-4840775 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
1840 Century Park East, Los Angeles, California 90067
www.northropgrumman.com
(Address of principal executive offices and internet site)
(310) 553-6262
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 30, 2004, 179,755,386 shares of common stock were outstanding.
NORTHROP GRUMMAN CORPORATION AND SUBSIDIARIES
| Page | ||||
| Item 1. |
Financial Statements (Unaudited) | I-1 | ||
| I-1 | ||||
| I-3 | ||||
| Consolidated Condensed Statements of Changes in Shareholders’ Equity |
I-4 | |||
| I-5 | ||||
| Notes to Consolidated Condensed Financial Statements | ||||
| I-7 | ||||
| I-7 | ||||
| I-8 | ||||
| I-9 | ||||
| I-10 | ||||
| I-11 | ||||
| I-12 | ||||
| I-13 | ||||
| I-14 | ||||
| I-16 | ||||
| Item 2. |
Management’s Discussion and Analysis of the Company’s Financial Condition and Results of Operations | |||
| I-17 | ||||
| I-18 | ||||
| I-18 | ||||
| I-23 | ||||
| I-24 | ||||
| I-24 | ||||
| I-25 | ||||
| I-26 | ||||
| I-26 | ||||
| I-26 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risks | I-27 | ||
| Item 4. |
Controls and Procedures | I-27 | ||
| Independent Accountants’ Report | I-28 | |||
| Item 1. |
Legal Proceedings | II-1 | ||
| Item 2. |
Changes in Securities and Use of Proceeds | II-1 | ||
| Item 3. |
Defaults Upon Senior Securities | II-1 | ||
| Item 4. |
Submissions of Matters to a Vote of Security Holders | II-2 | ||
| Item 5. |
Other Information | II-2 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | II-2 | ||
NORTHROP GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
| $ in millions | (Unaudited) March 31, |
December 31, 2003 | ||||
| Assets: |
||||||
| Cash and cash equivalents |
$ | 457 | $ | 342 | ||
| Accounts receivable, net of progress payments of $22,637 in 2004 and $21,400 in 2003 |
3,426 | 3,198 | ||||
| Inventoried costs, net of progress payments of $954 in 2004 |
1,319 | 1,147 | ||||
| Deferred income taxes |
785 | 770 | ||||
| Prepaid expenses and other current assets |
180 | 167 | ||||
| Assets of businesses held for sale |
62 | 121 | ||||
| Total current assets |
6,229 | 5,745 | ||||
| Net property, plant, and equipment |
4,019 | 4,036 | ||||
| Goodwill |
17,331 | 17,333 | ||||
| Other purchased intangibles, net of accumulated amortization of $1,043 in 2004 and $987 in 2003 |
1,654 | 1,710 | ||||
| Prepaid retiree benefits cost and intangible pension asset |
2,984 | 2,988 | ||||
| Other assets |
1,127 | 1,197 | ||||
| Total other assets |
23,096 | 23,228 | ||||
| Total assets |
$ | 33,344 | $ | 33,009 | ||
I-1
NORTHROP GRUMMAN CORPORATION AND SUBSIDIARIES
| $ in millions | (Unaudited) March 31, |
December 31, 2003 |
||||||
| Liabilities and Shareholders’ Equity: |
||||||||
| Notes payable to banks |
$ | 113 | $ | 10 | ||||
| Current portion of long-term debt |
477 | 461 | ||||||
| Trade accounts payable |
1,370 | 1,491 | ||||||
| Accrued employees’ compensation |
983 | 995 | ||||||
| Advances on contracts |
1,328 | 1,285 | ||||||
| Contract loss provisions |
331 | 364 | ||||||
| Income taxes payable |
566 | 356 | ||||||
| Other current liabilities |
1,384 | 1,299 | ||||||
| Liabilities of businesses held for sale |
44 | 100 | ||||||
| Total current liabilities |
6,596 | 6,361 | ||||||
| Long-term debt |
5,372 | 5,410 | ||||||
| Mandatorily redeemable preferred stock |
350 | 350 | ||||||
| Accrued retiree benefits |
3,851 | 3,811 | ||||||
| Deferred income taxes |
520 | 509 | ||||||
| Other long-term liabilities |
779 | 770 | ||||||
| Minority interest |
13 | 13 | ||||||
| Total liabilities |
17,481 | 17,224 | ||||||
| Paid-in capital |
||||||||
| Common stock, 800,000,000 shares authorized; issued and |
||||||||
| outstanding: 2004 — 180,257,266; 2003 — 181,108,105 |
12,322 | 12,433 | ||||||
| Retained earnings |
3,591 | 3,431 | ||||||
| Unearned compensation |
(5 | ) | (6 | ) | ||||
| Accumulated other comprehensive loss |
(45 | ) | (73 | ) | ||||
| Total shareholders’ equity |
15,863 | 15,785 | ||||||
| Total liabilities and shareholders’ equity |
$ | 33,344 | $ | 33,009 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
I-2
NORTHROP GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
| Three months ended March 31 |
||||||||
| $ in millions, except per share | 2004 | 2003 | ||||||
| Sales and Service Revenue |
||||||||
| Product sales |
$ | 4,929 | $ | 4,047 | ||||
| Service revenue |
2,176 | 1,819 | ||||||
| Total revenue |
7,105 | 5,866 | ||||||
| Cost of Sales and Service |
||||||||
| Cost of product sales |
3,971 | 3,205 | ||||||
| Cost of service revenue |
2,071 | 1,758 | ||||||
| Administrative and general expenses |
629 | 575 | ||||||
| Operating margin |
434 | 328 | ||||||
| Interest income |
16 | 12 | ||||||
| Interest expense |
(113 | ) | (144 | ) | ||||
| Other, net |
10 | 17 | ||||||
| Income from continuing operations before income taxes |
347 | 213 | ||||||
| Federal and foreign income taxes |
119 | 39 | ||||||
| Income from continuing operations |
228 | 174 | ||||||
| Income from discontinued operations, net of tax |
1 | 80 | ||||||
| Gain (loss) on disposal of discontinued operations, net of tax |
3 | (1 | ) | |||||
| Net income |
$ | 232 | $ | 253 | ||||
| Basic Earnings Per Share |
||||||||
| Continuing operations |
$ | 1.26 | $ | .92 | ||||
| Discontinued operations |
.01 | .43 | ||||||
| Disposal of discontinued operations |
.02 | |||||||
| Basic earnings per share |
$ | 1.29 | $ | 1.35 | ||||
| Diluted Earnings Per Share |
||||||||
| Continuing operations |
$ | 1.25 | $ | .91 | ||||
| Discontinued operations |
.43 | |||||||
| Disposal of discontinued operations |
.02 | |||||||
| Diluted earnings per share |
$ | 1.27 | $ | 1.34 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
I-3
NORTHROP GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| Three months ended March 31 |
||||||||
| $ in millions | 2004 | 2003 | ||||||
| Paid-in Capital |
||||||||
| At beginning of period |
$ | 12,433 | $ | 12,511 | ||||
| Common stock repurchased |
(175 | ) | ||||||
| Employee stock awards and options |
64 | 11 | ||||||
| At end of period |
12,322 | 12,522 | ||||||
| Retained Earnings |
||||||||
| At beginning of period |
3,431 | 2,870 | ||||||
| Net income |
232 | 253 | ||||||
| Cash dividends |
(72 | ) | (79 | ) | ||||
| At end of period |
3,591 | 3,044 | ||||||
| Unearned Compensation |
||||||||
| At beginning of period |
(6 | ) | (11 | ) | ||||
| Amortization of unearned compensation |
1 | 1 | ||||||
| At end of period |
(5 | ) | (10 | ) | ||||
| Accumulated Other Comprehensive Loss |
||||||||
| At beginning of period |
(73 | ) | (1,048 | ) | ||||
| Change in cumulative translation adjustment |
4 | 9 | ||||||
| Change in unrealized gain on marketable securities, net of tax |
24 | |||||||
| At end of period |
(45 | ) | (1,039 | ) | ||||
| Total shareholders’ equity |
$ | 15,863 | $ | 14,517 | ||||
| Cash dividends per share |
$ | .40 | $ | .40 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
I-4
NORTHROP GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31 |
||||||||
| $ in millions | 2004 | 2003 | ||||||
| Operating Activities |
||||||||
| Sources of Cash — Continuing Operations |
||||||||
| Cash Received from Customers |
||||||||
| Progress payments |
$ | 1,936 | $ | 1,593 | ||||
| Other collections |
4,929 | 4,188 | ||||||
| Income tax refunds received |
104 | 8 | ||||||
| Interest received |
2 | 12 | ||||||
| Other cash receipts |
14 | 14 | ||||||
| Cash provided by continuing operations |
6,985 | 5,815 | ||||||
| Uses of Cash — Continuing Operations |
||||||||
| Cash paid to suppliers and employees |
6,543 | 5,705 | ||||||
| Interest paid |
136 | 219 | ||||||
| Income taxes paid |
19 | 1,038 | ||||||
| Other cash payments |
5 | 9 | ||||||
| Cash used in continuing operations |
6,703 | 6,971 | ||||||
| Cash provided by (used in) continuing operations |
282 | (1,156 | ) | |||||
| Cash (used in) provided by discontinued operations |
(19 | ) | 44 | |||||
| Net cash provided by (used in) operating activities |
263 | (1,112 | ) | |||||
| Investing Activities |
||||||||
| Proceeds from sale of businesses, net of cash divested |
60 | 3,305 | ||||||
| Payment for businesses purchased, net of cash acquired |
(23 | ) | ||||||
| Additions to property, plant, and equipment |
(131 | ) | (89 | ) | ||||
| Proceeds from sale of investment |
23 | &n | ||||||