NORTHROP GRUMMAN CORP /DE/ - 10-Q Quarterly Report

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 June 30, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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 July 26, 2004, 358,516,672 shares of common stock were outstanding.

NORTHROP GRUMMAN CORPORATION

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	I-1
	Consolidated Condensed Statements of Financial Position	I-1
	Consolidated Condensed Statements of Income	I-3
	Consolidated Condensed Statements of Changes in Shareholders’ Equity	I-4
	Consolidated Condensed Statements of Cash Flows	I-5
	Notes to Consolidated Condensed Financial Statements	I-7
	1. Basis of Presentation	I-7
	2. Stock Split and Common Stock Dividend	I-7
	3. New Accounting Standards	I-7
	4. Businesses Sold and Discontinued Operations	I-8
	5. Segment Information	I-10
	6. Earnings Per Share	I-10
	7. Goodwill and Other Purchased Intangible Assets	I-12
	8. Long-Term Debt	I-13
	9. Derivative Financial Instruments and Hedging Activities	I-14
	10. Retirement Benefits	I-14
	11. Litigation, Commitments, and Contingencies	I-15
	12. Stock-Based Compensation	I-17
	13. Comprehensive Income	I-18
	Report of Independent Registered Public Accounting Firm	I-19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview	I-20
	Consolidated Results	I-21
	Management Financial Measures	I-22
	Segment Operating Results	I-22
	Non-Segment Factors Affecting Operating Margin	I-29
	Other Significant Income Statement Components	I-30
	Backlog	I-30
	Liquidity and Capital Resources	I-31
	Critical Accounting Policies	I-32
	Financial Accounting Standards	I-32
	Forward-Looking Information	I-32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	I-33
Item 4.	Controls and Procedures	I-33

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	II-1
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	II-1
Item 3.	Defaults Upon Senior Securities	II-2
Item 4.	Submission of Matters to a Vote of Security Holders	II-2
Item 5.	Other Information	II-3
Item 6.	Exhibits and Reports on Form 8-K	II-3
	Signatures	II-4

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION

(Unaudited)


$ in millions		June 30, 2004		December 31, 2003
*Assets:*
Cash and cash equivalents	$	559	$	342
Accounts receivable, net of progress payments of $24,071 in 2004 and $21,400 in 2003		3,487		3,198
Inventoried costs, net of progress payments of $1,042 in 2004 and $1,003 in 2003		1,220		1,147
Deferred income taxes		825		770
Prepaid expenses and other current assets		220		167
Assets of businesses held for sale		65		121
Total current assets		6,376		5,745
Net property, plant, and equipment		4,033		4,036
Goodwill		17,209		17,333
Other purchased intangibles, net of accumulated amortization of $1,100 in 2004 and $987 in 2003		1,597		1,710
Prepaid retiree benefits cost and intangible pension asset		2,968		2,988
Other assets		1,144		1,197
Total other assets		22,918		23,228
Total assets	$	33,327	$	33,009

I-1


$ in millions		June 30, 2004			December 31, 2003
*Liabilities and Shareholders’ Equity:*
Notes payable to banks	$	12		$	10
Current portion of long-term debt		386			461
Trade accounts payable		1,544			1,491
Accrued employees’ compensation		991			995
Advances on contracts		1,424			1,285
Contract loss provisions		323			364
Income taxes payable		322			356
Other current liabilities		1,374			1,299
Liabilities of businesses held for sale		40			100
Total current liabilities		6,416			6,361
Long-term debt		5,366			5,410
Mandatorily redeemable preferred stock		350			350
Accrued retiree benefits		3,841			3,811
Deferred income taxes		534			509
Other long-term liabilities		796			770
Minority interest		12			13
Total liabilities		17,315			17,224
Paid-in capital
Common stock, 800,000,000 shares authorized; issued and outstanding: 2004 — 358,417,384; 2003 — 362,216,210		12,439			12,433
Retained earnings		3,624			3,431
Unearned compensation		(4	)		(6	)
Accumulated other comprehensive loss		(47	)		(73	)
Total shareholders’ equity		16,012			15,785
Total liabilities and shareholders’ equity	$	33,327		$	33,009

The accompanying notes are an integral part of these consolidated condensed financial statements.

I-2

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)


	Three months ended June 30						Six months ended June 30
$ in millions, except per share		2004			2003			2004			2003
Sales and Service Revenue
Product sales	$	5,121		$	4,637		$	10,050		$	8,684
Service revenue		2,253			1,990			4,429			3,809
Total revenue		7,374			6,627			14,479			12,493
Cost of Sales and Service
Cost of product sales		4,191			3,759			8,102			6,964
Cost of service revenue		2,091			1,926			4,162			3,684
Administrative and general expenses		609			551			1,298			1,126
Operating margin		483			391			917			719
Interest income		16			17			32			29
Interest expense		(112	)		(119	)		(225	)		(263	)
Other, net		3			11			13			28
Income from continuing operations before income taxes		390			300			737			513
Federal and foreign income taxes		101			93			220			132
Income from continuing operations		289			207			517			381
Income from discontinued operations, net of tax		6			2			7			82
(Loss) gain on disposal of discontinued operations, net of tax					(4	)		3			(5	)
Net income	$	295		$	205		$	527		$	458
Basic Earnings Per Share
Continuing operations	$	.80		$	.55		$	1.43		$	1.01
Discontinued operations		.02			.01			.02			.22
Disposal of discontinued operations					(.01	)		.01			(.01	)
Basic earnings per share	$	.82		$	.55		$	1.46		$	1.22
Diluted Earnings Per Share
Continuing operations	$	.79		$	.55		$	1.42		$	1.00
Discontinued operations		.02						.02			.22
Disposal of discontinued operations					(.01	)		.01			(.01	)
Diluted earnings per share	$	.81		$	.54		$	1.45		$	1.21

The accompanying notes are an integral part of these consolidated condensed financial statements.

I-3

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


	Six months ended June 30
$ in millions, except per share		2004			2003
Paid-in Capital
At beginning of period	$	12,433		$	12,511
Common stock repurchased		(295	)
Stock split		179
Employee stock awards and options, net of tax		122			34
At end of period		12,439			12,545
Retained Earnings
At beginning of period		3,431			2,870
Net income		527			458

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