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Northrop Grumman Posts Fourth Quarter and 2013 Financial Results

February 4, 2014

Northrop Grumman Corp. reported fourth quarter 2013 net earnings of $478 million , or $2.12 per diluted share, compared to $533 million , or $2.14 per diluted share, in the fourth quarter of 2012. In a release on January 30 , the company noted earnings details: Fourth quarter 2013 diluted earnings per share are based on 225.2 million weighted average shares outstanding compared with 248.9 million shares in the fourth quarter of 2012, a decrease of approximately 10 percent. The company repurchased 6.6 million shares of its common stock in the fourth quarter of 2013 for $699 million . For 2013, net earnings totaled $2.0 billion , comparable to 2012 net earnings. Diluted earnings per share for 2013 increased 7 percent to $8.35 from $7.81 in 2012. Diluted earnings per share for 2013 are based on 233.9 million weighted average shares outstanding compared with 253.4 million shares in 2012. During 2013, the company repurchased 27.3 million shares of its common stock for $2.4 billion . As of Dec. 31, 2013 , $3.1 billion remained on the company's current share repurchase authorization. The company has repurchased 20.8 million shares toward its previously announced goal of retiring 60 million shares of its outstanding common stock by the end of 2015, market conditions permitting. "Our team continues to deliver outstanding results. Although we are encouraged by progress toward a more normal budgeting process for our customers, we expect lower sales in 2014, particularly for our short cycle businesses. Despite this top line pressure, we expect other positive trends, particularly the benefit of our planned share repurchases, to support continued earnings per share growth in 2014. Our strategy remains the same. We are focused on superior program performance, effective cash deployment and portfolio alignment as the primary value creation drivers for our shareholders, customers and employees," said Wes Bush , chairman, CEO and president. Fourth quarter 2013 total operating income decreased $56 million or 7 percent, and operating margin rate decreased 20 basis points to 12.5 percent. Lower operating income includes a $103 million decrease in segment operating income that was partially offset by a $33 million decrease in unallocated corporate expense and a $12 million improvement in net FAS/CAS pension adjustment. Fourth quarter 2013 segment operating income decreased 12 percent and segment operating margin rate decreased to 12.5 percent. The change in segment operating income is due to lower sales and operating margin rate at Aerospace Systems, and lower sales at Information Systems. For 2013, operating income was $3.1 billion , comparable to the prior year period. Operating margin rate increased 30 basis points to 12.7 percent. Operating income for 2013 reflects a 3 percent decline in segment operating income, principally due to lower sales, partially offset by a $49 million reduction in unallocated corporate expenses and a $36 million improvement in net FAS/CAS pension adjustment. Total backlog as of Dec. 31, 2013 , was $37.0 billion compared with $40.8 billion as of Dec. 31, 2012 . The decline in backlog was primarily due to reductions and delays in customer awards resulting from the current U.S. government budget environment as well as Information Systems backlog adjustments of $1.0 billion in the first half of the year, primarily to reduce unfunded backlog for expired periods of performance on active contracts. Fourth quarter 2013 new awards totaled $5.7 billion , and book-to-bill was 92 percent. For 2013, new awards totaled $21.9 billion , and book-to-bill was 89 percent. Fourth quarter 2013 cash provided by operating activities totaled $1.2 billion compared with $1.1 billion in the prior year period. Fourth quarter 2013 free cash flow provided by operating activities totaled $1.0 billion compared with $922 million in the prior year period. For 2013, cash provided by operating activities totaled $2.5 billion compared with $2.6 billion in 2012. Before discretionary pension contributions, 2013 cash from operations totaled $2.8 billion and 2013 free cash flow totaled $2.4 billion . Changes in cash and cash equivalents include the following items for cash from operations, investing and financing through Dec. 31, 2013 : Operations - $2.5 billion provided by operations Investing - $364 million for capital expenditures Financing - $2.4 billion for repurchases of common stock - $2.8 billion net proceeds from issuance of long-term debt - $877 million for redemption of long-term debt - $545 million for dividends 2014 Guidance The company's 2014 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2013 and the Consolidated Appropriations Act of 2014. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations resulting from a federal government debt ceiling breach. Guidance for 2014 also assumes adequate appropriations for our programs in the first quarter of the U.S. government's fiscal year 2015. For 2013, federal and foreign income tax expense totaled $911 million , compared with $987 million in 2012. The effective tax rate in 2013 declined to 31.8 percent from 33.3 percent in the prior year period. The lower effective tax rate for 2013 is principally due to a $37 million benefit for the American Taxpayer Relief Act, which reinstated research tax credits for years 2012 and 2013, and a $21 million increase in Section 199 manufacturing deductions. Aerospace Systems fourth quarter 2013 sales decreased 7 percent due to lower volume for unmanned and space programs. Unmanned volume was lower for several programs, primarily Global Hawk. The decrease in space primarily reflects lower volume for restricted programs, partially offset by higher volume for the James Webb Space Telescope. For 2013, Aerospace Systems sales were slightly higher than the prior year due to higher volume for manned military aircraft programs, offset by lower volume for unmanned and space programs. Higher volume for the F-35, B-2 and E-2D programs contributed to the increase in manned military aircraft sales. The decline in unmanned is primarily due to lower volume for Global Hawk, partially offset by higher volume for NATO AGS. The decline in space programs includes lower volume for restricted work and higher volume for the James Webb Space Telescope and the Advanced EHF program. Aerospace Systems fourth quarter 2013 operating income decreased 22 percent and operating margin rate decreased 230 basis points to 11.5 percent. Lower operating income and operating margin rate reflect lower sales as well as a $101 million decrease in net favorable adjustments. For 2013, operating income was comparable to the prior year period and operating margin rate declined slightly to 12.1 percent. Electronic Systems fourth quarter 2013 sales increased 6 percent from the prior year period due to higher volume for space, international and combat avionics programs, which was partially offset by lower volume for navigation and maritime systems programs. For 2013, sales increased 3 percent principally due to higher sales for international and space programs. Higher volume for these programs was partially offset by lower volume for navigation and maritime systems programs and lower volume for laser systems programs due to in-theater force reductions. Electronic Systems fourth quarter 2013 operating income increased 2 percent, and operating margin rate decreased 70 basis points to 17.8 percent. Electronic Systems fourth quarter 2013 operating income reflects higher sales, partially offset by lower net favorable adjustments than in the prior year period. For 2013, operating income increased 3 percent, consistent with higher sales, and operating margin rate of 17.1 percent was unchanged from the prior year. Information Systems fourth quarter 2013 sales declined 14 percent due to lower funding levels, including impacts from sequestration and the government shutdown, lower volume for programs impacted by in-theater force reductions, contract completions, and the transfer of intercompany efforts to the company's shared services organization. For 2013, sales declined 10 percent. The transfer of intercompany efforts to the company's shared services organization accounted for $98 million of the decline. Excluding the transfer, 2013 sales declined 9 percent due to lower funding levels, including the impacts of sequestration, lower volume for programs impacted by in- theater force reductions, and contract completions. Information Systems fourth quarter 2013 operating income decreased 14 percent and operating margin rate increased 10 basis points to 9.9 percent. Fourth quarter 2013 operating income reflects lower sales, and the higher operating margin rate reflects improved performance. For 2013, operating income declined 17 percent, reflecting lower sales and a $73 million reduction in net favorable adjustments. Technical Services fourth quarter and 2013 sales both declined by 6 percent. The decline in both periods was due to lower volume for integrated logistics and modernization programs and lower volume for the ICBM program. Technical Services fourth quarter and 2013 operating income both declined by 2 percent, principally due to lower sales, partially offset by improved performance. Fourth quarter operating margin rate increased 40 basis points to 8.8 percent, and 2013 operating margin rate increased 30 basis points to 9.2 percent. The increase in operating margin rate is primarily due to improved performance across several programs. Northrop Grumman is a global security company providing systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide. More Information: northropgrumman.com ((Comments on this story may be sent to newsdesk@closeupmedia.com ))


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