Northrop Grumman Reports Sales of $5.9B in Q2

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Northrop Grumman Corporation reported second quarter 2015 net earnings increased 4 percent to $531 million, or $2.74 per diluted share, from $511 million, or $2.37 per diluted share in the second quarter of 2014. This quarter's results include a $38 million, or $0.20 per share, net tax benefit for additional research credits. Second quarter 2015 diluted earnings per share are based on 193.7 million weighted average shares outstanding compared with 215.2 million shares in the prior year period. The company repurchased 6.8 million shares of its common stock for $1.1 billion in the second quarter of 2015. As of June 30, 2015, the company had repurchased 54.3 million shares toward its previously announced goal of retiring 60 million shares of its common stock by the end of 2015, market conditions permitting.

"Our team continues to create value through strong operational performance and effective cash deployment. Going forward we will continue to focus on portfolio, performance and cash deployment as value creation drivers for our shareholders, customers and employees. Our portfolio affords us a unique and robust opportunity set, and we are optimistic about our future," said Wes Bush, chairman, chief executive officer and president.

Second quarter 2015 segment operating income was unchanged from the prior year, and segment operating margin rate increased 30 basis points to 12.6 percent. Operating income declined 1 percent and operating margin rate increased 20 basis points to 13.8 percent.

Total backlog as of June 30, 2015, was $37.0 billion compared with $38.2 billion as of December 31, 2014. Second quarter 2015 new awards totaled $4.6 billion, and new awards for the first six months totaled $10.7 billion.

Second quarter 2015 cash provided by operating activities before after-tax discretionary pension contributions increased to $626 million from $572 million in the prior year period.

Changes in cash and cash equivalents include the following for cash from operating, investing and financing activities through June 30, 2015:

Operating

• $28 million used in operations after $500 million discretionary pension contribution

Investing

• $232 million used for capital expenditures

Financing

• $1.9 billion used for repurchase of common stock
• $600 million net proceeds from issuance of long-term debt
• $309 million used for dividends

2015 Guidance

The company's 2015 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2013 and the Consolidated and Further Appropriations Act of 2015. 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 2015 also assumes adequate appropriations and funding for the company's programs in the first quarter of the U.S. government's fiscal year 2016.

Updated 2015 financial guidance incorporates the impact of the company's $500 million discretionary pension contribution in the first quarter of 2015. In addition, the company now expects an effective tax rate of approximately 32 percent for 2015. Guidance for 2015 operating margin rate, effective tax rate and cash metrics incorporates year-to-date results, as well as the effects of an anticipated change in tax methods that is expected to improve the company's cash from operations while increasing its unallocated corporate expense and effective tax rate in the second half of 2015.

Second quarter 2015 operating income decreased 1 percent and includes a $29 million decrease in net FAS/CAS pension adjustment and a $22 million decrease in unallocated corporate expenses. The decrease in unallocated corporate expenses is principally due to a reduction in reserves for overhead costs.

For the second quarter of 2015, federal and foreign income tax expense declined to $205 million from $245 million in 2014, and the company's effective tax rate decreased to 27.9 percent from 32.4 percent in 2014. This quarter's lower effective tax rate reflects a $38 million net benefit for additional research credits claimed on prior year returns.

About Northrop Grumman

Northrop Grumman will webcast its earnings conference call at noon Eastern time on July 29, 2015. A live audio broadcast of the conference call will be available on the investor relations page of the company's website at www.northropgrumman.com.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide. Please visit www.northropgrumman.com for more information.