Northrop Grumman Reports Third Quarter 2010 Financial Results

- Q3 EPS from Continuing Operations Increase 13 Percent to $1.64

- Sales Increase 4 Percent to $8.7 Billion

- Cash from Operations Totals $978 Million; Free Cash Flow Totals $817 Million

- Approximately 3 Million Shares Repurchased

- 2010 Guidance for EPS from Continuing Operations Increased to $6.85 - $7.00

- Conference Call Scheduled for 10:30 a.m. ET at www.northropgrumman.com

News provided by

Northrop Grumman Corporation

Oct 27, 2010, 08:00 ET

LOS ANGELES, Oct. 27 /PRNewswire-FirstCall/ -- Northrop Grumman Corporation (NYSE: NOC) reported that third quarter 2010 earnings from continuing operations increased to $489 million, or $1.64 per diluted share, from $464 million, or $1.45 per diluted share, in the third quarter of 2009. Net earnings for the 2010 third quarter increased to $497 million, or $1.67 per diluted share, from $490 million, or $1.53 per diluted share, in the prior year period. The 2009 third quarter included a net tax benefit of $75 million, or $0.23 per diluted share. Third quarter 2010 sales increased 4 percent to $8.7 billion from $8.35 billion.

Cash provided by operations totaled $978 million in the third quarter of 2010 compared with $544 million in the third quarter of 2009. New business awards for the 2010 third quarter totaled $7.4 billion, bringing total backlog to $64.6 billion as of Sept. 30, 2010.

"This was a strong quarter for Northrop Grumman. Third quarter results demonstrate that our focus on sustainable performance improvement continues to gain traction across the corporation. All our businesses performed well, and based on year-to-date results, we are raising our 2010 EPS guidance to $6.85 to $7.00 per share. We are also confirming our guidance for cash from operations and free cash flow. Looking ahead, we continue to position the company to generate value for shareholders, customers and employees," said Wes Bush, chief executive officer and president.

Table 1 - Financial Highlights

	Third Quarter		Nine Months
($ in millions, except per share amounts)	2010	2009	2010	2009
Sales	$ 8,714	$ 8,350	$ 26,150	$ 24,830
Operating income	801	619	2,282	1,852
as % of sales	9.2%	7.4%	8.7%	7.5%
Earnings from continuing operations	$ 489	$ 464	$ 1,662	$ 1,198
Diluted EPS from continuing operations	1.64	1.45	5.49	3.67
Net earnings	497	490	1,677	1,273
Diluted EPS	1.67	1.53	5.54	3.90
Cash provided by operations	978	544	1,066	1,202
Free cash flow¹	817	384	663	708

Pension-adjusted Operating Highlights
Operating income	$ 801	$ 619	$ 2,282	$ 1,852
Net pension adjustment¹	8	72	24	224
Pension-adjusted operating income¹	809	691	2,306	2,076
as % of sales¹	9.3%	8.3%	8.8%	8.4%

Pension-adjusted Per Share Data
Diluted EPS from continuing operations	$ 1.64	$ 1.45	$ 5.49	$ 3.67
After-tax net pension adjustment per share¹	0.02	0.14	0.06	0.45
Pension-adjusted diluted EPS from continuing operations¹	1.66	1.59	5.55	4.12

Weighted average shares outstanding - Basic	293.5	317.1	298.6	322.0
Dilutive effect of stock options and stock awards	4.1	3.5	3.9	4.1
Weighted average shares outstanding - Diluted	297.6	320.6	302.5	326.1

¹ Non-GAAP metric - see definitions and reconciliations at the end of this press release.

Third quarter 2010 operating income increased 29 percent to $801 million from $619 million in the prior year period, and as a percent of sales increased 180 basis points to 9.2 percent from 7.4 percent. The improvement principally reflects higher segment operating income and lower net pension adjustment. Third quarter 2010 segment operating income increased $107 million, or 14 percent, driven by double-digit increases in operating income for four of five businesses. As a percent of sales, third quarter 2010 segment operating income improved 80 basis points to 9.8 percent from 9 percent. Net pension adjustment improved to an expense of $8 million from an expense of $72 million in the prior year period. Unallocated corporate expenses totaled $46 million in the 2010 third quarter and $55 million in the 2009 third quarter.

Federal and foreign income taxes increased to $257 million from $120 million in the third quarter of 2009. Third quarter 2009 earnings included a net tax benefit of $75 million, primarily for final settlement of the Internal Revenue Service's examination of the company's 2001, 2002 and 2003 tax returns. The effective tax rate for the 2010 third quarter was 34.5 percent compared with 20.5 percent in the 2009 third quarter.

Third quarter 2010 diluted earnings per share are based on 297.6 million weighted average shares outstanding compared with 320.6 million shares in the third quarter of 2009.

Table 2 - Cash Flow Highlights

	Third Quarter			Nine Months
($ millions)	2010	2009	Change	2010	2009	Change
Cash provided by operations before
discretionary pension contributions¹	$ 1,013	$ 1,021	$ (8)	$ 1,407	$ 1,805	$ (398)
Discretionary pension pre-funding impact, net of tax	(35)	(477)	442	(341)	(603)	262
Cash provided by operations	978	544	434	1,066	1,202	(136)
Less:
Capital expenditures	(160)	(139)	(21)	(398)	(436)	38
Outsourcing contract & related software costs	(1)	(21)	20	(5)	(58)	53
Free cash flow¹	$ 817	$ 384	$ 433	$ 663	$ 708	$ (45)

¹ Non-GAAP metric - see definitions and reconciliations at the end of this press release

Free cash flow totaled $817 million in the 2010 third quarter compared with $384 million in the prior year period. The improvement in 2010 third quarter free cash flow reflects lower pension pre-funding and improved working capital. Third quarter 2010 cash from operations included a $60 million discretionary contribution to the company's pension plans. Third quarter 2009 cash from operations included discretionary pension contributions of $586 million and $47 million from discontinued operations, principally for the Advisory Services business (TASC), which was divested in December of 2009.

Table 3 – 2010 Guidance Updated

($ in millions, except per share amounts)	Prior			Current

Sales	~$34,800			~$34,900

Segment operating margin %¹	Low 9%			Low to mid 9%

Operating margin %	Mid 8%			Mid 8%

Diluted EPS from continuing operations	$ 6.60	-	$ 6.80	$ 6.85	-	$ 7.00

Cash provided by operations before
discretionary pension contributions¹	2,300	-	2,800	2,300	-	2,800

Free cash flow before
discretionary pension contributions¹	1,500	-	2,000	1,500	-	2,000

¹ Non-GAAP metric - see definitions and reconciliations at the end of this press release.

Table 4 - Cash Measurements, Debt and Capital Deployment

($ millions)	9/30/2010	12/31/2009
Cash & cash equivalents	$ 2,528	$ 3,275
Total debt	4,209	4,294
Net debt¹	1,681	1,019
Net debt to total capital ratio²	10%	6%

¹ Total debt less cash and cash equivalents. ² Net debt divided by the sum of shareholders' equity and total debt.

Changes in cash and cash equivalents include the following items for cash from operations, investing and financing through Sept. 30, 2010:

Operations

$390 million discretionary pension contributions
$1.1 billion provided by operations after discretionary pension contributions above

Investing

$398 million for capital expenditures and $5 million for outsourcing contract and related software costs

Financing

$1.1 billion for repurchase of approximately 17.8 million shares of common stock
$112 million proceeds from exercises of stock options and issuance of common stock
$91 million principal payments of long term debt
$408 million for dividends

Table 5 - Business Results

Consolidated Sales & Segment Operating Income¹
	Third Quarter			Nine Months
($ millions)	2010	2009	Change	2010	2009	Change
Sales
Aerospace Systems	$ 2,706	$ 2,527	7%	$ 8,244	$ 7,656	8%
Electronic Systems	1,874	1,839	2%	5,740	5,594	3%
Information Systems	2,123	2,118	0%	6,310	6,362	(1%)
Shipbuilding	1,670	1,650	1%	4,989	4,549	10%
Technical Services	871	692	26%	2,435	2,026	20%
Intersegment eliminations	(530)	(476)		(1,568)	(1,357)
	$ 8,714	$ 8,350	4%	$ 26,150	$ 24,830	5%
Segment operating income ¹
Aerospace Systems	$ 303	$ 265	14%	$ 934	$ 780	20%
Electronic Systems	261	215	21%	751	695	8%
Information Systems	190	168	13%	578	517	12%
Shipbuilding	101	113	(11%)	191	211	(9%)
Technical Services	56	41	37%	157	121	30%
Intersegment eliminations	(54)	(52)		(172)	(139)
Segment operating income¹	$ 857	$ 750	14%	$ 2,439	$ 2,185	12%
as a % of sales¹	9.8%	9.0%	80 bps	9.3%	8.8%	50 bps

Reconciliation to operating income
Unallocated corporate expenses	$ (46)	$ (55)	16%	$ (125)	$ (87)	(44%)
Net pension adjustment¹	(8)	(72)	89%	(24)	(224)	89%
Reversal of royalty income included above	(2)	(4)	50%	(8)	(22)	64%
Operating income	801	619	29%	2,282	1,852	23%
as a % of sales	9.2%	7.4%	180 bps	8.7%	7.5%	120 bps

Net interest expense	(68)	(76)	11%	(216)	(219)	1%
Other, net	13	41	(68%)	10	62	(84%)

Earnings from continuing operations before income taxes	746	584	28%	2,076	1,695	22%
Federal and foreign income taxes	(257)	(120)	(114%)	(414)	(497)	17%

Earnings from continuing operations	489	464	5%	1,662	1,198	39%
Earnings from discontinued operations	8	26	(69%)	15	75	(80%)

Net earnings	$ 497	$ 490	1%	$ 1,677	$ 1,273	32%

¹ Non-GAAP metric - see definitions and reconciliations at the end of this press release.

Results for TASC, divested in December 2009, are reported as discontinued operations for all periods presented.

Aerospace Systems ($ millions)

Third Quarter

Nine Months

2010

2009

% Change

2010

2009

% Change

Sales

$ 2,706

$ 2,527

7.1%

$ 8,244

$ 7,656

7.7%

Operating income

303

265

14.3%

934

780

19.7%

as % of sales

11.2%

10.5%

11.3%

10.2%

Aerospace Systems third quarter 2010 sales increased 7 percent, principally due to higher volume for manned and unmanned aircraft programs. Higher volume for these programs was partially offset by lower volume for civil space and missile defense programs. Aerospace Systems third quarter 2010 operating income increased 14 percent, and as a percent of sales increased to 11.2 percent from 10.5 percent in the prior year period. Higher operating income and margin rate are due to higher volume and improved program performance primarily in manned aircraft programs.

Electronic Systems ($ millions)

Third Quarter

Nine Months

2010

2009

% Change

2010

2009

% Change

Sales

$ 1,874

$ 1,839

1.9%

$ 5,740

$ 5,594

2.6%

Operating income

261

215

21.4%

751

695

8.1%

as a % of sales

13.9%

11.7%

13.1%

12.4%

Electronic Systems third quarter 2010 sales increased 2 percent due to higher sales of targeting and postal automation systems, partially offset by lower sales of land and self protection systems. Electronic Systems third quarter 2010 operating income increased 21 percent, and as a percent of sales increased to 13.9 percent from 11.7 percent. Higher operating income and margin rate are primarily due to improved program performance for postal automation and land and self protection systems programs.

Information Systems ($ millions)

Third Quarter

Nine Months

2010

2009

% Change

2010

2009

% Change

Sales

$ 2,123

$ 2,118

0.2%

$ 6,310

$ 6,362

(0.8%)

Operating income

190

168

13.1%

578

517

11.8%

as a % of sales

8.9%

7.9%

9.2%

8.1%

Information Systems third quarter 2010 sales were comparable to the prior year period. Sales in the period included higher volume for defense systems, which was largely offset by lower sales for intelligence and civil systems programs. Third quarter 2010 operating income increased 13 percent and as a percent of sales totaled 8.9 percent compared with 7.9 percent in the prior year period. Higher operating income and rate primarily reflect improved program performance for civil systems.

Shipbuilding ($ millions)

Third Quarter

Nine Months

2010

2009

% Change

2010

2009

% Change

Sales

$ 1,670

$ 1,650

1.2%

$ 4,989

$ 4,549

9.7%

Operating income

101

113

(10.6%)

191

211

(9.5%)

as % of sales

6.0%

6.8%

3.8%

4.6%

Shipbuilding third quarter 2010 sales increased 1 percent. Third quarter 2010 operating income declined 11 percent, and as a percent of sales totaled 6 percent compared with 6.8 percent in the third quarter of 2009. The declines in operating income and rate are primarily due to lower performance for expeditionary warfare programs, partially offset by milestone incentives on the LPD program.

Technical Services ($ millions)

Third Quarter

Nine Months

2010

2009

% Change

2010

2009

% Change

Sales

$ 871

$ 692

25.9%

$ 2,435

$ 2,026

20.2%

Operating income

36.6%

157

121

29.8%

as a % of Sales

6.4%

5.9%

6.4%

6.0%

Technical Services third quarter 2010 sales increased 26 percent primarily due to higher volume for integrated logistics and modernization programs. Technical Services third quarter 2010 operating income increased 37 percent, and as a percent of sales increased to 6.4 percent from 5.9 percent. The improvements in operating income and rate are due to higher volume, improved business mix and improved performance.

About Northrop Grumman

Northrop Grumman will webcast its earnings conference call at 10:30 a.m. ET on Oct. 27, 2010. A live audio broadcast of the conference call along with a supplemental presentation will be available on the investor relations page of the company's Website at http://www.northropgrumman.com.

Northrop Grumman Corporation is a leading global security company whose 120,000 employees provide innovative systems, products, and solutions in aerospace, electronics, information systems, shipbuilding and technical services to government and commercial customers worldwide. Please visit www.northropgrumman.com for more information.

Statements in this release and the attachments, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "expect," "intend," "plan," "project," "forecast," "believe," "estimate," "outlook," "guidance," and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, financial guidance regarding future sales, segment operating income, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow and earnings. These statements are not guarantees of future performance and involve certain risks and uncertainties. Actual results could differ materially due to factors such as: the effect of the government's newly announced plans to change its current procurement practices; timing and execution of Shipbuilding's Gulf Coast consolidation; execution of any strategic alternative for the Shipbuilding business; the effects of changes to capital structure; the effect of economic conditions in the United States and globally; access to capital; future sales and cash flows; timing of cash receipts; effective tax rates and timing and amounts of tax payments; returns on pension plan assets, interest and discount rates and other changes that may impact pension plan assumptions; retiree medical expense; the outcome of litigation, claims, audits, appeals, bid protests and investigations; hurricane and earthquake-related insurance coverage and recoveries; costs of environmental remediation; our relationships with labor unions; availability and retention of qualified personnel; costs of capital investments; changes in organizational structure and reporting segments; risks associated with acquisitions, dispositions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other intangible assets; effects of legislation, rulemaking, and changes in accounting, tax or defense procurement; changes in government and customer priorities and requirements (including, government budgetary constraints, shifts in defense spending, changes in import and export policies, changes in customer short-range and long-range plans); acquisition or termination of contracts; technical, operation or quality setbacks in contract performance; protection of intellectual property rights; risks associated with our nuclear operations; issues with, and financial viability of, key suppliers and subcontractors; availability of materials and supplies; controlling costs of fixed-price development programs; contractual performance relief and the application of cost sharing terms; allowability and allocability of costs under U.S. Government contracts; progress and acceptance of new products and technology; domestic and international competition; legal, financial and governmental risks related to international transactions; potential security threats, natural disasters and other disruptions not under our control; and other risk factors disclosed in our filings with the Securities and Exchange Commission.

These forward-looking statements speak only as of the date of this release and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this release or the attachments.

LEARN MORE ABOUT US: Northrop Grumman news releases, product information, photos and video clips are available on the Internet at: http://www.northropgrumman.com

SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended		Nine Months Ended
	September 30		September 30
$ in millions, except per share amounts	2010	2009	2010	2009
Sales and Service Revenues
Product sales	$ 5,303	$ 4,982	$ 16,373	$ 14,972
Service revenues	3,411	3,368	9,777	9,858
Total sales and service revenues	8,714	8,350	26,150	24,830
Cost of Sales and Service Revenues
Cost of product sales	4,096	4,027	12,759	12,007
Cost of service revenues	3,092	2,960	8,846	8,768
General and administrative expenses	725	744	2,263	2,203
Operating income	801	619	2,282	1,852
Other (expense) income
Interest expense	(68)	(76)	(216)	(219)
Other, net	13	41	10	62
Earnings from continuing operations before income taxes	746	584	2,076	1,695
Federal and foreign income taxes	257	120	414	497
Earnings from continuing operations	489	464	1,662	1,198
Earnings from discontinued operations, net of tax	8	26	15	75
Net earnings	$ 497	$ 490	$ 1,677	$ 1,273
Basic Earnings Per Share
Continuing operations	$ 1.67	$ 1.46	$ 5.57	$ 3.72
Discontinued operations	.02	.09	.05	.23
Basic earnings per share	$ 1.69	$ 1.55	$ 5.62	$ 3.95
Weighted-average common shares outstanding, in millions	293.5	317.1	298.6	322.0
Diluted Earnings Per Share
Continuing operations	$ 1.64	$ 1.45	$ 5.49	$ 3.67
Discontinued operations	.03	.08	.05	.23
Diluted earnings per share	$ 1.67	$ 1.53	$ 5.54	$ 3.90
Weighted-average diluted shares outstanding, in millions	297.6	320.6	302.5	326.1
Net earnings (from above)	$ 497	$ 490	$ 1,677	$ 1,273
Other comprehensive income
Change in cumulative translation adjustment	18	20	(34)	44
Change in unrealized gain on marketable securities
and cash flow hedges, net of tax				35
Change in unamortized benefit plan costs, net of tax	39	53	118	159
Other comprehensive income, net of tax	57	73	84	238
Comprehensive income	$ 554	$ 563	$ 1,761	$ 1,511

SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)

	September 30,	December 31,
$ in millions	2010	2009
*Assets*
Cash and cash equivalents	$ 2,528	$ 3,275
Accounts receivable, net of progress payments	4,172	3,394
Inventoried costs, net of progress payments	1,193	1,170
Deferred tax assets	718	524
Prepaid expenses and other current assets	392	272
Total current assets	9,003	8,635
Property, plant, and equipment, net of accumulated depreciation of $4,608 in 2010
and $4,216 in 2009	4,767	4,868
Goodwill	13,517	13,517
Other purchased intangibles, net of accumulated amortization of $1,943 in 2010
and $1,871 in 2009	801	873
Pension and post-retirement plan assets	324	300
Long-term deferred tax assets	654	1,010
Miscellaneous other assets	1,110	1,049
Total assets	$ 30,176	$ 30,252

*Liabilities*
Notes payable to banks	$ 15	$ 12
Current portion of long-term debt	757	91
Trade accounts payable	1,677	1,921
Accrued employees’ compensation	1,238	1,281
Advance payments and billings in excess of costs incurred	2,069	1,954
Other current liabilities	2,007	1,726
Total current liabilities	7,763	6,985
Long-term debt, net of current portion	3,437	4,191
Pension and post-retirement plan liabilities	4,511	4,874
Other long-term liabilities	1,271	1,515
Total liabilities	16,982	17,565

*Shareholders' Equity*
Common stock, $1 par value; 800,000,000 shares authorized; issued and
outstanding: 2010 — 292,228,109; 2009 — 306,865,201	292	307
Paid-in capital	7,827	8,657
Retained earnings	8,005	6,737
Accumulated other comprehensive loss	(2,930)	(3,014)
Total shareholders’ equity	13,194	12,687
Total liabilities and shareholders’ equity	$ 30,176	$ 30,252

SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30
$ in millions	2010	2009
Operating Activities
Sources of Cash — Continuing Operations
Cash received from customers
Progress payments	$ 4,361	$ 5,472
Collections on billings	21,145	19,013
Other cash receipts	28	32
Total sources of cash — continuing operations	25,534	24,517
Uses of Cash — Continuing Operations
Cash paid to suppliers and employees	(22,796)	(21,681)
Pension contributions	(438)	(832)
Interest paid, net of interest received	(254)	(240)
Income taxes paid, net of refunds received	(933)	(675)
Excess tax benefits from stock-based compensation	(12)	(2)
Other cash payments	(35)	(29)
Total uses of cash — continuing operations	(24,468)	(23,459)
Cash provided by continuing operations	1,066	1,058
Cash provided by discontinued operations		144
Net cash provided by operating activities	1,066	1,202
Investing Activities
Payments for businesses purchased		(33)
Additions to property, plant, and equipment	(398)	(436)
Payments for outsourcing contract costs and related software costs	(5)	(58)
Other investing activities, net	22	(12)
Net cash used in investing activities	(381)	(539)
Financing Activities
Net borrowings under lines of credit	3	4
Proceeds from issuance of long-term debt		850
Principal payments of long-term debt	(91)	(73)
Proceeds from exercises of stock options and issuances of common stock	112	29
Dividends paid	(408)	(405)
Excess tax benefits from stock-based compensation	12	2
Common stock repurchases	(1,060)	(650)
Net cash used in financing activities	(1,432)	(243)
(Decrease) increase in cash and cash equivalents	(747)	420
Cash and cash equivalents, beginning of period	3,275	1,504
Cash and cash equivalents, end of period	$ 2,528	$ 1,924

SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30
$ in millions	2010	2009
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net earnings	$1,677	$1,273
Adjustments to reconcile to net cash provided by operating activities
Depreciation	436	424
Amortization of assets	101	113
Stock-based compensation	103	83
Excess tax benefits from stock-based compensation	(12)	(2)
(Increase) decrease in
Accounts receivable, net	(779)	(64)
Inventoried costs, net	(46)	(239)
Prepaid expenses and other current assets	(9)	(39)
Increase (decrease) in
Accounts payable and accruals	(332)	(182)
Deferred income taxes	87	136
Income taxes payable	(121)	(158)
Retiree benefits	4	(208)
Other non-cash transactions, net	(43)	(79)
Cash provided by continuing operations	1,066	1,058
Cash provided by discontinued operations		144
Net cash provided by operating activities	$1,066	$1,202
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable	$ 55	$ 38

SCHEDULE 5

NORTHROP GRUMMAN CORPORATION

TOTAL BACKLOG AND CONTRACT AWARDS

(Unaudited)

$ in millions

September 30, 2010

December 31, 2009

FUNDED⁽¹⁾

UNFUNDED⁽²⁾

TOTAL BACKLOG

FUNDED⁽¹⁾

UNFUNDED⁽²⁾

TOTAL BACKLOG

Aerospace Systems

$ 8,541

$ 13,337

$ 21,878

$ 8,320

$ 16,063

$ 24,383

Electronic Systems

8,237

2,083

10,320

7,591

2,784

10,375

Information Systems

4,951

5,536

10,487

4,319

4,508

8,827

Shipbuilding

9,900

7,210

17,110

11,294

9,151

20,445

Technical Services

2,855

1,997

4,852

2,352

2,804

5,156

Total

$ 34,484

$ 30,163

$ 64,647

$ 33,876

$ 35,310

$ 69,186

(1)

Funded backlog represents firm orders for which funding is contractually obligated by the customer.

(2)

Unfunded backlog represents firm orders for which funding is not currently contractually obligated by the customer.

Unfunded backlog excludes unexercised contract options and unfunded indefinite delivery indefinite quantity (IDIQ) orders.

New Awards – The estimated value of contract awards included in backlog during the nine months ended September 30, 2010, was $20.8 billion.

During the second quarter of 2010, the company reached an agreement with the Commonwealth of Virginia that modified certain aspects of the Virginia IT outsourcing contract. As a result of these modifications, total backlog at September 30, 2010 includes an $824 million favorable adjustment to reflect minimum values for years 2011 through 2016, which are now provided for in the contract.

SCHEDULE 6
NORTHROP GRUMMAN CORPORATION
SCHEDULE OF REALIGNED SEGMENT
(Unaudited)

		NET SALES				SEGMENT OPERATING INCOME (LOSS)⁽²⁾
					Three				Three
					Months Ended				Months Ended
$ in millions		Year Ended December 31			Dec 31	Year Ended December 31			Dec 31
		2007	2008	2009	2009	2007	2008	2009	2009
AS REPORTED

Aerospace Systems		$ 9,234	$ 9,825	$ 10,419	$ 2,763	$ 919	$ 416	$ 1,071	$ 291

Electronic Systems		6,466	7,048	7,671	2,077	809	947	969	274

Information Systems		7,758	8,205	8,611	2,195	725	629	631	109

Shipbuilding		5,788	6,145	6,213	1,664	538	(2,307)	299	88

Technical Services		2,422	2,535	2,776	750	139	144	161	40

Intersegment Eliminations		(1,327)	(1,443)	(1,935)	(524)	(105)	(128)	(202)	(58)

	Total	$ 30,341	$ 32,315	$ 33,755	$ 8,925	$ 3,025	$ (299)	$ 2,929	$ 744


RECASTED AND REALIGNED ⁽¹⁾

Aerospace Systems		$ 9,234	$ 9,825	$ 10,419	$ 2,763	$ 919	$ 416	$ 1,071	$ 291

Electronic Systems		6,466	7,048	7,671	2,077	809	947	969	274

Information Systems		7,717	8,174	8,536	2,174	722	626	624	107

Shipbuilding		5,788	6,145	6,213	1,664	538	(2,307)	299	88

Technical Services		2,422	2,535	2,776	750	139	144	161	40

Intersegment Eliminations		(1,286)	(1,412)	(1,860)	(503)	(102)	(125)	(195)	(56)

	Total	$ 30,341	$ 32,315	$ 33,755	$ 8,925	$ 3,025	$ (299)	$ 2,929	$ 744


(1)	Reported amounts for total years 2007 through 2009 (previously reported in the 2009 Form 10-K), and the three months ended Dec. 31, 2009 (previously reported in the Fourth Quarter 2009 earnings release filed on Feb. 4, 2010) were adjusted to reflect the January 2010 transfer of the company's internal information technology services unit from the Information Systems segment to the company's corporate shared services group.


(2)	Non-GAAP measure. Management uses segment operating income as an internal measure of financial performance for the individual operating segments.

Non-GAAP Financial Measures Disclosure: Today’s press release contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the text of the release. While we believe that these non-GAAP financial measures may be useful in evaluating Northrop Grumman’s financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release and in attached schedules. References to a “Table” in the definitions below relate to tables in the body of this press release. Other companies may define these measures differently or may utilize different non-GAAP measures.

Cash provided by operations before discretionary pension contributions: Cash provided by operations before the after-tax impact of discretionary pension contributions. Cash provided by operations before discretionary pension contributions has been provided for consistency and comparability of 2010 and 2009 financial performance and is reconciled on Table 2.

Free cash flow: Cash provided by operations less capital expenditures and outsourcing contract and related software costs. We use free cash flow as a key factor in our planning for and consideration of strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow is reconciled in Table 2.

Free cash flow before discretionary pension contributions: Free cash flow before the after-tax impact of discretionary pension contributions. We use free cash flow before discretionary pension contributions as a key factor in our planning for and consideration of strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow before discretionary pension contributions is presented in Table 3.

Net pension adjustment: Pension expense determined in accordance with GAAP less pension expense allocated to the operating segments under U.S. Government Cost Accounting Standards (CAS). Net pension adjustment is presented in Table 1.

After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at the statutory rate of 35%, provided for consistency and comparability of 2010 and 2009 financial performance and reconciled on Table 1.

Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pension adjustment per share. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS from continuing operations, as reconciled in Table 1, as an internal measure of financial performance.

Pension-adjusted operating income: Operating income before net pension adjustment as reconciled in Table 1 and used as an internal measure of financial performance.

Pension-adjusted operating income as a % of sales: Pension-adjusted operating income as defined above, divided by sales. Management uses pension-adjusted operating income as a % of sales, as reconciled in Table 1, as an internal measure of financial performance.

Segment operating income (loss): Total earnings from our five segments including allocated pension expense recognized under CAS. Reconciling items to operating income are unallocated corporate expenses, which include management and administration, legal, environmental, certain compensation and retiree benefits, and other expenses; net pension adjustment; and reversal of royalty income included in segment operating income. Management uses segment operating income, as reconciled in Table 5, as an internal measure of financial performance of our individual operating segments.

Segment operating margin % / Segment operating income as a % of sales: Segment operating income as defined above, divided by sales. Management uses segment operating income as a % of sales, as reconciled in Table 5, as an internal measure of financial performance.

SOURCE Northrop Grumman Corporation