UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(D) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported)
November 29, 2001
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NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-16411 No. 95-4840775
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification
incorporation or organization) 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)
Northrop Grumman Corporation and Subsidiaries
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information
In April 2001, Northrop Grumman Corporation ("Northrop Grumman") acquired
approximately 97.3% of the outstanding Common Shares of Litton Industries, Inc.
("Litton") and 58.6% of the preferred stock of Litton. Northrop Grumman
subsequently acquired the remaining Common and Preferred Shares of Litton for
cash and now owns 100% of the outstanding shares of Litton.
In November 2001, Northrop Grumman acquired approximately 80.7% of the
outstanding shares of Newport News Shipbuilding, Inc. ("Newport News") common
stock. On December 13, 2001 Northrop Grumman filed an information
statement/prospectus as Post-Effective Amendment No. 1 to Form S-4, which states
that a shareholders' meeting will be held on January 18, 2002 to complete the
acquisition of Newport News by Northrop Grumman.
The Unaudited Pro Forma Condensed Combined Financial Statements presented
herein are derived from the historical consolidated financial statements of each
of Northrop Grumman Systems Corporation ("Northrop Systems"), Northrop Grumman
Corporation, Litton and Newport News. The Unaudited Pro Forma Condensed
Combined Financial Statements have been prepared using the purchase method of
accounting, with Northrop Grumman treated as the acquirer and as if the Litton
and Newport News acquisitions had been completed as of the beginning of the
periods presented for statements of income purposes and as if the Newport News
acquisition had been completed on September 30, 2001 for the statement of
financial position.
The Unaudited Pro Forma Condensed Combined Financial Statements are based
upon the historical financial statements of Northrop Systems, Northrop Grumman,
Litton and Newport News adjusted to give effect to the Litton and Newport News
acquisitions. The pro forma adjustments are described in the accompanying notes
presented on the following pages. The pro forma statements have been developed
from (a) the audited consolidated financial statements of Northrop Systems
contained in its Annual Report on Form 10-K/A for the year ended December 31,
2000 and the unaudited consolidated financial statements of Northrop Grumman
contained in its Quarterly Report on Form 10-Q for the nine months ended
September 30, 2001; (b) the audited consolidated financial statements of Litton
contained in its Annual Report on Form 10-K for the fiscal year ended July 31,
2000 and the unaudited consolidated financial statements of Litton contained in
its Quarterly Report on Form 10-Q for
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Northrop Grumman Corporation and Subsidiaries
the period ended January 31, 2001; and (c) the audited consolidated financial
statements of Newport News contained in its Annual Report on Form 10-K for the
year ended December 31, 2000 and the unaudited consolidated financial statements
of Newport News contained in its Quarterly Report on Form 10-Q for the period
ended September 16, 2001. In addition, the audited consolidated financial
statements of Litton contained in its Annual Report on Form 10-K for the fiscal
year ended July 31, 2000 and the unaudited consolidated financial statements of
Litton contained in its Quarterly Reports on Form 10-Q for the periods ended
January 31, 2000 and January 31, 2001 have been used to bring the financial
reporting periods of Litton to within 90 days of those of Northrop Systems and
Northrop Grumman.
Under the purchase method of accounting, the purchase price is allocated to
the underlying tangible and intangible assets acquired and liabilities assumed
based on their respective fair market values, with the excess recorded as
goodwill. These Unaudited Pro Forma Condensed Combined Financial Statements
reflect preliminary estimates of the fair market value of the assets acquired
and liabilities assumed and the related allocations of purchase price, and
preliminary estimates of adjustments necessary to conform Litton data to
Northrop Grumman's accounting policies. Northrop Grumman is currently reviewing
the preliminary estimates of the fair market value of assets acquired and
liabilities assumed in the Litton and Newport News acquisitions, including
valuations associated with certain contracts and preliminary valuation study
results for intangible assets, property, plant and equipment, and retiree
benefits assets and liabilities. Northrop Grumman is also evaluating several
possible restructuring activities of Litton operations. The final determination
of the fair market value of assets acquired and liabilities assumed and final
allocation of the purchase price may differ from the amounts assumed in these
Unaudited Pro Forma Condensed Combined Financial Statements, and there can be no
assurance that any adjustments will not be material.
With the exception of Newport News' long-term debt assumed, Northrop
Grumman has not completed the valuation studies necessary to arrive at the
required estimates of the fair market value of the assets to be acquired and
liabilities to be assumed in the Newport News acquisition and the related
allocations of purchase price, nor has it identified the adjustments necessary,
if any, to conform Newport News data to Northrop Grumman's accounting policies.
Accordingly, Northrop Grumman has used the historical book values of the assets
and liabilities of Newport News, other than long-term debt, and has used the
historical revenue recognition policies of Newport News to prepare the Unaudited
Pro Forma Condensed Combined Financial
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Northrop Grumman Corporation and Subsidiaries
Statements set forth herein, with the excess of the purchase price over the
historical net assets of Newport News recorded as goodwill and other purchased
intangibles. Once Northrop Grumman has completed the valuation studies necessary
to finalize the required purchase price allocations and identified any necessary
conforming changes, such pro forma financial statements will be subject to
adjustment. Such adjustments will likely result in changes to the pro forma
statement of financial position to reflect the final allocations of purchase
price and the pro forma statements of income, and there can be no assurance that
such adjustments will not be material.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
include the realization of cost savings from operating efficiencies, synergies
or other restructurings resulting from the Litton acquisition, or recognition of
liabilities associated with potential restructurings, except for preliminary
estimates of costs to consolidate the Litton and Northrop Grumman Corporate
Offices. Adjustments to the purchase price allocations are expected to be
finalized March 31, 2002 for Litton, and will be reflected in future Northrop
Grumman filings. Adjustments to the purchase price allocations are expected to
be finalized June 30, 2002 for Newport News, and will be reflected in future
Northrop Grumman filings. There can be no assurance that such adjustments will
not be material.
The Unaudited Pro Forma Condensed Combined Financial Statements are
provided for illustrative purposes only and do not purport to represent what the
actual consolidated results of operations or the consolidated financial position
of Northrop Grumman would have been had the Litton or Newport News acquisitions
occurred on the date assumed, nor are they necessarily indicative of future
consolidated results of operations or financial position.
The Unaudited Pro Forma Condensed Combined Financial Statements should be
read in conjunction with the separate historical consolidated financial
statements and accompanying notes of Northrop Systems, Northrop Grumman, Litton
and Newport News.
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Northrop Grumman Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined
Statement of Financial Position
September 30, 2001
($ in millions)
Pro Forma
Northrop Newport ---------------------------------
Grumman News Adjustments Combined
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Assets:
Current assets
Cash and cash equivalents $ 310 $ 66 $ - $ 376
Accounts receivable 2,297 131 (7)(a) 2,421
Inventoried costs 1,222 409 - 1,631
Deferred income taxes 35 110 - 145
Prepaid expenses and other current assets 140 19 - 159
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Total current assets 4,004 735 (7) 4,732
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Property, plant and equipment 3,297 1,616 - 4,913
Accumulated depreciation (1,211) (950) - (2,161)
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Property, plant and equipment, net 2,086 666 - 2,752
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Other assets
Goodwill and other purchased intangibles, net 7,956 - 1,976 (a)(k) 9,932
Prepaid retiree benefits cost and intangible
pension asset 2,773 - - 2,773
Other assets 395 237 - 632
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11,124 237 1,976 13,337
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$17,214 $1,638 $ 1,969 $ 20,821
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Liabilities and Shareholders' Equity:
Current liabilities
Notes payable and current portion of
long-term debt $ 134 $ 46 $ - $ 180
Accounts payable 757 87 (7)(a) 837
Accrued employees' compensation 629 - - 629
Advances on contracts 837 - - 837
Income taxes 373 - - 373
Other current liabilities 1,223 484 - 1,707
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Total current liabilities 3,953 617 (7) 4,563
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Long-term debt 5,185 432 696 (a)(k) 6,313
Accrued retiree benefits 1,478 - - 1,478
Deferred tax and other long-term liabilities 973 285 - 1,258
Redeemable preferred stock 350 - - 350
Shareholders' equity
Paid in capital and unearned compensation 2,366 452 1,132 (a) 3,950
Retained earnings 2,928 236 (236)(a) 2,928
Accumulated other comprehensive loss (19) - - (19)
Stock employee compensation trust - (384) 384 (a) -
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5,275 304 1,280 6,859
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$17,214 $1,638 $ 1,969 $ 20,821
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Northrop Grumman Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined
Statement of Income
Year Ended December 31, 2000
($ in millions, except per share)
Pro Forma Pro Forma
Northrop ------------------------- Newport ------------------------
Grumman Litton Adjustments Combined News Adjustments Combined
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Sales and service revenues $7,618 $5,626 $ (61)(b) $13,183 $2,072 $ (22)(b) $15,233
Cost of sales
Operating Costs 5,446 4,669 88 (b)(c)(d) 10,203 1,870 (261)(b)(h)(j) 11,812
Administrative and general expenses 1,074 491 - 1,565 - 271 (j) 1,836
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Operating margin 1,098 466 (149) 1,415 202 (32) 1,585
Interest expense (175) (105) (191)(e) (471) (53) (21)(i) (545)
Other, net 52 16 - 68 4 - 72
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Income from continuing operations
before income taxes 975 377 (340) 1,012 153 (53) 1,112
Federal and foreign income taxes 350 151 (119)(f) 382 63 (27)(f)(j) 418
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Income from continuing operations 625 226 (221) 630 90 (26) 694
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Less, dividends paid
to preferred shareholders - - (25)(g) (25) - - (25)
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Income available to common shareholders $ 625 $ 226 $(246) $ 605 $ 90 $ (26) $ 669
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Average shares basic 70.58 83.58 100.22
Average shares diluted 70.88 84.00 100.64
Basic earnings per share:
Continuing operations $ 8.86 $ 7.24 $ 6.68
Diluted earnings per share:
Continuing operations $ 8.82 $ 7.20* $ 6.65*
* Calculated by dividing income available to common shareholders by average
shares diluted, which is calculated assuming preferred shares are not
converted to common shares, resulting in the most dilutive effect.
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Northrop Grumman Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined
Statement of Income
Nine Months Ended September 30, 2001
($ in millions, except per share)
Pro Forma Pro Forma
Northrop ------------------------- Newport -------------------------
Grumman Litton Adjustments Combined News Adjustments Combined
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Sales and service revenues $9,254 $1,345 $ (18)(b) $10,581 $1,639 $ (37)(b) $12,183
Cost of sales
Operating Costs 7,656 1,120 19 (b)(c)(d) 8,795 1,481 (168)(b)(h)(j) 10,108
Administrative and general expenses 908 121 - 1,029 - 153 (j) 1,182
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Operating margin 690 104 (37) 757 158 (22) 893
Interest expense (269) (27) (64)(e) (360) (37) (15)(i) (412)
Other, net 64 3 - 67 (1) - 66
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Income from continuing operations
before income taxes 485 80 (101) 464 120 (37) 547
Federal and foreign income taxes 189 30 (35)(f) 184 48 (18)(f)(j) 214
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Income from continuing operations 296 50 (66) 280 72 (19) 333
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Less, dividends paid
to preferred shareholders (12) - (6)(g) (18) - - (18)
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Income available to common shareholders $ 284 $ 50 $ (72) $ 262 $ 72 $ (19) $ 315
====================================================================================================================================
Average shares basic 80.34 85.32 101.96
Average shares diluted 81.03 86.11 102.75
Basic earnings per share:
Continuing operations $ 3.53 $ 3.07 $ 3.09
Diluted earnings per share:
Continuing operations $ 3.50* $ 3.04* $ 3.07*
* Calculated by dividing income available to common shareholders by average
shares diluted, which is calculated assuming preferred shares are not
converted to common shares, resulting in the most dilutive effect.
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Northrop Grumman Corporation and Subsidiaries
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements
(a) Adjustments to (i) eliminate the equity of Newport News, (ii)
eliminate intercompany receivables and payables between Northrop
Grumman and Newport News, (iii) record issuance of common stock, (iv)
record debt financing for the Newport News acquisition along with
additional acquisition related costs, and (v) record goodwill and
other purchased intangibles arising from the acquisition of Newport
News.
The amount of the purchase price allocated to goodwill and other
purchased intangibles is subject to change and is calculated based on
the assumption that Northrop Grumman has acquired 100% of Newport News
common stock and, accordingly, has issued all 16,636,885 shares of
Northrop Grumman common stock available to be exchanged in the Newport
News acquisition.
The value ascribed to the Northrop Grumman common stock exchanged in
the Newport News acquisition is $95.22. This value was determined
based on a measurement date of December 5, 2001. Accordingly, this
value represents the 5-day average of the Northrop Grumman closing
stock prices from December 3, 2001 through December 7, 2001.
(b) Adjustment to eliminate intercompany sales and cost of sales
transactions between Northrop Grumman and Litton, and between Northrop
Grumman and Newport News.
(c) Adjustment to amortize the preliminary estimate of goodwill and other
purchased intangible assets arising out of the acquisition of Litton
over an estimated weighted average life of 26 years on a straight-line
basis.
(d) Adjustment to record depreciation of property, plant and equipment and
amortization of capitalized software arising from fair market value
adjustments from the Litton acquisition.
(e) Adjustment to record interest expense and the amortization of debt
issuance costs on new financing for the acquisition of Litton at a
weighted average rate of 7.5 and 6.8 percent for the year ended
December 31, 2000 and the nine months ended September 30, 2001,
respectively.
(f) Adjustment to record income tax effects on pre-tax pro forma
adjustments, using a statutory tax rate of thirty-five percent.
(g) Adjusted, pro rata, for dividends to preferred shareholders using $7
per share dividend rate for redeemable preferred stock issued in the
acquisition of Litton.
(h) Adjustment to amortize estimated purchased intangible assets arising
out of the Newport News acquisition over an estimated life of 10 years
on a straight-line basis. Goodwill arising from the Newport News
acquisition has not been amortized, in accordance with the provisions
of SFAS No. 142: Goodwill and Other Intangible Assets.
(i) Adjustment to record interest on debt financing for the Newport News
acquisition at the current rate of 3.1 percent for both the year ended
December 31, 2000 and the nine months ended September 30, 2001.
(j) Adjustments to reclassify (i) G&A expense from operating costs to
administrative and general expenses and (ii) state income tax expense
from federal and foreign income taxes to operating costs to conform
Newport News data to classifications utilized by Northrop Grumman.
(k) Includes fair market value adjustment of $38 million for Newport News
long-term debt acquired.
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Northrop Grumman Corporation and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Northrop Grumman Corporation (Registrant)
Date: January 14, 2002 by /s/ Sandra J. Wright
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Sandra J. Wright
Corporate Vice President and Controller
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