SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 8-K
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 14, 2001
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in charter)
Delaware 1-16411 95-4840775
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
1840 Century Park East
Los Angeles, California 90067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 553-6262
Item 5. Other Events
The Company has filed preliminary prospectuses with respect to offerings of
8,000,000 shares of Common Stock and $400,000,000 Equity Security Units,
respectively, pursuant to its Registration Statement No. 333-71290. Each
preliminary prospectus contains Unaudited Pro Forma Condensed Combined Financial
Statements reflecting the acquisition of Litton Industries, Inc. and the
proposed acquisition of Newport News Shipbuilding Inc. The consent of Arthur
Andersen, LLP to the incorporation by reference in the Company's Registration
Statement on Form S-3, No. 333-71290, of its report contained in the Annual
Report on Form 10-K for the year ended December 31, 2000 of Newport News
Shipbuilding Inc. is filed herewith.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Proposed to Be Acquired.
The following documents filed with the SEC by Newport News Shipbuilding
Inc. (SEC File Number 1-12385) are hereby incorporated by reference.
. Annual Report on Form 10-K for the fiscal year ended December 31,
2000; and
. Quarterly Reports on Form 10-Q for the fiscal quarters ended March 18,
2001, June 17, 2001 and September 16, 2001.
(b) Pro Forma Financial Information.
The Unaudited Pro Forma Condensed Combined Financial Statements reflecting
the acquisition of Litton Industries, Inc. and the proposed acquisition of
Newport News Shipbuilding Inc. are filed herewith:
Unaudited Pro Forma Condensed Combined Statement of Financial Position,
September 30, 2001.
Unaudited Pro Forma Condensed Combined Statements of Income, Nine Months
Ended September 30, 2001, Year Ended December 31, 2000.
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The unaudited pro forma condensed combined financial statements presented
below are derived from the historical consolidated financial statements of each
of Northrop Grumman Corporation ("Northrop Grumman"), Northrop Grumman Systems
Corporation ("Northrop Systems"), Litton Industries, Inc. ("Litton") and Newport
News Shipbuilding Inc. ("Newport News"). The unaudited pro forma condensed
combined financial statements are prepared using the purchase method of
accounting, with Northrop Grumman treated as the acquiror and as if the Newport
News and Litton acquisitions had been completed as of the beginning of the
periods presented for statement of income purposes and as if the Newport News
acquisition had been completed on September 30, 2001 for statement of financial
position purposes.
The unaudited pro forma condensed combined financial statements are based
upon the historical financial statements of Northrop Grumman, Northrop Systems,
Litton and Newport News adjusted to give effect to, in the case of the pro forma
statements of income, the Litton acquisition and the Newport News acquisition
and, in the case of the pro forma statement of financial position, the Newport
News acquisition. The pro forma adjustments are described in the accompanying
notes presented on the following pages. The pro forma financial 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 the six months 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 quarter 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 Report on Form 10-Q for the six months ended 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. The pro forma
financial statements should be read in conjunction with these separate
historical consolidated financial statements and related notes.
The acquisition of Litton, which is valued at approximately $5.2 billion,
including the assumption of Litton's net debt of $1.3 billion, is accounted for
using the purchase method of accounting. 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
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recorded as goodwill. The pro forma financial statements reflect preliminary
estimates of the fair market value of the Litton 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. The pro forma financial statements do not include the recognition of
liabilities associated with certain potential restructuring activities. Northrop
Grumman is currently reviewing the preliminary estimates of the fair market
value of the Litton assets acquired and liabilities assumed, 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
pro forma financial statements. Adjustments to the purchase price allocations
are expected to be finalized by December 31, 2001, and will be reflected in
future Northrop Grumman filings. These adjustments may be material.
As of the date of this report, Northrop Grumman has not completed the
valuation studies necessary to arrive at the required estimates of the fair
market value of the Newport News assets to be acquired and the Newport News
liabilities to be assumed 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 and has
used the historical revenue recognition policies of Newport News to prepare the
pro forma financial statements, with the excess of the purchase price over the
historical net assets of Newport News recorded as goodwill and other purchase
intangibles. Once Northrop Grumman has completed the valuation studies necessary
to finalize the required purchase price allocations and identified any necessary
conforming changes, the pro forma financial statements will be subject to
adjustment. These adjustments may be material.
The pro forma 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 and Newport News acquisitions occurred on the dates assumed,
nor are they necessarily indicative of future consolidated results of operations
or financial position.
The pro forma financial statements do not include the realization of cost
savings from operating efficiencies, synergies or other restructurings resulting
from the Litton and Newport News acquisitions, except for preliminary estimates
of costs to consolidate the Litton and Northrop Grumman corporate offices.
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Unaudited Pro Forma Condensed Combined
Statement of Financial Position
September 30, 2001
($ in millions)
Pro Forma
Northrop Newport ---------------------
Grumman News Adjustment Combined
-------- ------- ---------- --------
Assets:
Current assets
Cash and cash equivalents.................................. $ 310 $ 66 $ -- $ 376
Accounts receivable........................................ 2,297 131 -- 2,428
Inventoried costs.......................................... 1,222 409 -- 1,631
Deferred income taxes...................................... 35 110 -- 145
Prepaid expenses and other current assets.................. 140 19 -- 159
------- ------ ------ -------
Total current assets....................................... 4,004 735 -- 4,739
------- ------ ------ -------
Property, plant and equipment................................. 3,297 1,616 -- 4,913
Accumulated depreciation...................................... (1,211) (950) -- (2,161)
------- ------ ------ -------
Property, plant and equipment, net............................ 2,086 666 -- 2,752
------- ------ ------ -------
Other assets
Goodwill and other purchased intangibles, net.............. 7,956 -- 2,110 (a) 10,066
Prepaid retiree benefits cost and intangible pension asset. 2,773 -- -- 2,773
Other assets............................................... 395 237 -- 632
------- ------ ------ -------
11,124 237 2,110 13,471
------- ------ ------ -------
$17,214 $1,638 $2,110 $20,962
======= ====== ====== =======
Liabilities and Shareholders' Equity:
Current liabilities
Notes payable and current portion of long-term debt........ $ 134 $ 46 $ -- $ 180
Accounts payable........................................... 757 87 -- 844
Accrued employees' compensation............................ 629 -- -- 629
Advances on contracts...................................... 837 -- -- 837
Income taxes............................................... 373 -- -- 373
Other current liabilities.................................. 1,223 484 -- 1,707
------- ------ ------ -------
Total current liabilities.................................. 3,953 617 -- 4,570
------- ------ ------ -------
Long-term debt................................................ 5,185 432 917 (a) 6,534
Accrued retiree benefits...................................... 1,478 -- -- 1,478
Deferred tax and other long-term liabilities.................. 973 285 -- 1,258
Mandatorily redeemable preferred stock........................ 350 -- -- 350
Shareholders' equity
Paid-in capital and unearned compensation.................. 2,366 452 1,045 (a) 3,863
Retained earnings.......................................... 2,928 236 (236) (a) 2,928
Accumulated other comprehensive loss....................... (19) -- -- (19)
Stock employee compensation trust.......................... -- (384) 384 (a) --
------- ------ ------ -------
5,275 304 1,193 6,772
------- ------ ------ -------
$17,214 $1,638 $2,110 $20,962
======= ====== ====== =======
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Unaudited Pro Forma Condensed Combined
Statement of Income
Nine Months Ended September 30, 2001
($ in millions, except per share)
Pro Forma Pro Forma
Northrop -------------------------- Newport ------------------------
Grumman Litton Adjustment Combined News Adjustment Combined
-------- ------ ---------- -------- ------- ---------- --------
Product sales and service
revenue................ $9,254 $1,345 $ (18) (b) $10,581 $1,639 $ -- $12,220
Cost of product sales and
service revenue
Operating costs....... 7,656 1,120 19 (b)(c)(d) 8,795 1,481 (140) (h)(j) 10,136
Administrative and
general expenses.... 908 121 -- 1,029 -- 153 (j) 1,182
------ ------ ----- ------- ------ ----- -------
Operating margin......... 690 104 (37) 757 158 (13) 902
Interest expense......... (269) (27) (64) (e) (360) (37) (23) (i) (420)
Other, net............... 64 3 -- 67 (1) -- 66
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations before
income taxes........... 485 80 (101) 464 120 (36) 548
Federal and foreign
income taxes........... 189 30 (35) (f) 184 48 (18) (f)(j) 214
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations............. $ 296 $ 50 $ (66) $ 280 $ 72 $ (18) $ 334
====== ====== ===== ======= ====== ===== =======
Less, dividends paid to
preferred shareholders. (12) -- (6) (g) (18) -- -- (18)
------ ------ ----- ------- ------ ----- -------
Income available to
common shareholders.... $ 284 $ 50 $ (72) $ 262 $ 72 $ (18) $ 316
====== ====== ===== ======= ====== ===== =======
Weighted average shares
outstanding, basic..... 80.3 85.3 102.0
Weighted average shares
outstanding, diluted... 81.0 86.1 102.8
Basic earnings per share:
Continuing
operations.......... $ 3.53 $ 3.07 $ 3.10
Diluted earnings per
share:
Continuing
operations.......... $ 3.50 $ 3.04 * $ 3.08 *
--------
* 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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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 Adjustment Combined News Adjustment Combined
-------- ------ ---------- -------- ------- ---------- --------
Product sales and service
revenue.................. $7,618 $5,626 $ (61) (b) $13,183 $2,072 $ -- $15,255
Cost of product sales and
service revenue
Operating costs......... 5,446 4,669 88 (b)(c)(d) 10,203 1,870 (251) (h)(j) 11,822
Administrative and
general expenses...... 1,074 491 -- 1,565 -- 271 (j) 1,836
------ ------ ----- ------- ------ ------ -------
Operating margin........... 1,098 466 (149) 1,415 202 (20) 1,597
Interest expense........... (175) (105) (191) (e) (471) (53) (31) (i) (555)
Other, net................. 52 16 -- 68 4 -- 72
------ ------ ----- ------- ------ ------ -------
Income from continuing
operations before income
taxes.................... 975 377 (340) 1,012 153 (51) 1,114
Federal and foreign income
taxes.................... 350 151 (119) (f) 382 63 (26) (f)(j) 419
------ ------ ----- ------- ------ ------ -------
Income from continuing
operations............... $ 625 $ 226 $(221) $ 630 $ 90 $ (25) $ 695
====== ====== ===== ======= ====== ====== =======
Less, dividends paid to
preferred shareholders... -- -- (25) (g) (25) -- -- (25)
------ ------ ----- ------- ------ ------ -------
Income available to common
shareholders............. $ 625 $ 226 $(246) $ 605 $ 90 $ (25) $ 670
====== ====== ===== ======= ====== ====== =======
Weighted average shares
outstanding, basic....... 70.6 83.6 100.2
Weighted average shares
outstanding, diluted..... 70.9 84.0 100.6
Basic earnings per share:
Continuing operations... $ 8.86 $ 7.24 $ 6.69
Diluted earnings per share:
Continuing operations... $ 8.82 $ 7.20 * $ 6.66 *
--------
* 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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Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
(a) Adjustments to (i) eliminate the equity of Newport News, (ii) record
issuance of common stock, (iii) record debt financing for the Newport
News acquisition along with additional acquisition related costs, and (iv)
record goodwill and other purchased intangibles. The amount of the purchase
price allocated to goodwill was calculated based on the following
assumptions: (i) the price per share of our common stock is $90.00 at the
completion of our offer and merger with Newport News, which is the midpoint
of the common stock range described below; (ii) the exchange ratio is 0.75;
and (iii) we issue the maximum number of shares of our common stock
available for issuance (16,636,885) in our offer and merger with Newport
News. Any fluctuation in our common stock price within the range from
$80.00 to $100.00 will not have a material impact on our pro forma
calculation of goodwill. In the event that our common stock price is
greater than $100.00 at the completion of our offer and merger, the
goodwill balance will increase by $15.0 million for each $1.00 incremental
increase in our common stock price in excess of $100.00.
(b) Adjustment to eliminate intercompany sales and cost of sales transactions
between Northrop Grumman and Litton.
(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 preliminary depreciation of property, plant and
equipment and amortization of capitalized software arising out of the
acquisition of Litton.
(e) Adjustment to record interest expense on, and the amortization of debt
issuance costs of, financing for the acquisition of Litton at a weighted
average rate of 6.8% and 7.5% for the nine months ended September 30, 2001
and the year ended December 31, 2000, respectively.
(f) Adjustment to record income tax effects on pre-tax pro forma adjustments,
using a statutory tax rate of 35%.
(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 purchased intangible assets arising out of the
Newport News acquisition over an estimated life of 30 years on a straight
line basis.
(i) Adjustment to record interest on debt financing for the Newport News
acquisition at the current rate of 3.4% as of October 26, 2001.
(j) Adjustment to conform Newport News data to classifications utilized by
Northrop Grumman.
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(c) Exhibits.
23.1 Consent of Independent Public Accountants.
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: November 14, 2001 By: /s/ John H. Mullan
________________________________________
John H. Mullan, Corporate Vice President
and Secretary
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EXHIBIT INDEX
Exhibit
Number Description
23.1 Consent of Independent Public Accountants
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