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$NOC 1Q15 10-Q: At March 31, 2015, had $270MM of stand-by LOC and guarantees & $160MM of surety bonds outstanding. In Feb. 2015, granted certain employees 0.2MM RSRs and 0.4M RPSRs under long-term incentive stock plan. The aggregate fair value at grant date was $87MM.
$NOC continues to expect that capital expenditures will remain elevated in 2018 and 2019 before starting to return to a new normal that reflects a larger business. For 2018, the company does have additional CapEx as well as $100-150MM in costs from incremental interest and transaction cost related to its pending acquisition of $OA.
For 2018, $NOC expects Technology Services sales to be in the mid $4Bil range, with an operating margin rate of about 10%. Lower 2018 revenue is primarily due to expected declines in the KC-10 and JRDC programs. Lower revenue for these programs is being partially offset by growth in other programs.
For 2018, $NOC expects Mission Systems sales to grow to the mid to high $11Bil range with an operating margin of about 13%. Primary revenue growth drivers include continued ramp-up on combat avionics and communications programs, including F-35 sensors, SABR radar, and infrared countermeasures.
For 2018, $NOC expect Aerospace Systems to grow at top line at a high single-digit rate to the high $12Bil range. Growth in restricted activities will continue to be a major driver of revenue growth, along with continued ramp-up on the F-35 program. The company expects 2018 operating margin at Aerospace Systems to be in the low to mid 10% range.
$NOC currently expect the $OA transaction to close in 1H of this year. In late November, $OA shareholders overwhelmingly approved the terms of the transaction. The FTC is reviewing the proposed transaction in the U.S. in consultation with the DoD and $NOC notified the European Commission on Jan. 18 under the simplified procedure notice.
For 2018, $NOC expects sales of about $27Bil and EPS of $15.00-15.25. The company predicts segment operating margin in low-mid 11% range and operating margin of about 12%. $NOC sees effective tax rate of about 19.5%, capital expenditures of about $1Bil and free cash flow in the range of $2.0-2.3Bil.
$NOC's Aerospace Systems sales for 4Q17 rose 5% year-over-year, due to growth in Manned Aircraft and Autonomous Systems. Mission Systems sales grew 6%, on higher volume for Sensors and Processing and Advanced Capabilities programs. Technology Services sales slid 1% on lower volume for System Modernization and Services and Advanced Defense Services.
$NOC's operating income for 4Q17 decreased to $767MM from $831MM last year. The decline is primarily due to higher transaction costs from pending acquisition of $OA and deferred state tax expense from discretionary pension contribution. It also includes changes in contract mix at Aerospace Systems and Mission Systems.
$NOC reported a drop in 4Q17 earnings due to higher tax expenses from Tax Cuts and Jobs Act enactment and $500MM discretionary pre-tax pension contribution related to the write-down of deferred tax assets. Net income fell to $178MM or $1.01 per share from $525MM or $2.96 per share last year. Sales rose 4% to $6.6Bil. Adjusted EPS was $2.82.
$NOC appointed Yolanda Murphy as VP of communications for its Technology Services sector, succeeding Alleace Gibbs, who will now serve as VP of communications for its Mission Systems sector, effective Jan. 1, 2018. Murphy will become a new member of Northrop Grumman's Communications Council. Gibbs will remain a member of that leadership group.
Shareholders of aerospace company $OA have approved the proposed acquisition of Orbital ATK by $NOC. More than 99% of Orbital shareholders voted in favor of approving and adopting the merger agreement. The transaction is expected to close in the first half of 2018, pending receipt of regulatory approvals.
With regard to $OA acquisition, $NOC estimates about $150MM of annual cost savings by 2020 and it has modeled some cost that will be incurred in order to get there. The company said it would look to find some additional operational synergies that certainly would work to make sure that those drive cost savings as well.
$NOC lifted 2017 Aerospace System sales forecast to $11.7-11.8Bil from $11.5-11.7Bil, its Mission Systems revenue outlook to $11.2-11.3Bil from $11.1-11.3Bil and Technology Services sales estimate to about $4.7Bil from $4.5-4.7Bil. The company raised 2017 net FAS/CAS adjustment to about $585MM from $500MM.
During 3Q17, $NOC paused its share repurchases as it was considering the $OA acquisition. Year-to-date, $NOC has spent $393MM to repurchase about 1.6MM shares. $2.3Bil remains on its current share repurchase authorization. The company said returning cash to shareholders through a competitive dividend and share repurchases remains a priority.
$NOC lifted 2017 sales outlook to about $25.5Bil from low $25Bil and its EPS guidance to $12.90-13.10 from $12.10-12.40. The company also raised its operating margin estimate to about 13% from mid-to-high 12%, while lowering its effective tax rate forecast to about 24.5% from about 27.5%. $NOC still sees capital expenditures of about $900MM.
$NOC's sales from Technology Services for 3Q17 declined 1% to $1.18Bil from last year. This is primarily due to lower volume for System Modernization and Services, partially offset by higher intercompany volume on restricted programs in Global Logistics and Modernization.