<PAGE>
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) April 16, 1994
Northrop Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-3229 95-1055798
(State or other jurisdiction (Commission IRS Employer
of incorporation) File Number) Identification Number)
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
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets. This report is qualified in its
entirety by reference to the documents described herein and attached as
exhibits hereto, which are incorporated herein by this reference.
The registrant did not acquire assets. On April 3, 1994, Northrop
Corporation ("Northrop"), a Delaware Corporation, Northrop Acquisition, Inc.,
a Delaware Corporation and a wholly owned subsidiary of Northrop Corporation,
and Grumman Corporation ("Grumman" or "the Company"), a New York Corporation,
entered into an Agreement and Plan of Merger ("the Merger") providing for a
merger of Northrop Acquisition, Inc. into Grumman. As a result of the Merger,
Grumman would be the surviving corporation and a wholly owned subsidiary of
Northrop. A copy of the Agreement and Plan of Merger is attached hereto as
Exhibit A. In connection with the Merger, Northrop Acquisition, Inc. offered
to purchase all of the outstanding shares of Grumman common stock, par value
$1.00 per share, and associated rights (the "Shares") pursuant to a tender
offer (the "Offer") for all outstanding Shares at $62.00 per Share in cash
(the "Offer Consideration"). In connection with the Merger, untendered Shares
other than Shares held in treasury by Grumman or by any of Grumman's
subsidiaries, Shares owned by Northrop or its susidiaries and Shares held by
shareholders who properly exercise their dissenters' rights under New York
law, would be converted into the right to receive the Offer Consideration.
On April 16, 1994, Northrop Acquisition, Inc., accepted for purchase all
Shares validly tendered pursuant to the Offer made pursuant to the Offer to
Purchase dated March 14, 1994 (the "Offer to Purchase"), and the Supplement
thereto dated April 5, 1994 (the "Supplement"), copies of which are Exhibits
(B) and (C), respectively, as a result of which Northrop Acquisition, Inc.
holds at least 93.4% of the outstanding Shares on a fully diluted basis. A
Special Meeting of Shareholders of Grumman is scheduled for May 18, 1994, at
which the stockholders (including Northrop Acquisition, Inc.) will consider
and vote on the Agreement and Plan of Merger. It is expected that the Merger
will be consummated on or about May 18, 1994.
The total amount of funds required by Northrop Acquisition, Inc. to
purchase Shares pursuant to the Offer and to complete the Merger is
approximately $2.17 billion. Such amount represents $62 per Common Share paid
in the Offer and to be paid in the Merger for the outstanding Shares.
The Offer and the Merger are being financed with approximately $2.8
billion of borrowings, (i) $2.2 billion under a term loan credit facility (the
"Term Loan") and (ii) an additional amount under a $600 million revolving
credit facility for the purpose of replacing Northrop's current line of
credit, pursuant to the Credit Agreement between Northrop and The Chase
Manhattan Bank and Chemical Bank, as co-agents, and a syndicate of commercial
banks. The financing for the Offer and the Merger is more fully described in
Section 12, "Source and Amount of Funds" of the Offer to Purchase and in
Section 3, "Source and Amount of Funds" of the Supplement.
Grumman Corporation was organized in 1929 under the name Grumman Aircraft
Engineering Corporation. The activities of Grumman Corporation and its
subsidiaries include: (a) the design and production of military aircraft,
space systems and commercial aircraft components and subassemblies, as well as
the modernization or conversion of previously completed aircraft; (b) the
design, manufacture and
1
<PAGE>
integration of sophisticated electronics for aircraft, computerized test
equipment and other defense related products, such as airborne surveillance
systems; and (c) electronic data processing services for affiliates and other
customers as well as real estate and leasing services. Grumman's activities
also include technical services that help ready the space shuttle for
flight, providing space station program support, servicing and maintaining
flight simulators and trainers, providing support for Grumman aircraft; and
the fabrication of vehicles for the U.S. Postal Service. Northrop does not
currently intend to use Grumman property and assets for other purposes.
Production contracts with the U.S. Government relating to the aerospace
industry have included the F-14 "Tomcat" fighter, the A-6 "Intruder" attack
aircraft, the EA-6B "Prowler" tactical jamming system, the E-2C "Hawkeye"
early warning aircraft, and the C-2A "Greyhound" carrier on-board delivery
system, of which, only the E-2C is currently in production.
Grumman is teamed with Gruppo Agusta of Italy to compete for a
program to replace the U.S. Air Force/U.S. Navy primary training aircraft
called JPATS - the Joint Primary Aircraft Training System. Seven teams are
competing for the work. A winner is to be selected in 1995.
Grumman is under contract to provide aircraft components and major
subassemblies to other manufacturers. These contracts include the center wing
section for the Boeing 767 jetliner, nacelles and thrust reversers for the
Gulfstream IV and Fokker aircraft, transcowls for General Electric CF6-80C2
engines, C-17 control surfaces, and composite spoilers and inboard flaps for
the new Boeing 777 airliner.
In 1985, the U.S. Air Force awarded Grumman a $657 million contract for
development of the Joint Surveillance Target Attack Radar System, known as
"Joint STARS". This developmental phase concluded in 1993 with the delivery of
the first two Joint STARS prototype E-8A aircraft to the Air Force. In
November 1990, Grumman received a $523 million follow-on contract for further
full-scale development; this included the acquisition of a third Joint STARS
aircraft, product improvement and logistics support. This follow-on contract,
currently worth $684 million, is scheduled for completion in 1995. Following
government approval for five low rate initial production aircraft, the U.S.
Air Force has authorized full funding of $415 million for two initial
aircraft. The E-8C is the production configuration of Joint STARS and
incorporates additional work stations and other system improvements. Grumman
is pursuing opportunities with NATO. According to present plans, a total of 19
production E-8C aircraft will be delivered to the Air Force beginning in 1995.
Grumman's data systems business designs, develops, operates and supports
computer systems for scientific and management information. Its services
include systems
2
<PAGE>
integration, systems service, technical and professional services, information
conversion services and training; its customers and potential customers
include agencies of federal, state and local governments including among
others: the U,S. Navy and Marine Corps, the Air Force, NASA, the Defense
Logistics Agency and the Internal Revenue Service.
The Company is a subcontractor, under Lockheed's Shuttle Processing
Contract with NASA for management and support to the space Shuttle launch
processing operation, in such areas as instrumentation, measurement and
calibration. The current contract, which began in October 1983, was extended
to September 1995. There is one remaining three year option period which ends
in September 1998. The Company is a prime contractor on the Information
Systems Contract which was awarded in October 1992. This is a five year
contract which extends through December 1997. This contract requires
contractor support for all institutional computing capability at Johnson Space
Center, Houston, Texas.
In 1986, the Company was awarded a contract to build 99,150 Long Life
Vehicles for the U.S. Postal Service over a six year period; deliveries
commenced in April 1987. In September 1991, the Company negotiated an
agreement for a follow-on contract with the U.S. Postal Service to produce an
additional 43,505 Long Life Vehicles of which 4,723 and 19,881 were delivered
in 1992 and 1993, respectively. The combination of the original contract and
the follow-on contract will result in unit deliveries to the U.S. Postal
Service totalling 142,655 at the conclusion of the program.
3
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The following consolidated financial statements of Grumman are filed
as part of this report:
Report of Independent Public Accountants
Consolidated Balance Sheet - December 31, 1993 and 1992
Consolidated Statement of Income - Years ended December 31, 1993, 1992
and 1991
Consolidated Statement of Common Shareholders' Equity - Years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows - Years ended December 31, 1993,
1992 and 1991
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Grumman Corporation:
We have audited the accompanying consolidated balance sheet of Grumman
Corporation (a New York corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, common
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Grumman Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 11 to the consolidated financial statements,
effective January 1, 1992, the company changed its method of accounting for
income taxes and for postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
January 20, 1994
4
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 346,090 $ 299,077
Marketable securities (at cost, approximating market).. 18,034 --
Accounts receivable.................................... 518,731 534,260
Inventories, less progress payments.................... 499,436 612,424
Prepaid expenses....................................... 40,992 41,280
---------- ----------
Total current assets................................. 1,423,283 1,487,041
---------- ----------
Property, plant and equipment, less accumulated deprecia-
tion.................................................... 372,723 399,421
---------- ----------
Non-current assets:
Deferred income taxes.................................. 120,028 94,856
Long-term receivables.................................. 6,009 9,079
Investments............................................ 52,505 28,678
Other.................................................. 49,901 69,941
---------- ----------
228,443 202,554
---------- ----------
Total................................................ $2,024,449 $2,089,016
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................ $ 6,571 $ 83,399
Accounts payable....................................... 147,576 128,610
Wages and benefits payable............................. 90,229 95,519
Income taxes........................................... 88,932 145,353
Advances and deposits.................................. 95,340 30,251
Other current liabilities.............................. 89,699 127,902
---------- ----------
Total current liabilities............................ 518,347 611,034
---------- ----------
Long-term debt........................................... 243,106 355,244
---------- ----------
Accrued retirement benefits.............................. 304,752 306,500
---------- ----------
Restructuring reserve.................................... 85,000 --
---------- ----------
Other liabilities........................................ 37,191 23,348
---------- ----------
Common stock--$1.00 par value, authorized 80,000 shares;
outstanding 34,049 and 33,519 shares (net of treasury
stock).................................................. 344,589 321,038
Retained earnings........................................ 491,464 471,852
---------- ----------
Total................................................ $2,024,449 $2,089,016
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
($ IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues:
Sales...................................... $3,224,535 $3,492,075 $3,963,492
Other income............................... 24,589 11,875 10,359
---------- ---------- ----------
Total sales and other income............ 3,249,124 3,503,950 3,973,851
---------- ---------- ----------
Costs and expenses:
Cost of sales.............................. 2,929,987 3,189,035 3,620,895
Restructuring charge....................... 85,000 -- --
Loss on Tracor Aviation Inc. settlement.... -- -- 46,500
Selling, administrative and other.......... 115,928 113,289 124,049
Interest................................... 31,702 55,065 85,236
---------- ---------- ----------
Total costs and expenses................ 3,162,617 3,357,389 3,876,680
---------- ---------- ----------
Income before income taxes.................. 86,507 146,561 97,171
Provision for federal income taxes.......... 21,000 26,700 2,000
---------- ---------- ----------
Income from continuing operations....... 65,507 119,861 95,171
Income (loss) from discontinued operations.. (6,700) (45,035) 4,166
Cumulative effect of change to accrual
method of accounting for postretirement
benefits................................... -- (198,000) --
---------- ---------- ----------
Net income (loss)....................... $ 58,807 $ (123,174) $ 99,337
========== ========== ==========
Primary earnings per common share:
Income from continuing operations.......... $ 1.90 $ 3.49 $ 2.75
Income (loss) from discontinued operations. (.19) (1.34) .13
Cumulative effect of accounting change..... -- (5.88) --
---------- ---------- ----------
Net income (loss)....................... $ 1.71 $ (3.73) $ 2.88
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR 1993 YEAR 1992 YEAR 1991
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Common stock:
Balance beginning of
year.................. 33,790 $337,896 33,512 $337,737 33,019 $313,916
Conversion of
convertible
subordinated
debentures............ 1,392 48,352 -- -- -- --
Conversion of preferred
stock................. -- -- 6 36 1 6
Exercise of stock
options and awards--
net of (forfeitures).. 605 22,935 272 4,014 492 7,149
Majority interest in
capital contributed to
joint venture......... -- -- -- (3,891) -- 16,666
------ -------- ------ -------- ------ --------
Balance end of year.... 35,787 409,183 33,790 337,896 33,512 337,737
------ -------- ------ -------- ------ --------
Less:
Treasury stock
Balance beginning of
year.................. 271 4,415 247 3,998 221 3,529
Common stock repurchase
program............... 1,361 49,931 -- -- -- --
Reinstated (issued)
under various plans--
net................... 106 2,848 24 417 26 469
------ -------- ------ -------- ------ --------
Balance end of year.... 1,738 57,194 271 4,415 247 3,998
------ -------- ------ -------- ------ --------
Restricted stock:
Balance beginning of
year.................. 1,613 12,443 1,651 15,025 1,360 13,377
Awards (forfeitures)-
net................... (85) (566) 131 1,490 444 6,462
Amortization and
vesting............... (234) (4,477) (169) (4,072) (153) (4,814)
------ -------- ------ -------- ------ --------
Balance end of year.... 1,294* 7,400 1,613* 12,443 1,651* 15,025
------ -------- ------ -------- ------ --------
Common stock
outstanding........... 34,049 $344,589 33,519 $321,038 33,265 $318,714
====== ======== ====== ======== ====== ========
Retained earnings:
Balance beginning of
year.................. $471,852 $632,998 $570,504
Net income (loss)...... 58,807 (123,174) 99,337
Cash dividends:
Common (per share:
1993, $1.15; 1992
and 1991, $1.00)...... (38,690) (33,496) (33,220)
Preferred............ -- (2,515) (3,623)
Redemption costs..... (505) (1,961) --
-------- -------- --------
Balance end of year.... $491,464 $471,852 $632,998
======== ======== ========
</TABLE>
- - --------
* Shares are shown for information only and are included in common stock.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 58,807 $(123,174) $ 99,337
Items affecting cash from operations:
Depreciation and amortization............... 73,835 82,127 94,274
Cumulative effect of change in accounting
for postretirement benefits................ -- 198,000 --
Restructuring charge........................ 85,000 -- --
Loss on Tracor Aviation Inc. settlement..... -- -- 46,500
Release of tax reserves..................... -- (23,500) (30,700)
Changes in assets and liabilities:
Decrease/(increase) in:
Accounts receivable and marketable
securities................................ (2,505) 79,391 13,126
Inventories................................ 112,988 147,817 142,811
Prepaid expenses........................... 288 38,660 (9,930)
Increase/(decrease) in:
Accounts payable, wages and benefits....... 13,676 (68,585) (52,399)
Income taxes payable....................... (49,231) 65,947 (11,409)
Deferred income taxes...................... (32,362) (6,351) (4,500)
Other current liabilities.................. 26,886 56,155 (10,902)
Other...................................... 34,869 68,317 4,126
--------- --------- ---------
Net cash provided by operating activities... 322,251 514,804 280,334
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures........................ (44,585) (39,054) (54,847)
Proceeds from sale of capital assets........ 3,882 2,361 6,385
Decrease (increase) in investments.......... (25,562) 4,237 (1,486)
--------- --------- ---------
Net cash used in investing activities....... (66,265) (32,456) (49,948)
--------- --------- ---------
Cash flows from financing activities:
Decrease in short-term debt................. -- -- (17,000)
Proceeds from long-term debt................ -- -- 75,000
Repayment of long-term debt................. (141,119) (283,372) (118,023)
Redemption of preferred stock............... -- (34,321) (5)
Dividends paid.............................. (38,690) (36,011) (36,843)
Repurchase of common stock.................. (49,931) -- --
Exercise of stock options................... 20,767 (1,591) (3,015)
Capital received on formation of joint
venture.................................... -- -- 20,000
--------- --------- ---------
Net cash required by financing activities... (208,973) (355,295) (79,886)
Net increase in cash and cash equivalents for
the period................................... 47,013 127,053 150,500
Cash and cash equivalents-January 1,.......... 299,077 172,024 21,524
--------- --------- ---------
Cash and cash equivalents-December 31,........ $ 346,090 $ 299,077 $ 172,024
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of the company and
all subsidiaries. All intercompany balances and transactions have been
eliminated.
Inventories
Inventoried costs relating to both long-term government and commercial
contracts and programs are stated at the actual production cost. General and
administrative expenses allocable to aerospace fixed-price type contracts are
included in inventory, whereas such expenses for non-aerospace activities are
expensed as incurred. The costs attributed to units delivered under both long-
term government and commercial contracts and programs are based on the
estimated average costs of all units expected to be produced in a lot or
contract. In accordance with industry practice, inventories include amounts
relating to contracts and programs having long production cycles, portions of
which are not expected to be realized within one year.
Inventories of raw materials, purchased parts and supplies are carried at the
lower of cost or realizable values. Inventories are based on average cost
and/or first-in, first-out methods.
Revenue recognition
Sales under fixed-price production contracts are recorded at the time of
delivery. Sales, including fees earned, under cost-reimbursement and research,
development, test and evaluation contracts are recorded as costs are incurred.
Certain contracts contain cost and/or performance incentives. Such incentives
are included in sales at the time actual performance can be related to the
target and the earned amount can be reasonably determined. Accordingly,
earnings recorded in one period may include adjustments related to sales
recorded in a prior period. Losses on contracts are recorded when they become
known.
Depreciation and amortization
The company uses a declining-balance method of depreciation for substantially
all of its plant and equipment. Leasehold improvements are amortized over the
terms of the leases or their estimated useful lives, whichever is shorter.
Upon sale or retirement of plant and equipment, the related cost and
accumulated depreciation are removed from the accounts, and any gain or loss is
reflected currently. Maintenance and repair costs are expensed as incurred.
Intangibles
The excess of cost over the net assets of acquired companies at December 31,
1993 and 1992, was $3.6 and $3.7 million, respectively. These amounts are
included in Non-Current Assets--Other, and are being amortized over 40 years.
Cash equivalents
It is the company's policy to treat securities which are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying value of such items, which is at cost,
approximates fair value because of the short maturity of those instruments.
Cash flow supplemental information
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest (net of amount capitalized)........... $39,058 $57,543 $87,884
Federal income taxes........................... 97,800 37,000 40,000
</TABLE>
9
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial instruments
During 1993, the company initiated a Common Stock Repurchase Program to
purchase up to $100 million of the company's outstanding common stock. As a
hedge of the company's cost, the company entered
into a series of equity put warrants whereby the company may be obligated to
repurchase 750,000 shares, if put to the company, at expiration date. These
equity put warrants will expire during the period August through October 1994.
Also during 1993, the company invested approximately $25 million in a
limited partnership which invests in repurchase and reverse repurchase
agreements backed by highly rated securities. At December 31, 1993, the value
of the partnership's underlying net assets approximated the company's
investment which is being accounted for using the equity method.
Research and development
Research and development costs associated with government programs up to a
negotiated ceiling are charged to inventory and are recorded in cost of sales
when products are delivered or services performed. Costs in excess of ceiling
and expenditures for commercial projects are charged against income in the
year incurred. Total expenditures for research and development, bid and
proposal efforts were, in millions, $122.5 in 1993, $132.8 in 1992 and $127.5
in 1991.
Earnings per common share
Primary earnings per share are determined after deducting preferred stock
dividends and are based on the weighted average number of outstanding common
shares and common stock equivalents.
Reclassification
Certain prior-year amounts have been reclassified to conform to 1993
classifications.
NOTE 2--RESTRUCTURING AND DISCONTINUED OPERATIONS:
In order to become more competitive in the changing defense market, the
company recorded in the fourth quarter of 1993 an $85 million restructuring
provision. In connection with the consolidation of its facilities, the company
anticipates reducing its total floor space approximately 30 percent by 1997.
The restructuring charge provides for equipment and inventory write-offs of
approximately $60 million and plant closing costs of approximately $25
million.
During 1993, the company settled a lawsuit relating to its previously
discontinued solar panel business and recorded a loss of $9.9 million before
an income tax benefit of $3.2 million.
Operating results for Paumanock Insurance Company Ltd. for the years ended
December 31, 1992 and 1991, were reported in the income statement under the
caption "Income (loss) from discontinued operations" and are summarized as
follows:
<TABLE>
<CAPTION>
1992 1991
-------- -------
<S> <C> <C>
Sales.................................................. $113,944 $64,055
Income (loss) before income taxes...................... (54,035) 6,266
Income taxes........................................... (9,000) 2,100
Net income (loss)...................................... (45,035) 4,166
</TABLE>
At December 31, 1992, the net book value of the insurance company's assets
and liabilities was $11.1 million and is included in other non-current assets.
This business was sold in the first quarter of 1993 at an amount that
approximated the company's carrying value.
10
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACCOUNTS RECEIVABLE:
Receivables at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Billed:
U.S. government...................................... $121,394 $110,873
Commercial........................................... 59,027 46,017
-------- --------
180,421 156,890
-------- --------
Unbilled costs and accrued profits:
U.S. government...................................... 320,370 337,306
Commercial........................................... 17,940 40,064
-------- --------
338,310 377,370
-------- --------
$518,731 $534,260
======== ========
</TABLE>
Unbilled costs and accrued profits represent revenue earned but not billed to
the customer at year-end. At December 31, 1993, approximately $166.7 million of
claims and accruals, a portion of which is subject to negotiation, is not
expected to be realized before December 31, 1994.
In June of 1991, the company submitted a request to the U. S. Air Force for
an equitable adjustment of the price of a contract involving the F-111A/E & EF-
111A Avionics Modernization Program, based on late and inadequate government-
furnished software and other property and other failures to comply with
contract requirements by the government. The request, as amended in May of
1993, was in the amount of $62.5 million. On August 26, 1993, the Contracting
Officer issued what purports to be a decision under the Contract Disputes Act
denying the preponderance of the price increase requested and concluding that
the Air Force is entitled to recover a net amount of $5.5 million on the basis
of alleged company failures to comply with the terms of the contract. The
company believes there is little or no support for the Contracting Officer's
decision and that the amounts of revenue recognized pursuant to this contract
are appropriate as of December 31, 1993.
NOTE 4--INVENTORIES:
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1993 1992
--------- ----------
<S> <C> <C>
Work in process--long-term contracts:
Production costs.................................. $ 951,837 $1,140,212
General and administrative expenses............... 120,491 110,316
Work in process--other.............................. 9,595 13,664
Raw materials, purchased parts and supplies......... 82,158 134,261
--------- ----------
1,164,081 1,398,453
Less related progress payments...................... 664,645 786,029
--------- ----------
$ 499,436 $ 612,424
========= ==========
</TABLE>
Under the contractual arrangements by which progress payments are received,
the government has a security interest in the inventories identified with
related contracts.
The aggregate amounts of selling, general and administrative expenses
incurred during 1993, 1992 and 1991 were, in millions, $375.0, $350.1 and
$349.3 respectively.
11
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31 (at cost) consist of:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Land................................................. $ 11,954 $ 11,474
Buildings............................................ 316,029 310,747
Machinery and equipment.............................. 967,773 963,395
Leasehold improvements............................... 51,437 51,829
Construction in progress............................. 12,897 8,782
---------- ---------
1,360,090 1,346,227
Less accumulated depreciation and amortization....... 987,367 946,806
---------- ---------
$ 372,723 $ 399,421
========== =========
</TABLE>
For the years 1993, 1992 and 1991, interest costs of $.9, $.5 and $1.8
million were capitalized, respectively, relating to construction in progress.
NOTE 6--INCOME TAXES:
The provision for federal income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Current.................................... $101,400 $ 27,600 $ 8,600
Deferred................................... (83,900) (9,900) (4,500)
-------- -------- --------
$ 17,500 $ 17,700* $ 4,100
======== ======== ========
- - --------
* Excludes a tax benefit of $102 million relating to the cumulative effect of
the change to the accrual method of accounting for postretirement health
benefits.
A reconciliation between the provision for federal income taxes (substantially
all domestic) and the amount computed at the statutory federal income tax rate
is as follows:
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Provision computed at the statutory rate of
(1993--35%; 1992 and 1991--34%)........... $ 26,710 $ 31,459 $ 35,169
Research and other tax credits realized.... -- (23,500) (30,799)
Valuation allowance........................ (9,372) 9,372 --
FAS 109 adjustment and other............... 162 369 (270)
-------- -------- --------
$ 17,500 $ 17,700 $ 4,100
======== ======== ========
The provision for deferred federal income taxes consisted of the following:
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Contract tax accounting methods............ $(40,013) $ 16,208 $ (4,692)
Accelerated depreciation................... (294) (1,716) (3,502)
Capitalized costs.......................... (2,463) (669) (6,285)
Gain from investment....................... (17,150) -- --
Restructuring charge....................... (30,000) -- --
Employee benefits and all other--net....... (2,980) (14,723) 9,979
Discontinued operations.................... 9,000 (9,000) --
-------- -------- --------
$(83,900) $ (9,900) $ (4,500)
======== ======== ========
</TABLE>
12
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The current liability for income taxes shown in the accompanying financial
statements includes current deferred income taxes of $42.7 and $62.4 million as
of December 31, 1993 and 1992, respectively.
Deferred tax liabilities (assets) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
<S> <C> <C>
Contract tax accounting............................ $ 86,910 $ 96,159
Excess tax over book depreciation.................. 30,337 31,856
--------- ---------
Gross deferred tax liabilities................... 117,247 128,015
--------- ---------
Restructuring charge............................... (30,000) --
Retiree benefit plans.............................. (106,673) (104,203)
Capitalized costs.................................. (17,307) (14,886)
Employee benefits and other........................ (23,411) (32,398)
Gain from investment............................... (17,150) --
Discontinued operations............................ -- (18,372)
--------- ---------
Gross deferred tax assets........................ (194,541) (169,859)
--------- ---------
Valuation allowance................................ -- 9,372
Net deferred tax asset........................... $ (77,294) $ (32,472)
========= =========
</TABLE>
The net change in the valuation allowance for deferred tax assets was a
decrease of $9.4 million as a result of the utilization of the loss incurred on
the sale of the reinsurance business.
Effective January 1, 1992, the company began using the liability method as
prescribed in Financial Accounting Standard No. 109 which was issued in
February 1992. Under FAS 109, deferred tax assets and liabilities are measured
at the tax rate that, under existing law, will be in effect when temporary
differences between financial and tax reporting turn around.
State taxes on income are included in general and administrative expenses,
and amounted to, in millions, $29.6 in 1993, $16.7 in 1992 and $11.3 in 1991.
NOTE 7--STOCK OPTIONS AND INCENTIVE PLANS:
The 1981 Stock Option Plan provided for the granting, at any time before
April 30, 1991, of options to purchase not more than 2,500,000 shares of the
company's stock. The 1990 Stock Option Plan provides for the granting, at any
time before April 30, 2000, of options to purchase not more than 1,500,000
shares of the company's stock. The 1992 Long Term Incentive Plan provides for
grants of awards not to exceed 1,750,000 shares. The stock option purchase
prices in these three plans are not less than the fair market value at dates of
grant.
The plans include an option surrender provision which allows the holders to
surrender some or all of their options and receive the value of the
appreciation of the shares in common stock.
13
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPTIONS
<TABLE>
<CAPTION>
AVAILABLE FOR
OUTSTANDING FUTURE GRANT
DECEMBER 31 GRANTED EXERCISED SURRENDERED FORFEITED DECEMBER 31
------------ ------------ ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF SHARES
1993.................... 1,584,667 547,700 137,758 1,618,641 54,609 1,374,784
1992.................... 2,847,975 535,000 11,150 493,200 131,200 1,457,472
OPTION PRICE PER SHARE
1993.................... $14.19-39.13 $29.19-39.13 $14.94-32.13
1992.................... $14.19-32.13 $18.69-21.06 $14.25-21.56
</TABLE>
In exchange for the options surrendered in 1993 and 1992, 514,358 and 103,040
shares were issued, having an aggregate market value of $17.6 and $2.3 million,
respectively.
Restricted Stock Award Plans provide for granting to employees, at any time
before January 1, 1998, not more than 3,750,000 shares of common stock. At
December 31, 1993, 1,063,130 shares were still available for future awards. The
cost of shares awarded under these plans is being amortized over 10 years for
awards made prior to April 1989 and seven years thereafter, the periods after
which all restrictions will have lapsed. In 1993, 1992 and 1991, $3.2, $4.1 and
$4.8 million, respectively, have been charged against income for these awards.
The 1992 Long Term Incentive Plan provides for granting up to 1,750,000
shares in the form of stock options, performance shares and restricted stock.
To date three awards have been made totalling 428,650 performance shares, which
are earned over a three-year period; and, $4.4 million and $1.4 million of
compensation expense has been recorded for 1993 and 1992, respectively. Options
for 495,500 shares have been granted under this plan. Both the performance
shares and the options granted under this plan are included in the above table.
In addition, officers and key employees of the company and its subsidiaries
have received awards under a Management Incentive Plan totalling, in millions,
$7.0 in 1993, $6.8 in 1992 and $5.8 in 1991.
NOTE 8--LONG-TERM DEBT:
Long-term debt, net of current maturities, at December 31 is as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Notes due 1999, 10 3/8%................................ $200,000 $200,000
Convertible subordinated debentures due 2009, 9 1/4%... -- 50,000
Sinking fund debentures due 2011, 10 1/2%.............. -- 55,605
Notes and mortgages at rates from 5 3/4% to 12 7/8%
with maturities through 2001.......................... 43,106 49,639
-------- --------
$243,106 $355,244
======== ========
</TABLE>
The fair value of the company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the corporation for debt of the same remaining maturities. Long-term
debt at December 31, 1993, in the opinion of management has a fair value of
$262.3 million.
14
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt maturing in each of the next five years is as follows, in
millions: 1994, $6.6; 1995, $7.3; 1996, $8.1; 1997, $8.3; 1998, $9.5.
The company is party to a Restated Credit Agreement with various banks under
which it may borrow up to $200 million. Additionally, the banks have provided a
short-term credit facility which provides an additional $100 million through
March 31, 1994. On February 25, 1996, the Restated Credit Agreement will
terminate and any outstanding advances must be repaid to the banks. Any
outstanding advances under the short-term credit facility must be repaid at
termination. Interest on borrowings under this agreement will be based on a
three level scale related to the company's current credit rating ranging from
either Citibank's Base Rate up to .25 percent over that rate or .50 to 1.25
percent over the applicable Eurodollar Rate. There is a commitment fee
associated with both agreements that is also based on the company's credit
rating ranging from .25 to .50 percent on the Restated Credit Agreement and
from .20 to .50 percent on the short term agreement.
Repayment of borrowings under all of the loan agreements is guaranteed by the
company's major subsidiaries. The agreements contain, among other things,
provisions regarding maintenance of working capital, net worth and the payment
of cash dividends on common stock. The company's working capital and net worth
are substantially in excess of the minimum requirements, and the amount
available for the payment of cash dividends at December 31, 1993, was $36
million.
The $75 million 9.50 percent notes which were due February 15, 1996, were
included in short-term debt at December 31, 1992, and were redeemed on February
17, 1993, at 100 percent of face value, together with accrued interest.
The 9.25 percent convertible subordinated debentures due August 15, 2009,
were convertible at any time prior to maturity into common stock at $34.75 per
share. This issue of debentures was called by the company July 7, 1993, at a
price of 101.85 percent of face value plus accrued interest. The 10.50 percent
sinking fund debentures due February 15, 2011, were called by the company on
April 20, 1993, at a price of 107 percent of face value plus accrued interest.
The 10.375 percent notes due January 1, 1999, will be redeemable at any time
on or after January 1, 1996, after written notice, as a whole or in part at 100
percent of principal amount thereof, together with accrued interest. Upon the
occurrence of a designated event (primarily a change in equity ownership, a
merger with another company or a two- thirds turnover of the board of
directors), the holders of the notes may require the company to repurchase
their notes at 100 percent of the principal amount.
NOTE 9--PREFERRED STOCK:
The company is authorized to issue 10 million shares of $1.00 par value
preferred stock, none of which is issued and outstanding at December 31, 1993.
In July 1992, the remaining outstanding 1,192,249 shares of $2.80 cumulative
preferred stock were redeemed at $25.867 per share.
Each share of the $.80 convertible preferred stock was convertible into 2.2
shares of the company's common stock. In November 1992 the company exercised
its right to call this issue of stock. Those holders who did not convert their
holdings to common stock by November 25, 1992, received a cash payment of
$14.43 per share plus accrued dividends to that date. Preferred stock converted
into common stock during 1992 and 1991 were 2,888 shares and 454 shares,
respectively.
15
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--RETIREMENT PLANS:
Grumman has noncontributory defined benefit plans covering approximately 85
percent of its employees and some defined contribution plans covering others.
Benefits under the defined benefit plans are based on employees' years of
service and career average compensation.
Statement of Financial Accounting Standard (FAS) No. 87, Employers'
Accounting for Pensions, effective for fiscal years beginning after December
15, 1986, established a methodology for calculating periodic pension costs for
defined benefit pension plans based on the projected unit credit actuarial
method.
The following tables set forth the status of the company's pension plans:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................... $2,619,958 $2,140,407
Nonvested............................................ 233,482 199,334
---------- ----------
Accumulated benefit obligation....................... 2,853,440 2,339,741
Effect of projected future salary increases.......... 138,778 156,833
---------- ----------
Projected benefit obligation for services rendered to
date................................................ 2,992,218 2,496,574
Plan assets at fair value.............................. 2,871,620 2,771,642
---------- ----------
Projected benefit obligations (in excess of)/less than
plan assets........................................... (120,598) 275,068
Items not yet recognized in earnings:
Unamortized net (asset).............................. (187,182) (207,112)
Deferred net loss/(gain)............................. 326,734 (93,339)
---------- ----------
Accrued pension (liability)/prepaid expense............ $ 18,954 $ (25,383)
========== ==========
</TABLE>
Periodic pension cost for 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during period.. $ 54,993 $ 61,918 $ 61,135
Interest cost on projected benefit obliga-
tion....................................... 209,062 198,841 186,767
Actual return on assets..................... (186,573) (149,733) (486,778)
Net amortization and deferral............... (49,992) (67,693) 284,757
--------- --------- ---------
27,490 43,333 45,881
Defined contribution plans, etc............... 11,737 10,740 9,260
--------- --------- ---------
Total pension expense*........................ $ 39,227 $ 54,073 $ 55,141
========= ========= =========
Contributions to pension plans................ $ 77,892 $ 92,227 $ 88,507
========= ========= =========
</TABLE>
- - --------
*Since government procurement regulations permit the recovery of pension
expense only to the extent contributions are made to the pension plans and the
company's business is predominantly with the government, the difference between
plan contributions and the calculated amount per FAS No. 87 is recorded in a
deferred asset account, as this difference will be expensed in the future as
costs are funded. The company's consolidated statement of income therefore
includes the total FAS No. 87 pension cost and a comparable amount of revenue.
Costs and liabilities associated with the pension enhancement program where
1,900 employees accepted enhanced pensions as an incentive to retire during the
period April 2 through October 31, 1990, are included above and are being
funded over a ten-year period which began in 1991.
16
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assumptions used in determining the actuarial present value of benefit
obligations as of December 31 were:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Discount rate................................................. 7.50% 8.50%
Rate of increase in compensation levels....................... 3.50% 5.00%
Expected long-term rate of return on assets................... 8.50% 8.75%
</TABLE>
The discount rate was reduced from 8.50 percent to 7.50 percent and the
expected rate of return from 8.75 percent to 8.50 percent in recognition of
declining interest rates. These are the primary reasons that plan assets
shifted from being greater than the projected benefit obligations at December
31, 1992 to being $120.6 million less than the projected benefit obligation at
December 31, 1993.
For the years 1992 and 1991, the assumptions used in determining the net
periodic pension expense and the actuarial present value of benefit obligations
were a discount rate of 8.75 percent, a compensation increase rate of 6.00
percent, and an expected long-term rate of return on assets of 8.75 percent.
Approximately 37 percent of the retirement plans' assets are invested in
diversified corporate stock, 32 percent in U.S. government securities, 10
percent in corporate fixed income securities, 4 percent in real estate
investments and 17 percent in short-term investments. In the event the company
terminates its major plan, the U.S. government may claim a share of the
remaining excess assets after the accumulated benefits have been satisfied. The
company's objectives are to make contributions to the plan that satisfy the
ERISA funding requirements and to utilize realistic actuarial assumptions based
on long-term trends.
NOTE 11--POSTRETIREMENT HEALTH AND POSTEMPLOYMENT BENEFITS:
Approximately 75 percent of the company's employees employed at year-end may
become eligible for certain retiree health care benefits. The length of time
the benefit is available is directly related to years of service. Retiree
contributions depend on length of service and Medicare status.
Financial Accounting Standard (FAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," requires accrual accounting for
retiree medical benefits. The company adopted FAS No. 106 effective January 1,
1992, and elected to immediately expense the $300 million transition obligation
upon adoption. To date the company has not prefunded this liability but has
taken steps to establish an acceptable funding vehicle with funding to commence
in 1994.
The 1993 and 1992 net periodic postretirement benefit cost by component is as
follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Service cost............................................ $ 2,591 $ 3,350
Interest cost........................................... 20,310 25,150
Amortization of net gain................................ (1,904) --
------- -------
$20,997 $28,500
======= =======
</TABLE>
17
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status and breakdown of the postretirement benefits are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
<S> <C> <C>
Accumulated benefit obligation:
Active employees..................................... $ 96,681 $136,700
Retirees............................................. 155,325 169,800
-------- --------
Accumulated benefit obligation..................... 252,006 306,500
Unrecognized gain.................................... 52,746 --
-------- --------
Accrued postretirement benefit cost.................... $304,752 $306,500
======== ========
</TABLE>
The health care trend rates used by the company as of December 31, 1993,
were: 1993, 14 percent; 1994 and 1995, 12.50 percent; 1996-1998, inclusive,
9.50 percent; as of December 31, 1992, they were: 1992, 12 percent; 1993-1995,
inclusive, 14 percent; 1996-1998, inclusive, 12 percent. The trend thereafter
is zero due to the company's announcement that these costs will be capped at
1998 levels and all increases thereafter will be borne by the retirees.
The combination of fewer employees, lower health care claim cost experience,
and changes in actuarial assumptions has had the effect of reducing the
accumulated benefit obligation by approximately $54.7 million.
The 1993 valuation used a 7.50 percent discount rate. The effect of a one
percentage point increase in the assumed health care cost trend rates on the
accumulated benefit obligation would be an increase of $6.7 million at December
31, 1993. The net periodic postretirement cost for 1993 would increase by $1.3
million.
Prior to adoption of this standard, postretirement medical benefits were
accounted for on a pay-as-you-go basis. The cost of providing these benefits
net of retiree contributions amounted to $21.3 million in 1991.
In 1994, FAS No. 112, "Employers' Accounting for Postemployment Benefits,"
becomes mandatory. It requires postemployment benefits to be accounted for on
an accrual basis. The company's present accounting policies provide for the
accrual of the major components of these costs and adoption of this standard
will not have a material impact on the company's financial statements.
NOTE 12--COMMITMENTS AND CONTINGENCIES:
Rental expense for all operating leases amounted to, in millions, $67.1,
$72.8 and $75.8 for 1993, 1992 and 1991, respectively. Minimum rental
commitments under long-term noncancellable operating leases total $234.2
million which is payable as follows: 1994, $39.9; 1995, $34.6; 1996, $28.6;
1997, $23.8; 1998, $21.4; and $85.9 million in later years.
On January 28, 1993, a jury sitting in the United States District Court for
the District of Massachusetts returned a verdict against Grumman Systems
Support Corporation (GSSC), a subsidiary of Grumman Data Systems Corporation
(GDSC), which in turn is a wholly-owned subsidiary of the company, in an action
brought against GSSC by Data General Corporation (DG) for copyright
infringement and misappropriation of trade secrets. Judgment against GSSC was
entered in the United States District Court for the District of Massachusetts
in the amount of $52.4 million. Immediately after the entry of judgment DG
brought a post-trial motion seeking to join GDSC as a party defendant on a
theory of vicarious liability. The motion was denied and DG then commenced a
separate action in the Federal District Court for the District of
Massachusetts, Wooster Div. to enforce the judgment obtained against GDSC,
which action is still pending. GSSC has filed an appeal with the Federal Court
of Appeals for the First Circuit which was heard on
18
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 8, 1993. While GSSC's ultimate liability in the disposition of this
matter continues to be difficult to estimate, it is management's belief that
the outcome is not likely to have a material adverse effect on the company's
financial position.
Three shareholder derivative actions, which are described as brought on
behalf of the company, have been filed in the New York State Supreme Court for
New York County. The actions name certain of the company's current and former
directors as defendants, and name the company as "nominal defendant." The
actions ask that damages and other unspecified relief be awarded to the company
for the individual defendants' alleged breach of their fiduciary obligations
primarily in relation to the subject matter of a long-running federal
investigation known as "Operation Upwind." The matters referred to in these
actions have been and continue to be acted upon by the company's Board as part
of its own ongoing investigation. Motions for summary judgment which seek to
dismiss the complaints have been filed on behalf of the defendant directors and
the company in two of the three actions. No response to the complaint in the
third action has been filed.
Currently, there are five waste disposal sites where the company has been
named either as a potentially responsible party or an owner/operator of the
site by a cognizant governmental agency for the cleanup of hazardous materials
previously placed there either directly or through an agent and where the cost
of remediation or settlement could reasonably exceed $100 thousand in amount.
It is unknown at this time what the company's share of these remediation
efforts may be but it is not expected to have a material adverse effect on the
company's financial position.
Other pending litigation relating to matters that are in the ordinary course
of the company's business activities, including environmental matters, is not
expected to have a material adverse effect on the company's financial position.
NOTE 13--SEGMENT INFORMATION:
The company's operations are classified into four business segments as
follows:
"Aerospace"--Includes the design and production of military aircraft, space
systems and commercial aircraft components and subassemblies, as well as the
modernization or conversion of previously completed aircraft.
"Electronics systems"--Includes the design, manufacture and integration of
sophisticated electronics for aircraft, computerized test equipment and other
defense related products, such as airborne surveillance systems.
"Information and other services"--Includes electronic data processing
services for affiliates and other customers as well as real estate and leasing
services. It also includes technical services that help ready the space shuttle
for flight, provide space station program support, service and maintain flight
simulators and trainers and support Grumman aircraft.
"Special purpose vehicles"--Includes fabrication of long life vehicles for
the U.S. Postal Service, and aluminum truck bodies. Sales to the U.S.
government and its agencies (including sales to foreign governments through
foreign military sales contracts with U.S. government agencies) for the years
1993, 1992, and 1991 amounted to $2.8, $3.2 and $3.6 billion, respectively.
19
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of export sales by geographic areas follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Far East.......................................... $205,843 $141,782 $240,106
Middle East....................................... 87,899 21,248 23,130
Europe............................................ 74,990 70,806 60,862
Western Hemisphere................................ 5,720 4,478 9,949
-------- -------- --------
$374,452 $238,314 $334,047
======== ======== ========
</TABLE>
Information about the company's operations in its different industry segments
for the past three years is as follows:
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING IDENTIFIABLE AND CAPITAL
1993 SALES INCOME (LOSS) ASSETS AMORTIZATION EXPENDITURES
- - ---- ---------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Aerospace............... $1,965,066 $ 55,533* $1,150,003 $48,881 $29,337
Electronics systems..... 635,684 2,659* 298,680 10,309 8,768
Information and other
services............... 657,396 28,070* 294,224 9,391 4,850
Special purpose vehi-
cles................... 367,405 26,367 93,121 3,870 1,386
Corporate items and
eliminations........... (376,427) 5,580 188,421 1,384 244
---------- -------- ---------- ------- -------
Consolidated............ $3,249,124 118,209* $2,024,449 $73,835 $44,585
========== ========== ======= =======
Interest expense........ 31,702
--------
Income from continuing
operations before fed-
eral income taxes...... $ 86,507
========
- - --------
* Includes an $85 million restructuring charge as follows, in millions:
Aerospace, $73; Electronics systems, $9 and Information and other services,
$3.
<CAPTION>
1992
- - ----
<S> <C> <C> <C> <C> <C>
Aerospace............... $2,339,799 $134,476 $1,151,506 $54,855 $22,819
Electronics systems..... 610,850 13,715 317,111 11,245 9,705
Information and other
services............... 593,152 28,189 290,826 10,236 5,058
Special purpose vehi-
cles................... 343,350 27,646 74,334 4,026 1,251
Corporate items and
eliminations........... (383,201) (2,400) 255,239 1,765 221
---------- -------- ---------- ------- -------
Consolidated............ $3,503,950 201,626 $2,089,016 $82,127 $39,054
========== ========== ======= =======
Interest expense........ 55,065
--------
Income from continuing
operations before
federal income taxes... $146,561
========
<CAPTION>
1991
- - ----
<S> <C> <C> <C> <C> <C>
Aerospace............... $2,895,794 $119,753** $1,323,650 $64,308 $30,932
Electronics systems..... 505,395 13,855 325,546 11,121 12,705
Information and other
services............... 622,314 31,555 352,001 13,022 8,544
Special purpose vehi-
cles................... 366,072 21,165 99,053 4,185 2,396
Corporate items and
eliminations........... (415,724) (3,921) 142,166 1,638 270
---------- -------- ---------- ------- -------
Consolidated............ $3,973,851 182,407 $2,242,416 $94,274 $54,847
========== ========== ======= =======
Interest expense........ 85,236
--------
Income from continuing
operations before
federal income taxes... $ 97,171
========
</TABLE>
- - --------
** Includes a $46.5 million charge arising from the settlement of claims
against Tracor Aviation Inc.
20
<PAGE>
(b) Pro Forma financial information.
Because it is impractical at this time, the pro forma financial
information required by Article 11 of Regulation S-X in connection with the
acquisition of assets being reported on this Form 8-K is not included herein.
Such pro forma financial information will be filed as soon as practicable, but
no later than 60 days after the date this report must be filed.
(c) Exhibits
The following are filed as exhibits to this report:
(A) Agreement and Plan of Merger, dated as of April 3, 1994, among
Northrop Corporation, Northrop Acquisition, Inc. and Grumman
Corporation (incorporated by reference to Amendment No. 7 to
Northrop Acquisition Inc. Schedule 14D-1 filed April 5, 1994).
(B) Offer to Purchase for Cash all Outstanding Shares of Common
Stock of Grumman Corporation at $60 Net Per Share by Northrop
Acquisition, Inc., a wholly owned subsidiary of Northrop
Corporation, dated March 14, 1994 (incorporated by reference
to Northrop Acquisition, Inc. Schedule 14D-1 filed
March 14, 1994).
(C) Supplement to Offer to Purchase for Cash All Outstanding Shares
of Common Stock of Grumman Corporation, at $62 Net Per Share by
(incorporated by reference to Amendment No. 7 to Northrop
Acquisition Inc. Schedule 14D-1 filed April 5, 1994).
(D) Independent Auditor's Consent dated May 2, 1994
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATED: May 2, 1994 NORTHROP CORPORATION
By: /s/ Sheila M. Gibbons
----------------------------
Vice President and Secretary
21
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EXHIBIT 99.(c)(D)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Northrop Corporation Report on Form 8-K dated May 2, 1994, of our report to the
board of directors and shareholders of Grumman Corporation dated January 20,
1994 on the consolidated financial statements of Grumman Corporation and
subsidiaries included in or incorporated by reference in Grumman Corporation's
Annual report on Form 10-K for the year ended December 31, 1993. It should be
noted that we have not audited any financial statements of Grumman Corporation
subsequent to December 31, 1993, or performed any audit procedures subsequent to
the date of our report.
/s/ ARTHUR ANDERSEN & CO.
ARTHUR ANDERSON & CO.
New York, New York
May 2, 1994
