EPS from Continuing Operations Increase 37 Percent to $1.25 Sales Increase 21 Percent to $7.1 Billion Cash from Operations Totals $263 Million Contract Acquisitions Increase 19 Percent Total Backlog $57.6 Billion Company Confirms Previous 2004 Guidance
LOS ANGELES, May 4, 2004 (PRIMEZONE) -- Northrop Grumman Corporation (NYSE:NOC) reported that first quarter 2004 income from continuing operations rose 31 percent to $228 million, or $1.25 per diluted share, compared with $174 million, or $0.91 per diluted share, for the same period of 2003. Sales for the first quarter of 2004 increased 21 percent to $7.1 billion from $5.9 billion for the same period of 2003.
Total operating margin for the 2004 first quarter was $434 million compared with $328 million in the same period a year ago. The first quarter 2004 total operating margin includes $110 million of unallocated corporate expenses compared with $30 million for the 2003 first quarter. First quarter 2004 unallocated corporate expenses rose $80 million, mainly due to an additional provision for legal and interest costs relating to an Indiana Court of Appeals decision on April 27, 2004, affirming lower court awards against the company and in favor of Allison Gas Turbine. The awards related to cost overruns on a discontinued prototype aircraft from the 1980s. Unallocated corporate expenses for the quarter also included higher mark-to-market stock compensation expenses and environmental remediation accruals.
First quarter 2004 total operating margin includes pension expense determined in accordance with generally accepted accounting principles of $90 million versus pension expense of $140 million in the first quarter of 2003. Pension expense allocated to contracts pursuant to government Cost Accounting Standards (CAS) increased total operating margin by $80 million in the first quarter of 2004 and $71 million for the comparable 2003 period.
"Overall, first quarter results from our operations were outstanding. Each of our segments generated strong double-digit sales growth and solid increases in profit," said Ronald D. Sugar, Northrop Grumman chairman, chief executive officer and president. "Bookings for the quarter increased 19 percent, and we are on track to achieve our 2004 financial targets.
"I'm pleased with this quarter's performance, and looking at the total picture, we are in excellent shape to continue to drive operational and financial performance," Sugar added. "We are living in very challenging times and we believe that our strategy, which is to anticipate the changing nature of 21st century warfare and lead the revolutionary advances in technology that are redefining both the battlefield and our security at home, is clearly on target."
Net income for the 2004 first quarter was $232 million, or $1.27 per diluted share, compared with $253 million, or $1.34 per diluted share for the same period of 2003. First quarter 2004 income from discontinued operations was $1 million compared with $80 million in the previous year. First quarter 2003 income from discontinued operations included the results of TRW Automotive, which was sold on Feb. 28, 2003.
Contract acquisitions were $8.4 billion in the first quarter of 2004 compared with $7.1 billion for the same period of 2003. Total funded backlog was $28.2 billion at March 31, 2004, compared with $26.9 billion at Dec. 31, 2003. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $57.6 billion at March 31, 2004, compared with $58.2 billion at Dec. 31, 2003.
Guidance for 2004
Consistent with previous guidance, the company expects 2004 sales of approximately $28 billion. Earnings per share from continuing operations are expected to range between $5.60 and $5.90, which includes estimated pension expense of approximately $345 million and pension expense recognized under CAS, which is generally recoverable under government contracts, of approximately $320 million. These estimates have been refined to reflect the latest updates for foreign pension plans and plan participant census data. Net cash provided by operating activities for 2004 is expected to total approximately $1.5 billion.
Segment Results
---------------
ELECTRONIC SYSTEMS
($ in millions)
FIRST QUARTER
------------------
2004 2003
------ ------
Sales $1,538 $1,338
Operating Margin 158 121
% Operating margin to sales 10.3% 9.0%
Electronic Systems first quarter 2004 sales increased 15 percent from the first quarter of 2003 reflecting higher volume across all business areas. First quarter 2004 operating margin increased 31 percent from the first quarter of 2003, primarily due to higher sales volume as well as improved performance in the C4ISR & Naval Systems, Defensive Systems, Government Systems and Other business areas.
SHIPS
($ in millions)
FIRST QUARTER
------------------
2004 2003
------ ------
Sales $1,444 $1,195
Operating Margin 86 75
% Operating margin to sales 6.0% 6.3%
Ships 2004 first quarter sales, which include the financial results of the Newport News and Ship Systems sectors, increased 21 percent compared with the 2003 first quarter. Amphibious & Auxiliary revenue rose 51 percent as a result of increased sales from the LPD and LHD programs; Surface Combatants sales rose 46 percent, primarily due to increased revenue from the DD(X) program. Operating margin for the 2004 first quarter increased 15 percent compared with the 2003 first quarter reflecting higher volume, which was partially offset by a change in program mix toward lower margin development programs.
INFORMATION TECHNOLOGY
($ in millions)
FIRST QUARTER
------------------
2004 2003
------ ------
Sales $1,230 $1,091
Operating Margin 71 61
% Operating margin to sales 5.8% 5.6%
Information Technology first quarter 2004 sales increased 13 percent, and first quarter 2004 operating margin increased 16 percent, as compared with the first quarter of 2003. First quarter 2004 sales increased due to higher revenue in the Government Information Technology business area versus the prior year. Operating margin increased primarily due to increased sales and improved performance in the Government Information Technology business area.
MISSION SYSTEMS
($ in millions)
FIRST QUARTER
------------------
2004 2003
------ ------
Sales $1,183 $ 923
Operating Margin 76 56
% Operating margin to sales 6.4% 6.1%
Mission Systems first quarter 2004 sales increased 28 percent, and first quarter 2004 operating margin rose 36 percent, as compared with first quarter 2003 results. First quarter 2004 sales were higher in the Command, Control & Intelligence Systems and Missile Systems business areas. Higher operating margin was primarily due to increased sales as well as improved performance in the Missile Systems business area.
INTEGRATED SYSTEMS
($ in millions)
FIRST QUARTER
------------------
2004 2003
------ ------
Sales $1,147 $ 825
Operating Margin 116 88
% Operating margin to sales 10.1% 10.7%
Integrated Systems sales for the first quarter of 2004 increased 39 percent over the first quarter of 2003, primarily due to increased F-35, Global Hawk and MP-RTIP sales in the Air Combat Systems business area as well as increased E-2 Advanced Hawkeye sales in the Airborne Early Warning/Electronic Warfare Systems business area. Operating margin for the first quarter of 2004 increased 32 percent from the first quarter of 2003, reflecting higher volume in development programs such as F-35, E-2 Advanced Hawkeye and Global Hawk.
SPACE TECHNOLOGY
($ in millions)
FIRST QUARTER
------------------
2004 2003
------ ------
Sales $ 806 $ 648
Operating Margin 51 32
% Operating margin to sales 6.3% 4.9%
Space Technology first quarter 2004 sales rose 24 percent over first quarter 2003 results, due to higher F-35 and F-22 sales in the Software Defined Radios business area, increased classified sales in Intelligence, Surveillance & Reconnaissance, and increased sales in the National Polar-Orbiting Operational Environmental Satellite Systems and James Webb Space Telescope programs in the Civil Space business area. First quarter 2004 operating margin rose 59 percent as compared with the first quarter 2003, primarily due to higher sales and improved performance in the Software Defined Radios, Satellite Communications and Technology business areas.
Debt and Cash Measurements
Northrop Grumman's total debt was $6.0 billion at March 31, 2004, compared with $5.9 billion at Dec. 31, 2003. Interest expense for the first quarter of 2004 declined to $113 million from $144 million for the 2003 first quarter as a result of a reduction in fixed-rate debt acquired with the acquisition of TRW Inc. First quarter 2004 interest expense also includes the impact of the adoption of SFAS 150 -- Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which was adopted on July 1, 2003, and required $6 million of dividends payable on mandatorily redeemable preferred stock for the quarter to be classified as interest expense.
Net cash provided by operating activities in the 2004 first quarter totaled $263 million versus net cash used by operating activities of $1.1 billion in the first quarter of 2003, which included a $1 billion B-2 tax payment. During the first quarter of 2004, the company repurchased approximately 1.8 million shares of its common stock at an average price of $98.69 per share. Since the Aug. 20, 2003, announcement of a plan to repurchase up to $700 million of Northrop Grumman common stock, the company has repurchased more than 4 million shares at an average price of $93.56.
About Northrop Grumman
Northrop Grumman Corporation is a global defense company, headquartered in Los Angeles, Calif. Northrop Grumman provides a broad array of technologically advanced, innovative products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding and space technology. The company has approximately 123,000 employees and operates in all 50 states and 25 countries and serves U.S. and international military, government and commercial customers.
Note: Certain statements and assumptions in this release contain or are based on "forward-looking" information (that Northrop Grumman believes to be within the definition in the Private Securities Litigation Reform Act of 1995) and involve risks and uncertainties, and include, among others, statements in the future tense, and all statements accompanied by terms such as "project," "expect," "estimate," "assume," "guidance" or variations thereof. This information reflects the company's best estimates when made, but the company expressly disclaims any duty to update this information if new data becomes available or estimates change after the date of this release.
Such "forward-looking" information includes, among other things, financial guidance regarding sales, segment operating margin, pension expense, employer contributions under pension plans and medical and life benefits plans, and cash flow, and is subject to numerous assumptions and uncertainties, many of which are outside Northrop Grumman's control. These include Northrop Grumman's assumptions with respect to future revenues, expected program performance and cash flows, returns on pension plan assets and variability of pension actuarial and related assumptions, the outcome of litigation and appeals, environmental remediation, divestitures of businesses, successful reduction of debt, successful negotiation of contracts with labor unions, effective tax rates and timing and amounts of tax payments, and anticipated costs of capital investments, among other things. Northrop Grumman's operations are subject to various additional risks and uncertainties resulting from its position as a supplier, either directly or as subcontractor or team member, to the U.S. Government and its agencies as well as to foreign governments and agencies; actual outcomes are dependent upon various factors, including, without limitation, Northrop Grumman's successful performance of internal plans; government customers' budgetary constraints; customer changes in short-range and long-range plans; domestic and international competition in both the defense and commercial areas; product performance; continued development and acceptance of new products and, in connection with any fixed price development programs, controlling cost growth in meeting production specifications and delivery rates; performance issues with key suppliers and subcontractors; government import and export policies; acquisition or termination of government contracts; the outcome of political and legal processes; natural disasters and terrorist acts; legal, financial, and governmental risks related to international transactions and global needs for military aircraft, military and civilian electronic systems and support, information technology, naval vessels, space systems and related technologies, as well as other economic, political and technological risks and uncertainties and other risk factors set out in Northrop Grumman's filings from time to time with the Securities and Exchange Commission, including, without limitation, Northrop Grumman reports on Form 10-K and Form 10-Q.
Northrop Grumman will webcast its security analyst conference call at 11 a.m. EDT on May 4, 2004. A live audio broadcast of the conference call along with a supplemental presentation will be available on the investor relations page of the company's Web site at http://www.northropgrumman.com.
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NORTHROP GRUMMAN CORPORATION SCHEDULE 1
FINANCIAL HIGHLIGHTS
($ in millions, except per share)
(unaudited)
FIRST QUARTER
--------------------
2004 2003
-------- --------
OPERATING RESULTS HIGHLIGHTS
Total contract acquisitions (1) $ 8,420 $ 7,090
Total sales 7,105 5,866
Total operating margin 434 328
Income from continuing operations 228 174
Net income 232 253
Diluted earnings per share from continuing
operations 1.25 .91
Diluted earnings per share 1.27 1.34
Net cash provided by (used in) operating
activities 263 (1,112)
---------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2004 2003 (4)
-------- --------
BALANCE SHEET HIGHLIGHTS
Cash and cash equivalents $ 457 $ 342
Accounts receivable, net 3,426 3,198
Inventoried costs, net 1,319 1,147
Property, plant and equipment, net 4,019 4,036
Total debt 5,962 5,881
Net debt (2) 5,505 5,539
Mandatorily redeemable preferred stock 350 350
Shareholders' equity 15,863 15,785
Total assets 33,344 33,009
Net debt to capitalization ratio (3) 25% 26%
---------------------------------------------------------------------
(1) Contract acquisitions represent orders received during the period
for which funding has been contractually obligated by the
customer.
(2) Total debt less cash and cash equivalents.
(3) Net debt divided by the sum of shareholders' equity and total
debt.
(4) Certain prior year amounts have been reclassified to conform to
the 2004 presentation.
NORTHROP GRUMMAN CORPORATION SCHEDULE 2
OPERATING RESULTS
($ in millions, except per share)
(unaudited)
FIRST QUARTER
--------------------
2004 2003 (1)
--------- ---------
Sales
Electronic Systems $ 1,538 $ 1,338
Ships 1,444 1,195
Information Technology 1,230 1,091
Mission Systems 1,183 923
Integrated Systems 1,147 825
Space Technology 806 648
Intersegment Eliminations (243) (154)
--------- ---------
$ 7,105 $ 5,866
--------- ---------
Operating margin
Electronic Systems $ 158 $ 121
Ships 86 75
Information Technology 71 61
Mission Systems 76 56
Integrated Systems 116 88
Space Technology 51 32
--------- ---------
Total segment operating margin 558 433
Reconciliation to operating margin (2)
Unallocated expenses (110) (30)
Pension expense (90) (140)
Reversal of CAS pension expense
included above 80 71
Reversal of royalty income
included above (4) (6)
--------- ---------
Operating margin 434 328
Interest income 16 12
Interest expense (113) (144)
Other, net 10 17
--------- ---------
Income from continuing operations
before income taxes 347 213
Federal and foreign income taxes 119 39
--------- ---------
Income from continuing operations 228 174
Income from discontinued operations,
net of tax 1 80
Gain (loss) from disposal of
discontinued operations, net of tax 3 (1)
--------- ---------
Net income $ 232 $ 253
--------- ---------
Diluted earnings per share
From continuing operations $ 1.25 $ .91
Income from discontinued operations,
net of tax .43
Gain on disposal of discontinued
operations, net of tax .02
--------- ---------
Diluted earnings per share $ 1.27 $ 1.34
--------- ---------
---------------------------------------------------------------------
(1) Certain prior year amounts have been reclassified to conform to
the 2004 presentation.
(2) Pension expense is included in determining segment operating
margin to the extent that the cost is currently recognized under
government Cost Accounting Standards (CAS). In order to reconcile
from segment operating margin to total company operating margin,
these amounts are reported under the caption "Reversal of CAS
pension expense included above." Total pension expense determined
in accordance with Generally Accepted Accounting Principles
(GAAP) is reported separately as a reconciling item under the
caption "Pension expense." The reconciling item captioned
"Unallocated expenses" includes the portion of corporate, legal,
environmental, state income tax, other retiree benefits expenses
and other expenses not considered allowable under CAS and not
allocated to the segments.
NORTHROP GRUMMAN CORPORATION SCHEDULE 3
ADDITIONAL SEGMENT INFORMATION
($ in millions)
(unaudited)
CONTRACT FUNDED
ACQUISITIONS(1) BACKLOG(2)
---------------- ----------------
FIRST QUARTER MARCH 31,
---------------- ----------------
2004 2003 (4) 2004 2003 (4)
-------- -------- -------- --------
Electronic Systems $ 1,772 $ 1,578 $ 6,702 $ 6,735
Ships 1,518 850 9,823 10,016
Information Technology 1,212 1,326 2,283 2,344
Mission Systems 1,336 1,212 3,058 2,490
Integrated Systems 1,768 1,665 4,919 4,605
Space Technology 1,133 767 1,885 1,427
Intersegment Eliminations (319) (308) (489) (340)
-------- -------- -------- --------
Total $ 8,420 $ 7,090 $28,181 $27,277
-------- -------- -------- --------
TOTAL BACKLOG, MARCH 31, 2004
--------------------------------
FUNDED UNFUNDED(3) TOTAL
BACKLOG
--------- --------- ----------
Electronic Systems $ 6,702 $ 2,379 $ 9,081
Ships 9,823 3,943 13,766
Information Technology 2,283 2,269 4,552
Mission Systems 3,058 7,369 10,427
Integrated Systems 4,919 5,082 10,001
Space Technology 1,885 8,391 10,276
Intersegment Eliminations (489) -- (489)
--------- --------- ----------
Total $28,181 $29,433 $57,614
--------- --------- ----------
(1) Contract acquisitions represent orders received during the period
for which funding has been contractually obligated by the
customer.
(2) Funded backlog represents unfilled orders for which funding has
been contractually obligated by the customer.
(3) Unfunded backlog represents firm orders for which funding is not
currently contractually obligated by the customer. Unfunded
backlog excludes unexercised contract options and unfunded
Indefinite Delivery Indefinite Quantity (IDIQ) orders.
(4) Certain prior year amounts have been reclassified to conform to
the 2004 presentation.
---------------------------------------------------------------------
AMORTIZATION OF PURCHASED INTANGIBLES
FIRST QUARTER
------------------
2004 2003
---- ----
Electronic Systems $ 21 $ 21
Ships 10 10
Information Technology 5 5
Mission Systems 8 9
Integrated Systems 4 4
Space Technology 8 8
---- ----
$ 56 $ 57
---- ----
---------------------------------------------------------------------
NORTHROP GRUMMAN CORPORATION SCHEDULE 4
SALES BY BUSINESS AREA WITHIN SEGMENTS
($ in millions)
(unaudited)
FIRST QUARTER
------------------
2004 2003 (1)
------- -------
Electronic Systems
Aerospace Systems $ 392 $ 356
C4ISR & Naval Systems 332 279
Defensive Systems 255 214
Navigation Systems 184 174
Government Systems 124 86
Space Systems 111 110
Other 140 119
------- -------
1,538 1,338
------- -------
Ships
Surface Combatants 470 321
Aircraft Carriers 440 470
Amphibious and Auxiliary 306 203
Submarines 162 132
Commercial and International 38 36
Services and Other 41 39
Intrasegment Eliminations (13) (6)
------- -------
1,444 1,195
------- -------
Information Technology
Government Information Technology 753 624
Enterprise Information Technology 176 182
Technology Services 159 153
Commercial Information Technology 175 157
Intrasegment Eliminations (33) (25)
------- -------
1,230 1,091
------- -------
Mission Systems
Command, Control & Intelligence
Systems 723 557
Missile Systems 285 212
Technical and Management Services 188 165
Intrasegment Eliminations (13) (11)
------- -------
1,183 923
------- -------
Integrated Systems
Air Combat Systems 712 516
Airborne Early Warning/Electronic
Warfare Systems 280 179
Airborne Ground Surveillance/Battle
Management Systems 156 130
Intrasegment Eliminations (1) --
------- -------
1,147 825
------- -------
Space Technology
Intelligence, Surveillance &
Reconnaissance 237 188
Civil Space 155 118
Software Defined Radios 143 85
Satellite Communications 132 133
Missile and Space Defense 99 88
Technology 52 45
Intrasegment Eliminations (12) (9)
------- -------
806 648
------- -------
Intersegment Eliminations (243) (154)
------- -------
Total Sales $ 7,105 $ 5,866
------- -------
(1) Certain prior year amounts have been reclassified to conform
to the 2004 presentation.