LOS ANGELES, Sept. 8, 2005 (PRIMEZONE) -- Northrop Grumman Corporation (NYSE:NOC) stated today that the impact of Hurricane Katrina ("Katrina") will affect the near-term operations and financial results of its Ship Systems sector, which is reported as part of the Ships segment in the company's financial reports. Other Northrop Grumman sectors operate smaller facilities in the Gulf Coast region that have also been impacted by Katrina, but to a much lesser extent than the Ship Systems operations. While the company's facilities have incurred significant damage and its operations have been impacted, the company also stated that it has adequate resources and liquidity to meet its current obligations and does not expect a material impact to its overall financial health. The company presently expects that its 2006 financial guidance will be largely unaffected by the hurricane, as there are aggressive efforts underway to restore the shipyards to full operations.
Northrop Grumman expects to begin a phased resumption of shipbuilding activity at its Ship Systems operations in New Orleans, La., Pascagoula, Miss. and Gulfport, Miss. during the month of September. Despite extensive damage to the shipyard facilities, major shipyard assets, such as cranes, dry docks and most fabrication facilities, have survived the hurricane and are being brought back to an operational status. Approximately 2,500 people are now working to clean up and help bring the shipyards back to production.
For 2005, Northrop Grumman expects its financial results to be affected by Katrina in three primary categories: cost of damage repair, delay of work and cost growth on contracts. With respect to the cost of damage repair, Northrop Grumman has insurance coverage addressing damage resulting from Katrina and is closely coordinating with its underwriters as the damage-assessment process continues. Although the company cannot currently estimate the full extent of the property damage, Northrop Grumman believes its insurance is adequate to cover the preponderance of any such costs.
Closure of the three operations as a result of the hurricane will significantly delay work in process at all sites. In addition to the clean-up and repair required on site, basic infrastructure in the surrounding area has been severely damaged. Many of the company's employees have also been individually impacted, causing delays in work proceeding. Northrop Grumman expects that contract work will resume in a phased approach at all three sites. The company's previous financial guidance for 2005 included an expectation of approximately $950 million in revenue from the three operations for the remainder of the year. Northrop Grumman now expects revenues and operating margin to be lower due to work disruption and delay. As the shipyards are brought back into operation, the rate of business resumption will determine the impact on the 2005 results. The company's current expectation is that work delay will negatively impact its 2005 earnings by $.06 to $.12 per share.
Northrop Grumman also expects to encounter cost growth on Ship Systems contracts. As a result of the delay and disruption associated with repairing the shipyards, the phased restart of work effort, the costs associated with the retention of employees and other ongoing expenses, it anticipates additional costs will be assigned to current contracts within Ship Systems. These additional costs are generally allowable under government contracts, but margin under those contracts may be affected by varying cost-share arrangements. The company is working with its customers and underwriters to mitigate the potential impact of these cost effects. The company cannot presently estimate, but is working to assess, the degree to which the earnings impact of this cost growth will be recognized in current periods, the extent to which these impacts are recoverable and the degree to which such recovery may be reflected in subsequent period results.
The projected effects of the above categories of impact are based on prior experience in achieving recovery of operations and expenses following storms; however, the broad scale of economic impact resulting from Katrina is more extensive than the events associated with the company's relevant prior experience. The company will assess its progress toward recovery, and will review whether there is a need for an impairment test of certain of its long-lived assets at the affected locations.
Northrop Grumman is proud of the hard work and dedication of its Gulf Coast employees in the face of extreme personal hardship. The company is equally dedicated to the rapid resumption of our work serving America's critical defense needs.
Northrop Grumman Corporation is a global defense company headquartered in Los Angeles, Calif. Northrop Grumman provides technologically advanced, innovative products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding and space technology. With more than 125,000 employees, and operations in all 50 states and 25 countries, Northrop Grumman 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," "believe," "guidance," "anticipate," or variations thereof. In addition to the risks and uncertainties contained in the companies filings from time to time with the Securities Exchange Commission, including forms 10-K and 10-Q, the forward-looking statements in this release are based on preliminary estimates and actual outcomes are dependent upon additional factors that are currently not susceptible of quantification, such as, among other things, actual recoveries under insurance contracts, contractual performance relief and sharing requirements, impacts of timing of cash receipts and availability of other mitigating elements. 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.