LOS ANGELES, July 25, 2001 (PRIMEZONE) -- Northrop Grumman Corporation (NYSE:NOC) today reported second quarter 2001 economic earnings of $137 million, a 14 percent increase compared with $120 million in economic earnings reported for the second quarter of 2000. On a per share basis, 2001 economic earnings were $1.57 per share on average diluted shares outstanding of 84.0 million, compared with economic earnings of $1.71 per share on average diluted shares outstanding of 70.1 million for the comparable period in 2000. Northrop Grumman's second quarter results include the operations of Litton Industries Inc., which the company acquired April 3, 2001.
Under Generally Accepted Accounting Principles (GAAP), the company reported second quarter 2001 net income of $114 million, or $1.28 per share, compared with net income from continuing operations of $175 million, or $2.50 per share, reported for the second quarter last year. The comparable decline reflects a substantial decrease in pension income.
Sales for the quarter ended June 30, 2001, were $3.7 billion, compared with $1.9 billion reported for the second quarter of 2000. Northrop Grumman's operating margin for the quarter was $275 million compared with the $317 million reported for the same period a year ago. Operating margin for the 2001 second quarter included $91 million of pension income, down from the $140 million reported in the second quarter of 2000. With the inclusion of the Litton plans, pension income for 2001 is expected to be approximately $340 million, in line with previous guidance.
"We are pleased to report another strong quarter of operating results, led by our Electronic Sensors and Systems Sector, which generated 35 percent organic sales growth, and by our Integrated Systems Sector, which exceeded our operational performance expectations," said Kent Kresa, Northrop Grumman's chairman, president and chief executive officer. "The integration of Litton's businesses into Northrop Grumman is also well under way and we remain confident that we will achieve our future annual cost savings objectives of $100 million by the end of the first 12 months and $250 million by the end of 2003. We expect combined revenues this year of more than $13 billion, growing to approximately $16 billion in 2002."
Mr. Kresa added that due to a change in the planned accounting treatment of certain Litton research and experimental tax credits, the effective tax rate for 2001 will be higher than previously estimated, reducing economic earnings by 80 cents per share. As a result, the company's economic earnings for 2001 are expected to range from $6.20 to $6.50 per share, down from earlier guidance of $7.00 to $7.40 per share. The company added that this accounting change will not affect 2001 cash generation, which is expected to range between $100 million and $200 million.
The company also said that it now anticipates a 15 percent to 20 percent increase in 2002 economic earnings based on the revised 2001 guidance. The new guidance reflects the continued strong operational performance across the company, partially offset by a higher than expected tax rate and continued uncertainty in the telecommunications market.
Northrop Grumman's contract acquisitions in the second quarter of 2001 totaled $10.1 billion and include $7.5 billion of funded order backlog acquired in the Litton transaction. The company's business backlog at June 30, 2001, was $16.8 billion, compared with the $8.8 billion reported a year earlier.
Due to additional statement of work, the company also said that the B-2 stealth bomber engineering and manufacturing development (EMD) contract would now be completed in the fourth quarter of 2002. The corresponding federal and state income taxes totaling approximately $1 billion will become payable in March 2003.
As previously announced, Northrop Grumman completed its acquisition of Litton Industries Inc., for approximately $5.2 billion in cash and stock, including the assumption of Litton's $1.3 billion of net debt. As a result, the company now has five reporting segments: Electronic Sensors and Systems Sector (ES3), which includes Litton's Advanced Electronics business; Logicon Inc., which includes Litton's Information Systems business; Integrated Systems Sector (ISS), which is unchanged by the acquisition of Litton; Ship Systems, a new segment comprised of the former Litton Ship Systems business; and Electronic Components and Materials (EC&M), a new segment comprised of the former Litton EC&M business.
ES3 sales in the second quarter of 2001 were $1.2 billion compared with the $664 million reported in the second quarter of 2000. The increase is due to both the inclusion of Litton's Advanced Electronics business and higher land combat systems and combat avionics systems revenues in the Aerospace Electronic Systems business area. Operating margin for the quarter was $79 million compared with $48 million for the same period last year, reflecting the addition of the Litton business and improved performance in the automation and information business.
Logicon reported second quarter sales of $1 billion and operating margin of $48 million compared with sales of $425 million and operating margin of $33 million reported in the second quarter of 2000. The increases are due to the addition of Litton's Information Systems business as well as to sales generated by Federal Data, Sterling's Federal Systems Group and the Federal Systems unit of Comptek Research Inc., which were acquired in the second half of 2000. Last year's second quarter operating margin included a $5 million noncash positive adjustment related to retiree benefits.
Integrated Systems Sector sales in the second quarter were $766 million, down 5 percent from the same period a year ago, reflecting lower B-2 sales. Operating margin for the quarter was $64 million compared with $113 million reported in the second quarter of 2000, which included the delivery of the last two B-2's under the production contract and an $8 million upward cumulative margin rate adjustment on the F/A-18E/F program.
The two new segments, Ship Systems and EC&M, reported sales for the quarter of $549 million and $158 million, respectively, with operating margin of $33 million and a loss of $6 million, respectively. EC&M's margin was impacted by the effect of $13 million of amortization due to the acquisition of Litton and by the downturn in the telecommunications industry.
Northrop Grumman's net debt at June 30, 2001, was $5.2 billion, up from the $1.3 billion reported at Dec. 31, 2000, reflecting both the assumption of Litton debt and increased borrowings to finance the Litton acquisition. Interest expense for the second quarter was $114 million, up from the $46 million reported for the second quarter of 2000.
Northrop Grumman Corporation is a $15 billion global aerospace and defense company with its worldwide headquarters in Los Angeles. Northrop Grumman provides technologically advanced, innovative products, services and solutions in defense and commercial electronics, systems integration, information technology and non-nuclear shipbuilding and systems. With 80,000 employees and operations in 44 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 the company believes to be within the definition in the Private Securities Litigation Reform Act of 1995) and involve risks and uncertainties. Such "forward-looking" information includes the statements above as to future impacts on revenues and earnings. Such statements are subject to numerous assumptions and uncertainties, many of which are outside the company's control. These include the company's ability to successfully integrate the operations of Litton, assumptions with respect to future revenues, expected program performance and cash flows, the outcome of contingencies including litigation, environmental remediation, divestitures of businesses, and anticipated costs of capital investments. The company'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 factors, including, without limitation, the company's successful performance of internal plans; government customers' budgetary restraints; 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; 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; legal, financial, and governmental risks related to international transactions and global needs for military aircraft, military and civilian electronic systems and support and information technology; as well as other economic, political and technological risks and uncertainties and other risk factors set out in the company's filings from time to time with the Securities and Exchange Commission, including, without limitation, the company's reports on Form 10-K and Form 10-Q.
Northrop Grumman will webcast its security analyst conference call at 2 p.m. E.D.T. on July 25, 2001. A live audio broadcast of the conference call will be available on the investor relations page of the company's Web site at http://www.northropgrumman.com.
NORTHROP GRUMMAN CORPORATION
FINANCIAL HIGHLIGHTS
($ in millions, except per share)
SECOND QUARTER FIRST SIX MONTHS
2001* 2000 2001* 2000
FINANCIAL METRICS (Other Data)
Economic earnings(1) $ 137 $ 120 $ 238 $ 221
Economic earnings
per share(1) $1.57 $1.71 $2.97 $3.15
Net cash provided
by (used in)
operating activities $ 19 $ 310 $ (14) $ 401
EBITDAP(2) $ 373 $ 262 $ 594 $ 496
EBITDAP per share(2) $4.44 $3.74 $7.59 $7.10
JUN. 30 DEC. 31
2001* 2000
Cash and cash equivalents $ 225 $ 319
Accounts receivable 2,056 1,557
Inventoried costs 1,386 585
Property, plant and
equipment, net 2,189 1,015
Total debt 5,474 1,615
Net debt(3) 5,249 1,296
Mandatorily redeemable
preferred stock 350 --
Shareholders' equity 5,211 3,919
Total assets $17,325 $ 9,622
Debt to capitalization ratio(4) 50% 29%
* Includes preliminary estimates of the fair market value of the assets acquired and liabilities assumed and the related allocations of the purchase price related to the Litton acquisition. Final valuations and allocations, which are expected to be completed by December 31, 2001, may differ from the amounts included herein.
(1) Diluted earnings from continuing operations available to common shareholders per share excluding pension income and amortization of goodwill and other purchased intangibles, after tax. The company believes that economic earnings is a better performance metric of operating results. Pension income is a noncash item which is impacted more by market conditions than by the entity's results from operations. Amortization of goodwill and other purchased intangibles are also noncash items which do not require recurring cash outflows for replenishment and upgrades like property, plant and equipment.
(2) Earnings before interest expense, interest income, federal and foreign income taxes, depreciation, amortization and pension income
(3) Total debt less cash and cash equivalents
(4) Total debt divided by the sum of shareholders' equity, mandatorily redeemable preferred stock and total debt
NORTHROP GRUMMAN CORPORATION
OPERATING RESULTS
QUARTER ENDED JUNE 30, 2001
($ in millions, except per share)
CONTRACT ACQUISITIONS
SECOND QUARTER FIRST SIX MONTHS
2001 2000 2001 2000
Electronic Sensors
& Systems $ 2,231 $ 1,644 $ 3,218 $ 2,239
Logicon 1,437 371 2,073 808
Integrated Systems 448 531 1,063 993
Ship Systems 5,824 -- 5,824 --
Electronic Components
& Materials 281 -- 281 --
Intersegment
Eliminations (104) (68) (142) (103)
Total Sector $ 10,117 $ 2,478 $ 12,317 $ 3,937
FUNDED
ORDER BACKLOG
JUNE 30
2001 2000
Electronic Sensors & Systems $ 6,260 $4,498
Logicon 1,410 614
Integrated Systems 3,855 3,779
Ship Systems 5,275 --
Electronic Components & Materials 123 --
Intersegment Eliminations (149) (113)
Total Sector $16,774 $8,778
NET SALES
SECOND QUARTER FIRST SIX MONTHS
2001* 2000 2001* 2000
Electronic Sensors
& Systems $ 1,236 $ 664 $ 1,937 $ 1,265
Logicon 1,017 425 1,606 803
Integrated Systems 766 809 1,499 1,665
Ship Systems 549 -- 549 --
Electronic Components
& Materials 158 -- 158 --
Intersegment
Eliminations (63) (42) (100) (75)
Total Sector $ 3,663 $ 1,856 $ 5,649 $ 3,658
OPERATING MARGIN (LOSS)
SECOND QUARTER FIRST SIX MONTHS
2001* 2000 2001* 2000
Electronic Sensors
& Systems $ 79 $ 48 $ 115 $ 82
Logicon 48 33 72 64
Integrated Systems 64 113 144 213
Ship Systems 33 -- 33 --
Electronic Components
& Materials (6) -- (6) --
Total Sector $ 218 $ 194 $ 358 $ 359
Other items included in
operating margin:
Corporate expenses (30) (4) (39) (11)
Deferred state tax
provision (4) (13) (14) (24)
Pension income 91 140 160 280
Operating margin 275 317 465 604
Other income, net 31 2 48 4
Interest expense (114) (46) (161) (92)
Income from continuing
operations before taxes 192 273 352 516
Federal and foreign
income taxes 78 98 135 185
Income from continuing
operations 114 175 217 331
Income from
discontinued
operations,
net of tax -- 18 -- 35
Loss on disposal
of discontinued
operations, net
of tax -- (15) -- (15)
Net income $ 114 $ 178 $ 217 $ 351
Diluted earnings per share
Continuing operations $1.28 $2.50 $2.69 $4.73
Discontinued operations -- 0.26 -- 0.50
Disposal of discontinued
operations -- (0.21) -- (0.21)
Diluted earnings per share $1.28 $2.55 $2.69 $5.02
* Includes preliminary estimates of the fair market value of the assets acquired and liabilities assumed and the related allocations of the purchase price related to the Litton acquisition. Final valuations and allocations, which are expected to be completed by December 31, 2001, may differ from the amounts included herein.
NORTHROP GRUMMAN CORPORATION
ADDITIONAL SEGMENT INFORMATION
($ in millions)
Sales by business area
within segment: SECOND QUARTER FIRST SIX MONTHS
2001* 2000 2001* 2000
Electronic Sensors
& Systems
Aerospace Electronic
Systems $ 439 $ 291 $ 764 $ 548
C3I&N 241 184 441 361
Navigation Systems 238 -- 238 --
Defensive Electronic
Systems 179 107 262 203
Other 139 82 232 153
Total $ 1,236 $ 664 $ 1,937 $ 1,265
Logicon
Government Information
Technology $ 617 $ 203 $ 893 $ 386
Enterprise Information
Technology 208 64 349 101
Technology Services 129 118 242 235
Commercial Information
Technology 63 40 122 81
Total $ 1,017 $ 425 $ 1,606 $ 803
Integrated Systems
ACS $ 406 $ 450 $ 812 $ 952
AEW/EW 188 196 354 379
AGS/BM 176 170 341 346
Intrasegment
Eliminations (4) (7) (8) (12)
Total $ 766 $ 809 $ 1,499 $ 1,665
Ship Systems $ 549 $ -- $ 549 $ --
Electronic Components
& Materials $ 158 $ -- $ 158 $ --
Amortization of Goodwill
and Other Purchased SECOND QUARTER FIRST SIX MONTHS
Intangibles 2001* 2000 2001* 2000
Electronic Sensors
and Systems $ 41 $ 34 $ 75 $ 68
Logicon 17 4 28 8
Integrated Systems 12 12 24 23
Ship Systems 13 -- 13 --
Electronic Components
& Materials 13 -- 13 --
Total $ 96 $ 50 $153 $ 99
* Includes preliminary estimates of the fair market value of the assets acquired and liabilities assumed and the related allocations of the purchase price related to the Litton acquisition. Final valuations and allocations, which are expected to be completed by December 31, 2001, may differ from the amounts included herein.