Sales Up 106 Percent Segment Operating Margin Increases 81 Percent Confirms 2002 Guidance of $6.60 - $7.10 EEPS
LOS ANGELES, April 17, 2002 -- Northrop Grumman Corporation (NYSE:NOC) today reported first quarter 2002 net income of $149 million, or $1.27 per share, compared with net income of $132 million, or $1.81 per share, for the same period of 2001, adjusted for SFAS No. 142 -- Goodwill and Other Intangible Assets. The comparable per share decline reflects a substantial decrease in pension income and increases in interest expense and in the number of shares outstanding. On an economic earnings basis, the company reported increased earnings of $170 million, or $1.45 per share, compared with $101 million, or $1.39 per share, for the same period of 2001. First quarter 2002 earnings per share are based on average diluted shares outstanding of 112.8 million versus 72.8 million for the first quarter of 2001.
"We are very pleased with our first quarter results which reflect the contributions of last year's three strategic acquisitions, coupled with strong organic growth and earnings," stated Kent Kresa, Northrop Grumman chairman and chief executive officer. "Northrop Grumman is now the nation's third-largest defense contractor, with a powerful portfolio of industry-leading businesses and key technologies. With the strength and diversity of this portfolio, we expect to continue to benefit from the nation's highest defense budget in recent years. We are reaffirming our 2002 financial guidance targets and our expectations for double-digit revenue and economic earnings growth in 2003."
Kresa added, "We are excited about our proposed acquisition of TRW. Its space and satellite business perfectly complements our defense capabilities. Based on our demonstrated ability to successfully integrate acquired companies, we expect a completed transaction will lead to enhanced value for our shareholders."
Dr. Ronald D. Sugar, Northrop Grumman president and chief operating officer, commented, "Our team has again demonstrated its expertise in seamlessly integrating new businesses into Northrop Grumman. With our April 1 announcement of the completion of the integration of Newport News Shipbuilding, all three of the company's 2001 acquisitions have been successfully completed. With this behind us, we are in an excellent position to focus our attention on the integration of TRW later this year, should our offer be successful.
"We remain focused on execution in all of our businesses. Our first quarter results reflect strong operating performance from five of our six sectors. Component Technologies, our smallest sector, continues to be negatively affected by the downturn in the telecommunications market," Sugar added.
Effective Jan. 1, 2002, the company adopted the provisions of SFAS No.142 eliminating the amortization of goodwill. As a result, all 2001 and 2002 discussions of operating results exclude goodwill amortization. Further details are contained in the Additional Financial Information section. The company is evaluating and analyzing other provisions of SFAS No. 142 and expects to complete these reviews during 2002.
The 2002 first quarter results include the operations of Litton Industries, Inc. (Litton), acquired in the second quarter of 2001 and Newport News Shipbuilding, Inc. (Newport News) and the Electronics and Information Systems Group of Aerojet General (EIS), both acquired in the fourth quarter of 2001. These acquisitions are important components of the increase in sales, operating margin and net income for the 2002 first quarter compared with the first quarter of 2001.
Sales for the first quarter more than doubled to $4.1 billion from $2.0 billion reported for the first quarter of 2001. Northrop Grumman's operating margin for the quarter increased 39 percent to $313 million from an adjusted $225 million in the same period a year ago. The 2002 first quarter operating margin included $24 million of pension income, significantly lower than the $69 million reported in the first quarter of 2001. The company said that pension income for 2002 is expected to total $95 million compared with $337 million reported for 2001.
Sales at Electronics Systems in the 2002 first quarter increased 76 percent to $1.2 billion from $701 million for the same period of 2001, including a 16 percent increase in organic sales. Operating margin for the quarter was $99 million compared to 2001 first quarter adjusted operating margin of $53 million. The sales and margin increases reflect the contributions by Litton's electronics businesses and EIS.
Ships, which includes the financial results of the Newport News and Ship Systems sectors, generated sales of $1.1 billion and operating margin of $79 million for the first quarter of 2002. Although Newport News is now operating as a separate Northrop Grumman sector, the company has aggregated Newport News and Ship Systems results for financial reporting purposes.
Information Technology reported sales of $929 million in the quarter ended March 31, 2002, an increase of 58 percent over the same period a year ago. The sales growth was driven by businesses added in the Litton acquisition. Operating margin was $50 million in the quarter, up from an adjusted $34 million in the first quarter of 2001.
Sales for Integrated Systems increased 10 percent to $807 million for the 2002 first quarter compared with $733 million for the same period a year ago, reflecting higher B-2 and unmanned vehicle sales. Operating margin for the 2002 first quarter increased 6 percent to $93 million from an adjusted $88 million in the comparable year ago period.
Component Technologies reported 2002 first quarter sales of $125 million and an operating loss of $4 million. Component Technologies' operating margin continued to be adversely impacted by the downturn in the telecommunications industry. Looking ahead, the sector remains well positioned to capitalize on a market turnaround. Component Technologies continues to generate solid performance in its non-telecommunications business.
Contract acquisitions increased to $5.8 billion for the first three months of 2002 from $2.2 billion reported for the same period a year ago. For the first quarter 2002, the company's Electronics Systems segment reported contract acquisitions of $1.5 billion reflecting the inclusion of Litton and EIS businesses and higher F-22 funding in the combat avionics business area. Ships reported contract acquisitions of $1.8 billion resulting from the funding of Virginia-class submarines and refueling and overhaul of the carrier USS Enterprise. Information Technology reported contract acquisitions of $1.1 billion, principally in the government information technology business area. Integrated Systems reported $1.3 billion in contract acquisitions, reflecting higher F/A-18E/F and unmanned vehicle systems funding. Component Technologies reported $129 million in contract acquisitions. The company's business backlog at March 31, 2002, was $22.4 billion, more than double the $10.3 billion reported a year earlier.
In the first quarter of 2002 the company used cash from operations of $99 million compared with a use of $33 million for the same period last year.
Northrop Grumman's net debt at March 31, 2002, was $5.4 billion, up from the $5.0 billion reported at Dec. 31, 2001, reflecting in part cash expenditures to complete the Newport News acquisition. Interest expense for the first quarter increased to $109 million from $47 million reported in the 2001 first quarter, as a result of the company's financing activities related to the acquisitions of Litton, Newport News and EIS. Debt to total capital was 40 percent at the end of the first quarter.
As previously announced, the company has issued an exchange offer to purchase all of the outstanding stock of TRW.
There can be no assurance that such a transaction will be completed.
Northrop Grumman Corporation is an $18 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 nuclear and non-nuclear shipbuilding and systems. With 100,000 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 its acquisitions, assumptions with respect to future revenues, expected program performance and cash flows, the outcome of contingencies including litigation, environmental remediation, acquisitions and 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 domestic and global needs for ships, military aircraft, military and civilian electronic systems and support, information technology and other products; 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 filed a registration statement on Form S-4 (File No. 333-83672) and a tender offer statement on Schedule TO with the Securities and Exchange Commission on March 4, 2002 with respect to its offer to exchange all outstanding shares of TRW Inc. stock for Northrop Grumman common stock. These documents, and any amendments or supplements thereto, contain important information which should be read by TRW Inc. shareholders before making any decision regarding the offer to exchange.
The directors, certain executive officers and other employees and representatives of Northrop Grumman may be deemed to be participants in the solicitation of proxies for the Special Meeting of TRW Inc. Shareholders to be held on April 22, 2002 and the 2002 Annual Meeting of TRW Inc. Shareholders to be held on April 24, 2002. Northrop Grumman's proxy materials contain important information regarding such potential participants and other matters and should be read by TRW Inc. shareholders.
Copies of any of the foregoing documents may be obtained without charge at the Securities and Exchange Commission's website at www.sec.gov or upon request from D.F. King & Co., Inc., the information agent for Northrop Grumman's offer to exchange, at 800-755-7250.
Northrop Grumman will webcast its security analyst conference call at 2 p.m. EDT on April 17, 2002. 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.
LEARN MORE ABOUT US: Northrop Grumman news releases, product information, photos and video clips are available on the Internet at: http://www.northropgrumman.com
NORTHROP GRUMMAN CORPORATION
FINANCIAL HIGHLIGHTS
(in millions, except per share)
FIRST QUARTER
--------------------
2002 2001
----- -----
FINANCIAL METRICS (Other Data)
Economic earnings
(See reconciliation below) $ 170 $ 101
Economic earnings per share $ 1.45 $ 1.39
Net cash used in operating
activities $ (99) $ (33)
EBITDAP (See reconciliation below) $ 439 $ 221
EBITDAP per share $ 3.89 $ 3.04
MAR. 31 DEC. 31
2002 2001(3)
----- -----
BALANCE SHEET DATA
Cash and cash equivalents $ 115 $ 464
Accounts receivable 2,877 2,735
Inventoried costs 1,225 1,226
Property, plant and equipment, net 2,941 2,767
Total debt 5,485 5,497
Net debt(1) 5,370 5,033
Mandatorily redeemable preferred stock 350 350
Shareholders' equity 7,854 7,391
Total assets 21,457 20,850
Debt to capitalization ratio(2) 40% 42%
FIRST QUARTER
--------------------
RECONCILIATIONS FROM GAAP
TO FINANCIAL METRICS 2002 2001
----- -----
Calculation of Economic earnings
Income before taxes $ 216 $ 160
Amortization of goodwill -- 35
Amortization of purchased
intangibles 55 22
Pension income (24) (69)
Income tax (77) (47)
----- -----
Economic earnings 170 101
Preferred dividend (6) --
----- -----
Economic earnings available
to common shareholders $ 164 $ 101
----- -----
Diluted weighted average
common shares outstanding 112.76 72.76
----- -----
Calculation of EBITDAP
Income before taxes $ 216 $ 160
Net interest expense 107 31
Depreciation 85 42
Amortization of goodwill -- 35
Amortization of purchased
intangibles 55 22
Pension income (24) (69)
----- -----
EBITDAP $ 439 $ 221
----- -----
(1) Total debt less cash and cash equivalents
(2) Total debt divided by the sum of shareholders' equity,
mandatorily redeemable preferred stock and total debt
(3) Certain prior year amounts have been reclassified to
conform to the 2002 presentation
NORTHROP GRUMMAN CORPORATION
OPERATING RESULTS
($ in millions, except per share)
CONTRACT FUNDED
ACQUISITIONS ORDER BACKLOG
------------------- -------------------
FIRST QUARTER MARCH 31
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Electronic Systems $ 1,470 $ 987 $ 6,263 $ 5,265
Ships 1,847 -- 10,542 --
Information Technology 1,073 636 1,580 990
Integrated Systems 1,310 615 4,026 4,173
Component Technologies 129 -- 222 --
Intersegment Eliminations (53) (38) (212) (108)
-------- -------- -------- --------
Total Segments $ 5,776 $ 2,200 $ 22,421 $ 10,320
-------- -------- -------- --------
OPERATING
NET SALES MARGIN (LOSS)
------------------- -------------------
FIRST QUARTER FIRST QUARTER
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Electronic Systems $ 1,238 $ 701 $ 99 $ 36
Ships 1,077 -- 79 --
Information Technology 929 589 50 24
Integrated Systems 807 733 93 80
Component Technologies 125 -- (4) --
Intersegment Eliminations (90) (37) -- --
-------- -------- -------- --------
Total Segments $ 4,086 $ 1,986 317 140
-------- --------
Reconciliation to operating margin
Royalty income reclassification (6) --
Unallocated corporate expenses (20) (9)
Unallocated state tax provision (2) (10)
Pension income 24 69
-------- --------
Operating margin 313 190
Other income, net 12 17
Interest expense (109) (47)
-------- --------
Income before taxes 216 160
Federal and foreign income taxes 67 57
-------- --------
Net income $ 149 $ 103
-------- --------
Diluted earnings per share $ 1.27 $ 1.42
-------- --------
Note: Operating Results for 2001 are as reported. See "Additional
Financial Information" for the effects of SFAS No. 142 --
Goodwill and Other Intangible Assets
NORTHROP GRUMMAN CORPORATION
ADDITIONAL SEGMENT INFORMATION
($ in millions)
SALES BY BUSINESS AREA WITHIN SEGMENT FIRST QUARTER
---------------------
2002 2001 *
------- -------
Electronic Systems
Aerospace Electronic Systems $ 310 $ 263
C4ISR&N 286 200
Defensive Electronic Systems 205 83
Navigation Systems 177 --
Space Systems 116 62
Other 144 93
------- -------
$ 1,238 $ 701
------- -------
Ships
Aircraft Carriers $ 473 $ --
Surface Combatants 189 --
Amphibious & Auxiliary 161 --
Submarines 130 --
Commercial & International 70 --
Services & Other 73 --
Intrasegment Eliminations (19) --
------- -------
$ 1,077 $ --
------- -------
Information Technology
Government Information Technology $ 580 $ 267
Enterprise Information Technology 138 141
Technology Services 152 127
Commercial Information Technology 59 54
------- -------
$ 929 $ 589
------- -------
Integrated Systems
Air Combat Systems $ 485 $ 406
Airborne Early Warning/Electronic Warfare 168 166
Airborne Ground Surveillance/Battle
Management 152 165
Intrasegment Eliminations 2 (4)
------- -------
$ 807 $ 733
------- -------
Component Technologies $ 125 $ --
------- -------
* Certain prior year amounts have been reclassified to conform to
the 2002 presentation
AMORTIZATION OF PURCHASED INTANGIBLES
Electronic Systems $ 23 $ 17
Ships 20 --
Information Technology 5 1
Integrated Systems 4 4
Component Technologies 3 --
------- -------
$ 55 $ 22
------- -------
NORTHROP GRUMMAN CORPORATION
ADDITIONAL FINANCIAL INFORMATION
(in millions, except per share)
OPERATING MARGIN AND EARNINGS SUMMARIES FIRST QUARTER
-----------------
2002 2001
----- -----
Operating Margin (Loss)
Electronic Systems - as reported $ 99 $ 36
Add back goodwill amortization -- 17
----- -----
Electronic Systems - comparable 99 53
----- -----
Ships 79 --
----- -----
Information Technology - as reported 50 24
Add back goodwill amortization -- 10
----- -----
Information Technology - comparable 50 34
----- -----
Integrated Systems - as reported 93 80
Add back goodwill amortization -- 8
----- -----
Integrated Systems - comparable 93 88
----- -----
Component Technologies (4) --
----- -----
Segment Operating Margin - as reported 317 140
Add back goodwill amortization -- 35
----- -----
Segment Operating Margin - comparable $ 317 $ 175
----- -----
Total Operating Margin - as reported $ 313 $ 190
Add back goodwill amortization -- 35
----- -----
Total Operating Margin - comparable $ 313 $ 225
----- -----
Net Income
As reported $ 149 $ 103
Add back goodwill amortization, net of tax -- 29
----- -----
Comparable $ 149 $ 132
----- -----
Diluted Earnings Per Share
As reported $1.27 $1.42
Add back goodwill amortization, net of tax -- .39
----- -----
Comparable $1.27 $1.81
----- -----
Weighted average shares outstanding for
diluted EPS 112.76 72.76
----- -----