Sales Up 106 Percent, Segment Operating Margin Increases 81 Percent, Confirms 2002 Guidance of $6.60 – $7.10 EEPS
Northrop Grumman
Corporation 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 .
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 data)
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
