LOS ANGELES, Oct. 24, 2001 (PRIMEZONE) -- Northrop Grumman Corporation (NYSE:NOC) today reported third quarter 2001 economic earnings of $161 million, a 58 percent increase compared with $102 million in economic earnings reported for the third quarter of 2000. For the quarter, 2001 economic earnings were $1.79 per share on average diluted shares outstanding of 86.2 million, compared with economic earnings of $1.44 per share on average diluted shares outstanding of 71.1 million for the comparable period in 2000.
Under Generally Accepted Accounting Principles (GAAP), the company reported third quarter 2001 net income of $117 million, or $1.28 per share, compared with net income from continuing operations of $150 million, or $2.11 per share, reported for the third quarter last year. The comparable decline reflects a substantial decrease in pension income.
Sales for the quarter ended Sept. 30, 2001, more than doubled to $3.6 billion, compared with $1.7 billion reported for the third quarter of 2000, primarily due to the Litton acquisition and organic growth in Electronic Systems and Information Technology (formerly Logicon). Northrop Grumman's operating margin for the quarter increased to $285 million compared with the $242 million reported for the same period a year ago. Sector operating margin increased 79 percent, driven by increases in Integrated Systems and Electronic Systems. Total operating margin for the 2001 third quarter included $89 million of pension income, down from the $130 million reported in the third quarter of 2000.
"I am very pleased with today's results, which reflect significant increases in sales, operating margin and economic earnings," said Kent Kresa, Northrop Grumman's chairman and chief executive officer. "Our Integrated Systems sector achieved a 41 percent increase in operating margin, while our Electronic Systems sector generated organic growth in sales of 28 percent and operating margin of 59 percent. Our Information Technology sector reached a significant milestone, generating $1 billion in both sales and contract acquisitions for the quarter, underscoring our commitment to the dynamic IT marketplace. Also, we remain on track to achieve our 2001 economic earnings target of $6.25-$6.40 as well as double-digit economic earnings growth in 2002."
Mr. Kresa added, "Over the last decade Northrop Grumman has transformed itself into a company well suited to meet the changing nature of the 21st century military conflicts. We are proud that so many of our systems and platforms have been successfully deployed in Operation Enduring Freedom. Along with the entire defense industry, we stand ready to support our customers and provide what America needs going forward."
Also, Mr. Kresa added, "We are pleased with the Department of Defense's statement yesterday allowing Northrop Grumman to go forward with its proposed acquisition of Newport News Shipbuilding (NYSE:NNS). We do not expect any issues with the Department of Justice on closure of the acquisition and look forward to a successful completion of this transaction in the near future."
For the 2001 third quarter, Northrop Grumman's contract acquisitions totaled $3.4 billion compared with $2.0 billion in contract acquisitions for the third quarter of 2000. The company's business backlog at Sept. 30, 2001, increased to $16.6 billion, compared with the $9.1 billion reported a year earlier, primarily due to the addition of the Litton business backlog.
Electronic Systems sector sales in the third quarter of 2001 were $1.2 billion compared with the $688 million reported in the third quarter of 2000. The increase is due to the inclusion of Litton's Advanced Electronics business, higher automation and information sales and, in the Aerospace Electronic Systems business area, higher land combat systems and combat avionics systems revenues. Operating margin for the quarter increased to $99 million compared with $44 million for the same period last year, reflecting the addition of the Litton business and improved performance in land combat systems and the automation and information business.
Information Technology sector reported third quarter sales of $1.0 billion and operating margin of $53 million compared with sales of $377 million and operating margin of $29 million reported in the third quarter of 2000. The increases are due to the addition of Litton's Information Systems business, sales generated by Federal Data and Sterling's Federal Systems Group - companies acquired in the fourth quarter of 2000 - and double-digit organic sales and margin growth. Last year's third quarter operating margin included a $5 million noncash positive adjustment related to retiree benefits.
Integrated Systems sector generated sales of $718 million in the third quarter of 2001, up slightly from the $706 million reported for the same period a year ago. Operating margin for the quarter was $72 million compared with $51 million reported in the third quarter of 2000, reflecting $20 million of contract closeouts, $10 million improvement on Joint STARS and downward cumulative margin rate adjustments on unmanned vehicle contracts totaling $10 million. Ship Systems sector generated sales of $528 million and operating margin of $18 million. Operating margin was negatively impacted by goodwill and purchased intangibles amortization, which totaled $22 million for the third quarter.
Following American Classic Voyages Company's (AMCV) bankruptcy filing on Oct. 19, Ship Systems is continuing to work on the AMCV cruise ship program subject to Project America's ability to secure immediate financing for the balance of the contract. The completion of this financing is contingent upon U.S. Maritime Administration loan guarantees. Should the contract be terminated, Northrop Grumman expects to report a charge to operating margin of approximately $60 million in the third quarter.
Component Technologies reported sales for the quarter of $142 million and an operating loss of $20 million. Component Technologies margin was impacted by the continued downturn in the telecommunications industry and reflects the effect of $24 million of additional amortization due to the acquisition of Litton. Component Technologies continues to generate solid performance in its non-telecommunications business.
For the 2001 third quarter the company generated $206 million of cash from operations. The company expects to generate approximately $100 million of cash available to pay down debt in 2001.
Northrop Grumman's net debt at Sept. 30, 2001, was $5.0 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 third quarter was $108 million, up from the $43 million reported for the third quarter of 2000.
As previously announced, on Oct. 19, 2001, the company completed its acquisition of the Electronics and Information Systems Group of Aerojet-General Corporation for $315 million in cash. The acquisition will be recorded in the fourth quarter of 2001 and is now part of the Electronic Systems sector's new Space Systems Division.
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 approximately 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 October 24, 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 QUARTER ENDED SEPTEMBER 30, 2001 ($ in millions, except per share) THIRD QUARTER FIRST NINE MONTHS 2001* 2000 2001* 2000 FINANCIAL METRICS (Other Data) Economic earnings (1) $ 161 $ 102 $ 399 $ 323 Economic earnings per share (1) $ 1.79 $ 1.44 $ 4.78 $ 4.59 Net cash provided by operating activities $ 206 $ 195 $ 192 $ 596 EBITDAP (2) $ 406 $ 225 $ 1,000 $ 721 EBITDAP per share (2) $ 4.71 $ 3.17 $ 12.35 $ 10.27 Preliminary SEP. 30 DEC. 31 BALANCE SHEET DATA 2001* 2000 Cash and cash equivalents $ 310 $ 319 Accounts receivable 2,297 1,557 Inventoried costs 1,246 585 Property, plant and equipment, net 2,086 1,015 Total debt 5,319 1,615 Net debt (3) 5,009 1,296 Mandatorily redeemable preferred stock 350 -- Shareholders' equity 5,423 3,919 Total assets $17,222 $ 9,622 Debt to capitalization ratio (4) 48% 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 ($ in millions, except per share) CONTRACT ACQUISITIONS THIRD QUARTER FIRST NINE MONTHS 2001* 2000 2001* 2000 Electronic Systems $ 1,002 $ 1,020 $ 4,220 $ 3,259 Information Technology 1,064 336 3,137 1,144 Integrated Systems 420 702 1,483 1,695 Ship Systems 734 -- 6,558 -- Component Technologies 235 -- 516 -- Intersegment Eliminations (44) (25) (186) (128) TOTAL $ 3,411 $ 2,033 $15,728 $ 5,970 FUNDED ORDER BACKLOG SEP. 30 2001* 2000 Electronic Systems $ 6,023 $ 4,830 Information Technology 1,427 573 Integrated Systems 3,557 3,775 Ship Systems 5,481 -- Component Technologies 216 -- Intersegment Eliminations (124) (98) TOTAL $16,580 $ 9,080 NET SALES THIRD QUARTER FIRST NINE MONTHS 2001* 2000 2001* 2000 Electronic Systems $ 1,239 $ 688 $ 3,176 $ 1,953 Information Technology 1,047 377 2,653 1,180 Integrated Systems 718 706 2,217 2,371 Ship Systems 528 -- 1,077 -- Component Technologies 142 -- 300 -- Intersegment Eliminations (69) (40) (169) (115) TOTAL $ 3,605 $ 1,731 $ 9,254 $ 5,389 * 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 OPERATING RESULTS ($ in millions, except per share) OPERATING MARGIN THIRD QUARTER FIRST NINE MONTHS 2001* 2000 2001* 2000 Electronic Systems $ 99 $ 44 $ 214 $ 126 Information Technology 53 29 125 93 Integrated Systems 72 51 216 264 Ship Systems 18 -- 51 -- Component Technologies (20) -- (26) -- Total $ 222 $ 124 $ 580 $ 483 Other items included in operating margin: Corporate expenses (19) (5) (58) (16) Deferred state tax provision (7) (7) (21) (31) Pension income 89 130 249 410 Operating margin 285 242 750 846 Other income, net 16 41 64 45 Interest expense (108) (43) (269) (135) Income from continuing operations before taxes 193 240 545 756 Federal and foreign income taxes 76 90 211 275 Income from continuing operations 117 150 334 481 Income from discontinued operations, net of tax 4 39 Loss on disposal of discontinued operations, net of tax (22) (37) Net income $ 117 $ 132 $ 334 $ 483 Diluted earnings per share Continuing operations $ 1.28 $ 2.11 $ 3.97 $ 6.84 Discontinued operations -- 0.06 -- 0.55 Disposal of discontinued operations -- (0.31) -- (0.52) Diluted earnings per share $ 1.28 $ 1.86 $ 3.97 $ 6.87 * 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: THIRD QUARTER FIRST NINE MONTHS 2001* 2000 2001* 2000 Electronic Sensors & Systems Aerospace Electronic Systems $ 390 $ 260 $ 1,154 $ 808 C3I&N 224 215 665 576 Navigation Systems 274 -- 512 -- Defensive Electronic Systems 198 117 460 320 Other 153 96 385 249 Total 1,239 688 3,176 1,953 Information Technology Government Information Technology $ 655 $ 186 $ 1,548 $ 572 Enterprise Information Technology 195 17 544 118 Technology Services 133 125 375 360 Commercial Information Technology 64 49 186 130 Total 1,047 377 2,653 1,180 Integrated Systems ACS $ 361 $ 379 $ 1,173 $ 1,331 AEW/EW 180 166 534 545 AGS/BM 175 165 516 511 Intrasegment Eliminations 2 (4) (6) (16) Total 718 706 2,217 2,371 Ship Systems $ 528 $ -- $ 1,077 $ -- Component Technologies $ 142 $ -- $ 300 $ -- * 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) THIRD QUARTER FIRST NINE MONTHS Amortization of Goodwill 2001* 2000 2001* 2000 Electronic Systems $ 21 $ 15 $ 59 $ 45 Information Technology 16 4 42 12 Integrated Systems 8 8 24 23 Ship Systems 11 -- 20 -- Component Technologies 21 -- 30 -- Total 77 27 175 80 Amortization of THIRD QUARTER FIRST NINE MONTHS Purchased Intangibles 2001* 2000 2001* 2000 Electronic Systems $ 23 $ 19 $ 60 $ 57 Information Technology 8 1 10 1 Integrated Systems 3 3 11 11 Ship Systems 11 -- 15 -- Component Technologies 3 -- 7 -- Total $ 48 $ 23 $ 103 $ 69 Amortization of Goodwill and Other Purchased THIRD QUARTER FIRST NINE MONTHS Intangibles 2001* 2000 2001* 2000 Electronic Systems $ 44 $ 34 $ 119 $ 102 Information Technology 24 5 52 13 Integrated Systems 11 11 35 34 Ship Systems 22 -- 35 -- Component Technologies 24 -- 37 -- Total $ 125 $ 50 $ 278 $ 149 * 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.
-0- CONTACT: Northrop Grumman Corporation, Los Angeles Frank Moore (Media) (310) 201-3335 Gaston Kent (Investors) (310) 201-3423