Northrop Grumman Corporation, reported that sales increased 49 percent, earnings from continuing operations increased 17 percent, and segment operating margin increased 44 percent, for the 2003 first quarter compared with the first quarter of 2002. The record results, in large measure, reflect strong contributions by the company's two new segments, Mission Systems and Space Technology
; double-digit growth in sales and operating margins at three other segments, Electronic Systems, Ships and Information Technology
; and a lower effective tax rate.
Northrop Grumman reported income from continuing operations of $174 million, or $0.91 per share, compared with $149 million, or $1.27 per share, for the same period of 2002. First quarter 2003 earnings per share are based on weighted average diluted shares outstanding of 184.3 million versus 112.8 million for the first quarter of 2002.
The net pension adjustment in the 2003 first quarter was an expense of $69 million, compared with income of $50 million for the comparable period of 2002. Net pension adjustment is the difference between pension costs calculated and funded in accordance with the Federal Government
's Cost Accounting Standards (CAS), which are reported in the segments' operating results, and pension expense or income determined in accordance with FAS 87.
During the 2003 first quarter the company recorded a $26 million tax credit for additional research tax credits covering the years 1981 through 1990. As a result, the company's overall effective tax rate for the quarter was 18 percent, which added $.14 per share to the company's 2003 first quarter earnings. The effective tax rate for the 2002 first quarter was 31 percent. Consistent with previous guidance, the effective tax rate for 2003 is expected to be approximately 28 percent.
Sales for the 2003 first quarter increased 49 percent to $5.9 billion from the $3.9 billion reported for the first quarter of 2002, due to the contributions from Mission Systems
and Space Technology and 10 percent organic growth in the legacy Northrop Grumman segments. Northrop Grumman's segment operating margin for the first three months of 2003 increased 44 percent to $433 million from $300 million for the comparable 2002 period, due to the contributions from Mission Systems and Space Technology and 15 percent organic growth in the legacy Northrop Grumman segments. Total operating margin for the 2003 first quarter increased five percent to $328 million from $313 million in the same period a year ago, reflecting the increased segment operating margin, offset by the net pension adjustment.
Net income for the 2003 quarter was $253 million, or $1.34 per share, compared with a loss of $283 million, or $2.56 per share, in the 2002 quarter. Income from discontinued operations for the first quarter of 2003 was $80 million, and included the results of TRW Automotive
, which was sold Feb. 28, 2003, and the company's Component Technologies businesses. Results for the 2002 first quarter included a $432 million charge for the cumulative effect of an accounting change recorded upon adoption of SFAS No. 142 - Goodwill and Other Intangible Assets.
Companywide, contract acquisitions increased 26 percent to $7.1 billion for the first three months of 2003, from $5.6 billion reported for the same period a year ago, primarily due to contributions from Mission Systems, Space Technology and Integrated Systems segments
. The company's business backlog at March 31, 2003, increased 24 percent to $27.3 billion from $22.1 billion reported a year earlier.
Northrop Grumman's total debt at March 31, 2003, declined to $6.9 billion from $9.6 billion at Dec. 31, 2002, primarily reflecting the successful execution of the company's plan to reduce the acquired fixed-rate TRW debt. Also during the quarter, the company paid approximately $1.0 billion of income taxes due following the completion of the B-2 engineering and manufacturing development contract
. Interest expense for the 2003 first quarter increased to $144 million from $109 million for the 2002 first quarter. Net debt to total capital at March 31, 2003, decreased to 30 percent from 34 percent at the end of 2002. The company's net cash used in operations for the 2003 first quarter, excluding the B-2 tax payment, totaled $40 million. Net cash used in operations for the 2002 first quarter was $99 million.