Northrop Grumman Reports 2Q Results

Monday, July 28, 2003
Northrop Grumman Corporation reported income from continuing operations of $207 million, or $1.09 per share, compared with $181 million, or $1.52 per share, for the same period of 2002. Second quarter 2003 earnings per share are based on weighted average diluted shares outstanding of 184.4 million versus 114.8 million for the second quarter of 2002. Sales for the 2003 second quarter increased to $6.6 billion from $4.2 billion for the same period of 2002. The 2003 second quarter pension expense totaled $140 million compared with $22 million of pension income for the 2002 second quarter. The CAS pension expense increased to $66 million from $23 million for the comparable period of 2002. Total operating margin for the 2003 second quarter increased 10 percent to $391 million from $354 million in the same period a year ago, reflecting increased operating margins from our segments, offset by pension expense. Companywide, contract acquisitions increased 36 percent to $5.2 billion in the 2003 second quarter from $3.8 billion reported for the same period a year ago, primarily due to contributions from the Mission Systems and Space Technology segments. The company's business backlog increased 19 percent to $25.9 billion at June 30, 2003, from $21.7 billion reported a year earlier. The 2003 second quarter results reflect contributions from the company's two new operating segments, Mission Systems and Space Technology, and double- digit growth in sales and operating margin at its Electronic Systems, Information Technology and Integrated Systems segments. The results also include a $68 million pre-tax charge on Ships' commercial Polar Tanker program. Ronald D. Sugar, Northrop Grumman's chief executive officer and president said, "We are very pleased with the excellent operating results of all our defense and government businesses, reflecting the strength and depth of the new Northrop Grumman. Both heritage and recently acquired companies contributed significantly to today's results. Despite the charge on the Polar Tanker program, we were able to deliver a very strong quarter, including solid cash flow, and to increase 2003 earnings per share guidance. "We are optimistic about Northrop Grumman's future growth and our ability to capitalize on the Department of Defense's 21st century transformation agenda. From the production of the most sophisticated sensors to the integration of systems-of-systems -- from undersea to cyberspace -- Northrop Grumman is uniquely positioned to shape and support the network-centric warfare future envisioned by our customers," Sugar added. Segment Results Electronic Systems segment sales for the 2003 second quarter increased 16 percent to $1.5 billion from $1.3 billion in the second quarter of 2002. Operating margin for the 2003 second quarter increased 36 percent to $148 million from $109 million from the comparable 2002 period. Electronic Systems results reflect increased deliveries in Aerospace Electronic Systems on the F/A-22, Apache Longbow and F-16 programs and increased volume and improved performance on C4ISR&N programs. Ships, which includes the financial results of the Newport News and Ship Systems sectors, increased sales 19 percent to $1.4 billion for the 2003 second quarter, compared with sales of $1.2 billion for the 2002 second quarter. The sales growth reflects increased revenue on the DDX program, included in the Surface Combatant business area, and on the LPD program, included in the Amphibious and Auxiliary business area. Operating margin was $23 million in the 2003 second quarter compared with $85 million for the same period last year, reflecting a $68 million pre-tax charge to operating margin on the commercial Polar Tanker program. The charge includes cost growth on the third tanker due to unusual weather delays and rework. The third tanker was delivered to the customer July 21. The charge also includes increased estimates to complete the final two ships to reflect more modest improvements in labor productivity and higher overhead costs than previously expected. The fourth ship is approximately 75 percent complete and is scheduled to deliver in late 2004. The fifth and last ship is approximately 35 percent complete and is scheduled to deliver in late 2005. Information Technology sales in the 2003 second quarter increased 11 percent to $1.2 billion compared with sales of $1.0 billion for the same period of 2002, reflecting strong growth in all business areas. Operating margin for the quarter increased 63 percent to $67 million compared with $41 million reported in the 2002 second quarter, reflecting increased revenues and a higher operating margin rate on the Government Information Technology business. The 2002 second quarter results included a $16 million loss provision on a contract relating to Oracle's Enterprise Licensing Agreement with the State of California. Northrop Grumman's total debt at June 30, declined to $6.6 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, and the $1.0 billion B-2 tax payment in March 2003. Interest expense for the second quarter of 2003 increased to $119 million from $105 million for the 2002 second quarter. Net debt to total capital at June 30, 2003, decreased to 30 percent from 34 percent at the end of 2002. The company's cash provided by operations for the 2003 second quarter totaled $737 million. Cash provided by operations for the 2002 second quarter was $572 million.
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