Northrop Grumman Reports 2003 Third Quarter Results
Wednesday, October 29, 2003
Northrop Grumman Corporation (NYSE:NOC) reported income from continuing operations of $224 million, or $1.21 per share for the 2003 third quarter, compared with $141 million, or $1.17 per share, for the same period of 2002. Third quarter 2003 earnings per share are based on weighted average diluted shares outstanding of 184.5 million versus 115.2 million for the third quarter of 2002. Sales for the 2003 third quarter increased to $6.6 billion from $4.2 billion for the same period of 2002.
Ronald D. Sugar, Northrop Grumman's chairman, chief executive officer and president said, "Northrop Grumman's third quarter results were excellent from every perspective. The strong performance reflects 17 percent organic sales growth in our heritage businesses and solid contributions from our new operating segments. To date, we have accomplished all major 2003 business initiatives, while strengthening our balance sheet. With the TRW integration largely behind us, we are focused on delivering continued superior program performance and becoming the most trusted provider of systems and technologies for national security.
"We are optimistic about Northrop Grumman's future and have increased 2003 earnings per share and cash guidance while maintaining 2004 guidance for double-digit growth in earnings per share. We have won the major programs necessary to ensure continued growth, and we are currently competing for several multibillion dollar programs on the horizon," Sugar added.
Total operating margin for the 2003 third quarter increased 38 percent to $431 million from $313 million in the same period a year ago. Double-digit growth at Electronic Systems, Ships and Integrated Systems, and operating margin from the company's new Mission Systems and Space Technology segments, contributed to the year over year increase. Last year's third quarter results included an $87 million pre-tax charge on Ships Polar Tanker program and a $65 million pre-tax charge on Electronic Systems F-16 Block 60 contract. These third quarter 2002 charges were partially offset by positive pre-tax adjustments of $69 million on Ships cancelled commercial cruise ship program and $20 million on an Information Technology contract.
Total operating margin in the third quarter of 2003 included pension expense of $143 million compared with pension income of $22 million for the 2002 third quarter. The CAS pension expense increased to $64 million in the third quarter of 2003 from $25 million for the comparable 2002 period.
Third quarter total operating margin also includes a $17 million net gain in "Unallocated expenses" resulting from two legal settlements, the subsequent reversal of a previously established reserve, and the establishment of loss provisions for other legal matters. During the third quarter the company settled two civil False Claims Act cases, Newport News and Jordan, for $60 million and $20 million, respectively. As a result of the Newport News settlement, the company reversed a reserve, which, when established, had no effect on the company's net income as it was recorded as a liability on the balance sheet as part of the purchase accounting for the December 2001 acquisition of Newport News. The unused portion of the reserve, approximately $120 million, was reversed in the third quarter, and together with third quarter loss provisions recorded for other legal matters, resulted in the $17 million net gain.
The company also reported a loss from discontinued operations of $46 million, including a goodwill impairment charge of $47 million, in the third quarter of 2003 versus a loss of $178 million, including a goodwill impairment charge of $186 million, in the third quarter of 2002. Net income for the 2003 third quarter was $184 million, or $1.00 per diluted share, compared with a net loss of $59 million, or $.56 per diluted share for the same period of 2002.
Company wide, contract acquisitions increased 7 percent to $4.3 billion in the 2003 third quarter from $4.0 billion reported for the same period a year ago due to the contributions of the Mission Systems and Space Technology segments. The company also won several major contracts this quarter, including approximately $4 billion for Virginia-class submarines and $1.9 billion for the Advanced Hawkeye. Only a small portion of the total value of these contracts is included in third quarter contract acquisitions and funded backlog due to low initial incremental funding. The company's business backlog increased 10 percent to $23.6 billion at Sept. 30, 2003, from $21.5 billion reported a year earlier.