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MIXED RESULTS FROM U.S. MAJORS

NORTHROP UP – FUTURE LOOKS GOOD

17 Jul 02. Northrop Grumman Corp. reported a modest rise in profits for the second quarter on the strength of acquisitions and increased margins in two divisions.

For the three months ended June 30, the company reported net income of $182m or $1.53 per share, (2001: $114m, or $1.28 per share), the company said on Wednesday

Adding back goodwill amortization of $61m, Northrop said it earned $175m
, or $2.01 per share, in the second quarter of 2001. New accounting rules have changed the way companies amortize goodwill.

Revenue increased 20 percent to $4.4bn for the quarter, (2001: $3.7bn)

The financial figures reflect the performance of Newport News Shipbuilding, which Northrop bought last year. Also included is a drop in pension income of $23m, (2001: $91m). The company confirmed its earlier guidance for the full year, saying it expects revenue of between $17.5bn and $18bn and earnings of between $6.60 and $7.10 per share.

Northrop Grumman chief executive Kent Kresa said his company, now the nation’s second-largest defense contractor, is poised to benefit from defense spending which, the company estimates, will increase 8 percent to 9 percent in the coming years. That figure does not include spending on homeland security, where Northrop offers software and information technology, Kresa said.

Excluding revenue from its recent acquisition of TRW Inc., which is expected to close by year’s end, Northrop said it expects revenue in 2003 of between $20bn and $20.5bn with double-digit increases also expected in 2004.

“Overall, we are very pleased with the solid growth generated in our core defense businesses,” Kresa said. “Our outlook without TRW is outstanding. With TRW, it’s even brighter.”

For the first six months of the year, the company reported net income of $331m , or $2.80 per share, (2001: $217m, or $2.69 per share).

Sales at Electronic Systems in the 2002 second quarter increased eight percent to $1.3bn from $1.2bn for the same period of 2001, reflecting increased sales in the Aerospace Electronic Systems, C4ISR&N, Defensive Electronic Systems and Space Systems business areas. Operating margin for the quarter was $117m, (2001: adjusted operating margin of $107m, principally due to strong performance in the Defensive Electronic Systems, Navigation Systems and Automation and Information Systems areas).

Ships, which includes the financial results of the Newport News and Ship Systems sectors, generated sales of $1.2bn and operating margin of $95mfor the 2002 quarter, (2001: $549m and adjusted operating margin of $42m). The 2002 second quarter results reflect the November 2001 acquisition of Newport News. The company recently finalized the fair value of Newport News’ purchased intangible assets, resulting in an increase in the weighted average life and a reduction in amortization expense. Ships segment amortization is now expected to be approximately $44 million for the year.

Information Technology reported sales of $1.0bn in the quarter ended June 30, 2002, unchanged from the same period last year. Sales include strong growth in the Government Information Technology business area, partially offset by lower sales in the Enterprise Information Technology business area. Operating margin was $40 million in the quarter, down from an adjusted $64 million in the second quarter of 2001, primarily due to a $16 million loss provision on its contract with Oracle relating to Oracle’s Enterprise License Agreement with the State of California. While the company continues to believe the contract provided substantial savings to the state, California’s auditor has questioned the contract’s economic value. In an effort to maintain solid customer relations, Northrop Grumman has indicated its willingness to rescind the contract and is in discussions with Oracle and the state.

Sales for Integrated Systems increased eight percent to $829m for the 2002 second quarter, (20

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