17 Apr 2002. Northrop Grumman Corporation (NYSE: NOC)today reported first quarter 2002 net income of $149m, or$1.27 per share, (2001: $132m, or $1.81 per share). The comparable per share decline reflects a substantial decrease in pension income and increases in interest expense and in the number of shares outstanding. On an economic earnings basis, the company reported
increased earnings of $170m, or $1.45 per share, (2001: $101m, or $1.39 per share). First quarter 2002 earnings per share are based on average diluted shares outstanding of 112.8m, (2001: 72.8m).
Sales for the first quarter more than doubled to $4.1bn, (2001: $2.0bn). Northrop Grumman’s operating margin for the quarter increased 39 percent to $313m, (2001: $225m).
Sales at Electronics Systems increased 76 percent to $1.2bn, (2001: $701m), including a 16 percent increase in organic sales. Operating margin for the quarter was $99m, (2001: $53m). The sales and margin increases reflect the contributions by Litton’s electronics businesses and EIS.
Ships, which includes the financial results of the Newport News and Ship
Systems sectors, generated sales of $1.1bn and operating margin of $79m for the first quarter of 2002. Although Newport News is now operating as a separate Northrop Grumman sector, the company has aggregated Newport News and Ship Systems results for financial reporting purposes.
Information Technology reported sales of $929m an increase of 58 percent. The sales growth was driven by businesses added in the Litton acquisition.
Operating margin was $50m in the quarter, (2001: $34 m).
Sales for Integrated Systems increased 10 percent to $807m for the 2002 first quarter, (2001: $733m), reflecting higher B-2 and unmanned vehicle sales. Operating margin for the 2002 first quarter increased 6 percent to $93m, (2001: adjusted $88m).
Component Technologies reported 2002 first quarter sales of $125m and an operating loss of $4m. Component Technologies’ operating margin
continued to be adversely impacted by the downturn in the telecommunications industry.
Contract acquisitions increased to $5.8bn, (2001: $2.2bn). Electronics Systems segment reported contract acquisitions of $1.5bn reflecting the inclusion of Litton and EIS businesses and higher F-22 funding in the combat avionics business area. Ships reported contract acquisitions of $1.8bn resulting from thefunding of Virginia-class submarines and refueling and overhaul of the carrierUSS Enterprise. Information Technology reported contract acquisitions of$1.1bn, principally in the government information technology businessarea. Integrated Systems reported $1.3bn in contract acquisitions,reflecting higher F/A-18E/F and unmanned vehicle systems funding. ComponentTechnologies reported $129m in contract acquisitions. The company’sbusiness backlog at March 31, 2002, was $22.4bn, more than double the$10.3bn reported a year earlier.
Comment: Standard & Poor’s rating and outlook for Northrop Grumman are not affected; ratings reflect the risks of an active acquisition program and management’s demonstrated commitment to maintaining investment-grade financial flexibility. The company’s results reflect the contribution of three strategic acquisitions made in 2001. Financial flexibility is adequate, with debt to total capital in the mid-40% area at March 31, 2002. Ratings factor in Northrop Grumman’s unsolicited offer to buy TRW Inc. (BBB/Watch Neg/A-2) in an all-equity transaction valued at about $11.7 billion, including $5bn of TRW debt to be assumed.
Standard & Poor’s anticipates that Northrop Grumman will be able to realize appropriate value for TRW’s very large ($10bn revenues out of $16bn total) automotive operations, which would be separated at the close of the transaction. If the acquisition closed in 2002, the combined Northrop Grumman and TRW defense and aerospace businesses would generate over $26b