NORTHROP REPORTS INCREASE IN SALES – BUT ANNOUCES LOSS

17 Oct 02. Northrop Grumman Corp.(NYSE:NOC – News) on Thursday reported a quarterly net loss due to the sale of discontinued operations but said sales rose, boosted by its $2.1bn purchase of Newport News.

The company also revised its 2002 earnings forecast downward to reflect
the effect of these items. Northrop, said it quarterly loss was 56 cents per share. The net results include a charge of $208m, or $1.80 per share related, to the sale of two of its electronic systems businesses. Northrop announced the sale of these units in September.

Northrop reported net income from continuing operations of $141m for the 2002 third quarter, or $1.17 per share, on 115.2 million average diluted shares outstanding, (2001:$140M, or $1.56). These results are adjusted to exclude amortization of goodwill in 2001 in accordance with SFAS No. 142 – Goodwill and Other Intangible Assets. On an economic earnings basis, Northrop Grumman’s 2002 third quarter earnings from continuing operations increased to $154m, or $1.28 per share, (2001: $100m, or $1.09). In the 2002 third quarter, the company reported pension income of $23m, (2001: $88m)

The company’s 2002 third quarter results included an $87m pre-tax charge on its Polar Tanker program and a $65m pre-tax charge on its F-16 Block 60 contract. The 2002 third quarter results also included positive pre-tax adjustments of $69m on the cancelled commercial cruise ship program and $20m on a Technology Services contract.

Before these items, 2002 third quarter GAAP earnings from continuing operations totaled $182m, or $1.53 per share, and economic earnings from continuing operations totaled $195m, or $1.64 per share.

In September 2002, Northrop Grumman entered into a definitive agreement to sell two of its Electronic Systems sector businesses, Electron Devices and Ruggedized Displays. The company expects these sales to close in the fourth quarter of 2002. During the third quarter, the company decided to sell the businesses of its Component Technologies sector and expects to conclude the sale of these businesses within the next 12 months. As a result, these businesses are reported as discontinued operations for both the current and prior years. The company reported an estimated after-tax loss on disposal of $208m, which considers only those businesses that may be sold at a loss. Gains realized on the sale of any of these businesses will be reported in the period in which their divestiture is
complete.

Sales for the quarter ended Sept. 30, 2002, were $4.2bn, up 24 percent, (2001: $3.4bn), reflecting increased sales at the company’s Electronic Systems, Ships and Integrated Systems segments. Northrop Grumman’s operating margin for the quarter increased six percent to $313m, (2001: adjusted $295m). For the 2002 third quarter, Northrop Grumman’s contract acquisitions totaled $4.1bn, (2001: $2.5bn). The increase is primarily due to funding received on several Electronic Systems programs and on Ship Systems’ DD(X) and LHD programs. The company’s business backlog at Sept. 30, 2002, was $21.5bn,(2001: $15.7bn).

Kent Kresa, Northrop Grumman chairman and chief executive officer, stated, “Our core defense businesses, despite charges on two programs, continue to perform well, with 24 percent sales growth and very strong cash flow. As a result, we are confirming 2003 economic earnings guidance relating to our ongoing businesses. Additionally, we continue to be pleased with the successful integration of recent acquisitions, having achieved all integration-related milestones. We received notice yesterday that the European Union approved our acquisition of TRW. We anticipate completing the acquisition shortly and beginning the integration of that business by year- end.

“Looking forward, Northrop Grumman has assembled the essential capabilities and technologies to compete for the highest priority 21st century