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30 Jan 02. – Northrop Grumman Corp. (NYSE:NOC – news), posted a 9 percent drop in fourth-quarter net profit as income from pension funds declined while interest expense rose.

But excluding pension income, earnings rose almost 50 percent in the quarter on strength in electronic systems and information technology, as well as the addition of its new ships segment.

Northrop reported net earnings of $131m, or $1.28 per share, (2000: $144M, or $1.99 per share). Pension income fell to $88m, (2000:$128m).

Earnings excluding pension fund income, or “economic earnings,” totalled $158m, or $1.55 per share, the company said.

Sales nearly doubled to $4.30bn, (2000: $2.23bn) thanks to acquisitions. including nuclear ship and submarine builder Newport News

For 2002, Northrop reaffirmed its forecast, saying it expects to post economic earnings of $6.60 to $7.10 per share. The company expects to generate “double-digit” growth in both revenue and economic earnings in 2003.

“Today’s outstanding results validate our strategy to create a top-tier defense enterprise focused on our customers’ current and future needs,” Kent Kresa, chairman and chief executive, said in a statement. “Last year’s strategic acquisitions — which added some $8bn in annualized revenues — provided new core competencies and established a solid foundation for future growth.” Northrop transformed itself last year from a company with no shipyards into the world’s largest builder of warships for the U.S. Navy. Results for the fourth quarter and full year reflect that change. Net debt at Dec. 31, 2001, was $5.0bn (2000: $1.3bn, reflecting both the assumption of Litton and Newport News debt and increased borrowings to finance last year’s acquisitions. Interest expense for the fourth quarter was $104m, (2000:$40m).

Contract acquisitions in 2001 totalled $24.9bn, including $13.6bn of funded order backlog from the acquired companies. Business backlog increased to
$21.5bn, (2000: $10.1bn).

For the last quarter of 2001, Northrop generated $405m of cash from operations, reflecting strong cash performance, particularly from the Electronic Systems sector, which generated the strongest sales gains, helped by the addition ofLitton businesses.

Sales at Electronic Systems in the 2001 fourth quarter increased 60 percent to $1.5bn (2000: $962m). Operating margin for the quarter nearly tripled to $145 m (2000:$55m). The 2001 sales and margin improvements reflect the contributions by Litton’s Advanced Electronics business and the Electronics and Information Systems group of Aerojet-General. The increases are also due to growth at the sector’s Combat Avionics Systems, Land Combat Systems and its Automation and Information business areas.

Information Technology reported 2001 fourth quarter sales of $1.1bn, (2000: $537m). The increase reflects the contributions from Litton’s Information Systems business as well as organic growth in its Enterprise Information Technology business. Operating margin increased to $45m for the 2001 fourth quarter (2000: $11m). Last year’s fourth quarter operating margin included a $9 million non cash reduction related to retiree benefits.

Integrated Systems generated 2001 fourth quarter sales of $784m, (2000: $779m).
The sector’s operating margin for the quarter was $42m (2000: $52m), reflecting lower sales and operating margin in the Airborne Early Warning and Electronics Warfare business area and lower operating margin on unmanned vehicle contracts.

Ships generated sales of $803m and operating margin of $28m for the fourth quarter. The results include the contributions of Newport News Shipbuilding, acquired by the company on Nov. 29. Although Newport News will operate as a separate sector for the near term, the company has aggregated Newport News and Ships Systems results for financial reporting purposes. Operating margin for the quarter includes a downward cumulative margin rate adjustment of $13m on the polar tank

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