Northrop Grumman Reports Lower 1998 Net Income Resulting From Previously Announced Charges (Feb. 3)
LOS ANGELES --- Northrop Grumman Corporation today reported 1998 net income of USD214 million, or USD3.07 per share, compared with USD407 million, or USD5.98 per share, in 1997. The 1998 results were reduced by previously announced pretax program charges of USD125 million (USD1.18 per share after tax) in the fourth quarter and pretax charges of USD186 million (USD1.73 per share after tax) recorded in the first and second quarters for costs related to the company's terminated merger with Lockheed Martin Corporation. Sales for 1998 were USD8.9 billion, down 3 percent from the USD9.2 billion reported in 1997. Operating margin for the year totaled USD756 million, down from the USD880 million reported a year ago. "Our company encountered major challenges in this past year. External economic forces, termination of the merger with Lockheed Martin and certain program issues all affected our financial results,'' said Kent Kresa, Northrop Grumman chairman, president and chief executive officer. ``Still, we remain confident in the strategic rationale underlying our business transformation. Northrop Grumman's electronics, systems integration and information technology business areas are healthy today and serve as engines for growth tomorrow. Global financial conditions will continue to constrain sales in 1999 and 2000, primarily in our commercial aircraft unit, resulting in relatively flat revenues of approximately USD9 billion in each year. Beyond that, with anticipated economic improvement and increases in the defense procurement budget, we expect to see strong growth in revenues as well as earnings. We are comfortable with the current range of analysts' estimates of USD6.00 to USD6.30 for 1999. From this base, we expect double-digit earnings growth for 2000 and beyond and are comfortable with the current range of analysts' estimates of USD6.40 to USD7.10 for 2000.'' Northrop Grumman's sales for the fourth quarter of 1998 were USD2.5 billion, even with the same period a year ago. Net income for the period totaled USD17 million, or USD0.24 per share, compared with USD117 million, or USD1.71 per share, for the fourth quarter of 1997. Operating margin for the quarter, which includes the USD125 million in program charges, was USD103 million, down from the USD246 million reported a year ago. The program charges in the fourth quarter of 1998 included USD104 million on the Boeing 747 fuselage program and USD21 million on the Directional Infrared Countermeasures (DIRCM) program. The Boeing 747 charge resulted from a reduction in future fuselage delivery rates that caused an increase in the estimated cost to complete work on the current production block and a charge to operations of certain nonrecurring costs for the Accurate Fuselage Assembly (AFA) precision manufacturing system, which are no longer considered recoverable from sales of future deliveries. The DIRCM charge resulted from delays in accomplishing the second series of live-fire tests, now scheduled for this spring. Operating margin in 1998 included pension income of USD266 million, compared with USD133 million for 1997. Amortization of goodwill and other intangibles was USD186 million in 1998, compared with USD185 million in 1997. Also included in the 1998 results are pretax costs totaling USD58 million (USD0.54 per share after tax) related to activities to realign operating units, consolidate facilities and laboratories and exit certain business areas, which reduced operating margin by USD43 million and other income by USD15 million. Results for 1997 included a fourth quarter USD55 million upward cumulative margin rate adjustment on the B-2 production contract. Northrop Grumman's business backlog at Dec. 31, 1998, was USD10.5 billion compared with USD11.9 billion reported a year earlier. The decline was primarily due to the winding down of the B-2 stealth bomber program. Segment data has been restated to reflect the company's three operating units: Integrated Systems and Aerostructures (ISA), Electronic Sensors and Systems (ESS), and Information Technology (Logicon). Major business areas included in ISA are B-2, surveillance aircraft (E-8 Joint STARS, E-2), Boeing jetliners, F/A-18 and C-17. Major business areas in ESS include airborne radar, marine systems, electronic countermeasures, airspace management and space. Logicon's major business areas include information systems; command, control and communications; weapon systems; training and simulation; base and range support, and system support services. Fourth quarter operating margin for the ISA business segment included the USD104 million charge on the Boeing 747 program and USD5 million in consolidation and realignment charges. One B-2 was delivered in the fourth quarter of 1998, compared with two B-2's during the same period of 1997. For all of 1998, the segment delivered five B-2's, compared with four deliveries in 1997. Lower B- 2 production volume and lower margin rates on commercial aerostructures also contributed to lower ISA operating margin in 1998. The 1997 fourth quarter results included the USD55 million upward cumulative margin rate adjustment on the B-2 production contract. ESS business segment operating profit for the fourth quarter of 1998 was reduced by the USD21 million DIRCM charge and by USD13 million in consolidation and realignment charges. The fourth quarter of 1997 included a USD20 million charge related to an estimated increase in the cost to complete the company's work on DIRCM. The information technology (Logicon) business segment reported sales increases of 17 percent for the fourth quarter and 8 percent for the full year of 1998 compared with the corresponding periods of 1997. Operating margin for the fourth quarter of 1998 was reduced by USD7 million in consolidation and realignment charges. At Dec. 31, 1998, Northrop Grumman's net debt was USD2.79 billion, compared with USD2.73 billion at Dec. 31, 1997. Interest expense for 1998 was USD233 million, down USD24 million from last year as a result of a lower average level of borrowings during 1998. Northrop Grumman had a weighted average of 68.5 million shares outstanding during 1998 compared with a weighted average of 66.7 million shares outstanding during 1997.
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Northrop Grumman Reports Lower 1998 Net Income Resulting From Previously Announced Charges (Feb. 3)
