Northrop blames loss on fixed-price R&D pacts.

Northrop blames loss on fixed-price R&D pacts

Northrop Corp. Wednesday reported a $63.5 million net loss for the year ended Dec. 31, 1989, compared with a $104.2 million net profit the prior year as sales declined 9 percent to $5.25 billion from $5.80 billion.

Kent Kresa, president and chief executive officer, blamed the loss on provisions for increased costs on a number of fixed-price research and development contracts, most of which were reported previously during the year. He noted the Century City-based aerospace company has refused to accept new fixed-price R&D contracts since early 1988; however, older contracts have continued to impact Northrop.

Despite this hardnosed position on accepting new contracts, Northrop reported its contract acquisitions increased 24 percent to $5.98 billion during 1989 from $4.84 billion the prior year. Thus, Northrop's funded backlog was increased 15 percent to $5.59 billion at year-end 1989 from $4.86 billion a year earlier.

Increases in contract acquisitions and backlog were recorded in Northrop's aircraft and missiles and unmanned vehicle systems segments. But the electronics segment suffered declines in both contract acquisitions and backlog as well as operating results, which included lower sales and an $11 million operating loss (vs. a $38.7 million operating profit the prior year).

The electronics segment's Precision Products division is operating under a government suspension barring most new business, Kresa said. This also resulted in reduced operating efficiencies and higher costs, he added, including increased legal fees.

(Northrop's legal fees are expected to mount higher in connection with legal problems relating to the company's B-2 Advanced Technology - Stealth - Bomber. Federal Bureau of Investigation agents raided Northrop's B-2 plant in Pico Rivera Feb. 15, apparently seeking records and documents relating to a Justice Department criminal investigation under way for more than a year.)

Operating results in the electronics segment also were hurt by $81 million of loss provisions made on several fixed-price development contracts, Kresa said, principally Northrop's troubled ALQ-135 electronic countermeasures program.

Also impacting Northrop's results was a 26-percent leap in interest expense to $123.7 million in 1989 from $98.5 million the prior year. To reduce interest expense, Kresa announced, Northrop completed sale of its headquarters complex last week and applied the $218 million cash proceeds received to reduce short-term debt to $424 million.

The sale and partial lease-back of the real estate resulted in a pretax gain of $136 million, Kresa said, of which $102 million will be recognized in 1990 - with firstquarter net income benefiting by $67 million, or $1.42 a share. The remainder will be deferred and amortized into income over the 10-year lease of the corporate space Northrop now occupies in the building.

Although Northrop's fourth-quarter sales plunged 23 percent to $1.33 billion from $1.73 billion, the company pared its net loss to $16.6 million for the '89 quarter from the $86.1 million loss of the like '88 quarter.

Lower fourth-quarter sales, Kresa said, resulted from: declining R&D on the B-2 bomber, fewer deliveries of F/A-18 shipsets (26 vs. 33) and of inertial measurement units for the MX Peacekeeper ballistic missile. Lower revenues in the company's missiles and unmanned vehicles systems segment resulted from a $120 million reduction in the "estimate of the percentage of completion accomplished to date on a classified contract," Kresa said.

The price of Northrop common closed unchanged on the New York Stock Exchange at $17 a share Wednesday after the financial results were announced, indicating they were in line with street expectations. At $17 Northrop's stock was just $1 above the 52-week low of $16 but 43 percent below the 52-week high of $29.75.