August 21, 2003


Northrop Grumman settles NNS False Claims Act suit
Northrop Grumman Corporation (NYSE: NOC) announced yesterday that it has agreed to an $80 million joint settlement of two civil False Claims Act complaints filed by the U.S. Department of Justice. The company said it will not record a charge to its earnings as a result of this settlement. Although cash from operations will be affected by the settlement, the company still expects 2003 cash from operations of $1.1 billion to $1.3 billion, before the $1.0 billion B-2 tax payment.

Of the $80 million, the government allocated $60 million to settle allegations that Newport News Shipbuilding, Inc., acquired by Northrop Grumman in December 2001, improperly charged certain independent research and development costs to its government contracts between 1994 and 1999. The suit was filed in February 2003 in the U.S. District Court for the Eastern District of Virginia. The case is United States of America v. Newport News Shipbuilding, Inc. #1:03CV142-A.

The government allocated the balance of the $80 million to settle claims filed in May 1995 in the U.S. District Court of the Central District of California, related to allegedly defective aerial target drones. The case is United States of America ex rel. Daniel Jordan v. Northrop Grumman Corporation, #CV95-2985 ABC (Ex).

The company expressly denied any liability and has agreed to settle these matters, allowing management to focus on the ongoing business operations.

In the Newport News case, the Department of Justice alleged that Newport News had knowingly mischarged the U.S. Navy on costs it incurred for work under commercial contracts from 1994 to 1999. The lawsuit alleged that the Newport News, Virginia-based company charged the Navy for independent research and development (IR&D) costs for double-hulled tankers that Newport News was building for commercial customers under existing contracts. Since November 2001, Newport News Shipbuilding has been a wholly-owned subsidiary of Northrop Grumman Corporation.

According to a Department of Justice statement issued when the lawsuit was brought, the shipbuilding company was alleged to have charged the Navy for more than $72 million of costs related to the design and development of the commercial tankers, which were passed through as overhead on major Navy shipbuilding contracts. The government's complaint stated that Newport News Shipbuilding mischarged the costs even after being warned in 1995 by senior staff and by its outside consultant, Arthur Andersen & Company, that its charges to IR&D could make it subject to suit under the False Claims Act.

Under the False Claims Act, the United States may recover three times the amount of its losses plus civil penalties.

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