01—Abstract
Summary
Summary of the 10-K filed February 9, 2011. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation's 2010 10-K report details a strong year characterized by revenue growth driven by its Aerospace and Shipbuilding segments.
The company's heavy reliance on U.S. government contracts, which accounted for 92%a of revenues, positions it to benefit from ongoing defense spending but also exposes it to budgetary shifts and regulatory changes. A significant strategic development was the announcement of plans to explore strategic alternatives for the Shipbuilding segment, including a potential spin-off, which is anticipated for 2011. Financially, Northrop Grumman demonstrated solid operational performance with growth in operating income, supported by cost management and favorable performance adjustments across several segments.
The company also actively managed its capital structure through debt repurchase and share buybacks, while maintaining a strong liquidity position. Investors should note the company's ongoing commitment to research and development and its preparedness for future technological demands within the aerospace and defense sector.
02—Key points
Key Highlights
- Revenues grew by 3% year-over-year, reaching $34.76 billion, primarily driven by increases in Aerospace Systems and Shipbuilding segments.
- U.S. Government contracts represented 92% of total revenues, highlighting a significant customer concentration.
- The company announced plans to explore strategic alternatives for its Shipbuilding segment, with a potential spin-off anticipated in 2011.
- Operating income increased by 14% to $3.07 billion, reflecting improved performance across segments and cost management.
- Northrop Grumman repurchased $1.2 billion of its common stock and $1.1 billion in debt securities during the year.
- Total backlog at year-end stood at $64.2 billion, with approximately 47% expected to convert to sales in 2011.
- Research and Development expenses remained substantial at $603 million, underscoring the company's focus on innovation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Northrop Grumman Corp kept $0.07.
- Revenue$28.14B100.0%
- Cost of revenue−$12.56B44.6%
- Gross profit$15.59B55.4%
- Operating costs−$12.76B45.3%
- Operating income$2.83B10.0%
- Interest, other & tax−$774.0M2.8%
- Net income$2.05B7.3%
Where FY2010 revenue went
$28.14B- Cost of revenue: $12.56B, 45% of revenue
- Other operating costs: $12.18B, 43% of revenue
- Net income: $2.05B, 7.3% of revenue
- R&D: $580.0M, 2.1% of revenue
- Interest, other & tax: $774.0M, 2.8% of revenue
Kept 7.3% as net incomeNet income $2.05B · 7.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 9, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $28.14B$27.65B | +1.8% |
| Cost of Revenue | $12.56B$12.65B | −0.7% |
| Gross Profit | $15.59B$15.00B | +3.9% |
| R&D Expenses | $580.00M$588.00M | −1.4% |
| Operating Income | $2.83B$2.27B | +24.3% |
| Net Income | $2.05B$1.69B | +21.8% |
| EPS (Basic) | $6.91$5.28 | +30.9% |
| EPS (Diluted) | $6.82$5.21 | +30.9% |
| Shares Outstanding (Basic) | 296.90M319.20M | −7.0% |
| Shares Outstanding (Diluted) | 301.10M323.30M | −6.9% |
05—Questions
Frequently Asked Questions
What is the company's primary source of revenue, and what are the associated risks?
The company's primary source of revenue is from U.S. Government contracts, which accounted for approximately 92% of total revenues in 2010. This heavy reliance exposes Northrop Grumman to risks associated with U.S. government budget changes, shifting defense priorities, and regulatory compliance. Changes in government funding or policy could materially impact the company's financial performance.
What strategic actions are being taken regarding the Shipbuilding segment?
Northrop Grumman announced in July 2010 that it is evaluating strategic alternatives for its Shipbuilding segment, including a potential spin-off to shareholders, anticipated in 2011. This move aims to allow both the company and the Shipbuilding segment to more effectively pursue their respective opportunities and maximize long-term value.
How did the company perform financially in 2010?
In 2010, Northrop Grumman reported a 3% increase in sales and service revenues to $34.76 billion and a 14% increase in operating income to $3.07 billion. This performance was supported by higher sales volumes in key segments and improved operational efficiencies. Diluted earnings per share from continuing operations were $6.77.
What is the company's outlook regarding U.S. defense spending?
The company anticipates that U.S. government defense spending may face increasing pressure due to economic challenges and national debt. While the real rate of growth in the defense budget may be slowing, Northrop Grumman believes its current contracts and backlog align well with customer needs. However, new policy initiatives and budget decisions could adversely affect future defense spending levels and, consequently, the company's revenues.
06—Continue