10-KPeriod: FY2010

NORTHROP GRUMMAN CORP /DE/ Annual Report, Year Ended Dec 31, 2010

Filed February 9, 2011For Securities:NOC

Summary

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% 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.

Financial Highlights

51 data points
Beta

Revenue

$28.14B

55.4% Gross Margin

Net Income

$2.05B

7.3% Net Margin

EPS (Diluted)

$6.82

Total Assets

$31.41B

Cash & Equivalents

$3.70B

Free Cash Flow

$1.87B

Financial Statements
Beta
Revenue$28.14B
Cost of Revenue$12.56B
Gross Profit$15.59B
R&D Expenses$580.00M
Operating Income$2.83B
Net Income$2.05B
EPS (Basic)$6.91
EPS (Diluted)$6.82
Shares Outstanding (Basic)296.90M
Shares Outstanding (Diluted)301.10M

Key Highlights

  • 1Revenues grew by 3% year-over-year, reaching $34.76 billion, primarily driven by increases in Aerospace Systems and Shipbuilding segments.
  • 2U.S. Government contracts represented 92% of total revenues, highlighting a significant customer concentration.
  • 3The company announced plans to explore strategic alternatives for its Shipbuilding segment, with a potential spin-off anticipated in 2011.
  • 4Operating income increased by 14% to $3.07 billion, reflecting improved performance across segments and cost management.
  • 5Northrop Grumman repurchased $1.2 billion of its common stock and $1.1 billion in debt securities during the year.
  • 6Total backlog at year-end stood at $64.2 billion, with approximately 47% expected to convert to sales in 2011.
  • 7Research and Development expenses remained substantial at $603 million, underscoring the company's focus on innovation.

Frequently Asked Questions

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.

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.

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.

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.