10-KPeriod: FY2017

NORTHROP GRUMMAN CORP /DE/ Annual Report, Year Ended Dec 31, 2017

Filed January 29, 2018For Securities:NOC

Summary

Northrop Grumman Corporation's (NOC) 2017 10-K filing highlights a strong year of sales growth driven by its Aerospace Systems and Mission Systems segments. The company is on track to acquire Orbital ATK in the first half of 2018, a move expected to broaden its capabilities and create shareholder value. Despite a challenging global security environment, NOC continues to secure major U.S. government contracts, which represent 85% of its total sales. The company is focused on innovation and maintaining its leading position in defense and security solutions. Financially, the company reported increased sales and operating income, though net earnings saw a slight decrease primarily due to a higher effective tax rate resulting from the Tax Cuts and Jobs Act of 2017. Backlog remained substantial at $42.9 billion at year-end 2017. Key risks include continued dependence on U.S. government spending, appropriations, and potential regulatory changes. The company's strategic investments in R&D underscore its commitment to future technological advancements.

Financial Highlights

54 data points
Beta

Revenue

$25.80B

52.4% Gross Margin

Net Income

$2.87B

11.1% Net Margin

EPS (Diluted)

$16.34

Total Assets

$35.13B

Cash & Equivalents

$11.22B

Free Cash Flow

$1.69B

Financial Statements
Beta
Revenue$25.80B
Cost of Revenue$12.27B
Gross Profit$13.53B
R&D Expenses$639.00M
Operating Income$3.22B
Net Income$2.87B
EPS (Basic)$16.45
EPS (Diluted)$16.34
Shares Outstanding (Basic)174.40M
Shares Outstanding (Diluted)175.60M

Key Highlights

  • 1Reported total sales of $25.8 billion for 2017, a 5% increase from 2016, primarily driven by higher sales in Aerospace Systems and Mission Systems.
  • 2Anticipates the closing of the Orbital ATK acquisition in the first half of 2018, which is expected to create a fourth business sector named Northrop Grumman Innovation Systems.
  • 3The U.S. Government accounted for 85% of sales in 2017, indicating significant reliance on government contracts.
  • 4Total backlog stood at $42.9 billion at the end of 2017, down slightly from $45.3 billion in 2016, but representing a substantial order book.
  • 5Invested 2.5% of sales in company-sponsored R&D, reflecting a commitment to innovation and future technological development.
  • 6Experienced an increase in operating income to $3.3 billion, a 3% rise from 2016, alongside a slight decrease in operating margin rate to 12.8%.
  • 7Recognized a tax expense of $300 million due to the Tax Cuts and Jobs Act of 2017, contributing to a higher effective tax rate and a decrease in net earnings for the year.

Frequently Asked Questions

The company's primary source of revenue is derived from contracts with the U.S. Government, which accounted for 85% of its sales in 2017. This highlights a significant dependency on government defense spending.

The acquisition of Orbital ATK, expected to close in the first half of 2018, is a major strategic move that will broaden Northrop Grumman's capabilities and offerings, create value for shareholders, and enhance its ability to provide innovative solutions to meet emerging customer requirements. It will be integrated as a new, fourth business sector.

Key risks include a heavy dependence on the U.S. Government for a substantial portion of its business, potential delays or reductions in government appropriations, investigations and litigation, reliance on estimates for contract accounting, and challenges associated with its international business. Cybersecurity threats and subcontractor performance also pose risks.

The enactment of the Tax Cuts and Jobs Act of 2017 resulted in a one-time tax expense of $300 million, primarily due to the write-down of net deferred tax assets from the reduction in the U.S. corporate tax rate. This contributed to a higher effective tax rate and a decrease in net earnings for 2017.