01—Abstract
Summary
Summary of the 10-K filed January 29, 2018. Cited figures are marked; the original filing is the authoritative source.
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%a 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 billionb 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.
02—Key points
Key Highlights
- Reported total sales of $25.8 billion for 2017, a 5% increase from 2016, primarily driven by higher sales in Aerospace Systems and Mission Systems.
- Anticipates 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.
- The U.S. Government accounted for 85% of sales in 2017, indicating significant reliance on government contracts.
- Total 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.
- Invested 2.5% of sales in company-sponsored R&D, reflecting a commitment to innovation and future technological development.
- Experienced 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%.
- Recognized 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Northrop Grumman Corp kept $0.11.
- Revenue$25.80B100.0%
- Cost of revenue−$12.27B47.6%
- Gross profit$13.53B52.4%
- Operating costs−$10.31B40.0%
- Operating income$3.22B12.5%
- Interest, other & tax−$349.0M1.4%
- Net income$2.87B11.1%
Where FY2017 revenue went
$25.80B- Cost of revenue: $12.27B, 48% of revenue
- Other operating costs: $9.68B, 37% of revenue
- Net income: $2.87B, 11% of revenue
- R&D: $639.0M, 2.5% of revenue
- Interest, other & tax: $349.0M, 1.4% of revenue
Kept 11% as net incomeNet income $2.87B · 11%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed January 29, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $25.80B$24.51B | +5.3% |
| Cost of Revenue | $12.27B$11.00B | +11.5% |
| Gross Profit | $13.53B$13.51B | +0.2% |
| R&D Expenses | $639.00M$705.00M | −9.4% |
| Operating Income | $3.22B$3.28B | −1.8% |
| Net Income | $2.87B$2.04B | +40.4% |
| EPS (Basic) | $16.45$11.42 | +44.0% |
| EPS (Diluted) | $16.34$11.32 | +44.3% |
| Shares Outstanding (Basic) | 174.40M178.90M | −2.5% |
| Shares Outstanding (Diluted) | 175.60M180.50M | −2.7% |
05—Questions
Frequently Asked Questions
What is the company's primary source of revenue?
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.
What is the significance of the Orbital ATK acquisition?
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.
What are the key risks facing Northrop Grumman?
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.
How did the Tax Cuts and Jobs Act of 2017 affect the company?
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.
06—Continue