01—Abstract
Summary
Summary of the 10-K filed January 31, 2019. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation's 2018 10-K filing highlights significant growth and strategic advancements, primarily driven by the acquisition of Orbital ATK in June 2018, which was integrated as the new Innovation Systems sector.
This acquisition expanded the company's capabilities across aerospace and defense. Sales increased by 16% to $30.1 billiona, fueled by the inclusion of the Innovation Systems sector and growth in the Aerospace Systems and Mission Systems segments. Operating income also saw a healthy increase of 17%.
A key focus for investors is the company's heavy reliance on the U.S. government as its primary customer, accounting for 82% of sales. Despite this concentration, the company maintains a substantial backlog of $53.5 billionb, indicating strong future revenue potential. The company also continued its commitment to shareholder returns through dividends and share repurchases, signaling financial strength and confidence in future performance.
02—Key points
Key Highlights
- Completed the significant acquisition of Orbital ATK in June 2018, integrating it as the fourth business sector, Innovation Systems, bolstering its capabilities in launch vehicles, missiles, satellites, and aerospace structures.
- Reported a 16% increase in total sales to $30.1 billion, driven by the addition of Innovation Systems and growth in Aerospace Systems and Mission Systems segments.
- Achieved a 17% increase in operating income to $3.78 billion, reflecting strong performance across key segments.
- Maintained a substantial backlog of $53.5 billion at year-end 2018, up from $42.6 billion in 2017, providing a strong foundation for future revenue.
- U.S. government remains the dominant customer, representing 82% of total sales, highlighting a significant concentration risk but also a stable, albeit dependent, revenue stream.
- Returned capital to shareholders through share repurchases totaling $1.26 billion and increased quarterly dividends, demonstrating financial health and commitment to shareholder value.
- Effective January 1, 2019, the company realigned its business structure, merging the Advanced Defense Services and System Modernization and Services into a new Global Services business area.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed January 31, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $30.09B$25.80B | +16.6% |
| R&D Expenses | $764.00M$639.00M | +19.6% |
| Operating Income | $3.78B$3.22B | +17.5% |
| Net Income | $3.23B$2.87B | +12.5% |
| EPS (Basic) | $18.59$16.45 | +13.0% |
| EPS (Diluted) | $18.49$16.34 | +13.2% |
| Shares Outstanding (Basic) | 173.70M174.40M | −0.4% |
| Shares Outstanding (Diluted) | 174.60M175.60M | −0.6% |
05—Questions
Frequently Asked Questions
What was the impact of the Orbital ATK acquisition on Northrop Grumman's financial performance in 2018?
The acquisition of Orbital ATK, completed in June 2018, significantly impacted Northrop Grumman's financials by adding $3.3 billion in sales and $343 million in operating income from the newly formed Innovation Systems sector. This acquisition was a primary driver for the overall 16% increase in sales and contributed to the company's expanded capabilities and market position.
How dependent is Northrop Grumman on U.S. government contracts?
Northrop Grumman is highly dependent on the U.S. government, which accounted for 82% of its sales in 2018. This concentration highlights the company's crucial role in national defense but also presents a risk tied to government spending priorities and budget allocations.
What is the significance of the company's backlog?
The company's backlog, representing remaining performance obligations, stood at $53.5 billion at the end of 2018, a substantial increase from the previous year. This large backlog is a positive indicator of future revenue and provides a degree of visibility into the company's near-to-medium term financial performance, underscoring the demand for its products and services.
How did the company manage its capital in 2018?
In 2018, Northrop Grumman generated $3.8 billion in net cash from operating activities and $2.6 billion in free cash flow. The company used these funds and existing cash reserves to finance operations, invest in capital expenditures, and return value to shareholders through $1.26 billion in share repurchases and $821 million in dividends, demonstrating a balanced approach to capital allocation.
06—Continue