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Northrop Grumman Corporation

This report provides a comprehensive breakdown of Northrop Grumman Corporation's financial statements, detailing its four main operational segments: Aerospace Systems, Electronic Systems, Information Systems, and Technical Services. It covers critical components such as balance sheet items, including inventorial and non-current assets, long-term debt, and environmental liabilities. The analysis also addresses income statements, segment sales, and noteworthy tax information. Additionally, it highlights areas needing more exploration, particularly in patents and intangible assets, crucial for the Aerospace/Defense sector.

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Northrop Grumman Corporation

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  1. Northrop Grumman Corporation Module 10 – Detailed Analysis of Financial Reports Alex Aponte - Section 2 – Acct 70311

  2. Brief Overview of Northrop • Northrop Grumman Corporation is a leading global security company providing innovative systems, products and solutions in a number of key segments.

  3. Four Segments of Northrop • Aerospace Systems – 36.5% of sales – design, development, integration and production of manned aircraft, unmanned systems, spacecraft, etc. • Electronic Systems – 25.5% of sales – designs, develops and manufactures solutions a variety of defense electronics and systems for controlling a military environment.

  4. Segments (continued) 3. Information Systems – 26.9% of sales – focuses on cyber-security; C4ISR; intelligence processing; ad air ad missile defense. 4. Technical Services– 11.1% of sales - provides training solutions, logistics services, and advanced technology in missile defense, nuclear security, and simulations.

  5. Balance Sheet

  6. Inventoried Costs, Net

  7. Inventoried Costs, Net • $698M matches the Balance Sheet

  8. Inventoried Costs, Net • Primarily relates to WIP on contracts accounted for under either units-of-delivery or percentage-of-completion accounting • Inventoried Costs Bal. Sheet Account = Accumulated Contract Costs less portion of cost allocated to delivered items • Physical inventory within “Inventoried Costs” consists mostly of raw materials

  9. Deferred Tax Asset

  10. Deferred Tax Asset • Plug of $209M on liability side yields match

  11. Property, Plant and Equipment • From Balance Sheet

  12. Property, Plant and Equipment • $2,806M matches Balance Sheet number

  13. Property, Plant and Equipment • Most assets within PP&E are depreciated using double-declining balance method, and the remainder use the straight-line method

  14. Goodwill from Balance Sheet

  15. Goodwill • Goodwill amount matches Balance Sheet

  16. Goodwill • Historically, Northrop has performed annual goodwill test for impairment November 30. • In 2013, Northrop changed the date to December 31. • Deloitte concluded change was preferable under the circumstances • Used discounted cash flow approach corroborated with comparative market multiples when appropriate • Acc. goodwill impairment loss in 2012 and 2013 totaled $570M for Aerospace Systems segment (buried in goodwill numbers, not shown in 10-K)

  17. Other Non-Current Assets

  18. Other Non-Current Assets

  19. Other Non-Current Assets – Life Insurance • Life insurance policies are for a number of executives at Northrop, which are recorded at their cash surrender value. Utilized partially as deferred compensation and partially as non-qualified employee retirement plans.

  20. Other Non-Current Assets – Purchased Intangible Assets • Amortized on straight-line basis over an aggregate weighted-average period of 21 years

  21. Other Non-Current Assets – L-T Marketable Securities • Partially used to fund long-term deferred compensation programs • Securities classified as either “trading” or “available-for-sale” and can be readily liquidated without restriction • Recorded at fair value

  22. Other Non-Current Assets – Environmental Costs • Remediation costs brought on by Environmental Protection Agency • Loss is probable and estimable • $128M represents deferred amount that Northrop believes is recoverable through contract agreed upon with U.S. Government

  23. Other Non-Current Liabilities • $100M current portion of environmental reserve related to remediation with EPA mentioned earlier • Remaining $964 of non-current liability implied to get $1,064 total

  24. Pension and Post-Retirement Obligations

  25. Long-Term Debt

  26. Long-Term Debt - Bloomberg

  27. Long-Term Debt • Mostly fixed rate maturity, >75% of which matures >5 years out.

  28. Income Statement

  29. Sales

  30. Sales – by segment

  31. Sales – by Customer • U.S. Gov’t biggest customer. Roughly 50/50 split on contract types (minimal knowledge on this currently)

  32. Cost of Goods Sold/Operating Costs

  33. COGS/Op. Expenses – by Segment (will help with analyzing segments)

  34. Income Tax Rate • U.S. Federal Statutory Income Tax Rate – 35% • Minimal information given by 10-K

  35. What I Would Still Want to Know • Patents, intangible assets, technology. This is the hallmark of Northrop’s industry but is nowhere to be found in 10-K • Greater detail on sales of Northrop – specific products, greater overall detail on the operations of the company. This is extremely vital to understanding the Aerospace/Defense Industry

  36. Questions?

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