Phoenix MGT 426 Selecting a Company

COMPANY PROFILE

Northrop Grumman Corporation

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Northrop Grumman Corporation TABLE OF CONTENTS

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TABLE OF CONTENTS

Company Overview ........................................................................................................3 Key Facts.........................................................................................................................3 SWOT Analysis ...............................................................................................................4

Northrop Grumman Corporation Company Overview

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Company Overview

COMPANY OVERVIEW

Northrop Grumman Corporation (Northrop or 'the company') is a designer, developer, and manufacturer of security and technology products and solutions.It also designs, and develops solutions for electronics, and information systems, and aerospace industries. The company offers a portfolio of capabilities and technologies that enables it to deliver products, systems and solutions for applications that range from undersea to outer space and into cyberspace. It provides products, systems and solutions in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance, and reconnaissance (C4ISR); strike; and logistics and modernization. Through subsidiaries, the company operates in the US and other countries. The company is headquartered in Falls Church, Virginia.

The company reported revenues of (US Dollars) US$30,095 million for the fiscal year ended December 2018 (FY2018), an increase of 15.7% over FY2017. In FY2018, the company’s operating margin was 12.6%, compared to an operating margin of 12.4% in FY2017. In FY2018, the company recorded a net margin of 10.7%, compared to a net margin of 11% in FY2017.

The company reported revenues of US$8,456.0 million for the second quarter ended June 2019, an increase of 3.3% over the previous quarter.

Key Facts

KEY FACTS

Head Office Northrop Grumman Corporation 2980 Fairview Park Drive Falls Church Virginia Falls Church Virginia USA

Phone 1 703 2802900 Fax Web Address www.northropgrumman.com Revenue / turnover (USD Mn) 30,095.0 Financial Year End December Employees 85,000 New York Stock Exchange Ticker NOC

Northrop Grumman Corporation SWOT Analysis

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SWOT Analysis

SWOT ANALYSIS

Northrop Grumman Corporation (Northrop or 'the company') is a global security company. Strong focus on innovation and development, and strategically balanced portfolio of products and revenue streams are the company’s major strengths, even as considerable underfunded pension, medical, and life benefits could exert negative pressure on liquidity position, and high dependence on a single customer amplifies business risks remain causes for concern. Increase in cyber security spending worldwide, global aerospace and defense market, new contracts and agreements are likely to offer growth opportunities for the company. However, stringent environmental and regulatory obligations for its nuclear-related operations could adversely affect financial position, intense competition from well-established firms may negatively impact operations and financial condition, and changing technology could affect its business operations.

Strength

Strategically balanced portfolio of products and revenue streams Strong focus on innovation and development

Weakness

Considerable underfunded pension, medical, and life benefits could exert negative pressure on liquidity position High dependence on a single customer amplifies business risks

Opportunity

Global aerospace and defense market New contracts and agreements Increase in cyber security spending worldwide

Threat

Stringent environmental and regulatory obligations for its nuclear-related operations could adversely affect financial position Intense competition from well-established firms may negatively impact operations and financial condition Changing technology

Strength

Strategically balanced portfolio of products and revenue streams

Northrop has a diversified product portfolio. The company operates through fourbusiness segments, including Aerospace Systems, Mission Systems, Innovation Systems, and Technology Services. The Aerospace Systems segment designs, develops, integrates and produces manned aircraft, autonomous systems, spacecraft, high-energy laser systems, microelectronics and other systems/subsystems. The Mission Systems segment is engaged in advanced end-to-end mission solutions and multifunction systems for DoD, intelligence community, international, federal civil and commercial customers. The Technology Services segment is a provider of logistics solutions supporting the full life cycle of platforms and systems for global defense and federal-civil customers.ItsInnovation Systems develops, designs, and manufactures armament and space systems, and flights for commercial customers and civil government.

Northrop Grumman Corporation SWOT Analysis

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Under the segment, its major products include defense electronics, missile products, armament systems and ammunition, precision weapons, satellites and associated space components. In FY2018, its Aerospace Systems segment accounted for 40.4% of the company’s total revenue followed by Mission Systems with 36.2%, Technology Services with 13.3%,andInnovation Systems with 10.1%. Strategically balanced product portfolio not only shields against unfavorable forces in a specific market by dispersing its business risks, but also enables it to benefit from opportunities available across various industries. Additionally, well balanced revenue streams reduce the business risks and enable the company to seize opportunities in new as well as existing markets.

Strong focus on innovation and development

Northrop has a strong focus on innovation and development, which enhance its existing products and services, and develop new products and services to meet its customers' changing needs and requirements, and address new market opportunities. During FY2018, the company spent US$764 million on its innovation and development activities. Its innovation and development activities allow to develop existing technologies including electromagnetic, microelectronic, aeronautical, and information technologies. Besides that, it also focuses to develop several areas including data science and data analytics, cybersecurity solutions,sensor date fusion technology, and embedded system software. The company also made collaboration with several research institutes and universities to develop homeland and defense security. Hence, Northrop's strong focus on R&D enables it to uphold the technological leadership in most of its product segments. In addition, it allows the company to develop innovative products which in turn drives its sales volumes.

Weakness

Considerable underfunded pension, medical, and life benefits could exert negative pressure on liquidity position

The company offers pension and medical and life benefits to its employees. A substantial portion of Northrop's current and retired employee population is covered by pension and postretirement benefit plans. During FY2018, the company's projected pension benefit obligation was US$31,967 million, as compared to fair value of planned assets of US$27,226 million. This resulted in an underfunded status of US$4,741 million. Similarly, the projected medical and life benefit obligation in FY2018 was US$2,110 million, as compared to fair value of planned assets of US$1,338 million. This resulted in an underfunded status of US$772million The costs of pension and medical expenses associated with the company's retirement benefit plans are dependent upon the company's various assumptions including estimates of rates of return on benefit related assets, discount rates for future payment obligations, rates of future cost growth and trends for future costs. In addition, these obligations could increase significantly due to a reduction in funded status as a result of a variety of factors, including weak performance of financial markets, declining interest rates, investment decisions that do not achieve adequate returns, and investment risk inherent in the company's investment portfolio. Thus, unfunded pension obligations could force Northrop to make regular cash contributions to bridge the gap between pension assets and liabilities, thereby pressurizing the liquidity position of the company.

High dependence on a single customer amplifies business risks

Northrop Grumman Corporation SWOT Analysis

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Northrop is depended on a single customer for majority of its revenue. The company is a supplier, either directly or as a subcontractor or team member, to the US Government and its agencies. For instance, each of the company's segments derives substantial revenue from the US Government. Sales to the US Government amounted to 82%, 85%, and 84% of total sales for the years ended December 2018, 2017 and 2016, respectively. Overdependence on the US Government exposes the company to the defense approvals, congressional appropriations and numerous regulations in the US. In addition, termination of a contract due to any unforeseen circumstances by the US Government may expose the company to material liability and could have a material adverse effect on Northrop's ability to compete for other contracts.

Opportunity

Global aerospace and defense market

Growth in the global aerospace and defense sector could provide abundant growth opportunities to the company. According to in-house research, the global defense market is expected to reach US$1,514.2 billion by 2023 from US$1,273 billion in 2018, growing at a CAGR of 3.5%. The US dominates the market with a share of 42.6% in 2018, followed by Asia-Pacific (24.9%) and Europe (24.4%), Middle East (4.2%), and Rest of the World (3.8%). The civil aerospace segment accounted for 50.1% of the total market in 2018, followed by systems and ordnance (31.3%), military aircraft (10.3%), naval vessels (6.7%), and military vehicles (1.7%).

New contracts and agreements

The company took various strategic initiatives to drive its growth. These initiatives are expected to strengthen the company’s operations and increase its returns. For instance, in August 2019, the company received a contract of US$482 million from the US Army for common infrared countermeasure systems and support services. In the same month of 2019, the company along with BAE Systems received a contract from the US Army to offer infrared countermeasures systems and support. In July 2019, the company was awarded a contract worth US$167 million by the US Navy for the AGM-88E advanced anti- radiation guided missile. In the same month of July 2019, the company received a contract of US$33 million to provide support for the MQ-4C Triton unmanned aircraft system. In July 2019, the company received a contract of US$44 million from the US Air Force for upgradation of the electronic attack pod program.

Increase in cyber security spending worldwide

The growing vulnerability of IT and communication networks to hacking, increasing threats of terrorist attacks, and the increasing need to secure maritime and offshore installations necessitate investments in cybersecurity globally. According to in-house research, the worldwide cybersecurity market is expected to increase from US$12.5 billion in 2018 to US$17.8 billion by 2028, growing at a CAGR of 3.6%. Increased expenditure on cybersecurity in major markets such as the US, and countries in Europe, Asia-Pacific and the Middle East also aids growth. North America is expected to account for 55% of the total market, followed by Asia-Pacific (22%), Europe (11%), the Middle East (8%), and Latin America and Africa

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together (4%). The cybersecurity market comprises four segments: network security, data security, identity and access, and cloud security. The network security segment is projected to account for 36% of the market, followed by data security (27%), identity and access segments (21%) and cloud security (16%) during the forecast period.

Threat

Stringent environmental and regulatory obligations for its nuclear-related operations could adversely affect financial position

The company's nuclear-related operations subject it to various risks, including potential liabilities relating to harmful effects on the environment and human health that may result from nuclear-related operations and the storage, handling and disposal of radioactive materials. Northrop also subject to reputational harm and potential liabilities arising out of a nuclear incident, whether or not it is within it's the company's control. The U.S. Government and prime contractors provide certain indemnity protection under certain of the company's contracts pursuant to, or in connection with, Public Law 85-804 and the Price-Anderson Nuclear Industries Indemnity Act for certain nuclear-related risks. If there was a nuclear incident and that indemnity protection was not available to cover Northrop's losses and liabilities, it could have a material adverse effect on the company's financial position, results of operations, or cash flows.

Intense competition from well-established firms may negatively impact operations and financial condition

The company operates in highly competitive markets. Northrop offers a portfolio of capabilities and technologies that enables it to deliver products, systems and solutions for applications that range from undersea to outer space and into cyberspace. The product differentiation is maintained across these markets based on the competitive factors such as technical superiority, reputation, price, past performance, and delivery schedules. The company competes with a number of companies in the US and international including Boeing, BAE Systems, Boeing, Booz Allen Hamilton, General Dynamics, Harris, L3Harris Technologies, Inc, Leidos, Leonardo, Lockheed Martin, Raytheon and Thales. Some of these competitors have stronger engineering, manufacturing and marketing capabilities than Northrop. Thus, strong competition could negatively impact Northrop's operations and its financial condition.

Changing technology

The company operates in a highly competitive market that is subject to rapid technological changes. Introduction of products using new technologies or the adoption of new industry standards will make existing products or products under development obsolete or unmarketable. In this scenario, to compete effectively, the company has to continuously innovate and introduce new products that gain market acceptance. Unless the company understands the customers' requirements and adapts to emerging technologies in the market and introduces new products and solutions, its business could be affected.

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