Northrop Grumman Corp. (NYSE:NOC)

The analysis of the annual current and deferred income tax expenses for Northrop Grumman Corp. over the five-year period reveals distinct fluctuations both in the current and deferred components, as well as the aggregate federal and foreign income tax expense.

Current Income Tax Expense

The current tax expense exhibited significant variability throughout the period. Beginning at $299 million in 2018, it sharply increased to $768 million in 2019. Following this peak, it dropped to $249 million in 2020. A substantial resurgence occurred in 2021, with the expense climbing to $1,404 million, representing the highest value recorded during the period. In 2022, the current tax expense slightly declined but remained relatively elevated at $1,292 million. Overall, there is a notable upward trend in the current tax components in the latter years after initial volatility.

Deferred Income Tax Expense

The deferred tax expense showed a high degree of volatility, with alternating positive and negative values. In 2018, the deferred tax expense was $214 million. This shifted dramatically to a negative figure of -$468 million in 2019, indicating a deferred tax benefit rather than an expense in that year. In 2020, the deferred tax expense reversed back to a positive $290 million, increasing further to $529 million in 2021. The trend reversed again in 2022, registering a negative deferred tax expense of -$352 million. These oscillations suggest varying timing differences or tax rate changes impacting deferred tax calculations across the years.

Federal and Foreign Income Tax Expense

The combined federal and foreign income tax expense reflects the aggregate impact of both current and deferred taxes. Starting at $513 million in 2018, the total tax expense decreased slightly to $300 million in 2019 despite the rise in current tax expense, likely due to the significant deferred tax benefit that year. In 2020, the total tax expense increased to $539 million, aligning with the increase in both current and deferred tax expenses. A sharp rise was observed in 2021, with the total tax expense soaring to $1,933 million, primarily driven by the peak in current tax expense and a high deferred tax expense. Finally, in 2022, the total tax expense decreased substantially to $940 million but remained well above the levels seen before 2021.

In summary, the financial data exhibits considerable volatility in both current and deferred income tax expenses. The current tax expense shows a pronounced upward trajectory in recent years, especially peaking in 2021. Deferred tax expenses fluctuate between positive and negative values, reflecting complex tax timing differences and potentially changing tax circumstances. The total federal and foreign tax expense mirrors these trends, with a significant spike in 2021 followed by a decline in 2022, yet maintaining an elevated level compared to earlier years.

The statutory federal income tax rate remained constant at 21% throughout the five-year period, indicating no regulatory changes affecting the base tax rate during this timeframe.

Research Credit

The research credit showed a fluctuating negative impact on the overall tax rate. It decreased from -5% in 2018 to a low of -8.5% in 2019, then moderated to -5.5% in 2020 before declining sharply to -2.2% in 2021 and slightly rising to -3% in 2022. This trend suggests variability in qualified research expenses or related tax policy benefits over the years.

Foreign Derived Intangible Income

This component fluctuated modestly, reaching its peak negative effect of -1.5% in 2020, then improved to -0.6% in 2021, and reverted to -1.1% in 2022. The overall impact remains minor but persistent in reducing the effective tax rate.

IT Services Divestiture Nondeductible Goodwill

An isolated positive adjustment of 2.8% appeared in 2021, indicating a one-time nondeductible goodwill expense related to the divestiture of IT services. This was not repeated in other years.

Settlements with Taxing Authorities

In 2022, a negative adjustment of -1.5% is noted, reflecting a favorable settlement reducing the tax liability for that year.

Other, Net

There was a steady, slight increase in other net tax effects, starting at 0.3% in 2018 and incrementally rising each year to 0.7% in 2022, indicating minor positive contributions increasing over time.

Effective Tax Rate Before 2017 Tax Act Impacts

The effective tax rate before considering impacts related to the 2017 Tax Act showed variability: beginning at 15.9% in 2018, declining to 11.8% in 2019, rising to 14.5% in 2020, then sharply increasing to 21.6% in 2021 before dropping back to 16.1% in 2022. This pattern reflects a dynamic tax environment affecting taxable income or deductions.

Impacts Related to the 2017 Tax Act

The only recorded impact was a reduction of 2.2% in 2018, with no further adjustments in subsequent years, indicating this was a transitional effect resolved early in the period.

Overall Effective Tax Rate

The overall effective tax rate mirrors the pre-2017 Tax Act impact rate, moving from 13.7% in 2018 to a low of 11.8% in 2019, then increasing to 14.5% in 2020 and peaking at 21.6% in 2021 before declining to 16.1% in 2022. This indicates significant year-on-year variations influenced by both operational and one-time factors affecting taxable income.

Retiree Benefits

There was a significant decline in retiree benefits from 2018 to 2022, dropping sharply from $1,541 million in 2018 to $117 million in 2022. The most notable decrease occurred between 2020 and 2022, where the amount fell from $1,738 million to $117 million, indicating a substantial reduction in this liability or obligation.

Capitalized Research and Experimental Expenditures

Values for capitalized research and experimental expenditures were absent until 2022, at which point it was reported at $1,671 million. The presence of this figure in 2022 suggests an initiation or reclassification of these costs in the financial records for that year.

Accrued Employee Compensation

This liability showed a steady upward trend, increasing from $308 million in 2018 to $378 million in 2022. The gradual rise reflects growing compensation liabilities accrued over the years.

Provisions for Accrued Liabilities

Provisions showed fluctuation over the period, increasing from $139 million in 2018 to a peak of $232 million in 2020, then declining sharply to $65 million by 2022. This pattern indicates variability in the company’s anticipated liabilities or reserves.

Inventory

Inventory levels increased from $650 million in 2018 to a high of $849 million in 2020, followed by a decline to $484 million in 2022. The rise and subsequent fall may reflect changes in production, sales, or supply chain dynamics.

Stock-Based Compensation

Stock-based compensation remained relatively stable, with minor decreases from $42 million in 2018 to $37 million in 2022, indicating consistent employee compensation practices related to equity.

Operating Lease Liabilities

Operating lease liabilities appeared from 2019 onward, increasing steadily from $411 million to $556 million in 2022. This consistent growth suggests additional leasing arrangements or changes in lease accounting standards affecting reported liabilities.

Tax Credits

Tax credits grew continuously from $174 million in 2018 to $464 million in 2022, more than doubling over the period. This upward trend indicates increasing benefits from tax credit programs.

Other Assets

The other assets category increased from $59 million in 2018 to $144 million in 2022, showing steady accumulation of miscellaneous assets.

Deferred Tax Attributes

Gross deferred tax assets rose from $2,913 million in 2018 to $3,916 million in 2022, despite a dip in 2021. Conversely, the valuation allowance increased in its negative balance from -$142 million to -$428 million, reflecting growing concerns about the realizability of these assets. Net deferred tax assets fluctuated, peaking at $3,802 million in 2020, then dropping to $2,729 million in 2021, before recovering to $3,488 million in 2022.

Goodwill

Goodwill values remained consistently negative, slightly increasing in magnitude from -$511 million in 2018 to -$534 million in 2022, indicating steady impairment or revaluation adjustments.

Purchased Intangibles

Purchased intangibles decreased steadily in negative value from -$346 million in 2018 to -$98 million in 2022, suggesting amortization or disposal of intangible assets over time.

Property, Plant, and Equipment, Net

Net property, plant, and equipment showed increasing negative balances, deepening from -$518 million to -$854 million over five years, indicating ongoing capitalization or depreciation activities within the fixed asset base.

Operating Lease Right-of-Use Assets

This asset category appeared in 2019 and increased their negative balances from -$404 million to -$545 million in 2022, aligning with the rising operating lease liabilities and indicating capitalization of lease rights under new accounting standards.

Contract Accounting Differences

There was considerable volatility in contract accounting differences, fluctuating between -$1,513 million in 2020 and improving to -$1,036 million in 2021 before worsening again to -$1,348 million in 2022. These swings may reflect changes in contract revenue recognition and timing differences affecting financial statements.

Other Liabilities

Other liabilities increased in negative magnitude from -$29 million in 2018 to a trough of -$103 million in 2021 before improving slightly to -$79 million in 2022, signaling some variability in smaller-sized liabilities.

Deferred Tax Liabilities

Deferred tax liabilities grew in absolute negative value from -$2,785 million in 2018 to -$3,458 million in 2022, with some fluctuations in between, showing increased deferred tax obligations over the period.

Net Deferred Tax Assets (Liabilities)

The net deferred tax position swung dramatically from a slight net liability of -$14 million in 2018 to a net asset of $508 million in 2019 and $311 million in 2020, reverted to a net liability of -$290 million in 2021, and returned near neutral at $30 million in 2022. These fluctuations suggest significant changes in tax asset and liability positions, possibly due to tax law changes, valuation adjustments, or timing differences.

Deferred Tax Assets

The deferred tax assets exhibited a fluctuating trend over the five-year period. Starting at 94 million US dollars in 2018, there was a significant increase to 508 million in 2019. However, the value declined considerably in the subsequent years, dropping to 311 million in 2020, further reducing to 200 million in 2021, and reaching 162 million in 2022. This pattern indicates a peak in deferred tax assets in 2019 followed by a consistent decrease through to 2022.

Deferred Tax Liabilities

The data for deferred tax liabilities is incomplete, with values reported only for 2018, 2021, and 2022. In 2018, the deferred tax liabilities were recorded at 108 million US dollars. There is no data available for the years 2019 and 2020. In 2021, the deferred tax liabilities increased sharply to 490 million, which significantly exceeds the 2018 figure. This was followed by a notable decrease to 132 million in 2022. The limited data suggests a peak in deferred tax liabilities in 2021, with a substantial reduction the following year.

Overall Observations

Both deferred tax assets and liabilities demonstrate variability over the reviewed period. Deferred tax assets peaked early in 2019 and then declined steadily, whereas deferred tax liabilities, although incomplete, show a pronounced peak in 2021. The pronounced fluctuations in deferred tax liabilities, especially the sharp rise and fall between 2021 and 2022, could be indicative of specific financial events or accounting changes during those years. The inconsistent availability of data for liabilities limits comprehensive trend analysis for that metric.

The financial data over the five-year period reveals several notable trends and changes in the company's financial position and performance.

Total Assets

Both reported and adjusted total assets show an overall increasing trend from 2018 through 2020, rising from approximately $37.6 billion to around $44.5 billion. However, in 2021, there is a slight decline in total assets, dropping to nearly $42.6 billion reported and $42.4 billion adjusted. The following year, 2022, displays a modest recovery with total assets increasing again to about $43.8 billion reported and $43.6 billion adjusted.

Total Liabilities

Total liabilities also rose from 2018 to 2020, growing from around $29.4 billion to nearly $33.9 billion reported and adjusted, indicating a buildup of obligations during this period. In contrast to assets, liabilities decrease substantially in 2021 and continue to decline in 2022, falling to approximately $29.7 billion and then further to roughly $28.4 billion reported. The adjusted figures mirror this contraction, suggesting effective liability management or repayment of debt in recent years.

Shareholders' Equity

Shareholders' equity presents a strong upward trajectory over the entire time frame. Starting near $8.2 billion in reported figures for 2018, equity rises consistently each year, reaching over $15.3 billion by 2022. Adjusted equity follows a similar pattern, increasing steadily from about $8.2 billion to $15.3 billion. This growth in equity, coupled with a decline in liabilities post-2020, signals strengthening financial robustness and improved net asset position.

Net Earnings

Net earnings exhibit volatility throughout the period. Reported earnings peak at $3.2 billion in 2018 but decline sharply to around $2.2 billion in 2019. Earnings recover in 2020 to just under $3.2 billion and then substantially increase to approximately $7.0 billion in 2021, indicating exceptional profitability or one-time gains during that year. A decrease follows in 2022, with earnings declining to about $4.9 billion, which remains significantly higher than earlier years. Adjusted net earnings show a comparable pattern, although with slightly different magnitudes, highlighting adjustments for deferred taxes or other accounting considerations affecting reported profitability.

In summary, the data reflects a company that has steadily improved its financial structure by increasing equity and managing liabilities effectively after 2020. Asset growth paused and slightly reversed after 2020 but rebounded marginally in 2022. Earnings have been somewhat inconsistent but show strong performance particularly in 2021, contributing to the overall enhanced equity position. The adjustments for deferred income tax appear to have minor impact on total assets and liabilities but influence net earnings figures moderately, indicative of prudent financial reporting practices.

Net Profit Margin

The reported net profit margin demonstrates variability over the five-year period, starting at 10.73% in 2018, dipping to a low of 6.64% in 2019, then recovering somewhat to 8.67% in 2020, peaking sharply at 19.64% in 2021, before declining to 13.38% in 2022. The adjusted net profit margin follows a similar pattern, but the margins are generally lower than reported figures except in 2018 and 2020. This indicates that after accounting adjustments related to income tax, profitability margins showed more fluctuation and slightly reduced profitability in most years except 2021.

Total Asset Turnover

Both reported and adjusted total asset turnover ratios exhibit remarkable stability across the observed periods. Values range narrowly between 0.80 and 0.84, indicating consistent efficiency in utilizing assets to generate revenue. Minor increases are noted in 2019 and 2021, but overall asset utilization has remained stable with no significant positive or negative trends.

Financial Leverage

Financial leverage ratios, both reported and adjusted, reveal a clear downward trend from 2018 through 2022. Reported leverage starts at 4.60 in 2018, slightly rising to 4.66 in 2019, but thereafter declining steadily to 2.86 by 2022. Adjusted leverage mirrors this pattern with a slightly higher value in 2019 (4.88) but decreases consistently to 2.85 in 2022. This suggests progressive deleveraging or reduction in reliance on debt financing over time.

Return on Equity (ROE)

The reported ROE shows considerable volatility, beginning at 39.44% in 2018, falling to 25.49% in 2019, increasing to 30.14% in 2020, peaking at 54.19% in 2021, and then declining to 31.97% in 2022. Adjusted ROE exhibits a similar trend but with generally lower values in 2019 and 2022 and higher values in 2020 and 2021 compared to reported figures. The adjusted peak in 2021 (57.01%) emphasizes notable profitability during that year after tax adjustments. Overall, the ROE fluctuations indicate periods of varying shareholder return and risk exposure.

Return on Assets (ROA)

The reported ROA reflects a pattern comparable to the profit margins and ROE, beginning at 8.58% in 2018, dropping to 5.47% in 2019, rising to 7.17% in 2020, surging to 16.45% in 2021, and then decreasing to 11.19% in 2022. The adjusted ROA generally reports lower values than the reported metric in several years, especially in 2019 and 2022, with a notable peak at 17.78% in 2021. This trend highlights improved asset efficiency particularly in the 2021 fiscal year after considering deferred income tax effects.

The analysis of the financial data over the five-year period reveals several noteworthy trends in the reported and adjusted net earnings as well as their corresponding net profit margins.

Reported Net Earnings

The reported net earnings exhibited a decline from 2018 to 2019, dropping from 3,229 million US dollars to 2,248 million US dollars. This was followed by a recovery in 2020 to 3,189 million, and a substantial increase in 2021, reaching a peak of 7,005 million. However, in 2022, the earnings declined again to 4,896 million. Overall, the data shows volatility with a significant peak in 2021.

Adjusted Net Earnings

Adjusted net earnings followed a somewhat similar trend with a sharp decrease from 3,443 million in 2018 to 1,780 million in 2019. Subsequently, there was an increase to 3,479 million in 2020 and a notable rise to 7,534 million in 2021. In 2022, the adjusted net earnings decreased sharply to 4,544 million. The fluctuations in adjusted figures mirror those seen in reported earnings, with a prominent peak in 2021 as well.

Reported Net Profit Margin

The reported net profit margin decreased from 10.73% in 2018 to 6.64% in 2019, indicating a diminished profitability ratio. It then increased to 8.67% in 2020 and surged to 19.64% in 2021. Nonetheless, in 2022, the margin fell to 13.38%, representing a decline but still remaining above the levels of 2018 to 2020.

Adjusted Net Profit Margin

The adjusted net profit margin experienced a decline from 11.44% in 2018 to 5.26% in 2019. It then rose to 9.45% in 2020, peaking at 21.12% in 2021, followed by a decrease to 12.41% in 2022. The adjusted margin trend aligns closely with the reported margin, showing considerable improvement in 2021 but a decrease in the following year.

In summary, both reported and adjusted financial measures display significant variability across the years, marked by a pronounced peak in earnings and profitability in 2021 followed by a decline in 2022. The dip in earnings and margins in 2019 suggests challenges during that period, while the strong performance in 2021 indicates a recovery and possible operational efficiency or favorable market conditions. However, the decrease in 2022 signals that such performance levels were not maintained. The adjusted figures consistently reflect similar trends to the reported ones, indicating that adjustments for tax effects do not materially alter the observed financial performance patterns.

The analysis of the provided financial data over the five-year period reveals a steady upward trend in the reported total assets, increasing from 37,653 million USD in 2018 to 43,755 million USD in 2022. The adjusted total assets follow a very similar pattern, showing a consistent increase from 37,559 million USD to 43,593 million USD over the same timeframe. This suggests an overall growth in the asset base of the company, with minor adjustments for income tax considerations having a negligible impact on the total asset value.

Regarding the asset turnover ratios, both reported and adjusted total asset turnover show a gradual improvement. The reported total asset turnover improves from 0.8 in 2018 to 0.84 in 2021 and remains stable through 2022. The adjusted figures mirror this trend closely, moving from 0.8 to 0.84 across the observed years. This gradual increase signifies enhanced efficiency in generating revenue from the asset base.

The parallel movement of reported and adjusted figures indicates that the adjustments for deferred or reported income tax do not significantly alter the overall financial metrics or trends, suggesting stability and consistency in the financial reporting process related to tax adjustments. The improvements in asset turnover ratios, paired with the growth in assets, point towards effective asset utilization and sustainable growth practices within the company over the analyzed period.

Assets Growth

Consistent increase in reported and adjusted total assets from 2018 to 2022 by approximately 16%.

Asset Turnover Efficiency

Gradual and stable improvement in both reported and adjusted total asset turnover ratios, reaching 0.84 by 2021 and maintaining in 2022.

Tax Adjustments Impact

Minimal differences between reported and adjusted figures indicate that tax-related adjustments have limited effect on asset values and turnover ratios.

Overall Insight

The company demonstrates steady asset growth coupled with improving efficiency in asset utilization, indicating positive operational performance over the analyzed time.

The financial data over the five-year period reflects notable developments in the company's asset base, equity position, and leverage ratios, both on reported and adjusted bases.

Assets

Reported total assets increased consistently from 37,653 million USD in 2018 to a peak of 44,469 million USD in 2020, followed by a slight decline to 42,579 million USD in 2021, and a moderate recovery to 43,755 million USD in 2022. Adjusted total assets followed a similar trend, with figures closely mirroring the reported amounts, indicating minimal differences arising from the income tax adjustments.

Shareholders’ Equity

There has been a steady upward trend in shareholders’ equity over the period. Reported equity rose significantly from 8,187 million USD in 2018 to 15,312 million USD in 2022, more than doubling. Adjusted shareholders’ equity displayed some variability, with a slight decrease in 2019 compared to 2018, but a sharp increase thereafter, reaching 15,282 million USD in 2022. The approximate alignment of adjusted equity with reported equity suggests that deferred and annual income tax adjustments had limited effect on the equity base.

Financial Leverage

Financial leverage ratios showed a clear descending trajectory, indicating a gradual reduction in leverage and potentially an improvement in the capital structure. Reported financial leverage decreased from 4.6 in 2018 to 2.86 in 2022, evidencing a substantive deleveraging. Adjusted financial leverage demonstrated a similar pattern but was generally slightly higher than the reported leverage in the earlier years before converging closely by 2022. The decline in leverage ratios corresponds with the growth in equity outpacing increases in assets, reflecting a strengthening equity position relative to total assets.

Overall, the data suggest an ongoing strategy of balance sheet strengthening, with sustained equity growth and a corresponding reduction in financial leverage. Adjustments for income taxes have had a relatively minor impact on the reported figures, implying that the underlying financial health and structure are robust, with consistent progression towards lower leverage and increased equity capitalization over the analyzed period.

Net Earnings

The reported net earnings demonstrated fluctuations over the observed periods. Starting at 3,229 million USD in 2018, earnings fell to 2,248 million USD in 2019 before recovering to 3,189 million USD in 2020. A significant increase occurred in 2021, reaching 7,005 million USD, followed by a decline to 4,896 million USD in 2022. Adjusted net earnings mirrored a similar pattern, with 3,443 million USD in 2018, a notable drop to 1,780 million USD in 2019, then an increase to 3,479 million USD in 2020. The peak occurred in 2021 with 7,534 million USD, decreasing to 4,544 million USD in 2022. The adjusted figures tend to be slightly higher than reported earnings except in 2019 and 2022, where the adjusted values were lower.

Shareholders’ Equity

Reported shareholders’ equity showed consistent growth each year, rising from 8,187 million USD in 2018 to 15,312 million USD in 2022. The adjusted shareholders’ equity followed a similar ascending trend, increasing from 8,201 million USD in 2018 to 15,282 million USD in 2022. The two measures remained closely aligned, with minor differences observed, particularly in 2019 where the adjusted figure was notably lower than the reported one, and in 2021 where the adjusted equity slightly exceeded the reported value.

Return on Equity (ROE)

Reported ROE displayed considerable variability, starting at 39.44% in 2018 before dropping sharply to 25.49% in 2019. It improved to 30.14% in 2020 and surged to a peak of 54.19% in 2021, followed by a decrease to 31.97% in 2022. Adjusted ROE followed a comparable trajectory, though with generally lower percentages in the latter years; it began at 41.98% in 2018, declined to 21.42% in 2019, then rose to 33.88% in 2020, reached 57.01% in 2021, and fell to 29.73% in 2022. The differences between reported and adjusted ROE suggest the impact of tax adjustments and accounting changes on profitability measures.

Overall Trends and Insights

The data reveals a cyclical pattern in earnings with a significant peak occurring in 2021, primarily reflected in both reported and adjusted earnings. Shareholders’ equity has shown steady growth throughout the period, indicating sustained capital accumulation or retained earnings. The ROE ratios correspond with net earnings movements, peaking alongside earnings in 2021, which may indicate one-off gains or exceptional performance factors during that year. The adjustments for deferred and annual income tax affect the earnings and equity figures, leading to divergences between reported and adjusted numbers; however, these adjustments do not drastically alter the overall trends but do seem to influence profitability ratios notably. The sharp increases in 2021 followed by declines in 2022 suggest a return toward more normalized performance levels after an exceptional year.

The financial data over the five-year period reveals notable variations in both reported and adjusted performance metrics. Reported net earnings exhibited an initial decline from 3,229 million US dollars in 2018 to 2,248 million in 2019, followed by a recovery in 2020 to 3,189 million. A significant surge occurred in 2021, with net earnings reaching 7,005 million, before decreasing to 4,896 million in 2022. Adjusted net earnings mirrored a similar trajectory, although the variations were generally more pronounced, with the lowest point of 1,780 million in 2019 and a peak of 7,534 million in 2021, subsequently declining to 4,544 million in 2022.

Total assets, both reported and adjusted, have shown a steady upward trend over the period. Reported total assets grew from 37,653 million US dollars in 2018 to 44,755 million in 2022, with a minor dip observed in 2021. Adjusted total assets followed a nearly identical pattern, increasing from 37,559 million in 2018 to 43,593 million in 2022, also reflecting a slight decrease in 2021. The relatively small discrepancies between reported and adjusted total assets indicate limited impact from tax adjustments on this measure.

Return on assets (ROA) metrics reveal more volatility. Reported ROA decreased from 8.58% in 2018 to 5.47% in 2019, then increased to 7.17% in 2020, followed by a substantial rise to 16.45% in 2021 before falling back to 11.19% in 2022. Adjusted ROA exhibited a similar pattern: declining from 9.17% in 2018 to 4.39% in 2019, rising to 7.88% in 2020, peaking at 17.78% in 2021, and decreasing to 10.42% in 2022. These fluctuations correspond with the changes seen in net earnings and suggest that asset utilization efficiency improved markedly in 2021 but moderated the following year.

Overall, the data indicate significant earnings volatility, with 2021 representing a peak performance year in both net earnings and ROA, followed by a correction in 2022. Asset growth has been more consistent, supporting the company's operations over the period. The adjusted figures, which account for deferred income tax effects, generally align with reported data but highlight slightly more variability in earnings and returns, emphasizing the influence of tax considerations on the company's financial outcomes.