NORTHROP GRUMMAN CORPORATION FALLS CHURCH, Va., July 23, 2014 /PRNewswire/ -- Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2014 net earnings increased 5 percent to $511 million, or $2.37 per diluted share, compared to $488 million, or $2.05 per diluted share, in the second quarter of 2013. Second quarter 2013 earnings included a $30 million charge principally related to "make-whole" premiums paid to redeem $850 million of senior notes, which reduced net earnings by $20 million, or $0.08 per share.
Second quarter 2014 diluted earnings per share are based on 215.2 million weighted average shares outstanding compared with 237.5 million shares in the second quarter of 2013, a decrease of approximately 9 percent. The company repurchased 6.1 million shares of its common stock for $741 million in the second quarter of 2014. As of June 30, 2014, the company had repurchased 31.7 million shares toward its previously announced goal of retiring 60 million shares of its common stock by the end of 2015, market conditions permitting.
"Second quarter results demonstrate our team's continued commitment to strong execution. We continue to focus on performance, cash deployment and portfolio alignment as the primary value creation drivers for our shareholders, customers and employees," said Wes Bush, chairman, chief executive officer and president.
Table 1 -- Financial Highlights
Second Quarter Six Months
-------------- ----------
($ in millions,
except per
share amounts) 2014 2013 2014 2013
----
Sales $6,039 $6,294 $11,887 $12,398
Segment
operating
income(1) 742 797 1,499 1,545
Segment
operating
margin rate(1) 12.3% 12.7% 12.6% 12.5%
Operating
income 820 806 1,665 1,565
Operating margin
rate 13.6% 12.8% 14.0% 12.6%
Net earnings 511 488 1,090 977
Diluted EPS 2.37 2.05 5.01 4.08
Net cash
provided by
operations 572 328 170 329
Free cash
flow(1) 456 280 (6) 241
Pension-
adjusted
Operating
Highlights
Operating
income 820 806 1,665 1,565
Net FAS/CAS
pension
adjustment(1) (110) (31) (220) (64)
---- --- ---- ---
Pension-
adjusted
operating
income(1) $710 $775 $1,445 $1,501
Pension-
adjusted
operating
margin rate(1) 11.8% 12.3% 12.2% 12.1%
Pension-
adjusted Per
Share Data
Diluted EPS $2.37 $2.05 $5.01 $4.08
After-tax net
pension
adjustment per
share(1) (0.33) (0.08) (0.66) (0.17)
----- ----- ----- -----
Pension-
adjusted
diluted EPS(1) $2.04 $1.97 $4.35 $3.91
Weighted
average shares
outstanding -
Basic 212.4 234.0 214.3 235.2
Dilutive effect
of stock
awards and
options 2.8 3.5 3.4 4.0
---
Weighted
average shares
outstanding -
Diluted 215.2 237.5 217.7 239.2
--------------- ----- ----- ----- -----
(1) Non-GAAP metric - see
definitions at the end of
this press release.
Second quarter 2014 total operating income increased $14 million or 2 percent, and operating margin rate increased 80 basis points to 13.6 percent. Higher operating income and margin rate are primarily due to a $79 million improvement in net FAS/CAS pension adjustment, which more than offset lower segment operating income and higher unallocated corporate expenses. Second quarter 2014 segment operating income decreased 7 percent due to lower sales and a slightly lower margin rate.
Total backlog as of June 30, 2014, was $35.6 billion. Second quarter 2014 new awards totaled $5.3 billion, and new awards for the first six months totaled $10.2 billion. After the close of the 2014 second quarter the U.S. Navy awarded the company a $3.6 billion fixed price, incentive fee multiyear contract to deliver 25 new E-2D Advanced Hawkeye aircraft. The E-2D award is not included in second quarter 2014 new awards or backlog.
Table 2 -- Cash Flow Highlights
Second Quarter Six Months
----------
($ millions) 2014 2013 2014 2013
----
Cash provided by operating
activities before
discretionary pension
contributions(1) $572 $740 $170 $741
After-tax discretionary
pension pre-funding
impact - (412) - (412)
----
Net cash provided by
operating activities $572 $328 $170 $329
Less:
Capital expenditures (116) (48) (176) (88)
---
Free cash flow(1) $456 $280 $(6) $241
After-tax discretionary
pension pre-funding
impact - 412 - 412
--- --- --- ---
Free cash flow provided by
(used in) operating
activities before
discretionary pension
contributions(1) $456 $692 $(6) $653
-------------------------- ---- ---- --- ----
(1) Non-GAAP metric - see
definitions at the end of
this press release.
Second quarter 2014 cash provided by operating activities increased to $572 million from $328 million in the prior year period. Second quarter 2014 free cash flow provided by operating activities increased to $456 million from $280 million in the prior year period. Higher cash provided by operations and free cash flow principally reflect a $500 million voluntary pre-tax pension contribution made in the second quarter of 2013, partially offset by higher trade working capital in 2014.
Changes in cash and cash equivalents include the following for cash from operations, investing and financing activities through June 30, 2014:
Operations
-- $170 million provided by operations
Investing
-- $176 million used for capital expenditures
-- $72 million used for other investing activities
Financing
-- $1.3 billion used for repurchase of common stock
-- $280 million used for dividends
2014 Guidance
($ in millions, except per share amounts) Current Prior
Sales 23,500 - 23,800 23,500 - 23,800
Segment operating margin %(1) Low 12% ~12%
Operating margin % Low 13% ~13%
Diluted EPS 9.15 - 9.35 8.90 - 9.15
Cash provided by operations 2,300 - 2,600 2,300 - 2,600
Free cash flow(1) 1,700 - 2,000 1,700 - 2,000
(1) Non-GAAP metric - see definitions at the end of this press release.
------------------------------------------------------------------------
The company's 2014 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2013 and the Consolidated Appropriations Act of 2014, and current tax and other applicable laws and regulations. The guidance assumes no disruption or cancellation of any of our significant programs and adequate appropriations for our programs in the first quarter of the U.S. government's fiscal year 2015.
Table 3 -- Business Results
Consolidated Sales & Segment Operating Income(1)
Second Quarter Six Months
-------------- ----------
($ millions) 2014 2013 Change 2014 2013 Change
----------- ---- ---- ------ ---- ---- ------
Sales
Aerospace Systems $2,502 $2,613 (4%) $4,922 $5,098 (3%)
Electronic Systems 1,744 1,771 (2%) 3,388 3,492 (3%)
Information Systems 1,562 1,689 (8%) 3,139 3,363 (7%)
Technical Services 732 722 1% 1,429 1,439 (1%)
Intersegment eliminations (501) (501) (991) (994)
------------------------- ---- ---- ---- ----
6,039 6,294 (4%) 11,887 12,398 (4%)
Segment operating income(1)
Aerospace Systems 290 336 (14%) 614 606 1%
Electronic Systems 291 322 (10%) 559 618 (10%)
Information Systems 153 141 9% 315 312 1%
Technical Services 68 69 (1%) 136 134 1%
Intersegment eliminations (60) (71) (125) (125)
------------------------- --- --- ---- ----
Segment operating income(1) 742 797 (7%) 1,499 1,545 (3%)
Segment operating margin rate(1) 12.3% 12.7% (40) bps 12.6% 12.5% 10 bps
Reconciliation to operating
income
Net FAS/CAS pension
adjustment(1) 110 31 255% 220 64 244%
Unallocated corporate expenses (31) (21) (48%) (53) (40) (33%)
Other (1) (1) - (1) (4) 75%
----- --- --- --- --- --- ---
Operating income 820 806 2% 1,665 1,565 6%
Operating margin rate 13.6% 12.8% 80 bps 14.0% 12.6% 140 bps
Interest expense (70) (60) (17%) (139) (113) (23%)
Other, net 6 (22) 127% 16 (16) 200%
---------- --- --- --- --- ---
Earnings before income taxes 756 724 4% 1,542 1,436 7%
Federal and foreign income tax
expense (245) (236) (4%) (452) (459) 2%
------------------------------ ---- ---- --- ---- ---- ---
Net earnings $511 $488 5% $1,090 $977 12%
------------ ---- ---- --- ------ ---- ---
(1) Non-GAAP metric - see
definitions at the end of
this press release.
Other, net for the second quarter of 2014 improved to income of $6 million from expense of $22 million. Second quarter 2013 Other, net included a $30 million pre-tax charge, principally for "make-whole" premiums, paid to redeem $850 million of long-term debt.
For the second quarter of 2014, federal and foreign income tax expense increased to $245 million from $236 million in 2013. The effective tax rate for the second quarter of 2014 declined to 32.4 percent from 32.6 percent in the prior year period.
Aerospace Systems ($ millions)
Second Quarter Six Months
-------------- ----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $2,502 $2,613 (4.2%) $4,922 $5,098 (3.5%)
Operating
income 290 336 (13.7%) 614 606 1.3%
Operating
margin rate 11.6% 12.9% 12.5% 11.9%
------------ ---- ---- ---- ----
Aerospace Systems second quarter 2014 sales decreased 4 percent due to lower volume for unmanned and space programs. Lower unmanned sales reflect volume declines for several programs, including Global Hawk and Fire Scout, partially offset by higher volume for NATO Alliance Ground Surveillance. Lower space sales reflect volume declines for several space programs, including Advanced EHF. Volume for manned military aircraft programs was comparable to the prior year period.
Aerospace Systems second quarter 2014 operating income decreased 14 percent and operating margin rate decreased 130 basis points to 11.6 percent. Lower operating income and margin rate reflect lower sales volume and quarter-over-quarter differences in risk retirements and performance improvements.
Electronic Systems ($ millions)
Second Quarter Six Months
-------------- ----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $1,744 $1,771 (1.5%) $3,388 $3,492 (3.0%)
Operating
income 291 322 (9.6%) 559 618 (9.5%)
Operating
margin rate 16.7% 18.2% 16.5% 17.7%
------------ ---- ---- ---- ----
Electronic Systems second quarter 2014 sales decreased 2 percent primarily due to fewer deliveries of navigation and maritime systems and infrared countermeasures products. These declines were partially offset by growth in international programs and higher volume for space programs.
Electronic Systems second quarter 2014 operating income decreased 10 percent, and operating margin rate declined 150 basis points to 16.7 percent. Electronic Systems second quarter 2014 operating income principally reflects lower sales and quarter-over-quarter differences in risk retirements and performance improvements.
Information Systems ($ millions)
Second Quarter Six Months
-------------- ----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $1,562 $1,689 (7.5%) $3,139 $3,363 (6.7%)
Operating
income 153 141 8.5% 315 312 1.0%
Operating
margin rate 9.8% 8.3% 10.0% 9.3%
------------ --- --- ---- ---
Information Systems second quarter 2014 sales declined 8 percent due to lower volume across a broad number of programs due to lower funding levels and in-theater force reductions.
Information Systems second quarter 2014 operating income increased 9 percent and operating margin rate increased 150 basis points to 9.8 percent. Higher operating income and margin rate reflect improved performance, which more than offset lower sales.
Technical Services ($ millions)
Second Quarter Six Months
-------------- ----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $732 $722 1.4% $1,429 $1,439 (0.7%)
Operating
income 68 69 (1.4%) 136 134 1.5%
Operating
margin rate 9.3% 9.6% 9.5% 9.3%
------------ --- --- --- ---
Technical Services second quarter 2014 sales increased 1 percent due to higher international sales, primarily resulting from the acquisition of Qantas Defence Services Pty Limited in the first quarter of 2014. Higher international sales more than offset lower volume for other programs, including the ICBM program.
Technical Services second quarter 2014 operating income was comparable to the prior year period and operating margin rate decreased to 9.3 percent.
About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at noon Eastern daylight time on July 23, 2014. A live audio broadcast of the conference call will be available on the investor relations page of the company's website at www.northropgrumman.com.
Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide. Please visit www.northropgrumman.com for more information.
This release and the attachments contain statements, other than statements of historical fact, that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expect," "intend," "may," "could," "plan," "project," "forecast," "believe," "estimate," "outlook," "anticipate," "trends," "guidance," "goals," and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, statements relating to our future financial condition, results of operations and cash flows . Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict.
Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, risks related to: the assumptions on which our guidance is based; our dependence on U.S. Government contracts; the effect of economic conditions in the United States and globally; changes in government and customer priorities and requirements; government budgetary constraints; shifts or reductions in defense spending resulting from budget pressures and/or changes in priorities, sequestration under the Budget Control Act of 2011, a continuing resolution with limited new starts; the lack of annual appropriations legislation or otherwise; debt-ceiling limits and disruption to or shutdown of government operations; timing of payments; changes in import and export policies; changes in customer short-range and long-range plans; major program terminations; the acquisition, deferral, reduction or termination of contracts or programs; our non-U.S. business, including legal, regulatory, financial, security and governmental risks related to doing business internationally; the outcome of litigation, claims, audits, appeals, bid protests and investigations; our ability to recover certain costs under U.S. Government contracts; market conditions; our ability to access capital; performance and financial viability of key suppliers and subcontractors; interest and discount rates or other changes that may impact pension plan assumptions and actual returns on pension plan assets; the adequacy of our insurance coverage and recoveries; the costs of environmental remediation; our ability to attract and retain qualified personnel; changes in health care costs and requirements; changes in organizational structure and reporting segments; acquisitions, dispositions, spin-off transactions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other intangible assets; the effects of legislation, regulations, and other changes in accounting, tax, defense procurement or other rules or practices; technical, operational or quality setbacks in contract performance; availability of materials and supplies; controlling costs of fixed-price development programs; domestic and international competition; potential security threats, information technology attacks, natural disasters and other disruptions not under our control; and other risk factors and other important factors disclosed in our Form 10-K for the year ended December 31, 2013, and other filings with the Securities and Exchange Commission.
You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on forward-looking statements. These forward-looking statements speak only as of the date of this release, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this release or the attachments.
SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
$ in millions, except per share amounts 2014 2013 2014 2013
--------------------------------------- ---- ---- ---- ----
Sales
Product $3,564 $3,593 $6,972 $7,014
Service 2,475 2,701 4,915 5,384
------- ----- ----- ----- -----
Total sales 6,039 6,294 11,887 12,398
----------- ----- ----- ------ ------
Operating costs and expenses
Product 2,668 2,703 5,201 5,334
Service 1,961 2,203 3,889 4,359
General and administrative
expenses 590 582 1,132 1,140
-------------------------- --- --- ----- -----
Operating income 820 806 1,665 1,565
Other (expense) income
Interest expense (70) (60) (139) (113)
Other, net 6 (22) 16 (16)
---------- --- --- --- ---
Earnings before income taxes 756 724 1,542 1,436
Federal and foreign income
tax expense 245 236 452 459
-------------------------- --- --- --- ---
Net earnings $511 $488 $1,090 $977
------------ ---- ---- ------ ----
Basic earnings per share $2.41 $2.09 $5.09 $4.15
Weighted-average common
shares outstanding, in
millions 212.4 234.0 214.3 235.2
----------------------- ----- ----- ----- -----
Diluted earnings per share $2.37 $2.05 $5.01 $4.08
Weighted-average diluted
shares outstanding, in
millions 215.2 237.5 217.7 239.2
------------------------ ----- ----- ----- -----
Net earnings (from above) $511 $488 $1,090 $977
Other comprehensive income
Change in unamortized
benefit plan costs, net of
tax 35 79 96 159
Change in cumulative
translation adjustment - 9 2 (7)
Other comprehensive income,
net of tax 35 88 98 152
--------------------------- --- --- --- ---
Comprehensive income $546 $576 $1,188 $1,129
-------------------- ---- ---- ------ ------
SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
June 30, December 31,
2014 2013
---- ----
$ in millions
-------------
Assets
Cash and cash
equivalents $3,476 $5,150
Accounts receivable, net 3,280 2,685
Inventoried costs, net 741 698
Deferred tax assets 554 605
Prepaid expenses and
other current assets 339 350
--------------------- --- ---
Total current assets 8,390 9,488
-------------------- ----- -----
Property, plant and
equipment, net of
accumulated
depreciation of $4,471
in 2014 and $4,337 in
2013 2,818 2,806
Goodwill 12,468 12,438
Non-current deferred
tax assets 180 209
Other non-current assets 1,495 1,440
------------------------ ----- -----
Total assets $25,351 $26,381
------------ ------- -------
Liabilities
Trade accounts payable $1,178 $1,229
Accrued employee
compensation 1,154 1,446
Advance payments and
amounts in excess of
costs incurred 1,588 1,722
Other current
liabilities 1,494 1,418
------------- ----- -----
Total current
liabilities 5,414 5,815
------------- ----- -----
Long-term debt, net of
current portion 5,927 5,928
Pension and other post-
retirement benefit plan
liabilities 2,820 2,954
Other non-current
liabilities 922 1,064
-----------------
Total liabilities 15,083 15,761
----------------- ------ ------
Shareholders' equity
Preferred stock, $1 par
value; 10,000,000
shares authorized; no
shares issued and
outstanding - -
Common stock, $1 par
value; 800,000,000
shares authorized;
issued and outstanding:
2014-209,127,586 and
2013-217,599,230 209 218
Paid-in capital - 848
Retained earnings 12,945 12,538
Accumulated other
comprehensive loss (2,886) (2,984)
-------------------
Total shareholders'
equity 10,268 10,620
------------------- ------ ------
Total liabilities and
shareholders' equity $25,351 $26,381
--------------------- ------- -------
SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
-------
$ in millions 2014 2013
------------- ---- ----
Operating activities
Net
earnings $1,090 $977
Adjustments to
reconcile to net cash
provided by operating
activities:
Depreciation
and
amortization 217 225
Stock-
based
compensation 51 71
Excess
tax
benefits
from
stock-
based
compensation (74) (27)
Deferred
income
taxes 21 33
Changes in assets and
liabilities:
Accounts
receivable,
net (577) (268)
Inventoried
costs,
net (33) 62
Prepaid
expenses
and
other
assets (23) 6
Accounts
payable
and
other
liabilities (588) (430)
Income
taxes
payable 103 60
Retiree
benefits 8 (397)
Other,
net (25) 17
------ ---
Net
cash
provided
by
operating
activities 170 329
----------- --- ---
Investing activities
Capital
expenditures (176) (88)
Other
investing
activities,
net (72) 6
Net
cash
used
in
investing
activities (248) (82)
----------- ---- ---
Financing activities
Common
stock
repurchases (1,301) (921)
Cash
dividends
paid (280) (272)
Net
proceeds
from
issuance
of
long-
term
debt - 2,841
Payments
of
long-
term
debt - (877)
Other
financing
activities,
net (15) 24
------------ --- ---
Net
cash
(used
in)
provided
by
financing
activities (1,596) 795
----------- ------ ---
(Decrease)
increase
in
cash
and
cash
equivalents (1,674) 1,042
Cash
and
cash
equivalents,
beginning
of
year 5,150 3,862
------------- ----- -----
Cash
and
cash
equivalents,
end
of
period $3,476 $4,904
------------- ------ ------
SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(Unaudited)
June 30, 2014 December 31, 2013
------------- -----------------
$ in millions FUNDED (1) UNFUNDED (2) TOTAL BACKLOG TOTAL BACKLOG
------------- --------- ----------- ------------- -------------
Aerospace Systems $9,783 $6,880 $16,663 $18,321
Electronic Systems 6,924 2,704 9,628 9,037
Information Systems 3,154 3,510 6,664 6,864
Technical Services 2,315 285 2,600 2,811
----- --- ----- -----
Total $22,176 $13,379 $35,555 $37,033
----- ------- ------- ------- -------
(1) Funded backlog represents firm
orders for which funding is
authorized and appropriated.
(2) Unfunded backlog represents firm
orders for which as of the
reporting date, funding is not
authorized and appropriated.
Unfunded backlog excludes
unexercised contract options and
indefinite delivery, indefinite
quantity (IDIQ) contracts until
the time the option or IDIQ task
order is exercised or awarded.
New Awards -- Total backlog as of June 30, 2014, includes $5.3 billion and $10.2 billion of estimated contract awards in the three months and six months ended June 30, 2014, respectively. After the close of the 2014 second quarter the U.S. Navy awarded the company a $3.6 billion fixed price, incentive fee multiyear contract to deliver 25 new E-2D Advanced Hawkeye aircraft. The E-2D award is not included in second quarter 2014 new awards or backlog.
Non-GAAP Financial Measures Disclosure: Today's press release contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the text of the release. While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release. References to a "Table" in the definitions below relate to tables in the body of this press release. Other companies may define these measures differently or may utilize different non-GAAP measures.
The quarterly information in today's press release is labeled using a calendar convention; that is, second quarter is consistently labeled as ending on June 30. It is the company's long-standing practice to establish actual interim closing dates using a "fiscal" calendar, in which we close our books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes. This practice is only used at interim periods within a reporting year.
Pension-adjusted diluted EPS: Diluted EPS excluding the after-tax net pension adjustment per share, as defined below. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS, as reconciled in Table 1, as an internal measure of financial performance.
Cash provided by operating activities before discretionary pension contributions: Cash provided by operating activities before the after-tax impact of discretionary pension contributions. Cash provided by operating activities before discretionary pension contributions has been provided for consistency and comparability of 2014 and 2013 financial performance and is reconciled in Table 2.
Free cash flow: Cash provided by operating activities less capital expenditures (including outsourcing contract & related software costs). We use free cash flow as a key factor in our planning for, and consideration of, strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow is reconciled in Table 2.
Free cash flow provided by (used in) operating activities before discretionary pension contributions: Free cash flow provided by (used in) operating activities before the after-tax impact of discretionary pension contributions. We use free cash flow provided by (used in) operating activities before discretionary pension contributions as a key factor in our planning for, and consideration of, strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow provided by (used in) operating activities before discretionary pension contributions is reconciled in Table 2.
Net FAS/CAS pension adjustment: Pension expense in accordance with Government Cost Accounting Standards (CAS) charged to contracts and included as cost in segment operating income, less pension expense determined in accordance with GAAP. Net FAS/CAS pension adjustment is presented in Table 1.
After-tax net pension adjustment per share: The per share impact of the net FAS/CAS pension adjustment as defined above, after tax at the statutory rate of 35%, provided for consistency and comparability of 2014 and 2013 financial performance as presented in Table 1.
Pension-adjusted operating income: Operating income before net FAS/CAS pension adjustment as reconciled in Table 1. Management uses pension-adjusted operating income as an internal measure of financial performance.
Pension-adjusted operating margin rate: Pension-adjusted operating income as defined above, divided by sales. Management uses pension-adjusted operating margin rate, as reconciled in Table 1, as an internal measure of financial performance.
Segment operating income: Total earnings from our four segments including allocated pension expense recognized under CAS. Reconciling items to operating income include the net FAS/CAS pension adjustment, as defined above, as well as certain corporate-level expenses, which are not considered allowable or allocable under applicable CAS or FAR. Segment operating income is reconciled in Table 3.
Segment operating margin rate: Segment operating income as defined above, divided by sales. Management uses segment operating margin rate, as reconciled in Table 3, as an internal measure of financial performance.
SOURCE Northrop Grumman Corporation
