NORTHROP GRUMMAN CORPORATION FALLS CHURCH, Va., Oct. 22, 2014 /PRNewswire/ -- Northrop Grumman Corporation (NYSE: NOC) reported third quarter 2014 net earnings of $473 million, or $2.26 per diluted share, compared to $497 million, or $2.14 per diluted share, in the third quarter of 2013. Third quarter 2014 net earnings were reduced by $62 million, or $0.30 per share, to reflect passage during the third quarter of the Highway and Transportation Funding Act of 2014 (HATFA). HATFA includes provisions that reduce 2014 recoverable pension costs under Government Cost Accounting Standards (CAS), retroactive to Jan.1, 2014. The amounts recognized in the third quarter represent the cumulative impact of the legislation for the nine months ended Sept. 30, 2014. The reduction in net earnings related to the HATFA legislation was partially offset by settlements of certain legal claims, which increased net earnings by $49 million, or $0.23 per share.
Third quarter 2014 diluted earnings per share are based on 209.2 million weighted average shares outstanding compared with 232.6 million shares in the third quarter of 2013, a decrease of 10 percent. The company repurchased 6.0 million shares of its common stock for $753 million in the third quarter of 2014. As of Sept. 30, 2014, the company had repurchased 37.7 million shares toward its previously announced goal of retiring 60 million shares of its common stock by the end of 2015, market conditions permitting.
"Our team's focus on execution resulted in another solid quarter. Based on year-to-date results we are raising our 2014 EPS guidance to $9.40 to $9.50," said Wes Bush, chairman, chief executive officer and president.
Table 1 -- Financial Highlights
Third Quarter Nine Months
------------- -----------
($ in millions,
except per
share amounts) 2014 2013 2014 2013
Sales $5,984 $6,106 $17,871 $18,504
Segment
operating
income(1) 840 763 2,339 2,308
Segment
operating
margin rate(1) 14.0% 12.5% 13.1% 12.5%
Operating
income 769 790 2,434 2,355
Operating margin
rate 12.9% 12.9% 13.6% 12.7%
Net earnings 473 497 1,563 1,474
Diluted EPS 2.26 2.14 7.28 6.22
Net cash
provided by
operations 933 950 1,103 1,279
Free cash
flow(1) 824 860 818 1,101
Pension-adjusted Operating
Highlights
Operating
income 769 790 2,434 2,355
Net FAS/CAS
pension
adjustment(1) 20 (61) (200) (125)
--- --- ---- ----
Pension-
adjusted
operating
income(1) $789 $729 $2,234 $2,230
Pension-
adjusted
operating
margin rate(1) 13.2% 11.9% 12.5% 12.1%
Pension-adjusted Per Share
Data
Diluted EPS $2.26 $2.14 $7.28 $6.22
After-tax net
pension
adjustment per
share(1) 0.06 (0.17) (0.61) (0.34)
---- ----- ----- -----
Pension-
adjusted
diluted EPS(1) $2.32 $1.97 $6.67 $5.88
Weighted
average shares
outstanding -
Basic 206.2 228.2 211.6 232.8
Dilutive effect
of stock
awards and
options 3.0 4.4 3.2 4.2
Weighted
average shares
outstanding -
Diluted 209.2 232.6 214.8 237.0
--------------- ----- ----- ----- -----
(1) Non-GAAP metric - see definitions at the end of this press release.
Third quarter 2014 total operating income declined $21 million to $769 million, and operating margin rate was unchanged at 12.9 percent. Lower operating income was principally due to a decline in net FAS/CAS pension adjustment, partially offset by higher segment operating income.
Segment operating income increased $77 million to $840 million, or 14.0 percent of sales. Higher segment operating income includes $75 million realized for settlements of certain legal claims related to use of the company's intellectual property and a terminated program, and $37 million of additional margin resulting from lower CAS pension cost due to the HATFA legislation.
The $77 million improvement in segment operating income was more than offset by a $132 million cumulative reduction in 2014 CAS pension expense for the nine months ended Sept. 30, 2014, as a result of the HATFA legislation. This cumulative reduction resulted in an $81 million change in third quarter 2014 net FAS/CAS pension adjustment.
Total backlog as of Sept. 30, 2014, was $38.5 billion, an 8 percent increase from the end of the second quarter of 2014. Third quarter 2014 new awards totaled $9.0 billion, and new awards for the first nine months totaled $19.2 billion. New awards in the nine months ended Sept. 30, 2014, include $4.1 billion for the E-2D Advanced Hawkeye program, $793 million for the F-35 program, $552 million for the Virginia Class Submarine program, $534 million for the Global Hawk program and $466 million for the F/A-18 program.
Third quarter 2014 book-to-bill totaled 150 percent, and book-to-bill for the first nine months totaled 107 percent.
Table 2 -- Cash Flow Highlights
Third Quarter Nine Months
------------- -----------
($ millions) 2014 2013 2014 2013
---- ----
Cash provided by operating
activities before
discretionary pension
contributions(1) $933 $905 $1,103 $1,646
After-tax discretionary
pension pre-funding
impact - 45 - (367)
----
Net cash provided by
operating activities $933 $950 $1,103 $1,279
Less:
Capital expenditures (109) (90) (285) (178)
----
Free cash flow(1) $824 $860 $818 $1,101
After-tax discretionary
pension pre-funding
impact - (45) - 367
--- --- --- ---
Free cash flow provided by
operating activities
before discretionary
pension contributions(1) $824 $815 $818 $1,468
-------------------------- ---- ---- ---- ------
(1) Non-GAAP metric - see definitions at the end of this press release.
Third quarter 2014 cash provided by operating activities totaled $933 million, and third quarter 2014 free cash flow totaled $824 million.
Changes in cash and cash equivalents include the following for cash from operations, investing and financing activities for the nine months ended Sept. 30, 2014:
Operations
-- $1.1 billion provided by operations
Investing
-- $285 million used for capital expenditures
-- $72 million used for other investing activities
Financing
-- $2.1 billion used for repurchase of common stock
-- $423 million used for dividends
2014 Guidance
The company's 2014 financial guidance and other sections of this news release contain forward-looking statements, which are based on the company's current expectations. Actual results may differ materially from those projected. For a discussion of factors that may impact the company's actual results, refer to the "Forward-Looking Statements" section contained in this news release.
($
in
millions,
except
per
share
amounts) Current Prior
Sales ~23,800 23,500 - 23,800
Segment
operating
margin
%(1) High 12% Low 12%
Operating
margin
% Low 13% Low 13%
Diluted
EPS 9.40 - 9.50 9.15 - 9.35
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.
------------------------------------------------------------------------
Table 3 -- Business Results
Consolidated Sales & Segment Operating Income(1)
Third Quarter Nine Months
------------- -----------
($ millions) 2014 2013 Change 2014 2013 Change
----------- ---- ---- ------ ---- ---- ------
Sales
Aerospace Systems $2,543 $2,484 2% $7,465 $7,582 (2%)
Electronic Systems 1,733 1,774 (2%) 5,121 5,266 (3%)
Information Systems 1,511 1,619 (7%) 4,650 4,982 (7%)
Technical Services 691 713 (3%) 2,120 2,152 (1%)
Intersegment
eliminations (494) (484) (1,485) (1,478)
------------- ---- ---- ------ ------
5,984 6,106 (2%) 17,871 18,504 (3%)
Segment operating income(1)
Aerospace Systems 402 330 22% 1,016 936 9%
Electronic Systems 274 273 - 833 891 (7%)
Information Systems 150 162 (7%) 465 474 (2%)
Technical Services 66 67 (1%) 202 201 -
Intersegment
eliminations (52) (69) (177) (194)
------------- --- --- ---- ----
Segment operating
income(1) 840 763 10% 2,339 2,308 1%
Segment operating
margin rate(1) 14.0% 12.5% 150 bps 13.1% 12.5% 60 bps
Reconciliation to operating income
Net FAS/CAS pension
adjustment(1) (20) 61 (133%) 200 125 60%
Unallocated corporate
expenses (50) (33) (52%) (103) (73) (41%)
Other (1) (1) - (2) (5) 60%
----- --- --- --- --- --- ---
Operating income 769 790 (3%) 2,434 2,355 3%
Operating margin rate 12.9% 12.9% - 13.6% 12.7% 90 bps
Interest expense (69) (70) 1% (208) (183) (14%)
Other, net (6) - NM 10 (16) 163%
---------- --- --- --- --- --- ---
Earnings before income
taxes 694 720 (4%) 2,236 2,156 4%
Federal and foreign
income tax expense (221) (223) 1% (673) (682) 1%
------------------- ---- ---- --- ---- ---- ---
Net earnings $473 $497 (5%) $1,563 $1,474 6%
------------ ---- ---- --- ------ ------ ---
(1) Non-GAAP metric - see definitions at the end of this press release.
Aerospace Systems ($ millions)
Third Quarter Nine Months
------------- -----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $2,543 $2,484 2.4% $7,465 $7,582 (1.5%)
Operating
income 402 330 21.8% 1,016 936 8.5%
Operating
margin rate 15.8% 13.3% 13.6% 12.3%
------------ ---- ---- ---- ----
Aerospace Systems third quarter 2014 sales increased 2 percent principally due to the settlements related to use of the company's intellectual property and a terminated program. Excluding the settlements, sales declined slightly during the quarter and reflect lower volume for manned military aircraft programs and comparable sales for unmanned and space programs. Lower volume for manned military aircraft programs reflects declines across several programs including the B-2, Joint STARS and F/A-18 programs, partially offset by higher volume for the E-2D program.
Aerospace Systems third quarter 2014 operating income increased 22 percent and operating margin rate increased 250 basis points to 15.8 percent. Higher operating income and margin rate are principally due to the settlements of claims described above and additional margin resulting from lower CAS pension costs due to the HATFA legislation.
Electronic Systems ($ millions)
Third Quarter Nine Months
------------- -----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $1,733 $1,774 (2.3%) $5,121 $5,266 (2.8%)
Operating
income 274 273 0.4% 833 891 (6.5%)
Operating
margin rate 15.8% 15.4% 16.3% 16.9%
------------ ---- ---- ---- ----
Electronic Systems third quarter 2014 sales decreased 2 percent primarily due to fewer deliveries of combat avionics and infrared countermeasures products. These declines were partially offset by higher volume for space, marine and undersea programs.
Electronic Systems third quarter 2014 operating income was comparable to the prior year period. Operating margin rate increased 40 basis points to 15.8 percent due to performance improvement and additional margin resulting from lower CAS pension costs due to the HATFA legislation.
Information Systems ($ millions)
Third Quarter Nine Months
------------- -----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $1,511 $1,619 (6.7%) $4,650 $4,982 (6.7%)
Operating
income 150 162 (7.4%) 465 474 (1.9%)
Operating
margin rate 9.9% 10.0% 10.0% 9.5%
------------ --- ---- ---- ---
Information Systems third quarter 2014 sales decreased 7 percent, principally due to lower volume for command and control programs as a result of reduced funding levels and in-theater force reductions.
Information Systems third quarter 2014 operating income decreased 7 percent, consistent with the decline in sales, and operating margin rate was comparable to the prior year period.
Technical Services ($ millions)
Third Quarter Nine Months
------------- -----------
2014 2013 Change 2014 2013 Change
---- ---- ------ ---- ---- ------
Sales $691 $713 (3.1%) $2,120 $2,152 (1.5%)
Operating
income 66 67 (1.5%) 202 201 0.5%
Operating
margin rate 9.6% 9.4% 9.5% 9.3%
------------ --- --- --- ---
Technical Services third quarter 2014 sales decreased 3 percent principally due to lower volume for the ICBM and Combined Tactical Training Range (CTTR) programs. Declines in these programs were partially offset by higher international sales.
Technical Services third quarter 2014 operating income was comparable to the prior year period, and operating margin rate increased to 9.6 percent.
About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at noon Eastern time on Oct. 22, 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.
Forward-Looking Statements
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 and security conditions in the United States and globally; changes in government and customer priorities, requirements and spending for our programs, products and services; 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, as amended or replaced; a continuing resolution with limited new starts; the lack of or significant changes to annual appropriations legislation; 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 disruptions or 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; changes in and the effects of laws and regulations that affect our business, including those relating to accounting, tax, defense procurement, corporate liabilities and international business; 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, cyber and 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 Nine Months Ended
September 30 September 30
------------ ------------
$ in millions, except per share amounts 2014 2013 2014 2013
--------------------------------------- ---- ---- ---- ----
Sales
Product $3,494 $3,330 $10,466 $10,344
Service 2,490 2,776 7,405 8,160
------- ----- ----- ----- -----
Total sales 5,984 6,106 17,871 18,504
----------- ----- ----- ------ ------
Operating costs and expenses
Product 2,614 2,499 7,815 7,833
Service 2,021 2,262 5,910 6,621
General and administrative
expenses 580 555 1,712 1,695
-------------------------- --- --- ----- -----
Operating income 769 790 2,434 2,355
Other (expense) income
Interest expense (69) (70) (208) (183)
Other, net (6) - 10 (16)
---------- --- --- --- ---
Earnings before income taxes 694 720 2,236 2,156
Federal and foreign income
tax expense 221 223 673 682
-------------------------- --- --- --- ---
Net earnings $473 $497 $1,563 $1,474
------------ ---- ---- ------ ------
Basic earnings per share $2.29 $2.18 $7.39 $6.33
Weighted-average common
shares outstanding, in
millions 206.2 228.2 211.6 232.8
----------------------- ----- ----- ----- -----
Diluted earnings per share $2.26 $2.14 $7.28 $6.22
Weighted-average diluted
shares outstanding, in
millions 209.2 232.6 214.8 237.0
------------------------ ----- ----- ----- -----
Net earnings (from above) $473 $497 $1,563 $1,474
Other comprehensive income
Change in unamortized
benefit plan costs, net of
tax 31 78 127 237
Change in cumulative
translation adjustment (26) 15 (24) 8
Change in unrealized gain
(loss) on marketable
securities and cash flow
hedges, net of tax 3 (1) 3 (1)
------------------------- --- --- --- ---
Other comprehensive income,
net of tax 8 92 106 244
--------------------------- --- --- --- ---
Comprehensive income $481 $589 $1,669 $1,718
-------------------- ---- ---- ------ ------
SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
$ in millions September 30, December 31,
2014 2013
--- ---- ----
Assets
Cash and
cash
equivalents $3,402 $5,150
Accounts
receivable,
net 3,233 2,685
Inventoried
costs,
net 671 698
Deferred
tax
assets 526 605
Prepaid
expenses
and
other
current
assets 290 350
--------- --- ---
Total
current
assets 8,122 9,488
-------- ----- -----
Property,
plant $4,337
and in 2013
equipment,
net of
accumulated
depreciation
of
$4,540
in 2014
and 2,845 2,806
Goodwill 12,463 12,438
Non-
current
deferred
tax
assets 129 209
Other
non-
current
assets 1,484 1,440
-------- ----- -----
Total
assets $25,043 $26,381
------- ------- -------
Liabilities
Trade
accounts
payable $1,193 $1,229
Accrued
employee
compensation 1,225 1,446
Advance
payments
and
amounts
in
excess
of
costs
incurred 1,610 1,722
Other
current
liabilities 1,483 1,418
------------ ----- -----
Total
current
liabilities 5,511 5,815
------------ ----- -----
Long-
term
debt,
net of
current
portion 5,926 5,928
Pension
and
other
post-
retirement
benefit
plan
liabilities 2,775 2,954
Other
non-
current
liabilities 938 1,064
------------
Total
liabilities 15,150 15,761
------------ ------ ------
Shareholders' equity
Preferred
stock, outstanding
$1 par
value;
10,000,000
shares
authorized;
no
shares
issued
and - -
Common
stock, and
$1 par 2013-217,599,230
value;
800,000,000
shares
authorized;
issued
and
outstanding:
2014-203,176,629 203 218
Paid-in
capital - 848
Retained
earnings 12,568 12,538
Accumulated
other
comprehensive
loss (2,878) (2,984)
-------------
Total
shareholders'
equity 9,893 10,620
-------------- ----- ------
Total
liabilities
and
shareholders'
equity $25,043 $26,381
-------------- ------- -------
SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
------------
$ in millions 2014 2013
------------- ---- ----
Operating activities
Net earnings $1,563 $1,474
Adjustments to reconcile to
net cash provided by
operating activities:
Depreciation
and
amortization 322 345
Stock-based
compensation 93 118
Excess tax
benefits from
stock-based
compensation (75) (37)
Deferred income
taxes 76 89
Changes in assets and
liabilities:
Accounts
receivable,
net (531) (147)
Inventoried
costs, net 43 10
Prepaid
expenses and
other assets (30) (53)
Accounts
payable and
other
liabilities (514) (296)
Income taxes
payable 201 92
Retiree
benefits 5 (331)
Other, net (50) 15
---------- ---
Net cash
provided by
operating
activities 1,103 1,279
------------ ----- -----
Investing activities
Capital
expenditures (285) (178)
Other investing
activities,
net (72) 9
Net cash used
in investing
activities (357) (169)
------------- ---- ----
Financing activities
Common stock
repurchases (2,058) (1,661)
Cash dividends
paid (423) (411)
Net proceeds
from issuance
of long-term
debt - 2,841
Payments of
long-term
debt - (877)
Other financing
activities,
net (13) 80
--------------- --- ---
Net cash used
in financing
activities (2,494) (28)
------------- ------ ---
(Decrease)
increase in
cash and cash
equivalents (1,748) 1,082
Cash and cash
equivalents,
beginning of
year 5,150 3,862
------------- ----- -----
Cash and cash
equivalents,
end of period $3,402 $4,944
-------------- ------ ------
SCHEDULE 4
NORTHROP GRUMMAN CORPORATION
TOTAL BACKLOG AND CONTRACT AWARDS
(Unaudited)
September 30, 2014 December 31, 2013
------------------ -----------------
$ in millions FUNDED (1) UNFUNDED (2) TOTAL BACKLOG TOTAL BACKLOG
------------- --------- ----------- ------------- -------------
Aerospace Systems $9,737 $9,467 $19,204 $18,321
Electronic Systems 7,121 2,894 10,015 9,037
Information Systems 3,549 3,258 6,807 6,864
Technical Services 2,280 231 2,511 2,811
----- --- ----- -----
Total $22,687 $15,850 $38,537 $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 September 30, 2014, includes $9.0 billion and $19.2 billion of estimated contract awards in the three months and nine months ended September 30, 2014, respectively.
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, third quarter is consistently labeled as ending on September 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.
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SOURCE Northrop Grumman Corporation
