Attached files
| file | filename |
|---|---|
| 8-K - 8-K - NORTHROP GRUMMAN CORP /DE/ | noc-06302017xearnings8k.htm |
Exhibit 99 | ||
News Release | ||||
Contact: | Tim Paynter (Media) | |||
703-280-2720 | ||||
timothy.paynter@ngc.com | ||||
Steve Movius (Investors) | ||||
703-280-4575 | ||||
steve.movius@ngc.com | ||||
Northrop Grumman Reports Second Quarter 2017 Financial Results
• | Q2 Sales Increase 6 Percent to $6.4 billion |
• | Q2 EPS Increase 11 Percent to $3.15 |
• | 2017 EPS Guidance Increased to $12.10 to $12.40 |
FALLS CHURCH, Va. – July 26, 2017 – Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2017 sales increased 6 percent to $6.4 billion from $6.0 billion in the second quarter of 2016. Second quarter 2017 net earnings increased 7 percent to $552 million from $517 million in the prior year period. Second quarter 2017 diluted earnings per share increased 11 percent to $3.15 from $2.85 in the second quarter of 2016. Second quarter 2017 diluted earnings per share are based on 175.5 million weighted average diluted shares outstanding compared with 181.5 million in the prior year period, a 3 percent decrease.
“Our results represent solid operational performance from all three of our businesses and support our strategy to drive profitable growth over the long term," said Wes Bush, chairman, chief executive officer and president.
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
Northrop Grumman Reports Second Quarter 2017 Financial Results | 2 | |
Table 1 — Consolidated Operating Results Highlights
Second Quarter | Six Months | ||||||||||||||
($ in millions, except per share amounts) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Sales | $ | 6,375 | $ | 6,000 | $ | 12,642 | $ | 11,956 | |||||||
Segment operating income1 | 753 | 731 | 1,479 | 1,432 | |||||||||||
Segment operating margin rate1 | 11.8 | % | 12.2 | % | 11.7 | % | 12.0 | % | |||||||
Net FAS/CAS pension adjustment | 137 | 69 | 273 | 143 | |||||||||||
Unallocated corporate expenses and other | (35 | ) | (3 | ) | (65 | ) | (39 | ) | |||||||
Operating income | 855 | 797 | 1,687 | 1,536 | |||||||||||
Operating margin rate | 13.4 | % | 13.3 | % | 13.3 | % | 12.8 | % | |||||||
Interest expense | (76 | ) | (74 | ) | (151 | ) | (150 | ) | |||||||
Other, net | 28 | 7 | 44 | 20 | |||||||||||
Earnings before income taxes | 807 | 730 | 1,580 | 1,406 | |||||||||||
Federal and foreign income tax expense | (255 | ) | (213 | ) | (388 | ) | (333 | ) | |||||||
Effective income tax rate | 31.6 | % | 29.2 | % | 24.6 | % | 23.7 | % | |||||||
Net earnings | $ | 552 | $ | 517 | $ | 1,192 | $ | 1,073 | |||||||
Diluted EPS | 3.15 | 2.85 | 6.78 | 5.88 | |||||||||||
Weighted average shares outstanding — Basic | 174.5 | 180.1 | 174.7 | 180.7 | |||||||||||
Dilutive effect of share-based awards | 1.0 | 1.4 | 1.1 | 1.7 | |||||||||||
Weighted average shares outstanding — Diluted | 175.5 | 181.5 | 175.8 | 182.4 | |||||||||||
1 | Non-GAAP measure — see definitions at the end of this earnings release. | ||
Second quarter 2017 sales increased 6 percent, primarily due to a 14 percent sales increase in Aerospace Systems. Second quarter operating income increased 7 percent primarily due to higher net FAS/CAS pension adjustment and segment operating income, partially offset by higher unallocated corporate expenses. Operating margin rate increased 10 basis points to 13.4 percent.
The company's effective tax rate increased to 31.6 percent from 29.2 percent.
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
Northrop Grumman Reports Second Quarter 2017 Financial Results | 3 | |
Table 2 — Cash Flow Highlights
Second Quarter | Six Months | ||||||||||||||
($ millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net cash provided by operating activities | $ | 507 | $ | 604 | $ | 68 | $ | 544 | |||||||
Less: capital expenditures | (217 | ) | (173 | ) | (433 | ) | (471 | ) | |||||||
Free cash flow1 | $ | 290 | $ | 431 | $ | (365 | ) | $ | 73 | ||||||
1 | Non-GAAP measure — see definitions at the end of this earnings release. | ||
Second quarter 2017 cash provided by operating activities totaled $507 million compared to $604 million provided in the second quarter of 2016. Second quarter 2017 free cash flow was $290 million after capital expenditures of $217 million.
Year to date through June 30, 2017, cash provided by operating activities totaled $68 million and free cash flow was a use of $365 million.
Changes in cash and cash equivalents include the following for cash from operating, investing and financing activities through June 30, 2017:
Operating
• | $68 million provided by operations |
Investing
• | $433 million for capital expenditures |
Financing
• | $367 million for repurchase of common stock |
• | $341 million for dividends |
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
Northrop Grumman Reports Second Quarter 2017 Financial Results | 4 | |
Table 3 — Segment Operating Results
Second Quarter | Six Months | ||||||||||||||||||||
($ millions) | 2017 | 2016 | Change | 2017 | 2016 | Change | |||||||||||||||
Sales | |||||||||||||||||||||
Aerospace Systems | $ | 2,970 | $ | 2,600 | 14 | % | $ | 5,868 | $ | 5,174 | 13 | % | |||||||||
Mission Systems | 2,781 | 2,690 | 3 | % | 5,520 | 5,383 | 3 | % | |||||||||||||
Technology Services | 1,175 | 1,213 | (3 | %) | 2,369 | 2,427 | (2 | %) | |||||||||||||
Intersegment eliminations | (551 | ) | (503 | ) | (1,115 | ) | (1,028 | ) | |||||||||||||
6,375 | 6,000 | 6 | % | 12,642 | 11,956 | 6 | % | ||||||||||||||
Segment operating income1 | |||||||||||||||||||||
Aerospace Systems | 315 | 312 | 1 | % | 627 | 598 | 5 | % | |||||||||||||
Mission Systems | 374 | 351 | 7 | % | 727 | 704 | 3 | % | |||||||||||||
Technology Services | 134 | 131 | 2 | % | 265 | 257 | 3 | % | |||||||||||||
Intersegment eliminations | (70 | ) | (63 | ) | (140 | ) | (127 | ) | |||||||||||||
Segment operating income1, 2 | 753 | 731 | 3 | % | 1,479 | 1,432 | 3 | % | |||||||||||||
Segment operating margin rate1 | 11.8 | % | 12.2 | % | (40) bps | 11.7 | % | 12.0 | % | (30) bps | |||||||||||
1 | Non-GAAP measure — see definitions at the end of this earnings release. | ||
2 | Refer to Table 1 for reconciliation to operating income. | ||
Second quarter 2017 sales increased 6 percent, principally due to a 14 percent sales increase at Aerospace Systems. Second quarter segment operating income increased $22 million, and segment operating margin rate declined to 11.8 percent, principally due to a lower operating margin rate for Aerospace Systems. Second quarter 2017 segment operating income includes $54 million recognized to date in connection with a claim related to certain costs incurred in prior years (the "Cost Claim”).
Aerospace Systems ($ millions)
Second Quarter | Six Months | ||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||
Sales | $ | 2,970 | $ | 2,600 | 14.2 | % | $ | 5,868 | $ | 5,174 | 13.4 | % | |||||||||
Operating income | 315 | 312 | 1.0 | % | 627 | 598 | 4.8 | % | |||||||||||||
Operating margin rate | 10.6 | % | 12.0 | % | 10.7 | % | 11.6 | % | |||||||||||||
Aerospace Systems second quarter 2017 sales increased 14 percent primarily due to higher volume for Manned Aircraft programs, including restricted work and the E-2D Advanced Hawkeye. Autonomous Systems and Space sales also increased. Autonomous Systems sales reflect higher volume for several programs, including Triton, partially offset by lower NATO Alliance Ground Surveillance volume. Space sales reflect higher volume for restricted programs, partially offset by lower volume for Advanced EHF.
Aerospace Systems second quarter 2017 operating income increased 1 percent. Operating margin rate decreased to 10.6 percent, principally due to changes in contract mix on Manned Aircraft programs and the timing of risk reductions on Space programs.
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
Northrop Grumman Reports Second Quarter 2017 Financial Results | 5 | |
Mission Systems ($ millions)
Second Quarter | Six Months | ||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||
Sales | $ | 2,781 | $ | 2,690 | 3.4 | % | $ | 5,520 | $ | 5,383 | 2.5 | % | |||||||||
Operating income | 374 | 351 | 6.6 | % | 727 | 704 | 3.3 | % | |||||||||||||
Operating margin rate | 13.4 | % | 13.0 | % | 13.2 | % | 13.1 | % | |||||||||||||
Mission Systems second quarter 2017 sales increased 3 percent primarily due to higher Sensors and Processing volume, partially offset by lower Cyber and ISR and Advanced Capabilities volume. Sensors and Processing sales reflect higher volume on combat avionics and communications programs. Cyber and ISR sales reflect lower volume on restricted programs. Advanced Capabilities sales reflect lower volume on navigation and maritime systems programs.
Mission Systems second quarter 2017 operating income increased 7 percent primarily due to $32 million recognized for the Cost Claim, which was partially offset by lower performance in Advanced Capabilities primarily due to a provision for cost reduction initiatives. Operating margin rate increased to 13.4 percent.
Technology Services ($ millions)
Second Quarter | Six Months | ||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||
Sales | $ | 1,175 | $ | 1,213 | (3.1 | %) | $ | 2,369 | $ | 2,427 | (2.4 | %) | |||||||||
Operating income | 134 | 131 | 2.3 | % | 265 | 257 | 3.1 | % | |||||||||||||
Operating margin rate | 11.4 | % | 10.8 | % | 11.2 | % | 10.6 | % | |||||||||||||
Technology Services second quarter 2017 sales decreased 3 percent due to lower sales across the sector. Lower volume for System Modernization and Services and Advanced Defense programs is principally due to the completion of several programs in 2016. Global Logistics and Modernization sales reflect lower volume on the KC-10 program.
Technology Services second quarter 2017 operating income increased 2 percent and operating margin rate increased to 11.4 percent.
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
Northrop Grumman Reports Second Quarter 2017 Financial Results | 6 | |
2017 Guidance
The company’s 2017 financial guidance assumes no disruption to or cancellation of any of our significant programs and no disruption to or shutdown of government operations. Guidance for 2017 also assumes adequate and timely appropriations and funding for the company’s programs for the remainder of the year, and no breach of the debt ceiling, impacting the U.S. Government's ability to make timely payments.
2017 Guidance | ||||||
($ in millions, except per share amounts) | As of 4/26/17 | As of 7/26/17 | ||||
Sales | ~25,000 | Low 25,000 | ||||
Segment operating margin %1 | Mid 11% | Mid 11% | ||||
Net FAS/CAS pension adjustment | ~500 | ~500 | ||||
Operating margin % | Mid 12% | Mid to High 12% | ||||
Effective tax rate % | ~27.5% | ~27.5% | ||||
Diluted EPS | 11.80 | — | 12.10 | 12.10 | — | 12.40 |
Capital expenditures | ~900 | ~900 | ||||
Free cash flow1 | 1,800 | — | 2,000 | 1,800 | — | 2,000 |
1 Non-GAAP measure - see definitions at the end of this earnings release. | ||||||
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
Northrop Grumman Reports Second Quarter 2017 Financial Results | 7 | |
About Northrop Grumman
Northrop Grumman will webcast its earnings conference call at noon Eastern time on July 26, 2017. 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 autonomous systems, cyber, C4ISR, strike, and logistics and modernization to customers worldwide. Please visit www.northropgrumman.com and follow us on twitter, @NGCNews, for more information.
Forward-Looking Statements
This earnings release and the information we are incorporating by reference 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,” “guidance,” “outlook,” “anticipate,” “trends,” “goals” and similar expressions generally identify these forward-looking statements.
Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or 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, those identified and discussed more fully in the section entitled “Risk Factors” in our 2016 Annual Report on Form 10-K and other filings with the Securities and Exchange Commission (SEC). They include:
• | our dependence on the U.S. Government for a substantial portion of our business |
• | significant delays or reductions in appropriations for our programs and U.S. Government funding more broadly |
• | investigations, claims, disputes and/or litigation |
• | our exposure to additional risks as a result of our international business |
• | the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate and the impact on our reputation, our ability to do business, and our financial position, results of operations and/or cash flows |
• | the use of estimates when accounting for our contracts and the effect of contract cost growth and/or changes in estimated contract revenues and costs |
• | the performance and financial viability of our subcontractors and suppliers and the availability and pricing of raw materials and components |
• | cyber and other security threats or disruptions faced by us, our customers or our partners |
• | changes in procurement and other laws, regulations and practices applicable to our industry, findings by the U.S. Government, and changes in our customers’ business practices globally |
• | increased competition within our markets and bid protests |
• | the ability to maintain a qualified workforce |
• | inability to meet performance obligations under our contracts |
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
Northrop Grumman Reports Second Quarter 2017 Financial Results | 8 | |
• | environmental matters, including unforeseen environmental costs and government and third party claims |
• | natural and/or environmental disasters |
• | the adequacy and availability of our insurance coverage, customer indemnifications or other liability protections |
• | products and services we provide related to hazardous and high risk operations, which subject us to various environmental, regulatory, financial, reputational and other risks |
• | the future investment performance of plan assets, changes in actuarial assumptions associated with our pension and other post-retirement benefit plans and legislative or other regulatory actions impacting our pension, post-retirement and health and welfare plans |
• | changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets |
• | our ability to exploit or protect intellectual property rights |
• | inability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers |
• | unanticipated changes in our tax provisions or exposure to additional tax liabilities |
Additional information regarding these risks and other important factors can be found in the section entitled “Risk Factors” in our 2016 Annual Report on Form 10-K and as disclosed in this report and from time to time in our other filings with the SEC.
You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this report is first filed or, in the case of any document incorporated by reference, the date of that document. 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.
Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media
SCHEDULE 1
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||
$ in millions, except per share amounts | 2017 | 2016 | 2017 | 2016 | |||||||||||
Sales | |||||||||||||||
Product | $ | 3,916 | $ | 3,560 | $ | 7,750 | $ | 7,038 | |||||||
Service | 2,459 | 2,440 | 4,892 | 4,918 | |||||||||||
Total sales | 6,375 | 6,000 | 12,642 | 11,956 | |||||||||||
Operating costs and expenses | |||||||||||||||
Product | 2,958 | 2,621 | 5,829 | 5,232 | |||||||||||
Service | 1,896 | 1,962 | 3,783 | 3,912 | |||||||||||
General and administrative expenses | 666 | 620 | 1,343 | 1,276 | |||||||||||
Operating income | 855 | 797 | 1,687 | 1,536 | |||||||||||
Other (expense) income | |||||||||||||||
Interest expense | (76 | ) | (74 | ) | (151 | ) | (150 | ) | |||||||
Other, net | 28 | 7 | 44 | 20 | |||||||||||
Earnings before income taxes | 807 | 730 | 1,580 | 1,406 | |||||||||||
Federal and foreign income tax expense | 255 | 213 | 388 | 333 | |||||||||||
Net earnings | $ | 552 | $ | 517 | $ | 1,192 | $ | 1,073 | |||||||
Basic earnings per share | $ | 3.16 | $ | 2.87 | $ | 6.82 | $ | 5.94 | |||||||
Weighted-average common shares outstanding, in millions | 174.5 | 180.1 | 174.7 | 180.7 | |||||||||||
Diluted earnings per share | $ | 3.15 | $ | 2.85 | $ | 6.78 | $ | 5.88 | |||||||
Weighted-average diluted shares outstanding, in millions | 175.5 | 181.5 | 175.8 | 182.4 | |||||||||||
Net earnings (from above) | $ | 552 | $ | 517 | $ | 1,192 | $ | 1,073 | |||||||
Other comprehensive income | |||||||||||||||
Change in unamortized benefit plan costs, net of tax | 102 | 100 | 201 | 201 | |||||||||||
Change in cumulative translation adjustment | (4 | ) | (9 | ) | — | (13 | ) | ||||||||
Other, net | 1 | 1 | 3 | — | |||||||||||
Other comprehensive income, net of tax | 99 | 92 | 204 | 188 | |||||||||||
Comprehensive income | $ | 651 | $ | 609 | $ | 1,396 | $ | 1,261 | |||||||
SCHEDULE 2
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
June 30, 2017 | December 31, 2016 | ||||||
$ in millions | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 1,383 | $ | 2,541 | |||
Accounts receivable, net | 4,280 | 3,299 | |||||
Inventoried costs, net | 1,039 | 816 | |||||
Prepaid expenses and other current assets | 162 | 200 | |||||
Total current assets | 6,864 | 6,856 | |||||
Property, plant and equipment, net of accumulated depreciation of $4,965 in 2017 and $4,831 in 2016 | 3,802 | 3,588 | |||||
Goodwill | 12,453 | 12,450 | |||||
Deferred tax assets | 1,385 | 1,462 | |||||
Other non-current assets | 1,309 | 1,258 | |||||
Total assets | $ | 25,813 | $ | 25,614 | |||
Liabilities | |||||||
Trade accounts payable | $ | 1,385 | $ | 1,554 | |||
Accrued employee compensation | 1,213 | 1,342 | |||||
Advance payments and amounts in excess of costs incurred | 1,340 | 1,471 | |||||
Other current liabilities | 2,248 | 1,263 | |||||
Total current liabilities | 6,186 | 5,630 | |||||
Long-term debt, net of current portion of $862 in 2017 and $12 in 2016 | 6,219 | 7,058 | |||||
Pension and other post-retirement benefit plan liabilities | 6,666 | 6,818 | |||||
Other non-current liabilities | 823 | 849 | |||||
Total liabilities | 19,894 | 20,355 | |||||
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: 2017—174,150,501 and 2016—175,068,263 | 174 | 175 | |||||
Paid-in capital | — | — | |||||
Retained earnings | 11,087 | 10,630 | |||||
Accumulated other comprehensive loss | (5,342 | ) | (5,546 | ) | |||
Total shareholders’ equity | 5,919 | 5,259 | |||||
Total liabilities and shareholders’ equity | $ | 25,813 | $ | 25,614 | |||
SCHEDULE 3
NORTHROP GRUMMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30 | |||||||
$ in millions | 2017 | 2016 | |||||
Operating activities | |||||||
Net earnings | $ | 1,192 | $ | 1,073 | |||
Adjustments to reconcile to net cash provided by operating activities: | |||||||
Depreciation and amortization | 211 | 209 | |||||
Stock-based compensation | 42 | 37 | |||||
Deferred income taxes | (47 | ) | (89 | ) | |||
Changes in assets and liabilities: | |||||||
Accounts receivable, net | (981 | ) | (647 | ) | |||
Inventoried costs, net | (223 | ) | (170 | ) | |||
Prepaid expenses and other assets | (25 | ) | 7 | ||||
Accounts payable and other liabilities | (310 | ) | (287 | ) | |||
Income taxes payable | 90 | 225 | |||||
Retiree benefits | 165 | 209 | |||||
Other, net | (46 | ) | (23 | ) | |||
Net cash provided by operating activities | 68 | 544 | |||||
Investing activities | |||||||
Capital expenditures | (433 | ) | (471 | ) | |||
Other, net | 7 | 2 | |||||
Net cash used in investing activities | (426 | ) | (469 | ) | |||
Financing activities | |||||||
Common stock repurchases | (367 | ) | (682 | ) | |||
Payments of long-term debt | — | (107 | ) | ||||
Cash dividends paid | (341 | ) | (322 | ) | |||
Payments of employee taxes withheld from share-based awards | (91 | ) | (150 | ) | |||
Other, net | (1 | ) | 6 | ||||
Net cash used in financing activities | (800 | ) | (1,255 | ) | |||
Decrease in cash and cash equivalents | (1,158 | ) | (1,180 | ) | |||
Cash and cash equivalents, beginning of year | 2,541 | 2,319 | |||||
Cash and cash equivalents, end of period | $ | 1,383 | $ | 1,139 | |||
Northrop Grumman Reports Second Quarter 2017 Financial Results | 12 | |
Non-GAAP Financial Measures Disclosure: This earnings 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. Definitions for the non-GAAP measures are provided below 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 the release. Other companies may define these measures differently or may utilize different non-GAAP measures.
Segment operating income: Total earnings from our three segments, including allocated pension expense recognized under CAS, and excluding unallocated corporate items and FAS pension expense. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors. This measure should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP. Segment operating income is reconciled in Table 1.
Segment operating margin rate: Segment operating income as defined above, and reconciled in Table 1, divided by sales. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors. This measure should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.
Free cash flow: Net cash provided by operating activities less capital expenditures. We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, stock repurchases and the payment of dividends. This measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP. Free cash flow is reconciled in Table 2.
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Northrop Grumman Corporation
2980 Fairview Park Drive • Falls Church, VA 22042-4511
www.northropgrumman.com/media