Northrop Grumman 2010 Annual Report Download - page 60

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SBIRS follow on production program, $385 million for the Saudi Arabian National Guard Modernization and
Training program, $374 million for the Gerald R. Ford aircraft carrier, $360 million for the BACN program,
$296 million to finalize the development of the Distributed Common Ground System-Army (DCGS-A),
$286 million for the LAIRCM IDIQ, and various restricted awards.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure the most efficient conversion of operating results into cash for deployment in growing
our businesses and maximizing shareholder value. We actively manage our capital resources through working
capital improvements, capital expenditures, strategic business acquisitions and divestitures, debt issuance and
repayment, required and voluntary pension contributions, and returning cash to our shareholders through
dividend payments and repurchases of common stock.
We use various financial measures to assist in capital deployment decision-making, including net cash provided by
operations, free cash flow, net debt-to-equity, and net debt-to-capital. We believe these measures are useful to
investors in assessing our financial performance.
The table below summarizes key components of cash flow provided by operating activities.
$ in millions 2010 2009 2008
Year Ended December 31
Net earnings (loss) $2,053 $1,686 $(1,262)
(Earnings) from discontinued operations (95) (91)
Gain on sale of businesses (446) (58)
Charge on debt redemption 231
Impairment of goodwill 3,060
Other non-cash items
(1)
881 951 993
Retiree benefit funding in excess of expense (326) (20) (167)
Trade working capital (increase) decrease (386) (45) 563
Cash provided by discontinued operations 102 173
Net cash provided by operating activities $2,453 $2,133 $ 3,211
(1) Includes depreciation & amortization, stock based compensation expense and deferred taxes.
Free Cash Flow
Free cash flow represents cash from operating activities less capital expenditures and outsourcing contract and
related software costs. Outsourcing contract and related software costs are similar to capital expenditures in that
the contract costs represent incremental external costs or certain specific internal costs that are directly related to
the contract acquisition and transition/set-up. These outsourcing contract and related software costs are deferred
and expensed over the contract life. We believe free cash flow is a useful measure for investors to consider. This
measure is a key factor used by management in our planning for and consideration of strategic acquisitions, stock
repurchases and the payment of dividends.
Free cash flow is not a measure of financial performance under GAAP, and may not be defined and calculated by
other companies in the same manner. 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 as indicators of performance.
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NORTHROP GRUMMAN CORPORATION