Northrop Grumman 2012 Annual Report Download - page 44

NORTHROP GRUMMAN CORPORATION
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2011 -The estimated value of contract awards added to backlog during the year ended December 31, 2011, is $25.3
billion. Significant new awards in 2011 included $2.0 billion for the F/A-18 program, $1.1 billion for the E-2D
Advanced Hawkeye program, $1.0 billion for the Global Hawk program, $1.1 billion for the B-2 program, $886
million for the F-35 program and $404 million for the KC-10 program.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure the most efficient conversion of operating earnings into cash for deployment in our business
and to maximize shareholder value. In addition to our cash position, we use various financial measures to assist in
capital deployment decision-making, including, but not limited to, net cash provided by operations, free cash flow,
net debt-to-equity and debt-to-capital. We believe these measures are useful to investors in assessing our financial
performance and condition.
Cash balances and cash generated from continuing operations, supplemented by borrowings under credit facilities
and/or in the capital markets, if needed, is expected to be sufficient to fund our operations for at least the next 12
months. As of December 31, 2012, the amount of cash, cash equivalents, and marketable securities held outside of
the U.S. by foreign subsidiaries was $580 million. We do not anticipate repatriating these balances to fund domestic
operations. Capital expenditure commitments at December 31, 2012, of approximately $258 million are expected to
be paid with cash on hand.
The table below summarizes key components of cash flow provided by operating activities from continuing
operations:
Year Ended December 31
$ in millions 2012 2011 2010
Net earnings $1,978 $2,118 $2,053
Net earnings from discontinued operations —(32)(134)
Charge on debt redemption —— 229
Non-cash items(1) 726 1,108 748
Retiree benefit funding in excess of expense (71)(904)(354)
Trade working capital change 757 (486)
Cash provided by continuing operations $2,640 $2,347 $2,056
(1) Includes depreciation and amortization, stock based compensation expense and deferred income taxes.
Free Cash Flow from Continuing Operations
Free cash flow from continuing operations is defined as cash provided by operating activities from continuing
operations less capital expenditures. We believe free cash flow from continuing operations is a useful measure for
investors to consider as it represents the cash flow the company has available after capital spending to invest for
future growth, strengthen the balance sheet and/or return to shareholders through dividends and share repurchases.
Free cash flow is a key factor in our planning for and consideration of strategic acquisitions, the payment of
dividends and stock repurchases.
Free cash flow from continuing operations 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.
The table below reconciles cash provided by continuing operations to free cash flow from continuing operations:
Year Ended December 31
$ in millions 2012 2011 2010
Cash provided by continuing operations $2,640 $2,347 $2,056
Less: Capital expenditures (331)(492)(585)
Free cash flow provided by continuing operations $2,309 $1,855 $1,471
Cash Flows
The following is a discussion of our major operating, investing and financing activities from continuing operations
for each of the three years in the period ended December 31, 2012, as classified on the consolidated statements of
cash flows in Part II, Item 8.