Northrop Grumman Corporation (NOC) Management Presents at Credit Suisse 6th Annual Industrials Conference (Transcript)

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About: Northrop Grumman Corporation (NOC)
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Earning Call Audio

Northrop Grumman Corporation (NYSE:NOC) Credit Suisse 6th Annual Industrials Conference Call November 29, 2018 8:45 AM ET

Executives

Stephen Movius - Corporate Vice President and Treasurer, Vice President Investor Relations

Kenneth Bedingfield - Corporate Vice President and Chief Financial Officer

Analysts

Robert Spingarn - Credit Suisse

Robert Spingarn

Welcome. It’s always a pleasure to have Ken Bedingfield, CFO of Northrop Grumman. We have Steve Movius, who is Corporate Vice President and Treasurer, and thrilled to have you in IR, thrilled to have you here again. You’ve been faithful visitors for several years. So thanks for coming down to chilly South Florida. And I think, Steve, you have an opening.

Stephen Movius

Oh, yes, yes. Before we start just the obligatory comments, we’ll be making forward-looking statements. Risks and uncertainties associated with those, I refer you to our SEC filings for a complete description of those risks.

Robert Spingarn

Thank you, Steve.

Stephen Movius

You’re welcome.

Robert Spingarn

So, Ken, I thought I’d start with the high-level – it’s not all that creative, but I think it’s important to start with a high-level question where we stand, where the company stands in the current environment, domestic and international market environment, budget environment, where Northrop’s headed strategically sort of an overview?

Kenneth Bedingfield

Sure. Let me just start by saying, first, I appreciate you having us down and always a great experience to be here at the Credit Suisse Conference. So…

Robert Spingarn

Thank you.

Kenneth Bedingfield

…I appreciate what you’re doing here. And to the question, I would say, I would summarize it as we are a technology company that’s focused on profitable growth. And when I talk about a technology company, we invest significantly in R&D. We’ve been facilitating in capital for our future growth objectives.

And with the technology investments that we’ve made in the areas of focus, we believe that we align very well with the National Defense Strategy, which is focused on really our country’s ability to deter our near peers of China and Russia. And the technologies that are needed in that area we believe we have significant capabilities in. And so we believe our strategy of focusing on technology, focusing on strike, C4ISR, cyber, those areas will be critically important as the country addresses the future threats. And so we feel really good about where we are from that perspective.

I would maybe also just highlight that with the closing of the acquisition this year of Orbital ATK, which is now Northrop Grumman Innovation Systems, we feel that we’ve got even better alignment to the needs of the customer with areas, in particular, space, missiles, missile defense, we see a lot of opportunity there. And we feel really good about the cultural fit of the company and Innovation Systems has an ability to really react quickly to customer needs.

And we’re seeing that our customer is taking on a go-fast strategy. And we feel like with the inclusion of Innovation Systems are even better positioned to help them pursue that strategy, as they deal with the changing dynamics in the global defense arena.

Robert Spingarn

While we’re on that, I had a couple more general questions, but you brought up OA Innovation Systems. What are some of the highlights to what you’ve seen so far from that deal, maybe on the – in terms of synergies, complementary opportunities that sort of thing? And as a second question to that, does the advent of a space force have any kind of tangible influence given that you’re one of the bigger space providers out there?

Kenneth Bedingfield

So I’ll start on the first part of the question, and then Steve can fill in some of the details and then we can address the second question as well. From Innovation Systems perspective, I would say that probably the most exciting thing that we’re seeing at this point in time is the rate at which revenue synergies are starting to become apparent.

Obviously, a business like ours, it takes time to create these opportunities into awards and into sales. But the rate at which the opportunities are becoming apparent is really exciting to see, I would say. And it’s really good to see the teams working really well together. I would say, the teamwork is another aspect of it, that’s very exciting, making good decisions, deciding how to pursue the opportunities, really working well as a one Northrop Grumman team.

So to me that’s the most exciting part. I would say, significantly enabled by the similar cultures of the companies. We’re on track for the cost energy side of things. We’ve talked about sort of another type of cost synergy. We’re calling operational synergies, which are kind of this longer-term facility optimization supply chain, capital optimization, things like that, that will take a little bit longer, but on track for that. So, overall, it’s a really exciting time, and we’re just thrilled about how it’s working out. Steve, I don’t know if you want to talk anything about the product line or…

Stephen Movius

Yes, I would say, some of the specifics I would say on the space side, we are seeing revenue synergies faster than we would have expected. And I think the heritage, the Orbital ATK, individuals in the space arena and the Northrop Grumman, they knew each other, it’s a relatively small community. And seeing what we can bring to the table with typically more complex larger systems.

And they have smaller, but very high performance systems and taking some of the go-fast capabilities that Orbital ATK brings to the table, bringing that to some of the heritage Northrop space markets, some of the technology that we have bringing that into some of the Orbital offerings, and quite frankly, being able to address mission requirements that neither company would be able to address previously. We’re already seeing that.

Kenneth Bedingfield

Particularly in resilience.

Stephen Movius

Yes. And a lot of that’s in the restricted space arena, which is not surprising. But we’re also very bullish along the missile, missile defense synergies. They’re going to take a little bit longer, but our excitement there is probably as higher as more optimistic than ever. And they also have some very good capabilities in precision munitions. Some of them are in their early stages, but the ability for precision munitions to accomplish the objectives of some other systems that are quite a bit more expensive goes into the efficiency, desires of the customer to do more with less. And so we’re very bullish on the – some of the precision munitions offerings that, again, NGIS brings to the table.

Robert Spingarn

Interesting, I covered Orbital ATK in one form or another dating back to 1999. And precision munitions was probably always one of the least understood parts of the business. And I don’t want to speak out of turn here, but there are a lot of really interesting programs that just seem to be in perpetual development. And I’m wondering if there’s an opportunity for Northrop to accelerate some of those things. In other words, you have reached an end platform, et cetera, maybe get some of those things further along than they would have otherwise?

Kenneth Bedingfield

So I wouldn’t want to speak too much about the past of Orbital ATK. But what I would say is that, in terms of the product lines and the investments that they have made, we see much of that coming to fruition in terms of real live business opportunities in the next year or two, a lot in the precision munitions space and some of the other investments that they made in areas like OmegA, which should be down selected through here before long and the MEV investment that they made as well, which should largely be completed in kind of late 2019, early 2020.

So I think from a timing perspective, they’ve made smart investments and they’re starting to bear fruit, and we’re excited about that. I would just – maybe to add to Steve’s comment on the space arena, I would just say, of course, as is often the case with the Northrop Grumman story, much of the story is of a restricted nature.

So some of the significant opportunities in space are in the restricted world or what Orbital ATK and now Innovation Systems calls National Security Space, but really good business, really good opportunities, I just can’t talk too much about. And then – but significant capability to address the resiliency needs of the customer.

To your question about the space force, I would just say that Northrop Grumman stands ready to support the customer, in whatever capabilities or needs that they require, whether to the space force, the Air Force, intelligence community, we’re here to serve.

Robert Spingarn

Is it – on our side we try to figure out what it means from an acquisition standpoint. Does it streamline the acquisition process for space assets and space programs? Is there any kind of litmus test or historical context that guides us here?

Kenneth Bedingfield

I think, some of that is still being developed by the customer, and I wouldn’t want to comment on their strategy or how they’re intending to implement it. But I would say that, Secretary Mabus has been very clear about his strategy, which is get capability into the hands of the warfighter as quickly as possible. And I would assume that, as they work towards setting the space force, that would be a key component of how they would think about doing it.

Robert Spingarn

So backing up now back towards the budget, how do you think about – obviously, you’ve already said that you’re aligned well. How does Northrop think about some of the political machinations, which at the time of election, we’ve changed the flavor of Congress a little bit here. Some suggest with some of the committee changes, I’m thinking it has that there might be a adjustment to the strategy a little bit, maybe further away from the great power of conflict, nuclear triads, so forth, you touched these areas. How do you think about that?

Kenneth Bedingfield

Yes, I would say, we remain optimistic about the process and the budgets as we look forward. I think that there is a recognition and a bipartisan recognition that we need to invest in modernization of our defense force. And you can see that through the last budget that was passed in the Senate vote 93 to 7 saw a significant bipartisan support.

With the split Congress between House and Senate, there certainly could be some – there could be some delays in terms of getting budgets passed and approved and potential for CRs. and things like that. But ultimately, I think, there’s broad support again for a strong defense and the threat environment tends to carry the day.

And globally, we’re seeing that the threat environment unfortunately remains significant, in particular, with some of our near peers – some of our country’s near peers investing significantly in areas like nuclear, hypersonics, certainly cyber. And so we would expect that, that will provide broad bipartisan support as we look forward. Obviously, a lot of that has to happen, but we remain confident in the process.

Robert Spingarn

Do you think we have a safe funding environment for B-21 and GBSD?

Kenneth Bedingfield

We feel good about B-21 and GBSD. I think, the customers have been clear that those are absolute priorities, and we’re confident that there’s support. Certainly, we feel good about how we’re performing on our programs and strong performing programs tend to be supported budgetarily, and GBSD, obviously, is yet to be awarded.

But I think, there’s broad support for the need for the third leg of the nuclear deterrent, and we’re ready to put together a thorough, well thought out technology-driven offering and look forward to hopefully a potential award in late 2020, early 2021.

Robert Spingarn

Changing the discussion a little bit, but sticking with DoD, they’ve talked about getting more efficient with their money buying more for less, just more value. Where does that efficiency come from certainly with regard to Northrop? And is this initiative on the part of DoD more of an opportunity or a challenge, I would say, from your perspective? And I would also ask if you could speak to the supply chain, as you – as we talk about that?

Kenneth Bedingfield

So let me start with that, and then I’ll turn it over to Steve. I would say, number one, we support the customers’ initiatives 100% and absolutely see it as an opportunity. They’ve talked about using these efficiencies to create the ability to spend more within the budget on acquisition, on modernization, on capability, and that’s clearly a positive. So we 100% support what the customers are trying to do here, and look forward to partnering to the extent we can to help them accomplish that.

From our perspective, we definitely think it’s an opportunity. We think it fits well to what we’ve been focused on. And in a couple of areas, I would say, number one, when we saw the downturn coming and saw that there was a change from sort of best value to price being significant from a competitive differentiator, I would say, Wes, very early on got the team focused on designing for cost and designing for affordability and designing for the need and for the scope of work and for more.

So I think as a company, we got ahead of really thinking about how we design and how we design things that are more affordable early on. And so it’s not just about the labor cost or our facility cost. Although we’ve certainly been focused on those cost drivers as well. But how do you inherently design and build something that’s cheaper to construct, cheaper to maintain, cheaper to sustain over the years, open mission systems, open architecture, I could go on and on about the areas where we think we’re well aligned to those strategies of affordable systems. But maybe I’ll turn it over to Steve for little more comments.

Stephen Movius

I mean, you covered most of them. But if you go back to technology being the enabler using technology to develop systems that are resilient, that are more modular in nature, that are open architecture. So to the extent, you go through upgrade processes, you don’t have to tear everything apart. It’s more plug and play type of approach. Many of our systems are multimission multifunction.

So, again, doing more with less having – taking the real estate on a system and being able to do much more with it by having a multifunction device versus three boxes to do three different things. Having the technology to do that, I think, we’re in a pretty good position to do things like that.

Some of our systems, for example, IBCS, which is a system that allows interoperability from disparate missile radars and the actual missiles themselves for missile defense purposes, our beacon system, which we put together. So I think, we’ve got a history of being able to do some things that again allow the customer to do more with less, which is obviously one of the tenets of efficiency.

One thing I would add also to that is bringing in Innovation Systems. I think culturally speaking, they’re a little more culturally sensitive to going fast, and I think the rest of Northrop is benefiting from that as is Innovation Systems benefiting from a lot of things, either strength and heritage at Northrop. So I think that ability to go fast having Innovation Systems as part of the company is, you’re going to see the benefit of that over time as well.

Kenneth Bedingfield

I would just add, Steve. Steve mentioned a couple of programs that some folks might not be as familiar with. So, IBCS, I would just say, I think of as kind of any sensor, any shooter technology. And beacon think of it as an ability to translate different generation of communications. So that they can all communicate together, so fourth gen, fifth gen, ground air across service lines and things like that.

Robert Spingarn

On the whole efficiency side, one of the things I wanted to ask you about is, with regard to the supply chain, we’re seeing this team evolve in aerospace on the commercial side, we’re really rewriting in the script, but that’s a volume-driven business. That that’s a high-volume, I don’t want to say it’s low mix, it’s complex stuff. But is defense not addressable in the same way, because you are lower volume, higher mix, and there’s not as much opportunity to extract cost from your suppliers that we’re seeing on the commercial aero side?

Kenneth Bedingfield

I would say that, clearly, supply chain is critical, not just to us as a company, not just to our industry, but to our country in terms of its ability to defend and ability to carry out a mission. I think, we have a strong supply chain that’s been addressing some regulatory changes and things like that.

There’ve been clearly some acquisitions and some narrowing of a number of players in the supply chain, but largely a strong and capable supply chain. Some continued focus is needed. You may have seen the supply chain report that came out of the DoD recently regarding some potential challenges. But we’ve been working very well with our suppliers.

I would say that, in terms of cost management, we work very well with our suppliers to get what we – the components that we need for the best cost in our industry, because to your point, we’re not high volume generally, we’re more of a lower volume, but very high technology manufacturer. A lot of it is about reducing risk.

If you buy a part for a $0.01 less or $1 less or $10,000 less, but it’s not available when you need it. And now your production facilities are stalled, waiting for a part or we have a quality problem and you actually have to take the parts of what you did and figure out what the issue is and address that problem. That’s much more significant from a cost perspective than simply again a $0.01 on a part or that sort of thing.

So, for us, a big part of supply chain is managing risk, addressing, making sure that we can get what we need on the right schedule that we get it on quality, partnering closely with our suppliers to address those challenges. And we really do think about it as a partnership with our supply chain, and I think we’ve been very successful at it over the years.

Q - Robert Spingarn

A slight segue, but thinking about costs still, we’ve had some recent awards, and there has been a lot of discussion around some of these trainer comes to mind MQ-25, the human replacement. I’ve got this dynamic between best value versus an LPTA. This is something we’ve talked about a lot in the past. How – remind us how Northrop approaches this? And do you think there’s a risk that DoD swings too far with some of these – what seem to be price aggressive types of contracts that seem to carry a lot of risk?

Kenneth Bedingfield

My view on that would be that, I I view that DoD as being very thoughtful and how they set up their acquisition strategies. And when they see that they’ve got a broad array of competitors and it’s for a lower technology item like a trainer or a tanker, then they can potentially set up a strategy that might transfer a bit more risk to industry than to the government.

And that that’s a valid strategy in certain acquisitions. I think that’s what they did in some of the ones that you referenced. And we looked at those and just didn’t believe that they made sense for our company fixed price development without sort of significantly long production runs. It just didn’t make sense for us.

So we’ve actively made decisions to no bid the trainer and the MQ-25. But again, lower technology items, where we couldn’t bring as much of our technological innovation to bear to drive differentiation. As I look forward into other acquisitions, take GBSD as an example, we are actively pursuing GBSD. We intend to put a very credible and capable bid forward. And we believe that that’s one that would likely follow a different acquisition strategy and maybe one a bit more like one where we were successful in terms of the long range strategic bomber.

So, we feel very good about our ability to address what the customer’s needs are. There’s no cookie-cutter. They have different acquisition strategies for different technologies and different needs and different capacity and capabilities. And I think, they tend to think long and hard and come up with good strategies about how to acquire the different items that they need.

So I don’t have a lot of concern about it, to be honest. And I would just comment on the particular bids that you referenced. And for us, I would say, we decided to no bid the trainer, MQ-25 and also GPS 3. And so some folks have asked us, “How confident are you in your ability to grow when you’re no bidding these types of contracts”. And I would just say that, we take the investment that we would have made in those areas that we don’t believe work for us, the right decisions or would have created the profitable growth that we’re looking for. We take those potential investments and we apply them in other areas.

And we’ve continued to invest and I would say, things like the OPIR Polar opportunity and something that we put investment towards, and we’ve seen strong customer decisions in that regard. So we continue to invest. We move those dollars elsewhere and we grow in the right and profitable areas.

Robert Spingarn

What is your role on OPIR on Block 0?

Kenneth Bedingfield

I would say that, you saw we would receive the Sole Source Award on the Polar OPIR. And historically, we’ve been the payload provider on the SABR’s system, and we would be actively pursuing payload on next-gen OPIR.

Robert Spingarn

Okay. Does anybody in the room have a question? I guess, no. I’ll keep going. Let’s talk a little bit about some of the opportunities you have in front of you. You mentioned some throughout this discussion and perhaps we can separate into domestic and international some of the things that you’re focused on winning?

Kenneth Bedingfield

I can start and then Steve can add some color on some of the programs as well. But in terms of what we see in front of us, I would say, we’re in a good position where we have strong growth opportunities on both the domestic and the international side. Some folks have asked us about growing the percentage of our sales that are derived from international.

And I’ve reminded them that when both are growing, you may not see the percentage change, but we are nicely growing the business and which one moves faster kind of remains to be seen. But both domestic and international growth are a key part of the Northrop Grumman strategy.

I would say, Asia Pacific right now is probably the greatest opportunity for us from an international perspective. Global Hawk, we’re working on for Japan and Korea, Triton in Australia, E-2D in Japan, supporting Lockheed Martin with F-16 radar upgrades with the SABR radar. So a lot of opportunities internationally in Asia Pacific, as well as some other focus areas. Europe, we’ve got the NATO AGS Contract, opportunities in the United Kingdom.

And from a domestic perspective, I would say, GBSD would be kind of the biggest opportunity out there right now. But strong growth, continuing in the areas like autonomous systems, cyber, C4ISR, we certainly see a lot of growth coming out of the Kirkham product line, whether it’s Kirkham [indiscernible]or some of the other products in that product line. Did I miss anything, Steve?

Stephen Movius

No, it’s a bit of a frustration that a lot of the larger opportunities in our Aerospace Systems are restricted. Outside of GBSD and OPIR, I would say, the lion’s share of them are going to be different domains that restricted nonetheless. And in Mission Systems, as Ken mentioned, it’s more of a product line business. So the awards aren’t as big in the headlines as you might some of the other ones kind of roll off the tongue. But there’s a lot of opportunity in that world, because through advanced electronics, you can improve – material improve the capabilities of existing systems.

Kenneth Bedingfield

That’s a really good point, Steve. And I would just add that to Steve’s comment about restricted. We view the restricted portfolio within our company as likely growing faster than the unrestricted portfolio. So great point there, and it’s a really good business for us that unfortunately, we don’t get a lot of chance to talk about, but we have significant capabilities there. You might believe they are such that they will help the customer address their modernization needs and enable that business to grow faster than the rest of the portfolio.

Stephen Movius

The only other point I’d add is, we did note – specifically we talk about Innovation Systems opportunities. They have a lot of opportunities. You can just see the growth rate – the top line growth rate they’ve had over the last year. They tend to be smaller targets for the most part. Obviously, the EELV is a very large opportunity a couple of years out. But again, they tend to be smaller in nature, a little bit shorter cycle than heritage Northrop as well. So they, for example, their defense systems group, again, is probably the shortest cycle of the three and has had the fastest growth of the three units, top line growth in 2018.

Kenneth Bedingfield

Including significant international.

Stephen Movius

Yes, both domestic and international.

Robert Spingarn

On things like EELV, the launch business, there’s a lot of commercial competition there now. How did you guys look at that when you decided to take the plunge here with OA?

Kenneth Bedingfield

Look, we evaluated all of the business that OA had and now Northrop Grumman Innovation Systems has. And as we looked, we thought that they had made smart investments to drive their capabilities to where they can support the customer. And there are a number of players, to your point, in the launch business, but I think that NGIS has significant capability for the government customer and has carved out some nice areas, where it can focus on the capabilities of the customer, largely the government customer needs.

They’ve done it with their existing launch capabilities and they’re working really smartly to address the need that will be EELV, as Steve mentioned, with their OmegA solution. So we – as we studied it, we got very comfortable with the business areas that that Orbital ATK, now NGIS was in and is in, and we feel very good about their portfolio and how it fits into our overall portfolio.

Robert Spingarn

Okay. Switching over to aeronautics and airplanes, F-35, major program for you, want to get a sense of where you are relative to mature production? And clearly, the program seems fairly stable, the pricing is coming down. So just status on that and how we should think about the profile of that product line going forward?

Kenneth Bedingfield

Yes. From an F-35 perspective, I would say that, it’s reaching mature production. We are at 1.5-day production interval today. We’ve made investments in an automated production line that some folks may have visited in Palmdale. So we feel very good about our ability to drive efficiencies and meet the production schedules in F-35, whether it’s the schedule, whether it’s cost.

I feel like we’ve been performing very well. We’ve been driving down the cost curve. I think, we’re now working on Lot 12, Lot 11, 12 production. Certainly, working with Lockheed to continue to drive the success of that program.

Robert Spingarn

How do you deal with the contract timing things like Lot 12 and beyond, given Lockheed’s got to get their contracts done. You’ve got long leads and so forth. What are the mechanics of all that?

Kenneth Bedingfield

It’s not overly complicated, to be honest. I mean, we work with Lockheed to get on contract, to get negotiated to the extent that we need to. We can get long lead contracts and things like that. So it’s just a part of the process, no significant issues one way or the other.

We certainly work to make sure we’ve got appropriate terms and conditions that enable the partnership to be successful. So that together, the team, Lockheed Martin, Northrop Grumman, BAE can support the customers mission and enable the F-35 program to be as successful as it can be.

Robert Spingarn

It makes me think of a question, but I don’t want to direct it at F-35, but a much broader question on margins differences between prime and a supplier. Is that – is there a rule of thumb to that? Obviously, it’s going to vary depending on the product and so forth, but…?

Kenneth Bedingfield

I don’t think there’s a rule of thumb. I would say that, we’re a company that very much focuses on what is the right opportunity for us. So, largely, we are a prime contractor, probably 85% of our revenues come from prime contracts. But we are a subcontractor in many areas as well.

And we evaluate each opportunity and determine whether or not it’s something we would want to prime or something we would want to sub. And we’re happy to do either one and some of it depends on investment capacity and the number of opportunities that you can address at any point in time, risk and what your capabilities are.

So I don’t think there’s a rule of thumb. We’re happy to prime, we’re happy to sub, and largely margins are dependent on how you perform. Negotiate a good business deal, then perform well on your programs and try to drive margin improvements as you either develop development programs or produce some production programs.

Robert Spingarn

I’ve got a couple more. I’m going to try to get to in these last couple of minutes. One is, with F-35 stabilizing at a sort of a mature level F-18, I guess, it’s somewhere within the range of the end of its run. What are your aspirations on sixth gen?

Kenneth Bedingfield

I don’t know that I would want to comment significantly on where we are with respect to that particular opportunity. I would just say that, this is a company that has significant capabilities in that area and we would continue to evaluate what the best way to address that opportunity would be.

Robert Spingarn

Clearly, it won’t be a trainer.

Kenneth Bedingfield

Absolutely.

Q - Robert Spingarn

I’d imagine that’s value my work there. Just quickly a couple of financial things. On pension, we’ve seen others talk about CAS recoveries coming down over time somewhat significantly over the next few years. Can you refresh us or remind us when that happens for Northrop? And how you continue to grow free cash flow during that – against that headwind, if you will?

Kenneth Bedingfield

I would say that, CAS is going to be coming down a little bit. Certainly, we have seen 2018 where market returns haven’t been quite where our long-term estimated return rate is. That will tend to add a little bit to CAS. We see CAS being kind of stable through the mid-2020s. And in most years, I think, no, I should say in all years in excess of our required funding on our qualified plans.

The most important thing I can say about CAS is that, we’ve invested in our pension plans to drive them to a place where they are the best funded pension plans in the industry. And relative to our peers, we have the lowest CAS cost, which you bid into your programs and you recover on your programs. And therefore, we can be more competitive, because we have significantly lower CAS cost than some of our peers. So we view that as a competitive advantage that will enable us to do things like invest more in R&D and we’re in more of those competitive programs as we look forward.

Robert Spingarn

That was our reminder that we’re done. Just real quick one on the buyback. You were obviously opportunistic here with the accelerated buyback. Do you think over time, especially if the group continues doing, relative that you would see some kind of a change in the longer-term relative mix of buyback versus dividend?

Kenneth Bedingfield

Yes. I would say, our strategy remains the same from a dividend buyback perspective and really from a broader capital deployment perspective. First and foremost, invest in the business and we’ve been doing that from a CapEx perspective and driving the profitable growth.

Certainly, M&A with the Orbital ATK acquisition, funding the pension plans, we put some voluntary funding in last year and this year. And then paying a competitive dividend, we still think of that as the – as just kind of the same way we have and another 30% to 40% range of economic earnings or pension adjusted earnings, and then share repurchase being kind of the ability to use excess cash after you do all of that to continue to drive value creation.

And we did that this year. I was very proud of our team. We not only closed on a significant acquisition, paid off their debt, paid off our debt that was due that year, got back in the repurchase market two days after the acquisition closed and then executed on a $1 billion ASR later in the year. So we’ve been very active, and I’m proud of the way our team has been able to drive value, create value through capital deployment.

Robert Spingarn

Well, I think, that’s a good place to stop.

Kenneth Bedingfield

All right. Thank you so much.

Stephen Movius

Thank you, Rob.

Question-and-Answer Session

Q -