overview and strategic perspective - iis windows...

Copyright 2005 Northrop Grumman Corporation1

Overview and Strategic Perspective2005 Institutional Investor Conference

March 24, 2005

Ron SugarChairman, CEO and PresidentNorthrop Grumman Corporation


Agenda

Vision and StrategyNorthrop Grumman TodayMarket OutlookFocus on Performance


Northrop Grumman Vision

Be the Most Trusted National Security Provider

Customers’provider of choiceIndustry’s employer of choiceShareholders’ investment of choice

Creating Value Through People and TechnologyCreating Value Through People and Technology


Perform and grow in core Defense and Intelligence marketsLeverage core competencies to expand in broader government marketsDrive shareholder value growth

Northrop Grumman Business Strategy

D e f i n i n g t h e F u t u r eD e f i n i n g t h e F u t u r e



Perform and grow in core Defense and Intelligence markets

Leverage core competencies to expand in broader government markets

Drive shareholder value growth

Perform on current programsAnticipate QDRImprove businesscapture processInvest in enabling technologiesLeverage scale and presenceCollaborate cross-sectorDevelop leadership team






Capitalize on rich expertise and talent inside the companyExtend domain knowledgeAlign with long-term market directions


Expand operating margins Drive cash generationEnhance operating efficienciesLeverage procurement scale Strong credit profileShare repurchasesDividends Value-enhancing MA&D






Northrop Grumman Today

125,000+ people, 50 states, 25 countriesOne of the top three U.S.defense contractorsA company with leading capabilities in:

Systems integrationC4ISR and battle managementInformation technology and networksDefense electronics Naval shipbuildingSpace and missile defense

Focus on PerformanceFocus on Performance


Solid defense and national security budget environment

High priority program portfolio

Sustained organic growth

Targeting best execution in class by every measure

Focus on shareholder returns

Well Positioned in Current Environment

Portfolio Aligned with National Security TrendsPortfolio Aligned with National Security Trends


Balanced, Diversified Portfolio

2004 Revenues $29.9B

By Sector

Electronic Systems20%

Ships21%

InformationTechnology

16%

IntegratedSystems

16%MissionSystems

16%

SpaceTechnology11%

By Customer

Air Force20%

U.S.Comm’l

5%

Int’l5%

Navy35%

Army5%

Other DoD

9%

Other Gov’t

21%

By Customer


Positioned for Predictable Growth

U.S. Focused Growth

Healthy Long Term Mix

Balanced Risk

Solid Pipeline

Balanced Risk

Solid Pipeline

Balanced Risk

0

10

20

30

40

2004A 2005E 2006E

Domestic International

U.S. Focused Growth

0

10

20

30

40

2004A 2005E 2006E

FFP FPI Cost plus/other

Balanced Risk

0

10

20

30

40

2004A 2005E 2006E

Firm Unfunded Follow-On New Business

Solid Pipeline

U.S. Focused Growth0

10

20

30

40

2004A 2005E 2006E

Production Development

Healthy long-term mix

Funded Unfunded


Market Assessment

Defense growing, but at a slightly slower rate

NOC programs are adequately funded to support plans

Some challenges in the out years

DD(X) acquisition strategy uncertain

NOC competencies match evolving national security priorities

Non-DoD opportunities

Threats to National Security Threats to National Security are Not Diminishingare Not Diminishing


DoD Investment AccountsRDT&E & Procurement

Source: FY06 DoD Budget Request

Slower but Substantial Growth in InvestmentsSlower but Substantial Growth in Investments

100

110

120

130

140

150

160

170

180

190

FY05 FY06 FY07 FY08 FY09

FY05 Budget Request

FY06 Budget Request

$ B

illio

ns

6.9%

6.4%

CAGR


Intelligence Funding

Source: CIA Press Release, March 20, 1998; Defense Daily, December 1, 2003

NOC is a Major Player in the Intelligence MarketNOC is a Major Player in the Intelligence Market

FY98 FY04 FY09

$26.7 B

~$40 B

~$60 B


TransformationTransformation

Conventional Wisdom

Heavy Ground Forces

Forward Deployment

Large Foreign Bases

Service Stovepipes

Manned

Platform Centric

Stand Alone Capabilities

Rapidly Deployable Ground Forces

Assured Access

Sea Basing

Joint Operations

Unmanned

Network Centric

Layered Capabilities

What’s OutWhat’s OutWhat’s Out What’s InWhat’s InWhat’s In


E X P A N D I N G N A T I O N A L S E C U R I T Y D O M A I NTRANSPORTATION ENERGY LAW ENFORCEMENT PUBLIC HEALTH FINANCIAL STATE/LOCAL

Broader National Security NeedsThe evolving threat environment will ultimately require a new security paradigm to protect the homeland

Capabilities to Coordinate Activities Between AgenciesCapabilities to Coordinate Activities Between Agenciesare Required to Combat Threats at Home and Abroadare Required to Combat Threats at Home and Abroad


Priorities in the National Defense Strategy

Networked Surveillance, Reconnaissance & Command & Control

Intelligence

Strategic Offense and Defense

Modular Ground Forces

Assured Access

All NOC CompetenciesAll NOC Competencies


Pipeline to Fulfill Highest National Security Priorities

Deepwater, Counter-MANPADS, Infrastructure protection

Deepwater, Counter-MANPADS, Infrastructure protection

Homeland SecurityHomeland Security

CVN21, EA-18, F-35, DD(X), LPD, LHA(R), LAIRCM, JUCAS

CVN21, EA-18, F-35, DD(X), LPD, LHA(R), LAIRCM, JUCAS

Assured AccessAssured Access

FCS, Fire Scout, Directed Energy Weapons, CPPFCS, Fire Scout, Directed Energy Weapons, CPP

Modular GroundForcesModular GroundForces

KEI, STSS, SBIRS, Laser Weapons, JNIC, CVN21KEI, STSS, SBIRS, Laser Weapons, JNIC, CVN21

Strategic Offense& DefenseStrategic Offense& Defense

RestrictedRestrictedIntelligenceIntelligence

E-10, E-2D, Global Hawk, Restricted, Space RadarE-10, E-2D, Global Hawk, Restricted, Space Radar

JSTARS, E-2C, AWACS, Hunter, SatellitesJSTARS, E-2C, AWACS, Hunter, Satellites

Next GenerationCurrent ProgramsPriorities

Networked Surveillance, Reconnaissance and Command & Control

Networked Surveillance, Reconnaissance and Command & Control

RestrictedRestricted

B-2, CVN77, EA-6B, F/A-18, DDG-51, LHDB-2, CVN77, EA-6B, F/A-18, DDG-51, LHD

FBCB2, Hunter, Fire Control, QRC FBCB2, Hunter, Fire Control, QRC

ICBM, Mid-Course, B-2,DSP, CVN77ICBM, Mid-Course, B-2,DSP, CVN77

USPS Bio Detection,DHS TEAMS, HLS Data Network

USPS Bio Detection,DHS TEAMS, HLS Data Network


Expanded Government IT Opportunity Space

NOC positioned to expand reach into high growth government IT markets

Healthcare ITOutsourcing/Managed servicesLarge-scale enterprise integrationIntegrated security systems (cyber, physical)ERP implementation and deploymentOther support services


0

10

20

30

40

2002 2003 2004

$BSales

0

2.5

5

7.5

10

2002 2003 2004

$B

Net Debt

0.0

0.5

1.0

1.5

2.0

2.5

2002 2003 2004

$B

Cash from Ops

*

* Non-GAAP: Adjusted for $1B B-2 tax payment

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2002 2003 2004

$

EPS

NOC Track Record – Focus on Performance


Program Priorities for 2004 – Report Card

SBIRSLPDDD(X)DeepwaterPolar TankerCarriersSubmarinesF-35Advanced HawkeyeGlobal HawkNPOESSKEI

– Wedgetail– F-16 Block 60

J-UCASE-10A/BMC2Commercial LAIRCMHomeland SecurityNATO AGS NETCENTS

– Aerial Common Sensor– International

Transformational Communications SystemSpace RadarBroad Area Maritime Surveillance

Operating Focus New Opportunities


Key Recent Corporate-Wide Wins

J-UCAS

BMC2

NATO AGS

NETCENTS

Prometheus / JIMO

Restricted programs

Command Post Platform


Growth: Collaboration = Opportunities

Cross-SectorCollaborationExamples

Runitel CVN 21 DDX / Deepwater

BMC2 /MPRTIP

HomelandSecurity

Space RadarKEI

ElectronicSystems


MissionSystems

IntegratedSystems

NewportNews

ShipSystems

SpaceTechnology

Access to Technologies, Capabilities and Domain KnowledgeAccess to Technologies, Capabilities and Domain Knowledge


Operating Priorities for 2005

Program and financial performance

Competitiveness and growth

People development and diversity

Integrity


Program Priorities for 2005

CarriersVirginia ClassLPDDeepwaterGlobal HawkE-2DF-35NPOESSSBIRSICBMKEIRestrictedF-16 Block 60Wedgetail

Space RadarTransformational CommsRestrictedDD(X)/CG(X)LHA(R)EurohawkCrew Exploration VehicleBAMSAOC-Lead Systems IntegratorER/MPJNICDHS OneAmerican ShieldCommercial LAIRCM

Operating Focus New Opportunities


ACE – Achieving Competitive Excellence

Create flexibilityto enable quick response to market shifts

Leverage the strength of the Company’s portfolio

Drive a more competitive cost structure

Achieving Competitive Excellence

(ACE)

• 10 initiatives aimed at enterprise-wide continuous improvement

• Each team led by a senior corporate executive

• Conducting robust assessment to identify improvement opportunities

• Comprehensive benchmarking analyses both with Industry peers & 1st tier companies in/out of Industry

• Targeting improvements to bottom line performance, capital efficiency and top line growth


Sustained growthProgram portfolioCollaborationFocus on competitiveness

Superb execution ProgramFinancialProactive risk management

Focus on shareholder returnsCompensation tied to value growth Authorized share repurchaseIncreased dividend

What You Should Expect from NOC…

Making a Good Company GreatMaking a Good Company Great


Proven Leadership and ExpertiseProven Leadership and Expertise

Northrop Grumman Senior Management Team

Ron SugarChairman, CEO& President

Bob IorizzoCorp VP & President

Electronic Systems

Jim O’NeillCorp VP & President


Phil DurCorp VP & President

ShipSystems

MissionSystems

Don WinterCorp VP & President

Scott SeymourCorp VP & President

Integrated Systems

Burks TerryCorp VP &

General Counsel

Law

Wes BushCorp VP & CFO

Finance

Mike HateleyCorp VP & Chief

HR & Admin Officer

HR &Administration

Bob HelmCorp VP

GovernmentRelations

Rosanne O'BrienCorp VP

Communications

Al MyersCorp VP

Strategy andTechnology

C. Michael Petters Corp VP & President

NewportNews

Space Technology

Alexis LivanosCorp VP & President

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