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Copyright 2005 Northrop Grumman Corporation1
Overview and Strategic Perspective2005 Institutional Investor Conference
March 24, 2005
Ron SugarChairman, CEO and PresidentNorthrop Grumman Corporation
Copyright 2005 Northrop Grumman Corporation2
Agenda
Vision and StrategyNorthrop Grumman TodayMarket OutlookFocus on Performance
Copyright 2005 Northrop Grumman Corporation3
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
Copyright 2005 Northrop Grumman Corporation4
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
Copyright 2005 Northrop Grumman Corporation5
Northrop Grumman Business Strategy
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
Copyright 2005 Northrop Grumman Corporation6
Northrop Grumman Business Strategy
Perform and grow in core Defense and Intelligence markets
Leverage core competencies to expand in broader government markets
Drive shareholder value growth
Capitalize on rich expertise and talent inside the companyExtend domain knowledgeAlign with long-term market directions
Copyright 2005 Northrop Grumman Corporation7
Expand operating margins Drive cash generationEnhance operating efficienciesLeverage procurement scale Strong credit profileShare repurchasesDividends Value-enhancing MA&D
Northrop Grumman Business Strategy
Perform and grow in core Defense and Intelligence markets
Leverage core competencies to expand in broader government markets
Drive shareholder value growth
Copyright 2005 Northrop Grumman Corporation8
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
Copyright 2005 Northrop Grumman Corporation9
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
Copyright 2005 Northrop Grumman Corporation10
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
Copyright 2005 Northrop Grumman Corporation11
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
Copyright 2005 Northrop Grumman Corporation12
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
Copyright 2005 Northrop Grumman Corporation13
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
Copyright 2005 Northrop Grumman Corporation14
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
Copyright 2005 Northrop Grumman Corporation15
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
Copyright 2005 Northrop Grumman Corporation16
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
Copyright 2005 Northrop Grumman Corporation17
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
Copyright 2005 Northrop Grumman Corporation18
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
Copyright 2005 Northrop Grumman Corporation19
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
Copyright 2005 Northrop Grumman Corporation20
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
Copyright 2005 Northrop Grumman Corporation21
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
Copyright 2005 Northrop Grumman Corporation22
Key Recent Corporate-Wide Wins
J-UCAS
BMC2
NATO AGS
NETCENTS
Prometheus / JIMO
Restricted programs
Command Post Platform
Copyright 2005 Northrop Grumman Corporation23
Growth: Collaboration = Opportunities
Cross-SectorCollaborationExamples
Runitel CVN 21 DDX / Deepwater
BMC2 /MPRTIP
HomelandSecurity
Space RadarKEI
ElectronicSystems
InformationTechnology
MissionSystems
IntegratedSystems
NewportNews
ShipSystems
SpaceTechnology
Access to Technologies, Capabilities and Domain KnowledgeAccess to Technologies, Capabilities and Domain Knowledge
Copyright 2005 Northrop Grumman Corporation24
Operating Priorities for 2005
Program and financial performance
Competitiveness and growth
People development and diversity
Integrity
Copyright 2005 Northrop Grumman Corporation25
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
Copyright 2005 Northrop Grumman Corporation26
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
Copyright 2005 Northrop Grumman Corporation27
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
Copyright 2005 Northrop Grumman Corporation28
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
InformationTechnology
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
Copyright 2005 Northrop Grumman Corporation29
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