northrop grumman overview july 2014 (1)
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Corporation
Jul 2014
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The Northrop Grumman Value Proposition
PerformancePerformance
Northrop GrummanNorthrop Grummana ue ropos ona ue ropos on
PortfolioPortfolio
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Northrop Grumman Today
AirForce
Intl/
FMS
Comml/
S&L
4% Leading global security company
2014E Sales
USNavy
22%
OtherUSGovt.
11%
Army
7%
$35.6 billion total backlog (6/30/14)
Leading capabilities in:
Restricted
22% C4ISR >45%
Unmanned >10%
Cyber / Logistics / Strike Aircraft ~30% 2014E Sales by Sector Other
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Aerospace Systems
Large scale provider of manned and unmanned aircraft,
and space systems
2013 Sales
Space
Other
3%
arge, ong- erm ranc se programs
Manned: F-35, E-2D, F/A-18, EA-18G, B-2, JSTARS
Unmanned: Global Hawk, NATO AGS, Triton, N-UCAS,
MilitaryAircraft
44%
Systems
26%
2013 Customer Contract Mix
Space: AEHF, JWST
Restricted
Unmanned
Systems
27%
FixedCost
ec no og ca y eren a e compe or
Autonomous vehicle & sensor operations, advancedmaterials, stealth & survivability, secure communications,directed energy
42%58% 2013 Sales: $10 Bill ion
Total backlog: $16.7 Bill ion (6/30/14)
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Electronic Systems
Strong core ISR sensor capabil ities &
information processing position
2013 Sales
Naval&
Other
6%
rong g o a p a orm pos ons
Radar, electronic warfare, infraredcountermeasures
ISR&
Targeting42%
Marine
22%
,space to undersea
International presence 2013 Customer Contract Mix
Protection
30%
Fixed
Cost
38%
ec no og ca y eren a e compe or w
world class manufacturing capabili ty
2013 Sales: $7.1 Bill ion
Total backlog: $9.6 Bill ion (6/30/14)
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Information Systems
Tier-one systems provider in Defense, Intelligence, and
Civil markets
2013 Sales
Federal
&
Air, land and sea Command and Control IntegratedAir and Missile Defense Systems
Leading aircraft Communications and airborne
Solutions
25%
Intelligence
Systems
Defense
Technologies
22%
gateways
Full spectrum of Cyber capabilities
Air and space ISR payload and processing systems 2013 Customer Contract Mix
Defense
Systems
34%
19%
Fixed
42%Cost
Shortest cycle business
2013 Sales: $6.6 Bill ion
Total backlog: $6.7 Bil lion (6/30/14)
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Global Network
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Technical Services
Highly competitive, agile and responsive
logistics & modernization organization
2013 Sales
Mission
Solutions&
Readiness
33%
Integrated
Logistics
&
Modernization
67%
Growing share of logistics market KC-10, A-10, EA PUP
ra n ng an s mu at on
U.S. Army Battle Combat Training Program
2013 Sales: 2.8 Billion2013 Customer Contract Mix
Fixed
43%Cost
Total backlog: $2.6 Billion (6/30/14)
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2013 Highlights
Strong performance
Met or exceeded guidance for every metric
7% EPS increase
5% increase in pension-adjusted EPS(1)
1.
$2.8 billion cash from operations before discretionary pensioncontribution(1)
$2.4 billion free cash flow before discretionary pension contribution(1)
~and dividends
9(1) Non-GAAP metric as defined and reconciled in the Appendix of this presentation
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Q2 2014 Highlights
EPS increase 16% to $2.37
Strong segment operating margin rate
EPS uidance ran e increased to $9.15 - $9.35
$572M cash from operations; $456M free cash flow1
6.1M shares repurchased for $741M; 10.9M shares repurchased YTDfor $1.3B
. s ares purc ase owar goa , >
$35.6B total backlog; $5.3B new awards
10(1) Non-GAAP metric as defined and reconciled in the Appendix of this presentation
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2014 Guidance
Current 7/23/14 Prior 4/23/14
Sales ($B) 23.5 23.8 23.5 23.8
egmen opera ng marg n ra e ow ~
Operating margin rate Low 13% ~13%
EPS from continuing operations $9.15 - $9.35 $8.90 - $9.15
Cash rovided b o erations $B 2.3 2.6 2.3 2.6
Free cash flow ($B)(1) 1.7 2.0 1.7 2.0
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(1) Non-GAAP metric as defined in the Appendix of this presentation
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2014 Sector Guidance Summary
Sector Sales ($B) OM Rate %
Aerospace Systems 9.7 9.9 ~12%
Electronic Systems 6.8 7.0 Low to mid 15%
Information Systems 6.1 6.2 High 9%
Technical Services ~2.7 ~9%
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EPS Bridge
2013 Actual $8.35
Sales volume (0.40) (0.30)
Segment margin rate (0.30) (0.20)
Pension Income ~0.80
Share count ~0.85
Interest, taxes & other ~(0.15)
. .
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Cash from Operations Bridge
2013 Actual ( M) 2,483
Tax-affected pension pre-funding ~300
Segment operating margin ~(200)
Interest expense/Stock compensation ~(200)
Working Capital (100) - 100
Other 0 - 100
2014 Guidance ($M) 2,300 2,600
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Performance & Cash DeploymentDrive EPS Growth
$7.41$7.81
$8.35
$7.47$7.88
$8.00
$9.00
$6.32
$4.91
$6.30 $6.49
$6.00$7.00
$2.98
$4.44
$2.46$3.00
$4.00
5.00
$1.00
$2.00
*
.
2008 2009 2010 2011 2012 2013
EPS PensionadjusteddilutedEPS
*
1
15
* Including impact of $570 million goodwill impairment charge
(1) Non-GAAP metric as defined and reconciled in the Appendix of this presentation
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Operating Margin % by Sector
17.1% 17.1%18%
12.6%
13.4%
12.2%
14.5%
12.2%
14%
10.0%
11.6%
9.0%9.7%
10.3%
8.9%
.
9.6% 9.2%10%
12%
7.3% 7.4%
6.7%
8.1%
6%
8%
* *
4%
AS ES IS TS
2009 2010 2011 2012 2013
16NORTHROP GRUMMAN PRIVATE/PROPRIETARY LEVEL I
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Continued Focus on Cash Conversion
Free Cash Flow(1) / Earnings from Continuing Operations (2)
140%
125%
106%
120% 126% 125%
2008 2009 2010 2011 2012 2013
FCF/NI
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(1) Non-GAAP metric: free cash flow before impact of after-tax discretionary pension contributions defined and reconciled in
appendix of this presentation(2) 2008 Earnings from continuing operations before $570 million goodwill impairment charge
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Consistent Return of Cash to Shareholders
$2,500
$3,000
300
350
98%
153%
Cash Generation & Deployment
327
Shares Outstanding138%
$500
$1,000
$1,500
$2,000
100
150
200
33% Reduction in number of netshares outstanding since 2008
113% 117%
218
80%
2008 2009 2010 2011 2012 2013
FreeCashFlowfromContinuingOperations
AftertaxDiscretionaryPensionContributions
ShareRepurchasesandDividends
0
50
2008 2009 2010 2011 2012 2013
1
$2.00
$2.50
.
Average of 116% of reported FCF1 distributed toshareholders
At least $1.6 billion distributed annually to
Annualized Div idend.
$1.60
$0.50
$1.00
$1.50
,
pension contributions
15% quarterly dividend increase to $0.70 per share inMay 2014
75% increase - 9% CAGR
$0.00
2008 2009 2010 2011 2012 2013 2014
.
8% reduction in 2013 weighted average dilutedshares outstanding
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The Northrop Grumman Value Proposition
PerformancePerformance
Northrop GrummanNorthrop Grumman
a ue ropos ona ue ropos on
PortfolioPortfolio
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2014 Pension Assumptions
2014 2013
Discount Rate (%) 4.99 4.12
. .
Discretionary Funding ($M) 0 500
Net FAS / CAS Adjustment ($M) 440 168
CAS ($M) 555 542
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FAS ($M) (115) (374)
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Non-GAAP Definitions & Reconciliations
Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pensionadjustment per share, as defined below. These per share amounts are provided for consistency and comparability of operating results.Management uses pension-adjusted diluted EPS from continuing operations as an internal measure of financial performance.
segments under U.S. Government Cost Accounting Standards (CAS).
After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at thestatutory rate of 35%, provided for consistency and comparability of 2012 and 2011 financial performance.
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Non-GAAP Reconciliations Pension-AdjustedEPS from Continuing Operations
in millions, except EPS 2013 2012 2011 2010 2009 2008
pera ng ncome , , , , , ,
Net Pension Adjustment (168) (132) (400) (10) 237 (272)Pension adjusted Operating Income 2,955$ 2,998$ 2,876$ 2,817$ 2,511$ 1,804$
EPS from continuing operations 8.35 7.81$ 7.41$ 6.32$ 4.44$ 2.98$
Goodwill impairment charge 1.67
4.65
After-tax net pension adjustment per share (0.47) (0.34) (0.92) (0.02) 0.48 (0.52)
Pension adjusted EPS 7.88$ 7.47$ 6.49$ 6.30$ 4.92$ 4.13$
Weighted avg. shares diluted 233.9 253.4 281.6 301.1 323.3 341.6
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Non-GAAP Reconciliations Pension-adjustedCash Metrics
($ millions) 2013 2012 2011 2010 2009 2008
discretionary pension contributions1
2,806$ 2,833$ 2,995$ 2,595$ 2,328$ 2,796$After-tax discretionary pension pre-funding impact (323) (193) (648) (539) (333) (91)
Cash provided by continuing operations 2,483$ 2,640$ 2,347$ 2,056$ 1,995$ 2,705$
Less:
Capital expenditures (364) (331) (488) (579) (473) (463)
Outsourcing contract & related software costs - - (4) (6) (68) (110)1 , , , , , ,
After-tax discretionary pension pre-funding impact 323 193 648 539 333 91
Pension-adjusted free cash flow from continuing
operations1 2,442$ 2,502$ 2,503$ 2,010$ 1,787$ 2,223$
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Non-GAAP Reconciliations Segment Operating Income
Fourth Quarter Twelve Months
$ millions 2013 2012 2013 2012
Sales $ 6,157 $ 6,476 $ 24,661 $ 25,218
, ,
Segment operating margin rate 12.5% 13.5% 12.5% 12.6%
Reconciliation to operating income
Net FAS/CAS pension adjustment $ 43 $ 31 $ 168 $ 132
Unallocated corporate expenses (46) (79) (119) (168)
Other (1) (3) (6) (10)
, ,
Operating margin rate 12.5% 12.7% 12.7% 12.4%
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Non-GAAP Reconciliations Free Cash Flow
Second Quarter Six Months
$ millions 2014 2013 2014 2013Cashprovided by operating activities beforediscretionary pension contributions $ 572 $ 740 $ 170 $ 741
After-tax discretionary pension pre-funding impact -- (412) -- (412)
Net cashprovided by operating activities $ 572 $ 328 $ 170 $ 329
Less:
Ca ital Ex enditures 116 48 176 88
Free cash flow $ 456 $ 280 $ (6) $ 241
After-Tax discretionarypension pre-funding impact -- 412 -- 412
Free cash flowprovided by (used in) operatingactivities before discretionary pension contributions $ 456 $ 692 $ (6) $ 653
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