northrop grumman ships
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Copyright 2006 Northrop Grumman Corporation0
Northrop Grumman 2006 Institutional Investor Conference
November 9, 2006
Gaston KentVice President, Investor RelationsNorthrop Grumman Corporation
Copyright 2006 Northrop Grumman Corporation1
Certain statements and assumptions in these presentations and materials contain or are based on “forward-looking” information. Such “forward-looking” information includes, among other things, projected deliveries,expected funding for various programs, future effective income tax rates, financial guidance and estimated amounts regarding sales, segment operating margin, pension expense, employer contributions under pension plans and medical and life benefits plans, cash flow and earnings per share, and is subject to numerous assumptions and uncertainties, many of which are outside Northrop Grumman’s control. These include Northrop Grumman’s assumptions with respect to future revenues, expected program performance and cash flows, returns on pension plan assets and variability of pension actuarial and related assumptions, the outcome of litigation and appeals, environmental remediation, divestitures of businesses, successful reduction of debt, successful negotiation of contracts with labor unions, effective tax rates and timing and amounts of tax payments, and anticipated costs of capital investments, among other things. Northrop Grumman’s operations are subject to various additional risks and uncertainties resulting from its position as a supplier, either directly or as subcontractor or team member, to the U.S. Government and its agencies as well as to foreign governments and agencies; actual outcomes are dependent upon various factors, including, without limitation, Northrop Grumman’s successful performance of internal plans; government customers’ budgetary constraints; customer changes in short-range and long-range plans; domestic and international competition in both the defense and commercial areas; product performance; continued development and acceptance of new products and, in connection with any fixed price development programs, controlling cost growth in meeting production specifications and delivery rates; performance issues with key suppliers and subcontractors; government import and export policies; acquisition or termination of government contracts; the outcome of political and legal processes and of the assertion or prosecution of potential substantial claims by or on behalf of a U.S. government customer; natural disasters, and any associated amounts and timing of recoveries under insurance contracts, availability of materials and supplies, continuation of the supply chain, contractual performance relief and the application of cost sharing terms, impacts of timing of cash receipts and the availability of other mitigating elements; terrorist acts; legal, financial and governmental risks related to international transactions and global needs for military aircraft, military and civilian electronic systems and support, information technology, naval vessels, space systems, technical services and related technologies, as well as other economic, political and technological risks and uncertainties and other risk factors set out in Northrop Grumman’s filings from time to time with the Securities and Exchange Commission, including, without limitation, Northrop Grumman reports on Form 10-K and Form 10-Q.
Safe Harbor Statement
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Presentation Format
GuidanceEffective 1/1/07 Radio Systems business will be transferred from Space Technology to Mission SystemsReported results for Q4 2006 & Full Year 2006 will not reflect the transferGuidance does not reflect the changeGuidance does not include Essex
Segment results 2003 - 2005Presented on a pro forma basis reflecting
Previously announced organizational realignmentsTransfer of Radio Systems businessAdoption of dual-margin recognition on inter-segment sales
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The Leadership Team
Bob HelmCorp VP
Bus Dev &Govt Relations
Jim O’NeillCorp VP & President
InformationTechnology
MissionSystems
Jerry AgeeCorp VP & President
Jim CameronCorp VP & President
TechnicalServices
Information & Services
Jim PittsCorp VP & President
Electronic Systems
Electronics
Mike PettersCorp VP & President
NewportNews
Phil TeelCorp VP & President
ShipSystems
Ships
Burks TerryCorp VP &
General Counsel
Law
Ian ZiskinCorp VP & Chief
HR & Admin Officer
HR &Administration
Rosanne O'BrienCorp VP
Communications
Space Technology
Alexis LivanosCorp VP & President
Scott SeymourCorp VP & President
Integrated Systems
Aerospace
Ron SugarChairman & CEO
Wes BushPresident& CFO
The Right Team For Our StrategyThe Right Team For Our Strategy
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Ships
Operating Margin
1 Non-GAAP Metric - see reconciliation and definition on pages 25 & 262 Dependent on long-term business mix
9+High 8Low 8Total Operating Margin
~10Low 9Low 9Segment OM1
9+Mid 8~7Ships
~12High 11Mid to High 11Electronics
9-10~9Low 9Aerospace
8-9~8Low 8Information & Services
Operating Margin %
Long-TermMargin
Opportunity2
2007E2006E
$31-32~$30.2Total
~10%~$5Ships
~5%~$6.6Electronics
~(5)%~$9Aerospace
8-10%~$11I & S
2006E ($B) 2007EGrowth
Growth
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Ship Systems Overview
November 9, 2006
Philip TeelPresidentNorthrop Grumman Ship Systems
Institutional Investor’s Conference
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Ship Systems at a Glance. . .
$3B – 2005 Sales17,000 employeesThree primary operating locationsSole designer, builder of large deck amphibs and next generation Coast Guard fleetSurface combatants co-design and constructionPrimary customers: U.S. Navy & U.S. Coast GuardKatrina recovery proceeding on schedule
$5.3B Total Backlog$5.3B Total Backlog
Expeditionary Warfare
58%
Surface Combatants
32%
Commercial& Other
2%
Coast Guard & Coastal Defense
8%
2006E Sales2006E Sales2006E Sales
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KatrinaKatrina
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Katrina . . . Impact
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Katrina . . . Impact
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Katrina . . . Impact
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Katrina . . . Impact
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Katrina . . . Impact
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LPD 17 Sail Away . . . November 28, 2005
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DDG 98 Sail Away . . . December 17, 2005
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LPD 20 Float Off . . . August 11, 2006
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LHD 8 Float Off . . . September 22, 2006
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NSC 1 Float Off . . . September 29, 2006
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LPD 18 Sea Trials . . . October 23, 2006
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Production/Support Contracts
Surface CombatantsArleigh Burke Class (5 x DDG 51)
AmphibsWASP Class (1 x LHD 8)San Antonio Class (6 x LPD 17)
Coast GuardNational Security Cutter (3 x NSC)
Fleet Support
Future Pursuits
Surface CombatantsCruiser (CG(X)
AmphibsMaritime Pre-position Force Future (MPF(F)
Coastal DefenseInternational
Transition Current Platforms to New Missions with Increased NOC Content
In Development
Surface CombatantsZumwalt Class (DDG 1000)
AmphibsLarge Deck Amphibs (LHA 6)
Coast GuardUSCG Deepwater
Fast Response Cutters (FRC)
LPD DDG 1000 CG(X)
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Performance Improvement Strategies
Drives OM and Cash from Operations Improvements
Ship Schedules J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
DDG 103 105 107 110DDG 1000 DH DDG 1000 Delivery 2012
LPD 18 19 20 21 22 23 24LHD 8/LHA 6 8 LHA 6 Delivery 2012
NSC 1 2 3 4 5FRC 1
Indicates Ships Under Construction at the Time of Katrina
2007 2008 2009 2010 20112007 20082007 20082007 2008
PeopleRetention &
Development ofWorkforce
Value Stream CentricOrganization
Facility
Shipyard Recovery
ShipyardRegeneration
Tools and ProcessProcess Maturity &
Improvement
Improving Quality
EnablingTechnology
Production Support
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Business Base2007 2008 2009 2010 2011
Surface CombatantsDDG 103DDG 105DDG 107DDG 110DDG 1000DDG 1001 Deckhouse
Expeditionary WarfareLPD 18LPD 19LPD 20LPD 21LPD 22LPD 23LPD 24LPD 25LHD 8LHA 6
Coast GuardNSC 1NSC 2NSC 3NSC 4NSC 5FRC 1FRC 2
Current Schedule
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Focus on Performance
Sales Drivers:Katrina…full recovery in 2007LHA 6 and DDG 1000 constructionCoast Guard NSC production
Margin Expansion:Post Katrina vs KatrinaRegeneration & process focus
Cash Generation:Driving Working Capital improvementsCap-ex reduces post Katrina recovery
Sales ($M) and Op Margin as % of Sales
0
1,000
2,000
3,000
4,000
2003 2004 2005
0%2%
4%6%
8%10%
Sales OM % Pre-K OM %
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Summary: Focus on Affordability and Shareholder Return
Strategic FocusImproved affordability
Reduce cost to produceModify current designs for expanded missions
Leverage broader company capabilities to increase NOC content
Operating FocusPeople, process, and facility investments linked to ship by ship improvement plans
Financial PerformanceKatrina recovery and regenerationContracts with acceptable risk profiles and cash terms
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Newport News Overview
November 9, 2006
Mike PettersPresidentNorthrop Grumman Newport News
2006 Institutional Investor Conference
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Newport News ... Delivering Naval Superiority
$2.9B – 2005 Sales19,200 employeesThree Primary Operating LocationsSole Designer, Builder, and Refueler of Nuclear-Powered Aircraft CarriersOne of Two Companies Capable of Designing and Building Nuclear-Powered SubmarinesSubstantial After-Market Business PortfolioQuality Earnings Delivering Stable Cash Flow
$7B Total Backlog$7B Total Backlog
2006E Sales
Submarines28%
Services & Other3%
CarrierConstruction
43%Carrier
Refueling &Overhaul
26%
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Business Base2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Carrier ConstructionREAGAN (CVN 76)BUSH (CVN 77)CVN 78CVN 79
Submarine ConstructionVIRGINIA (SSN 774)TEXAS (SSN 775)HAWAII (SSN 776)NORTH CAROLINA (SSN 777)NEW HAMPSHIRE (SSN 778)NEW MEXICO (SSN 779)SSN 780SSN 781SSN 782SSN 783VCS 11VCS 12VCS 13VCS 14VCS 15VCS 16
Carrier RefuelingEISENHOWER (CVN 69)VINSON (CVN 70)ROOSEVELT (CVN 71)LINCOLN (CVN 72)
Carrier OverhaulENTERPRISE (CVN 65)Others REAGAN PSA BUSH PSA
Current Navy Plan to Newport NewsAdvance Planning and Procurement
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Market
Near-term opportunitiesCVN 78VCS Block IIICVN 71 RCOH
Long-term growth expectationsCVN 79 and later - one per 4 yearsVCS - two per yearCarrier refuelingCarrier de-fueling & deactivation
Success FactorsStability of CNO's 30-Year Shipbuilding PlanSolid Navy & Congressional support for our programs George H.W. Bush (CVN 77)
USS Texas (SSN 775)
USS Texas (SSN 775)USS Texas (SSN 775)
George H.W. Bush (CVN 77)
George H.W. Bush (CVN 77)George H.W. Bush (CVN 77)
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Focus on Performance
2006-2007 sales drivers:
CVN 77 – BushCVN 69 – EisenhowerCVN 70 – VinsonCVN 21VCS Construction
Achieving Margin ExpansionStrong Cash Flow
Improving Working Capital
Sales ($M) and OM% of Sales
0
500
1,000
1,500
2,000
2,500
3,000
2003 2004 20055.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
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Summary – Building Shareholder Value
Secure backlog and predictable, stable futureDrive process excellence for improved efficiencies and higher profit marginsDeliver high quality cash and earnings performanceContinue to strengthen our franchise in nuclear ship programsDeliver value and performance in support of Navy's vision for the future fleetPursue growth in adjacent fleet maintenance and carrier de-fueling markets