Northrop Grumman Overview July 2014 (1)

8/11/2019 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

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* 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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Northrop Grumman Overview July 2014 (1)

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