Solution Manual For Financial Statement Analysis, 13th Edition By Charles H. ...
northrop grumman Ron Sugar, Chairman and CEO (Overview and Strategic Perspective)
1. Overview and
Strategic
Perspective
2006 Institutional Investor Conference
November 9, 2006
Ron Sugar
Chairman and CEO
1 Copyright 2006 Northrop Grumman Corporation
2. Safe Harbor Statement
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.
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Copyright 2006 Northrop Grumman Corporation
3. Northrop Grumman Vision
Be the most trusted provider of
systems and technologies that
ensure the security and
freedom of our nation and its
allies
Customers’
provider of choice
Industry’s
employer of choice
Shareholders’
investment of choice
Creating Value Through People and Technology
2 Copyright 2006 Northrop Grumman Corporation
5. Market Assessment
Defense/Intelligence top-line budget authority driven by threat
environment
Moderate growth from today’s levels
Transition from war supplementals to force modernization / reset
Pervasive need for information, electronics and technical services
NOC competencies match evolving national security priorities
NOC programs well supported in FY07 budget and the FYDP
Substantial non-DoD opportunities aligned with NOC capabilities
are growing faster than DoD
Federal government
State & local
International
4 Copyright 2006 Northrop Grumman Corporation
7. Information & Services
Prime contractor
Growing markets
Low capital requirements and
strong cash returns
Successfully penetrating adjacent
markets with competitive wins
Accelerating growth
Organic core & adjacent markets
Selected acquisitions
Well Positioned in Rapidly Growing Markets
6 Copyright 2006 Northrop Grumman Corporation
8. Information & Services—Awards
& Opportunities
Recent Awards
NYC Wireless Center for Disease Control
Virginia IT Outsourcing Joint National Integration Center
San Diego County NGA Enterprise Engineering
Nevada Test Site National Health Information
Network
U.S. Immigration & Customs Biometrics
Intelligence programs
Joint Warfighter Center
New Opportunities
Intelligence Programs UK Military Flight Training System
Information Operations / Joint Network Node
Information Assurance GCCS - M
State & Local IT Guardrail Modernization / ACS
First Responder Wireless GPS OCX
Lawrence Livermore National Lab Integrated Air & Missile Defense
Uni-Comm Adjunct Sensor
Significant Wins . . . Large Opportunity Space
7 Copyright 2006 Northrop Grumman Corporation
9. Essex Overview
Strategic Rationale
Business Description
• Expands position in high growth
• Products and Services for Intel
areas of C4ISR
Community and DoD
• Signals Intelligence & Processing • Strong synergy potential with
combination of capabilities
• Computer Network Operations
• Information Assurance • Expectation of continued growth
in customer investment in these
• 2007E sales of $330-350M
mission areas
• 04-06E sales CAGR of 34%
Integration Plan
Transaction Summary
• Essex will be integrated as a
• Cash acquisition of all stock
business unit of NGMS
• $24 per share consideration
• Portion of NGMS existing
• $580M transaction value
intelligence business will report
• Closing targeted 1Q07 to Essex
• Neutral to EPS in ′07, accretive
in ′08
8 Copyright 2006 Northrop Grumman Corporation
10. Electronics
Premier position across entire sensor
system spectrum
Undersea, sea, ground, air, space, and
cyberspace
Solid double-digit margins
Strong cash returns
Substantial domestic and international
opportunities
Technology leadership ensures
position on future upgrades and new
platforms
Solid Growth, Double-Digit Margins . . . High Returns
9 Copyright 2006 Northrop Grumman Corporation
11. Electronics—Awards & Opportunities
Recent Awards
Restricted
Bio-detection
Counter-MANPADS
Large Aircraft IRCM (NATO)
New Opportunities
F-22 production
F-35 production
International
Jordan Air Defense System
MESA Radar – Korea
RSIP - Japan
USPS Flats Sequencing & Sorting System
Counter-MANPADS production
G/ATOR
Counter-IED
Significant Domestic and International Opportunities
10 Copyright 2006 Northrop Grumman Corporation
12. Aerospace
Prime contractor or major partner on
large platform programs
Manned and unmanned aircraft
Space systems
Differentiated by technology
leadership
Large development programs
Long production cycles and
substantial cash returns
Stable market with large new
competitive opportunities
Solid Performance and Backlog . . .
Large Platform Opportunities
11 Copyright 2006 Northrop Grumman Corporation
13. Aerospace—Awards & Opportunities
Recent Awards
Multiple Restricted Platforms
F/A-18 Multi-year
AEHF 3 Payload
New Opportunities
E-2D Production
Multiple Restricted Platforms
NATO Air to Ground
F-35 Production
Surveillance
Broad Are Maritime Surveillance
TSAT
KC-X Tanker/transport
Space Radar
Naval UCAS
STSS
Euro Hawk
GOES-R
Long Range Strike
Robust Pipeline of High Impact Opportunities
12 Copyright 2006 Northrop Grumman Corporation
14. Ships
Prime or partner across all classes of
conventional and nuclear naval platforms
Strong franchise position with long term
visibility
Growing consensus for strong
shipbuilding budgets
Modest growth
Post-Katrina regeneration on-track
Margin expansion opportunities
Operational efficiencies
Gulf Coast shipyard recovery
Improving returns during recapitalization
Managing for Enhanced Returns
13 Copyright 2006 Northrop Grumman Corporation
15. Ships—Awards & Opportunities
Recent Awards
LHA (R) Long Lead
LPD 22 – 24
DDG 1000 Design
USS Toledo
CVN 71 RCOH
New Opportunities
CVN 78 & 79 Production
Virginia-class Submarines (2/year)
DDG 1000 Production
Fast Response Cutter
CG(X)
MPFF - Maritime Pre-position Force Future
Strong Backlog . . . Large Opportunities
14 Copyright 2006 Northrop Grumman Corporation
16. Building Value Working Together
Current Programs New Opportunities
Tanker/
KEI
Transport
E-10/MP-RTIP
Counter IED
Restricted
CG(X)
UK AWACS
Restricted
Space Radar
Cross-Business Collaboration Enhancing
Competitive Position
15 Copyright 2006 Northrop Grumman Corporation
17. The Leadership Team
Bus Dev & HR &
Communications Law
Govt Relations Administration
Ron Sugar Wes Bush
Chairman President
& CFO
& CEO
Bob Helm Burks Terry
Ian Ziskin
Rosanne O'Brien
Corp VP Corp VP &
Corp VP & Chief
Corp VP
General Counsel
HR & Admin Officer
Mission Information Technical Electronic Integrated Space Ship Newport
Systems Technology Services Systems Systems Technology Systems News
Jerry Agee Jim O’Neill Jim Cameron Jim Pitts Scott Seymour Alexis Livanos Phil Teel Mike Petters
Corp VP & President Corp VP & President Corp VP & President Corp VP & President Corp VP & President Corp VP & President Corp VP & President Corp VP & President
Information & Services Electronics Aerospace Ships
The Right Team For Our Strategy
16 Copyright 2006 Northrop Grumman Corporation
18. What You Should Expect From NOC
Growth
Portfolio structured for
growth
Substantial near-term
opportunities
Performance
Program
Financial
Value-creating cash
deployment
Returning cash to
shareholders
Investing for growth
17 Copyright 2006 Northrop Grumman Corporation
