northrop grumman Aerospace

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northrop grumman Aerospace

  1. 1. Northrop Grumman 2006 Institutional Investor Conference November 9, 2006 Gaston Kent Vice President, Investor Relations Northrop Grumman Corporation 0 Copyright 2006 Northrop Grumman Corporation
  2. 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. 1 Copyright 2006 Northrop Grumman Corporation
  3. 3. Presentation Format Guidance Effective 1/1/07 Radio Systems business will be transferred from Space Technology to Mission Systems Reported results for Q4 2006 & Full Year 2006 will not reflect the transfer Guidance does not reflect the change Guidance does not include Essex Segment results 2003 - 2005 Presented on a pro forma basis reflecting Previously announced organizational realignments Transfer of Radio Systems business Adoption of dual-margin recognition on inter-segment sales 3 Copyright 2006 Northrop Grumman Corporation
  4. 4. 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 1 Copyright 2006 Northrop Grumman Corporation
  5. 5. Aerospace Growth Operating Margin 2007E 2006E 2007E 2006E ($B) Long-Term Growth Margin Operating Margin % Opportunity2 I&S ~$11 8-10% Information & Services Low 8 ~8 8-9 Aerospace Low 9 ~9 9-10 Aerospace ~$9 ~(5)% Mid to Electronics High 11 ~12 High 11 Electronics ~$6.6 ~5% Ships ~7 Mid 8 9+ Segment OM1 Low 9 Low 9 ~10 Ships ~$5 ~10% Total Operating Margin Low 8 High 8 9+ Total ~$30.2 $31-32 1 Non-GAAP Metric - see reconciliation and definition on pages 25 & 26 2 Dependent on long-term business mix 2 Copyright 2006 Northrop Grumman Corporation
  6. 6. Space Technology Overview 2006 Institutional Investor Conference November 9, 2006 Alexis Livanos President Northrop Grumman Space Technology 3 Copyright 2006 Northrop Grumman Corporation
  7. 7. Space Technology at a Glance. . . $2.9B 2005 sales Intelligence, 8,000 employees Surveillance, Reconnaissance Headquarters in Civil 40% Redondo Beach, Space 26% CA Technology Missile & Other & Space 3% A leading provider SatCom Defense of space systems, 17% 14% and directed energy 2006E Sales $8.7B Total Backlog Preliminary restatement of Radio Systems transfer 4 Copyright 2006 Northrop Grumman Corporation
  8. 8. Key Programs National Polar-orbiting Operational Environmental Satellite System (NPOESS) James Webb Space Telescope (JWST) Advanced Extremely High Frequency Satellite (AEHF) Space Tracking & Surveillance System (STSS) Airborne Laser (ABL) Restricted Programs Defense Support Program (DSP) Laser Weapon Systems Space Radar 5 Copyright 2006 Northrop Grumman Corporation
  9. 9. Market Budget: Overall stable, significant growth in Communications, Intelligence, Surveillance, Reconnaissance Strategic Thrusts: Evolving heritage programs with infusion of new technologies and inventing quick- turnaround systems to solve new, urgent problems Key New Programs: Space Radar GOES-R TSAT Restricted 6 Copyright 2006 Northrop Grumman Corporation
  10. 10. Focused on Performance 5 10 Margin Expansion Sales Margin Margin expansion continues 4 8 Margin % of Sales with focus on program Sales ($B) 3 6 performance 2 4 Cost management 1 2 Delivery milestones Six Sigma 0 0 2003A 2004A 2005A Preliminary restatement of Radio Systems transfer Cash Generation Maintaining strong negative working capital Aggressively managing to reduce capital investment Positioning for ’07-’08 growth 7 Copyright 2006 Northrop Grumman Corporation
  11. 11. Summary Program Execution Shaping Change Immerse with Customers System Engineering and Technology as Competitive Differentiators Growth and Financial Performance Leverage Northrop Grumman’s Potential Flexibility, innovation, speed 8 Copyright 2006 Northrop Grumman Corporation
  12. 12. Integrated Systems Overview 2006 Institutional Investor Conference November 9, 2006 Scott Seymour President Northrop Grumman Integrated Systems 9 Copyright 2006 Northrop Grumman Corporation
  13. 13. Integrated Systems at a Glance. . . $5.5 billion sales in 2005(A) 14,200 employees Airborne Ground Surveillance & Battle Major locations Management Systems El Segundo, Rancho Bernardo, 11% Palmdale, CA Airborne Early Bethpage, NY Western Region Warning & Electronic (Air Combat Systems / Melbourne, St. Augustine, FL Warfare Systems Unmanned Systems) Primary customers 27% 62% U.S. Air Force U.S. Navy U.S. Army Key programs E-2 Hawkeye B-2 MP-RTIP F/A-18E/F, EA-18G 2006E Sales Joint STARS F-35 E-10 / BMC2 Global Hawk EA-6B ICAP III Fire Scout $9.8B Total Backlog 10 Copyright 2006 Northrop Grumman Corporation 2006 Integrated Systems Investors Conf 110906
  14. 14. Market Environment • Budget —Overall stable across core programs • Strategic Thrusts —Continued focus on performance and modernization of core programs —SDD program transition to production —Leverage competencies in systems integration and manned/ unmanned systems Pursue next generation follow-on core programs Identify adjacent/new market opportunities created by recapitalization/transformation needs 11 Copyright 2006 Northrop Grumman Corporation 2006 Integrated Systems Investors Conf 110906
  15. 15. Key New Programs • Broad Area Maritime Surveillance (BAMS) Tanker • KC-135 Replacement (KC-X) (Tanker) BAMS N-UCAS • Navy Unmanned Combat Air System (N-UCAS) • Next Generation Long Range Strike (NGLRS) • Advanced Electronic Attack (AEA) NGLRS NATO AGS • International AEA —NATO Alliance Ground Surveillance (NATO AGS) —Euro Hawk Euro Hawk 12 Copyright 2006 Northrop Grumman Corporation 2006 Integrated Systems Investors Conf 110906
  16. 16. Focus on Performance Margin Contract mix for development programs at 57% of sales; major SDD Sales 6,000 12% programs transitioning to early 5,000 production 9% 4,000 Driving improved margin performance Program execution 3,000 6% – Independent Risk Review - 2,000 3% minimizing performance risks 1,000 – Systems engineering and program - 0% management 2003 2004 2005 – Supply chain integration Sales ROS – Process improvement – Six Sigma Cost reduction initiatives Cash Maintaining strong negative working capital Improving balance sheet fundamentals for greater cash generation; cash > margin Aggressively managing to reduce capital investment, lease facilities and labs 13 Copyright 2006 Northrop Grumman Corporation 2006 Integrated Systems Investors Conf 110906
  17. 17. Summary • Drive a relentless customer focus • Improve program execution • Streamline operating model and process • Establish key internal/external alliances • Capture targeted business pursuits • Deliver strong financial results Perform Position Grow 14 Copyright 2006 Northrop Grumman Corporation 2006 Integrated Systems Investors Conf 110906

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