northrop grumman Information & Services


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northrop grumman Information & Services

  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. Information & Services Growth Operating Margin 2007E 2006E ($B) 2006E 2007E Long-Term Growth Margin Opportunity2 Operating Margin % 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. Information Technology Overview 2006 Institutional Investor Conference November 9, 2006 James R. O’Neill President Information Technology Sector 3 Copyright 2006 Northrop Grumman Corporation
  7. 7. IT Sector at a Glance 2005 Sales – $3.8B 18,500 employees Northern Virginia headquarters, geographically dispersed facilities Commercial, Primary customers: State & Local Intelligence Intelligence Agencies 17% 32% DoD, DHS Civilian Civilian Agencies Agencies State & Local Governments Defense 29% Key programs: 22% Virginia IT Outsourcing New York City Wireless National Health Information Network 2006E Sales Defense Integrated Military HR System Restricted Programs Strong Pipeline of New Business, Projecting High Single-Digit Growth 4 Copyright 2006 Northrop Grumman Corporation
  8. 8. The IT Market Is Large, Growing & Diverse Majority of IT sector’s sales are from outside DoD Fastest growing segments include: State/Local – NYC Wireless, Virginia, San Diego Health IT – CDC, DoD Electronic Health Record International – IDENT1 Lead sector for corporate initiatives: Homeland Security – Homeland Secure Data Network, MaxHR Information Operations – Army First IO Command Robust pipeline of new business opportunities: Uni-Comm, UK Military Flight Training System, Intelligence Programs, First Responder Wireless Opportunities 1,100 proposals in process Strategic focus on key growth segments 5 Copyright 2006 Northrop Grumman Corporation
  9. 9. Focus on Performance Emphasis on program execution MARGIN MARGIN Higher award fee grades, improved profitability on fixed-rate/fixed-price contracts Cost reduction initiatives Maximize facilities utilization Implementation of a single ERP system Repeatable solutions IT outsourcing, enterprise architecture, wireless marketplaces Process improvement initiatives CASH CASH Billing cycle reductions Procurement and payable processes Reduction in capital expenditures Aggressive focus on contract structure Milestone payments, interim billing, etc. Committed to continued margin expansion and increased cash generation 6 Copyright 2006 Northrop Grumman Corporation
  10. 10. Summary Diverse market mix drives growth and reduces risk Significant growth opportunities with key current customers DoD, Intelligence Community, Civil Agencies, State & Local Leverage capabilities to expand presence in key growing markets Secure Wireless IT Outsourcing Security/Information Assurance Health IT Enterprise Business Applications Select International Opportunities Combination of growth and program performance will drive improvements in margin and cash Positioned for growth and strong financial performance 7 Copyright 2006 Northrop Grumman Corporation
  11. 11. Success with Approaching Adjacencies 8 Copyright 2006 Northrop Grumman Corporation
  12. 12. Mission Systems Overview 2006 Institutional Investor Conference November 9, 2006 Jerry Agee President Northrop Grumman Mission Systems 9 Copyright 2006 Northrop Grumman Corporation
  13. 13. Sector at a Glance. . . $5.5B – 2005 Actual Sales (adjusted for Radio Systems) 17,000 employees, 47 states, Intelligence, 19 countries Surveillance & Reconnaissance Primary customers Command, 24% Control & Air Force Army Navy Communications Restricted MDA Missile 50% Systems Key programs 26% ICBM Prime Integration Contract Kinetic Energy Interceptors Joint Warfighting Center F/A-22 and F-35 CNI 2006E Sales Blue Force Tracking Global Command & Control System $11B Current Total Backlog Note: Information presented on a pro forma basis to reflect 2007 organizational realignment 10 Copyright 2006 Northrop Grumman Corporation
  14. 14. Focus on Performance Performance Trends Business Mix Sales ($B) Sales and Margin % Margin % 6 8.0% Contract 85% Cost (includes T&M) 5 Type 15% Fixed 4 7.5% Sales ($B) Margin % <10% Manufacturing / Product 3 Production 2 7.0% >90% Development / 1 Integration / Services 0 6.5% 2003 2004 2005 Pro forma financials reflecting 2007 organizational realignment Margin Initiatives Pursue opportunities/markets with higher returns Deemphasize/exit markets with substandard returns Adhere to strict program risk management strategies and tactics Bid higher margins/reduce indirect costs Leverage competitive excellence initiatives 11 Copyright 2006 Northrop Grumman Corporation
  15. 15. Command, Control & Communications Products/Offerings Major Programs Products/Offerings Major Programs Command, Control & Information Systems Blue Force Tracking Tactical Operations Centers Command Post Platform Networks, Communications & Interoperability Global Command & Control System System Engineering and Analysis Joint Warfighting Center Communication, Navigation and Identification F/A-22 & F-35 Communication, Navigation and Identification Software Defined Radios Key Customers Major Opportunities Key Customers Major Opportunities Joint Network Node U.S. Army, Air Force, Navy and Department of Defense (Including Joint Forces) Network Comms Opportunities Global Command and Control – Maritime 12 Copyright 2006 Northrop Grumman Corporation
  16. 16. Intelligence, Surveillance and Reconnaissance Products/Offerings Major Programs Products/Offerings Major Programs Signals Intelligence and Exploitation Systems Airborne Signals Intelligence Payload Payload Software Survivor Information Operations Guardrail Special Intelligence Diamond Multi-INT Integration Restricted Satellite Ground Stations Key Customers Major Opportunities Key Customers Major Opportunities Guardrail Modernization / ACS Intelligence Community GPS OCX U.S. Army, Air Force, Navy Restricted 13 Copyright 2006 Northrop Grumman Corporation
  17. 17. Missile Systems Products/Offerings Major Programs Products/Offerings Major Programs Inter-Continental Ballistic Missile (ICBM) ICBM Prime Integration Contract Battle Management Command and Control Ground-Based Midcourse Defense Segment Systems Joint National Integration Center Kinetic Energy Interceptors Key Customers Major Opportunities Key Customers Major Opportunities ICBM System Program Office Integrated Air & Missile Defense Adjunct Sensor U.S. Air Force KEI International / Sea Basing U.S. Strategic Command Missile Defense Agency 14 Copyright 2006 Northrop Grumman Corporation
  18. 18. Trusted Provider of Mission-Enabling Systems Competing and performing as a Tier 1 player Provide thought leadership Deliver technically differentiated, fully integrated solutions Consistent performance / track record Trusted partner and thought leader 15 Copyright 2006 Northrop Grumman Corporation
  19. 19. Technical Services Overview 2006 Institutional Investor Conference November 9, 2006 James Cameron President Northrop Grumman Technical Services 16 Copyright 2006 Northrop Grumman Corporation
  20. 20. Sector at a Glance. . . 18,304 employees** Customer Sales Profile Sites: 285** all 50 States and 29 Countries Primary customers: Other* DoD DHS 12% DoE NASA DoE DoD DoS 15% 50% Key missions: NASA “City” Managers: Kennedy Space Center; Nevada Test Site; Ft. Eustis; Incerlik, Turkey 23% Aircraft Sustainment and Modernization: B2; JSTARS; F18; EA-6; Hunter UAV Homeland Security: Biometrics for Citizenship and Immigration Air and Ground Combat Ranges: Combined Tactical Training Ranges; Ft. Hood 2006E Sales Range Complex Physical and Electronic Security: Space * including DHS, DoS, etc Gateway Support; Qatar Performance Based Logistics and $4.3B Total Backlog* Supply Chain Management: Whiteman AFB; Tinker AFB; Robins AFB Training: Live, Virtual and Constructive Domains * Funded & Unfunded Backlog 17 ** Includes JVs Copyright 2006 Northrop Grumman Corporation
  21. 21. Examples Of What We Do and Where We Do It B2 Supply Chain Management – Tactical Whiteman AFB, MS Training Ranges – East and Korean Battle West Coasts Simulation Center – Yongsan, South Citizenship and Korea Immigration Service – All 50 States (136 Centers) Saudi Arabian National Guard – Riyadh, SA Nevada Test Site African Contingency Hunter Support – Operations and Training Sierra Vista, AZ with Assistance deployed Teams in OIF Battle Command Training Space Gateway Branch – Ft. Hood, TX Support – Kennedy Space Center 18 Copyright 2006 Northrop Grumman Corporation
  22. 22. Market Environment Core business Preparedness Operations Modernization Infrastructure and Product and and Through Development Training Maintenance Sustainment $75B DoD Addressable Market $55B NASA, DoE, DHS, DoS Market NG Development Sectors NG Technical Services NG Dev ~35% DOD Budget ~65% DOD Budget How We Are Organized To Attack Opportunities? Training and Simulation Group: Product Development, Scenario Development/Planning, Exercise Support, Linguists System Support Group: Operations and Maintenance, Base and Range O&M (DoD, DOE, NASA), Biometric Collection (DHS) Life Cycle Optimization and Engineering Group: MRO and Maintenance, in the Field and Depot, Performance Based Logistics, Supply Chain Management 19 Copyright 2006 Northrop Grumman Corporation
  23. 23. Delivered 2006 Performance New Programs – Recent Wins Financial Performance Nevada Test Site (DOE) Year-Over-Year Organic Growth Saudi Arabian National Guard Modernization Program (Army) U.S. Citizenship and Immigration Service - Application Support Centers (DHS) Robins Air Base Education and Training (AF) Battle Command Training Branch (Army) 2003 2004 2005 2006E 2007E Realizing immediate impact of new NGTS organization! Double-digit organic growth Outstanding cash contributions Solid mid-single digit margins 20 Copyright 2006 Northrop Grumman Corporation
  24. 24. Strategic Thrusts & Growth Expectations Strategic Thrusts SSG Capitalize on “integrated” NOC pedigree and “reach back” Leverage services and MRO businesses through a tactical and strategic focus Exploit a growing DoD market TSG Grow existing position in adjacent markets (DOE, DOS, NASA, DHS, etc) Expand international footprint Growth Expectations Expect double digit growth LCOE 21 Copyright 2006 Northrop Grumman Corporation
  25. 25. Focus on Performance Growth Deliver consistent year-over-year double digit growth Leverage robust pipeline Key: identifying/qualifying new business pursuits. Have increased at a ratio of more than 3 to 1 Margin Focus on higher margin market segments - logistics & training Enhance contract mix with an increase in performance-based and fixed-price contracts “Manage with leading indicator metrics in a continuous process improvement environment” Cash Drive strong working capital performance Execute with minimal capital utilization 22 Copyright 2006 Northrop Grumman Corporation
  26. 26. Summary Vision and strategies Be the best in the world at what we do Deliver superior performance on ALL programs DoD business Represents only half of our portfolio Strong integrated NOC pedigree offers great opportunity for rapid organic growth Non-DoD business Already possess a diverse portfolio in adjacent markets Sales/Margin/Cash drivers Driving double digit top-line growth Solid, mid-single digit margin performance today Business base has highly favorable capital utilization yielding strong returns 23 Copyright 2006 Northrop Grumman Corporation