northrop grumman Ships

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northrop grumman Ships

  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. Ships 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. Ship Systems Overview Institutional Investor’s Conference November 9, 2006 Philip Teel President Northrop Grumman Ship Systems 3 Copyright 2006 Northrop Grumman Corporation
  7. 7. Ship Systems at a Glance. . . Coast Guard & Commercial & Other $3B – 2005 Sales Coastal Defense 2% 17,000 employees 8% Three primary operating locations Sole designer, builder of large Surface deck amphibs and next Combatants generation Coast Guard fleet 32% Expeditionary Surface combatants co-design Warfare and construction 58% Primary customers: U.S. Navy & U.S. Coast Guard Katrina recovery proceeding on schedule 2006E Sales $5.3B Total Backlog 4 Copyright 2006 Northrop Grumman Corporation
  8. 8. Katrina 5 Copyright 2006 Northrop Grumman Corporation
  9. 9. Katrina . . . Impact 6 Copyright 2006 Northrop Grumman Corporation
  10. 10. Katrina . . . Impact 7 Copyright 2006 Northrop Grumman Corporation
  11. 11. Katrina . . . Impact 8 Copyright 2006 Northrop Grumman Corporation
  12. 12. Katrina . . . Impact 9 Copyright 2006 Northrop Grumman Corporation
  13. 13. Katrina . . . Impact 10 Copyright 2006 Northrop Grumman Corporation
  14. 14. LPD 17 Sail Away . . . November 28, 2005 11 Copyright 2006 Northrop Grumman Corporation
  15. 15. DDG 98 Sail Away . . . December 17, 2005 12 Copyright 2006 Northrop Grumman Corporation
  16. 16. LPD 20 Float Off . . . August 11, 2006 13 Copyright 2006 Northrop Grumman Corporation
  17. 17. LHD 8 Float Off . . . September 22, 2006 14 Copyright 2006 Northrop Grumman Corporation
  18. 18. NSC 1 Float Off . . . September 29, 2006 15 Copyright 2006 Northrop Grumman Corporation
  19. 19. LPD 18 Sea Trials . . . October 23, 2006 16 Copyright 2006 Northrop Grumman Corporation
  20. 20. Transition Current Platforms to New Missions with Increased NOC Content In Development Future Pursuits Production/Support Contracts Surface Combatants Surface Combatants Surface Combatants Cruiser (CG(X) Zumwalt Class (DDG 1000) Arleigh Burke Class Amphibs Amphibs (5 x DDG 51) Maritime Pre-position Force Large Deck Amphibs (LHA 6) Amphibs Future (MPF(F) WASP Class (1 x LHD 8) Coast Guard Coastal Defense San Antonio Class (6 x LPD USCG Deepwater 17) International Fast Response Cutters (FRC) Coast Guard National Security Cutter (3 x NSC) Fleet Support DDG 1000 LPD CG(X) 17 Copyright 2006 Northrop Grumman Corporation
  21. 21. Performance Improvement Strategies 2007 2008 2009 2010 2011 J F MA MJ J A S ONDJ F MA MJ J A S ONDJ F MA MJ J A S ONDJ F MA MJ J A S ONDJ F MA MJ J A S OND Ship Schedules 103 105 107 110 DDG DH DDG 1000 DDG 1000 Delivery 2012 18 19 20 21 22 23 24 LPD 8 LHD 8/LHA 6 LHA 6 Delivery 2012 1 2 3 4 5 NSC 1 FRC Indicates Ships Under Construction at the Time of Katrina Tools and Process People Facility Process Maturity & Improvement Retention & Shipyard Recovery Development of Workforce Improving Quality Shipyard Value Stream Centric Regeneration Enabling Organization Technology Production Support Drives OM and Cash from Operations Improvements 18 Copyright 2006 Northrop Grumman Corporation
  22. 22. Business Base 2007 2008 2009 2010 2011 Surface Combatants DDG 103 DDG 105 DDG 107 DDG 110 DDG 1000 DDG 1001 Deckhouse Expeditionary Warfare LPD 18 LPD 19 LPD 20 LPD 21 LPD 22 LPD 23 LPD 24 LPD 25 LHD 8 LHA 6 Coast Guard NSC 1 NSC 2 NSC 3 NSC 4 NSC 5 FRC 1 FRC 2 Current Schedule 19 Copyright 2006 Northrop Grumman Corporation
  23. 23. Focus on Performance Sales Drivers: Katrina…full recovery in Sales ($M) and Op Margin as % of Sales 2007 LHA 6 and DDG 1000 construction 4,000 10% 8% Coast Guard NSC 3,000 production 6% Margin Expansion: 4% 2,000 Post Katrina vs Katrina 2% 1,000 0% Regeneration & process focus 0 Cash Generation: 2003 2004 2005 Driving Working Capital improvements Sales OM % Pre-K OM % Cap-ex reduces post Katrina recovery 20 Copyright 2006 Northrop Grumman Corporation
  24. 24. Summary: Focus on Affordability and Shareholder Return Strategic Focus Improved affordability Reduce cost to produce Modify current designs for expanded missions Leverage broader company capabilities to increase NOC content Operating Focus People, process, and facility investments linked to ship by ship improvement plans Financial Performance Katrina recovery and regeneration Contracts with acceptable risk profiles and cash terms 21 Copyright 2006 Northrop Grumman Corporation
  25. 25. Newport News Overview 2006 Institutional Investor Conference November 9, 2006 Mike Petters President Northrop Grumman Newport News 22 Copyright 2006 Northrop Grumman Corporation
  26. 26. Newport News ... Delivering Naval Superiority Services & Other $2.9B – 2005 Sales 3% 19,200 employees Three Primary Operating Locations Submarines Carrier Sole Designer, Builder, and 28% Construction Refueler of Nuclear-Powered 43% Aircraft Carriers Carrier Refueling & One of Two Companies Capable Overhaul of Designing and Building 26% Nuclear-Powered Submarines Substantial After-Market Business Portfolio 2006E Sales Quality Earnings Delivering Stable Cash Flow $7B Total Backlog 23 Copyright 2006 Northrop Grumman Corporation
  27. 27. Business Base 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Carrier Construction REAGAN (CVN 76) BUSH (CVN 77) CVN 78 CVN 79 Submarine Construction VIRGINIA (SSN 774) TEXAS (SSN 775) HAWAII (SSN 776) NORTH CAROLINA (SSN 777) NEW HAMPSHIRE (SSN 778) NEW MEXICO (SSN 779) SSN 780 SSN 781 SSN 782 SSN 783 VCS 11 VCS 12 VCS 13 VCS 14 VCS 15 VCS 16 Carrier Refueling EISENHOWER (CVN 69) VINSON (CVN 70) ROOSEVELT (CVN 71) LINCOLN (CVN 72) Carrier Overhaul ENTERPRISE (CVN 65) Others REAGAN PSA BUSH PSA Current Advance Planning and Procurement Navy Plan to Newport News 24 Copyright 2006 Northrop Grumman Corporation
  28. 28. Market Near-term opportunities CVN 78 VCS Block III CVN 71 RCOH Long-term growth expectations CVN 79 and later - one per 4 USS Texas (SSN 775) years VCS - two per year Carrier refueling Carrier de-fueling & deactivation Success Factors Stability of CNO's 30-Year Shipbuilding Plan Solid Navy & Congressional George H.W. Bush (CVN 77) support for our programs 25 Copyright 2005 Northrop Grumman Corporation
  29. 29. USS Texas (SSN 775)
  30. 30. George H.W. Bush (CVN 77) George H.W. Bush (CVN 77)
  31. 31. Focus on Performance 2006-2007 sales drivers: Sales ($M) and OM% of Sales 3,000 9.0% CVN 77 – Bush 8.5% 2,500 CVN 69 – Eisenhower 8.0% 2,000 CVN 70 – Vinson 7.5% 7.0% CVN 21 1,500 6.5% VCS Construction 1,000 6.0% Achieving Margin 500 5.5% Expansion 0 5.0% 2003 2004 2005 Strong Cash Flow Improving Working Capital 28 Copyright 2005 Northrop Grumman Corporation
  32. 32. Summary – Building Shareholder Value Secure backlog and predictable, stable future Drive process excellence for improved efficiencies and higher profit margins Deliver high quality cash and earnings performance Continue to strengthen our franchise in nuclear ship programs Deliver value and performance in support of Navy's vision for the future fleet Pursue growth in adjacent fleet maintenance and carrier de-fueling markets 29 Copyright 2006 Northrop Grumman Corporation

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