2. Safe Harbor Statement
Certain statements and assumptions in these materials contain
or are based on “forward-looking” information. Such “forward-
looking” information includes, and is subject to, numerous
assumptions, risks and uncertainties, many of which are outside
Northrop Grumman’s control. The Safe Harbor Note to today’s
press release and Northrop Grumman’s filings from time to time
with the Securities and Exchange Commission including,
without limitation, reports on Form 10K and Form 10Q, describe
such economic, political and technological risks factors and
other uncertainties.
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3. Q1 2006 Business Performance
OM % of Sales
Q1 2006
Sales Growth Q1 06 Q1 05
Information & Services 1% 7.9% 7.1%
Aerospace 7% 9.6% 9.7%
Electronics (2%) 11.7% 10.5%
Ships (25%) 6.0% 7.1%
Segment OM* 9.0% 8.6%
Total Operating Margin 8.3% 8.0%
*Non-GAAP measure – See Schedule 2 of press release for reconciliation
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4. Q1 2006 Cash from Operations ($Millions)
Q1 2006
Net Income 358
Depreciation & Amortization 177
Pension/OPEB 119
Change in Working Capital & Other Accruals (859)
Deferred & Payable Income Taxes 101
All Other (11)
Cash From Operations (115)
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5. 2006 Outlook
OM % of
Sales $1 Sales2
Information & Services ~$11B Mid 7%
Aerospace ~$9B Mid 8%
Electronics ~$7B Mid 11%
Ships ~$5B Mid 7%
Segment Total3 ~$31B Mid 8%
Total Operating Margin ~8%
1
Assumes 2006 sales adjusted for exit of Enterprise Information Technology & other small businesses
2
Includes impact of intersegment operating margin adjustment
3
Net of intersegment eliminations
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6. Guidance Details ($Millions)
Q1 2006 2006E
Unallocated Expenses 35 ~$140
Net Pension Expense 10 ~25
Net Interest Expense 77 ~300
~700 - 7501
Capital Expenditures 173
Depreciation 135 ~580
Amortization of Purchased
Intangibles 42 ~135
Effective Tax Rate 30.9% ~33%
1
Before 2006 Katrina-related capital spending
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7. Non-GAAP Measure Reconciliation
2005A 2006E
$ Millions
Sales $ 30,721 $ 31,000 $ 31,000
Segment Operating Margin Rate* 7.8% 8.5% - 8.6%
Operating Margin Rate 7.1% 8.0% - 8.1%
Segment Operating Margin * 2,399 2,650 - 2,680
Reconciliations:
Unallocated expenses (190)
Pension (expense) income (410) (180) - (170)
Reversal of CAS pension expense included above 389
Reversal of royalty income included above (10)
Operating Margin as reported 2,178 2,470 - 2,510
* Non-GAAP Measure
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8. Non-GAAP Measures Definitions
Non-GAAP Financial Measures Disclosure
Today’s presentation and the accompanying web charts contain non-GAAP (Generally Accepted Accounting Principles)
financial measures, as defined by SEC Regulation G and indicated by an asterisk *.
While we believe that these non-GAAP financial measures may be useful in evaluating Northrop Grumman, this
information should be considered as supplemental in nature and not as a substitute for financial information prepared in
accordance with GAAP.
Definitions are provided for the non-GAAP measures used in our presentation. Other companies may define the
measures differently.
Segment Operating Margin
Segment Operating Margin is the total earnings from each of our six business segments including royalty income and
pension expense to the extent that the cost is currently recognized under government Cost Accounting Standards (CAS).
Segment Operating Margin excludes unallocated corporate expenses, GAAP pension expense and the reversal of CAS
pension expense.
Reconciling items to total company Operating Margin are:
– GAAP pension expense reported separately as a reconciling item under the caption quot;Pension expense.quot;
– Reversal of CAS pension expense included in Segment Operating Margin as a cost recognized under CAS.
– Unallocated expenses which include unallocated corporate, legal, environmental, state income tax, and other retiree
benefits expenses.
– Royalty Income reversed under the caption “Reversal of royalty income included above” and reported under the
caption “Other, net.”
Management uses segment operating margin as an internal measure of financial performance of our individual business
segments. This measure also may be helpful to investors in understanding period-over-period operating results separate
from items that may be influenced by external market fluctuations.
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