Slide Presentationnorthrop grumman 2006 2nd

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Slide Presentationnorthrop grumman 2006 2nd

  1. 1. Northrop Grumman Corporation Q2 2006 July 27, 2006
  2. 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. 2 Copyright 2005 Northrop Grumman Corporation
  3. 3. Focus on Performance Paying Off Segment Operating Margin Operating Margin 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% 2003 2004 2005 2006E 2003 2004 2005 2006E EPS Cash from Operations 5.00 $3.0 $2.5 4.00 $2.0 ($Billion) 3.00 $1.5 2.00 $1.0 1.00 $0.5 0.00 $0.0 2003 2004 2005 2006E 2003* 2004 2005 2006E * Non-GAAP: Adjusted for $1B B-2 tax payment Actual Range 3 Copyright 2005 Northrop Grumman Corporation
  4. 4. 2006 Outlook OM % of Sales1 Information & Services ~8% Aerospace ~9% Electronics Mid 11% Ships ~7% Segment total2 ~9% Total operating margin Mid 8% 1 Includes impact of intersegment operating margin adjustment 2 Net of intersegment eliminations 4 Copyright 2005 Northrop Grumman Corporation
  5. 5. Guidance Details ($Millions) YTD 2006 2006E Unallocated Expenses 81 ~140 Net Pension Expense 22 ~25 Net Interest Expense 161 ~300 ~700 - 7501 Capital Expenditures 324 Depreciation 278 ~580 Amortization of Purchased Intangibles 73 ~135 Effective Tax Rate 27.9% 31 - 32% 1 Before 2006 Katrina-related capital spending 5 Copyright 2005 Northrop Grumman Corporation
  6. 6. 2006 Outlook Sales $ Information & Services ~11B Aerospace ~9B Electronics ~6.6B Ships ~5B Total1 ~30.5B 1 Net of intersegment eliminations 6 Copyright 2005 Northrop Grumman Corporation
  7. 7. Q2 2006 Cash from Operations ($Millions) Q2 2006 YTD Net Income 430 787 Depreciation & Amortization 174 351 Non-Cash Pension/OPEB (5) 114 Change in Working Capital 138 (642) Deferred & Payable Income Taxes (166) (65) All Other 86 80 Discontinued Operations (19) (102) Cash from Operations 638 523 7 Copyright 2005 Northrop Grumman Corporation
  8. 8. Executing Balanced Cash Deployment Strategy Internal & External Investment Dividends & Share Repurchases Well supported internal Dividends investment 15% increase May 2006 Research & Development 50% increase over three Capital Spending years Active MA&D program for Share repurchases portfolio optimization $3.2B authorized since 8/30 $3B completed to date Meaningful reduction in shares outstanding Regular review 8 Copyright 2005 Northrop Grumman Corporation
  9. 9. 2006 Outlook Sales 1 ~30.5 billion Segment operating margin ~ 9% Total operating margin Mid 8% EPS from continuing operations $4.35 - $4.45 Cash from operations $2.3 - $2.6 billion 1 Net of intersegment eliminations 9 Copyright 2005 Northrop Grumman Corporation
  10. 10. Non-GAAP Measure Reconciliation $Millions 2005A 2006E Sales $30,067 $30,500 $30,500 Segment Operating Margin Rate* 8.0% 8.9% - 9.0% Operating Margin Rate 7.3% 8.3% - 8.4% Segment Operating Margin* 2,414 2,700 - 2,750 Reconciliations: Unallocated Expenses (190) Pension (Expense) Income (410) (180) - (180) Reversal of CAS Pension Expense included above 389 Reversal of Royalty Income included above (10) Operating Margin as Reported 2,193 2,520 - 2,570 *Non-GAAP Measure 10 Copyright 2005 Northrop Grumman Corporation
  11. 11. 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. 11 Copyright 2005 Northrop Grumman Corporation

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