Northrop Grumman
Electronic Systems
April 2015
Forward-Looking Statements
This presentation contains statements, other than statements of historical fact, that constitute “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as “expect,” “intend,” “may,” “could,” “plan,” “project,” “forecast,” “believe,” “estimate,” “guidance,”
“outlook,” “anticipate,” “trends,” "goals," and similar expressions generally identify these forward-looking statements. Forward-looking statements include,
among other things, statements relating to our future financial condition, results of operations and cash flows. Forward-looking statements are based upon
assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not
guarantees of future p
g
performance and inherently
y involve a wide range
g of risks and uncertainties that are difficult to p
predict. Specific
p
risks that could cause
actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified and
discussed more fully in the section entitled "Risk Factors" in our Form 10-K for the year ended December 31, 2014. They include:
• our dependence on a single customer, the U.S. Government
• delays or reductions in appropriations for our programs and U.S. Government funding
• investigations, claims and/or litigation
• our international business
• the
th iimproper conduct
d t off employees,
l
agents,
t business
b i
partners
t
or jjoint
i t ventures
t
i which
in
hi h we participate
ti i t
• the use of accounting estimates for our contracts
• cyber and other security threats or disruptions
• changes in actuarial assumptions associated with our pension and other post-retirement benefit plans
• the performance and financial viability of our suppliers and the availability and pricing of raw materials and components
• competition within our markets
• changes in procurement and other laws and regulations applicable to our industry
• natural and/or environmental disasters
• the adequacy of our insurance coverage, customer indemnifications or other liability protections
• the products and services we provide related to nuclear operations
• changes in business conditions that could impact recorded goodwill or the value of other long-lived assets
• our ability to develop new products and technologies and maintain technologies, facilities, equipment and a qualified workforce
• our ability to meet performance obligations under our contracts
• unforeseen environmental costs
• our ability to protect our intellectual property rights
• changes in our tax provisions or exposure to additional tax liabilities
• the spin-off of our former Shipbuilding business
Additional information regarding these risks and other important factors can be found in the section entitled "Risk Factors" in our Form 10-K for the year
ended December 31, 2014 and as disclosed in this report and from time to time in our other filings with the SEC.
You are urged to consider the limitations on,
on and risks associated with
with, forward-looking statements and not unduly rely on the accuracy of forward-looking
statements. These forward-looking statements speak only as of the date of this presentation or, in the case of any document incorporated by reference, the
date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by applicable law. This presentation also contains non-GAAP financial measures. A reconciliation to the nearest
GAAP measure and a discussion of the company's use of these measures are included in the appendix of this presentation.
Northrop Grumman Today
• Leading global security company
• 2014 sales of $24.0 billion
• Leading capabilities
– Unmanned Systems
– Cyber
– C4ISR
– Logistics
– Strike aircraft
• Electronic Systems
– 2014 sales of $7.0 billion
– 2014 operating
p
g margin
g rate of 16.5%
– $10.0 billion backlog (3/31/15)
– 16,800 employees
– Top tier global defense electronics supplier
Strong sustainable performance for shareholders and customers
3
Electronic Systems – Value Proposition
Performance
• Margin performance and cash generation
• Invest and innovate for affordability
• Diverse, engaged workforce
Strategy - sustainable competitive differentiation
• Protect the core and adapt existing solutions
• Capitalize on extensive installed base
• International
I t
ti
l expansion
i on global
l b l core
• Invest in select breakthroughs and near adjacencies
• Elevate partnerships, supply chain
Risk Management
• Focus on execution
• Smart capture
p
management
g
• Scalable enterprise
4
Financial Performance
Sales and Margin
• Stable revenue p
performance in
challenging budget environment
10
17.1%
9
• Outstanding margin rate performance
8
– ~300
300 bps margin rate e
expansion
pansion
– Disciplined focus on cost and
affordability
6
– Consistently strong cash
conversion
$ Billions
7
• Cash
C h
16.5%
16%
14.5%
13.4%
14%
%
– Solid program performance
– Portfolio shaping to focus on
core competencies
18%
17.1%
12%
5
4
10%
7.6
7.4
7.0
7.1
7.0
8%
3
6%
2
4%
1
– Low capital requirements
0
2%
2010
5
2011
2012
2013
2014
Strategy
Core
Near Adjacencies
Fixed-Wing
Rotary
Marines
Air Force
Protecting and Adapting
Transitioning
International
Long--Term Differentiation
Long
• Common building
blocks across
p
product areas
Expanding
6
• Capital
investment
• Factory of the Future
• Sustained high
IR&D
• Technology
breakthroughs
• Outstanding CRAD
performance
Investing for the Future
Portfolio … Where We Work
International
Employees: 1,800
Revenue: 24%
Baltimore, MD
C4ISR: Radar, Exploitation
United States
Employees: 15,000
Revenue: 76%
Rolling Meadows, IL
C4ISR & Cyber/NK: EO/IR,
Electronic Warfare
Sunnyvale, CA
Precision Gear, Heavy Machinery
Woodland Hills, CA
C4ISR: Navigation, Situational Awareness
Azusa, CA
C4ISR: Space Sensors
Serving an installed base in ~70 nations across six continents
7
Portfolio … Who We Serve
Our Customers
50%
50%
6%
U.S. Army
Prime
18%
U.S. Navy
20%
U.S. Air
Force
25%
75%
24%
International
32%
Other U.S.
US
Gov’t
Sub
Competitive
Sole Source
37%
75%
63%
Sales $7.0B
All data are based on 2014 Sales
8
Cost Type
Fixed Price/T&M
Portfolio … What We Do
Business Focus Areas
Logistics
2%
Other
4%
C4ISR Business Focus Area
PED Other
2%
4%
Comms
1%
Nav
9%
Strike
9%
C2
11%
Cyber/NK
13%
C4ISR
72%
EO/IR
14%
Radar
59%
60%
All data are based on 2014 Sales
PED = Processing, Exploitation and Dissemination
9
C4ISR
• Radar / RF
– Key capabilities
control airborne early warning &
• Fire control,
control, tactical surveillance, maritime
surveillance, air and missile defense
– Key products / programs
y
• F-35,, F-22,, F-16 radar family
• 737 MESA, AWACS
• Global Hawk, Triton, Joint STARS
• TPS-78, G/ATOR
• SPQ
9B
SPQ-9B
– Key opportunities
• Global F-16, airborne surveillance, global
ground-based air defense upgrade market
10
• Space Sensors
– Key capabilities
• Missile warning sensors
• Weather sensors
• Active and passive RF and EO
– Key products / programs
• DSP, SBIRS
– Key opportunities
• Restricted
C4ISR (continued)
• EO/IR
• Navigation
– Key capabilities
• Targeting and surveillance;
ranging, designation and
illumination
– Key products / programs
• LITENING, F-35 Distributed
Aperture System (DAS), LLDR
– Keyy opportunities
pp
• LITENING expansion
• Infrared Search and Track
11
– Key capabilities
• Inertial navigation and
positioning systems
– Key products / programs
• Wide array of nav products for
ships, aircraft, spacecraft, and
weapons systems
– Keyy opportunities
pp
• GPS-challenged environments
C4ISR (continued)
• Processing, Exploitation and
Dissemination (PED)
– Key capabilities
• Enterprise integration of multiintelligence mission data across
all domains
– Key products / programs
• SBIRS Ground Processing
– Keyy opportunities
pp
• International
12
• Situational Awareness / C2
– Key capabilities
• Modular integrated avionics suites
and components
– Key products / programs
• Blackhawk cockpit
– Key opportunities
• International upgrades
Cyber
(including Non-Kinetic / Electronic Warfare)
• RF Electronic Warfare
– Key capabilities
• Electronic attack, electronic support,
information operations, special
communications, EW simulation
– Keyy p
products / p
programs
g
• ALQ-218, APR-39, P-8 EWSP and
ESM, DoD and Intel Community
programs
– K
Key opportunities
ii
• Unmanned EW
• Restricted
13
• EO/IR Countermeasures
– Key capabilities
• IR warning and jamming
• Threat warning sensors
– Key products / programs
• IRCM product family
– Key opportunities
• Integrated aircraft selfprotection equipment
Strike: Marine & Undersea
• Key capabilities
– Naval power and propulsion, control
systems, launchers, integrated bridge
systems, undersea sensors/controls
• Key products / programs
– Machinery controls, nuclear instrumentation
and control, mine countermeasures,
support to current U.S. submarine force
• Key opportunities
– International mine hunting, surface and
subsurface sensors/controls
14
Diverse Portfolio for Value Growth
15
Electronic Systems – Value Proposition
Performance
• Margin performance and cash generation
• Invest and innovate for affordability
• Diverse, engaged workforce
Strategy - sustainable competitive differentiation
• Protect the core and adapt existing solutions
• Capitalize on extensive installed base
• International
I t
ti
l expansion
i on global
l b l core
• Invest in select breakthroughs and near adjacencies
• Elevate partnerships, supply chain
Risk Management
• Focus on execution
• Smart capture management
• Scalable enterprise
16