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Copyright 2006 Northrop Grumman Corporation0
Northrop Grumman 2006 Institutional Investor Conference
November 9, 2006
Gaston KentVice President, Investor RelationsNorthrop Grumman Corporation
Copyright 2006 Northrop Grumman Corporation1
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.
Safe Harbor Statement
Copyright 2006 Northrop Grumman Corporation3
Presentation Format
GuidanceEffective 1/1/07 Radio Systems business will be transferred from Space Technology to Mission SystemsReported results for Q4 2006 & Full Year 2006 will not reflect the transferGuidance does not reflect the changeGuidance does not include Essex
Segment results 2003 - 2005Presented on a pro forma basis reflecting
Previously announced organizational realignmentsTransfer of Radio Systems businessAdoption of dual-margin recognition on inter-segment sales
Copyright 2006 Northrop Grumman Corporation1
The Leadership Team
Bob HelmCorp VP
Bus Dev &Govt Relations
Jim O’NeillCorp VP & President
InformationTechnology
MissionSystems
Jerry AgeeCorp VP & President
Jim CameronCorp VP & President
TechnicalServices
Information & Services
Jim PittsCorp VP & President
Electronic Systems
Electronics
Mike PettersCorp VP & President
NewportNews
Phil TeelCorp VP & President
ShipSystems
Ships
Burks TerryCorp VP &
General Counsel
Law
Ian ZiskinCorp VP & Chief
HR & Admin Officer
HR &Administration
Rosanne O'BrienCorp VP
Communications
Space Technology
Alexis LivanosCorp VP & President
Scott SeymourCorp VP & President
Integrated Systems
Aerospace
Ron SugarChairman & CEO
Wes BushPresident& CFO
The Right Team For Our StrategyThe Right Team For Our Strategy
Copyright 2006 Northrop Grumman Corporation2
Information & Services
Operating Margin
1 Non-GAAP Metric - see reconciliation and definition on pages 25 & 262 Dependent on long-term business mix
9+High 8Low 8Total Operating Margin
~10Low 9Low 9Segment OM1
9+Mid 8~7Ships
~12High 11Mid to High 11Electronics
9-10~9Low 9Aerospace
8-9~8Low 8Information & Services
Operating Margin %
Long-TermMargin
Opportunity2
2007E2006E
$31-32~$30.2Total
~10%~$5Ships
~5%~$6.6Electronics
~(5)%~$9Aerospace
8-10%~$11I & S
2006E ($B) 2007EGrowth
Growth
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Information TechnologyOverview
November 9, 2006
James R. O’NeillPresidentInformation Technology Sector
2006 Institutional Investor Conference
Copyright 2006 Northrop Grumman Corporation4
IT Sector at a Glance2005 Sales – $3.8B18,500 employeesNorthern Virginia headquarters, geographically dispersed facilitiesPrimary customers:
Intelligence AgenciesDoD, DHSCivilian AgenciesState & Local Governments
Key programs: Virginia IT OutsourcingNew York City WirelessNational Health Information NetworkDefense Integrated Military HR SystemRestricted Programs
Strong Pipeline of New Business, Strong Pipeline of New Business, Projecting High SingleProjecting High Single--Digit GrowthDigit Growth
2006E Sales
Civilian Agencies
29%
Intelligence
32%
Defense
22%
Commercial, State & Local
17%
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The IT Market Is Large, Growing & Diverse
Majority of IT sector’s sales are from outside DoDFastest growing segments include:
State/Local – NYC Wireless, Virginia, San DiegoHealth IT – CDC, DoD Electronic Health RecordInternational – IDENT1
Lead sector for corporate initiatives:Homeland Security – Homeland Secure Data Network, MaxHRInformation Operations – Army First IO Command
Robust pipeline of new business opportunities:Uni-Comm, UK Military Flight Training System, Intelligence Programs, First Responder Wireless Opportunities1,100 proposals in process
Strategic focus on key growth segmentsStrategic focus on key growth segments
Focus on Performance
Emphasis on program executionHigher award fee grades, improved profitability on fixed-rate/fixed-price contracts
Cost reduction initiativesMaximize facilities utilizationImplementation of a single ERP system
Repeatable solutionsIT outsourcing, enterprise architecture, wireless marketplaces
Process improvement initiativesBilling cycle reductionsProcurement and payable processes
Reduction in capital expendituresAggressive focus on contract structure
Milestone payments, interim billing, etc.
Committed to continued margin expansionCommitted to continued margin expansionand increased cash generationand increased cash generation
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M A
R G
I NM
A R
G I N
C A
S H
C A
S H
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Summary
Diverse market mix drives growth and reduces riskSignificant growth opportunities with key current customers
DoD, Intelligence Community, Civil Agencies, State & LocalLeverage capabilities to expand presence in key growing markets
Secure WirelessIT OutsourcingSecurity/Information AssuranceHealth ITEnterprise Business ApplicationsSelect International Opportunities
Combination of growth and program performance will drive improvements in margin and cash
Positioned for growth and strongPositioned for growth and strongfinancial performancefinancial performance
Copyright 2006 Northrop Grumman Corporation8
Success with Approaching Adjacencies
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Mission Systems Overview
November 9, 2006
Jerry AgeePresidentNorthrop Grumman Mission Systems
2006 Institutional Investor Conference
Copyright 2006 Northrop Grumman Corporation10
Sector at a Glance. . .
$11B Current Total Backlog$11B Current Total Backlog
2006E Sales2006E Sales2006E Sales
$5.5B – 2005 Actual Sales (adjusted for Radio Systems)17,000 employees, 47 states, 19 countriesPrimary customers
Air Force Army NavyRestricted MDA
Key programsICBM Prime Integration ContractKinetic Energy InterceptorsJoint Warfighting CenterF/A-22 and F-35 CNIBlue Force TrackingGlobal Command & Control System
Note: Information presented on a pro forma basis to reflect 2007 organizational realignment
Command, Control &
Communications50%
Missile Systems
26%
Intelligence, Surveillance & Reconnaissance
24%
Copyright 2006 Northrop Grumman Corporation11
Margin InitiativesPursue opportunities/markets with higher returnsDeemphasize/exit markets with substandard returnsAdhere to strict program risk management strategies and tacticsBid higher margins/reduce indirect costsLeverage competitive excellence initiatives
Focus on Performance
15% Fixed
>90% Development / Integration / Services
<10% Manufacturing / Production
ProductProduct
85% Cost (includes T&M)Contract Contract TypeType
Business Mix Performance Trends
Pro forma financials reflecting 2007 organizational realignment
Sales and Margin %
0
1
2
3
4
5
6
2003 2004 2005
Sale
s ($
B)
6.5%
7.0%
7.5%
8.0%
Sales ($B)Margin %
Mar
gin
%
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Command, Control & Communications
Products/OfferingsProducts/OfferingsProducts/Offerings
Major OpportunitiesMajor OpportunitiesMajor Opportunities
Command, Control & Information SystemsTactical Operations CentersNetworks, Communications & InteroperabilitySystem Engineering and AnalysisCommunication, Navigation and IdentificationSoftware Defined Radios
Joint Network NodeNetwork Comms OpportunitiesGlobal Command and Control – Maritime
Blue Force Tracking Command Post PlatformGlobal Command & Control SystemJoint Warfighting CenterF/A-22 & F-35 Communication, Navigation and Identification
U.S. Army, Air Force, Navy and Department of Defense (Including Joint Forces)
Key CustomersKey CustomersKey Customers
Major ProgramsMajor ProgramsMajor Programs
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Intelligence, Surveillance and Reconnaissance
Products/OfferingsProducts/OfferingsProducts/Offerings
Major OpportunitiesMajor OpportunitiesMajor Opportunities
Signals Intelligence and Exploitation SystemsPayload SoftwareInformation OperationsSpecial IntelligenceMulti-INT IntegrationSatellite Ground Stations
Guardrail Modernization / ACSGPS OCXRestricted
Airborne Signals Intelligence PayloadSurvivorGuardrailDiamondRestricted
Intelligence CommunityU.S. Army, Air Force, Navy
Key CustomersKey CustomersKey Customers
Major ProgramsMajor ProgramsMajor Programs
Copyright 2006 Northrop Grumman Corporation14
Missile Systems
Products/OfferingsProducts/OfferingsProducts/Offerings
Major OpportunitiesMajor OpportunitiesMajor Opportunities
Inter-Continental Ballistic Missile (ICBM)Battle Management Command and Control Systems
Integrated Air & Missile DefenseAdjunct SensorKEI International / Sea Basing
ICBM Prime Integration ContractGround-Based Midcourse Defense SegmentJoint National Integration CenterKinetic Energy Interceptors
ICBM System Program OfficeU.S. Air ForceU.S. Strategic CommandMissile Defense Agency
Key CustomersKey CustomersKey Customers
Major ProgramsMajor ProgramsMajor Programs
Copyright 2006 Northrop Grumman Corporation15
Trusted Provider of Mission-Enabling Systems
Provide thought leadership
Deliver technically differentiated, fully integrated solutions
Consistent performance / track record
Provide thought leadership
Deliver technically differentiated, fully integrated solutions
Consistent performance / track record
Competing and performing as a Tier 1 playerCompeting and performing as a Tier 1 player
Trusted partner and thought leaderTrusted partner and thought leader
Copyright 2006 Northrop Grumman Corporation16
Technical ServicesOverview
November 9, 2006
James CameronPresidentNorthrop Grumman Technical Services
2006 Institutional Investor Conference
Copyright 2006 Northrop Grumman Corporation17 * Funded & Unfunded Backlog** Includes JVs
Sector at a Glance. . .18,304 employees**Sites: 285** all 50 States and 29 Countries
Primary customers:DoD DHSDoE NASADoS
Key missions:“City” Managers: Kennedy Space Center; Nevada Test Site; Ft. Eustis; Incerlik, Turkey
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 Range Complex
Physical and Electronic Security: Space Gateway Support; Qatar
Performance Based Logistics and Supply Chain Management: Whiteman AFB; Tinker AFB; Robins AFB
Training: Live, Virtual and Constructive Domains
$4.3B Total Backlog*$4.3B Total Backlog*
2006E Sales
NASA
23%
DoD
50%
DoE
15%
* including DHS, DoS, etc
Other*
12%
Customer Sales Profile
Copyright 2006 Northrop Grumman Corporation18
Examples Of What We Do and Where We Do It
Space Gateway Support – Kennedy Space Center
Hunter Support –Sierra Vista, AZ with deployed Teams in OIF
Korean Battle Simulation Center –Yongsan, South Korea
Saudi Arabian National Guard –Riyadh, SA
African Contingency Operations and Training Assistance
Tactical Training
Ranges –East and
West Coasts
Nevada Test Site
B2 Supply Chain Management –Whiteman AFB, MS
Battle Command Training Branch – Ft. Hood, TX
Citizenship and Immigration Service –All 50 States (136 Centers)
Copyright 2006 Northrop Grumman Corporation19
Market EnvironmentCore business
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
Infrastructure and ProductDevelopment
Preparednessand
Training
Operationsand
Maintenance
ModernizationThrough
Sustainment
NG Development Sectors NG Technical Services
$75B DoD Addressable Market$55B NASA, DoE, DHS,
DoS Market
NG Dev~35% DOD Budget ~65% DOD Budget
Copyright 2006 Northrop Grumman Corporation20
Delivered 2006 Performance
New Programs – Recent WinsNevada Test Site (DOE)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)
Financial Performance
Realizing immediate impact of new NGTS organization!
Double-digit organic growthOutstanding cash contributionsSolid mid-single digit margins
Year-Over-Year Organic Growth
2003 2004 2005 2006E 2007E
Copyright 2006 Northrop Grumman Corporation21
Strategic Thrusts & Growth Expectations
Strategic Thrusts Capitalize on “integrated” NOC pedigree and “reach back”Leverage services and MRO businesses through a tactical and strategic focus Exploit a growing DoD marketGrow existing position in adjacent markets (DOE, DOS, NASA, DHS, etc)Expand international footprint
Growth Expectations Expect double digit growth
SSG
TSG
LCOE
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Focus on Performance
GrowthDeliver consistent year-over-year double digit growthLeverage robust pipeline Key: identifying/qualifying new business pursuits. Have increased at a ratio of more than 3 to 1
MarginFocus on higher margin market segments - logistics & trainingEnhance contract mix with an increase in performance-based and fixed-price contracts“Manage with leading indicator metrics in a continuous process improvement environment”
CashDrive strong working capital performanceExecute with minimal capital utilization
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Summary
Vision and strategiesBe the best in the world at what we doDeliver superior performance on ALL programs
DoD businessRepresents only half of our portfolioStrong integrated NOC pedigree offers great opportunity for rapid organic growth
Non-DoD businessAlready possess a diverse portfolio in adjacent markets
Sales/Margin/Cash driversDriving double digit top-line growthSolid, mid-single digit margin performance todayBusiness base has highly favorable capital utilization yielding strong returns