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Northrop Grumman Northrop Grumman

Corporati on
J uly 2014 y
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, outlook, "anticipate, trends, guidance, "goals," and similar expressions generally identify these
forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, statements
relating to our future financial condition results of operations and cash flows Forward-looking statements are basedupon 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 performance and inherently involve a wide range of risks and uncertainties that are
difficult to predict. Specific 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, risks related to: the assumptions on which our guidance is based; our dependence
on U.S. Government contracts; the effect of economic conditions in the United States and globally; changes in government and
f f f customer priorities and requirements; government budgetary constraints; shifts or reductions in defense spending resulting from
budget pressures and/or changes in priorities, sequestration under the Budget Control Act of 2011, a continuing resolution with limited
new starts; the lack of annual appropriations legislation or otherwise; debt-ceiling limits and disruption to or shutdown of government
operations; timing of payments; changes in import and export policies; changes in customer short-range and long-range plans; major
program terminations; the acquisition, deferral, reduction or termination of contracts or programs; our non-U.S. business, including
legal, regulatory, financial, security and governmental risks related to doingbusiness internationally; the outcome of litigation, claims, legal, regulatory, financial, security and governmental risks related to doing business internationally; the outcome of litigation, claims,
audits, appeals, bid protests and investigations; our ability to recover certain costs under U.S. Government contracts; market
conditions; our ability to access capital; performance and financial viability of key suppliers and subcontractors; interest anddiscount
rates or other changes that may impact pension plan assumptions and actual returns on pension plan assets; the adequacy of our
insurance coverage and recoveries; the costs of environmental remediation; our ability to attract and retain qualified personnel;
changes in health care costs and requirements; changes in organizational structure and reporting segments; acquisitions, dispositions,
spin off transactions joint ventures strategic alliances and other business arrangements; possible impairments of goodwill or other spin-off transactions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other
intangible assets; the effects of legislation, regulations, and other changes in accounting, tax, defense procurement or other rules or
practices; technical, operational or quality setbacks in contract performance; availability of materials and supplies; controlling costs of
fixed-price development programs; domestic and international competition; potential security threats, information technology attacks,
natural disasters and other disruptions not under our control; and other risk factors and other important factors disclosed in our Form
10-K for the year ended December 31, 2013, and other filings with the Securities and Exchange Commission. You are urged to
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consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on forward-looking statements.
These forward-looking statements speak only as of the date of this release, and 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 companys use of these measures are included in this presentation.
The Northrop Grumman Value Proposition
Performance Performance
Cash Cash
Northrop Grumman Northrop Grumman
V l P iti V l P iti Cash Cash Value Proposition Value Proposition
Portfolio Portfolio
Northrop Grumman Today
AirForce
21%
Intl/
FMS
13%
Comml/
S&L
4%
Leading global security company
2014E Sales
21%
USNavy
22%
OtherUSGovt.
11%
Army
7%
13%
$35.6 billion total backlog (6/30/14)
Leading capabilities in:
Restricted
22%
C4ISR >45%
Unmanned >10%
Cyber / Logistics / Strike Aircraft ~30%
2014E Sales by Sector
Other <15%
Positioned for challenging environment
AS
IS
TS
10%
40%
ES
26%
24%
Focused on Performance / Aligned with Customer Priorities
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26%
Aerospace Systems
Large scale provider of manned and unmanned aircraft,
and space systems
L l t f hi
2013 Sales
Space
Other
3%
Large, long-term franchise programs
Manned: F-35, E-2D, F/A-18, EA-18G, B-2, J STARS
Unmanned: Global Hawk, NATO AGS, Triton, N-UCAS,
Fire Scout
Military
Aircraft
44%
Systems
26%
2013 Customer Contract Mix
Fire Scout
Space: AEHF, J WST
Restricted
T h l i ll diff ti t d tit
Unmanned
Systems
27%
Fixed
Cost
2013CustomerContractMix
Technologically differentiated competitor
Autonomous vehicle & sensor operations, advanced
materials, stealth & survivability, secure communications,
directed energy
42%
58%
gy
2013 Sales: $10 Billion
Total backlog: $16.7 Billion (6/30/14)
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Electronic Systems
Strong core ISR sensor capabilities &
information processing position
St l b l l tf iti
2013 Sales
Naval&
Other
6%
Strong global platform positions
Radar, electronic warfare, infrared
countermeasures
Positionedacross broad platformspectrum
ISR&
Targeting
42%
Land & Self
Marine
22%
Positioned across broad platform spectrum,
space to undersea
International presence
T h l i ll diff ti t d tit ith
2013 Customer Contract Mix
Land&Self
Protection
30%
Fixed
62%
Cost
38%
Technologically differentiated competitor with
world class manufacturing capability
2013 Sales: $7.1 Billion
62%
Total backlog: $9.6 Billion (6/30/14)
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Information Systems
Tier-one systems provider in Defense, Intelligence, and
Civil markets
Well positioned in high value domains
2013 Sales
Cyber
Federal&
Well positioned in high value domains
Air, land and sea Command and Control
Integrated Air and Missile Defense Systems
Leading aircraft Communications and airborne
Cyber
Solutions
25%
Intelligence
Systems
Defense
Technologies
22%
gateways
Full spectrum of Cyber capabilities
Air and space ISR payload and processing systems
Civil & Health missionsystems development
2013 Customer Contract Mix
Defense
Systems
34%
19%
Fixed
42%
Cost
58%
Civil & Health mission systems development
Shortest cycle business
2013 Sales: $6.6 Billion
58%
Total backlog: $6.7 Billion (6/30/14)
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Global Network
Technical Services
Highly competitive, agile and responsive
logistics & modernization organization
2013 Sales
Mission
Solutions&
Readiness
33%
Integrated
Logistics&
Modernization
67%
Growing share of logistics market
KC-10, A-10, EA PUP
T i i d i l i Training and simulation
U.S. Army Battle Combat Training Program
2013 Sales: $2.8 Billion
2013 Customer Contract Mix
Fixed
43%
Cost
57%
2013 Sales: $2.8 Billion
Total backlog: $2.6 Billion (6/30/14)
57%
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2013 Highlights
Strong performance
Met or exceeded guidance for every metric
7% EPS increase
5% increase in pension-adjusted EPS
(1)
12 5%segment operating margin rate
(1)
12.5% segment operating margin rate
( )
$2.8 billion cash from operations before discretionary pension
contribution
(1)
$2.4 billion free cash flow before discretionary pension contribution
(1)
$3 billion cash returned to shareholders through share repurchases ~$3 billion cash returned to shareholders through share repurchases
and dividends
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(1) Non-GAAP metric as defined and reconciled in the Appendix of this presentation
Q2 2014 Highlights
EPS increase 16% to $2.37
Strong segment operating margin rate
EPS guidance range increased to $9.15 - $9.35 g g $ $
$572M cash from operations; $456M free cash flow
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6.1M shares repurchased for $741M; 10.9M shares repurchased YTD
for $1.3B
31 7M h h d t d 60M l 50% 31.7M shares purchased toward 60M goal, >50%
$35.6B total backlog; $5.3B new awards
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(1) Non-GAAP metric as defined and reconciled in the Appendix of this presentation
2014 Guidance
Current 7/23/14 Prior 4/23/14
Sales ($B) 23.5 23.8 23.5 23.8
S t ti i t
(1)
L 12% 12% Segment operating margin rate
(1)
Low 12% ~12%
Operating margin rate Low 13% ~13%
EPS from continuing operations $9.15 - $9.35 $8.90- $9.15
Cash provided by operations ($B)
2.3 2.6 2.3 2.6
p y p ($ )
2.3 2.6 2.3 2.6
Free cash flow ($B)
(1)
1.7 2.0 1.7 2.0
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(1) Non-GAAP metric as defined in the Appendix of this presentation
2014 Sector Guidance Summary
Sector Sales ($B) OMRate %
Aerospace Systems 9.7 9.9 ~12%
Electronic Systems 6.8 7.0 Low to mid 15%
Information Systems 6.1 6.2 High 9%
Technical Services ~2.7 ~9%
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EPS Bridge
2013 Actual $8.35
Sales volume (0.40) (0.30)
Segment margin rate (0.30) (0.20)
Pension Income ~0.80
Share count ~0.85
Interest, taxes & other ~(0.15)
2014 Guidance $9 15 9 35 2014 Guidance $9.15 9.35
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Cash from Operations Bridge
$ 2013 Actual ($M) 2,483
Tax-affected pension pre-funding ~300
Segment operating margin ~(200)
Interest expense/Stock compensation ~(200)
Working Capital (100) - 100
Other 0 - 100 Other 0 100
2014Guidance ($M) 2,300 2,600
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Performance & Cash Deployment
Drive EPS Growth
$7.41
$7.81
$8.35
$7.47
$7.88
$8.00
$9.00
$6.32
$
$4.91
$6.30
$6.49
$ 00
$6.00
$7.00
$
$2.98
$4.44
$2.46
$3.00
$4.00
$5.00
$0 00
$1.00
$2.00
*
$0.00
2008 2009 2010 2011 2012 2013
EPS PensionadjusteddilutedEPS
*
1
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* Including impact of $570 million goodwill impairment charge
(1) Non-GAAP metric as defined and reconciled in the Appendix of this presentation
Operating Margin % by Sector
17.1% 17.1%
16%
18%
12.6%
13.4%
12.2%
14.5%
12.2%
12 1%
14%
16%
10.0%
11.6%
9.0%
9.7%
10.3%
8.9%
12.1%
9.6%
9.2%
10%
12%
7.3%
7.4%
6.7%
8.1%
6%
8%
* *
4%
AS ES IS TS
2009 2010 2011 2012 2013
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NORTHROP GRUMMAN PRIVATE/PROPRIETARY LEVEL I
Continued Focus on Cash Conversion
Free Cash Flow
(1)
/ Earnings from Continuing Operations
(2)
140%
125%
106%
120%
126%
125%
2008 2009 2010 2011 2012 2013
FCF/NI
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(1) Non-GAAP metric: free cash flow before impact of after-tax discretionary pension contributions defined and reconciled in
appendix of this presentation
(2) 2008 Earnings from continuing operations before $570 million goodwill impairment charge
Consistent Return of Cash to Shareholders
$2,500
$3,000
250
300
350
98%
153%
Cash Generation & Deployment
327
Shares Outstanding
138%
$500
$1,000
$1,500
$2,000
100
150
200
250
33% Reduction in number of net
shares outstanding since 2008
113%
117%
218
80%
$
2008 2009 2010 2011 2012 2013
FreeCashFlow fromContinuing Operations
AftertaxDiscretionaryPensionContributions
ShareRepurchasesand Dividends
0
50
2008 2009 2010 2011 2012 2013
$3 00
$2 80
1
$2.00
$2.50
$3.00
Average of 116% of reported FCF
1
distributed to
shareholders
At least $1.6 billion distributed annually to
shareholders while makingsubstantial discretionary
Annualized Dividend
$2.80
$1.60
$0.50
$1.00
$1.50
shareholders, while making substantial discretionary
pension contributions
15% quarterly dividend increase to $0.70 per share in
May 2014
27.3million shares repurchasedin 2013
75% increase - 9% CAGR
$0.00
2008 2009 2010 2011 2012 2013 2014
27.3 million shares repurchased in 2013
8% reduction in 2013 weighted average diluted
shares outstanding
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The Northrop Grumman Value Proposition
Performance Performance
Cash Cash
Northrop Grumman Northrop Grumman
V l P iti V l P iti Cash Cash Value Proposition Value Proposition
Portfolio Portfolio
2014 Pension Assumptions
2014 2013
Discount Rate (%) 4.99 4.12
Asset Returns (%) 8 00 8 00 Asset Returns (%) 8.00 8.00
Discretionary Funding ($M) 0 500
Net FAS / CAS Adjustment ($M) 440 168
CAS ($M) 555 542
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FAS ($M) (115) (374)
Non-GAAP Definitions & Reconciliations
Non-GAAP Financial Measures Disclosure: This presentation contains non-GAAP (accounting principles generally accepted in the
United States of America) financial measures, as defined by Securities and Exchange Commission (SEC) Regulation G and indicated
by a footnote in the text of this presentation. While we believe that these non-GAAP financial measures may be useful in evaluating
our financial information, they should be considered as supplemental in nature and not as a substitute for financial information y pp
prepared in accordance with GAAP. Other companies may define these measures differently or may utilize different non-GAAP
measures.
Cash provided by continuing operations before discretionary pension contributions: Cash provided by continuing operations before the
after-tax impact of discretionary pension contributions. Cash provided by continuing operations before discretionary pension
contributions has been provided for consistency and comparability of 2011 and 2010 financial performance . contributions has been provided for consistency and comparability of 2011 and 2010 financial performance .
Free cash flow from continuing operations: Cash provided by continuing operations less capital expenditures and outsourcing contract
and related software costs. We use free cash flow from continuing operations as a key factor in our planning for and consideration of
strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a
measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance
with GAAP with GAAP.
Free cash flow from continuing operations before discretionary pension contributions: Free cash flow from continuing operations
before the after-tax impact of discretionary pension contributions. We use free cash flow from continuing operations before
discretionary pension contributions as a key factor in our planning for, and consideration of, strategic acquisitions, stock repurchases
and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for
discretionarypurposes or as an alternative to operating results presentedin accordance with GAAP Free cash flowfromcontinuing discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow from continuing
operations before discretionary pension contributions, also referred to as pension-adjusted free cash flow from continuing operations.
Segment operating income: Total earnings from our four segments including allocated pension expense recognized under CAS.
Reconciling items to operating income include the net FAS/CAS pension adjustment, as defined above, as well as certain corporate-
level expenses, which are not considered allowable or allocable under applicable CAS or FAR.
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Segment operating margin % / Segment operating income as a % of sales: Segment operating income as defined above, divided by
sales. Management uses segment operating income as a % of sales as an internal measure of financial performance.
Non-GAAP Definitions & Reconciliations
Pension-adjusted diluted EPS from continuing operations: Diluted EPS from continuing operations excluding the after-tax net pension
adjustment per share, as defined below. These per share amounts are provided for consistency and comparability of operating results.
Management uses pension-adjusted diluted EPS from continuing operations as an internal measure of financial performance.
Net pension adjustment: Pension expense determined in accordance with GAAP less pension expense allocated to the operating Net pension adjustment: Pension expense determined in accordance with GAAP less pension expense allocated to the operating
segments under U.S. Government Cost Accounting Standards (CAS).
After-tax net pension adjustment per share: The per share impact of the net pension adjustment as defined above, after tax at the
statutory rate of 35%, provided for consistency and comparability of 2012 and 2011 financial performance.
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Non-GAAP Reconciliations Pension-Adjusted
EPS from Continuing Operations
in millions, except EPS 2013 2012 2011 2010 2009 2008
O ti I 3123 $ 3130 $ 3276 $ 2827 $ 2274 $ 2076 $ Operating Income 3,123 $ 3,130 $ 3,276 $ 2,827 $ 2,274 $ 2,076 $
Net Pension Adjustment (168) (132) (400) (10) 237 (272)
Pension adjusted Operating Income 2,955 $ 2,998 $ 2,876 $ 2,817 $ 2,511 $ 1,804 $
EPS fromcontinuing operations 8.35 7.81 $ 7.41 $ 6.32 $ 4.44 $ 2.98 $
Goodwill impairment charge 1.67
4.65
After-tax net pension adjustment per share (0.47) (0.34) (0.92) (0.02) 0.48 (0.52)
Pension adjusted EPS 7.88 $ 7.47 $ 6.49 $ 6.30 $ 4.92 $ 4.13 $
Weighted avg. shares diluted 233.9 253.4 281.6 301.1 323.3 341.6
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Non-GAAP Reconciliations Pension-adjusted
Cash Metrics
($ millions) 2013 2012 2011 2010 2009 2008
Cash provided by continuing operations before Cash provided by continuing operations before
discretionary pension contributions
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2,806 $ 2,833 $ 2,995 $ 2,595 $ 2,328 $ 2,796 $
After-tax discretionary pension pre-funding impact (323) (193) (648) (539) (333) (91)
Cash provided by continuing operations 2,483 $ 2,640 $ 2,347 $ 2,056 $ 1,995 $ 2,705 $
Less:
Capital expenditures (364) (331) (488) (579) (473) (463)
Outsourcing contract & related software costs - - (4) (6) (68) (110)
Free cash flow fromcontinuing operations
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2119 $ 2309 $ 1855 $ 1471 $ 1454 $ 2132 $
Free cash flow fromcontinuing operations
2,119 $ 2,309 $ 1,855 $ 1,471 $ 1,454 $ 2,132 $
After-tax discretionary pension pre-funding impact 323 193 648 539 333 91
Pension-adjusted free cash flow fromcontinuing
operations
1
2,442 $ 2,502 $ 2,503 $ 2,010 $ 1,787 $ 2,223 $
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Non-GAAP Reconciliations
Segment Operating Income
Fourth Quarter Twelve Months
$ millions 2013 2012 2013 2012
Sales $ 6,157 $ 6,476 $ 24,661 $ 25,218
Segment operating income 772 875 3080 3176 Segment operating income 772 875 3,080 3,176
Segment operating margin rate 12.5% 13.5% 12.5% 12.6%
Reconciliation to operating income
Net FAS/CAS pension adjustment $ 43 $ 31 $ 168 $ 132
Unallocated corporate expenses (46) (79) (119) (168)
Other (1) (3) (6) (10)
Operating income $ 768 $ 824 $ 3123 $ 3130 Operating income $ 768 $ 824 $ 3,123 $ 3,130
Operating margin rate 12.5% 12.7% 12.7% 12.4%
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Non-GAAP Reconciliations
Free Cash Flow
Second Quarter Six Months
$ millions 2014 2013 2014 2013
Cashprovided by operating activities before
discretionary pension contributions $ 572 $ 740 $ 170 $ 741
After-tax discretionary pension pre-funding impact -- (412) -- (412)
Net cashprovided by operating activities $ 572 $ 328 $ 170 $ 329
Less:
Capital Expenditures (116) (48) (176) (88) p p ( ) ( ) ( ) ( )
Free cashflow $ 456 $ 280 $ (6) $ 241
After-Tax discretionarypension pre-funding impact -- 412 -- 412
Free cash flowprovided by (used in) operating
activities before discretionary pension contributions $ 456 $ 692 $ (6) $ 653
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