Slide 1: Northrop Grumman Fourth Quarter and Full-Year 2018 Conference Call
Northrop Grumman Fourth Quarter and Full-Year 2018 Conference Call January 31, 2019 Kathy Warden Chief Executive Officer and President Ken Bedingfield Corporate Vice President and Chief Financial Officer
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation and the information we are incorporating by reference contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “anticipate,” “intend,” “may,
Slide 3: 2019 Guidance as of 1/31/19
2019 Guidance(1) as of 1/31/19 Sales ($B) ~34.0 Segment operating margin rate(2) Low to mid 11% Total Net FAS/CAS pension adjustment ($B)(3) ~1.2 Unallocated corporate expense ($M) Intangible asset amortization and PP&E step-up depreciation ~385 Other items ~250 Operating margin rate Mid to high 10%
Slide 4: 2019 Sector Guidance Summary
2019 Sector Guidance Summary Sector Sales Segment OM Rate Aerospace Systems High $13B Mid to High 10% Innovation Systems High $5B Mid 10% Mission Systems Low to Mid $12B ~13% Technology Services Low $4B Mid to High 9% 4
Slide 5: Pension Status
Pension Status 2018 2019 Actual Assumptions Discount rate 3.68% 4.31% Net asset return (3.5%) 8.0%* 2018 2019 Actual Estimates Total Net FAS/CAS adjustment ($M) 1,662 ~1,200 CAS ($M) 1,017 ~770 Total Net FAS benefit ($M) 645 ~430 Mark-to-market ($M) (655) N/A 5 * Long-term rate of return assumption
Slide 6: 2019 – 2021 Pension Estimates ($M)
2019 – 2021 Pension Estimates ($M)(1) 2019E 2020E 2021E Total Net FAS/CAS adjustment ~1,200 ~1,340 ~1,600 CAS ~770 ~850 ~1,100 FAS service expense ~(370) ~(350) ~(330) FAS non-service benefit ~800 ~840 ~830 Required Funding ~90 ~220 ~410 (1) Assumes a 4.31% discount rate and an 8% long-term rate of
Slide 7: Pension Sensitivities
Pension Sensitivities*(1) 2019 Mark-to-Market/ Net Pension Liability Inc/(Dec) to Expense ($M) +25 bps ~(1,000) Discount rate -25 bps ~1,000 +100 bps ~(275) Plan asset returns -100 bps ~275 2020+ Non-Service FAS Inc/(Dec) to Expense ($M) +25 bps ~35 Discount rate -25 bps ~(35) +100 bps ~(25) Plan as
Slide 8: Intangible Asset Amortization and PP&E Step-up Depreciation Schedule
Intangible Asset Amortization and PP&E Step- up Depreciation Schedule ($ Millions) 2019 2020 2021 2022 2023 Amortization of OA Purchased Intangibles 320 255 197 190 72 Amortization of Other Purchased 11 7 7 7 6 Intangibles Step-up Property, Plant & Equipment 55 51 50 44 43 Depreciation Total 386 313
Slide 9: 2018 to 2019E MTM-adjusted EPS Bridge
2018 to 2019E MTM-adjusted EPS(1) Bridge (1) 2018 MTM Adjusted EPS $21.33 Segment Performance and Full Year NGIS ~1.70 - 1.90 Net Pension ~(2.00) 2018 Cost Claim Settlement ~(1.00) Full Year PI Amortization & PP&E Step-ups ~(.70) Tax Rate ~(.70) (1) 2019 MTM Adjusted EPS Guide $18.50 - $19.00 (1) No
Slide 10: Cash Performance Driven by Operations
Cash Performance Driven by Operations Cash Flow from Operations $4,500 4.0B $4,000 3.8B ~600M $3,500 ~600M* $3,000 2.6B $ Millions $2,500 ~300M* $2,000 ~3.4B 85% ~3.2B 84% $1,500 ~2.3B 88% $1,000 $500 $‐ 2017 2018 2019 Guide, Midpoint Net pension‐related cash flows (CAS pension expense less funding,
Slide 11: Appendix
2 oO = o 2 Q <x
Slide 12: Non-GAAP Definitions
Non-GAAP Definitions 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 SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the prese
Slide 13: Non-GAAP Reconciliations – Segment Operating Income
Non-GAAP Reconciliations – Segment Operating Income Twelve Months $ millions 2018 2017 Sales $ 30,095 $ 26,004 Segment operating income 3,447 2,903 Segment operating margin rate 11.5% 11.2% Reconciliation to operating income Net FAS (service)/CAS pension adjustment $ 613 $ 638 Unallocated corporate
Slide 14: Non-GAAP Reconciliations – MTM-adjusted net earnings and earnings per share
Non-GAAP Reconciliations – MTM-adjusted net earnings and earnings per share Twelve Months $ millions, except per share amounts 2018 2017 Net earnings $ 3,229 $ 2,869 MTM expense (benefit) 655 (536) MTM-related deferred state tax (benefit) (29) 24 expense1 Federal tax (benefit) expense of items above
Slide 15: Non-GAAP Reconciliations – Cash Flow Highlights
Non-GAAP Reconciliations – Cash Flow Highlights Twelve Months $ millions 2018 2017 Net cash provided by operating activities $ 3,827 $ 2,613 Less: capital expenditures (1,249) (928) Free cash flow $ 2,578 $ 1,685 15
Slide 16: The Value of Performance
THE VALUE OF PERFORMANCE. NORTHROP GRUMMAN a