Business Environment (1998)

EnvironmentEnvironment

Failing MergerReduced DOD Spending / B-2 Phase-DownResulting In…Major Decline in Business BaseDriving…Excess Assets Across …Multiple Sites With Diverse Processes, Systems, PoliciesRequiring…Rationalization and “Return” to Growing Shareholder Value

SituationSituation

• Consolidate • Integrate• Streamline

• Consolidate • Integrate• Streamline

MADMAD CADCAD ESIDESIDBusiness(4)

No. Sites(17)

Population(31,000)

Transform to a New Industry ParadigmTransform to a New Industry Paradigm

6,000

5 45

9,700 6,300

Mandate For Transformation

B-2B-2

9,000

3

Bringing Together...

The Enterprise’s Capabilities on a New Scale

• Common Systems• Shared Services

• LEAN Enterprise Concept• Technology Leveraging

ACS(MAD & B-2)

ACS(MAD & B-2)

Systems & Subsystems Design, Manufacturing

& Support

Systems & Subsystems Design, Manufacturing

& Support

AGS&

BM

AGS&

BM

AEW&

EW

AEW&

EWAerostructuresAerostructures

• Prime Systems Contractor for Advanced Surveillance & Precision Strike Platforms

• Expertise as Structures & Subsystems Tier 1 Integrator

• Strengthened Alignment of Core Competencies

• Reduced Operating Cost

• Increased Critical Mass

• Prime Systems Contractor for Advanced Surveillance & Precision Strike Platforms

• Expertise as Structures & Subsystems Tier 1 Integrator

• Strengthened Alignment of Core Competencies

• Reduced Operating Cost

• Increased Critical Mass

SynergisticCombinationof Programs& Capabilities

New Sector

Greater Than The Sum of Its Parts (Integrated Systems)

Leading Change Focus Areas

Sustain Operational Excellence Throughout TransitionSustain Operational Excellence Throughout TransitionSustain Operational Excellence Throughout TransitionSustain Operational Excellence Throughout Transition

• Program Management

• Leadership Development

• Customer Advocacy

• Technology / New Concept Development

• Strategic Make / Buy

• Organic Capabilities

• Supplier Relationships

• Core Functional Competencies

• Business Processes/Systems

• Learning / Knowledge Sharing

GoodGoodGoodGood Operating PrinciplesOperating PrinciplesOperating PrinciplesOperating Principles GreatGreatGreatGreat

0

1000

2000

3000

4000

5000

6000

7000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Sal

es $

(M)

Perform, Position and Grow

Managed Defense Downturn (1998-2001) Sales Volume Reduced 16% – Population Reduced 43%– Facilities Footprint Reduced 4.3M Sq. Ft. – PP&E Dispositions of $560M– Labs / DP Infrastructure Down 50%

Invested in New Technology / Capabilities

Managed Defense Downturn (1998-2001) Sales Volume Reduced 16% – Population Reduced 43%– Facilities Footprint Reduced 4.3M Sq. Ft. – PP&E Dispositions of $560M– Labs / DP Infrastructure Down 50%

Invested in New Technology / Capabilities

Facilities Sq. Ft15M

11M 9M

Downturn Baseline

Emerged from drawdown positioned for future growth

Major SDD transition to early production / significant ’07-’08 new business opportunities

Emerged from drawdown positioned for future growth

Major SDD transition to early production / significant ’07-’08 new business opportunities

New Business• Global Hawk EMD / Prod.• F-35 SDD• MP-RTIP / E-10A• F/A-18 / B-2 RMP• E-2D / ICAP III / EA-18

Executing the Sector Plan

01998 1999 2000 2001

Sq

. F

t.

(M)

Facilities Sq Ft

PP&E Disposition

0

Bo

ok

Val

ue

($B

)

1998 1999 2000 2001

2001

Population

1998 1999 2000

(000

)

Data Processing*

20011998 1999 2000

($M

)

0

10

20

30

40

0

100

150

200

300

5.6M Sq. Ft.Reduction

(37%)

5.6M Sq. Ft.Reduction

(37%)

$1.1BDisposition

(75%)

$1.1BDisposition

(75%)

15.315.1 15.1

11.1

31.0

16.0 13 12

1.76

250

1781561.18

1.441.30

.88

9,500 Total Reduction

(39%)

9,500 Total Reduction

(39%)

$63M / Yr Reduction

(35%)

$63M / Yr Reduction

(35%)

10

20

30

1.0

2.0

2002

10.0

2003

9.8

2004

9.7

2002

.89

2003

.94

2004

1.00

2002

12

2003

13

2004

15

2002 2003 2004

151

115 115 115 115

* Excludes IES Non-Recurring

Delivering Enterprise Growth & Return

2000 2006 Change

Sales $3,135 $5,500 75%

R&D % + 6.5 times

Margin $301 $551 83%

Avg. Assets -37%

ROAE + 3.0 times

• Solid sales, margin and cash expansions driven by technology and core business growth•Managing business mix change

and delivering results

• Significant new product investment …focus on asset utilization

•Maintaining strong balance sheet

Financial Results (ROAE)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2001 2002 2003 2004 2005 2006

0%

10%

20%

30%

40%

50%

Sales Avg. Assets ROAESales Avg. Assets ROAE

($M) (%)

Summary

Successfully managed the disruption associated with dramatic change

Transformed itself into a new paradigm within the Aerospace Industry

Consistently Produced outstanding operating results

Positioned the business strategically for growth

Continuous change adopted as a cultural norm

23289-018

Contributed to the Redefinition of Northrop GrummanContributed to the Redefinition of Northrop Grumman