Northrop Grumman CorporationAcquisition of Orbital ATK  September 18, 2017  Webcast 

 

 Forward Looking Statements   This communication may contain 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,” “goals” and similar expressions generally identify these forward-looking statements. Forward-looking statements include, among other things, statements relating to the Company’s future financial condition, results of operations and/or cash flows, expected benefits of the proposed acquisition, the timing of the proposed acquisition and financing the proposed acquisition. Forward-looking statements are based upon assumptions, expectations, plans and projections that the Company believes 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: those discussed in this communication, those identified under “Risk Factors” and other important factors disclosed in the Company’s Annual Report on Form 10-K and from time to time in the Company’s other filings with the SEC; the possibility that Orbital ATK stockholders may not approve the proposed acquisition; the possibility that the closing conditions of the proposed acquisition may not be satisfied; the possibility that regulatory approvals required for the proposed acquisition may not be obtained on acceptable terms, on the anticipated schedule, or at all; the possibility that long-term financing for the proposed acquisition may not be available on favorable terms, or at all; the risk that closing of the proposed acquisition may not occur or may be delayed, either as a result of litigation or otherwise; the occurrence of an event that could give rise to termination of the proposed acquisition; the risk that stockholder litigation in connection with the proposed acquisition may affect the timing or occurrence of the proposed acquisition or result in significant costs of defense, indemnification and liability; the possibility that anticipated benefits of the proposed acquisition may not be realized or may take longer to realize than expected; the possibility that costs related to the Company’s integration of Orbital ATK’s operations may be greater than expected and/or that revenues following the proposed acquisition may be lower than expected; the effect of the transaction on the ability of the Company and Orbital ATK to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers, including the U.S. Government; responses from customers and competitors to the proposed acquisition; the possibility that the Company’s business or Orbital ATK’s business may be disrupted due to transaction-related uncertainty; the risk that the proposed acquisition may distract the Company’s management from other important matters; the impact of legislative, regulatory and competitive changes; results from the proposed acquisition different than those anticipated; and the other risks and uncertainties detailed in Orbital ATK’s filings, including its Annual Report on Form 10-K, with the SEC.You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the forward-looking statements including the accuracy thereof. Forward-looking statements are based on information, plans and estimates as of the date they are made and there may be other factors that may cause actual results to differ materially from these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by applicable law.  2 

 

 Northrop Grumman to Acquire Orbital ATK  Complementary portfolio and skills enhance Northrop Grumman’s strategic capabilities and growth opportunitiesSignificant benefits to customer driven by accelerated innovation, new capabilities and enhanced competitionCompatible culture and shared valuesSignificant value creation potential from revenue, cost and operating synergiesSignificant revenue synergies from new business opportunities, particularly missiles & spaceEstimated $150M in annual cost savings by 2020Operating synergies including IRAD, customer coordination and program performanceCompelling financial benefitsEPS and FCF per share expected to be accretive in first full year following closingMaintain robust balance sheet with investment grade credit ratingStrong growth trajectory and cash flow generation enhance capital allocation flexibility  3 

 

 Orbital ATK – Highly Additive & Attractive Business  Leading technologies and complementary capabilitiesAttractive portfolio of programs with minimal overlapStrong customer relationshipsIncreases international opportunitiesTechnically skilled employee population and compatible cultureHighly regarded leadership  4 

 

 Transaction Highlights  5  Transaction  Northrop Grumman to acquire Orbital ATK for $134.50 per share in cashImplied equity value of ~$7.8B and enterprise value of ~$9.2B   Financing  Committed financing in placeInitial pro forma leverage of ~3.1x net debt to adjusted EBITDACommitment to strong investment grade credit rating  Timing / Approvals  Transaction unanimously approved by the Boards of Directors of both Orbital ATK and Northrop GrummanSubject to Orbital ATK shareholder approval, certain regulatory approvals and satisfaction of other customary conditionsEstimated close in H1 2018  Next Steps  Orbital ATK initially to operate as a new sector within Northrop Grumman 

 

 Orbital ATK  6  Created through 2015 merger of Orbital Sciences Corporation and ATK Aerospace and Defense~13,000 employees, including ~4,200 engineers and scientists$15.4B in total contract backlog2017 Financial GuidanceRevenue: $4.60 to $4.65 billion Operating Margin: 11.5% to 12.0%Free Cash Flow: $250 to $300 million 

 

     Selected Capabilities  Key Growth Areas  Flight Systems(35%)  Revenue ~$1.6BLaunch VehiclesPropulsion SystemsAerospace Structures  Engineering and integration of high-reliability launch systemsMedium / large solid rocket motorsComposite manufacturing for demanding applications    Defense Systems (40%)  Revenue ~$1.9BMissile ProductsArmament SystemsDefense ElectronicsAmmunition  Advanced propulsion, warhead and electronics technologyInnovative micro-precision munitions and gun systemsHigh-volume energeticsStrong international position    Space Systems (25%)  Revenue ~$1.2BSatellite SystemsAdvanced ProgramsSpace ComponentsTechnical Services  Small, high-performance satellitesAutonomous systemsMajor spacecraft componentsOperations and sustainment    Key Orbital ATK Capabilities  7    Commercial & Military Aero-structures  Medium / Large Space Launch Vehicles  Tactical Missiles & Subsystems  Small Precision Weapons    Defense & Science Satellites  In-Space Satellite Servicing   

 

 Benefits to Orbital ATK – Enhanced Technologies and Capabilities  Greater access to and coordination of investment resourcesIncreased competitiveness in select mission areasEnhanced ability to meet customer needsReach-back capabilities from current Northrop Grumman sectorsRetention of merchant supplier and supply chain relationships  8 

 

 Complementary Core Capabilities   Key Capabilities    Northrop Grumman2017E Sales: Low $25B    Orbital ATK2017E Sales: $4.60B to $4.65B             Aircraft    ü       Large Space Systems    ü       Small Space Systems         ü  Launch Vehicles & Propulsion         ü  Missiles & Munitions         ü  Radars, Sensors & Processing    ü       Cyber Systems    ü       Large Scale Logistics & Sustainment    ü       9 

 

 Significant Shareholder Value Creation Opportunities  10  Revenue Synergies  New business opportunitiesMissile and missile defenseSpaceRestricted    Cost Savings  Estimated to achieve $150M run rate by 2020Corporate and back-office integrationFacility optimizationOrganizational alignment    Operating Synergies  IRADCustomer coordinationProgram performance  Cash flowCap ExManufacturing and supply chain 

 

 Capital Deployment Priorities  Northrop Grumman will continue to invest for profitable growthContinued robust Cap Ex and IRADCapital StructureCommitted to solid investment grade credit ratingStrong cash flow generation supports near-term focus on debt reductionShareholdersCommitted to dividend payout ratio of 30% to 40% of economic net earningsShare repurchases remain an important component of capital deployment  11  Strong cash generation enables value creating capital deployment 

 

 Key Takeaways  Orbital ATK represents a strategic acquisition that benefits all key stakeholdersEnhances capabilities and growth potential in multiple marketsMeaningful value creation opportunity driven by strategic fit and synergiesStrong, complementary and diverse capabilities provide near- and long-term growth and enhanced competitionTransaction expected to be accretive to EPS and free cash flow per share in first full year of ownershipStrong combined cash flow generation supports Northrop Grumman’s strategic priorities and financial flexibility  12 

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THE VALUE OF PERFORMANCE.  NORTHROP GRUMMAN