Northrop Grumman 2009 Annual Report Download - page 48

$ in millions 2009 2008 2007
Year Ended December 31
Segment operating income (loss) $2,929 $(299) $3,025
Unallocated expenses (111) (157) (209)
Net pension adjustment (311) 263 127
Royalty income adjustment (24) (70) (18)
Total operating income (loss) $2,483 $(263) $2,925
Segment Operating Income (Loss)
2009 – Segment operating income in 2009 was $2.9 billion as compared with segment operating loss of
$299 million in 2008 and segment operating income of $3.0 billion in 2007. The loss in 2008 was primarily due
to a goodwill impairment charge totaling $3.1 billion at Aerospace Systems and Shipbuilding.
Unallocated Expenses
Unallocated expenses generally include the portion of corporate expenses not considered allowable or allocable
under applicable CAS regulations and FAR, and therefore not allocated to the segments, for costs related to
management and administration, legal, environmental, certain compensation and retiree benefits, and other
expenses. Unallocated expenses for 2009 decreased $46 million, or 29 percent, as compared with 2008, primarily
due to a gain resulting from a legal settlement, net of legal provisions and related expenses, partially offset by
higher costs related to environmental remediation and post-retirement employee benefits. Unallocated expenses
for 2008 decreased $52 million, or 25 percent, as compared with 2007 primarily due to $88 million in higher
legal and investigative provisions recorded in 2007, partially offset by an increase in environmental, health and
welfare, and other unallocated corporate costs in 2008.
Net Pension Adjustment – Net pension adjustment reflects the difference between pension expense determined in
accordance with GAAP and pension expense allocated to the operating segments determined in accordance with
CAS. The net pension adjustment in 2009 was an expense of $311 million, as compared with income of
$263 million and $127 million in 2008 and 2007, respectively. The net pension expense in 2009 was primarily
the result of negative returns on plan assets in 2008. The income in 2008 and 2007 was due to decreased GAAP
pension expense, primarily resulting from better-than-estimated investment returns in prior years and higher
discount rate assumptions.
Royalty Income Adjustment – Royalty income is included in segment operating income and reclassified to other
income for financial reporting purposes. See Other, net below.
Interest Expense
2009 – Interest expense in 2009 decreased $14 million, or 5 percent, as compared with 2008. The decrease is
primarily due to higher capitalized interest and lower interest rates.
2008 – Interest expense in 2008 decreased $41 million, or 12 percent, as compared with 2007. The decrease is
primarily due to the conversion and redemption of the mandatorily redeemable convertible preferred stock in
April 2008, which reduced the related dividends paid during 2008 (which were recorded as interest expense in
the accompanying consolidated statements of operations in Part II, Item 8). Lower LIBOR rates on the interest
rate swap agreements also contributed to the decrease in interest expense.
Other, net
2009 – Other, net for 2009 was $64 million income, an increase of $26 million as compared with 2008,
primarily due to positive mark-to-market adjustments on investments in marketable securities used as funding for
non-qualified employee benefits and a gain from the recovery of a loan to an affiliate, partially offset by
$60 million of royalty income from patent infringement settlements in 2008.
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NORTHROP GRUMMAN CORPORATION
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