Northrop Grumman 2011 Annual Report Download - page 57

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NORTHROP GRUMMAN CORPORATION
The following table presents funded and unfunded backlog by segment for the year ended December 31, 2011 and
total backlog for the year ended December 31, 2010:
2011 2010
$ in millions Funded Unfunded
Total
Backlog
Total
Backlog
Aerospace Systems $ 9,614 $ 9,623 $19,237 $20,868
Electronic Systems 7,307 1,816 9,123 10,147
Information Systems 4,123 4,440 8,563 10,590
Technical Services 2,156 436 2,592 5,237
Total backlog $23,200 $16,315 $39,515 $46,842
Backlog is converted into the following years’ sales as costs are incurred or deliveries are made. Approximately 59
percent of the $39.5 billion total backlog at December 31, 2011, is expected to be converted into sales in 2012.
Total U.S. Government orders, including those made on behalf of foreign governments, comprised 87 percent of
the total backlog at the end of 2011. Total foreign customer orders accounted for 7 percent of the total backlog at
the end of 2011. Domestic commercial backlog represented 6 percent of total backlog at the end of 2011.
Backlog Adjustments
In the fourth quarter of 2011, we changed our backlog measurement criteria to include a valuation adjustment for
open, unfulfilled contracts that in our judgment, may not be converted to future sales, but which have not been
closed or de-obligated by the customer. Under our prior criteria, backlog represented remaining work effort to be
incurred on signed contracts in process; or open contract value generally related to either: 1) work scope not fully
utilized by the customer, and 2) open contract value related to the close-out of overhead claim years. Based on this
prior criteria, backlog was reduced as revenue was recognized or as the customer took contract action to close
contracts and/or de-obligate funds. Our recent experience indicates that our customers have not been timely in
taking the aforementioned contract actions. Accordingly, effective December 31, 2011, we have modified our
criteria to include the recognition of a valuation reserve to adjust our outstanding backlog to reflect our future
contract revenue expectations. The effects of this change in procedures reduced December 31, 2011 backlog by $3
billion, including a reduction in the backlog at Information Systems by $2.3 billion and Technical Services by
$725 million.
2011 – Total backlog was reduced by $1.7 billion at Technical Services to reflect a change in the company’s
participation in the NSTec joint venture effective January 1, 2011, at which time the NSTec joint venture results
were no longer consolidated into the company’s consolidated financial statements. Total backlog was also reduced
by an aggregate of $1.5 billion at Aerospace Systems to reflect restructuring and termination of certain space
programs.
2010 – A $1.1 billion reduction in backlog was recorded in 2010 as a result of the restructure of the NPOESS
program at our Aerospace Systems segment.
Backlog was also impacted in 2010 by an agreement we reached with the Commonwealth of Virginia related to
the VITA contract. The agreement defined minimum revenue amounts for the remaining years under the base
contract and extended the contract for three additional years through 2019. We recorded a favorable backlog
adjustment of $824 million for the definitization of the base contract revenues for years 2011 through 2016, while
the contract extension and 2010 portion of the base contract revenues, totaling $802 million, were recorded as
new awards in the period in our Information Systems segment.
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