Northrop Grumman 2012 Annual Report Download - page 14

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NORTHROP GRUMMAN CORPORATION
-4-
Mission Command Training Centers, CTC-IS, Joint Coalition Warfighting Center, and Saudi Arabian National
Guard.
Integrated Logistics and Modernization – provides complete life cycle product and weapon system sustainment and
modernization. The business area focuses on providing direct support to warfighters while delivering aircraft and
subsystem maintenance, repair, and overhaul (MRO); modernization of those platforms and systems; supply chain
management services, warehousing and inventory transportation, field services, and on-going weapons maintenance
and technical assistance. The business area specializes in quick reaction capability and deployed operations in
support of customers. Key programs include EA-PUP, Hunter, Triton, FireScout, LEMV, KC-10 and JSTARs.
SELECTED FINANCIAL DATA AND SEGMENT OPERATING RESULTS
For a more complete understanding of our business, see Selected Financial Data in Part II, Item 6. For a more
complete understanding of our segment financial information, see Segment Operating Results in Part II, Item 7, and
Note 4 to the consolidated financial statements in Part II, Item 8.
CUSTOMER CONCENTRATION
Our primary customer is the U.S. Government. Revenue from the U.S. Government (which includes foreign military
sales – a method to sell U.S. defense equipment and services to foreign governments through the DoD) accounted
for 90 percent or more of total revenues in each of the years ended December 31, 2012, 2011 and 2010. No single
product or service accounted for more than ten percent of total revenue during any period presented. See Risk
Factors in Part I, Item 1A.
COMPETITIVE CONDITIONS
We compete with many companies in the defense industry and the intelligence and civil markets. Lockheed Martin
Corporation, The Boeing Company, Raytheon Company, General Dynamics Corporation, L-3 Communications
Corporation, SAIC, BAE Systems Inc., EADS, and Finmeccanica SpA are our primary competitors. Key
characteristics of our industry include long operating cycles and intense competition, which is evident through the
number of bid protests (competitor protests of U.S. government procurement awards) and the number of competitors
bidding on program opportunities.
It is common in the defense industry for work on major programs to be shared among a number of companies. A
company competing to be a prime contractor may, upon ultimate award of the contract to another competitor,
become a subcontractor for the ultimate prime contracting company. It is not unusual to compete for a contract
award with a peer company and, simultaneously, perform as a supplier to or a customer of that same competitor on
other contracts, or vice versa.
SEASONALITY
No material portion of our business is considered to be seasonal.
BACKLOG
Total backlog includes both funded backlog (firm orders for which funding is contractually obligated by the
customer) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ)
contracts are not included in backlog, until the time the option or IDIQ task order is exercised or awarded. For multi-
year service contracts with non-U.S. Government customers having no stated contract values, backlog includes only
the amounts committed by the customer. Backlog is converted into sales as costs are incurred or deliveries are made.
At December 31, 2012, total backlog was $40.8 billion, compared with $39.5 billion at the end of 2011.
Approximately $21.4 billion of our backlog at December 31, 2012, is expected to be converted into sales in 2013.
For backlog by segment, see Backlog in Part II, Item 7.
RESEARCH AND DEVELOPMENT
Our research and development activities primarily include independent research and development (IR&D) efforts
related to U.S. Government programs. Company-sponsored IR&D efforts are included in general and administrative
expenses and are generally allocated to U.S. Government contracts, while customer-sponsored research and
development efforts are charged directly to the related contracts. Company-sponsored IR&D expenses totaled $520
million, $543 million, and $580 million in 2012, 2011, and 2010, respectively.
PATENTS
We routinely apply for and own a number of U.S. and foreign patents related to the products and services we
provide. In addition to owning a large portfolio of proprietary intellectual property, we license some intellectual