Northrop Grumman 2012 Annual Report Download - page 42

NORTHROP GRUMMAN CORPORATION
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improvement is principally driven by higher margins on certain military aircraft programs at Aerospace Systems and
an increase in favorable performance adjustments across a number of programs at Electronic Systems.
2011 - Product costs as a percentage of product sales decreased 180 basis points for the year ended December 31,
2011, compared to 2010. The decrease reflects performance improvements in various programs at Aerospace
Systems and Electronic Systems, and lower amortization expense on purchased intangibles at Aerospace Systems.
Service costs as a percentage of service sales decreased 340 basis points for the year ended December 31, 2011,
compared to 2010. The decrease reflects performance improvements in various programs at Information Systems
and Technical Services, the effect of the sale of the County of San Diego contract at Information Systems, and the
change in participation in the NSTec joint venture at Technical Services.
The following table presents sales and operating costs and expenses by segment between product and service:
Year Ended December 31
$ in millions 2012 2011 2010
Segment Information: Sales
Operating
Costs and
Expenses Sales
Operating
Costs and
Expenses Sales
Operating
Costs and
Expenses
Aerospace Systems
Product $ 8,729 $ 7,704 $ 8,701 $ 7,622 $ 9,324 $ 8,262
Services 1,248 1,055 1,263 1,125 1,112 961
Electronic Systems
Product 5,346 4,438 6,041 5,161 6,410 5,479
Services 1,604 1,325 1,331 1,141 1,203 1,111
Information Systems
Product 708 606 486 430 535 476
Services 6,648 5,989 7,435 6,725 7,860 7,163
Technical Services
Product 213 196 501 456 475 433
Services 2,806 2,555 2,692 2,477 3,230 3,023
Segment Totals
Total Product $14,996 $12,944 $15,729 $ 13,669 $16,744 $14,650
Total Services 12,306 10,924 12,721 11,468 13,405 12,258
Intersegment eliminations (2,084) (1,826) (2,038)(1,780)(2,006)(1,775)
Total Segment(1) $25,218 $22,042 $26,412 $23,357 $28,143 $25,133
(1) The reconciliation of segment operating income to total operating income, as well as a discussion of the
reconciling items, is included in the Consolidated Operating Results — Operating Income section above.
Product Sales and Product Costs
2012 - Product sales in 2012 decreased by $733 million, compared to 2011, primarily due to lower product sales at
Electronic Systems and Technical Services, partially offset by higher product sales at Information Systems. The
decrease at Electronic Systems primarily relates to lower volume of approximately $90 million in combat avionics
and approximately $250 million in domestic and international postal automation programs. The decline at Technical
Services was due to the change in classification of the ICBM program from product to service at the beginning of
2012, as the program transitioned from modernization to predominantly sustainment services. The increase at
Information Systems was primarily driven by higher intercompany volume.
Product costs in 2012 decreased by $725 million, compared to 2011, primarily due to lower sales volume and
increased performance improvement adjustments at Electronic Systems and the change in classification of the ICBM
program at Technical Services, offset by higher product volume at Information Systems, as described above.
2011 - Product sales in 2011 decreased $1.0 billion, compared to 2010, primarily due to lower sales volume on space
and military aircraft programs at Aerospace Systems and lower sales volume in Land and Self Protection Systems at
Electronic Systems.