Northrop Grumman 2012 Annual Report Download - page 43

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NORTHROP GRUMMAN CORPORATION
-33-
Product costs in 2011 decreased by $981 million, compared to 2010, due to the decline in sales volume.
Specifically, Aerospace Systems sales decreased by approximately $600 million due to declines in space and
military aircraft programs, partially offset by sales increases in advanced concepts and technology.
Service Sales and Service Costs
2012 - Service sales in 2012 decreased $415 million, compared to 2011, primarily due to lower service sales at
Information Systems across a number of programs, partially offset by the transitioning of the ICBM program from
product to service at Technical Services and higher service volume at Electronic Systems.
Service costs in 2012 decreased $544 million, due to lower sales at Information Systems, partially offset by the
transitioning of the ICBM program from product to service at Technical Services, as described above, and higher
service volume at Electronic Systems. The service activities at Aerospace Systems and Electronic Systems were at
higher margin than the prior year, resulting in service costs decreasing more than service sales.
2011 - Service sales in 2011 decreased $684 million, compared to 2010, primarily due to the reduced participation
by Technical Services in the NSTec joint venture, resulting in no sales recorded for the joint venture in 2011,
compared to $579 million in 2010, and lower sales volume on defense and civil programs at Information Systems.
Service costs in 2011 decreased $790 million, due to the overall decline in sales for the period and margin rate
improvements at Information Systems, Technical Services and Electronic Systems, offset somewhat by an
unfavorable margin rate change at Aerospace Systems. Contributing to the overall decline in revenues was the
company's reduced participation in the NSTec joint venture, which resulted in the deconsolidation of this business in
2011. NSTec contributed revenues of $579 million and segment cost of sales of $559 million in 2010 when it was
included in Technical Service's sales, thus driving a 80 basis point improvement in margin rate for this segment.
More modest margin rate improvements at Electronic Systems and Information Systems effectively offset the
decline in margin rate at the Aerospace Systems business.
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.
On January 1, 2012, the company transferred its missile business, previously reported in Aerospace Systems to
Technical Services. As a result of this realignment, $599 million of backlog was transferred from Aerospace Systems
to Technical Services. Total backlog as of December 31, 2011, reflects this transfer.
Backlog consisted of the following at December 31, 2012 and 2011:
2012 2011
$ in millions Funded Unfunded Total
Backlog Total
Backlog
Aerospace Systems $11,103 $ 8,491 $19,594 $18,638
Electronic Systems 7,833 1,638 9,471 9,123
Information Systems 4,045 4,496 8,541 8,563
Technical Services 2,719 484 3,203 3,191
Total backlog $25,700 $15,109 $40,809 $39,515
Approximately $21.4 billion of the $40.8 billion total backlog at December 31, 2012, is expected to be converted
into sales in 2013. Total U.S. Government orders, including those made on behalf of foreign governments,
comprised 82 percent of the total backlog at the end of 2012. International orders accounted for 12 percent of the
total backlog at the end of 2012. Domestic commercial backlog represented 6 percent of total backlog at the end of
2012.
New Awards
2012 –The estimated value of contract awards booked during 2012 is $26.5 billion. Significant new awards during
2012 include $1.7 billion for the NATO AGS Unmanned System program, $1.4 billion for the JWST program, $1.3
billion for the F-35 program, $1.2 billion for the E-2D Advanced Hawkeye program, $1.0 billion for international air
defense programs and $689 million for the Global Hawk program.