Northrop Grumman 2013 Annual Report Download - page 44

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NORTHROP GRUMMAN CORPORATION
-34-
classification from product to service, as described above, and higher volume on certain military aircraft service
contracts in 2013.
Service costs for 2013 decreased $553 million, or 5 percent, as compared with 2012, primarily due to lower service
volume at Information Systems, partially offset by higher service sales at Aerospace Systems, consistent with the
change in service sales described above.
2012 - Service sales for 2012 decreased $415 million, or 3 percent, as compared with 2011, primarily due to lower
service sales at Information Systems across a number of programs, partially offset by the transition of the ICBM
program from product to service at Technical Services and higher service volume at Electronic Systems.
Service costs for 2012 decreased $544 million, or 5 percent, as compared with 2011, due to lower sales at
Information Systems, partially offset by the transition 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 performed at higher operating margin rates than in 2011, resulting in service
costs decreasing more than service sales.
BACKLOG
Total backlog includes both funded backlog (firm orders for which funding is authorized and appropriated) 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.
Backlog consisted of the following at December 31, 2013 and 2012:
2013 2012
$ in millions Funded Unfunded Total
Backlog Total
Backlog
Aerospace Systems $10,061 $ 8,260 $18,321 $19,594
Electronic Systems 6,992 2,045 9,037 9,471
Information Systems 3,285 3,579 6,864 8,541
Technical Services 2,206 605 2,811 3,203
Total backlog $22,544 $14,489 $37,033 $40,809
Approximately $19.6 billion of the $37.0 billion total backlog at December 31, 2013, is expected to be converted
into sales in 2014. U.S. Government orders comprised 80 percent of total backlog at the end of 2013. International
orders, including foreign military sales, accounted for 14 percent of total backlog at the end of 2013. Domestic
commercial backlog represented 6 percent of total backlog at the end of 2013.
New Awards
2013 - The estimated value of contract awards recorded during 2013 was $21.9 billion. On a net basis, awards
during 2013 totaled $20.9 billion, reflecting $1.0 billion of adjustments during the first half of the year to reduce
Information Systems unfunded backlog principally associated with expired periods of performance on active
contracts, including several previously awarded task orders on IDIQ contracts. Significant new awards during 2013
include $2.2 billion for the F-35 program, $1.3 billion for the E-2D Advanced Hawkeye program, $866 million for
the AEHF program, $694 million for the B-2 program, and $632 million for the Triton program.
2012 - The estimated value of contract awards recorded during 2012 was $26.5 billion. Significant new awards in
2012 included $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.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure the most efficient conversion of operating earnings into cash for deployment in our business
and to maximize shareholder value. In addition to our cash position, we use various financial measures to assist in
capital deployment decision-making, including net cash provided by operating activities, free cash flow, net debt-to-
equity and net debt-to-capital. We believe these measures are useful to investors in assessing our financial
performance and condition.