Northrop Grumman 2014 Annual Report Download - page 37

NORTHROP GRUMMAN CORPORATION
-28-
The table below reconciles segment operating income to total operating income by including the impact of net FAS/
CAS pension adjustments, as well as certain corporate-level expenses, which are not considered allowable or
allocable under applicable CAS or FAR:
Year Ended December 31
$ in millions 2014 2013 2012
Segment operating income $ 3,099 $ 3,080 $ 3,176
CAS pension expense 384 542 506
Less: FAS pension expense (115)(374)(374)
Net FAS/CAS pension adjustment 269 168 132
Unallocated corporate expenses (169)(119)(168)
Other (3)(6)(10)
Total operating income $ 3,196 $ 3,123 $ 3,130
Net FAS/CAS Pension Adjustment
For financial statement purposes, we account for our employee pension plans in accordance with GAAP under FAS.
However, the cost of these plans is charged to our contracts in accordance with the FAR and the related CAS that
govern such plans. The net FAS/CAS pension adjustment reflects the difference of pension expense charged to
contracts and included as cost in segment operating income less pension expense determined in accordance with
GAAP.
2014 - The increase in net FAS/CAS pension adjustment is principally due to a reduction in FAS expense, largely
due to the increase in our FAS discount rate assumptions as of December 31, 2013. The reduction in FAS expense
was partially offset by lower CAS expense due to the passage of HATFA, which included provisions that reduce the
amount of CAS expense charged to our contracts.
2013 - The increase in net FAS/CAS pension adjustment reflects an update for actual demographic experience as of
January 1, 2013, which resulted in an increase to the company's 2013 CAS expense.
Unallocated Corporate Expenses
Unallocated corporate expenses generally include the portion of corporate expenses, other than FAS pension costs,
not considered allowable or allocable under applicable CAS and FAR rules, and therefore not allocated to the
segments, such as a portion of management and administration, legal, environmental, certain compensation and
retiree benefits, and other expenses.
2014 - The increase in unallocated corporate expense for 2014, as compared to 2013, is primarily due to increases in
year-over-year provisions for environmental matters.
2013 - The decrease in unallocated corporate expenses for 2013, as compared to 2012, is primarily due to lower
year-over-year provisions for disallowed costs and litigation matters and the favorable settlement of overhead
claims, partially offset by changes in deferred tax assets due to lower blended state income tax rates.
AEROSPACE SYSTEMS
Year Ended December 31
$ in millions 2014 2013 2012
Sales $ 9,997 $ 10,014 $ 9,977
Operating income 1,315 1,215 1,218
Operating margin rate 13.2% 12.1% 12.2%
2014 - Aerospace Systems sales for 2014 were comparable to 2013, and include the impact of the settlements
described in the Segment Operating Income section above. Excluding the settlements, Aerospace Systems had lower
sales in unmanned, space and manned military aircraft programs. The decrease in unmanned programs reflects
declines of $136 million on Global Hawk due to lower production activity and $111 million on Fire Scout as a result
of lower development activity. These declines were partially offset by $135 million of higher volume on the NATO
Alliance Ground Surveillance (AGS) program. The decrease in space programs was mainly due to lower volume on
the James Webb Space Telescope (JWST) and Advanced Extremely High Frequency (AEHF) programs. The
decrease in manned military aircraft programs was primarily the result of lower volume on the Joint Surveillance