Segment Information

12 Months Ended

Dec. 31, 2011

SEGMENT INFORMATION [Abstract]

7. SEGMENT INFORMATION

7. SEGMENT INFORMATION

The company is aligned into four reportable segments: Aerospace Systems, Electronic Systems, Information Systems, and Technical Services.

The company, from time to time, acquires or disposes of businesses and realigns contracts, programs or business areas among and within its operating segments that possess similar customers, expertise, and capabilities. Internal realignments are designed to more fully leverage existing capabilities and enhance development and delivery of products and services.

Segment Realignments – In January 2010, the company transferred its internal information technology services unit from the Information Systems segment to the company’s corporate shared services group. The intersegment sales and operating income for this unit that were previously recognized in the Information Systems segment are immaterial and have been eliminated for all periods presented.

Intersegment Eliminations – As of December 31, 2011, the company revised its reporting of intersegment cost of sales. Intersegment costs are now reported based on the predominant attributes of the customer contract, rather than the attributes of the intersegment work performed. As a result, in the consolidated statements of operations, cost of product sales have been retrospectively increased by $746 million and $318 million for 2010 and 2009, respectively, and cost of service revenues for the respective periods have been retrospectively decreased by the same amounts, while consolidated sales and service revenues, cost of sales and service revenues, and operating income remain unchanged.

U.S. Government Sales – Revenue from the U.S. Government (which includes Foreign Military Sales) includes revenue from contracts for which Northrop Grumman is the prime contractor as well as those for which the company is a subcontractor and the ultimate customer is the U.S. Government. All of the company’s segments derive substantial revenue from the U.S. Government. Sales to the U.S. Government amounted to $23.9 billion, $25.5 billion, and $25 billion, or 90.5 percent, 90.6 percent, and 90.3 percent, of total revenue for the years ended December 31, 2011, 2010, and 2009, respectively.

Foreign Sales – Direct foreign sales amounted to approximately $1.6 billion, or approximately 6 percent, of total revenue for each of the years ended December 31, 2011, 2010, and 2009.

Discontinued Operations – The company’s discontinued operations are excluded from all of the data elements in the following tables, except for assets by segment.

Assets – Substantially all of the company’s operating assets are located or maintained in the U.S.

Results of Operations By Segment

The following table presents sales and service revenues and operating income by segment:

	Year Ended December 31
$ in millions	2011				2010				2009
Sales and Service Revenues
Aerospace Systems		$	10,458			$	10,910			$	10,419
Electronic Systems			7,372				7,613				7,671
Information Systems			7,921				8,395				8,536
Technical Services			2,699				3,230				2,776
Intersegment eliminations			(2,038	)			(2,005	)			(1,752	)
Total sales and service revenues		$	26,412			$	28,143			$	27,650

	Year Ended December 31
$ in millions	2011				2010				2009
Operating Income
Aerospace Systems		$	1,261			$	1,256			$	1,071
Electronic Systems			1,070				1,023				969
Information Systems			766				756				624
Technical Services			216				206				161
Intersegment eliminations			(258	)			(231	)			(190	)
Total Segment Operating Income			3,055				3,010				2,635
Non-segment factors affecting operating income
Unallocated corporate expenses			(166	)			(182	)			(100	)
Net pension adjustment			400				10				(237	)
Royalty income adjustment			(13	)			(11	)			(24	)
Total operating income		$	3,276			$	2,827			$	2,274

Unallocated Corporate Expenses – Unallocated corporate expenses generally include the portion of corporate expenses not considered allowable or allocable under applicable U.S. Government Cost Accounting Standards (CAS) regulations and the Federal Acquisition Regulation (FAR), and therefore not allocated to the segments. Such costs consist of management and administration, legal, environmental, certain compensation costs, retiree benefits, and other expenses.

Net Pension Adjustment – The net pension adjustment reflects the difference between pension expense determined in accordance with GAAP and pension expense allocated to the operating segments determined in accordance with CAS. For the years ended December 31, 2011 and 2010, the net pension adjustment resulted in income of $400 million and $10 million, respectively. The increase in the net pension adjustment for the year ended December 31, 2011, is primarily due to decreased GAAP pension expense from higher investment income and greater plan investment assets.

Royalty Income Adjustment – Royalty income is included in segment operating income and reclassified to other income for financial reporting purposes.

Intersegment Sales and Margin

To encourage commerce between operating units, sales between segments are recorded at values that include a hypothetical margin for the performing segment based on that segment’s estimated margin rate for external sales. Such hypothetical margins are eliminated in consolidation. Intersegment sales and operating income were as follows:

	Year Ended December 31
$ in millions	2011					2010					2009
			Sales		Operating Income			Sales		Operating Income			Sales		Operating Income
Intersegment sales and operating income
Aerospace Systems		$	134	$	18		$	132	$	13		$	121	$	13
Electronic Systems			649		131			684		118			650		103
Information Systems			687		68			623		61			474		44
Technical Services			568		41			566		39			507		30
Total intersegment sales and operating income		$	2,038	$	258		$	2,005	$	231		$	1,752	$	190

Other Financial Information

	December 31
$ in millions	2011			2010
Assets
Aerospace Systems		$	6,574		$	6,548
Electronic Systems			4,705			4,893
Information Systems			7,144			7,467
Technical Services			1,303			1,381
Segment assets			19,726			20,289
Corporate (See Note 10)			5,685			5,909
Assets of discontinued operations						5,212
Total assets		$	25,411		$	31,410

Corporate assets principally consist of cash and cash equivalents and deferred tax assets.

	Year Ended December 31
$ in millions	2011			2010			2009
Capital Expenditures from Continuing Operations
Aerospace Systems		$	184		$	195		$	211
Electronic Systems			121			176			168
Information Systems			41			31			50
Technical Services			1			5			3
Corporate			141			172			41
Total capital expenditures from continuing operations		$	488		$	579		$	473

	Year Ended December 31
$ in millions	2011			2010			2009
Depreciation and Amortization
Aerospace Systems		$	200		$	237		$	238
Electronic Systems			144			150			140
Information Systems			121			133			138
Technical Services			4			5			8
Corporate			75			30			26
Total depreciation and amortization from continuing operations		$	544		$	555		$	550

The depreciation and amortization expense above includes amortization of purchased intangible assets as well as amortization of deferred and other outsourcing costs.