NORTHROP GRUMMAN CORP /DE/ | 2013 | FY | 3

SEGMENT INFORMATION
The company is aligned into four 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. Portfolio shaping and internal realignments are designed to more fully leverage existing capabilities and enhance development and delivery of products and services.
U.S. Government Sales
Sales to the U.S. Government include sales 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. Each of the company’s segments derives substantial revenue from the U.S. Government. Sales to the U.S. Government amounted to $21.3 billion, $22.3 billion and $23.4 billion, or 86 percent, 88 percent and 89 percent, of total sales for the years ended December 31, 2013, 2012 and 2011, respectively.
International Sales
International sales (which include foreign military sales) amounted to $2.5 billion, $2.1 billion and $2.1 billion, or 10 percent, 8 percent and 8 percent, of total sales for the years ended December 31, 2013, 2012 and 2011, respectively.
Discontinued Operations
The company’s discontinued operations are excluded from the amounts in the following tables.
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 operating income by segment:
 
 
Year Ended December 31
$ in millions
 
2013
 
2012
 
2011
Sales
 
 
 
 
 
 
Aerospace Systems
 

$10,014

 

$ 9,977

 

$ 9,964

Electronic Systems
 
7,149

 
6,950

 
7,372

Information Systems
 
6,596

 
7,356

 
7,921

Technical Services
 
2,843

 
3,019

 
3,193

Intersegment eliminations
 
(1,941
)
 
(2,084
)
 
(2,038
)
Total sales
 
24,661

 
25,218

 
26,412

Operating income
 
 
 
 
 
 
Aerospace Systems
 
1,215

 
1,218

 
1,217

Electronic Systems
 
1,226

 
1,187

 
1,070

Information Systems
 
633

 
761

 
766

Technical Services
 
262

 
268

 
260

Intersegment eliminations
 
(256
)
 
(258
)
 
(258
)
Total segment operating income
 
3,080

 
3,176

 
3,055

Reconciliation to operating income:
 
 
 
 
 
 
Net FAS/CAS pension adjustment
 
168

 
132

 
400

Unallocated corporate expenses
 
(119
)
 
(168
)
 
(166
)
Other
 
(6
)
 
(10
)
 
(13
)
Total operating income
 

$ 3,123

 

$3,130

 

$ 3,276


Net FAS/CAS Pension Adjustment
The net FAS/CAS pension adjustment is the difference between pension expense determined in accordance with GAAP and pension expense allocated to the operating segments determined in accordance with CAS. The increase in net FAS/CAS pension adjustment for 2013, as compared to 2012, reflects an update for actual demographic experience as of January 1, 2013, which resulted in an increase to the company's 2013 CAS pension expense. The decrease in the 2012 net FAS/CAS pension adjustment, as compared to 2011, is primarily due to increased GAAP pension expense resulting from amortization of prior year actuarial losses and reduced CAS pension expense resulting from a plan amendment in 2011.
Unallocated Corporate Expenses
Unallocated corporate expenses include the portion of corporate expenses not considered allowable or allocable under applicable CAS regulations and the Federal Acquisition Regulation, and are therefore not allocated to the segments. Such costs consist of a portion of management and administration, legal, environmental, compensation costs, retiree benefits, and certain unallowable costs such as lobbying activities, among others. 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.
Intersegment Sales and Operating Income
Sales between segments are recorded at values that include hypothetical operating income for the performing segment based on that segment’s estimated operating margin rate for external sales. Such hypothetical operating income is eliminated in consolidation. Intersegment sales and operating income before eliminations were as follows:
 
 
Year Ended December 31
$ in millions
 
2013
 
2012
 
2011
 
 
Sales
Operating
Income
 
Sales
Operating
Income
 
Sales
Operating
Income
Intersegment sales and operating income
 
 
 
 
 
 
 
 
 
 
 
 
Aerospace Systems
 

$ 149

 

$ 18

 

$ 171

 

$ 20

 

$ 134

 
 $
18

Electronic Systems
 
629

 
125

 
607

 
110

 
649

 
131

Information Systems
 
504

 
63

 
682

 
78

 
687

 
68

Technical Services
 
659

 
50

 
624

 
50

 
568

 
41

Total
 

$1,941

 

$256

 

$2,084

 

$258

 

$2,038

 

$258


Other Financial Information
 
 
December 31
$ in millions
 
2013
 
2012
Assets
 
 
 
 
Aerospace Systems
 

$ 6,490

 

$ 6,657

Electronic Systems
 
4,400

 
4,551

Information Systems
 
6,887

 
6,940

Technical Services
 
1,367

 
1,313

Segment assets
 
19,144

 
19,461

Corporate assets (1)
 
7,237

 
7,082

Total assets
 

$26,381

 

$26,543


(1)
Corporate assets principally consist of cash and cash equivalents and deferred tax assets.
 
 
Capital Expenditures
 
Depreciation and Amortization
$ in millions
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Aerospace Systems
 

$198

 

$154

 

$184

 

$210

 

$196

 

$200

Electronic Systems
 
76

 
84

 
121

 
134

 
139

 
144

Information Systems
 
27

 
40

 
45

 
81

 
100

 
121

Technical Services
 
3

 
3

 
1

 
4

 
4

 
4

Corporate
 
60

 
50

 
141

 
66

 
71

 
75

Total from continuing operations
 

$364

 

$331

 

$492

 

$495

 

$510

 

$544


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

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