Earnings Per Share (Unaudited)

6 Months Ended

Jun. 30, 2011

EARNINGS PER SHARE [Abstract]

4. EARNINGS PER SHARE

4.   EARNINGS PER SHARE

Basic Earnings Per Share – Basic earnings per share amounts from both continuing and discontinued operations are calculated by dividing the respective earnings by the weighted-average number of shares of common stock outstanding during each period.

Diluted Earnings Per Share – Diluted earnings per share include the dilutive effect of stock options and other stock awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 4.6 million shares and 5.0 million shares for the three and six months ended June 30, 2011. The dilutive effect of these securities totaled 4.2 million shares and 3.9 million shares for the three and six months ended June 30, 2010. The weighted-average diluted shares outstanding for the three and six months ended June 30, 2011, exclude anti-dilutive stock options to purchase approximately 2.0 million and 2.8 million shares, respectively, because such options have exercise prices in excess of the average market price of the company’s common stock during the period. The weighted-average diluted shares outstanding for the three and six months ended June 30, 2010, exclude anti-dilutive stock options to purchase approximately 2.6 million shares.

Share Repurchases – The table below summarizes the company’s share repurchases during the periods:

								Shares Repurchased
								(in millions)
	Amount				Total			Six Months Ended
Repurchase Program	Authorized		Average Price		Shares Retired			June 30
Authorization Date	(in millions)		Per Share(2)		(in millions)		Date Completed	2011		2010
December 19, 2007	$	3,600	$	59.82		60.2	August 2010				14.8
June 16, 2010(1)		4,245		63.33		19.7			15.7
									15.7		14.8

(1)

On June 16, 2010, the company’s board of directors authorized a share repurchase program of up to $2 billion of the company’s common stock. On April 25, 2011, the company’s board of directors authorized an increase to the remaining share repurchase authorization to $4.0 billion, an increase of approximately $2.2 billion. As of June 30, 2011, the company had $3.0 billion remaining under this authorization for share repurchases.

(2)

Includes commissions paid and calculated as the average price paid per share under the respective repurchase program.

Under the outstanding share repurchase authorization, the company entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. (Goldman Sachs) on May 2, 2011, to repurchase approximately 15.6 million shares of common stock at an initial price of $64.17 per share for a total of $1.0 billion. Under this agreement, Goldman Sachs immediately borrowed shares that were sold to and canceled by the company. Subsequently, Goldman Sachs began purchasing shares in the open market to settle its share borrowings. The cost of the company’s initial share repurchase is subject to adjustment based upon the actual cost of the shares subsequently purchased by Goldman Sachs. The price adjustment can be settled, at the company’s option, in cash or in shares of common stock.

As of June 30, 2011, Goldman Sachs had purchased 7.9 million shares, or 51 percent, of the shares under the agreement. Northrop Grumman’s average purchase price for these shares, per the agreement, is $65.02 net of commissions and other fees. Assuming Goldman Sachs purchases the remaining shares at a price per share equal to the average purchase price of $65.02 per share, the company would be required to pay approximately $20 million or deliver approximately 286,000 shares of common stock to Goldman Sachs to complete the transaction. The settlement amount may increase or decrease depending upon the average price paid for the shares under the program. Settlement is expected to occur in the third quarter of 2011, depending upon the timing and pace of the purchases, and would result in an adjustment to shareholders’ equity.