Business Dispositions (Unaudited)

6 Months Ended

Jun. 30, 2011

BUSINESS DISPOSITIONS [Abstract]

5. BUSINESS DISPOSITIONS

5.   BUSINESS DISPOSITIONS

Spin-off of Shipbuilding Business – Effective March 31, 2011, the company completed the spin-off to its shareholders of its Shipbuilding business (HII). The company made a pro rata distribution to its shareholders of one share of HII common stock for every six shares of the company’s common stock held on the record date of March 30, 2011, or 48.8 million shares of HII common stock. There was no gain or loss recognized by the company as a result of the spin-off transaction. In connection with the spin-off, HII issued $1,200 million in senior notes and entered into a credit facility with third-party lenders that includes a $650 million revolver and a $575 million term loan. HII used a portion of the proceeds of the debt and credit facility to fund a $1,429 million cash contribution to the company.

Prior to the completion of the spin-off, the company and HII entered into a Separation and Distribution Agreement dated March 29, 2011, and several other agreements that will govern the post-separation relationship. These agreements generally provide that each party will be responsible for its respective assets, liabilities and obligations following the spin-off, including employee benefits, intellectual property, information technology, insurance, and tax-related assets and liabilities. The agreements also describe the company’s future commitments to provide HII with certain transition services for up to one year following the spin-off and the costs incurred for such services that will be reimbursed by HII. This transitional support will enable HII to establish its stand alone processes to assume full responsibility for various activities that were previously provided by the company and do not constitute significant continuing support of HII’s operations.

In connection with the spin-off, the company incurred $27 million and $11 million of non-deductible transaction costs for the six months ended June 30, 2011 and 2010, respectively, which have been included in discontinued operations. The company has incurred total transaction costs in connection with the spin-off of approximately $59 million.

National Security Technologies Deconsolidation – Effective January 1, 2011, the company reduced its participation in the National Security Technologies joint venture (NSTec). As a result of the reduced participation in the joint venture, the company no longer consolidates NSTec’s results in the company’s condensed consolidated financial statements. NSTec’s sales that were included in the company’s consolidated sales and service revenues for the six months ended June 30, 2010 were $288 million.

Sale of Advisory Services Division – In December 2009, the company sold its Advisory Services Division (ASD) for $1.65 billion in cash to an investor group led by General Atlantic, LLC and affiliates of Kohlberg Kravis Roberts & Co. L.P. and recognized a gain of $15 million, net of taxes. During the six months ended June 30, 2010, an additional $7 million gain, net of taxes, was recorded to reflect the purchase price adjustment called for under the sale agreement. ASD was a business unit comprised of the assets and liabilities of TASC, Inc., its wholly-owned subsidiary TASC Services Corporation, and certain contracts carved out from other Northrop Grumman businesses also in the Information Systems segment that provide systems engineering technical assistance and other analysis and advisory services.

Discontinued Operations – Earnings for the Shipbuilding business and gains from previous divestitures, reported as discontinued operations, are presented in the following table:

	Three Months Ended				Six Months Ended
	June 30				June 30
$ in millions	2011	2010			2011			2010
Sales and service revenues	$	$	1,596		$	1,646		$	3,314
Earnings (loss) from discontinued operations			(37	)		59			46
Income tax benefit (expense)			8			(26	)		(23	)
Earnings (loss), net of tax			(29	)		33			23
Gain on divestiture						2			11
Income tax expense						(1	)		(4	)
Gain on divestitures, net of tax						1			7
Earnings (loss) from discontinued operations, net of tax	$	$	(29	)	$	34		$	30

The major classes of assets and liabilities included in discontinued operations for the Shipbuilding business are presented in the following table:

	December 31,
$ in millions	2010
Assets
Current assets	$	1,315
Property, plant, and equipment, net		1,997
Goodwill		1,141
Other assets		759
Total assets of discontinued operations	$	5,212
Liabilities
Trade accounts payable	$	274
Other current liabilities		955
Current liabilities		1,229
Long-term liabilities		1,563
Total liabilities of discontinued operations	$	2,792