Business Dispositions

12 Months Ended

Dec. 31, 2011

BUSINESS DISPOSITIONS [Abstract]

6. BUSINESS DISPOSITIONS

6. BUSINESS DISPOSITIONS

2011 – The company completed the spin-off to its shareholders of Huntington Ingalls Industries, Inc. (HII) effective March 31, 2011. HII was formed to operate the business that was previously the company’s Shipbuilding segment prior to the spin-off. 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 govern the post-separation relationship. These agreements generally provide that each party is 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 commitments to provide HII with certain transition services for up to one year and the costs incurred for such services that are reimbursed by HII.

In connection with the spin-off, the company incurred $28 million, $28 million, and $4 million of non-deductible transaction costs for the years ended December 31, 2011, 2010, and 2009, respectively, which have been included in discontinued operations. The company has incurred total transaction costs in connection with the spin-off of approximately $60 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 consolidated financial statements. NSTec’s sales that were included in the company’s consolidated sales and service revenues for the year ended December 31, 2010 and 2009 were $579 million, and $568 million, respectively.

2009 – In December 2009, the company sold 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. 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 Information Systems that provide systems engineering technical assistance (SETA) and other analysis and advisory services. Sales for ASD in the year ended December 31, 2009 were approximately $1.5 billion. The assets, liabilities and operating results of this business unit are reported as discontinued operations in the consolidated statements of operations for all periods presented.

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

	Year Ended December 31
$ in millions	2011				2010				2009
Sales and service revenues		$	1,646			$	6,711			$	7,740
Earnings from discontinued operations			59				229				345
Income tax expense			(28	)			(95	)			(111	)
Earnings, net of tax			31				134				234
Gain on divestitures			2				10				446
Income tax (expense) benefit			(1	)			5				(428	)
Gain on divestitures, net of tax			1				15				18
Earnings from discontinued operations, net of tax		$	32			$	149			$	252

Tax rates on discontinued operations vary from the company’s effective tax rate generally due to the non-deductibility of goodwill for tax purposes and the effects, if any, of capital loss carryforwards.

The major classes of assets and liabilities included in discontinued operations for the Shipbuilding business as of December 31, 2010, are as follows:

$ in millions
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
Other liabilities		1,563
Total liabilities of discontinued operations	$	2,792