Northrop Grumman 2011 Annual Report Download - page 37

NORTHROP GRUMMAN CORPORATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Notable Events
Certain notable events or activities affecting our 2011 consolidated financial results included the following:
Significant financial events for the year ended December 31, 2011:
䡲We completed the spin-off of our Shipbuilding business (Huntington Ingalls Industries or HII), which is
now reported within discontinued operations.
䡲In connection with the spin-off of HII, we received cash of $1.4 billion.
䡲We reduced our participation in the National Security Technologies (NSTec) joint venture, which
resulted in a $1.7 billion reduction in contract backlog and a $579 million reduction in 2011 revenues.
䡲We repaid notes with a face value of $768 million.
䡲We made voluntary pension funding contributions totaling $1.0 billion.
䡲We repurchased 40.2 million shares of common stock for a total of $2.3 billion.
䡲In the second quarter of 2011, we increased the quarterly stock dividend from $0.47 per share to $0.50 per
share.
䡲We paid $543 million in cash dividends.
Other notable events for the year ended December 31, 2011:
䡲We relocated our corporate offices in Los Angeles, California and in Rosslyn, Virginia to our new
corporate office in Falls Church, Virginia.
䡲We increased the authorization for share repurchases by approximately $2.2 billion.
Political and Economic Environment
The U.S. and global economies have experienced a period of substantial economic uncertainty and turmoil, with
high levels of national debt, and the related financial markets have been characterized by significant volatility.
Current levels of deficit spending in the U.S. could prove to be unsustainable over the long term. Although
defense spending is expected to remain a national priority within future federal budgets, the passage of the Budget
Control Act of 2011 (the Budget Control Act) in August 2011 marked a growing political acceptance of cutting
planned defense spending as part of a deficit reduction solution. Some allied government defense spending has also
come under increasing pressure as governments search for ways to reduce their deficits and national debts.
The Administration and Congress will likely continue to debate the size of the new defense budget plan for the
next decade, but spending over the next several years is expected to drop measurably from previously planned
levels, absent a significant national security event. Future defense plans and changes in defense spending levels
could adversely affect the individual programs and delay purchasing by our customers, which could have a material
adverse effect on the company’s consolidated financial position, results of operations, and/or cash flows. While
these significant budgetary considerations put downward pressure on growth in our industry, we believe that our
business is well positioned in areas that the DoD has indicated are areas of focus for future defense spending to help
the DoD meet its critical future capability requirements for protecting U.S. security and the security of our allies in
the years to come.
The Budget Control Act raised the statutory limit on the amount of permissible federal debt and committed the
U.S. Government to reduce significantly the federal deficit in the coming decade. The Budget Control Act
consists of two parts, both of which could impact future defense spending levels. The first part mandates a total
reduction of $940 billion to the fiscal year 2012 Presidential Budget submission as part of established caps on
discretionary spending through 2021. Of this total reduction, approximately $490 billion is expected to come from
defense spending. The Budget Control Act also set up a Joint Committee of Congress (the Joint Committee) that
-27-