Northrop Grumman 2010 Annual Report Download - page 38

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Business
We provide technologically advanced, innovative products, services, and integrated solutions in aerospace,
electronics, information and services and shipbuilding to our global customers. We participate in many high-
priority defense and commercial technology programs in the United States (U.S.) and abroad as a prime
contractor, principal subcontractor, partner, or preferred supplier. We conduct most of our business with the
U.S. Government, principally the Department of Defense (DoD). We also conduct business with local, state, and
foreign governments and domestic and international commercial customers.
Notable Events
Certain notable events or activities affecting our 2010 consolidated financial results included the following:
Significant financial events for the year ended December 31, 2010
쐍Recorded $113 million pre-tax charge related to the winding down of our shipbuilding operations at the
Avondale, Louisiana facility.
쐍Recorded $231 million pre-tax charge related to the redemption of outstanding debt
쐍Recognized net tax benefits of $296 million in connection with Internal Revenue Service (IRS)
settlement on our tax returns for years 2004 through 2006.
쐍Contributed voluntary pension funding amounts totaling $830 million.
쐍Issued $1.5 billion of unsecured senior debt obligations.
쐍Paid $1.1 billion to repurchase outstanding debt securities (including $231 million in premiums paid).
쐍Repurchased 19.7 million common shares for $1.2 billion.
쐍Increased quarterly stock dividend from $0.43 per share to $0.47 per share.
Other notable events for the year ended December 31, 2010
쐍Announced in July the decision to explore strategic alternatives for the Shipbuilding business. In
preparation for an anticipated spin-off of the Shipbuilding business to the company’s shareholders, a
registration statement on Form 10 for the shares of Huntington Ingalls Industries, Inc. (HII or the
Shipbuilding business) was initially filed with the Securities and Exchange Commission (SEC) in October
2010, with amendments filed in November 2010, December 2010 and January 2011.
쐍Reached agreement with the Commonwealth of Virginia related to the Virginia IT outsourcing contract
(VITA).
쐍Authorized new share repurchases of up to $2.0 billion.
Outlook
Beginning with the credit crisis of 2008 through the present, the United States and global economies have
experienced a period of substantial economic uncertainty and turmoil, and the related financial markets have
been characterized by significant volatility. While the financial markets have begun to stabilize and improve in
2009 and 2010, the U.S. and global economies continue to struggle as a result of high levels of national debt and
historic levels of borrowing to support stimulus and financial support spending.
Current levels of deficit spending are at high levels and likely are unsustainable for the U.S. and several of its
allies, and we expect that U.S. and allied government defense spending may come under increasing pressure as
governments search for ways to reduce deficits and national debts. Defense Secretary Gates recently proposed a
baseline fiscal 2012 defense budget of $553 billion, which is $6 billion higher than the fiscal 2011 budget request,
but $13 billion less than previously planned. Under this budget proposal, the overall defense budget will decline
by $78 billion over a five year period beginning in fiscal 2012 from the previous plan, and will include program
cancellations and restructurings, including reducing the number of F-35 joint strike fighters from 449 to 325 jets
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NORTHROP GRUMMAN CORPORATION