Northrop Grumman 2011 Annual Report Download - page 80

NORTHROP GRUMMAN CORPORATION
Under the June 16, 2010 authorization, the company entered into an accelerated share repurchase agreement with
Goldman, Sachs & Co. (Goldman Sachs) on May 2, 2011, to repurchase 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 was
subject to adjustment based on the actual cost of the shares subsequently purchased by Goldman Sachs. On
August 16, 2011, Goldman Sachs completed its share repurchases and paid the company a cash refund of $19
million for the final price adjustment, which was recorded as an adjustment to paid-in capital. The final average
purchase price of the shares repurchased under the agreement was $62.54 per share, including commissions and
certain other fees.
Additional share repurchases take place at management’s discretion or under pre-established, non-discretionary
programs, depending on market conditions, in the open market, and in privately negotiated transactions. Under
these programs, additional share repurchases took place during the year ended December 31, 2011. The company
retires its common stock upon repurchase and has not made any purchases of common stock other than in
connection with these publicly announced repurchase program authorizations. In connection with the spin-off of
the Shipbuilding business, the company obtained a Private Letter Ruling (“PLR”) from the Internal Revenue
Service that generally limits our share repurchases to approximately 88 million shares within two years of the
spin-off (a maximum of 30 percent of outstanding shares at the time of the separation). Due to share repurchases
subsequent to the spin-off, the remaining number of shares that we can repurchase under this share repurchase
limitation as of December 31, 2011, was approximately 48 million shares. Cash available from unusual transactions,
such as the disposition of significant assets, should they arise, can be used to repurchase additional shares.
5. BUSINESS ACQUISITIONS
2009 – In April 2009, the company acquired Sonoma Photonics, Inc., as well as assets from Swift Engineering’s
Killer Bee Unmanned Air Systems product line for an aggregate amount of approximately $33 million in cash.
The operating results of these businesses are reported in the Aerospace Systems segment from the date of
acquisition. The assets, liabilities, and results of operations of these businesses were not material to the company’s
consolidated financial position or results of operations, and thus pro-forma financial information is not presented.
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.
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