Northrop Grumman Completes Spin-off of Huntington Ingalls Industries, Inc.
(Source: Northrop Grumman Corporation; issued March 31, 2011)
LOS ANGELES --- Northrop Grumman Corporation today announced that it has completed the previously announced spin-off of its subsidiary Huntington Ingalls Industries, Inc. Northrop Grumman stockholders of record at the close of business of the New York Stock Exchange on March 30, 2011, received one share of HII common stock for every six shares of Northrop Grumman common stock held. Stockholders will receive cash in lieu of fractional shares of HII.

As a result of the spin-off, Northrop Grumman will report Shipbuilding financial results as discontinued operations for the 2011 first quarter and all prior periods.

"Today's completion of the separation of Huntington Ingalls from Northrop Grumman is an important milestone benefitting both companies. We thank HII for their many contributions to our company and the defense of our nation, and wish them the best as an independent company," said Wes Bush, Northrop Grumman chief executive officer and president.

"Northrop Grumman will now be focused on its core markets of aerospace systems, electronic systems, information systems and technical services. Our portfolio has tremendous capability, technology and synergy across these areas, and we are fully dedicated to delivering innovative and mission-critical systems and products. Going forward, we will create value for shareholders, customers and employees through a more focused portfolio and continued performance improvement," Bush concluded.

The distribution of HII shares will be made in book entry form and no action or payment by Northrop Grumman stockholders of record is required to receive HII shares. No physical share certificates of HII will be issued. An information statement containing details of the spin-off and important information about HII was mailed to Northrop Grumman stockholders on March 21, 2011.

The HII spin-off has been structured to qualify as a tax-free distribution to Northrop Grumman stockholders for U.S. Federal tax purposes, except for the cash received in lieu of fractional shares. Northrop Grumman stockholders should consult their tax advisors with respect to U.S. federal, state, local and foreign tax consequences of the HII spin-off.

Credit Suisse served as lead financial advisor and joint lead financing arranger. Perella Weinberg Partners served as financial advisor. JPMorgan Chase served as joint lead financing arranger. Gibson, Dunn & Crutcher served as legal advisor.

Northrop Grumman is a leading global security company whose 75,000 employees provide innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide. (ends)

America's Largest Military Shipbuilder Begins Operations as a New, Publicly Traded Company Under the Name of Huntington Ingalls Industries
(Source: Huntington Ingalls Industries, Inc.; issued March 31, 2011)
NEWPORT NEWS, Va. --- Huntington Ingalls Industries, Inc. has begun operating as a new, independent and publicly traded company as trading of its shares will commence this morning. Huntington Ingalls Industries, America's largest military shipbuilder, was previously a business sector of Northrop Grumman until effectively separating on March 31, 2011, in a spinoff.

"Our strategy," said Mike Petters, president and CEO of Huntington Ingalls Industries, "is to better align our business with the U.S. Navy's priorities and to continue improving our shipbuilding performance while meeting our customer commitments. Operating as an independent company will allow us greater focus and agility to accomplish these important objectives, which should create significant value for our shareholders."

The Huntington Ingalls Industries name reflects the long-standing legacies of the two shipbuilding business divisions of the new entity: Newport News Shipbuilding and Ingalls Shipbuilding. Collis P. Huntington founded Newport News Shipbuilding in 1886, and Ingalls Shipbuilding was established in 1938 by the Ingalls Iron Works of Birmingham, Ala., a company founded by the Ingalls family.

"Incorporating the names of our founding families and legacy companies into our new enterprise will build upon our 125-year tradition of demonstrated commitment to quality, customer focus and building the best military ships in the world," Petters said. "I am very excited about our future, about the strength and depth of our leadership team, and the skill and dedication of our shipbuilders."

Work today at Huntington Ingalls includes the construction of the Gerald R. Ford-class aircraft carriers, the refueling and complex overhaul of Nimitz-class aircraft carriers, construction of Virginia-class submarines, submarine design and life-cycle management, as well as fleet services for naval ships all over the world.

The company is also constructing San Antonio-class amphibious transport dock ships and an America-class multipurpose amphibious assault ship and has built 28 of 62 Arleigh Burke-class destroyers with long-lead materials awarded on the first two ships in the continuation of the program. Recently, the company was awarded a fourth National Security Cutter construction contract for the U.S. Coast Guard, with the third ship expected to be complete by year's end.

Huntington Ingalls Industries (HII) designs, builds and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard and provides after-market services for military ships around the globe. For more than a century, HII has built more ships in more ship classes than any other U.S. naval shipbuilder. Employing nearly 38,000 in Virginia, Mississippi, Louisiana and California, its primary business divisions are Newport News Shipbuilding and Ingalls Shipbuilding. (ends)

Smart Move: Northrop Grumman Is Out of the Shipbuilding Business
(Source: Lexington Institute; issued March 31, 2011)
(© Lexington Institute; reproduced by permission)
This morning, the naval shipbuilding operations that Northrop Grumman owned for the last ten years began life as an independent company called Huntington Ingalls Industries.

Northrop Grumman CEO Wes Bush decided shortly after assuming the helm of the parent company last year that shipbuilding was a poor cultural fit with his company's aerospace and electronics competencies, and therefore elected to spin off the three shipyards in a transaction completed last night. The headquarters of the new enterprise will be located at the most capable shipyard in the Western Hemisphere, the sprawling Newport News Shipbuilding complex founded in Virginia's tidewater region 125 years ago by railroad magnate Collis P. Huntington. Huntington Ingalls will also operate two other yards on the Gulf Coast, one of which -- Ingalls Shipbuilding in Pascagoula, Mississippi -- is the biggest conventional shipbuilding facility in the U.S. (Newport News builds mainly nuclear-powered vessels).

Some observers may view Northrop Grumman's retreat from shipbuilding as a defeat, but it is really the triumph of common sense for a company that backed into naval shipbuilding while trying to construct a very different kind of enterprise. Bush had the good sense to see that a strategy of conglomeration doesn't work any better in defense than it does in commercial markets, and that companies need to focus on the core competencies where they have a true competitive advantage. His peers in the defense sector have made similar determinations in recent years, which is why Lockheed Martin sold off its Pacific Architects & Engineers unit involved in battlefield logistics and Raytheon got rid of a former E-Systems unit engaged in building classified aircraft. Like Huntington Ingalls, the properties Lockheed and Raytheon divested were sound enterprises, they just weren't a good fit for the companies that had acquired them.

The Huntington Ingalls yards should be the most successful naval shipbuilders in the nation, because they have greater capacity, better locations and more favorable regulatory environments than their General Dynamics counterparts in California and New England. The fact that GD's yards are more highly regarded by the Navy customer speaks volumes about why heavy, metal-bending industries shouldn't be run by managers with a background in aerospace engineering.

Wes Bush may be the smartest CEO in the defense sector, but he has watched Northrop's management team try everything over the past ten years to get shipbuilding results on a par with those of the company's other business units, and each effort failed. It's not that shipbuilding was losing money, it's just that low margins and uneven performance were dragging down the results for more lucrative lines like aerospace, electronics and information technology.

The company found itself constantly at loggerheads with its Navy customer while other parts of the company such as military space were winning nearly 100 percent of award fees and the praise of equally demanding federal customers. So shipbuilding had to be separated from the rest of the enterprise for the sake of shareholders, stakeholders and customers.

The irony of the spinoff is that once free of each other, the two companies will both perform better. Northrop Grumman will be focused in areas where no other company in the world can surpass its capabilities, and Huntington Ingalls will be able to bring the full weight of its remarkable skills, impressive facilities and broad political support to bear on the shipbuilding enterprise. In other words, the companies will be able to focus on what they do best rather than trying to reconcile conflicting cultures.

Huntington Ingalls begins its life as an independent company knowing the Navy customer can't live without it -- that it is the only supplier of aircraft carriers and amphibious assault ships to the Navy Department, an essential part of the submarine construction process, and capable of building every other type of warship in the fleet. So when newly-minted Huntington Ingalls CEO Mike Petters finally gets a handle on problems like skill retention in the Gulf yards, he will find himself sitting atop a money machine. As for Wes Bush, he now gets to run a company in which all the pieces are performing well and performing predictably -- which is what he needed to meet the ambitious expectations of a very demanding board of directors.

The spinoff looks like a win-win situation for all involved, and a case study in why analysis always trumps sentimentality in the business world.


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