Northrop Grumman 2010 Annual Report Download - page 29

Hurricane Katrina and advised us that it will seek reimbursement of certain amounts previously advanced by
that carrier. See Note 15 to the consolidated financial statements in Part II, Item 8.
쐍Changes in future business conditions could cause business investments and/or recorded goodwill to become
impaired, resulting in substantial losses and write-downs that would reduce our operating income.
As part of our overall strategy, we may, from time to time, acquire a minority or majority interest in a
business. These investments are made upon careful analysis and due diligence procedures designed to achieve
a desired return or strategic objective. These procedures often involve certain assumptions and judgment in
determining acquisition price. Even after careful integration efforts, actual operating results may vary
significantly from initial estimates. Goodwill accounts for approximately half of our recorded total assets. We
evaluate goodwill amounts for impairment annually, or when evidence of potential impairment exists. The
annual impairment test is based on several factors requiring judgment. Principally, a significant decrease in
expected cash flows or changes in market conditions may indicate potential impairment of recorded
goodwill. Adverse equity market conditions that result in a decline in market multiples and our stock price
could result in an impairment of goodwill and/or other intangible assets. We continue to monitor the
recoverability of the carrying value of our goodwill and other long-lived assets. See Critical Accounting
Policies, Estimates, and Judgments in Part II, Item 7.
쐍Anticipated benefits of mergers, acquisitions, joint ventures or strategic alliances may not be realized.
As part of our overall strategy, we may, from time to time, merge with or acquire businesses, or form joint
ventures or create strategic alliances. Whether we realize the anticipated benefits from these transactions
depends, in part, upon the integration between the businesses involved, the performance of the underlying
products, capabilities or technologies and the management of the transacted operations. Accordingly, our
financial results could be adversely affected from unanticipated performance issues, transaction-related charges,
amortization of expenses related to intangibles, charges for impairment of long-term assets and partner
performance. Although we believe that we have established appropriate and adequate procedures and
processes to mitigate these risks, there is no assurance that these transactions will be successful.
쐍We are exploring strategic alternatives for our Shipbuilding segment. We cannot assure you that a transaction
will result, or that, if completed, we would realize the anticipated benefits thereof.
In July 2010, we announced that we are evaluating strategic alternatives for the Shipbuilding segment,
including, but not limited to, a spin-off to our shareholders. In preparation for an anticipated spin-off of the
Shipbuilding business to our shareholders, a registration statement on Form 10 for the shares of our wholly
owned subsidiary, Huntington Ingalls Industries, Inc., the entity that would hold the shipbuilding business,
was initially filed with the Securities and Exchange Commission in October 2010, with amendments filed in
November 2010, December 2010, and January 2011. We cannot assure you that the exploration of these
strategic alternatives will result in any transaction. Our ability to complete a transaction involving the
Shipbuilding segment in a timely manner, or even at all, could be subject to several factors, including:
changes in the company’s operating performance; our ability to obtain any necessary consents or approvals;
changes in governmental regulations and policies; and changes in business, political and economic conditions
in the United States. As a condition of an anticipated spin-off, we have obtained a private letter ruling from
the Internal Revenue Service and expect to receive an opinion of counsel that the spin-off will be tax-free to
the company and our shareholders but can give no assurance that any anticipated spin-off will ultimately
qualify as a tax-free transaction. If a transaction involving the Shipbuilding segment is delayed for any reason,
we may not realize the anticipated benefits, and if a transaction does not occur, we will not realize such
benefits. Each of these risks could adversely affect our financial position, results of operations, or cash flows.
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NORTHROP GRUMMAN CORPORATION