Northrop Grumman 2011 Annual Report Download - page 27

NORTHROP GRUMMAN CORPORATION
information. In the event of an infringement of our intellectual property rights, a breach of a confidentiality
agreement or divulgence of proprietary information, we may not have adequate legal remedies to maintain our
intellectual property. Litigation to determine the scope of intellectual property rights, even if ultimately
successful, could be costly and could divert management’s attention away from other aspects of our business. In
addition, our trade secrets may otherwise become known or be independently developed by competitors. In
some instances, we have licensed the proprietary intellectual property of others, but we may be unable in the
future to secure the necessary licenses to use such intellectual property on commercially reasonable terms. If
we are unable adequately to protect our intellectual property rights, our business could be adversely affected.
䡲Our business is subject to disruption caused by natural disasters, environmental disasters and other factors that
could adversely affect our profitability and our overall financial position.
We have significant operations located in regions of the U.S. that may be exposed to earthquakes, damaging
storms, and other natural disasters, including environmental disasters. Although preventative measures may help
to mitigate damage, the damage and disruption resulting from natural and environmental disasters may be
significant. If insurance or other risk transfer mechanisms are unavailable or insufficient to recover all costs, our
financial position, results of operations, or cash flows could be materially adversely affected.
Our suppliers and subcontractors are also subject to natural disasters that could affect their ability to deliver or
perform under a contract. Performance failures by our subcontractors due to natural and environmental
disasters may adversely affect our ability to perform our obligations on the prime contract. This could reduce
our profitability due to damages or other costs that may not be fully recoverable from the subcontractor or
from the customer, could result in a termination of the prime contract and could have an adverse effect on our
ability to compete for future contracts.
Natural disasters could also disrupt our workforce, electrical and other power distribution networks, including
computer and internet operation and accessibility, and the critical industrial infrastructure needed for normal
business operations. These disruptions could cause adverse effects on our profitability and performance.
䡲Our insurance coverage may be inadequate to cover all of our significant risks or our insurers may deny coverage
of material losses we incur, which could adversely affect our profitability and overall financial position.
We endeavor to identify and obtain in established markets insurance agreements to cover significant risks and
liabilities (including, for example, natural disasters and product liability). Not every risk or liability can be
protected by insurance, and, for insurable risks, the limits of coverage reasonably obtainable in the market may
not be sufficient to cover all actual losses or liabilities incurred, including for example, a catastrophic
earthquake claim.
Additionally, disputes with insurance carriers over coverage may affect the timing of cash flows and, if
litigation with the carrier becomes necessary, an outcome unfavorable to us may have a material adverse effect
on our financial position, results of operations, or cash flows.
䡲Anticipated benefits of mergers, acquisitions, joint ventures, spin-offs or strategic alliances may not be realized.
As part of our overall strategy, we may, from time to time, merge with or acquire businesses, dispose of or
spin-off businesses, 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, the management of the operations and
market conditions following these transactions. Accordingly, our financial results could be adversely affected
from unanticipated performance issues, transaction-related charges, liabilities, amortization of expenses related
to intangibles, charges for impairment of long-term assets, guarantees, partner performance and
indemnifications. Divestitures may result in continued financial involvement in the divested business, such as
through guarantees, indemnifications, or other financial arrangements, following the transaction. Although we
have established procedures and processes to mitigate these risks, there is no assurance that these transactions
will be successful.
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