Northrop Grumman 2012 Annual Report Download - page 25

NORTHROP GRUMMAN CORPORATION
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We are subject to various claims and litigation that could ultimately be resolved against us.
The size, nature and complexity of our business make us highly susceptible to claims and litigation. We are and may
become subject to various environmental claims, income tax matters, compliance matters, claims, investigations,
and administrative, civil or criminal litigation, which could divert financial and management resources and result in
fines, penalties, compensatory or treble damages or non-monetary relief. Government regulations also provide that
certain allegations against a contractor may lead to suspension or debarment from government contracts or
suspension of export privileges for the company or one or more of its components. Suspension or debarment could
have a material adverse effect on the company because of the company's reliance on government contracts and
authorizations. Investigations, claims or litigation, if ultimately resolved against us, could have a material adverse
effect on our financial position, results of operations or cash flows. Any investigation, claim, or litigation, even if
fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make
it more difficult for us to compete effectively or obtain adequate insurance in the future.
We may be unable adequately to protect our intellectual property rights, which could affect our ability to compete.
We own many U.S. and foreign patents, trademarks, copyrights, and other forms of intellectual property, and we
license certain intellectual property rights to and from third parties. The U.S. Government generally holds licenses to
certain intellectual property that we develop in performance of government contracts, and it may use or authorize
others to use certain such intellectual property. The U.S. Government appears to be asserting or seeking to assert
more extensive intellectual property rights. Our intellectual property is also subject to challenge, invalidation,
misappropriation or circumvention by third parties.
We also rely significantly upon proprietary technology, information, processes and know-how that are not protected
by patents. We seek to protect this information through trade secret or confidentiality agreements with our
employees, consultants, subcontractors and other parties, as well as through other measures. These agreements and
other measures may not provide adequate protection for our unpatented proprietary 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, against claims by the U.S. Government or others our business could be adversely affected.
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.