Northrop Grumman 2012 Annual Report Download - page 74

NORTHROP GRUMMAN CORPORATION
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December 11, 2012, the court issued a tentative decision on these claims in favor of the company and the other
remaining defendants. The court has scheduled a hearing for February 28, 2013, to discuss issues on which it has
invited supplemental briefing. The court has not yet set a trial date for the remaining causes of action.
On May 4, 2012, the company commenced an action, Northrop Grumman Systems Corp. v. United States, in the
U.S. Court of Federal Claims. This lawsuit relates to an approximately $875 million firm fixed price contract
awarded to the company in 2007 by the U.S. Postal Service (USPS) for the construction and delivery of flats
sequencing systems (FSS) as part of the postal automation program. The FSS have been delivered. The company's
lawsuit is based on various theories of liability. The complaint seeks approximately $63 million for unpaid portions
of the contract price and direct costs incurred, and approximately $115 million based on the company's assertions
that, through various acts and omissions over the life of the contract, the USPS adversely affected the cost and
schedule of performance and materially altered the company's obligations under the contract. The United States
responded to the company's complaint with an answer, denying most of the company's claims, and counterclaims,
seeking approximately $410 million, less certain amounts outstanding under the contract. The principal counterclaim
alleges that the company delayed its performance and caused damages to the USPS because USPS did not realize
certain costs savings as early as it had expected. Although the ultimate outcome of this litigation, including any
possible loss, cannot be predicted or estimated at this time, the company intends vigorously to pursue this matter.
The company is a party to various investigations, lawsuits, claims and other legal proceedings, including
government investigations and claims, that arise in the ordinary course of our business. The nature of legal
proceedings is such that we cannot assure the outcome of any particular matter. However, based on information
available to the company to date and other than with respect to the FSS matter, which is discussed separately above,
the company does not believe that the outcome of any matter pending against the company is likely to have a
material adverse effect on the company's consolidated financial position as of December 31, 2012, or its annual
results of operations or cash flows.
12. COMMITMENTS AND CONTINGENCIES
Guarantees of Subsidiary Performance Obligations
From time to time in the ordinary course of business, the company guarantees obligations of its subsidiaries under
certain contracts. Generally, the company is liable under such an arrangement only if its subsidiary is unable to
perform under its contract. Historically, the company has not incurred any substantial liabilities resulting from these
guarantees.
In addition, the company’s subsidiaries may enter into joint ventures, teaming and other business arrangements
(collectively, Business Arrangements) to support the company’s products and services in domestic and international
markets. The company generally strives to limit its exposure under these arrangements to its subsidiary’s investment
in the Business Arrangements, or to the extent of such subsidiary’s obligations under the applicable contract. In
some cases, however, the company may be required to guarantee performance by the Business Arrangements and, in
such cases, the company generally obtains cross-indemnification from the other members of the Business
Arrangements.
At December 31, 2012, the company is not aware of any existing event of default that would require it to satisfy any
of these guarantees.
U.S. Government Cost Claims
From time to time, the company is advised of claims by the U.S. Government concerning certain potential
disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and the U.S.
Government representatives engage in discussions to enable the company to evaluate the merits of these claims, as
well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s
expected exposure to the matters raised by the U.S. Government. Such provisions are reviewed on a quarterly basis
for sufficiency based on the most recent information available. The company believes that it has adequately reserved
for any disputed amounts and that the outcome of any such matters would not have a material adverse effect on its
consolidated financial position as of December 31, 2012, or its annual results of operations or cash flows.
Environmental Matters
The company has been named a Potentially Responsible Party by the Environmental Protection Agency or similarly
designated state or local agencies at certain current or former owned or leased sites. The estimated costs to complete
remediation has been accrued where the company believes, based on the facts and circumstances known to the
company, that it is probable that the company will incur costs to address environmental impacts. As of December 31,
2012, management estimates that the range of reasonably possible future costs for environmental remediation is