Northrop Grumman 2009 Annual Report Download - page 19

ENVIRONMENTAL MATTERS
Our manufacturing operations are subject to and affected by federal, state, foreign, and local laws and regulations
relating to the protection of the environment. We provide for the estimated cost to complete environmental
remediation where we determine it is probable that we will incur such costs in the future to address
environmental impacts at currently or formerly owned or leased operating facilities, or at sites where we are
named a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency (EPA) or similarly
designated by other environmental agencies. These estimates may change given the inherent difficulty in
estimating environmental cleanup costs to be incurred in the future due to the uncertainties regarding the extent
of the required cleanup, determination of legally responsible parties, and the status of laws, regulations, and their
interpretations.
We assess the potential impact on our financial statements by estimating the possible remediation costs that we
could reasonably incur on a site-by-site basis. These estimates consider our environmental engineers’ professional
judgment and, when necessary, we consult with outside environmental specialists. In most instances, we can only
estimate a range of reasonably possible costs. We accrue our best estimate when determinable or the minimum
amount when no single amount is more probable. We record accruals for environmental cleanup costs in the
accounting period in which it becomes probable we have incurred a liability and the costs can be reasonably
estimated. We record insurance recoveries only when we determine that collection is probable and we do not
include any litigation costs related to environmental matters in our environmental remediation accrual.
We estimate that at December 31, 2009, the range of reasonably possible future costs for environmental
remediation sites is $239 million to $483 million, of which we accrued $115 million in other current liabilities
and $168 million in other long term liabilities in the consolidated statements of financial position. We record
environmental accruals on an undiscounted basis. At sites involving multiple parties, we provide environmental
accruals based upon our expected share of liability, taking into account the financial viability of other jointly
liable parties. We expense or capitalize environmental expenditures as appropriate. Capitalized expenditures relate
to long-lived improvements in currently operating facilities. We may have to incur costs in addition to those
already estimated and accrued if other PRPs do not pay their allocable share of remediation costs, which could
have a material effect on our consolidated financial position, results of operations, or cash flows. We have made
the investments we believe necessary to comply with environmental laws. Although we cannot predict whether
information gained as projects progress will materially affect the estimated accrued liability, we do not anticipate
that future remediation expenditures will have a material adverse effect on our consolidated financial position,
results of operations, or cash flows.
We could be affected by future laws or regulations, including those enacted in response to climate change
concerns and other actions known as “green initiatives.” We recently established a goal of reducing our
greenhouse gas emissions during the next five years. To comply with current and future environmental laws and
regulations and to meet this goal, we expect to incur capital and operating costs, but at this time we do not expect
that such costs will have a material adverse effect upon our financial position, results of operations or cash flows.
COMPETITIVE CONDITIONS
We compete with many companies in the U.S. defense industry for a number of programs, both large and small,
but primarily with Lockheed Martin Corporation, The Boeing Company, Raytheon Company, General
Dynamics Corporation, L-3 Communications Corporation, SAIC, and BAE Systems. Intense competition and
long operating cycles are both key characteristics of our business and the defense industry. It is common in this
industry for work on major programs to be shared among a number of companies. A company competing to be
a prime contractor may, upon ultimate award of the contract to another party, turn out to be a subcontractor for
the ultimate prime contracting party. It is not uncommon to compete for a contract award with a peer company
and, simultaneously, perform as a supplier to or a customer of such competitor on other contracts. The nature of
major defense programs, conducted under binding contracts, allows companies that perform well to benefit from
a level of program continuity not common in many industries.
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NORTHROP GRUMMAN CORPORATION
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