Northrop Grumman 2009 Annual Report Download - page 22

uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative
sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and
suspension, or prohibition from doing business with the U.S. Government. In addition, we could suffer
serious reputational harm if allegations of impropriety were made against us.
We are also, from time to time, subject to U.S. Government investigations relating to our operations and are
expected to perform in compliance with a vast array of federal laws, including the Truth in Negotiations Act,
the False Claims Act, the International Traffic in Arms Regulations promulgated under the Arms Export
Control Act, and the Foreign Corrupt Practices Act. We may be subject to reductions of the value of
contracts, contract modifications or termination, and the assessment of penalties and fines, which could
negatively impact our results of operations and financial condition, if we are found to have violated the law
or are indicted or convicted for violations of federal laws related to government security regulations,
employment practices or protection of the environment, or are found not to have acted responsibly as
defined by the law. Such convictions could also result in suspension or debarment from government
contracting for some period of time. Given our dependence on government contracting, suspension or
debarment could have a material adverse effect on us.
쐍Competition within our markets and an increase in bid protests may reduce our revenues and market share.
We operate in highly competitive markets and our competitors may have more extensive or more specialized
engineering, manufacturing and marketing capabilities than we do in some areas. We anticipate higher
competition in some of our core markets as a result of the reduction in budgets for many U.S. Government
agencies and fewer new program starts. In addition, as discussed in more detail above, projected U.S. defense
spending levels for periods beyond the near-term are uncertain and difficult to predict. Changes in
U.S. defense spending may limit certain future market opportunities. We are also facing increasing
competition in our domestic and international markets from foreign and multinational firms. Additionally,
some customers, including the DoD, are more frequently turning to commercial contractors, rather than
traditional defense contractors, for information technology and other support work. If we are unable to
continue to compete successfully against our current or future competitors, we may experience declines in
revenues and market share which could negatively impact our results of operations and financial condition.
The competitive environment is also affected by an increase in bid protests from unsuccessful bidders on new
program awards. Bid protests could result in the award decision being overturned, requiring a re-bid of the
contract. Even where a bid protest does not result in a re-bid, the resolution extends the time until the
contract activity can begin which may reduce our earnings in the period in which the contract would
otherwise have commenced.
쐍Our future success depends, in part, on our ability to develop new products and new technologies and maintain
a qualified workforce to meet the needs of current and future customers.
The markets in which we operate are characterized by rapidly changing technologies. The product, program
and service needs of our customers change and evolve regularly. Accordingly, our success in the competitive
defense industry depends upon our ability to develop and market our products and services, as well as our
ability to provide the people, technologies, facilities, equipment and financial capacity needed to deliver those
products and services with maximum efficiency. If we fail to maintain our competitive position, we could
lose a significant amount of future business to our competitors, which would have a material adverse effect
on our ability to generate favorable financial results and maintain market share.
Operating results are heavily dependent upon our ability to attract and retain sufficient personnel with
requisite skills and/or security clearances. If qualified personnel become scarce, we could experience higher
labor, recruiting or training costs in order to attract and retain such employees or could experience difficulty
in performing under our contracts if the needs for such employees are unmet.
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NORTHROP GRUMMAN CORPORATION
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