Northrop Grumman 2009 Annual Report Download - page 28

쐍Our 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, among others, natural disasters, product liability and business interruption). 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. In some, but not all, circumstances we may receive indemnification
from the U.S. Government. Because of the limitations in overall available coverage referred to above, we may
have to bear substantial costs for uninsured losses that could have an adverse effect upon our consolidated
results of operations and our overall consolidated financial position. 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 consolidated results of
operations. For example, we commenced legal action against an insurance carrier arising out of a
disagreement concerning the coverage of certain losses related to Hurricane Katrina, and another carrier has
denied coverage for certain other losses related to Hurricane Katrina and advised us that it will seek
reimbursement of certain amounts previously advanced by that carrier. See Note 14 to the consolidated
financial statements in Part II, Item 8.
쐍Changes in future business conditions could cause business investments and/or recorded goodwill to become
impaired, resulting in substantial losses and write-downs that would reduce our operating income.
As part of our overall strategy, we will, from time to time, acquire a minority or majority interest in a
business. These investments are made upon careful analysis and due diligence procedures designed to achieve
a desired return or strategic objective. These procedures often involve certain assumptions and judgment in
determining acquisition price. Even after careful integration efforts, actual operating results may vary
significantly from initial estimates. Goodwill accounts for approximately half of our recorded total assets. We
evaluate goodwill amounts for impairment annually, or when evidence of potential impairment exists. The
annual impairment test is based on several factors requiring judgment. Principally, a significant decrease in
expected cash flows or changes in market conditions may indicate potential impairment of recorded
goodwill. Adverse equity market conditions that result in a decline in market multiples and our stock price
could result in an impairment of goodwill and/or other intangible assets. We continue to monitor the
recoverability of the carrying value of our goodwill and other long-lived assets. See Critical Accounting
Policies, Estimates, and Judgments in Part II, Item 7.
쐍Anticipated benefits of mergers, acquisitions, joint ventures or strategic alliances may not be realized.
As part of our overall strategy, we may, from time to time, merge with or acquire businesses, or 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 and the management of the transacted operations. Accordingly, our
financial results could be adversely affected from unanticipated performance issues, transaction-related charges,
amortization of expenses related to intangibles, charges for impairment of long-term assets and partner
performance. Although we believe that we have established appropriate and adequate procedures and
processes to mitigate these risks, there is no assurance that these transactions will be successful.
쐍Market volatility and adverse capital and credit market conditions may affect our ability to access cost-effective
sources of funding and expose us to risks associated with the financial viability of suppliers and the ability of
counterparties to perform on financial instruments.
The financial and credit markets recently experienced levels of volatility and disruption, reducing the
availability of credit for certain issuers. Historically, we have occasionally accessed these markets to support
certain business activities including, acquisitions, capital expansion projects, refinancing existing debt and
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NORTHROP GRUMMAN CORPORATION
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