Northrop Grumman 2009 Annual Report Download - page 29

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issuing letters of credit. In the future, we may not be able to obtain capital market financing or credit
availability on similar terms, or at all, which could have a material adverse effect on our consolidated financial
position, results of operations and cash flows.
The tightening of credit could also adversely affect our suppliers’ ability to obtain financing. Delays in
suppliers’ ability to obtain financing, or the unavailability of financing could cause us to be unable to meet
our contract obligations and could adversely affect our results of operations. The inability of our suppliers to
obtain financing could also result in the need for us to transition to alternate suppliers, which could result in
significant incremental cost and delay.
We have executed transactions with counterparties in the financial services industry, including brokers and
dealers, commercial banks, investment banks and other institutional parties. These transactions expose us to
potential credit risk in the event of default of a counterparty. In addition, our credit risk may be increased
when collateral held by us cannot be realized upon a sale or is liquidated at prices not sufficient to recover
the full amount of the loan or derivative exposure due to it.
쐍Pension and medical expenses associated with our retirement benefit plans may fluctuate significantly depending
upon changes in actuarial assumptions, future market performance of plan assets, future trends in health care
costs and legislative or other regulatory actions.
A substantial portion of our current and retired employee population is covered by pension and post-
retirement benefit plans, the costs of which are dependent upon our various assumptions, including estimates
of rates of return on benefit related assets, discount rates for future payment obligations, rates of future cost
growth and trends for future costs. In addition, funding requirements for benefit obligations of our pension
and post-retirement benefit plans are subject to legislative and other government regulatory actions.
Variances from these estimates could have a material adverse effect on our consolidated financial position,
results of operations and cash flows. For example, the recent volatility in the financial markets resulted in
lower than expected returns on our pension plan assets in 2008, which resulted in higher pension costs in
2009. See Note 16 to the consolidated financial statements in Part II, Item 8.
쐍Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our
profitability.
We are subject to income taxes in the United States and many foreign jurisdictions. Significant judgment is
required in determining our worldwide provision for income taxes. In the ordinary course of business, there
are many transactions and calculations where the ultimate tax determination is uncertain. Furthermore,
changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher
or lower income tax rates assessed or changes in the taxability of certain sales or the deductibility of certain
expenses, thereby affecting our income tax expense and profitability. The final determination of any tax
audits or related litigation could be materially different from our historical income tax provisions and
accruals. Additionally, changes in the effective tax rate as a result of a change in the mix of earnings in
countries with differing statutory tax rates, changes in our overall profitability, changes in tax legislation,
changes in the valuation of deferred tax assets and liabilities, the results of audits and the examination of
previously filed tax returns by taxing authorities and continuing assessments of our tax exposures could
impact our tax liabilities and affect our income tax expense and profitability.
Item 1B. Unresolved Staff Comments
We have no unresolved comments from the SEC.
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NORTHROP GRUMMAN CORPORATION
eBP - v54508-i003_a.pdf - Page 23 of 124 - March 11, 2010 - 20:02:39