Northrop Grumman 2009 Annual Report Download - page 37

situation and new policy initiatives could adversely affect future defense spending levels, which could lower our
expected future revenues. Certain programs in which we participate may be subject to potential reductions due
to a slower rate of growth in the U.S. Defense Budget and funds being utilized to support the ongoing conflicts
in Iraq and Afghanistan.
We believe that our portfolio of technologically advanced, innovative products, services, and integrated solutions
will generate revenue growth in 2010 and beyond, despite the trend of slower growth rates in the U.S. defense
budget. We expect sales in 2010 to be in the range of $34 to $34.6 billion based on backlog (funded and
unfunded) of approximately $69.2 billion as of December 31, 2009. We describe in the following paragraphs the
major industry and economic factors that may affect our future performance.
Industry Factors
We are subject to the unique characteristics of the U.S. defense industry as a monopsony, whereby demand for
our products and services comes primarily from one customer, and by certain elements peculiar to our own
business mix.
Liquidity Trends – In light of the ongoing economic situation, we have evaluated our future liquidity needs, both
from a short-term and long-term perspective. We expect that cash on hand at the beginning of the year plus cash
generated from operations and cash available under credit lines will be sufficient in 2010 to service debt, finance
capital expansion projects, pay federal, foreign, and state income taxes, fund pension and other post-retirement
benefit plans, and continue paying dividends to shareholders. We have a committed $2 billion revolving credit
facility, with a maturity date of August 10, 2012, that can be accessed on a same-day basis.
During the second quarter of 2009, we issued $350 million of 5-year and $500 million of 10-year unsecured
senior obligations. Interest on the notes is payable semi-annually in arrears at fixed rates of 3.70 percent and
5.05 percent per annum, and the notes will mature on August 1, 2014, and August 1, 2019, respectively. We can
redeem these senior notes at our discretion at any time prior to maturity. We are using the net proceeds from
these notes for general corporate purposes including debt repayment, acquisitions, share repurchases, pension plan
funding, and working capital. A portion of the net proceeds was used to retire $400 million of 8 percent senior
debt that matured.
We believe we can obtain additional capital to provide for long-term liquidity, if necessary, from such sources as
the public or private capital markets, the sale of assets, sale and leaseback of operating assets, and leasing rather
than purchasing new assets. We have an effective shelf registration statement on file with the SEC.
Recent Developments in U.S. Cost Accounting Standards (CAS) Pension Recovery Rules – On September 2, 2008, the
CAS Board published an Advance Notice of Proposed Rulemaking (ANPRM) that if adopted would provide a
framework to partially harmonize the CAS rules with the Pension Protection Act of 2006 (PPA) requirements.
The proposed CAS rule includes provisions for a transition period from the existing CAS requirement to a partially
harmonized CAS requirement. As published, the proposed rule would partially mitigate the near-term mismatch
between PPA-amended Employee Retirement Income Security Act (ERISA) minimum contribution requirements,
which would not yet be recoverable under CAS. However, until the final rule is published, (and to the extent that
the final rule does not completely eliminate any mismatch between ERISA funding requirements and CAS),
government contractors maintaining defined benefit pension plans in general would still experience a timing
mismatch between required contributions and the CAS recoverable pension costs. The CAS Board is expected to
issue a final rule in 2010, which would apply to our contracts starting in 2011. We anticipate that contractors will
be entitled to seek an equitable adjustment for the additional CAS contract costs required by the final rule.
Economic Opportunities, Challenges, and Risks
Today the United States faces a complex and rapidly changing national security environment. The defense of the
U.S. and its allies requires the ability to respond to constantly evolving threats, terrorist acts, regional conflicts
and cyber attacks, responses to which are increasingly dependent upon early threat identification. National
responses to such threats can require unilateral or cooperative initiatives ranging from dissuasion, deterrence,
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