Northrop Grumman 2009 Annual Report Download - page 38

active defense, security and stability operations, or peacekeeping. We believe that the U.S. Government will
continue to place a high priority on the protection of its engaged forces and citizenry and on minimizing
collateral damage when force must be applied in pursuit of national objectives. As a result, the U.S. and its
military coalitions increasingly rely on sophisticated systems providing long-range surveillance and intelligence,
battle management, and precision strike capabilities. Accordingly, defense procurement spending is expected to
include the development and procurement of military platforms and systems demonstrating stealth, long-range,
survivability, persistence and standoff capabilities. Advanced electronics and software that enhance the capabilities
of individual systems and provide for the real-time integration of individual surveillance, information
management, strike, and battle management platforms will also be a priority.
The United States is engaged in a multi-front, multi-decade struggle that we expect will require an affordable
balance between investments in current missions and investments in new capabilities to meet future challenges.
The recently released 2010 Quadrennial Defense Review emphasizes the related challenge of rebuilding readiness
at a time when DoD is pursuing growth, modernization and transformation of its forces and capabilities. We do
not expect defense requirements to change significantly in the foreseeable future, and the size of national security
budgets is expected to remain responsive. The fiscal year 2011 budget submitted by the President requests
$548.9 billion in discretionary authority for the DoD base budget (and an additional $159 billion to support
contingency operations), representing a slight increase over the 2010 budget. Although the President’s budget
request proposes reductions to certain programs in which we participate or for which we expect to compete, we
believe that spending on recapitalization and modernization of defense and homeland security assets will continue
to be a national priority.
Our substantial new competitive opportunities include unmanned vehicles, reconnaissance and surveillance
platforms, missile defense radar, satellite communications systems, restricted programs, cybersecurity, technical
services and information technology contracts, and numerous international and homeland security programs. In
pursuit of these opportunities, we continue to focus on operational and financial performance for continued
improvements in earnings in 2010 and beyond.
U.S. Government programs focused on areas involving intelligence, persistent surveillance, directed energy
applications, and cyber space in which we either participate, or strive to participate, must compete with other
programs for consideration and resources during the U.S. budget formulation and appropriation processes. In
addition to domestic and international considerations, the Pentagon faces its own near-term and long-term
internal fiscal constraints as it attempts to balance competing pressures from within and adhere to calls for better
economy, efficiency and accountability. Budget decisions made in this environment will have long-term
consequences for our size and structure and the entire defense industry.
We have historically concentrated our efforts in high technology areas such as stealth, airborne and space
surveillance, battle management, systems integration, defense electronics, cybersecurity and information
technology. We have a significant presence in federal and civil information systems; the manufacture of
combatant ships including aircraft carriers and submarines; space technology; Command, Control,
Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR); and missile systems. We
believe that our programs are a high priority for national defense, but under budgetary pressures, one or more of
our programs may be reduced, extended, or terminated by our U.S. Government customers.
Congress last year passed legislation to add further discipline and accountability to the acquisition system. This
legislation, the Weapon System Acquisition Reform Act of 2009, requires DoD to develop mechanisms to
address cost, schedule and performance in establishing program requirements. As acquisition reform progresses,
we will continue to anticipate and respond to the actions of the Pentagon and Congress to determine their
impact on our operations.
We provide certain product warranties that require repair or replacement of non-conforming items for a specified
period of time. Most of our product warranties are provided under government contracts, the costs of which are
generally incorporated into contract pricing.
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NORTHROP GRUMMAN CORPORATION
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