Northrop Grumman 2009 Annual Report Download - page 68

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rates – We are exposed to market risk, primarily related to interest rates and foreign currency exchange
rates. Financial instruments subject to interest rate risk include variable-rate short-term borrowings under the
credit agreement, and short-term investments. At December 31, 2009, substantially all outstanding borrowings
were fixed-rate long-term debt obligations of which a significant portion are not callable until maturity. We have
a modest exposure to interest rate risk resulting from the interest rate swap agreements described in Note 1 to
the consolidated financial statements in Part II, Item 8. During 2008, we entered into two forward-starting
interest rate swap agreements with a notional value totaling $400 million to limit future interest rate exposure
and designated them as cash flow hedges. These swaps were settled in June 2009. Our sensitivity to a 1 percent
change in interest rates is tied to our $2 billion credit agreement, which had no balance outstanding at
December 31, 2009 or 2008, and the aforementioned interest rate swap agreements. See Note 13 to the
consolidated financial statements in Part II, Item 8.
Derivatives – We do not hold or issue derivative financial instruments for trading purposes. We may enter into
interest rate swap agreements to manage our exposure to interest rate fluctuations. At December 31, 2009, and
2008, one and four interest rate swap agreements, respectively, were in effect. See Notes 1 and 11 to the
consolidated financial statements in Part II, Item 8.
Foreign Currency – We enter into foreign currency forward contracts to manage foreign currency exchange rate
risk related to receipts from customers and payments to suppliers denominated in foreign currencies. At
December 31, 2009, and 2008, the amount of foreign currency forward contracts outstanding was not material.
We do not consider the market risk exposure relating to foreign currency exchange to be material to the
consolidated financial statements. See Notes 1 and 11 to the consolidated financial statements in Part II, Item 8.
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NORTHROP GRUMMAN CORPORATION
eBP - v54508-i003_a.pdf - Page 62 of 124 - March 11, 2010 - 20:02:39