Northrop Grumman 2013 Annual Report Download - page 27

NORTHROP GRUMMAN CORPORATION
-17-
Anticipated benefits of mergers, acquisitions, joint ventures, spin-offs or strategic alliances may not be realized.
As part of our overall strategy, we may, from time to time, merge with or acquire businesses, dispose of or spin-off
businesses, 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, the adequacy of the due diligence, the management of the
operations and market conditions following these transactions. Accordingly, our financial results could be adversely
affected by unanticipated performance issues, transaction-related charges, liabilities, amortization of expenses
related to intangibles, charges for impairment of long-lived assets, guarantees, partner performance and
indemnifications. Divestitures may result in continued financial involvement in the divested business, such as
through guarantees, indemnifications, or other financial arrangements, following the transaction. Although we have
established procedures and processes to mitigate these risks, there is no assurance that these transactions will be
successful.
Pension and medical expenses associated with our retirement benefit plans may fluctuate significantly depending
upon changes in actuarial assumptions, future investment performance of plan assets, future health care costs
and legislative or other regulatory actions.
A substantial portion of our current and retired employee population is covered by pension and other post-retirement
benefit plans, the costs of which are dependent upon various assumptions, including estimates of rates of return on
benefit plan 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 other 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 financial position, results of operations and/or cash flows.
Additionally, due to government regulations, pension plan cost recoveries under our U.S. Government contracts
occur in different periods from when those pension costs are recognized for financial statement purposes or when
pension funding is made. These timing differences could have a material adverse effect on our cash flows. The cost
accounting rules have been revised in order to partially harmonize the measurement and period of assignment of
defined benefit pension plan costs allocable to U.S. Government contracts and the minimum required contribution
under the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Pension Protection Act
(PPA) of 2006. These rules better align, but do not eliminate, mismatches between ERISA funding requirements and
CAS pension costs for U.S. Government CAS covered contracts.
Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our
profitability and cash flow.
We are subject to income taxes in the U.S. 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 applicable
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. Deferred tax assets are required to be measured at the statutory
tax rate currently in effect; therefore a change in the U.S. corporate tax rate would result in a remeasurement of our
net deferred tax assets through the income tax provision. 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 our 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,
changes in differences between financial reporting income and taxable income, 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 significantly affect our financial position, results of operations and/or cash flows.
Our nuclear-related operations subject us to various environmental, regulatory, financial and other risks.
Our nuclear-related operations subject us to various risks, including potential liabilities relating to harmful effects on
the environment and human health that may result from nuclear-related operations and the storage, handling and
disposal of radioactive materials. We are also subject to reputational harm and potential liabilities arising out of a
nuclear incident, whether or not it is within our control. The U.S. Government and prime contractors sometimes
provide certain indemnity and other protection under certain of our government related contracts pursuant to, or in
connection with, Public Law 85-804 and the Price-Anderson Nuclear Industries Indemnity Act for certain nuclear-
related risks. If there was a nuclear incident and that indemnity or other protection (especially in connection with a