Northrop Grumman 2014 Annual Report Download - page 23

NORTHROP GRUMMAN CORPORATION
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Our future success depends, in part, on our ability to develop new products and new technologies and maintain
technologies, facilities, equipment and a qualified workforce to win new competitions and meet the needs of our
customers.
Many of the markets in which we operate are characterized by rapidly changing technologies. The product, program
and service needs of our customers change and evolve regularly. Our success in the competitive defense industry
depends upon our ability to develop technologically advanced and innovative products and services and market
these products and services to our customers. Our success also depends on our ability to provide the people,
technologies, facilities, equipment and financial capacity needed to deliver those products and services with
maximum efficiency. If we fail to maintain our competitive position, we could lose a significant amount of future
business to our competitors, which would negatively impact our ability to generate favorable financial results and
maintain market share.
Our operating results are heavily dependent upon our ability to attract and retain sufficient personnel with requisite
skills and/or security clearances. If qualified personnel become scarce or difficult to attract or retain in our industry
for geographic, compensation-related or other reasons, we could experience higher labor, recruiting or training costs
in order to attract and retain necessary employees. Failure to maintain a qualified workforce would result in
significant difficulty in performing under our contracts.
Certain of our employees are covered by collective agreements. We generally have been able to renegotiate renewals
to expiring agreements without significant disruption of operating activities. If we experience difficulties with
renewals and renegotiations of existing collective agreements or if our employees pursue new collective
representation, we could incur additional expenses and may be subject to work stoppages. Any such expenses or
delays could adversely affect our programs served by employees who are covered by such agreements or
representation.
If we are unable to develop new products and technologies or attract and retain a qualified workforce, we may be
unable to maintain our competitive position and our future success could be adversely affected.
Many of our contracts contain performance obligations that require innovative design capabilities, are
technologically complex, require state-of-the-art manufacturing expertise or are dependent upon factors not
wholly within our control. Failure to meet these obligations could adversely affect our profitability and future
prospects.
We design, develop and manufacture technologically advanced and innovative products and services, which are
applied by our customers in a variety of environments. Problems and delays in development or delivery, or system
failures, as a result of issues with respect to design, technology, intellectual property rights, labor, inability to
achieve learning curve assumptions, manufacturing materials or components could prevent us from meeting
requirements and create significant risk.
In addition, our products cannot be tested and proven in all situations and are otherwise subject to unforeseen
problems. Examples of unforeseen problems that could negatively affect revenue and profitability include loss on
launch of spacecraft, loss of aviation platforms, premature failure of products that cannot be accessed for repair or
replacement, problems with design, quality and workmanship, country of origin of procured materials, delivery of
subcontractor components or services and degradation of product performance. These failures could result, either
directly or indirectly, in loss of life or property. Among the factors that may affect revenue and profitability could be
inaccurate cost estimates, design issues, human factors, unforeseen costs and expenses not covered by insurance or
indemnification from the customer, diversion of management focus in responding to unforeseen problems, loss of
follow-on work, and, in the case of certain contracts, repayment to the government customer of contract cost and fee
payments we previously received.
Certain contracts, primarily involving space satellite systems, contain provisions that entitle the customer to recover
fees in the event of failure of the system upon launch or subsequent deployment for less than a specified period of
time. Under such terms, we could be required to forfeit fees previously recognized and/or collected.
If we are unable to meet our performance obligations due to issues regarding the design, development or
manufacture of our products or services, or we experience launch, platform or satellite system failures, it could have
an adverse impact on our current and future business.