SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
FINAL ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Final Annual report pursuant to Section 15 (d) of the Securities
Exchange Act of 1934 (No fee required)
For the period ended April 12, 2001
OR
[ ] Transition report pursuant to SECTION 15 (d) of the Securities Exchange Act
of 1934 (No fee required)
Commission file number 333-03959
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
SAVINGS AND INVESTMENT PLAN
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
NORTHROP GRUMMAN CORPORATION
1840 Century Park East
Los Angeles, California 90067
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHROP GRUMMAN ELECTRONIC
SENSORS & SYSTEMS SECTOR SAVINGS
AND INVESTMENT PLAN
/s/ Gary W. McKenzie
_____________________________________
Dated: May 10, 2002 By Gary W. McKenzie
Vice President-Tax
NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
SAVINGS AND INVESTMENT PLAN
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits as of April 12, 2001
and December 31, 2000 2
Statement of Changes in Net Assets Available for Plan Benefits for the
Period from January 1, 2001 through April 12, 2001 3
Notes to Financial Statements 4-8
INDEPENDENT AUDITORS' REPORT
To the Administrative Committee of the
Northrop Grumman Electronic Sensors & Systems Sector
Savings and Investment Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Northrop Grumman Electronic Sensors & Systems Sector Savings and
Investment Plan (the "Plan") as of April 12, 2001 and December 31, 2000, and the
related statement of changes in net assets available for plan benefits for the
period from January 1, 2001 through April 12, 2001. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for plan benefits as of April 12, 2001 and
December 31, 2000, and the changes in net assets available for plan benefits for
the period from January 1, 2001 through April 12, 2001 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note G to the financial statements, on April 12, 2001, the Plan
was merged into another plan.
/s/ Deloitte & Touche LLP
-------------------------
Los Angeles, California
February 2, 2002
NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
APRIL 12, 2001 AND DECEMBER 31, 2000
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April 12, December 31,
2001 2000
ASSETS:
Investments (Notes B, C, D, and E) $ - $856,372,537
---------- ------------
Receivables:
Employer contributions 989,795
Participant contributions 3,212,405
Interest, dividends, and other 21,590
---------- ------------
Total receivables 4,223,790
---------- ------------
Total assets 860,596,327
LIABILITIES:
Accrued expenses 52,018
---------- ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ - $860,544,309
========= ============
See notes to financial statements.
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NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
PERIOD FROM JANUARY 1, 2001 THROUGH APRIL 12, 2001
-------------------------------------------------------------------------------
INVESTMENT INCOME (LOSS):
Net depreciation in fair value of investments (Notes B, C, and D) $ (46,242,863)
Interest and other income 568,914
Dividends 562,684
--------------
Total investment loss (45,111,265)
--------------
CONTRIBUTIONS:
Employer 3,754,298
Participant 13,039,942
--------------
Total contributions 16,794,240
--------------
DEDUCTIONS:
Benefits paid to participants (Note B) (32,452,788)
Administrative expenses (186,171)
--------------
Total deductions (32,638,959)
--------------
TRANSFER OUT DUE TO PLAN MERGER (Note A) (799,588,325)
--------------
NET DECREASE (860,544,309)
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of period 860,544,309
--------------
End of period $ -
==============
See notes to financial statements.
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NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED APRIL 12, 2001 AND AS OF DECEMBER 31, 2000
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A. DESCRIPTION OF THE PLAN
The following description of the Northrop Grumman Electronic Sensors &
Systems Sector Savings and Investment Plan (the "Plan") provides only
general information. Participants should refer to the Plan document for a
more complete description of the Plan's provisions.
General - The Plan is a qualified profit-sharing and employee stock
ownership plan sponsored by the Electronic Sensors & Systems Sector of
Northrop Grumman Corporation (the "Company"). The Plan was established on
April 1, 2000 and covers nonrepresented employees who are citizens of the
United States of America or resident aliens and who are not covered by
another plan. It is subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
The Plan was established as a successor to the nonrepresented employee
portion of the Northrop Grumman Electronic Sensors & Systems Sector
Savings and Investment Plan (the "ESSS Plan"), which was established by
the Company as a successor to the Westinghouse Savings Program (the
"Westinghouse Plan"), maintained by Westinghouse Electric Corporation
("Westinghouse") for the benefit of employees who were employed by the
Westinghouse Electronic Systems Group as of February 29, 1996 and became
employees of the Company as of March 1, 1996, and any other subsequent
eligible employees of the Company.
On April 1, 2000, the ESSS Plan's name was changed to the Northrop Grumman
Electronic Sensors & Systems Sector Union Represented Employees Savings
and Investment Plan, and the Plan documents were amended accordingly. All
assets related to nonrepresented participant accounts in the amended ESSS
Plan were transferred to the Plan.
Effective as of April 12, 2001, this Plan was merged into the Northrop
Grumman Savings and Investment Plan. All assets held under this Plan as of
the merger date were held under the Northrop Grumman Savings and
Investment Plan and governed by the terms of the Northrop Grumman Savings
and Investment Plan from that date forward. All operations of this Plan
ceased after the merger date. Beginning on the merger date, all
contributions were made to Northrop Grumman Savings and Investment Plan,
all earnings were credited to the Northrop Grumman Savings and Investment
Plan, and all distributions were made from the Northrop Grumman Savings
and Investment Plan.
Contributions - Prior to the Plan being merged on April 12, 2001,
participants could contribute between 2 percent and 20 percent of eligible
compensation, in increments of 1 percent, on an after-tax basis, a pre-tax
basis, or a combination thereof. As of the end of each month, the Company
made a matching contribution of $0.50 for each dollar a participant
contributed, subject to a maximum Company matching contribution of
3 percent of eligible compensation for that month.
Participant Accounts - A separate account is maintained for each
participant. Each separate account has three subaccounts. After-tax
contributions are allocated to the participant's Standard Account, and
pre-tax contributions are allocated to the participant's Tax-Deferred
Account. Company matching contributions are allocated to the participant's
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Company Matching Contribution Account. Assets of the trust are valued
daily and take into account earnings and losses of the trust along with
appreciation or depreciation, expenses, and distributions.
Vesting - Plan participants are 100 percent vested in, and have a
nonforfeitable right to, the balance of their Standard and Tax-Deferred
Accounts at all times. Plan participants as of March 1, 1996 who had a 100
percent vested interest in their accounts under the Westinghouse Plan as
of February 29, 1996 were 100 percent vested in their Company Matching
Contribution Accounts as of March 1, 1996. All other Plan participants who
were not fully vested as of March 1, 1996 in their Company Matching
Contribution Accounts will not be vested in any portion of their Company
Matching Contribution Accounts until they accrue five years of service, at
which time they become 100 percent vested in and have a nonforfeitable
right to their Company Matching Contribution Accounts. Company Matching
Contribution Accounts become 100 percent vested upon retirement or death.
Participant Notes Receivable - Participants may borrow from their Plan
accounts a minimum of $1,000, in $100 increments, equal to the lesser of
$50,000, reduced by the highest outstanding loan balance during the
preceding 12 months, or 50 percent of their account balance. A participant
may not have more than two outstanding loans at any given time. Loan
transfers are treated as a transfer to (from) the investment fund from
(to) the loan fund. Loans may be prorated across all investment funds or
directed against specific funds based on the participant's request. Loans
are secured by the balance in the participant's account and bear interest
determined at the Plan's trustee prime interest rate on the close of
business on the last business day of the preceding calendar month plus 1
percent. Repayments are made from payroll deductions over a period of 12
to 60 months.
Payment of Benefits - On termination of service due to retirement, a
participant may elect to receive a lump-sum amount equal to the value of
the participant's vested interest in his or her account, or monthly or
annual installments, the amount of which is determined by the participant
at retirement. A retired participant may cancel or change such election at
any time, and may also elect a partial distribution. For termination of
service due to other reasons, a participant may receive the value of the
vested interest in his or her account as a lump-sum amount, or leave his
or her vested account in the Plan if he or she has not yet reached normal
retirement age; however, amounts must be withdrawn in a lump sum by the
terminated participant's normal retirement age.
Death benefits for active participants are to be paid to the designated
beneficiary in a lump sum, or, if the designated beneficiary is also the
surviving spouse, he or she may elect to leave the vested balance in the
Plan and be treated as the retired participant. Death benefits for
terminated employees are paid in a lump sum to the designated beneficiary.
Withdrawals - A vested participant is permitted to make a withdrawal for
any reason from his or her Standard or Matching Account. A vested
participant is permitted to make a withdrawal for any reason from his or
her Tax-Deferred Account upon the attainment of age 59-1/2, or prior to
the attainment of age 59-1/2 in the case of hardship (as described in the
Plan document). A nonvested participant is permitted to make a withdrawal
for any reason from the portion of his or her Standard Account that
represents contributions that were not matched by contributions in the
Matching Account. A nonvested participant is permitted to make a
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withdrawal from that portion of his or her Standard Account that
represents contributions that were matched by contributions in the
Matching Account only in the case of hardship. A nonvested participant is
permitted to make a withdrawal from his or her Tax-Deferred Account in the
case of hardship. A nonvested participant is not permitted to make a
withdrawal from the Matching Account.
Forfeited Accounts - Any amounts forfeited shall be used to reduce the
Company's obligation to make company matching contributions under the
Plan. Employer contributions were reduced by $181,796 and $445,916 from
forfeited nonvested accounts in 2001 and 2000, respectively.
B. SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared
under the accrual basis of accounting.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, and changes therein, and
disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
As in prior years, the Plan invests in various securities, including U.S.
government securities, corporate debt instruments, and corporate stocks.
Investment securities, in general, are normally exposed to various risks,
such as interest rate, credit, and overall market volatility. Due to the
ongoing level of risk associated with investment securities, changes in
the values of investment securities may occur in the near term which could
materially affect the amounts reported in the statements of net assets
available for plan benefits.
Investment Valuation and Income Recognition - In the accompanying
statement of net assets available for plan benefits as of December 31,
2000, the Plan's investments are stated at fair value, except for the
investments in insurance and investment contracts included in the Master
Trust, which are stated at contract value (see Note E). Quoted market
prices are used to determine the fair value of the investments. Notes
receivable from participants are valued at cost, which approximates fair
value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date.
Broker commissions, transfer taxes, and other charges and expenses
incurred in connection with the purchase, sale, or other disposition of
securities or other investments held by the Plan are added to the cost of
the securities or other investments or are deducted from the proceeds of
the sale or other disposition thereof, as appropriate. Taxes (if any) on
the assets of the funds, or on any gain resulting from the sale or other
disposition of such assets, or on the earnings of the funds, are
apportioned in such a manner as the Trustee deems equitable among the
participants and former participants (if any) whose interests in the Plan
are affected, and the share of such taxes apportioned to each person is
charged against his or her account in the Plan.
Payment of Benefits - Benefits are recorded when paid. As of April 12,
2001 and December 31, 2000, benefits payable to participants were $0 and
$17,525, respectively.
- 6 -
New Accounting Pronouncements - The Plan adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FAS Statement No. 133, and SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, and as
interpreted by the Financial Accounting Standards Board ("FASB") and the
Derivatives Implementation Group through Statement 133 Implementation
Issues, as of January 1, 2001. The impact of adopting the statement was
not material to the financial statements.
C. INVESTMENTS
Due to the Plan merger (see Note G), there were no investments as of April
12, 2001. The following presents investments that represent 5 percent or
more of the Plan's net assets as of December 31, 2000:
Janus Fund, 3,639,612 shares $121,162,676
Fidelity Growth & Income Portfolio Fund, 2,040,201 shares 85,892,465
American Century Ultra Investor Fund, 2,559,707 shares 82,857,718
Bankers Trust Large Cap Equity Fund (Equity 500), 605,401 shares 91,070,421
Viacom Incorporated common stock, 1,466,156 shares 68,542,793
Plan Interest in the Northrop Grumman Stable Value Master Trust 351,358,780
During the period ended April 12, 2001, the Plan's investments (including
gains and losses on investments bought and sold, as well as held during the
year) depreciated in value by ($46,242,863) as follows:
Mutual funds $(52,264,468)
Common stock (516,097)
------------
Net depreciation in fair value of investments (52,780,565)
Plan interest in Northrop Grumman Stable Value Master Trust
investment income 6,537,702
------------
Total $(46,242,863)
============
D. INTEREST IN NORTHROP GRUMMAN STABLE VALUE MASTER TRUST
A portion of the Plan's investments is in the Master Trust, which was
established for the investment of assets of the Plan and two other
Northrop Grumman Corporation sponsored savings plans. Each participating
savings plan has an undivided interest in the Master Trust. The assets of
the Master Trust are held by Primco Capital Management. At December 31,
2000, the Plan's interests in the net assets of the Master Trust were
approximately 27 percent. Investment income and administrative expenses
relating to the Master Trust are allocated among the participating plans
based upon average monthly balances invested by each plan.
- 7 -
Investments held in the Master Trust as of December 31, 2000 are as
follows (in thousands):
Guaranteed and Synthetic Investment Contracts (at contract value) $1,275,250
Northrop Retirement Savings Temporary Investment Fund 14,627
----------
Total $1,289,877
==========
E. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES
All investment contracts held by the Master Trust are considered to be
fully benefit responsive and, therefore, are reported at contract value.
Contract value represents contributions made under the contract, plus
interest at the contract rate, less withdrawals and administrative
expenses.
The Master Trust holds wrapper contracts in order to manage the market
risk and return of certain securities held by the Master Trust. The
wrapper contracts generally modify the investment characteristics of
certain underlying securities similar to those of guaranteed investment
contracts. Each wrapper contract and its related underlying assets are
referred to as a Synthetic Investment Contract ("SIC") and are recorded at
contract value. The SICs held by the Master Trust had a contract value
totaling $1,264,054,000 at December 31, 2000. The fair value of the
underlying assets related to the wrapper contracts totaled $1,292,226,000
as of December 31, 2000.
The fair value of the non-synthetic guaranteed investment contracts
totaled $10,987,000 at December 31, 2000.
The following information is disclosed for the investment contracts within
the Master Trust as of December 31, 2000:
Average yield of assets on December 31 6.64 %
Average crediting interest rate of assets at December 31 6.64 %
Average duration 3.20 years
F. TAX STATUS
The Plan is intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986 (the "IRC"), as amended, and to include a qualified
cash or deferred arrangement under Section 401(k) of the IRC. The Company
believes that the Plan is designed and currently being operated in
compliance with the applicable provisions of the IRC.
G. PLAN MERGER
Effective as of April 12, 2001, this Plan was merged into the Northrop
Grumman Savings and Investment Plan. All assets held under this Plan as of
the merger date were held under the Northrop Grumman Savings and
Investment Plan and governed by the terms of the Northrop Grumman Savings
and Investment Plan from that date forward. All operations of this Plan
ceased after the merger date. Beginning on the merger date, all
contributions were made to Northrop Grumman Savings and Investment Plan,
all earnings were credited to the Northrop Grumman Savings and Investment
Plan, and all distributions were made from the Northrop Grumman Savings
and Investment Plan.
******
- 8 -
Exhibit 1
---------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement (No.
333-03959) of Northrop Grumman Corporation on Form S-8 of our report dated
February 2, 2002, appearing in this annual report on Form 11-K of the Northrop
Grumman Electronic Sensors & Systems Sector Savings and Investment Plan for the
period from January 1, 2001 through April 12, 2001.
/s/ Deloitte & Touche LLP
--------------------------
Los Angeles, California
Date: May 28, 2002