SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the fiscal years ended December 31, 2001 and 2000
OR
[ ] Transition report pursuant to Section 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from __________ to ____________
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
UNION REPRESENTED EMPLOYEES 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
UNION REPRESENTED EMPLOYEES SAVINGS AND INVESTMENT PLAN
Dated: June 28, 2002 /s/ Gary W. McKenzie
_____________________________________
By Gary W. McKenzie
Vice President-Tax
NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
UNION REPRESENTED EMPLOYEES 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 December 31, 2001 and 2000 2
Statement of Changes in Net Assets Available for Plan Benefits
for the Year Ended December 31, 2001 3
Notes to Financial Statements 4-10
SUPPLEMENTAL SCHEDULE -
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
at December 31, 2001 11
INDEPENDENT AUDITORS' REPORT
To the Administrative Committee of the Northrop Grumman Electronic Sensors &
Systems Sector Union Represented Employees 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 Union
Represented Employees Savings and Investment Plan (the "Plan") as of December
31, 2001 and 2000, and the related statement of changes in net assets available
for plan benefits for the year ended December 31, 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, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits as of December
31, 2001 and 2000, and the changes in net assets available for plan benefits for
the year ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) at December 31, 2001 is presented for the purpose of additional
analysis and is not a required part of the basic financial statements but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This schedule is the responsibility of the Plan's
management. Such schedule has been subjected to the auditing procedures applied
in the audit of the basic 2001 financial statements and, in our opinion, is
fairly stated in all material respects when considered in relation to the basic
financial statements taken as a whole.
/s/ Deloitte & Touche LLP
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Los Angeles, California
June 24, 2002
NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
UNION REPRESENTED EMPLOYEES SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS AS OF
DECEMBER 31, 2001 AND 2000
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2001 2000
ASSETS:
Investments (Notes B, C, D, and E) $115,594,673 $115,100,177
Receivables:
Employer contribution 41,398 87,866
Participant contributions 168,388 274,119
Accrued investment income 3,200 4,129
------------ ------------
Total assets 115,807,659 115,466,291
LIABILITIES -
Accrued administrative expenses 19,640 10,425
------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $115,788,019 $115,455,866
============ ============
See notes to financial statements.
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NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
UNION REPRESENTED EMPLOYEES SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS FOR THE
YEAR ENDED DECEMBER 31, 2001
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INVESTMENT (LOSS) INCOME:
Net depreciation in fair value of investments (Notes B and C) $ (6,923,303)
Plan interest in Northrop Grumman Stable Value Master Trust investment income
(Notes B, C, D, and E) 4,378,997
Dividends 318,687
Interest and other income 63,586
-------------
Total investment loss (2,162,033)
-------------
CONTRIBUTIONS:
Employer 2,415,554
Participant 7,941,337
-------------
Total contributions 10,356,891
-------------
DEDUCTIONS:
Benefits paid to participants (Note B) 7,789,580
Administrative expenses 73,125
-------------
Total deductions 7,862,705
-------------
NET INCREASE 332,153
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 115,455,866
-------------
End of year $ 115,788,019
=============
See notes to financial statements.
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NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
UNION REPRESENTED EMPLOYEES SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
A. DESCRIPTION OF THE PLAN
The following description of the Northrop Grumman Electronic Sensors &
Systems Sector Union Represented Employees 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 Systems Sector of Northrop
Grumman Corporation (the "Company"). The Plan covers all union represented
employees who are citizens of the United States of America or resident
aliens and 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, formerly named Northrop Grumman Electronic Sensors & Systems
Sector Savings and Investment Plan (the "ESSS Plan"), 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.
The ESSS Plan included assets for both the union-represented and
non-represented participants through March 31, 2000. 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. Assets related to
non-represented participant accounts were transferred to another plan
sponsored by the Company.
Contributions - Plan participants may contribute between 2 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, for each dollar a participant contributes, the Company makes a
matching contribution of $0.50, subject to a maximum Company matching
contribution of 3 percent of eligible compensation for that month.
A participant, other than a terminated participant, who has received a
rollover distribution from a qualified defined contribution plan or a
distribution from an Individual Retirement Account, may elect to roll over
not more than the cash value of the distribution, less any amount
attributable to the participant's after-tax contributions, to his or her
Standard Account within 60 days of receipt of such distribution. The
participant may elect to invest any amount rolled over or transferred to
the Plan in any of the investment options available in increments of 1
percent.
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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
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 were not vested in any portion of their Company
Matching Contribution Accounts until they had accrued five years of
service, at which time they became 100 percent vested in and had a
nonforfeitable right to their Company Matching Contribution Accounts.
Company Matching Contribution Accounts become 100 percent vested upon
retirement or death.
Investment Options - Upon enrollment in the Plan, each participant may
direct that his or her accounts, in 1 percent increments, be invested in
any of the following 11 investment funds:
Janus Fund - The Janus Fund invests in the equity securities of large,
well-established companies located in both the United States and
abroad, with an objective of growth of capital.
Fidelity Growth & Income Portfolio Fund - The Fidelity Growth & Income
Portfolio Fund invests in a combination of common stock, preferred
stock, and both foreign and domestic bonds. Its objectives are
long-term capital growth, current income, and growth of income.
American Century Ultra Investors Fund - The American Century Ultra
Investors Fund invests in small to medium sized companies, with the
objective of achieving capital growth over the long term.
JPM Institutional Diversified Fund - The JPM Institutional Diversified
Fund invests in equity securities of international and domestic
companies, both large and small. It will also include a smaller
allocation of bonds, including high-grade corporate issues,
mortgage-related securities, U.S. government and agency instruments,
and private placements.
JPM Institutional International Equity Fund - The JPM Institutional
International Equity Fund invests in equity securities of companies
located in foreign, developed countries, with the objective of
long-term capital growth.
Investment Lifecycle Short Range Fund - The Investment Lifecycle Short
Range Fund invests in a majority of bonds with smaller allocations of
cash investments and stocks, with the objective of providing current
income and some growth potential.
Investment Lifecycle Mid Range Fund - The Investment Lifecycle Mid
Range Fund invests in an asset mix consisting of stocks, bonds, and
cash investments, with the objective of providing current income and
growth potential over the long term.
Investment Lifecycle Long Range Fund - The Investment Lifecycle Long
Range Fund invests in an asset mix consisting of a majority of stocks
with smaller allocations of bonds and cash investments, with the
objective of providing high total return in the form of growth and
income.
- 5 -
Investment Large Cap Equity (Equity 500) Index Fund - The Investment
Large Cap Equity (Equity 500) Index Fund invests in a well-diversified
portfolio of stocks, as defined by an established market index. The
objective of this fund is to provide the price and yield performance of
the S&P 500.
Northrop Grumman Stable Value Master Trust - The Northrop Grumman
Stable Value Master Trust (the "Master Trust"; see Note D) is
diversified among U.S. government securities and obligations of
government agencies, bonds, short-term investments, cash, and contracts
issued by insurance companies and banks. The Master Trust is managed by
an independent professional investment manager appointed by the Plan's
Investment Committee.
Northrop Grumman Fund - The Northrop Grumman Fund invests exclusively
in Northrop Grumman Corporation common stock.
The Viacom Incorporated Common Stock Fund was transferred from the
Westinghouse Plan. This fund was frozen, and no employee contributions
have been allowed since the transfer.
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 trustee's 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, which
- 6 -
represents contributions that were not matched by contributions in the
Matching Account. A nonvested participant is permitted to make a
withdrawal from that portion of his or her Standard Account, which
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.
B. SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting - The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America.
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.
Risk and Uncertainties - 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,
2001, 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.
- 7 -
C. INVESTMENTS
The following presents investments that represent 5 percent or more of the
Plan's net assets, as of December 31:
2001 2000
Janus Fund, 346,591 and 367,005 shares, respectively $ 8,526,129 $12,217,590
Fidelity Growth & Income Portfolio Fund, 158,262 and
159,259 shares, respectively 5,915,835 6,704,821
American Century Ultra Investor Fund, 212,274 and
218,734 shares, respectively 5,867,259 7,080,407
Viacom Incorporated common stock, 194,621 and
216,547 shares, respectively 8,592,517 10,123,572
Plan Interest in the Northrop Grumman Stable Value
Master Trust 72,755,435 64,809,405
During 2001, the Plan's investments, including gains and losses on
investments bought and sold, as well as held during the year, appreciated
(depreciated) in value as follows:
Mutual funds $(6,615,477)
Common stock (307,826)
-----------
Net depreciation in fair value of investments (6,923,303)
Plan interest in Northrop Grumman Stable Value Master Trust
investment income 4,378,997
-----------
Net depreciation $(2,544,306)
===========
D. INTEREST IN NORTHROP GRUMMAN STABLE VALUE MASTER TRUST
A portion of the Plan's investments are 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,
2001 and 2000, the Plan's interests in the net assets of the Master Trust
were approximately 5 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.
- 8 -
Investments held in the Master Trust are as follows as of December 31:
2001 2000
Guaranteed and Synthetic Investment Contracts
(at contract value) $1,330,767,000 $1,275,250,000
Northrop Retirement Savings Temporary
Investment Fund 44,101,000 14,627,000
-------------- --------------
Total $1,374,868,000 $1,289,877,000
============== ==============
Investment income of the Master Trust was $84,965,000 for the year ended
December 31, 2001.
E. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES
All investment contracts held by the Master Trust are considered to be
fully benefit-responsive and are therefore recorded 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 is recorded at
contract value. The SICs held by the Master Trust had a contract value
totaling $1,286,790,000 and $1,264,054,000 at December 31, 2001 and 2000,
respectively. The fair value of the underlying assets related to the
wrapper contracts totaled $1,334,137,000 and $1,292,226,000 as of December
31, 2001 and 2000, respectively.
The fair value of the non-synthetic guaranteed investment contracts
totaled $45,671,000 and $10,987,000 at December 31, 2001 and 2000,
respectively.
The following information is disclosed for the investment contracts within
the Master Trust as of December 31:
2001 2000
Average yield of assets on December 31 6.30 % 6.64 %
Average crediting interest rate of assets at December 31 6.30 % 6.64 %
Average duration 3.32 years 3.20 years
F. TRANSACTIONS WITH PARTIES IN INTEREST
Certain Plan investments represent short-term investments managed by State
Street. State Street is the trustee as defined by the Plan, and therefore,
these transactions qualify as party-in-interest transactions. Fees paid by
the Plan for the investment management services amounted to $34,461 for
the year ended December 31, 2001. In Plan management's opinion, fees paid
during the year for services rendered by parties-in-interest were based
upon customary and reasonable rates for such services.
- 9 -
G. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of the
Plan's termination, participants will become 100 percent vested in their
accounts.
H. FEDERAL INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by
letter dated December 15, 2000 that the Plan, as amended, and related
trust are designed in accordance with applicable sections of the Internal
Revenue Code (the "IRC"). The Plan administrator and the Plan's counsel
believe that the Plan is currently being operated in compliance with the
applicable requirements of the IRC.
I. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for Plan
benefits per the financial statements to the Form 5500 as of December 31,
2001:
Net assets available for Plan benefits for the financial statements $115,788,019
Less: Amounts allocated to withdrawing participants (41,529)
------------
Net assets available for Plan benefits per the Form 5500 $115,746,490
============
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31,
2001:
Benefits paid to participants per the financial statements $ 7,789,580
Add: Amounts allocated to withdrawing participants at December 31, 2001 41,529
Less: Amounts allocated to withdrawing participants at December 31, 2000 -
------------
Benefits paid to participants per the Form 5500 $ 7,831,109
============
Amounts allocated to withdrawing participants are recorded on the Form
5500 for benefit claims that have been processed and approved for payment
prior to December 31 but not yet paid as of that date.
- 10 -
NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
UNION REPRESENTED EMPLOYEES SAVINGS AND INVESTMENT PLAN
SCHEDULE H, LINE 4i
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2001
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Description of Investment, Including
Identity of Issue, Borrower, Maturity Date, Rate of Interest, Current
Lessor or Similar Party Collateral, Par or Maturity Value Value
* Northrop Grumman Stable Value 47,597,649 Shares of participation in Northrop Grumman Stable
Master Trust Value Master Trust $ 72,755,435
Viacom Corp. 194,621 Shares of participation in the Common Stock 8,592,517
Janus Fund 346,591 Shares of participation in the Income Fund 8,526,129
Fidelity 158,262 Shares of Participation in the Growth & Income Fund 5,915,835
American Century Mutual Funds 212,274 Shares of Participation in the Ultra Investors Fund 5,867,259
Bankers Trust 39,859 Shares of Participation in the Large Cap Equity Index Fund 5,152,986
* Northrop Grumman 4,402,842 Shares of Participation in the Loan Fund 4,402,842
* State Street 9,368 Shares of Participation in the Cash/STIF Accounts 936,752
* Northrop Grumman 9,251 Shares of Participation in the Corporate Stock 932,593
Bankers Trust 71,325 Shares of Participation in the Lifecycle Long Range Fund 756,754
JPM 48,313 Shares of Participation in the Institutional Diversified Fund 608,634
JPM 60,529 Shares of Participation in the Institutional International
Equity Fund 515,098
Bankers Trust 46,252 Shares of Participation in the Lifecycle Mid Range Fund 451,937
Bankers Trust 17,901 Shares of Participation in the Lifecycle Short Range Fund 179,902
------------
$115,594,673
============
* Party-in-interest
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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 June
24, 2002, appearing in this annual report on Form 11-K of the Northrop Grumman
Electronic Sensors & Systems Sector Union Represented Employees Savings and
Investment Plan for the year ended December 31, 2001.
/s/ Deloitte & Touche LLP
- --------------------------
Los Angeles, California
June 24, 2002
