SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 1-12385
A. Full title of the plan and address of the plan, if different from
that of the issuer named below:
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS 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 PEI RETIREMENT SAVINGS PLAN
Dated: June 30, 2003 /s/ J. Michael Hateley
_____________________________________
By J. Michael Hateley
Chairman, Administrative Committee
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS 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, 2002 and 2001 2
Statement of Changes in Net Assets Available for Plan Benefits for the
Year Ended December 31, 2002 3
Notes to Financial Statements 4-8
INDEPENDENT AUDITORS' REPORT
Administrative Committee
Northrop Grumman PEI Retirement Savings Plan
We have audited the accompanying statements of net assets available for plan
benefits of the Northrop Grumman PEI Retirement Savings Plan (the "Plan") as of
December 31, 2002 and 2001 and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 2002. 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 present fairly, in all material
respects, the net assets available for plan benefits as of December 31, 2002 and
2001 and the changes in net assets available for plan benefits for the year
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
June 26, 2003
Los Angeles, CA
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 2002 AND 2001
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2002 2001
ASSETS:
Investment in Northrop Grumman Corporation PEI Pension and
401(k) Plans Master Trust-at fair value (Notes B and C) $1,174,062 $1,209,537
---------- ----------
Contributions receivables:
Employer 8,188 6,172
Participant 18,609 14,231
---------- ----------
Total contributions receivables 26,797 20,403
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NET ASSETS AVAILABLE FOR PLAN BENEFITS $1,200,859 $1,229,940
========== ==========
See notes to financial statements.
-2-
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED DECEMBER 31, 2002
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ADDITIONS:
Investment loss-Plan interest in Northrop Grumman Corporation PEI Pension and
401(k) Plans Master Trust Investment Loss (Notes B and C) $ (148,393)
-----------
Contributions:
Employer 63,609
Participant 147,382
-----------
Total contributions 210,991
-----------
Total additions 62,598
BENEFITS PAID TO PARTICIPANTS (Note B) (91,679)
-----------
NET DECREASE (29,081)
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 1,229,940
-----------
End of year $ 1,200,859
===========
See notes to financial statements.
-3-
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
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A. DESCRIPTION OF THE PLAN
The following description of the Northrop Grumman PEI Retirement Savings
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 plan sponsored by the
Productos Electronicos Industriales division of Northrop Grumman
Electronicos, Inc. (the "Company"). The Plan includes a 401(k) feature and
employer matching contributions.
The Plan was established by the Company on March 1, 1996 as a successor to
the Westinghouse de Puerto Rico Retirement Savings Plan (the "Predecessor
Plan"), maintained by Westinghouse de Puerto Rico, Inc. for the benefit of
Puerto Rican employees of certain Westinghouse Electric Corporation
affiliated companies who became employees of the Company, and any other
subsequent eligible employees of the Company.
Effective May 1, 1997, the Plan transferred all of its assets to the
Northrop Grumman Corporation PEI Pension and 401(k) Plans Master Trust
(the "Master Trust"), which is administered by Banco Popular de Puerto
Rico (the "Trustee"). On October 1, 2001, State Street Bank and Trust
Company ("State Street") was appointed as the agent to the Trustee. State
Street is responsible for tracking the individual assets and reporting
month-end plan accounting to the Trustee.
Contributions--Plan participants may contribute between 1% and 8% of total
compensation, in increments of 1% on a pre-tax basis. Basic contributions
may be made in amounts of 1% to 4% of total compensation. Eligible
employees who have authorized the maximum Basic contribution may make
Supplementary contributions in amounts between 1% and 4% of total
compensation. Contributions are subject to certain limitations.
The Company contributes a match of 50% of the amount of a participant's
Basic contribution. The maximum matching contribution will not exceed 2%
of the total compensation of the participant.
An eligible employee may roll over any amount from another qualified plan
or from an Individual Retirement Account into the Plan, provided that such
rollover amount is paid to the Trustee within 60 days of the date the
employee received the qualifying rollover distribution.
Participant Accounts--A separate account is maintained for each
participant, each of which has two subaccounts. Basic and Supplementary
contributions are allocated to the participant's Contribution Account.
Company matching contributions are allocated to the participant's Company
Matching Contribution Account. Assets of the Master Trust are valued at
the end of each month, and on any other date, and take into account
earnings and losses of the Plan along with appreciation or depreciation,
expenses and distributions. The benefit to which a participant is entitled
is the benefit that can be provided from the participant's vested account.
-4-
Vesting--Plan participants are 100% vested in, and have a nonforfeitable
right to, the balance of their Basic and Supplementary contributions at
all times. Plan participants become 100% vested in Company contributions
after three years of service and are 0% vested prior to that time. Company
contributions become 100% vested upon the death of a participant.
Rollovers are 100% vested at all times and are not subject to forfeiture.
Investment Options--Upon enrollment in the Plan, each participant may
direct that his or her accounts be invested in any of the following four
investment funds within the Master Trust:
Northrop Grumman Fund--The Northrop Grumman Fund invests exclusively in
Northrop Grumman Corporation common stock.
U.S. Equity Fund--The U.S. Equity Fund consists of holdings in large
sized U.S. company stocks. The fund focuses on companies with records
of growing earnings and the potential for future dividend growth.
Fixed Income Fund--The Fixed Income Fund invests in publicly traded,
high-quality fixed income securities.
U.S. Bond Fund--The U.S. Bond Fund invests in high-quality bond market
through diversified portfolio of lower-quality, higher-risk corporate
debt securities.
The Viacom Incorporated Common Stock Fund was transferred from the
Predecessor Plan. This fund was frozen in 2000, and no employee
contributions have been allowed since the transfer. In September 2001 this
fund was no longer offered as an investment option, and all employees had
to reallocate their contributions included in this fund to other funds.
Payment of Benefits--All withdrawals from the Plan during employment shall
be paid in cash. All distributions from the Plan upon retirement,
termination or death shall be paid in cash and/or shares of employer stock
held in the account. A participating employee may elect to withdraw all or
a portion of the vested portion of his or her account only in the case of
hardship, as defined by the Plan, and may make withdrawals twice per year
but not more than once per month. If a participating employee retires or
his or her employment is terminated, the vested portion of his or her
account shall be distributed to him or her as soon as practicable
following the next valuation date after retirement or termination occurs.
Any nonvested portion of his or her account shall be forfeited at that
time. In the case of death of a participating employee, his or her entire
account shall be distributed in a lump sum to his or her beneficiary(ies).
Forfeited Accounts--Any amounts forfeited shall be used to reduce the
Company's obligation to make company matching contributions under the
Plan. In 2002, no employer contributions were reduced by forfeited
nonvested amounts.
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.
-5-
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
statements of net assets available for plan benefits, the Plan's interest
in the Master Trust is stated at fair value. Quoted market prices are used
to value investments in the Master Trust.
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 Master Trust 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 of the Plan.
Administrative expenses--Administrative expenses of the Plan are paid by
the Company.
Payment of Benefits--Benefits are recorded when paid.
Reclassification--Certain reclassifications have been made to the 2001
balance to conform to the 2002 presentation.
C. INVESTMENTS
The investments of the Plan as of December 31, 2002 and 2001 are stated at
fair values determined and reported by the Trustee. Proportionate
interests of each participating plan were ascertained on the basis of the
Trustee's plan accounting method for master trust arrangements. Plan
assets represented 54% and 52% of total net assets reported by the Trustee
of the Master Trust as of December 31, 2002 and 2001, respectively.
-6-
The net assets of the Master Trust at fair value consist of the following
as of December 31:
2002 2001
Assets:
Investment in Northrop Grumman Employee Benefit Plan
Master Trust $ 996,613 $1,117,868
Short-term investments 705,966 560,320
Corporate stocks 467,268 649,196
Dividends and interest receivable 828 21
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Net assets of the Master Trust $2,170,675 $2,327,405
========== ==========
The Master Trust held approximately 285 shares of Northrop Grumman
Corporation common stock with fair values of $27,645 and $28,731 at
December 31, 2002 and 2001, respectively, which are included in the
determination of net assets available to this Plan at December 31, 2002
and 2001.
Investment (losses) income for the Master Trust is as follows as of
December 31, 2002:
Plan interest in the Northrop Grumman Employee Benefit Plan Master Trust $ (170,355)
Net depreciation in fair value of investments (160,291)
Interest 11,442
Dividends 456
-----------
Total $ (318,748)
===========
D. 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 the Employee Retirement
Income Security Act of 1974. In the event of the Plan's termination,
participants will become 100% vested in their accounts.
E. FEDERAL INCOME TAX STATUS
The Plan is intended to be qualified under the Internal Revenue Code (the
"IRC") and the Puerto Rico Income Tax Code of 1994. The Internal Revenue
Service has determined and informed the Company by letter, dated December
11, 2001, that the Plan and related trust are designed in accordance with
applicable requirements of the IRC. The Company believes that the Plan and
the related trust are designed and currently being operated in compliance
with the applicable provisions of the IRC and Puerto Rico Income Tax Code
of 1994, and that the related trust was tax exempt as of the financial
statement date. Therefore, no provision for income taxes has been included
in the Plan's financial statements.
-7-
F. 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:
2002 2001
Net assets available for plan benefits for the financial statements $ 1,200,859 $ 1,229,940
Less: Amounts allocated to withdrawing participants (9,345) (19,332)
----------- -----------
Net assets available for plan benefits per the Form 5500 $ 1,191,514 $ 1,210,608
=========== ===========
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31,
2002:
Benefits paid to participants per the financial statements $ 91,679
Add: Amounts allocated to withdrawing participants at December 31, 2002 9,345
Less: Amounts allocated to withdrawing participants at December 31, 2001 (19,332)
-----------
Benefits paid to participants per the Form 5500 $ 81,692
===========
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.
G. SUBSEQUENT EVENTS
Effective January 1, 2003, the Plan transferred all of its assets to the
Northrop Grumman Defined Contribution Plans Master Trust.
-8-
EXHIBIT INDEX
Exhibit No. Document
- ----------- --------
23 Independent Auditors' Consent
99.1 Certification pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 23
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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
26, 2003, appearing in the annual report on Form 11-K of the Northrop Grumman
PEI Retirement Savings Plan for the year ended December 31, 2002.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Los Angeles, California
June 26, 2003
Exhibit 99.1
------------
CERTIFICATION PURSUANT TO SECTION 906 FOR NORTHROP GRUMMAN
PEI RETIREMENT SAVINGS PLAN
Exhibit
Additional Exhibit under Item 99 of Item 601(b) of Regulation S-K
accompanying this Report on Form 11-K pursuant to Interim Guidance in
Securities and Exchange Commission Release No. 34-47551 et al. and not
deemed filed herewith:
Certification of the Chairman, Administrative Committee of the Northrop
Grumman PEI Retirement Savings Plan furnished in connection with its Annual
Report on Form 11-K for the year ended December 31, 2002 pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of the Northrop Grumman PEI Retirement
Savings Plan (the "Plan") on Form 11-K for the year ended December 31, 2002, as
filed with the Securities and Exchange Commission on June 30, 2003, (the
"Report"), I, J. Michael Hateley, Chairman of the Administrative Committee of
the Plan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Plan.
/s/ J. Michael Hateley
-------------------------------
J. Michael Hateley
Chairman, Administrative Committee
A signed original of this written statement required by Section 906 has been
provided to the Administrative Committee of the Plan and will be retained by the
Administrative Committee of the Plan and furnished to the Securities and
Exchange Commission or its staff upon request.
Exhibit 99.2
------------
CERTIFICATION PURSUANT TO SECTION 906 FOR NORTHROP GRUMMAN
PEI RETIREMENT SAVINGS PLAN
Exhibit
Additional Exhibit under Item 99 of Item 601(b) of Regulation S-K
accompanying this Report on Form 11-K pursuant to Interim Guidance in
Securities and Exchange Commission Release No. 34-47551 et al. and not
deemed filed herewith:
Certification of a Member, Administrative Committee of the Northrop Grumman
PEI Retirement Savings Plan furnished in connection with its Annual Report
on Form 11-K for the year ended December 31, 2002 pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of the Northrop Grumman PEI Retirement
Savings Plan (the "Plan") on Form 11-K for the year ended December 31, 2002, as
filed with the Securities and Exchange Commission on June 30, 2003, (the
"Report"), I, Gary W. McKenzie, a Member of the Administrative Committee of the
Plan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Plan.
/s/ Gary W. McKenzie
-------------------------------
Gary W. McKenzie
Member, Administrative Committee
A signed original of this written statement required by Section 906 has been
provided to the Administrative Committee of the Plan and will be retained by the
Administrative Committee of the Plan and furnished to the Securities and
Exchange Commission or its staff upon request.
