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, 1999 and 1998
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
SAVINGS AND INVESTMENT PROGRAM
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
1
SIGNATURES
Pursuant to the requirements of the Securities 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: June 28, 2000 By Gary W. McKenzie
Vice President Tax
2
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 December 31, 1999 and 1998 2
Statement of Changes in Net Assets Available for Plan Benefits
for the Year Ended December 31, 1999 3
Notes to Financial Statements 4-9
SUPPLEMENTAL SCHEDULE -
Assets Held for Investment Purposes at December 31, 1999 10
3
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 December 31, 1999 and 1998, and the related
statement of changes in net assets available for plan benefits for the year
ended December 31, 1999. 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 of the Plan as of December
31, 1999 and 1998, and the changes in net assets available for plan benefits for
the year ended December 31, 1999 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
for investment purposes at December 31, 1999 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. The supplemental schedule is the responsibility of the
Plan's management. Such supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic 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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Deloitte & Touche LLP
Los Angeles, California
June 22, 2000
NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1999 AND 1998
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1999 1998
ASSETS:
Investments (Note C) $1,035,264,391 $835,514,188
Receivables:
Employer contributions 77,013
Participant contributions 241,830
Due from broker for securities sold 502,142
Interest, dividends and others 4,109 5,124
-------------- ------------
Total receivables 4,109 826,109
-------------- ------------
Total assets 1,035,268,500 836,340,297
LIABILITIES:
Accrued expenses 16,751
Due to broker for securities purchased 732,612
-------------- ------------
Total liabilities 16,751 732,612
-------------- ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $1,035,251,749 $835,607,685
============== ============
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
YEAR ENDED DECEMBER 31, 1999
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Net appreciation in fair value of investments $ 131,852,424
Investment income:
Interest and other income 27,705,805
Dividends 26,617,657
--------------
Total investment income 186,175,886
--------------
CONTRIBUTIONS:
Employer 14,398,251
Participant 67,746,393
--------------
Total contributions 82,144,644
--------------
Total additions 268,320,530
--------------
DEDUCTIONS:
Benefits paid to participants 68,636,841
Administrative expenses 39,625
--------------
Total deductions 68,676,466
--------------
NET INCREASE 199,644,064
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 835,607,685
--------------
End of year $1,035,251,749
==============
See notes to financial statements.
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NORTHROP GRUMMAN ELECTRONIC SENSORS & SYSTEMS SECTOR SAVINGS AND
INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
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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, formerly named the Northrop Grumman Electronic Sensors
& Systems Division Savings and Investment 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 March 1, 1996 and covers all regular 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 was established by the Company as a successor to the Westinghouse
Savings Program (the "Predecessor 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.
Contributions - Plan participants may 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, 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.
-4-
Participant Accounts - A separate account is maintained for each
participant, each of which has 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 ("Matching 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 Predecessor Plan as of
February 29, 1996 shall be 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.
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
Fidelity Growth & Income Portfolio
American Century Ultra Investors Fund
JPM Institutional Diversified Fund
JPM Institutional International Equity Fund
Investment Lifecycle Short Range Fund
Investment Lifecycle Mid Range Fund
Investment Lifecycle Long Range Fund
Investment Large Cap Equity Fund (Equity 500) Index Fund
Fixed Income Contract Fund
Northrop Grumman Company Stock Fund
The CBS Common Stock Fund was transferred from the Predecessor 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 State Street Bank 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 monthly payroll deductions over a period
of 6 to 60 months, in increments of 6 months.
-5-
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
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.
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 $192,741 and $183,411 from
forfeited nonvested accounts in 1999 and 1998, 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.
Investment Valuation and Income Recognition - The Plan's investments are
stated at fair value based on quoted market prices except for its
investments in insurance and investment contracts, which are valued at
contract value (see Note C). Participant notes receivable are valued at
cost, which approximates fair value.
-6-
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 December 31,
1999 and 1998, benefits payable to participants were zero and $292,155,
respectively.
New Accounting Pronouncements - The Plan has adopted Statement of Position
99-3 "Accounting and Reporting of Certain Defined Contribution Plan
Investments and Other Matters," which eliminates the by-fund disclosure.
There was no other impact to the Plan's financial statements.
C. INVESTMENTS
The following presents investments that represent 5 percent or more of the
Plan's net assets, as of December 31, 1999 and 1998:
1999 1998
Janus Fund, 2,853,017 and 1,741,692 shares, respectively $125,675,384 $ 58,608,091
Fidelity Growth & Income Portfolio, 2,087,569 and 2,187,339
shares, respectively 98,449,748 100,267,634
American Century Ultra Investor Fund, 2,136,427 and
1,999,168 shares, respectively 97,805,622 66,792,189
Bankers Trust Large Cap Equity Fund (Equity 500), 596,013
and 576,951 shares, respectively 109,350,591 89,992,755
CBS Corporation common stock, 1,797,680 and 2,299,714
shares respectively 118,341,836 75,460,515
Plan Interest in the Northrop Grumman Stable Value
Master Trust 428,429,284 392,637,208
During 1999, the Plan's investments (including gains and losses on investments bought and sold, as well
as held during the year) appreciated in value by $131,852,424 as follows:
Mutual Funds $ 71,097,545
Common stock 60,754,879
------------
$131,852,424
============
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D. INTEREST IN NORTHROP GRUMMAN STABLE VALUE MASTER TRUST
A portion of the Plan's investments are in the Northrop Grumman Stable
Value Master Trust (the "Master Trust") which was established for the
investment of assets of the Plan and several 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, 1999 and 1998, the
Plan's interest in the net assets of the Master Trust was approximately 30
percent and 29 percent, respectively. 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.
Investments held at contract value in the Master Trust as of December 31,
1999 and 1998 are as follows (in thousands):
1999 1998
Guaranteed and Bank Investment Contracts $1,389,667 $1,298,790
Northrop Retirement Savings Temporary
Investment Fund 33,264 60,090
Accrued Income 113
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Total $1,422,931 $1,358,993
========== ==========
Investment income in the Master Trust was $87,968,829 for the year ended
December 31, 1999.
E. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES
All investment and insurance contracts held by the Plan 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 following information is disclosed for the investment and insurance
contracts within the Master Trust (the "Master Trust") as of December 31,
1999 and 1998 (in millions):
1999 1998
Contract value of assets: $ 1,390 $ 1,299
Fair value of assets: $ 1,355 $ 1,343
Average yield of assets on December 31: 6.25 % 7.09 %
Crediting interest rate of assets at December 31: 6.25 % 7.08 %
Duration: 2.77 years 2.58 years
-8-
F. 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.
G. 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.
H. SUBSEQUENT EVENT
Effective April 1, 2000, the Plan was split into two separate plans, one
for represented employees and one for non-represented employees. A
represented employee is anyone who was a represented employee on March 31,
2000, regardless of whether the employee was a non-represented employee
previously. The Northrop Grumman Electronic Sensors & Systems Sector Union
Employees Savings and Investment Plan is the successor to the Plan with
respect to represented employees. The Northrop Grumman Electronic Sensors
& Systems Sector Savings and Investment Plan is the successor to the Plan
with respect to non-represented employees.
******
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NORTHROP GRUMMAN CORPORATION ELECTRONIC SENSORS &
SYSTEMS SECTOR SAVINGS AND INVESTMENT PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Description of Investment, Including
Identity of Issue, Borrower, Maturity Date, Rate of Interest,
Lessor or Similar Party Collateral, Par or Maturity Value Cost Current
* State Street Bank & Trust Co. 4,251,628 Shares of participation in the
Pyramid Directed Account Cash Fund $ 3,932,784 $ 3,932,783
* Northrop Grumman 20,751,623 Shares of participation in the
ESSD Loan Fund 20,751,623 20,751,623
* American Century Mutual Funds 2,136,427 Shares of participation in the Ultra
Fund Investment 66,898,338 97,805,622
* Bankers Trust 596,013 Shares of participation in the Large
Cap Equity Fund (Equity 500) 71,270,363 109,350,591
* Bankers Trust 224,680 Shares of participation in the
Lifecycle Short Range Fund 2,387,032 2,345,656
* Bankers Trust 406,744 Shares of participation in the
Lifecycle Mid Range Fund 4,591,737 4,551,469
* Bankers Trust 685,026 Shares of participation in the
Lifecycle Long Range Fund 8,832,801 9,275,252
* CBS Corp 1,797,680 Shares of participation in the 31,339,446 114,939,165
Common Stock
* Fidelity 2,087,569 Shares of participation in the
Growth & Income 73,725,383 98,449,748
* JPM 488,313 Shares of participation in the
Institutional Diversified Fund 6,473,448 7,329,581
* JPM 678,797 Shares of participation in the
Institutional Int'l Equity Fund 8,241,354 10,019,046
* Janus Fund 2,853,017 Shares of participation in the FD
Income Fund 93,630,202 125,675,384
* Northrop Grumman 44,563 Shares of participation in the
Corporate Stock 3,465,170 2,409,187
* Northrop Grumman Master Trust 318,156,544 Shares of participation in
Northrop Grumman Stable Value Master Trust 384,616,735 428,429,284
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Total $780,156,416 $1,035,264,391
============ ==============
* Party-in-Interest
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Exhibit 1
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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
22, 2000, appearing in this Annual Report on Form 11-K of the Northrop Grumman
Electronic Sensors & Systems Sector Savings and Investment Plan for the year
ended December 31, 1999.
/s/ Deloitte & Touche LLP
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Deloitte & Touche LLP
Los Angeles, California
June 28, 2000
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