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:
NEWPORT NEWS SHIPBUILDING INC.
401(k) INVESTMENT PLAN FOR SALARIED EMPLOYEES
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.
NEWPORT NEWS SHIPBUILDING INC.
401(k) INVESTMENT PLAN FOR SALARIED EMPLOYEES
Dated: June 30, 2003 /s/ J. Michael Hateley
_____________________________________
By J. Michael Hateley
Chairman, Administrative Committee
NEWPORT NEWS SHIPBUILDING INC.
401(k) INVESTMENT PLAN FOR SALARIED EMPLOYEES
TABLE OF CONTENTS
-------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of December 31, 2002
and 2001 2
Statement of Changes in Net Assets Available for Benefits for the Year
Ended December 31, 2002 3
Notes to Financial Statements 4-7
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
as of December 31, 2002 8
INDEPENDENT AUDITORS' REPORT
To the Administrative Committee of the
Newport News Shipbuilding Inc.
401(k) Investment Plan for Salaried Employees:
We have audited the accompanying statements of net assets available for benefits
of the Newport News Shipbuilding Inc. 401(k) Investment Plan for Salaried
Employees (the "Plan") as of December 31, 2002 and 2001, and the related
statement of changes in net assets available for 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, such financial statements referred to above, present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2002 and 2001, and the changes in its net assets available for
benefits for the year ended December 31, 2002, 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) as of December 31, 2002, is presented for 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 2002 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
-------------------------
DELOITTE & TOUCHE LLP
June 23, 2003
Richmond, Virginia
NEWPORT NEWS SHIPBUILDING INC.
401(k) INVESTMENT PLAN FOR SALARIED EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
2002 2001
ASSETS
Cash $ 230,509 $ 1,159,534
Investments, at fair market value:
Common stock 88,787,527 164,437,268
Common/collective trust funds 450,467,435 385,656,208
Mutual funds 173,724,565 200,932,348
Other assets - 29,156,819
Participant loans 36,059,761 33,260,829
------------ ------------
Total investments 749,039,288 813,443,472
------------ ------------
Receivables:
Employer contributions 652,144 1,109,509
Participants contributions 1,607,002 1,344,030
------------ ------------
Total receivables 2,259,146 2,453,539
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $751,528,943 $817,056,545
============ ============
See accompanying notes to financial statements.
-2-
NEWPORT NEWS SHIPBUILDING INC.
401(k) INVESTMENT PLAN FOR SALARIED EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
2002
INVESTMENT LOSS:
Net depreciation in fair value of investments $ (87,481,511)
Interest 2,648,981
Dividends 10,674,706
-------------
Total investment loss (74,157,824)
-------------
CONTRIBUTIONS:
Employer 15,831,882
Participants 37,950,757
-------------
Total contributions 53,782,639
-------------
DEDUCTIONS:
Benefits paid to participants 44,600,086
Administrative expenses 48,584
Other deductions 503,747
-------------
Total deductions 45,152,417
-------------
NET DECREASE (65,527,602)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 817,056,545
-------------
End of year $ 751,528,943
=============
See accompanying notes to financial statements
-3-
NEWPORT NEWS SHIPBUILDING INC.
401(k) INVESTMENT PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
The following description of the Newport News 401(k) Investment Plan for
Salaried Employees (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 was adopted by Newport News Shipbuilding Inc. (the
"Company" or "NNS"), effective December 16, 1996. On November 7, 2001 the
Company was acquired by and became a wholly-owned subsidiary of Northrop
Grumman Corporation.
The Plan is a defined contribution 401(k) plan that provides for
tax-deferred savings and employer contributions to participants. The Company
and Merrill Lynch Trust Co. (the "Trustee") have executed the Newport News
Shipbuilding Inc. 401(k) Investment Plan for Salaried Employees Trust
Agreement, which provides for the investment and reinvestment of the assets
of the Plan.
The Plan is subject to the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
Eligibility and Contributions--All salaried employees are eligible to
participate in the Plan as soon as administratively feasible. Approximately
one week after receipt of their first paycheck, employees may contact the
Trustee to enroll in the Plan. Participants may elect to voluntarily
contribute a percentage of their annual before-tax compensation, not to
exceed limitations imposed by the Internal Revenue Code ("IRC"), through
equal pay period deductions. Participant contributions can range from 1% to
30% of annual compensation (20% of annual compensation maximum from January
1, 2002 through July 31, 2002). The Company will provide a matching
contribution equal to 50% of the first 8% plus 25% of the next 4% of
compensation deferred under the Plan, resulting in a maximum of 5% for
Company matched contributions.
Participant Accounts--Each participant's account is credited with the
participant's contribution, an allocation of the Plan's earnings or losses
and Company matching contributions each pay period. Allocations are based on
the participant's account balance, as defined in the plan document.
Vesting and Forfeitures--Participants are vested in Company matching
contributions after completing two years of Company service. Forfeited
contributions are applied to reduce future Company matching contributions.
Payment of Benefits--Upon termination of employment, including layoff,
distributions to participants are generally made via single lump sum
payments. Participants whose account balances exceed $5,000 have the right
to defer the distribution of their account balances until they reach the age
of 70 1/2 .
-4-
Investment Options--Upon enrollment in the Plan, participants may direct
their contributions in 1% increments in any of the 18 investment funds that
are selected by the Committee, as follows:
Common Stock--Northrop Grumman Fund Employee Stock Ownership Plan
("ESOP").
Common/Collective Trust--U.S. Bond Index Fund, Equity Index Fund, LifePath
Income Fund, LifePath 2010 Fund, LifePath 2020 Fund, LifePath 2030 Fund,
LifePath 2040 Fund, Money Market Fund, Merrill Lynch Retirement
Preservation Fund.
Mutual Funds--The Managers' Special Equity Fund, State Street Research
International Fund, State Street Aurora Fund, Fidelity Growth Company
Fund, Putnam New Opportunities Fund, Templeton Foreign Fund, Van Kampen
Growth and Income Fund, and Van Kampen Equity and Income Fund.
Loans to Participants--A participant may borrow up to the lesser of 50% of
his or her account balance or $50,000 of his or her vested account balance,
with a minimum loan amount of $1,000. Loans are repayable through payroll
deductions for a period no longer than 5 years. Interest on loans to
participants is charged at a rate of prime (rate of interest charged by
commercial banks on loans to preferred customers) plus 1%. The interest
rates at December 31, 2002 and 2001, were 5.25% and 5.8%, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting--The accompanying financial statements are 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 net assets available for benefits and changes therein,
and disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
Risk and Uncertainties--The Plan utilizes various investment instruments.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility. Due to the level of
risk associated with certain investment securities, it is reasonably
possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect the amounts
reported in the financial statements.
Investment Valuation and Income Recognition--In the accompanying statements
of net assets available for plan benefits, the Plan's investments are stated
at fair value. 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.
Expenses--Administrative expenses of the Plan are paid by either the Plan or
the Plan's sponsor as provided in the Plan document.
Payment of Benefits--Benefit payments are recorded when paid.
-5-
3. INVESTMENTS
The fair market value of individual investments that represent greater than
5% of the Plan's net assets are as follows as of December 31:
2002 2001
Newport News Shipbuilding Inc. Common Stock $ - $ 82,136,810
Northrop Grumman Corporation Common Stock 88,696,895 82,300,459
Money Market Fund - 292,490,942
Fidelity Growth Company Fund 69,105,360 103,332,434
Putnam New Opportunities Fund 47,526,359 66,053,066
Equity Index Fund 45,726,617 56,795,956
Merrill Lynch Retirement Preservation Fund 357,622,160 -
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) depreciated in
value as follows:
2002
Common Stock $ (5,175,320)
Mutual Funds (67,327,561)
Collective Funds (14,978,630)
-------------
Net Depreciation $ (87,481,511)
=============
4. TAX STATUS
The Internal Revenue Service ("IRS") has determined and informed the Company
by a letter, dated July 9, 2002, that the Plan and related trust were
designed in accordance with applicable regulations of the IRC. The Plan has
been amended since receiving the IRS' determination letter; however, the
Company and the plan administrator believe that the Plan is currently
designed and operated in compliance with the applicable requirements of the
IRC and the Plan and related trust continue to be tax exempt. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
5. PLAN TERMINATION
Although it has not expressed an intention 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 set forth in ERISA. In the
event that the Plan is terminated, participants would become 100% vested in
their accounts.
6. PARTY-IN-INTEREST TRANSACTIONS
Since Northrop Grumman's common stock is an investment held by the Plan,
investments in this common stock represented transactions with
parties-in-interest. Certain plan investments are shares of collective funds
managed by the Trustee. Therefore, transactions with these investments
qualify as transactions with parties-in-interest.
-6-
7. CONVERSION OF COMPANY COMMON STOCK
As a result of the merger of the Company with and into Northrop Grumman, the
Plan converted investments in NNS common stock to Northrop Grumman common
stock. Participants were given the opportunity to exchange all their NNS
shares for either $67.50 per share in cash or 0.7193 shares of Northrop
Grumman common stock, subject to adjustment. This conversion occurred
through a tender offer expiring on November 29, 2001 and a subsequent
surrendering of NNS shares by participants in exchange for $67.50 per share
in cash or 0.7193 shares of Northrop Grumman common stock. During a final
conversion in 2002, all shares that had not been tendered resulted in the
participants receiving $51.14 in cash and 0.1743 shares of Northrop Grumman
common stock for each share of NNS common stock.
8. ELIMINATION OF INVESTMENT OPTIONS
During the year ended December 31, 2001 the Plan notified participants that
it would eliminate the investment options related to former affiliates of
the Company. Participants were provided with the option to redirect their
balances in these investment options to other investment options provided
for under the Plan. On January 2, 2002, all remaining investments related to
former affiliates were liquidated and the proceeds were invested in money
market funds.
-7-
NEWPORT NEWS SHIPBUILDING INC.
401(k) INVESTMENT PLAN FOR SALARIED EMPLOYEES
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2002
-----------------------------------------------------------------------------------------------
Description of Investment,
Identity of Issue Including Maturity Date,
Borrower, Lessor Rate of Interest, Collateral, Current
or Similar Party Par or Maturity Value Value
--------------------------------------- ------------------------ --------------------
U.S. Bond Index Fund* Collective Fund $ 27,808,489
Equity Index Fund* Collective Fund 45,726,617
LifePath Income Fund* Collective Fund 1,118,910
LifePath 2010* Collective Fund 2,690,190
LifePath 2020* Collective Fund 4,921,399
LifePath 2030* Collective Fund 4,221,632
LifePath 2040* Collective Fund 6,357,986
Money Market Retirement Fund* Collective Fund 53
Merrill Lynch Retirement Preservation Fund* Collective Fund 357,622,160
The Managers' Special Equity Fund Mutual Fund Shares 269,939
State Street Research International Fund Mutual Fund Shares 1,097,787
State Street Aurora Fund Mutual Fund Shares 25,630,912
Van Kampen Growth and Income Fund Mutual Fund Shares 12,389,492
Van Kampen Equity and Income Fund Mutual Fund Shares 4,354,075
Putnam New Opportunities Fund Mutual Fund Shares 47,526,359
Templeton Foreign Fund Mutual Fund Shares 13,350,639
Fidelity Growth Company Fund Mutual Fund Shares 69,105,360
Northrop Grumman Common Stock* Common Stock Shares 88,696,895
Northrop Grumman Fund ESOP* Common Stock Shares 90,633
Participant Loans (interest rates varied
from 5.25% to 5.8% during 2002)* Participant Loans 36,059,761
-------------
Total assets held for investment purposes $ 749,039,288
=============
* Represents a party-in-interest
-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