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, 2003
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 25, 2004 /s/ J. Michael Hateley
---------------------------------------
By: J. Michael Hateley
Chairman, Administrative Committee
Northrop Grumman PEI
Retirement Savings Plan
Financial Statements as of December 31, 2003
and 2002 and for the Year Ended December 31,
2003, Supplemental Schedule and Report of
Independent Registered Public Accounting Firm
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
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Page(s)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits as of December 31, 2003 and 2002 2
Statement of Changes in Net Assets Available for Plan Benefits for the
Year Ended December 31, 2003 3
Notes to Financial Statements 4-9
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H, Part IV, Line 4i,
Schedule of Assets (Held at End of Year) as of December 31, 2003 10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Administrative Committee
Northrop Grumman PEI Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Northrop Grumman PEI Retirement Savings Plan (the "Plan") as of December
31, 2003 and 2002, and the related statement of changes in net assets available
for benefits for the year ended December 31, 2003. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, 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, 2003 and 2002 and the changes in net assets available for plan benefits for
the year ended December 31, 2003, 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, 2003 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 2003 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
Los Angeles, California
June 25, 2004
1
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
2003 2002
ASSETS:
Investment in Northrop Grumman Corporation PEI Pension and
401(k) Plans Master Trust--at fair value (Notes A, B and C) $1,433,306 $1,174,062
-----------------------
Total Investments 1,433,306 1,174,062
Employer contributions receivable 8,505 8,188
Participant contributions receivable 18,947 18,609
-----------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $1,460,758 $1,200,859
=======================
See accompanying notes to financial statements.
2
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Plan interest in Northrop Grumman Corporation PEI Pension and 401(k) Plans Master Trust
(Notes A, B and C) $ 155,920
-----------
Total investment income 155,920
-----------
CONTRIBUTIONS:
Employer 70,488
Participant 158,190
-----------
Total contributions 228,678
-----------
Total additions 384,598
BENEFITS PAID TO PARTICIPANTS (Note B) (124,699)
-----------
NET INCREASE 259,899
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 1,200,859
-----------
End of year $ 1,460,758
===========
See accompanying notes to financial statements
3
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
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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 "PEI Master Trust"), which is administered by Banco Popular de Puerto
Rico (the "PEI Trustee"). On October 1, 2001, State Street Bank and Trust
Company ("State Street") was appointed as agent to the PEI Trustee. State
Street is responsible for tracking the individual assets and reporting
month-end plan accounting to the PEI Trustee. Effective January 1, 2003,
the PEI Trustee invested all of its assets in the Northrop Grumman Defined
Contribution Plans Master Trust (the "DC Master Trust") held by State
Street.
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 DC 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 his/her 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 DC 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.
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 2003, 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.
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.
5
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 trusts is stated at fair value. Quoted market prices are
used to value investments in the master trusts.
Securities are valued at their market values based on information and
financial publications of general circulation, statistical and valuation
services, records of security exchanges, appraisals by qualified persons,
transactions and bona fide offers in assets of the type in question and
other information customarily used in the valuation of assets or if market
values are not available, at their fair values as provided to the PEI
Trustee by the party with authority to trade such securities (investment
managers or the Investment Committee, as applicable). The PEI Trustee
relies on the prices provided by State Street, pricing sources, the
investment managers, or the Investment Committee as a certification as to
value in performing any valuations or calculations required of the PEI
Trustee.
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 trusts 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 trustees deem 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.
The master trusts allocate investment income, realized gains and losses
and unrealized appreciation and depreciation on the underlying securities
to the participating plans monthly and daily, respectively, based on the
market value of each plan's investment. The unrealized appreciation or
depreciation in the aggregate current value of investments is the
difference between current value and the cost of investments. The realized
gain or loss on investments is the difference between the proceeds
received and the average cost of the investments sold.
Administrative expenses -- Administrative expenses of the Plan are paid by
the Company.
Payment of Benefits -- Benefits are recorded when paid.
C. INVESTMENTS
PEI Master Trust -- The investments of the Plan as of December 31, 2003
and 2002 are stated at fair values determined and reported by the PEI
Trustee. Proportionate interests of each participating plan were
ascertained on the basis of the PEI Trustee's plan accounting method for
master trust arrangements. Plan assets represented 52% and 54% of total
net assets reported by the PEI Trustee as of December 31, 2003 and 2002,
respectively.
6
The net assets of the PEI Master Trust at fair value consist of the
following as of December 31, 2003 and 2002:
2003 2002
Assets:
Investment in Northrop Grumman Employee Benefit Plan Master Trust $1,345,885 $ 996,613
Investment in Northrop Grumman Defined Contribution Plans Master Trust 1,433,306 --
Temporary Investments -- 705,966
Common Stock -- 467,268
Dividends, Interest and Tax Receivable -- 828
-----------------------
Net Assets of the Master Trust $2,779,191 $2,170,675
=======================
Investment income for the PEI Master Trust is as follows as of December
31, 2003:
Net appreciation in fair value of investments:
Plan interest in Northrop Grumman Employee Benefit Plan Master Trust $264,745
Plan interest in Northrop Grumman Defined Contribution Plans Master Trust 155,920
--------
Total Investment Gain $420,665
========
DC Master Trust -- Plan assets represented 0.02% of total net assets
reported by the trustee of the DC Master Trust as of December 31, 2003.
Proportionate interests of each participating plan were ascertained on the
basis of the trustee's plan accounting method for master trust
arrangements. The net assets of the DC Master Trust at fair value consist
of the following as of December 31, 2003:
2003
Assets:
Temporary Investments $ 152,963,469
U.S. and Foreign Government Securities 411,233,413
Corporate Debt Instruments 174,859,840
Common Stock 2,487,376,512
Common/Collective Trust Funds 1,507,330,059
Guaranteed Insurance Contracts 1,757,340,661
Other Investments 11,684,933
Receivables or investments sold 28,549,033
Dividends, Interest and Tax Receivable 8,511,236
--------------
Total Assets 6,539,849,156
Liabilities:
Due to broker for securities purchased 80,811,923
--------------
Net Assets of the Master Trust $6,459,037,233
==============
As of December 31, 2003, DC Master Trust assets of $695,984,508 were on
loan to third party borrowers under security lending agreements. Such
assets could be subject to sale restrictions in the event security lending
agreements are terminated and the securities have not been returned to the
Plan.
7
Investment (losses) income for the DC Master Trust is as follows as of
December 31, 2003:
Net appreciation (depreciation) in fair value of investments:
U.S. and foreign government securities $ (6,430,781)
Corporate debt instruments 9,472,406
Common stock 435,855,240
Common/collective trust funds 213,116,026
Other investments 260,091
-------------
652,272,982
Interest 2,807,904
Dividends 60,745,505
Other income 87,034,461
Investment manager fees (10,641,254)
-------------
Total investment gain $ 792,219,598
=============
Other than the Plan's interests in the PEI Master Trust (which is, in
turn, invested in the DC Master Trust), there are no assets held for
investment that represent 5% or more of the Plan's net assets at December
31, 2003 and 2002.
D. TRANSACTIONS WITH PARTIES IN INTEREST
The Plan had transactions with the PEI Trustee's and State Street's
short-term investment funds, a liquidity pooled funds in which
participation commences and terminates on a daily basis.
E. 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, as amended ("ERISA"). In the event of the
Plan's termination, participants will become 100% vested in their
accounts.
F. FEDERAL INCOME TAX STATUS
The Plan is intended to be qualified under the Internal Revenue Code of
1986, as amended (the "1986 Code") and the Puerto Rico Income Tax Code of
1994. The Plan obtained its latest determination letter dated December 11,
2000 in which the Internal Revenue Service determined that the Plan terms
at the time of the determination letter application were in compliance
with the applicable sections of the 1986 Code, and, therefore, the related
trust is exempt from taxation. The Plan has been amended since receiving
the determination letter. Although the amendments have not yet been filed
for a favorable determination letter, management will make any changes
necessary to maintain the Plan's tax-qualified status. However, management
believes that the Plan and the related trust are designed and currently
being operated in compliance with the applicable provisions of the 1986
Code 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.
8
G. 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,
2003 and 2002:
2003 2002
Net assets available for plan benefits for the financial statements $ 1,460,758 $ 1,200,859
Less: Amounts allocated to withdrawing participants (1,495) (9,345)
--------------------------
Net assets per the Form 5500 $ 1,459,263 $ 1,191,514
==========================
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31,
2003:
Benefits paid to participants per the financial statements $ 124,699
Add: Amounts allocated to withdrawing participants at December 31, 2003 1,495
Less: Amounts allocated to withdrawing participants at December 31, 2002 (9,345)
---------
Benefits paid per the Form 5500 $ 116,849
=========
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.
9
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
FORM 5500 SCHEDULE H, PART IV, LINE 4i
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
--------------------------------------------------------------------------------
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 Defined Participation in Northrop Grumman Defined Contribution $1,391,441
Contribution Plans MasterTrust Plans Master Trust
* State Street 14,598 Shares of Participation in the Cash/STIF Accounts 14,598
* Northrop Grumman 285 Shares of Northrop Grumman Corporation Common Corporate Stock 27,246
----------
$1,433,285
==========
* Party-in-interest
10