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 1-2384
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
THE TRW EMPLOYEE STOCK OWNERSHIP AND 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.
THE TRW EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
Dated: June 30, 2003 /s/ J. Michael Hateley
_____________________________________________
By J. Michael Hateley
THE TRW EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
TABLE OF CONTENTS
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Page
REPORT OF INDEPENDENT AUDITORS 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-10
Schedule H, Line 4(i) - Schedule of Assets 11-14
Schedule H, Line 5(j) - Schedule of Reportable Transactions 15
Report of Independent Auditors
Board of Administration
The TRW Employee Stock Ownership
and Savings Plan
We have audited the accompanying statements of net assets available for benefits
of The TRW Employee Stock Ownership and Savings 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. 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 benefits of The TRW Employee
Stock Ownership and Savings 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.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
(held at end of year) as of December 31, 2002 and reportable transactions for
the year then ended, are presented for purposes of additional analysis and are
not a required part of the financial statements but are 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. These supplemental schedules are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 21, 2003
1
The TRW Employee Stock Ownership and Savings Plan
Statements of Net Assets Available for Benefits
December 31
2002 2001
-------------------------------
ASSETS
Investments:
TRW Inc. common stock $ - $ 803,311,425
Northrop Grumman Corporation common stock 951,008,588 -
Guaranteed investment contracts 559,930,307 513,028,461
Registered investment companies 468,660,781 505,785,759
Common trust funds 646,837,472 861,475,391
Self-directed brokerage accounts 22,629,763 24,810,660
Participant loans receivable 51,161,068 57,761,473
-------------------------------
Total investments 2,700,227,979 2,766,173,169
Receivable for investments sold - 100,697
Employer contribution receivable 3,218,975 -
Receivable from other funds 122,868 714,752
-------------------------------
Total assets 2,703,569,822 2,766,988,618
LIABILITIES
Accrued expenses 727,727 356,303
Payable for portfolio shares redeemed - 694,434
-------------------------------
Total liabilities 727,727 1,050,737
-------------------------------
Net assets available for benefits $2,702,842,095 $2,765,937,881
===============================
2
See accompanying notes.
The TRW Employee Stock Ownership and Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
ADDITIONS
Investment income:
Dividends $ 53,384,429
Interest 4,373,219
Net appreciation in fair value of investments 16,981,359
---------------
Total investment income 74,739,007
Contributions:
Employer 60,989,401
Employee 168,998,760
Rollovers 8,458,886
---------------
Total contributions 238,447,047
Transfers from other plans 2,368,348
---------------
Total additions 315,554,402
DEDUCTIONS
Distributions 371,833,591
Participant loans deemed distributions 5,651,604
Administrative expenses 1,164,993
---------------
Total deductions 378,650,188
---------------
Net decrease (63,095,786)
Net assets available for benefits at beginning
of year 2,765,937,881
---------------
Net assets available for benefits at end of year $ 2,702,842,095
===============
See accompanying notes.
3
The TRW Employee Stock Ownership and Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001 and
Year ended December 31, 2002
1. Description of the Plan
The following description of The TRW Employee Stock Ownership and 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. The Plan
is governed by the Internal Revenue Code and related legislation.
The Plan is a qualified employee stock ownership plan sponsored by Northrop
Grumman Space and Mission Systems Corp (the "Company"), which was formerly known
as TRW Inc. (TRW). The Plan was initially established on January 1, 1968 and
amended on January 1, 1987 to constitute a combined profit sharing and employee
stock ownership plan, and covers substantially all domestic employees who have
been employed for at least three months. The Plan's assets are held by Putnam
Investment Company, as Trustee of the Plan.
On December 11, 2002, Northrop Grumman Corporation (Northrop Grumman) completed
the purchase of 100% of the common stock of TRW. Effective February 28, 2003,
Northrop Grumman sold the Company's automotive business to The Blackstone Group.
Former employees of the Company and certain of its subsidiaries associated with
the sold automotive business terminated their participation in the Plan as of
that date and will be eligible for a distribution from the Plan.
Participant Contributions
The Plan allows eligible employees to contribute up to 16% of qualifying
compensation on a pre-tax basis by way of salary reduction; such contributions
are made in increments of 1% of qualifying compensation and cannot exceed
$11,000 for participants under the age of 50 and $12,000 for participants age 50
or over in 2002. Participants may also elect to contribute, in increments of 1%,
up to 10% of qualifying compensation on an after-tax basis. The combined
contribution cannot exceed 22% of their qualifying compensation. Participants
can make unlimited contribution percentage changes per month. Annual
contributions to a participant's account (including pre-tax, after-tax and
Company matching contributions) and to any other defined contribution plan are
limited to the lesser of $40,000 or 100% of the participant's annual
compensation.
Participants determine the funds in which to invest their contributions.
Employee contributions may be invested, in multiples of 1%, in one or more of
the investment funds. Fund elections may be changed at any time. Employee
contributions are not eligible to be invested in the Northrop Grumman Stock
Fund.
4
The TRW Employee Stock Ownership and Savings Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Employer Contributions
The Company contributes to the Plan, out of current or accumulated earnings, an
amount equal to 100% of each participant's before-tax contributions to a maximum
of 3% of each participant's qualifying compensation. Participants immediately
vest in the TRW matching contributions. Prior to December 11, 2002, all matching
contributions were invested in the TRW Stock Fund and were not eligible to be
transferred, except under special circumstances. As of December 11, 2002, assets
of the TRW Stock Fund were transferred to the Northrop Grumman Stock Fund at a
ratio of 0.5357 Northrop Grumman share per TRW share.
After December 11, 2002, employer contributions are allocated by participants
among the investment options offered by the Plan, excluding the Northrop Grumman
Stock Fund.
Withdrawals and Distributions
Upon termination of employment, participants may elect to receive his or her
account, less the unpaid balance of any loan outstanding, in a single sum,
except a participant whose account balance exceeds $5,000 may defer his or her
payments until he or she reaches age 70-1/2. Participants receive the value of
their TRW or Northrop Grumman shares in cash unless they elect to receive
shares. If a participant elects to defer payment of his or her account, the
undistributed account balance remains invested in the Plan.
Participants who have attained age 55 as of the end of the preceding fiscal
year-end and participated in the Plan at least ten years may elect, within an
election period during each of the succeeding six consecutive plan years, to
receive a special ESOP distribution or may transfer the applicable amount to one
or more investment funds under the Plan. The number of shares eligible for the
annual election is 50% of the total number of shares of TRW or Northrop Grumman
common stock attributable to TRW matching contributions made after 1986, less
the equivalent number of shares distributed as a result of any prior ESOP
election, as determined on the preceding December 31.
5
The TRW Employee Stock Ownership and Savings Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Participant Loans
Participants can borrow from $1,000 to $50,000 (in increments of $100) of their
pre-tax contributions, but such borrowings in the aggregate cannot exceed 50% of
a participant's total Plan balance. The interest rate is fixed (prime rate at
the end of the last business day of the preceding quarter plus 1%) and the
repayment period cannot be less than one year or more than five years.
Other
Although it has not expressed any intent to do so, the Company reserves the
right to suspend or terminate the Plan. In the event of termination, the amount
of each participant's account may be retained in trust for the benefit of the
participant.
The above description of the Plan provides only general information.
Participants should refer to the Summary Plan Description, which is available
from the Plan's Participant Service Center and the Plan's website, and annual
prospectus for a more complete description of the Plan's provisions.
2. Significant Accounting Policies
The financial statements have been prepared on the accrual basis of accounting.
Investments, other than guaranteed investment contracts, are stated at fair
value. Investments in common and preferred stock are valued at the last reported
sales price of the stock on the last business day of the plan year. The shares
of registered investment companies are valued at quoted market prices that
represent the net asset values of shares held by the Plan at year-end.
Investments in common trust funds are valued based on the redemption price of
units owned by the Plan, which is based on the current fair value of the
underlying assets of the fund. The participant loans are valued at their
outstanding balances, which approximate fair value.
6
The TRW Employee Stock Ownership and Savings Plan
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Guaranteed investment contracts are stated at contract value, which represent
contributions made under the contract, plus income received thereon, less
distributions and administrative expense payments. Contract value approximates
fair value. All separate account and synthetic contracts have a guaranteed
return of principal. As of December 31, 2002 and 2001, approximately $49 million
and $43 million was invested in general account assets, $70 million and $80
million in separate account assets, and $441 million and $390 million in
investment contracts owned directly by the Plan, respectively. The weighted
average yield (excluding administrative expenses) for all investment contracts
was 5.54% and 6.39% in 2002 and 2001, respectively. The crediting interest rate
for all investment contracts was 5.15% at December 31, 2002 and 6.00% at
December 31, 2001.
The cost of securities sold is determined by the average cost method for
purposes of determining realized gains and losses.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Certain amounts in the 2001 financial statements have been reclassified to
conform to the 2002 presentation.
3. Investments
During the year ended December 31, 2002, the Plan's investments (including
investments purchased, sold, as well as held during the year) appreciated
(depreciated) in fair value as determined by quoted market prices as follows:
TRW Inc. common stock $ 311,594,368
Northrop Grumman Corporation common stock 6,131,427
Common trust funds (176,431,959)
Shares of registered investment companies (112,954,014)
Brokerage account (11,358,463)
-------------
Net appreciation $ 16,981,359
=============
7
The TRW Employee Stock Ownership and Savings Plan
Notes to Financial Statements (continued)
3. Investments (continued)
The self-directed brokerage account investments are held in the Harris Direct
(formerly CSFB Direct) Securities Account. As of December 31, 2002, these
investments consisted of $16,014,323 of stocks--common and preferred, $6,007,294
of shares of registered investment companies, and $608,146 of bonds and notes.
The fair value of individual investments that represent 5% or more of the Plan's
net assets are as follows:
December 31
2002 2001
------------------------------
TRW Inc. common stock* $ 803,311,425
Northrop Grumman Corporation common
stock* $ 951,008,588
Putnam S&P 500 Index Fund (TRW) 503,680,544 687,506,657
PIMCO Total Return Fund 142,457,358
Putnam Small Company Equity Portfolio
Fund (TRW) 140,856,954
* Nonparticipant-directed
4. Nonparticipant-Directed Investments
The TRW and Northrop Grumman Stock Funds contain participant account balances
related to the TRW matching contribution which is considered
nonparticipant-directed.
8
The TRW Employee Stock Ownership and Savings Plan
Notes to Financial Statements (continued)
4. Nonparticipant-Directed Investments (continued)
The following represents the net assets and the significant components of the
changes in net assets for nonparticipant-directed investments:
December 31
2002 2001
------------------------------
Net assets:
Assets:
Northrop Grumman Corporation
common stock $ 648,757,923 $ -
TRW Inc. common stock - 483,816,936
Liability:
Accrued expenses 153,348 18,862
-------------------------------
$ 648,604,575 $ 483,798,074
===============================
Year ended
December 31,
2002
----------------
Changes in net assets:
Additions:
Employer contributions $ 53,563,840
Dividends 8,892,423
Net appreciation in fair value of common stock 195,605,682
-------------
258,061,945
Deductions:
Distributions 83,903,808
Administrative expenses 386,250
Transfers to participant directed funds 8,965,386
-------------
93,255,444
-------------
$ 164,806,501
=============
9
The TRW Employee Stock Ownership and Savings Plan
Notes to Financial Statements (continued)
5. Administrative Expenses
Generally, trustee and custodian fees, investment manager fees, brokerage fees,
certain plan administration costs incurred by the Company, and other
fund-related expenses are charged back to the funds for which the expenses are
incurred. The charges to audit the Plan, the administrative expenses of
operating the Plan, and any other charges that cannot be directly related to a
specific fund will be charged back to the funds on a quarterly basis in
proportion to the ratio of the net asset value of each fund to the value of all
funds invested in the Plan as of the previous quarter-end.
6. Federal Income Tax Status of the Plan
The Plan has received a determination letter from the Internal Revenue Service
dated August 21, 2002, stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the Code) and, therefore, the related trust is
exempt from taxation. Subsequent to this issuance of the determined letter, the
Plan was amended. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification. The Plan Administrator believes the
Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan, as amended, is qualified and the
related trust is tax exempt.
7. Transactions with Parties-in-Interest
Party-in-interest transactions include the purchase and sale of investments
managed by the Plan's Trustee, Putnam Investments; any transactions with TRW or
Northrop Grumman common stock, and payments to the Company for certain plan
administrative costs.
Putnam Investments managed assets of the Plan of $813,847,501 and $1,054,745,176
as of December 31, 2002 and 2001, respectively. No trustee fees were paid to
Putnam in 2002. During 2002, the Plan received $12,422,534 in dividends related
to investments in TRW common stock.
8. Transfer of Assets from Other Plans
During 2002, assets from the 401(k) plans associated with the Network 6
acquisition by TRW Systems in 2001, were merged into the Plan. The transfer of
assets of $2,368,348 is shown on the financial statements as "Transfer from
Other Plan."
10
The TRW Employee Stock Ownership and Savings Plan
EIN: 34-0575430 Plan Number: 027
Schedule H, Line 4(i)-Schedule of Assets
(Held at End of Year)
December 31, 2002
Number of Current
Description Shares Cost** Value
------------------------------------------------------------------------------------------
Common Stock
* Northrop Grumman Corporation Common Stock 9,804,212 $ 946,106,458 $ 951,008,588
Guaranteed Investment Contracts
Security Backed Investments:
INVESCO Group Trust
Beta Fund-INVESCO:
Continental Assurance Co., Contract
63005575, due December 15, 2020, 6.01% 6,645,225
Gamma Fund-INVESCO:
JPMorgan Chase Bank, Contract
401743-G, 5.77%, set annually 20,400,765
Theta Fund-PIMCO:
JPMorgan Chase Bank, Contract
ATRW-TH, 6.93%, set annually 72,239,862
Kappa Fund-Putnam:
Bank of America NT & SA, Contract
02-028, 5.87%, set annually 29,271,482
Omicron Fund-INVESCO:
Caisse des Depots (CDC), Contract
1115-01, 2.11%, set annually 11,091,070
Intermediate Government Fund-INVESCO:
State Street Bank & Trust, Contract
102059, 3.14%, set annually 10,100,452
High Quality Structured Securities-INVESCO:
Allstate Life Ins. Co., Contract
77182, 4.32%, set annually 115,427,201
11
The TRW Employee Stock Ownership and Savings Plan
EIN: 34-0575430 Plan Number: 027
Schedule H, Line 4(i)-Schedule of Assets
(Held at End of Year) (Continued)
Number of Current
Description Shares Cost** Value
------------------------------------------------------------------------------------------
Guaranteed Investment Contracts (continued)
Short Term Bond Fund-INVESCO:
State Street Bank & Trust, Contract
102,070, 1.99%, set annually 31,036,102
-------------
296,212,159
Separate Accounts:
ING Life Ins. & Ann. Co.:
Contract 14612, 5.45%, set annually 34,387,141
John Hancock Mutual Life:
Contract 8712, due June 30, 2003, 6.60% 2,400,420
Contract 7441, 7.24%, set annually 33,493,293
-------------
70,280,854
Synthetics:
Monumental Life Ins. Co.:
Contract 00090TR, 6.35%, set annually 36,867,463
Rabobank Nederland:
Contract TRW090001, 4.88%, set annually 45,128,145
State Street Bank & Trust:
Contract 98149, 6.22%, set annually 22,429,288
UBS AG
Contract 5086, 5.59%, set annually 39,522,548
-------------
143,947,444
General Account Investments:
Fixed Rate & Fixed Term:
GE Life & Annuity Asr Co.
Contract GS-3534, due March 29, 2004, 5.43% 8,784,833
Metropolitan Life Ins. Co.
Contract 25814, due February 18, 2003, 5.74% 7,765,864
12
The TRW Employee Stock Ownership and Savings Plan
EIN: 34-0575430 Plan Number: 027
Schedule H, Line 4(i)-Schedule of Assets
(Held at End of Year) (Continued)
Number of Current
Description Shares Cost** Value
------------------------------------------------------------------------------------------
Guaranteed Investment Contracts (continued)
General Account Investments:
Fixed Rate & Fixed Term:
Monumental Life Ins. Co.
Contract MDA263FR, due September 6, 2005, 5.51% 5,363,831
Travelers Ins. Companies
Contract GR-18404, due September 26, 2005, 3.26% 5,044,139
---------------
26,958,667
Variable Rate & Fixed Term:
John Hancock Mutual Life:
Contract 14909GAC, due May 1, 2003, 2.15% 6,021,338
Cash & equivalents:
* Putnam Fiduciary Trust, Contract
100232, due January 1, 2003 1.37% 16,509,845
---------------
Total Guaranteed Investment Contracts 559,930,307
Common Trust Funds
* Putnam S&P 500 Index Fund (TRW) 503,680,544
* Putnam Small Company Equity Portfolio Fund (TRW) 112,095,171
Alliance Bernstein Strategic Bank Collective Trust 1,179,477
* Putnam Bond Index Fund 29,882,280
---------------
646,837,472
Shares of Registered Investment Companies
PBHG Emerging Growth Fund 36,062,924
Bernstein International Value Portfolio II 23,464,119
* Putnam Investors Fund 90,276,321
PIMCO Total Return Fund 142,457,358
* Putnam International Growth Fund 26,379,789
* Putnam Vista Fund 26,544,144
Fidelity Magellan Fund 105,549,927
Alliance Bernstein Small-Cap Value Fund 1,806,635
Ariel Appreciation Fund 3,844,058
Lord Abbett Mid-Cap Value Fund 3,796,099
* Putnam Voyager Fund 1,267,436
* Putnam Money Market Fund 7,211,971
---------------
468,660,781
13
The TRW Employee Stock Ownership and Savings Plan
EIN: 34-0575430 Plan Number: 027
Schedule H, Line 4(i)-Schedule of Assets
(Held at End of Year) (Continued)
Number of Current
Description Shares Cost** Value
------------------------------------------------------------------------------------------
Harris Direct Securities Brokerage Account 22,629,763
* Participant Loans At interest rates
ranging from 5.25%
to 11.5% 51,161,068
---------------
Total assets held $ 2,700,227,979
===============
* Indicates party-in-interest.
** Cost presented for nonparticipant-directed investments only.
14
The TRW Employee Stock Ownership and Savings Plan
EIN: 34-0575430 Plan Number: 027
Schedule H, Line 4(j)-Schedule of Reportable Transactions
Year ended December 31, 2002
Current
Value of
Asset on
Purchase Selling Cost of Transaction Net Gain
Description of Assets Price Price Asset Date or (Loss)
------------------------------------------------------------------------------------------------------------------------------------
Category (i)-Single transactions in excess of 5 percent of plan assets
TRW Inc. Common Stock $ 950,960,238 $ 731,935,259 $ 950,960,238 $ 219,024,979
Northrop Grumman Corporation
Common Stock $ 949,952,776 949,952,776 949,952,776 -
Category (iii)-Series of transactions in excess of 5 percent of plan assets
TRW Inc. Common Stock 154,032,118 154,032,118 154,032,118 -
1,268,937,904 982,110,195 1,268,937,904 286,827,709
Northrop Grumman Corporation
Common Stock 950,370,999 950,370,999 950,370,999 -
5,493,837 4,301,056 5,493,837 1,192,781
There were no category (ii) or (iv) reportable transactions for the year ended December 31, 2002.
15
EXHIBIT INDEX
Exhibit No. Document
----------- --------
23 Consent of Independent Auditors
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