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, 2001 and 2000
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 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 28, 2002 /s/ Gary W. McKenzie
_____________________________________
By Gary W. McKenzie
Vice President-Tax
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits as of
December 31, 2001 and 2000 2
Statement of Changes in Net Assets Available for Plan Benefits for the
Year Ended December 31, 2001 3
Notes to Financial Statements 4-7
INDEPENDENT AUDITORS' REPORT
To the Administrative Committee of the
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, 2001 and 2000, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 2001. 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, 2001 and
2000, and the changes in net assets available for plan benefits for the year
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
-------------------------
Los Angeles, California
June 24, 2002
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS AS OF
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
2001 2000
ASSETS:
Investment in Northrop Grumman Corporation PEI Pension and
401(k) Plans Master Trust, at fair value (Notes B and C) $1,209,537 $1,259,294
---------- ----------
Contributions receivable:
Employer 6,172 5,924
Participant 14,231 13,651
---------- ----------
Total contributions receivable 20,403 19,575
---------- ----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $1,229,940 $1,278,869
========== ==========
See 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, 2001
--------------------------------------------------------------------------------
INVESTMENT INCOME -
Plan interest in Northrop Grumman Corporation PEI Pension and 401(k) Plans
Master Trust Investment Income (Notes B and C) $ 435
-----------
CONTRIBUTIONS:
Employer 54,542
Participant 125,402
-----------
Total contributions 179,944
-----------
Total additions 180,379
BENEFITS PAID TO PARTICIPANTS (Note B) 229,308
-----------
NET DECREASE (48,929)
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 1,278,869
-----------
End of year $ 1,229,940
===========
See notes to financial statements.
- 3 -
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
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. ("Westinghouse")
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.
Contributions - Plan participants may contribute between 1 and 8 percent
of total compensation, in increments of 1 percent on a pre-tax basis.
Basic contributions may be made in amounts of 1 to 4 percent of total
compensation. Eligible employees who have authorized the maximum Basic
contribution may make Supplementary contributions in amounts between 1 and
4 percent of total compensation. Contributions are subject to certain
limitations.
The Company contributes a match of 50 percent of the amount of a
participant's Basic contribution. The maximum matching contribution will
not exceed 2 percent 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 calendar quarter, 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 percent vested in, and have a
nonforfeitable right to, the balance of their Basic and Supplementary
contributions at all times. Plan participants become 100 percent vested in
Company contributions after three years of service and are 0 percent
vested prior to that time. Company contributions become 100 percent vested
upon the death of a participant. Rollovers are 100 percent 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 three
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 qualify fixed income 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 quarter. Any participant who makes a
withdrawal will be suspended from making Basic and Supplementary
contributions for 12 months following the withdrawal. 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 2001, 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 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.
Payment of Benefits - Benefits are recorded when paid.
C. INVESTMENTS
The investments of the Plan as of December 31, 2001 and 2000 are stated at
fair values determined and reported by Banco Popular de Puerto Rico, the
Trustee, in accordance with the Master Trust Agreement established by
Northrop Grumman Corporation. Proportionate interests of each
participating plan are ascertained on the basis of the Trustee's equitable
share accounting method for master trust arrangements. Plan assets
represented 52 percent and 51 percent of total net assets reported by the
Trustee of the Master Trust as of December 31, 2001 and 2000,
respectively.
The net assets of the Master Trust at fair value consist of the following
as of December 31:
2001 2000
Assets:
Short-term investments $ 965,328 $ 994,618
Corporate stocks 1,362,056 1,486,501
Dividends and interest receivable 21 87
---------- ----------
Net assets of the Master Trust $2,327,405 $2,481,206
========== ==========
The Master Trust held approximately 285 and 323 shares of Northrop Grumman
Corporation common stock with fair values of $28,731 and $26,809 at
December 31, 2001 and 2000, respectively, which are included in the
determination of net assets available to this Plan at December 31, 2001
and 2000.
- 6 -
Investment (loss) income for the Master Trust is as follows as of December
31:
2001 2000
Net (depreciation) appreciation in fair value of corporate stocks $(57,653) $48,215
Interest 29,220 34,434
Dividends 2,959 491
-------- -------
Total $(25,474) $83,140
======== =======
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 ERISA. In the event of the
Plan's termination, participants will become 100 percent vested in their
accounts.
E. 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, 2000, that the Plan and related trust are designed in accordance with
applicable sections 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 of income taxes has been included
in the Plan's financial statements.
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,
2001:
Net assets available for Plan benefits for the financial statements $1,229,940
Less: Amounts allocated to withdrawing participants (19,332)
----------
Net assets available for Plan benefits per the Form 5500 $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,
2001:
Benefits paid to participants per the financial statements $ 229,308
Add: Amounts allocated to withdrawing participants at December 31, 2001 19,332
Less: Amounts allocated to withdrawing participants at December 31, 2000 -
----------
Benefits paid to participants per the Form 5500 $ 248,640
==========
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.
- 7 -
Exhibit 1
---------
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
24, 2002, appearing in this annual report on Form 11-K of the Northrop Grumman
PEI Retirement Savings Plan for the year ended December 31, 2001.
/s/ Deloitte & Touche LLP
--------------------------
Los Angeles, California
June 24, 2002