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 FINANCIAL SECURITY AND SAVINGS 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
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 FINANCIAL SECURITY AND SAVINGS PROGRAM
Dated: June 25, 2004 /s/ J. Michael Hateley
---------------------------
By: J. Michael Hateley
Chairman, Administrative Committee
Northrop Grumman Financial
Security and Savings Program
(Formerly the Litton Financial Security and Savings Program)
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 FINANCIAL SECURITY AND SAVINGS PROGRAM
(Formerly the Litton Financial Security and Savings Program)
TABLE OF CONTENTS
--------------------------------------------------------------------------------
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 4-12
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H, Part IV, Line 4i, Schedule of
Assets (Held at End of Year) at December 31, 2003 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Administrative Committee
Northrop Grumman Financial Security and Savings Program
We have audited the accompanying statements of net assets available for benefits
of the Northrop Grumman Financial Security and Savings Program (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 FINANCIAL SECURITY AND SAVINGS PROGRAM
(FORMERLY THE LITTON FINANCIAL SECURITY AND SAVINGS PROGRAM)
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
2003
--------------------------------------------
Retirement Savings
Account Account Total
--------------------------------------------
ASSETS:
Investments, at Fair Value
(Notes 1, 2, 3, 4 and 5):
Investment in Northrop Grumman Employee
Benefit Plan Master Trust $433,186,560 $ 433,186,560
Investment in Northrop Grumman Defined
Contribution Plans Master Trust -- $716,609,904 716,609,904
Short-term investments -- 2,891,365 2,891,365
Loans receivable from participants -- 31,357,193 31,357,193
--------------------------------------------
Total investments 433,186,560 750,858,462 1,184,045,022
--------------------------------------------
Receivables:
Employee deposits 29,877 28,752 58,629
Employer contributions - 670,919 670,919
--------------------------------------------
Total receivables 29,877 699,671 729,548
--------------------------------------------
Total assets 433,216,437 751,558,133 1,184,774,570
--------------------------------------------
LIABILITIES:
Accrued expenses 331,992 391,373 723,365
--------------------------------------------
Total liabilities 331,992 391,373 723,365
--------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $432,884,445 $751,166,760 $1,184,051,205
============================================
2002
--------------------------------------------
Retirement Savings
Account Account Total
--------------------------------------------
ASSETS:
Investments, at Fair Value
(Notes 1, 2, 3, 4 and 5):
Investment in Northrop Grumman Employee
Benefit Plan Master Trust $369,013,143 $ 369,013,143
Investment in Northrop Grumman Defined
Contribution Plans Master Trust -- $665,220,727 665,220,727
Short-term investments -- - --
Loans receivable from participants -- 26,082,904 26,082,904
--------------------------------------------
Total investments 369,013,143 691,303,631 1,060,316,774
--------------------------------------------
Receivables:
Employee deposits 219,509 281,249 500,758
Employer contributions - 158,003 158,003
--------------------------------------------
Total receivables 219,509 439,252 658,761
--------------------------------------------
Total assets 369,232,652 691,742,883 1,060,975,535
--------------------------------------------
LIABILITIES:
Accrued expenses 408,174 532,362 940,536
--------------------------------------------
Total liabilities 408,174 532,362 940,536
--------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $368,824,478 $691,210,521 $1,060,034,999
============================================
See accompanying notes to financial statements.
2
NORTHROP GRUMMAN FINANCIAL SECURITY AND SAVINGS PROGRAM
(FORMERLY THE LITTON FINANCIAL SECURITY AND SAVINGS PROGRAM)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------------------------------------
Retirement Savings
Account Account Total
-----------------------------------------------
INVESTMENT INCOME (Notes 2, 3, 4 and 5):
Plan interest in the Northrop Grumman Employee Benefit Plan Master Trust $ 87,099,511 $ 87,099,511
Plan interest in the Northrop Grumman Defined Contribution Plans
Master Trust -- $ 116,781,367 116,781,367
Interest -- 34,680 34,680
-----------------------------------------------
Total investment income 87,099,511 116,816,047 203,915,558
-----------------------------------------------
DEPOSITS AND CONTRIBUTIONS:
Employee deposits 24,249,637 21,842,980 46,092,617
Employer contributions -- 11,334,109 11,334,109
Employee rollovers into plan -- 406,461 406,461
-----------------------------------------------
Total deposits and contributions 24,249,637 33,583,550 57,833,187
-----------------------------------------------
DEDUCTIONS:
Benefits paid to participants (Note 1) 46,139,712 88,849,429 134,989,141
Administrative expenses 1,150,826 1,549,660 2,700,486
-----------------------------------------------
Total deductions 47,290,538 90,399,089 137,689,627
-----------------------------------------------
TRANSFERS FROM (TO) OTHER PLANS 1,357 (44,269) (42,912)
-----------------------------------------------
NET INCREASE 64,059,967 59,956,239 124,016,206
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 368,824,478 691,210,521 1,060,034,999
-----------------------------------------------
End of year $432,884,445 $ 751,166,760 $ 1,184,051,205
===============================================
See accompanying notes to financial statements.
3
NORTHROP GRUMMAN FINANCIAL SECURITY AND SAVINGS PROGRAM
(FORMERLY THE LITTON FINANCIAL SECURITY AND SAVINGS PROGRAM)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
The following description of the Northrop Grumman Financial Security and
Savings Program (the "FSSP" or the "Plan") is provided for general
information purposes only. Participants should refer to the Plan document
for a more complete description of the Plan's provisions. The FSSP is
subject to the provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
General -- The FSSP is a tax-qualified defined contribution plan
established effective October 1, 1984 by Litton Industries, Inc.
("Litton") for the benefit of employees of its U.S. subsidiaries and
divisions as well as employees of Premier America Credit Union, an
unaffiliated entity. Effective January 1, 1996, employees have been
eligible to participate in the Plan upon their date of hire on a voluntary
basis. In addition, prior service credit may be given to employees of
certain businesses acquired by the Company from time to time.
Effective June 2001, Litton was acquired by and became a wholly owned
subsidiary of Northrop Grumman Corporation ("NGC"), which assumed
sponsorship of the Plan.
Effective in 2002, the Plan transferred all FSSP Retirement Account assets
to the Northrop Grumman Employee Benefit Plan Master Trust (the "Pension
Master Trust") and all FSSP Savings Account assets to the Northrop Grumman
Defined Contribution Plans Master Trust (the "Savings Master Trust").
State Street Bank and Trust Company ("State Street" or the "Trustee") acts
as Trustee for the both the Pension and Savings Master Trusts.
Effective January 1, 2003, the Plan was amended to change its name from
the "Litton Financial Security and Savings Program" to the "Northrop
Grumman Financial Security and Savings Program". Both the savings and ESOP
features are reported within the Plan's 2003 financial statements as they
have been in prior periods.
Effective July 1, 2003, certain employees were no longer eligible to make
deposits to the Plan. Instead, such employees became eligible to actively
participate and make deposits to the Northrop Grumman Savings Plan.
Employee Deposits and Company Contributions -- The Plan includes an FSSP
Retirement Account and an FSSP Savings Account. A participant may deposit
from 1% to 4% of his/her annual cash compensation into the FSSP Retirement
Account. A participant's FSSP Retirement Account deposits provide the
basis for determining the extent to which the participant is entitled to
receive pension benefits under the Litton heritage retirement plans
(collectively, the "Litton Retirement Plans"). As of June 1, 2002, a
participant who deposits 4% of his/her annual cash compensation into the
FSSP Retirement Account could deposit an additional 1% to 26% into the
FSSP Savings Account (prior to June 1, 2002, the FSSP Savings Account
deposit limit was 16%). Subject to certain collective bargaining
agreements, the Company currently matches 50% of the first 6% of a
participant's deposits to the FSSP, with such contributions remitted to
the participant's FSSP Savings Account.
4
The investment of FSSP Retirement Account deposits is directed solely by
the Investment Committee. FSSP Savings Account deposits are invested, as
designated by the participant, in one or more of the investment funds
currently available. However, the aggregate amount of deposits for any
plan year to all FSSP accounts may not exceed the maximum amounts for such
year allowable under Section 401(k) of the Internal Revenue Code (the
"Code").
Each year, as required by the Plan document, the Plan re-allocates current
year deposits to ensure that each participant receives the maximum pension
and company matching contributions that he/she is eligible to receive,
subject to federal deferral and compensation limits. Maximization is
performed at the end of the calendar year or upon termination of
employment, whichever comes first. To the extent that deposits are
re-allocated from a participant's FSSP Savings Account to his/her FSSP
Retirement Account, the amount of Company matching contributions on any
such re-allocated amounts may be forfeited if the re-allocation reduces
his/her deposits below the maximum level eligible for Company matching
contributions. Forfeitures of Company matching contributions plus
investment earnings thereon are used to reduce subsequent Company matching
contributions.
Vesting -- A participant is always fully vested in his/her FSSP deposits
(including any investment earnings thereon). Participants currently vest
at 50% in all Company matching contributions plus related investment
earnings after two full years of service and 100% after three full years
of service. Full vesting also occurs if a participant (while in the employ
of the Company) dies, becomes totally disabled or terminates employment on
or after his/her 65th birthday.
Upon termination of employment, a participant forfeits any non-vested
amounts of Company matching contributions plus investment earnings related
thereto. Forfeitures for a terminated participant may be restored
depending on the time elapsed from his/her termination date and the time
that the terminated participant was employed by the Company immediately
prior to such termination of employment.
Payment of Benefits -- Upon termination of service (including termination
due to death, disability or retirement), a participant may receive a lump
sum payment of his/her FSSP Retirement and/or Savings Account balances. A
participant may also delay his/her lump sum payment until the age of 70
1/2, if the total account balances exceed $5,000. In addition, a
participant has the option of choosing to take the total distribution as a
life or, if married, 50% joint and survivor annuity or, at retirement, to
elect a rollover of his/her FSSP Retirement Account to the Litton
Retirement Plans.
A participant's benefit under the Litton Retirement Plans is determined by
the amount of deposits to his/her FSSP Retirement Account. To achieve the
maximum retirement benefit under such retirement plans, the FSSP provides
that employees must, on an annual basis, deposit the lesser of: (i) 4% of
their annual compensation, (ii) the 401(k) deferral limit as defined by
the Internal Revenue Code, (iii) 4% of the pay cap limit as defined by the
Internal Revenue Code or (iv) such lesser maximum amount as may result
from the application of the nondiscrimination tests. The FSSP and Litton
Retirement Plans together constitute a qualified offset arrangement as
defined in Section 1116(f) of the Tax Reform Act of 1986.
Withdrawals -- Effective November 18, 2002, a participant may withdraw all
or a portion of his or her Company matching contributions (plus earnings)
and all or a portion of his or her FSSP Savings Account deposits for any
reason after reaching age 59 1/2, or prior to reaching age 59 1/2 in the
case of hardship (as described in the Plan document).
5
Participant Accounts -- A separate account is maintained for each
participant. Each participant's account is credited with the participant's
contribution and allocations of (a) the Company's contribution, (b) Plan
earnings, and (c) administrative expenses. Allocations are based on
participant earnings on account balances, as defined in the Plan document.
The benefit to which a participant is entitled is the benefit that can be
provided from the participant's vested account.
Investments -- Effective May 1, 2002, participant deposits to the FSSP
Retirement Account are invested in the Northrop Grumman Employee Benefit
Plan Master Trust (a non-participant directed investment). Participants
must allocate their deposits and Company matching contributions between
one or more of the Savings Account (participant directed) investment funds
described below. Participants can change the allocation of future deposits
among funds and/or transfer existing account balances between such funds
once every month in 1% increments.
o U.S. Equity Fund -- The U.S. Equity Fund consists predominantly of
holdings in large and medium sized U.S. company stocks. The fund's
objectives are capital appreciation over the long term, along with
current income (dividends). The fund's stock investments are
selected by independent professional investment managers appointed
by the Plan's Investment Committee.
o U.S. Fixed Income Fund -- The Fixed Income Fund consists of holdings
in marketable, fixed income securities rated within the three
highest investment grades (i.e., A or better) assigned by Moody's
Investor Services or Standard & Poor's Corporation, U.S. Treasury or
federal agency obligations, or cash equivalent instruments. The fund
is broadly diversified and maintains an average maturity of 10
years. The securities are selected by independent professional
investment managers appointed by the Plan's Investment Committee.
o Stable Value Fund -- The Plan holds an interest in the Northrop
Grumman Stable Value Fund (the "Stable Value Fund"; see Note 4).
Investments in the Stable Value Fund are diversified among U.S.
government securities and obligations of government agencies, bonds,
short-term investments, cash and investment contracts issued by
insurance companies and banks. The Stable Value Fund is managed by
an independent professional investment manager appointed by the
Plan's Investment Committee.
o Northrop Grumman Fund -- The Northrop Grumman Fund invests primarily
in Northrop Grumman Corporation common stock.
o Balanced Fund -- The Balanced Fund is a fully diversified portfolio
consisting of fixed portions of five of the savings plan funds
(Stable Value Fund, U.S. Equity Fund, Fixed Income Fund,
International Equity Fund and Small Cap Fund). The fund seeks to
exceed the return of the bond market and approach the return of the
stock market, but with less risk than an investment only in stocks.
o International Equity Fund -- The International Equity Fund consists
of stocks of a diversified group of companies in developed countries
outside the United States. The fund's objectives are capital
appreciation over the long term, along with current income
(dividends).
o Small Cap Fund -- The Small Cap Fund consists of stocks of a
diversified group of small capitalization U.S. companies. The stocks
purchased by the fund typically have a market capitalization similar
to companies in the Russell 2000 Index, which are companies with an
average market capitalization of $500 million. The fund's objective
is capital appreciation over the long term, rather than current
income (dividends).
6
o Equity Index Fund--The Equity Index Fund consists of a diversified
portfolio of stocks, as defined by an established market index.
These stocks are selected by independent professional investment
managers appointed by the Plan's Investment Committee. This fund is
designed to provide results that closely match those of the Standard
& Poor's 500 Stock Index.
o High Yield Bond Fund--The High Yield Bond Fund consists of
below-investment-grade securities (i.e., BBB or lower) assigned by
Moody's Investor Services or Standard & Poor's Corporation. The fund
seeks to exceed the return of the high-quality (investment grade)
bond market.
o International Bond Fund--The International Bond Fund consists of
non-U.S. dollar denominated debt instruments rated within the three
highest investment grades (i.e., A or better) by Moody's Investor
Services or Standard & Poor's Corporation. The fund's objective is
to provide a higher level of income and capital appreciation than
the domestic fixed income market.
o Emerging Markets Fund--The Emerging Markets Fund consists of a
diversified portfolio of stocks issued by companies based in
developing countries. The fund's objective is capital appreciation
over the long term.
Contributions deposited into each investment fund buy a number of units in
each fund. The value of each participant's account within each fund
depends on two factors: (1) the number of units purchased to date, and (2)
the current value of each unit. Unit values are updated daily prior to any
Plan transactions, including contributions, withdrawals, distributions,
and transfers. Participants may change their investment options daily.
Participant Loans -- FSSP loans may be made only from an active
participant's vested FSSP Savings Accounts to a maximum loan amount of the
lesser of 50% of such account balances or $50,000. The interest rate on
such loans is the trustee's prime rate plus 1% on the first day of the
month in which the participant applies for the loan. Interest is computed
based upon the loan recipient's pay period (e.g., monthly, bi-weekly).
Active participants' FSSP loan repayments are generally made by means of
payroll deductions. Loan repayments after termination may be made by check
if the participant's account balance remains in the FSSP. The maximum loan
repayment period is fifteen years if the loan proceeds are used to
purchase the participant's principal residence; otherwise, the maximum
repayment period for a loan is five years. Outstanding loan balances can
be repaid in full at any time.
2. SUMMARY OF SIGNIFICANT 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 and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7
Risks 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 those 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 -- The Plan's investments,
including the Plan's interest in the master trusts, are stated at fair
value as determined by the Trustee. The underlying investments in the
master trusts are valued with investments in securities traded on a
national securities exchange valued at their quoted market price at the
end of the Plan year and securities that have no quoted market price
presented at their estimated fair value.
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 Trustee
by the party with authority to trade such securities (investment managers
or the Investment Committee, as applicable). The Trustee relies on the
prices provided by pricing sources, the investment managers or Investment
Committee as a certification as to value in performing any valuations or
calculations required of the Trustee.
All securities and cash or cash equivalents are quoted in the local
currency and then converted into US dollars using the appropriate exchange
rate obtained by the Trustee. The investment contracts with insurance
companies included in the Stable Value Fund are stated at contract value
(see Notes 4 and 5). Participant loans are valued at cost, which
approximates fair value. Purchases and sales of investments are recorded
on a trade-date basis. Interest income is recorded on the accrual basis
and 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 Pension Master Trust and Savings Master
Trust are added to the cost of such 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 among the participants and former
participants (if any) whose interests in the Plan are affected, and the
share of such taxes apportioned to each such person is charged against his
or her account in the Plan.
The Pension Master Trust and Savings Master Trust 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.
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 -- Benefits are recorded when paid.
8
3. INVESTMENTS
As of December 31, 2003, the Plan's investments included a proportionate
interest in certain investments held by the Pension Master Trust and
Savings Master Trust. These investments are stated at fair values
determined and reported by the Trustee in accordance with the master trust
agreements established by the Company (see Note 2). Proportionate
interests of each participating plan are ascertained on the basis of the
Trustee's plan accounting method for master trust arrangements. Plan
assets represent 2.6% and 3.0% and 11.1% and 14.6% of total net assets as
reported by the Trustee of the Pension Master Trust and Savings Master
Trust, respectively, as of December 31, 2003 and 2002. Only investments
held in the FSSP Savings Account are participant directed in nature.
As of December 31, 2003, Pension Master Trust and Savings Master Trust
assets of $1,637,900,325 and $695,984,508, respectively, 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.
The net assets of the Pension Master Trust and Savings Master Trust at
fair value are as follows as of December 31, 2003 and 2002:
2003 2002
-------------------------------------------------------------------
Pension Savings Pension Savings
Master Trust Master Trust Master Trust Master Trust
-------------------------------------------------------------------
Assets:
Temporary investments (See Note 4) $ 1,115,677,812 $ 152,963,469 $ 1,048,047,128 $ 298,243,357
U.S. and foreign government securities 2,184,295,445 411,233,413 1,893,873,412 314,399,692
Corporate debt instruments 2,007,959,795 174,859,840 1,845,446,648 186,349,259
Common stocks 9,002,881,015 2,487,376,512 6,241,146,078 1,704,725,533
Common/collective trust funds 973,957,209 1,507,330,059 767,420,654 440,836,676
Real estate 254,160,126 -- 85,671,225 --
Guaranteed and synthetic investment
contracts (See Notes 4 and 5) -- 1,757,340,661 -- 1,690,110,231
Other investments 1,742,860,005 11,684,933 1,220,936,503 3,790,201
-------------------------------------------------------------------
Total investments 17,281,791,407 6,502,788,887 13,102,541,648 4,638,454,949
Receivables for investments sold 242,094,717 28,549,033 630,337,569 55,685,018
Dividends, interest and taxes receivable 58,759,708 8,511,236 55,685,261 6,938,752
Other receivables -- -- 766,961 --
Receivables for foreign exchange 225,805,839 -- 248,255,892 --
-------------------------------------------------------------------
Total assets 17,808,451,671 6,539,849,156 14,037,587,331 4,701,078,719
-------------------------------------------------------------------
Liabilities:
Due to broker for securities purchased 786,038,673 80,811,923 1,285,315,934 151,289,439
Payables for foreign exchange 225,795,300 -- 248,222,060 --
Other liabilities 2,910,189 -- 1,011,540 --
-------------------------------------------------------------------
Total liabilities 1,014,744,162 80,811,923 1,534,549,534 151,289,439
-------------------------------------------------------------------
Net assets of the Master Trusts $16,793,707,509 $6,459,037,233 $12,503,037,797 $4,549,789,280
===================================================================
9
Investment income (loss) for the Pension Master Trust and Savings Master
Trust for the Plan year ended December 31, 2003 is as follows:
Pension Savings
Master Trust Master Trust
--------------------------------
Net appreciation (depreciation) in fair value of investments:
Temporary investments $ 343,854 $ --
U.S. and foreign government securities 7,148,911 (6,430,781)
Corporate debt instruments 140,192,683 9,472,406
Common stocks 2,156,288,180 435,855,240
Common/collective trust funds 238,741,503 213,116,026
Real estate 15,778,318 --
Other investments 137,514,858 260,091
--------------------------------
Net appreciation 2,696,008,307 652,272,982
Interest 212,029,725 2,807,904
Dividends 132,092,299 60,745,505
Other income 109,132,598 87,034,461
Investment manager fees (48,626,266) (10,641,254)
--------------------------------
Total investment income $ 3,100,636,663 $ 792,219,598
================================
Other than the Plan's interests in the Pension and Savings Master Trusts,
there are no assets held for investment that represent 5% or more of the
FSSP's net assets at December 31, 2003 and 2002.
4. INTEREST IN NORTHROP GRUMMAN STABLE VALUE FUND
A portion of the Plan's investments in the Savings Master Trust is in the
Northrop Grumman Stable Value Fund, which was established for the
investment of the assets of the Plan and two other NGC sponsored savings
plans. Each participating savings plan has an undivided interest in the
Stable Value Fund. At December 31, 2003 and 2002, the Plan's interest in
the net assets of the Stable Value Fund were approximately 8.0% and 12.5%,
respectively of the total fund value. Investment income and administrative
expenses relating to the Stable Value Fund are allocated among the
participating plans on a daily basis.
Investments held in the Stable Value Fund were as follows as of December
31, 2003 and 2002:
2003 2002
Guaranteed and Synthetic Investment Contracts (at contract value) $ 1,757,340,661 $1,690,110,231
Merrill Lynch Retirement Preservation Trust 353,175,048 --
Cash and cash equivalents 7,241,405 49,488,133
--------------------------------
Total $ 2,117,757,114 $1,739,598,364
================================
Investment income of the Stable Value Fund totaled $85,849,902 for the
year ended December 31, 2003.
10
The Plan has an arrangement with the investment manager of the Stable
Value Fund whereby the investment manager has the ability to borrow
amounts from third parties to satisfy liquidity needs of the Stable Value
Fund, if necessary. As of December 31, 2003, no borrowings under this
arrangement were outstanding.
5. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES
All investment contracts held by the Stable Value Fund are considered to
be fully benefit responsive and therefore are recorded at contract value.
Contract value represents contributions made under the contract, plus
interest at the contract rate, less withdrawals and administrative
expenses.
The Stable Value Fund holds wrapper contracts in order to manage the
market risk and return of certain securities held by the Stable Value
Fund. The wrapper contracts generally modify the investment
characteristics of certain underlying securities similar to those of
guaranteed investment contracts. Each wrapper contract and its related
underlying assets are referred to as a Synthetic Investment Contract
("SIC") and are recorded at contract value. The SICs held by the Stable
Value Fund had a contract value totaling $1,753,314,248 and $1,646,981,826
at December 31, 2003 and 2002. The fair value of the underlying assets
related to the wrapper contracts totaled $1,834,125,347 and $1,746,621,817
as of December 31, 2003 and 2002, respectively.
The fair value of the non-synthetic guaranteed investment contracts
totaled $4,027,108 and $43,495,206 at December 31, 2003 and 2002,
respectively.
The following information is disclosed for the investment contracts within
the Stable Value Fund as of December 31, 2003:
2003 2002
Average yield of assets on December 31 4.68% 5.53%
Average crediting interest rate of assets at December 31 4.68% 5.53%
Average duration 3.16 years 2.58 years
6. PARTIES-IN-INTEREST TRANSACTIONS
During 2003 and 2002, the Plan incurred $147,488 and $121,419,
respectively, in fees related to services rendered by the Trustee. The
FSSP had transactions with the Trustee's short-term investment funds, a
liquidity pooled funds in which participation commences and terminates on
a daily basis. In Plan management's opinion, fees paid during the year for
services rendered by parties-in-interest were based upon customary and
reasonable rates for such services.
7. 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 the
FSSP is terminated, all participants will become 100% vested in their
total FSSP account balances.
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8. FEDERAL INCOME TAXES STATUS
The IRS has determined and informed the Company by a letter dated May 14,
2003 that the Plan, as amended, and related trust are designed in
accordance with applicable sections of the Code. 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 qualified status. In November
2003, the IRS issued a Voluntary Correction Program compliance statement
regarding certain operational defects that had been previously identified
by the Plan Sponsor. In accordance with that compliance statement,
corrections are being made. The costs for the corrections did not have a
material adverse impact on the Plan and have been recorded in the Plan's
financial statements as of December 31, 2003. Management believes that the
Plan is designed and currently being operated within the applicable
requirements of the Code and 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.
9. 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 2002
Net assets available for Plan benefits per the financial statements $ 1,184,051,205 $ 1,060,034,999
Less: Amounts allocated to withdrawing participants (7,373,290) (10,098,576)
----------------------------------
Net assets available for Plan benefits per the Form 5500 $ 1,176,677,915 $ 1,049,936,423
==================================
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 $ 134,989,141
Add: Amounts allocated to withdrawing participants at December 31, 2003 7,373,290
Less: Amounts allocated to withdrawing participants at December 31, 2002 (10,098,576)
-------------
Benefits paid to participants per the Form 5500 $ 132,263,855
=============
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.
******
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NORTHROP GRUMMAN FINANCIAL SECURITY AND SAVINGS PROGRAM
(FORMERLY THE LITTON FINANCIAL SECURITY AND SAVINGS PROGRAM)
FORM 5500, SCHEDULE H, PART IV, LINE 4i,
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
--------------------------------------------------------------------------------
Identity of Issue,
Borrower, Lessor, or Description of Current
Similar Party Investment Value
*Northrop Grumman Employee Benefit Participation in Northrop Grumman
Plan Master Trust Employee Benefit Plan Master Trust $ 433,186,560
*Northrop Grumman Defined Contribution Participation in Northrop Grumman
Plans Master Trust Defined Contribution Plans Master Trust 716,609,904
*State Street Bank and Trust Company Participation in the Cash/STIF Accounts 2,891,365
*Northrop Grumman Corporation Participant loans (prime plus 1%) 31,357,193
--------------
TOTAL $1,184,045,022
==============
*Party-in-interest
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