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, 1998 and 1997
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 33-03959
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
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SIGNATURES
Pursuant to the requirements of the Securities 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
/s/ Alan M. Roth
-------------------------------------
Dated: June 29, 1999 By Alan M. Roth
Vice President Taxes and Benefits Compliance
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NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT 4
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits and
Supplemental Information by Fund as of December 31, 1998 and 1997 5-6
Statement of Changes in Net Assets Available for Plan Benefits
and Supplemental Information by Fund for the year ended
December 31, 1998 7
Notes to Financial Statements 8-11
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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, 1998 and 1997, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for plan benefits as of December 31, 1998 and
1997, and the changes in net assets available for plan benefits for the year
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information by fund in
the statements of net assets available for plan benefits and the statement of
changes in net assets available for plan benefits is presented for the purpose
of additional analysis rather than to present the net assets available for plan
benefits and changes in net assets available for plan benefits of the individual
funds. The supplemental information by fund is the responsibility of the Plan's
management. Such supplemental information by fund has been subjected to the
auditing procedures applied in our audits of the basic 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.
June 24, 1999
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NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Supplemental Information by Fund
--------------------------------------------------------------
Money Northrop CBS
U.S. Equity Market Grumman Stock
Fund Fund Fund Fund Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in Northrop Grumman
Corporation PEI Pension
and 401(k) Plans Master Trust,
at fair value (Notes B and C) $ 430,676 $ 582,753 $ 17,137 $ 35,617 $1,066,183
---------- ---------- ---------- ---------- ----------
Contributions receivable:
Employer 2,228 2,476 234 -- 4,938
Employee 5,133 5,706 539 -- 11,378
---------- ---------- ---------- ---------- ----------
Total contributions receivable 7,361 8,182 773 -- 16,316
---------- ---------- ---------- ---------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 438,037 $ 590,935 $ 17,910 $ 35,617 $1,082,499
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
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<PAGE>
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1997
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<TABLE>
<CAPTION>
Supplemental Information by Fund
--------------------------------------------------------------
Money Northrop CBS
U.S. Equity Market Grumman Stock
Fund Fund Fund Fund Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in Northrop Grumman
Corporation PEI Pension
and 401(k) Plans Master Trust,
at fair value (Notes B and C) $333,427 $553,575 $ 14,675 $ 32,910 $934,587
-------- -------- -------- -------- --------
Contributions receivable:
Employer 1,860 2,163 371 -- 4,394
Employee 4,365 5,076 871 -- 10,312
-------- -------- -------- -------- --------
Total contributions receivable 6,225 7,239 1,242 -- 14,706
-------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $339,652 $560,814 $ 15,917 $ 32,910 $949,293
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
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NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental Information By Fund
--------------------------------------------------------------
Money Northrop CBS
U.S. Equity Market Grumman Stock
Fund Fund Fund Fund Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
INVESTMENT INCOME (Notes B and C):
Net appreciation in fair value
of investments $ 67,048 $ -- $ (7,281) $ 3,485 $ 63,252
Interest and other income 179 31,238 49 4 31,470
Dividends -- -- 281 50 337
---------- ---------- ---------- ---------- ----------
67,227 31,238 (6,951) 3,545 95,059
---------- ---------- ---------- ---------- ----------
CONTRIBUTIONS:
Employer 20,673 22,692 2,762 -- 46,127
Employee 50,882 49,294 6,965 -- 107,141
---------- ---------- ---------- ---------- ----------
71,555 71,986 9,727 -- 153,268
---------- ---------- ---------- ---------- ----------
Total additions 138,782 103,224 2,776 3,545 248,327
BENEFITS PAID TO PARTICIPANTS
(Note B) 57,657 55,899 783 782 115,121
TRANSFERS BETWEEN FUNDS 17,260 (18,204) -- (56) --
---------- ---------- ---------- ---------- ----------
NET INCREASE 98,385 30,121 1,993 2,707 133,206
NET ASSETS AVAILABLE FOR
PLAN BENEFITS:
Beginning of year 339,652 560,814 15,917 32,910 949,293
---------- ---------- ---------- ---------- ----------
End of year $ 438,037 $ 590,935 $ 17,910 $ 35,617 $1,082,499
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
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NORTHROP GRUMMAN PEI RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
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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 agreement 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.
Beginning March 1, 1996, contributions were made to the Plan. All
participant balances related to the Predecessor Plan and related earnings
were transferred to the Plan in 1997. During May 1997, a final valuation of
plan assets was made, and assets from the Predecessor Plan were transferred
to the Plan.
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 Bankers Trust Company, the
trustee.
Effective January 1, 1998, Banco Popular de Puerto Rico replaced Bankers
Trust Company as trustee of the Master Trust.
Contributions - Plan participants may contribute between 1% and 8% of total
compensation, in increments of 1%. Basic allotments may be made in amounts
of 1% to 4% of total compensation. Eligible employees who have authorized
the maximum Basic allotment may make Supplementary allotments 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 allotment. 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.
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Participant Accounts - A separate account is maintained for each
participant, each of which has subaccounts. Assets of the 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.
Vesting - Plan participants are 100% vested in, and have a nonforfeitable
right to, the balance of their Basic and Supplementary allotments 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 three
investment funds:
Northrop Grumman Fund
U.S. Equity Fund
Money Market Fund
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 allotments 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 1998, no employer contributions were reduced by forfeited nonvested
accounts.
B. SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared
under the accrual basis of accounting.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
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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.
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 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.
Payment of Benefits - Benefits are recorded when paid. As of December 31,
1998 and 1997, benefits payable in cash to participants are $52,205 and
$3,374, respectively.
C. INVESTMENTS
The investments of the Plan as of December 31, 1998 and 1997 are stated at
fair values determined and reported by Banco Popular and Bankers Trust
Company, the respective trustees, 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
trustees' equitable share accounting method for master trust arrangements.
Plan assets represent 84.79% and 87.25% of total net assets reported by the
trustees of the Master Trust as of December 31, 1998 and 1997.
The net assets of the Master Trust at fair value consist of the following:
December 31,
-----------------------
1998 1997
Assets:
Temporary investments $ 643,300 $ 552,266
Corporate stocks 614,070 516,273
Dividends and interest receivable 25 2,639
---------- ----------
Net assets of the Master Trust $1,257,395 $1,071,178
========== ==========
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The Master Trust held approximately 231 and 125 shares of Northrop Grumman
Corporation common stock with fair values of $16,892 and $14,375 at December
31, 1998 and 1997, respectively, which are included in the determination of
net assets available to this Plan as of December 31, 1998 and 1997.
Investment income for the Master Trust is as follows:
December 31,
-----------------------
1998 1997
Net appreciation in fair value of investments $ 158,883 $ 77,293
Interest 31,202 24,325
Dividends 337 337
---------- ----------
$ 190,502 $ 101,955
========== ==========
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% vested in their accounts.
Distributions will only be made in the event of a complete termination.
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 Company believes
that the Plan is designed and currently being operated in compliance with
the applicable provisions of the IRC and Puerto Rico Income Tax Code of
1994.
******
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Exhibit 1
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-03959 of Northrop Grumman Corporation on Form S-8 of our report
dated June 24, 1999, appearing in this Annual Report on Form 11-K of
the Northrop Grumman PEI Retirement Savings Plan for the year ended
December 31, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Los Angeles, California
June 29, 1999
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