Northrop Grumman 2009 Annual Report Download

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LEADERSHIP
IN GLOBAL
SECURITY
2009 ANNUAL REPORT

Table of contents

  • Page 1
    LEADERSHIP IN GLOBAL SECURITY 2009 ANNUAL REPORT

  • Page 2
    ...cash flow is free cash flow as defined above before the after-tax impact of discretionary pension contributions of $462 million, $130 million, and $130 million respectively for years 2009, 2008 and 2007 and for 2009, $508 million of taxes paid for the sale of the company's Advisory Services business...

  • Page 3
    ...positive for our customers, TASC employees, and Northrop Grumman shareholders. Also in 2009, Ronald D. Sugar announced his plans to retire as chairman and chief executive officer, following 29 years of service to Northrop Grumman and its predecessor companies. The Board of Directors elected Wes Bush...

  • Page 4
    ...precision weapons, airspace management, space payloads, marine and naval systems, communications, biodefense, and government systems. Key products include F-16, F-22 and F-35 active electronically scanned array sensors; airborne early warning and control radars; Ground/Air Task Oriented Radar system...

  • Page 5
    ... of life cycle solutions and long-term technical services for customers globally. Key capabilities include systems support, training and simulation and life cycle optimization and engineering for programs such as KC-10 Extender refueling aircraft logistics support; Nevada Test Site management and...

  • Page 6
    ... Systems Corporate Vice President and General Counsel BOARD OF DIRECTORS WESLEY G. BUSH DONALD E. FELSINGER 2 4 †KARL J. KRAPEK 1 4 Chief Executive Officer and President, Northrop Grumman Corporation LEWIS W. COLEMAN 2 4 Chairman and Chief Executive Officer, Sempra Energy (energy company...

  • Page 7
    ... East, Los Angeles, California 90067 (310) 553-6262 (Address and telephone number of principal executive offices) Securities registered pursuant to section 12(b) of the Act: Title of each class Common Stock, $1 par value Name of each exchange on which registered New York Stock Exchange Securities...

  • Page 8
    ... about Market Risk Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations Consolidated Statements of Financial Position Consolidated Statements of Cash Flows Consolidated Statements of Changes in Shareholders...

  • Page 9
    ... Other Information Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. PART III Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership...

  • Page 10
    (This page intentionally left blank) eBP - v54508-i003_a.pdf - Page 4 of 124 - March 11, 2010 - 20:02:39

  • Page 11
    ...of technologically advanced, innovative products, services and solutions in aerospace, electronics, information and services and shipbuilding. As prime contractor, principal subcontractor, partner, or preferred supplier, we participate in many high-priority defense and commercial technology programs...

  • Page 12
    ... Systems, Space Systems, Battle Management & Engagement Systems, and Advanced Programs & Technology. Strike & Surveillance Systems - designs, develops, manufactures and integrates tactical and long-range strike aircraft systems, unmanned systems, and missile systems. These include the RQ-4 Global...

  • Page 13
    ...create and capture new programs that other Aerospace Systems business areas can execute. Existing programs include the Navy Unmanned Combat Air System (N-UCAS), the Airborne Laser (ABL), and other directed energy and advanced concepts programs. ELECTRONIC SYSTEMS Electronic Systems, headquartered in...

  • Page 14
    NORTHROP GRUMMAN CORPORATION U.S. Postal Service bio-detection systems; and national level command and control, integrated air and missile defense and homeland defense systems for international customers. Land Forces - provides a full range of warfighting system solutions for the "digital ...

  • Page 15
    ...integration centers. Civil Systems - provides specialized information systems and services in support of critical government civil missions, such as homeland security, public health, cyber security, air traffic management and public safety. Primary customers are federal civilian agencies, with state...

  • Page 16
    ...construction, combat vehicle maintenance, protective and emergency services, and range-sensorinstrumentation operations. Primary customers include the Department of Energy, the DoD, the Department of Homeland Security, and the U.S. intelligence community, in both domestic and international locations...

  • Page 17
    ... of State and Department of Homeland Security. Life Cycle Optimization and Engineering - provides complete life cycle product support and weapons system sustainment. This business area is focused on providing Performance Based Logistical support to the warfighter including supply chain management...

  • Page 18
    ... and are generally allocated to U.S. Government contracts. IR&D expenses totaled $610 million, $564 million, and $522 million in 2009, 2008, and 2007, respectively. We charge expenses for research and development sponsored by the customer directly to the related contracts. EMPLOYEE RELATIONS We...

  • Page 19
    ... competition and long operating cycles are both key characteristics of our business and the defense industry. It is common in this industry for work on major programs to be shared among a number of companies. A company competing to be a prime contractor may, upon ultimate award of the contract to...

  • Page 20
    ... of subcontractors and suppliers is as vital to success as managing internal operations. Similarly, there is intense competition among many companies in the information and services markets, which are generally more labor intensive with competitive margin rates over contract periods of shorter...

  • Page 21
    NORTHROP GRUMMAN CORPORATION competition, difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work, and delays in the timing of contract approval, as well as other risks such as contractor suspension or debarment in the event of certain ...

  • Page 22
    ...our ability to develop new products and new technologies and maintain a qualified workforce to meet the needs of current and future customers. The markets in which we operate are characterized by rapidly changing technologies. The product, program and service needs of our customers change and evolve...

  • Page 23
    ... state-of-the-art manufacturing expertise or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our profitability and future prospects. We design, develop and manufacture technologically advanced and innovative products and services...

  • Page 24
    ...risks associated with estimating the total costs of the contract are generally reduced. In addition, successful performance of firm fixed-price development contracts that include production units is subject to our ability to control cost growth in meeting production specifications and delivery rates...

  • Page 25
    ... our international business constitutes only 5 percent of total revenues, we are subject to numerous U.S. and foreign laws and regulations, including, without limitation, regulations relating to import-export control, technology transfer restrictions, repatriation of earnings, exchange controls, the...

  • Page 26
    ...As a defense contractor, we face certain security threats, including threats to our information technology infrastructure and unlawful attempts to gain access to our proprietary or classified information. Our information technology networks and related systems are critical to the smooth operation of...

  • Page 27
    ...any U.S. Government contract while they are listed by the EPA. We also incur, and expect to continue to incur, costs to comply with current federal and state environmental laws and regulations related to the cleanup of pollutants previously released into the environment. The adoption of new laws and...

  • Page 28
    ...adequate procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful. ½ Market volatility and adverse capital and credit market conditions may affect our ability to access cost-effective sources of funding and expose us to risks associated with...

  • Page 29
    ... on benefit related assets, discount rates for future payment obligations, rates of future cost growth and trends for future costs. In addition, funding requirements for benefit obligations of our pension and post-retirement benefit plans are subject to legislative and other government regulatory...

  • Page 30
    .... Shipbuilding - San Diego, CA; Avondale, Harahan, and Tallulah, LA; Gulfport and Pascagoula, MS; and Hampton, Newport News, and Suffolk, VA. Technical Services - Sierra Vista, AZ; Warner Robins, GA; Lake Charles, LA; Hagerstown, MD; Herndon, VA. Corporate and other locations - Los Angeles, CA...

  • Page 31
    NORTHROP GRUMMAN CORPORATION The following is a summary of our floor space at December 31, 2009: U.S. Government Owned/Leased 2,023 163 5 2,191 Square feet (in thousands) Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Corporate Total Owned 6,223 8,117 684 ...

  • Page 32
    ... Purchases of Equity Securities Market Information. Our common stock is listed on the New York Stock Exchange. The following table sets forth, for the periods indicated, the high and low closing sale prices of our common stock as reported in the consolidated reporting system for the New York Stock...

  • Page 33
    NORTHROP GRUMMAN CORPORATION (d) Annual Meeting of Stockholders. Our Annual Meeting of Stockholders will be held on May 19, 2010, at the Aerospace Systems Presentation Center, One Space Park, Redondo Beach, California 90278. (e) Stock Performance Graph. COMPARISON OF CUMULATIVE FIVE YEAR TOTAL ...

  • Page 34
    ....81 Total Numbers of Shares Purchased as Part of Publicly Announced Plans or Programs 1,247,600 2,744,855 4,361,050 8,353,505 (1) On December 19, 2007, our board of directors authorized a share repurchase program of up to $2.5 billion of our outstanding common stock. On November 5, 2009, our board...

  • Page 35
    ... other information adjusted to reflect the effects of discontinued operations. See also Business Acquisitions and Business Dispositions in Part II, Item 7. Selected Financial Data Year Ended December 31 $ in millions, except per share Sales and Service Revenues U.S. Government Other customers Total...

  • Page 36
    ... advanced, innovative products, services, and integrated solutions in aerospace, electronics, information and services and shipbuilding to our global customers. We participate in many highpriority defense and commercial technology programs in the United States (U.S.) and abroad as a prime contractor...

  • Page 37
    ... that cash on hand at the beginning of the year plus cash generated from operations and cash available under credit lines will be sufficient in 2010 to service debt, finance capital expansion projects, pay federal, foreign, and state income taxes, fund pension and other post-retirement benefit plans...

  • Page 38
    ... have long-term consequences for our size and structure and the entire defense industry. We have historically concentrated our efforts in high technology areas such as stealth, airborne and space surveillance, battle management, systems integration, defense electronics, cybersecurity and information...

  • Page 39
    ... assumption of debt totaling $23 million. Essex provides signal processing services and products, and advanced optoelectronic imaging for U.S. government intelligence and defense customers. We report operating results of Essex in the Information Systems segment. BUSINESS DISPOSITIONS 2009 - We sold...

  • Page 40
    ... the Electronic Systems segment. Sales for this business in the year ended December 31, 2007 was $14 million. We completed the shut-down during the third quarter of 2007 and costs associated with the shut-down were not material. The results of this business are reported as discontinued operations in...

  • Page 41
    .... Time-and-materials contracts are considered firm fixed-price contracts as they specify a fixed hourly rate for each labor hour charged. The following table summarizes 2009 revenue recognized by contract type and customer: ($ in millions) Flexibly priced Firm fixed-price Total U.S. Government...

  • Page 42
    NORTHROP GRUMMAN CORPORATION estimated direct labor costs. The units-of-delivery measure is a modification of the percentage-of-completion method, which recognizes revenues as deliveries are made to the customer generally using unit sales values in accordance with the contract terms. We estimate ...

  • Page 43
    ... and costs associated with these matters requires judgment and assessment based upon professional knowledge and experience of management and our internal and external legal counsel. In accordance with our practices relating to accounting for contingencies, we record amounts as charges to earnings...

  • Page 44
    ... and post-retirement benefit expenses could increase or decrease. Assumptions - The principal assumptions that have a significant effect on our consolidated financial position and results of operations are the discount rate, the expected long-term rate of return on plan assets, the health care cost...

  • Page 45
    NORTHROP GRUMMAN CORPORATION would have decreased or increased pension and post-retirement benefit expense for 2009 by approximately $80 million, of which $4 million relates to post-retirement benefits, and decreased or increased the amount of the benefit obligation recorded at December 31, 2009, by...

  • Page 46
    NORTHROP GRUMMAN CORPORATION CONSOLIDATED OPERATING RESULTS Selected financial highlights are presented in the table below. Year Ended December 31 $ in millions, except per share Sales and service revenues Cost of sales and service revenues General and administrative expenses Goodwill impairment ...

  • Page 47
    ...primarily relate to segment operations. General and administrative expenses as a percentage of total sales and service revenues decreased from 9.7 percent in 2008 to 9.3 percent in 2009, primarily as a result of lower corporate overhead costs and a gain resulting from a legal settlement. General and...

  • Page 48
    NORTHROP GRUMMAN CORPORATION Year Ended December 31 $ in millions Segment operating income (loss) Unallocated expenses Net pension adjustment Royalty income adjustment Total operating income (loss) 2009 $2,929 (111) (311) (24) $2,483 2008 $(299) (157) 263 (70) $(263) 2007 $3,025 (209) 127 (18) $2,...

  • Page 49
    ... Committee) related to our tax returns for the years ended 2001-2003. 2008 - Our effective tax rate on earnings from continuing operations for 2008, was 33.8 percent (excluding the non-cash, non-deductible goodwill impairment charge of $3.1 billion at Aerospace Systems and Shipbuilding) as compared...

  • Page 50
    ...operations for all periods presented and thus, are not included in the table below. $ in millions Sales and Service Revenues Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Intersegment eliminations Total sales and service revenues Year Ended December 31 2009...

  • Page 51
    NORTHROP GRUMMAN CORPORATION Year Ended December 31 $ in millions Operating Income (Loss) Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Intersegment eliminations Total segment operating income (loss) Non-segment factors affecting operating income (loss) ...

  • Page 52
    ... on page 52. AEROSPACE SYSTEMS $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales Year Ended December 31 2009 2008 2007 $10,419 $9,825 $9,234 1,071 416 919 10.3% 4.2% 10.0% Sales and Service Revenues 2009 - Aerospace Systems revenue increased $594...

  • Page 53
    ... in net performance improvements associated with risk retirement in several key programs within S&SS, AP&T, and various restricted programs. ELECTRONIC SYSTEMS $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales Year Ended December 31 2009 2008 2007...

  • Page 54
    NORTHROP GRUMMAN CORPORATION INFORMATION SYSTEMS $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales Year Ended December 31 2009 2008 2007 $8,611 $8,205 $7,758 631 629 725 7.3% 7.7% 9.3% Sales and Service Revenues 2009 - Information Systems revenue ...

  • Page 55
    NORTHROP GRUMMAN CORPORATION SHIPBUILDING $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales Year Ended December 31 2009 2008 2007 $6,213 $ 6,145 $5,788 299 (2,307) 538 4.8% (37.5)% 9.3% Sales and Service Revenues 2009 - Shipbuilding revenue increased...

  • Page 56
    NORTHROP GRUMMAN CORPORATION TECHNICAL SERVICES $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales Year Ended December 31 2009 2008 2007 $2,776 $2,535 $2,422 161 144 139 5.8% 5.7% 5.7% Sales and Service Revenues 2009 - Technical Services revenue ...

  • Page 57
    NORTHROP GRUMMAN CORPORATION The following table presents funded and unfunded backlog by segment at December 31, 2009, and 2008: 2009 $ in millions Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Total backlog Funded $ 8,320 7,591 4,319 11,294 2,352 $33,876 ...

  • Page 58
    ... contract and related software costs are deferred and expensed over the contract life. We believe free cash flow is a useful measure for investors as it reflects our ability to grow by funding strategic business acquisitions and return value to shareholders through repurchasing our shares and paying...

  • Page 59
    ... for longer-term funding, under current market conditions, if needed. 2008 - Net cash provided by operating activities in 2008 increased $321 million as compared with 2007, and reflects lower income tax payments and continued trade working capital reductions. Pension plan contributions totaled $320...

  • Page 60
    ... Ratings The long term senior unsecured debt credit ratings at December 31, 2009, are summarized below: Fitch Northrop Grumman Corporation Northrop Grumman Systems Corporation BBB+ BBB+ Moody's Baa2 Baa1 Standard & Poors BBB BBB+ On December 31, 2009, Northrop Grumman Space & Mission Systems Corp...

  • Page 61
    ... that cash on hand at the beginning of the year plus cash generated from operations and cash available under credit lines will be sufficient in 2010 to service debt, finance capital expansion projects, pay federal, foreign, and state income taxes, fund pension and other post-retirement benefit plans...

  • Page 62
    ... (JTR) integrated product team and co-development of the JTR small airborne (JTR-SA) hardware and software. The company will also provide common JTR software for two JTR form factors, wideband power amplifiers, and the use of Northrop Grumman's Advanced Communications Test Center in San Diego as the...

  • Page 63
    ... currently-fielded DCGS-A Version 3 and the nine ISR programs it replaces. The U.S. Navy's airborne battle management command and control mission system platform providing airborne early warning detection, identification, tracking, targeting, and communication capabilities. The company is developing...

  • Page 64
    ... Range Air Defense, Air Defense Surveillance, Ground Weapon Location and Air Traffic Control. Replaces five existing USMC single-mission radars. Sole source IDIQ contract which will encompass efforts for the upgrade and modernization of the current field Guardrail systems. Operate, maintain, train...

  • Page 65
    ...STARS detects, locates, classifies, tracks and targets hostile ground movements, communicating real-time information through secure data links with U.S. Air Force and Army command posts. Provide non-personal general and technical support to the USJFCOM Joint Force Trainer/Joint Warfighting Center to...

  • Page 66
    ..., develop, integrate, test, and operate an integrated system comprised of two satellites with mission sensors and associated ground elements for providing global and regional weather and environmental data. Navstar Global Positioning System Operational Control Segment (GPS OCX) Operational control...

  • Page 67
    ..., hearing protection, and vehicle crew performance. Construct the newest attack submarine in conjunction with General Dynamics Electric Boat. Provide high-level IT consulting, IT infrastructure and services to Virginia state and local agencies including data center, help desk, desktop, network...

  • Page 68
    ... contracts to manage foreign currency exchange rate risk related to receipts from customers and payments to suppliers denominated in foreign currencies. At December 31, 2009, and 2008, the amount of foreign currency forward contracts outstanding was not material. We do not consider the market risk...

  • Page 69
    ... Board of Directors and Shareholders of Northrop Grumman Corporation Los Angeles, California We have audited the accompanying consolidated statements of financial position of Northrop Grumman Corporation and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated...

  • Page 70
    NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 $ in millions, except per share amounts Sales and Service Revenues Product sales Service revenues Total sales and service revenues Cost of Sales and Service Revenues Cost of product sales Cost of service ...

  • Page 71
    ... Accrued employees' compensation Advance payments and billings in excess of costs incurred Other current liabilities Liabilities of discontinued operations Total current liabilities Long-term debt, net of current portion Pension and post-retirement plan liabilities Other long-term liabilities Total...

  • Page 72
    ...of Cash-Continuing Operations Cash paid to suppliers and employees Pension contributions Interest paid, net of interest received Income taxes paid, net of refunds received Income taxes paid on sale of businesses Excess tax benefits from stock-based compensation Other cash payments Total uses of cash...

  • Page 73
    NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 $ in millions Reconciliation of Net Earnings (Loss) to Net Cash Provided by Operating Activities Net earnings (loss) Net earnings from discontinued operations Adjustments to reconcile to net cash provided by ...

  • Page 74
    NORTHROP GRUMMAN CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Year Ended December 31 $ in millions, except per share amounts Common Stock At beginning of year Common stock repurchased Conversion of preferred stock Employee stock awards and options At end of year Paid-in ...

  • Page 75
    ... or the company) provide technologically advanced, innovative products, services, and solutions in aerospace, electronics, information systems, shipbuilding and technical services. In January 2009, the company streamlined its organizational structure by reducing the number of operating segments from...

  • Page 76
    ... estimates. Revenue Recognition - As a defense contractor engaging in long-term contracts, the majority of the company's business is derived from long-term contracts for production of goods, and services provided to the federal government. In accounting for these contracts, the company extensively...

  • Page 77
    ... to government contracts. Companysponsored IR&D expenses totaled $610 million, $564 million, and $522 million in 2009, 2008, and 2007, respectively. Expenses for research and development sponsored by the customer are charged directly to the related contracts. Product Warranty Costs - The company...

  • Page 78
    NORTHROP GRUMMAN CORPORATION designated as cash flow hedges are recorded in other comprehensive income. The company may use derivative financial instruments to manage its exposure to interest rate and foreign currency exchange risks and to balance its fixed and variable rate long-term debt portfolio...

  • Page 79
    NORTHROP GRUMMAN CORPORATION lower of cost or market, generally using the average cost method. General corporate expenses and IR&D allocable to commercial contracts are expensed as incurred. Outsourcing Contract Costs - Costs on outsourcing contracts, including costs incurred for bid and proposal ...

  • Page 80
    NORTHROP GRUMMAN CORPORATION Retirement Benefits - The company sponsors various pension plans covering substantially all employees. The company also provides post-retirement benefit plans other than pensions, consisting principally of health care and life insurance benefits, to eligible retirees and...

  • Page 81
    ... position or results of operations. 3. DIVIDENDS ON COMMON STOCK AND CONVERSION OF PREFERRED STOCK Dividends on Common Stock - In May 2009, the company's board of directors approved an increase to the quarterly common stock dividend, from $.40 per share to $.43 per share, for stockholders of record...

  • Page 82
    ... in cash, including the assumption of debt totaling $23 million. Essex provides signal processing services and products, and advanced optoelectronic imaging for U.S. government intelligence and defense customers. The operating results of Essex are reported in the Information Systems segment from...

  • Page 83
    ...reportable segments: Aerospace Systems, Electronic Systems, Information Systems, Shipbuilding, and Technical Services. Segment Realignments - The company, from time to time, acquires or disposes of businesses, and realigns contracts, programs or business areas among and within its operating segments...

  • Page 84
    ... assets are located or maintained in the U.S. Results of Operations By Segment Year Ended December 31 $ in millions Sales and Service Revenues Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Intersegment eliminations Total sales and service revenues 2009 $10...

  • Page 85
    NORTHROP GRUMMAN CORPORATION Year Ended December 31 $ in millions Operating Income (Loss) Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Intersegment eliminations Total segment operating income (loss) Non-segment factors affecting operating income (loss) ...

  • Page 86
    ... 2008 $ 6,199 5,024 9,069 4,427 1,184 25,903 4,294 $30,197 Year Ended December 31 $ in millions Capital Expenditures Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Corporate Total capital expenditures 2009 $211 168 69 181 3 22 $654 2008 $224 148 62 218 4 25...

  • Page 87
    ... shares outstanding for the years ended December 31, 2009, 2008, and 2007, exclude stock options to purchase approximately 8.1 million shares, 2.1 million shares, and 59 thousand shares, respectively, because such options have an exercise price in excess of the average market price of the company...

  • Page 88
    ...for share repurchases. 8. ACCOUNTS RECEIVABLE, NET Unbilled amounts represent sales for which billings have not been presented to customers at year-end. These amounts are usually billed and collected within one year. Progress payments are received on a number of firm fixed-price contracts. Unbilled...

  • Page 89
    ... value of its businesses. The company recorded a non-cash charge totaling $3.1 billion at Shipbuilding and Aerospace Systems in the fourth quarter of 2008 for the impairment of goodwill. The impairment charge was primarily driven by adverse equity market conditions that caused a decrease in current...

  • Page 90
    NORTHROP GRUMMAN CORPORATION certain Electronic Systems businesses were transferred to Information Systems during the first quarter of 2008, along with goodwill of $47 million. During the second quarter of 2008, the company transferred certain programs and assets, including goodwill of $505 million,...

  • Page 91
    NORTHROP GRUMMAN CORPORATION Derivative Financial Instruments and Hedging Activities - The company utilizes derivative financial instruments in order to manage exposure to interest rate risk and foreign currency exchange rate risk. The company does not use derivative financial instruments for ...

  • Page 92
    NORTHROP GRUMMAN CORPORATION company has split-dollar life insurance policies on former officers and executives from acquired businesses which are recorded at the lesser of their cash surrender value or premiums paid. The policies are utilized as a partial funding source for deferred compensation ...

  • Page 93
    ... tax (benefit) expense on continuing operations at statutory rate Goodwill impairment Manufacturing deduction Research tax credit Settlement of IRS appeals cases, net of additional uncertain tax position accruals Other, net Total federal and foreign income taxes Year Ended December 31 2009 2008 2007...

  • Page 94
    ... to year-end deferred federal, state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows: December 31 $ in millions Deferred Tax Assets Retirement benefit plan expense Provision for accrued liabilities Tax credits and capital loss carryforwards...

  • Page 95
    NORTHROP GRUMMAN CORPORATION Tax Carryforwards - During 2009, the company utilized all of its remaining capital loss carryforwards in connection with the sale of ASD. 13. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT Lines of Credit - The company has available uncommitted short-term credit lines in the ...

  • Page 96
    ... millions Year Ending December 31 2010 2011 2012 2013 2014 Thereafter Total principal payments Unamortized premium on long-term debt, net of discount Total long-term debt $ 91 778 2 2 352 3,033 4,258 24 $4,282 The premium on long-term debt primarily represents non-cash fair market value adjustments...

  • Page 97
    ... a 2003 modification to the Northrop Grumman Retirement Plan B. The modification relates to the employer funded portion of the pension benefit available during a five-year transition period that ended on June 30, 2008. The plaintiffs dismissed the Northrop Grumman Pension Plan, and in 2008 the...

  • Page 98
    ... subsidiaries under certain contracts. In addition, the company's subsidiaries may enter into joint ventures, teaming and other business arrangements (Business Arrangements) to support the company's products and services in domestic and international markets. The company generally strives to limit...

  • Page 99
    NORTHROP GRUMMAN CORPORATION management estimates the range of reasonably possible remediation costs that could be incurred by the company, taking into account currently available facts on each site as well as the current state of technology and prior experience in remediating contaminated sites. ...

  • Page 100
    ...of these amounts to the government. Shipbuilding Quality Issues - In conjunction with a second quarter 2009 review of design, engineering and production processes at Shipbuilding undertaken as a result of leaks discovered in the USS San Antonio's (LPD 17) lube oil system, the company became aware of...

  • Page 101
    ... Benefits - The company provides a portion of the costs for certain health care and life insurance benefits for a substantial number of its active and retired employees. Covered employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet...

  • Page 102
    ... of Prior service (cost) credit Net loss from previous years Tax benefits related to above items Changes in unrecognized benefit plan costs - 2009 Pension Benefits $ 4,558 73 (40) (24) (1,807) $ 2,760 $ (524) 5 (50) (337) 363 $ (543) Medical and Life Benefits $132 30 65 (22) (81) $124 $ (60) Total...

  • Page 103
    ... position for the company's defined benefit pension and retiree health care and life insurance benefit plans. Pension benefits data include the qualified plans as well as 23 domestic unfunded non-qualified plans for benefits provided to directors, officers, and certain employees. The company uses...

  • Page 104
    ...and the net periodic benefit cost: Pension Medical and Benefits Life Benefits 2009 Assumptions Used to Determine Benefit Obligation at December 31 Discount rate Rate of compensation increase Initial health care cost trend rate assumed for the next year Rate to which the cost trend rate is assumed to...

  • Page 105
    ... long-term returns for each of the plans' strategic asset classes were developed. Several factors were considered, including survey of investment managers' expectations, current market data such as yields/price-earnings ratios, and historical market returns over long periods. Using policy target...

  • Page 106
    ... market funds (2) Other includes futures, swaps, options, swaptions, insurance contracts and net payable for unsettled trades at year end. At December 31, 2009, the fair value of the plan assets of $21,816 million in the table above consisted of $20,973 million in assets for pension benefits and...

  • Page 107
    ... Pension Plans Life Plans Year Ending December 31 2010 2011 2012 2013 2014 2015 through 2019 17. STOCK COMPENSATION PLANS Plan Descriptions At December 31, 2009, Northrop Grumman had stock-based compensation awards outstanding under the following plans: the 2001 Long-Term Incentive Stock Plan...

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    NORTHROP GRUMMAN CORPORATION Under the 2001 LTISP, recipients of restricted performance stock rights earn shares of stock, based on financial metrics determined by the board of directors in accordance with the plan. For grants prior to 2007, if the objectives have not been met at the end of the ...

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    NORTHROP GRUMMAN CORPORATION The significant weighted-average assumptions relating to the valuation of the company's stock options for the years ended December 31, 2009, 2008, and 2007, was as follows: 2009 Dividend yield Volatility rate Risk-free interest rate Expected option life (years) 3.6% 25% ...

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    NORTHROP GRUMMAN CORPORATION Stock award activity for the year ended December 31, 2009, is presented in the table below. Vested awards include stock awards fully vested during the year and net adjustments to reflect the final performance measure for issued shares. Stock Awards (in thousands) ...

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    ..., in order to normalize the potentially disruptive effects of quarterly closings on business processes. The effects of this practice only exist within a reporting year. 2009 $ in millions, except per share Sales and services revenues as previously reported Discontinued operations Sales and services...

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    ... Events - In the fourth quarter of 2008, the company recorded a non-cash, after-tax charge of $3.1 billion for impairment of goodwill, a non-cash, after-tax adjustment to accumulated other comprehensive loss of $2.9 billion for the change in funded status of pension and post-retirement benefits...

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    ...communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting During the fourth quarter of 2009, no change occurred in the company...

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    ...31, 2009, have been audited by the independent registered public accounting firm of Deloitte & Touche LLP in accordance with the standards of the Public Company Accounting Oversight Board (United States). /s/ Wesley G. Bush Chief Executive Officer and President /s/ James F. Palmer Corporate Vice...

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    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Northrop Grumman Corporation Los Angeles, California We have audited the internal control over financial reporting of Northrop Grumman Corporation and subsidiaries (the "Company") as of December 31, 2009, based...

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    ...Executive Officers, and Corporate Governance Directors Information about our Directors will be incorporated herein by reference to the Proxy Statement for the 2010 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year...

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    ... "Investor Relations - Corporate Governance - Overview." A copy of the Standards of Business Conduct is available to any stockholder who requests it by writing to: Northrop Grumman Corporation, c/o Office of the Secretary, 1840 Century Park East, Los Angeles, CA 90067. The web site and information...

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    ... Annual Meeting of Shareholders to be filed within 120 days after the end of the company's fiscal year. PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Report of Independent Registered Public Accounting Firm Financial Statements Consolidated Statements of Operations Consolidated...

  • Page 119
    ..., Inc. (predecessor-in-interest to Northrop Grumman Systems Corporation), Northrop Grumman Corporation, Northrop Grumman Systems Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4(q) to Form 10-K for the year ended December 31, 2002, filed March 24, 2003) Senior...

  • Page 120
    ...Inc. filed July 20, 1999) Ninth Supplemental Indenture dated as of December 31, 2009 among Northrop Grumman Space & Mission Systems Corp. (predecessor - in-interest to Northrop Grumman Systems Corporation); The Bank of New York Mellon, as successor trustee; Northrop Grumman Corporation; and Northrop...

  • Page 121
    ... by the former Northrop Grumman Space & Mission Systems Corp. (predecessor-in-interest to Northrop Grumman Systems Corporation) (incorporated by reference to Exhibit 4.2 to Form 10-Q for the quarter ended March 31, 2003, filed May 14, 2003) Northrop Grumman 1993 Long-Term Incentive Stock Plan, as...

  • Page 122
    ...) Northrop Grumman Electronic Systems Executive Pension Plan (Amended and Restated Effective as of January 1, 2009) Form of Northrop Grumman Corporation January 2009 Change in Control Severance Plan (incorporated by reference to Exhibit 10(n) to Form 10-K for the year ended December 31, 2008, filed...

  • Page 123
    ... Officers (Named Executive Officers) for 2009 (incorporated by reference to Form 8-K dated February 17, 2009 and filed February 23, 2009) Offering letter dated February 1, 2007 from Northrop Grumman Corporation to James F. Palmer relating to position of Corporate Vice President and Chief Financial...

  • Page 124
    ...) 10(jj) Executive Dental Insurance Policy Group Numbers 5134 and 5135 (incorporated by reference to Exhibit 10(m) to Form 10-K for the year ended December 31, 1995, filed February 22, 1996), as amended by action of the Compensation Committee of the Board of Directors of Northrop Grumman Corporation...

  • Page 125
    ... Northrop Grumman Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2009, formatted in XBRL (Extensible Business Reporting Language); (i) the Consolidated Statements of Operations, (ii) Consolidated Statements of Financial Position, (iii) Consolidated Statements of Cash...

  • Page 126
    ... day of February 2010. NORTHROP GRUMMAN CORPORATION By: /s/ Kenneth N. Heintz Kenneth N. Heintz Corporate Vice President, Controller, and Chief Accounting Officer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf...

  • Page 127
    NORTHROP GRUMMAN CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ($ in millions) Balance at Beginning of Period Changes - Add (Deduct) Balance at End of Period Description Year ended December 31, 2007(2) Reserves and allowances deducted from asset accounts(1) Allowances for doubtful ...

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    ... Information on Northrop Grumman and its sectors, including press releases and this annual report, can be found on our home page at www.northropgrumman.com. ANNUAL SHAREHOLDERS' MEETING Wednesday, May 19, 2010 8 a.m. PDT Aerospace Presentation Center One Space Park Redondo Beach, California...

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    1840 Century Park East Los Angeles, CA 90067-2199