Northrop Grumman 2010 Annual Report Download

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LEADERSHIP
IN GLOBAL
SECURITY
2010 ANNUAL REPORT

Table of contents

  • Page 1
    LEADERSHIP IN GLOBAL SECURITY 2010 ANNUAL REPORT

  • Page 2
    ... cash flow as defined and reconciled above before the after-tax impact of discretionary pension contributions of $605 million, $462 million, and $130 million for years 2010, 2009, and 2008, respectively; and $508 million of taxes paid in 2009 for the sale of the company's advisory services business...

  • Page 3
    ... share. Higher segment operating income and higher segment operating margin rate drove this EPS growth. We view these metrics as key measures of our operational performance and we showed substantial improvement in 2010. At year-end, total backlog was more than $64 billion. New awards for the year...

  • Page 4
    ...-D unmanned aircraft systems; B-2 bomber; James Webb Space Telescope; Defense Weather Satellite System; E-2 Hawkeye; Advanced EHF communications payload; Joint STARS targeting and battle management system; Space Tracking and Surveillance System; Airborne Laser Test Bed; and ICBM Prime Integration...

  • Page 5
    ... 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 6
    ... Officer JAMES F. PITTS Corporate Vice President, Government Relations SHEILA C. CHESTON Corporate Vice President, Controller and Chief Accounting Officer ALEXIS C. LIVANOS Corporate Vice President and President, Electronic Systems MARK RABINOWITZ Corporate Vice President and General Counsel...

  • Page 7
    ... fiscal year ended December 31, 2010 n or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-16411 NORTHROP GRUMMAN CORPORATION (Exact name of registrant as specified in its charter) DELAWARE (State...

  • Page 8
    ... of Significant Accounting Policies 2. Accounting Standards Updates 3. Dividends on Common Stock and Conversion of Preferred Stock 4. Earnings (Loss) Per Share 5. Business Acquisitions 6. Business Dispositions 7. Shipbuilding Strategic Actions 8. Segment Information 9. Accounts Receivable, Net...

  • Page 9
    ... and Financial Disclosure Controls and Procedures Other Information Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm PART III Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership of...

  • Page 10
    (This page intentionally left blank)

  • Page 11
    ... 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 in the U.S. and abroad. We conduct most of our business...

  • Page 12
    ... segment consists of four business areas: Strike & Surveillance 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...

  • Page 13
    ... equipment and missile launch systems for the Virginia-class submarines. Navigation Systems - delivers products and services to defense, civil, and commercial markets supporting situational awareness, inertial navigation in all domains (air, land, sea, and space), embedded Global Positioning Systems...

  • Page 14
    ... Information Systems, headquartered in McLean, Virginia, is a leading global provider of advanced solutions for the DoD, national intelligence, federal civilian, state and local agencies, and commercial customers. Products and services are focused on the fields of command, control, communications...

  • Page 15
    ...Diego, California. Services & Other - Shipbuilding provides various services to commercial nuclear and non-nuclear industrial customers. In January 2008, Savannah River Nuclear Solutions, a joint venture among Shipbuilding, Fluor Corporation, and Honeywell, was awarded a contract for site management...

  • Page 16
    ..., technical support functions which include space launch services, construction, protective and emergency services, and range-sensorinstrumentation operations. Primary customers include the Department of Energy (DoE), the DoD, the Department of Homeland Security, and the U.S. intelligence community...

  • Page 17
    ... primarily for shipbuilding. We have mitigated some supply risk by negotiating long-term agreements with a number of steel suppliers. In addition, we have mitigated price risk related to steel purchases through certain contractual arrangements with the U.S. Government. While we have generally been...

  • Page 18
    ... programs under accounting principles generally accepted in the United States of America (GAAP). See Risk Factors in Part I, Item 1A. RESEARCH AND DEVELOPMENT Our research and development activities primarily include independent research and development (IR&D) efforts related to government programs...

  • Page 19
    ... defense programs, conducted under binding contracts, allows companies that perform well to benefit from a level of program continuity not frequently found in other industries. Our success in the competitive defense industry depends upon our ability to develop and market our products and services...

  • Page 20
    ... statement for the annual shareholders' meeting, as well as any amendments to those reports, are available free of charge through our web site as soon as reasonably practicable after we file them with the SEC. You can learn more about us by reviewing our SEC filings in the investor relations page on...

  • Page 21
    ...internal control systems and policies. Systems that are subject to review include, but are not limited to, our accounting systems, purchasing systems, billing systems, property management and control systems, cost estimating systems, compensation systems and management information systems. Any costs...

  • Page 22
    NORTHROP GRUMMAN CORPORATION government contracting, suspension or debarment could have a material adverse effect on our financial position, results of operations, or cash flows. ½ The Department of Defense has announced plans for significant changes to its business practices that could have a ...

  • 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
    ... contracts for development programs with complex design and technical challenges. These cost-type programs typically have award or incentive fees that are subject to uncertainty and may be earned over extended periods. In these cases the associated financial risks are primarily in lower profit rates...

  • Page 25
    ...profitability and our overall financial position. Contract accounting requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenues...

  • Page 26
    ... information security policies and procedures for managing these systems, we generally face the same security threats for these systems as for our own systems. Computer viruses, attempts to gain access to our customers' data or other electronic security breaches could lead to disruptions in mission...

  • Page 27
    ... our control. The U.S. Government provides indemnity protection against specified risks under our contracts pursuant to Public Law 85-804 and the Price-Anderson Nuclear Industries Indemnity Act for certain of our nuclear operations risks. Our nuclear operations are subject to various safety-related...

  • Page 28
    NORTHROP GRUMMAN CORPORATION financial insolvency of other responsible parties could cause us to incur costs in the future that would have a material adverse effect on our financial position, results of operations, or cash flows. ½ We are subject to various claims and litigation that could ...

  • Page 29
    ... and economic conditions in the United States. As a condition of an anticipated spin-off, we have obtained a private letter ruling from the Internal Revenue Service and expect to receive an opinion of counsel that the spin-off will be tax-free to the company and our shareholders but can give no...

  • Page 30
    NORTHROP GRUMMAN CORPORATION 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 the financial viability of suppliers and the ability of counterparties to perform on financial ...

  • Page 31
    NORTHROP GRUMMAN CORPORATION significant impact on cash flow in a particular period. Furthermore, changes in applicable domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain ...

  • Page 32
    ... leased facilities, and had vacant floor space of approximately 417,000 square feet. At December 31, 2010, we had major operations at the following locations: Aerospace Systems - Carson, El Segundo, Manhattan Beach, Mojave, Palmdale, Redondo Beach, and San Diego, CA; Melbourne and St. Augustine, FL...

  • Page 33
    NORTHROP GRUMMAN CORPORATION The following is a summary of our floor space at December 31, 2010: U.S. Government Owned/Leased 1,914 203 4 2,121 Square feet (in thousands) Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Corporate Total Owned 6,354 8,175 652 ...

  • Page 34
    ... 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 35
    ... total return assumes reinvestment of dividends. (3) The S&P Aerospace Defense Index is comprised of The Boeing Company, General Dynamics Corporation, Goodrich Corporation, Honeywell International Inc., ITT Corporation, L-3 Communications, Lockheed Martin Corporation, Northrop Grumman Corporation...

  • Page 36
    ...Average Price Paid per Share(2) $61.74 62.18 64.31 $62.85 Total Numbers of Shares Purchased as Part of Publicly Announced Plans or Programs 518,760 664,980 693,106 1,876,846 (1) On June 16, 2010, our board of directors authorized a share repurchase program of up to $2.0 billion of our common stock...

  • Page 37
    ... Net cash provided by operating activities Free cash flow(2) Notes payable to banks and long-term debt as a percentage of shareholders' equity Other Information Company-sponsored research and development expenses Maintenance and repairs Payroll and employee benefits Number of employees at year-end...

  • Page 38
    NORTHROP GRUMMAN CORPORATION Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Business We provide technologically advanced, innovative products, services, and integrated solutions in aerospace, electronics, information and services and ...

  • Page 39
    ... 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 2011 to service debt, finance capital expansion projects, pay federal, foreign, and state income taxes, fund pension and other post-retirement benefit plans...

  • Page 40
    ...significant new competitive opportunities include long range strike, directed energy applications, missile defense, satellite communications systems, restricted programs, cybersecurity, technical services and information technology contracts, and numerous international and homeland security programs...

  • Page 41
    ..., net of tax Earnings from discontinued operations, net of tax CONTRACTS We generate the majority of our business from long-term government contracts for development, production, and support activities. Government contracts typically include the following cost elements: direct material, labor -31...

  • Page 42
    ... audited by the Defense Contract Audit Agency. CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGMENTS Revenue Recognition Overview - We derive the majority of our business from long-term contracts for the production of goods and services provided to the federal government, which are accounted for in...

  • Page 43
    NORTHROP GRUMMAN CORPORATION generally accepted in the United States of America (GAAP) for construction-type and production-type contracts and federal government contractors. We classify contract revenues as product sales or service revenues depending on the predominant attributes of the relevant ...

  • Page 44
    ... capital adjusted as appropriate to consider lower risk profiles associated with longer-term contracts and barriers to market entry. The terminal value assumptions are applied to the final year of the discounted cash flow model. As a result of our announcement to wind down operations at Shipbuilding...

  • Page 45
    ... 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 46
    ... pension 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...

  • Page 47
    NORTHROP GRUMMAN CORPORATION Differences in the initial through the ultimate health care cost trend rates within the range indicated below would have had the following impact on 2010 post-retirement benefit results: $ in millions Increase (Decrease) From Change In Health Care Cost Trend Rates To ...

  • Page 48
    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 49
    NORTHROP GRUMMAN CORPORATION Cost of Sales and Service Revenues Cost of sales and service revenues and general and administrative expenses are comprised of the following: Year Ended December 31 $ in millions Cost of sales and service revenues Cost of product sales % of product sales Cost of service ...

  • Page 50
    ... due to goodwill impairment charges totaling $3.1 billion at Aerospace Systems and Shipbuilding. See discussion of Segment Operating Results below for further information. Unallocated Corporate Expenses Unallocated corporate expenses generally include the portion of corporate expenses not considered...

  • Page 51
    ...and lower interest rates. Charge on Debt Redemption 2010 - In November 2010, we repurchased outstanding debt held by our subsidiaries, Northrop Grumman Systems Corporation and Northrop Grumman Shipbuilding, Inc., and recorded a pre-tax charge of $231 million primarily related to premiums paid on the...

  • Page 52
    ... Systems segment are immaterial and have been eliminated for the years presented. 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 2010...

  • Page 53
    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 54
    ... of Programs" beginning on page 54. AEROSPACE SYSTEMS Year Ended December 31 $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales 2010 2009 2008 $10,910 $10,419 $9,825 1,256 1,071 416 11.5% 10.3% 4.2% Sales and Service Revenues 2010 - Aerospace Systems...

  • Page 55
    ...the ICBM program and the Global Hawk HALE Systems, partially offset by $33 million in lower performance across various programs in SS and BM&ES. ELECTRONIC SYSTEMS $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales Year Ended December 31 2010 2009 2008...

  • Page 56
    ... Navstar Global Positioning System Operational Control Segment (GPS OCX) program. The decrease in Civil Systems is primarily due to lower sales volume on the New York City Wireless (NYCWiN) and Armed Forces Health Longitudinal Technology Application (AHLTA) programs. The increase in Defense Systems...

  • Page 57
    ... non-recurring costs associated with the sale of ASD and unfavorable performance results in Civil Systems programs, principally due to the VITA outsourcing program for the Commonwealth of Virginia. SHIPBUILDING Year Ended December 31 $ in millions Sales and Service Revenues Segment Operating Income...

  • Page 58
    ...the LHD 8 contract, cost growth and schedule delays on the LPD program and the effects of Hurricane Ike on a subcontractor's performance. TECHNICAL SERVICES $ in millions Sales and Service Revenues Segment Operating Income As a percentage of segment sales Year Ended December 31 2010 2009 2008 $3,230...

  • Page 59
    NORTHROP GRUMMAN CORPORATION The following table presents funded and unfunded backlog by segment at December 31, 2010, and 2009: 2010 $ in millions Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Total Backlog Funded $ 9,185 8,093 4,711 9,569 2,763 $34,321 ...

  • Page 60
    ... on sale of businesses Charge on debt redemption Impairment of goodwill Other non-cash items(1) Retiree benefit funding in excess of expense Trade working capital (increase) decrease Cash provided by discontinued operations Net cash provided by operating activities Year Ended December 31 2010 2009...

  • Page 61
    ... post-retirement benefit plans, and also expect to make additional voluntary pension contributions of approximately $500 million. We expect cash generated from operations for 2011 to be sufficient to service debt and contract obligations, finance capital expenditures, continue acquisition of shares...

  • Page 62
    ... cash on hand at the beginning of the year plus cash generated from operations supplemented by borrowings under credit facilities and in the capital markets, if needed, will be sufficient in 2011 to service debt and contract obligations, finance capital expenditures, pay federal, foreign, and state...

  • Page 63
    NORTHROP GRUMMAN CORPORATION and voluntary pension and other post retirement benefit plan contributions, continue acquisition of shares under the share repurchase program, and continue paying dividends to shareholders. We will continue to provide the productive capacity to perform our existing ...

  • Page 64
    ...Northrop Grumman's Advanced Communications Test Center in San Diego as the integration and test site for the JTR-SA radio, waveforms and ancillaries. An enterprise-wide medical and dental clinical information system that provides secure online access to health records. Maintain strategic, long-range...

  • Page 65
    ... and Executive Support. The program provides equipment and services to research, develop, upgrade, install, fabricate, test, deploy, operate, train, maintain, and support new and existing federal Government platforms, systems, subsystems, items, and host-nation support initiatives. Contractor...

  • Page 66
    ... strike fighters. Design, integration, and/or development of the center fuselage and weapons bay, communications, navigations, identification subsystem, systems engineering, and mission systems software as well as provide ground and flight test support, modeling, simulation activities, and training...

  • Page 67
    ... execution of the Joint Training and Transformation missions. Contractor Logistics Services (CLS) contract supporting the U.S. Air Force KC-10 tanker fleet including depot maintenance, supply chain management, maintenance and management at locations in the United States and worldwide. Develop...

  • Page 68
    ...). Design, 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. This program was restructured in 2010. Navstar Global Positioning System Operational...

  • Page 69
    ...Program providing workspace, power distribution, lighting, environmental conditioning (heating and cooling) tables and a common grounding system for commanders and staff at all echelons. Design, develop, brassboard and demonstrate key technologies to reduce risk in the TSAT space element and perform...

  • Page 70
    ... contracts to manage foreign currency exchange rate risk related to receipts from customers and payments to suppliers denominated in foreign currencies. At December 31, 2010, and 2009, the amount of foreign currency forward contracts outstanding was not material. We do not consider the market risk...

  • Page 71
    ... REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the 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...

  • Page 72
    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 73
    ... and post-retirement plan liabilities Other long-term liabilities Total liabilities Commitments and Contingencies (Note 16) Shareholders' Equity Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2010-290,956,752; 2009-306,865,201 Paid-in capital Retained earnings...

  • Page 74
    ...Uses 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...

  • Page 75
    ... cash provided by operating activities Depreciation Amortization of assets Impairment of goodwill Stock-based compensation Excess tax benefits from stock-based compensation Pre-tax gain on sale of businesses Charge on debt redemption (Increase) decrease in Accounts receivable, net Inventoried costs...

  • Page 76
    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 77
    ... ACCOUNTING POLICIES Nature of Operations - Northrop Grumman Corporation and its subsidiaries (Northrop Grumman or the company) provide technologically advanced, innovative products, services, and solutions in aerospace, electronics, information systems, shipbuilding and technical services...

  • Page 78
    ... from those estimates. Revenue Recognition - 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 utilizes the cost-to-cost and the units-of...

  • Page 79
    ... totaled $603 million, $610 million, and $564 million, in 2010, 2009, and 2008, respectively. Expenses for research and development sponsored by the customer are charged directly to the related contracts. Restructuring Costs - In accordance with the regulations that govern the cost accounting...

  • Page 80
    ... that qualify and are 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. The...

  • Page 81
    ... include amounts related to contracts having production cycles longer than one year. Product inventory primarily consists of raw materials and is stated at the lower of cost or market, generally using the average cost method. General corporate expenses and IR&D allocable to commercial contracts are...

  • Page 82
    ...benefit plan costs and annual income or expense of the company's pension and other post-retirement benefit plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, the long-term rate of asset return (based on the market...

  • Page 83
    ... earnings per share include the dilutive effect of stock options and other stock awards granted to employees under stock-based compensation plans. The dilutive effect of these securities totaled 4.2 million and 4.1 million shares for the year ended December 31, 2010, and 2009. For the year ended...

  • Page 84
    ... subsidiary TASC Services Corporation, and certain contracts carved out from other Northrop Grumman businesses also in Information Systems that provide systems engineering technical assistance (SETA) and other analysis and advisory services. Sales for this business in the years ended December 31...

  • Page 85
    NORTHROP GRUMMAN CORPORATION Discontinued Operations - Earnings for the businesses classified within discontinued operations (primarily the result of the sale of ASD discussed above) were as follows: Year Ended December 31 $ in millions Sales and service revenues Earnings from discontinued ...

  • Page 86
    ...to execute on programs and win new business, and enhance cost competitiveness. Product sales are predominantly generated in the Aerospace Systems, Electronic Systems and Shipbuilding segments, while the majority of the company's service revenues are generated by the Information Systems and Technical...

  • Page 87
    ...company's 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...

  • Page 88
    ... Systems Information Systems Shipbuilding Technical Services Total intersegment sales and operating income Other Financial Information December 31 $ in millions Assets Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Segment assets Corporate Total assets 2010...

  • Page 89
    NORTHROP GRUMMAN CORPORATION Year Ended December 31 $ in millions Capital Expenditures Aerospace Systems Electronic Systems Information Systems Shipbuilding Technical Services Corporate Total capital expenditures 2010 $195 176 31 191 5 172 $770 2009 $211 168 50 181 3 41 $654 2008 $224 148 54 218 4 ...

  • Page 90
    ... the non-cash, non-deductible goodwill impairment charge of $3.1 billion at Aerospace Systems and Shipbuilding). The company's effective tax rates reflect tax credits, manufacturing deductions and the impact of settlements with the Internal Revenue Service (IRS). In 2010, the company received final...

  • Page 91
    ... the following: Year Ended December 31 $ in millions Income tax expense (benefit) 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...

  • Page 92
    .... In addition, open tax years related to state and foreign jurisdictions remain subject to examination but are not considered material. The IRS is currently conducting an examination of the company's tax returns for the years 2007 through 2009. During the year ended December 31, 2010, 2009, and...

  • Page 93
    ... other purchased intangible assets, is charged against the respective segment's operating income. The annual impairment test for all segments was performed as of November 30, 2010, with no indication of impairment. In performing the goodwill impairment tests, the company uses a discounted cash flow...

  • Page 94
    ...As discussed in Note 8, in January 2009, the company realigned certain logistics, services, and technical support programs and transferred assets from the Information Systems and Electronic Systems segments to the Technical Services segment. As a result of this realignment, goodwill of approximately...

  • Page 95
    ... utilize floating interest rates as an offset to the fixed-rate characteristics of certain long-term debt instruments. Foreign currency forward contracts are used to manage foreign currency exchange rate risk related to receipts from customers and payments to suppliers denominated in foreign...

  • Page 96
    ...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 and other non-qualified employee retirement plans...

  • Page 97
    ... relating to limitations on liens, sale-leaseback arrangements, and funded debt of subsidiaries. Maturities of long-term debt as of December 31, 2010, are as follows: $ in millions Year Ending December 31 2011 2012 2013 2014 2015 Thereafter Total principal payments Unamortized premium on long-term...

  • Page 98
    ... equipment" on the vessels. The company submitted a written response that argued that the revocation of acceptance was improper. The Coast Guard advised Integrated Coast Guard Systems, LLC (ICGS), which was formed by the contractors (Lockheed Martin Corporation and Northrop Grumman Shipbuilding...

  • Page 99
    ... California. The putative class representatives alleged violations of ERISA and breaches of fiduciary duty concerning 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...

  • Page 100
    .... Subsequent Event - On January 31, 2011, the U.S. Department of Justice first informed the company and Northrop Grumman Shipbuilding, Inc. of a False Claims Act complaint that the company believes was filed under seal by a relator in mid-2010 in the United States District Court for the District of...

  • Page 101
    NORTHROP GRUMMAN CORPORATION For several years, the company has pursued recovery under its insurance policies for Katrina related property damage and business interruption losses. One of the insurers involved in those actions has made allegations that overlap significantly with certain of the issues...

  • Page 102
    ... position or results of operations. 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...

  • Page 103
    .... Shipbuilding's technical personnel reviewed the JAGMAN report and provided feedback to the Navy on the report, recommending that the company and the Navy perform a comprehensive review of the LPD 17 Class propulsion system design and its associated operation and maintenance procedure in order to...

  • Page 104
    ...17. RETIREMENT BENEFITS Plan Descriptions Defined Benefit Pension Plans - The company sponsors several defined benefit pension plans in the U.S. covering the majority of its employees. Pension benefits for most employees are based on the employee's years of service and compensation. It is the policy...

  • Page 105
    NORTHROP GRUMMAN CORPORATION Medical and Life 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...

  • Page 106
    NORTHROP GRUMMAN CORPORATION The table below summarizes the components of changes in unamortized benefit plan costs for the years ended December 31, 2010, 2009, and 2008: $ in millions Changes in Unamortized Benefit Plan Costs Change in net actuarial loss Change in prior service cost Amortization of...

  • Page 107
    ...to directors, officers, and certain employees. During 2010, nine such plans were merged. The company uses a December 31 measurement date for all of its plans. Pension Benefits $ in millions Change in Projected Benefit Obligation Projected benefit obligation at beginning of year Service cost Interest...

  • Page 108
    ... models based on a portfolio of high quality bonds matching the notional cash inflows with the expected benefit payments for each significant benefit plan. The assumptions used for pension benefits are consistent with those used for retiree medical and life insurance benefits. The long-term rate...

  • Page 109
    ... Cost Trend Rates To Post-retirement benefit expense Post-retirement benefit liability $ 6 74 $ (7) (86) Plan Assets and Investment Policy Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term...

  • Page 110
    ...securities Cash & cash equivalents(1) U.S. Treasuries Other U.S. Government Agency Securities Non-U.S. Government Securities Corporate debt Asset backed High yield debt Bank loans Real estate and other Hedge funds Private equities Real estate Other(2) Fair value of plan assets at the end of the year...

  • Page 111
    ... party appraisals, comparable transactions, discounted cash flow valuation models, and public market data. Non-government fixed income securities are invested across various industry sectors and credit quality ratings. Generally, investment guidelines are written to limit securities, for example, to...

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    ...closing market price on the date of the grant, was immediately exercisable, and expires ten years after the grant date. At December 31, 2010, approximately 93 thousand shares were available for future grants under the 1995 SPND. Compensation Expense Total stock-based compensation for the years ended...

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    NORTHROP GRUMMAN CORPORATION experience under the company's stock-based compensation plans and represents the period of time that awards granted are expected to be outstanding. The significant weighted-average assumptions relating to the valuation of the company's stock options for the years ended ...

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    NORTHROP GRUMMAN CORPORATION Stock award activity for the years ended December 31, 2010, 2009, and 2008, 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 ...

  • Page 115
    ...close on business processes. The effects of this practice only exist within a reporting year. The company's common stock is traded on the New York Stock Exchange (trading symbol NOC). 2010 $ in millions, except per share Sales and service revenues Operating income Earnings from continuing operations...

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    ... in the Securities and Exchange Commission's rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit is accumulated and communicated to management...

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    NORTHROP GRUMMAN CORPORATION MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Northrop Grumman Corporation (the company) prepared and is responsible for the consolidated financial statements and all related financial information contained in this Annual Report. This...

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    ... GRUMMAN CORPORATION REPORT OF INDEPENDENT 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...

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    ... Space Technology Sectors (2005-2007) Wesley G. Bush 49 2010 Sheila C. Cheston 52 Corporate Vice President and General Counsel 2010 Gary W. Ervin 53 Corporate Vice President and President, Aerospace Systems Sector Corporate Vice President and President, Northrop Grumman Enterprise Shared...

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    NORTHROP GRUMMAN CORPORATION Name Kenneth N. Heintz Age 64 Office Held Corporate Vice President, Controller and Chief Accounting Officer Corporate Vice President and Chief Technology Officer Corporate Vice President and President, Information Systems Sector Since 2005 Prior Business Experience (Last...

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    ...2011 Annual Meeting of Stockholders to be filed within 120 days after the end of the company's fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information as to Securities Authorized for Issuance Under Equity Compensation Plans...

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    ..., 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...

  • Page 123
    ... Corp. (predecessor--in-interest to Northrop Grumman Systems Corporation); The Bank of New York Mellon, as successor trustee; Northrop Grumman Corporation; and Northrop Grumman Systems Corporation (incorporated by reference to Exhibit 4(p) to Form 10-K for the year ended December 31, 2009, filed...

  • Page 124
    ...) Northrop Grumman Corporation 1995 Stock Plan for Non-Employee Directors, as Amended as of May 16, 2007 (incorporated by reference to Exhibit A to the Company's Proxy Statement on Schedule 14A for the 2007 Meeting of Shareholders filed April 12, 2007) Northrop Grumman 2001 Long-Term Incentive Stock...

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    ...Exhibit 10.4 to Form 10-Q for the quarter ended March 31, 2010, filed April 28, 2010) *(xvi) Terms and Conditions Applicable to 2010 Restricted Stock Rights Granted to Sheila C. Cheston dated November 11, 2010 Northrop Grumman Supplemental Plan 2 (Amended and Restated Effective as of January 1, 2009...

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    ...) Northrop Grumman Electronic Systems Executive Pension Plan (Amended and Restated Effective as of January 1, 2011) Northrop Grumman Corporation January 2010 Change in Control Severance Plan (effective as of January 1, 2010) (incorporated by reference to Exhibit 10(p) to Form 10-K for the year ended...

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    ... Executive Officers) for 2010 (incorporated by reference to Item 5.02(e) of Form 8-K dated February 16, 2010, and filed February 22, 2010) Offering letter dated February 1, 2007 from Northrop Grumman Corporation to James F. Palmer relating to position of Corporate Vice President and Chief Financial...

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    ... the quarter ended March 31, 2010, filed April 28, 2010) +*10(qq) Offering letter dated June 7, 2010, from Northrop Grumman Corporation to Sheila C. Cheston relating to position of Corporate Vice President and General Counsel *12(a) Computation of Ratio of Earnings to Fixed Charges *21 Subsidiaries...

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    ... power of attorney Non-Executive Chairman Chief Executive Officer and President (Principal Executive Officer), and Director Corporate Vice President and Chief Financial Officer (Principal Financial Officer) Corporate Vice President, Controller and Chief Accounting Officer Director Director Director...

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    ... INVESTOR RELATIONS 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 18, 2011 8 a.m. EDT Steven F. Udvar-Hazy Center Smithsonian Air and Space...

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    1840 Century Park East Los Angeles, CA 90067-2199