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NORTHROP GRUMMAN 2011 ANNUAL REPORT
2011
Annual Report
Annual Report
Annual Report
Annual Report
Annual Report

Table of contents

  • Page 1
    2011 Annual Report NORTHROP GRUMMAN 2011 ANNUAL REPORT

  • Page 2
    ...discretionary pension contributions of $648 million, $539 million, and $333 million for years 2011, 2010 and 2009, respectively. Free cash flow is cash from operations less capital expenditures and outsourcing contract & related software costs. Free cash flow is reconciled to cash from operations in...

  • Page 3
    ... maintaining our high ethical standards. I'm delighted to be working with our company's talented team as we continue to create long-term sustained value for our shareholders, customers and employees. WES BUSH Chairman, CEO and President March 30, 2012 NORTHROP GRUMMAN 2011 ANNUAL REPORT PAGE 1

  • Page 4
    ... Global Hawk, Fire Scout, and UCAS-D unmanned aircraft systems; B-2 bomber; James Webb Space Telescope; E-2 Hawkeye; Advanced EHF communications payload; Joint STARS targeting and battle management system; and Space Tracking and Surveillance System. PAGE 2 NORTHROP GRUMMAN 2011 ANNUAL REPORT

  • Page 5
    ... Security Site management and operations; U.S. Army Mission Command Training Program; Hunter unmanned aerial system life cycle support; Intercontinental Ballistic Missile Program and the U.S. Army's National Training Center combat and tactical wheel vehicle fleet management. NORTHROP GRUMMAN 2011...

  • Page 6
    ...Vice President and President, Technical Services LINDA A. MILLS SHEILA C. CHESTON Corporate Vice President and General Counsel Corporate Vice President and President, Information Systems BOARD OF DIRECTORS WESLEY G. BUSH Chairman, Chief Executive Officer and President, Northrop Grumman Corporation...

  • Page 7
    ... Drive, Falls Church, Virginia 22042 (703) 280-2900 (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
    ... FINANCIAL POSITION CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2. ACCOUNTING STANDARDS UPDATES 3. DIVIDENDS ON COMMON STOCK 4. EARNINGS PER SHARE 5. BUSINESS...

  • Page 9
    ... 16. RETIREMENT BENEFITS 17. STOCK COMPENSATION PLANS 18. UNAUDITED SELECTED QUARTERLY DATA Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL...

  • Page 10
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 11
    ... to as "Northrop Grumman," the "company," "we," "us," or "our") provides technologically advanced, innovative products, services, and integrated solutions in aerospace, electronics, information and services to our global customers. We participate in many high-priority defense and government services...

  • Page 12
    ...technologies and concepts to create and capture new programs that other Aerospace Systems business areas can execute. Existing programs include the Navy Unmanned Combat Air System (N-UCAS), and other directed energy and advanced concepts programs. ELECTRONIC SYSTEMS Electronic Systems, headquartered...

  • Page 13
    ... The division also provides integrated electronic warfare capability, communications, and intelligence systems; unattended ground sensors; automatic test equipment; and advanced threat simulators. Key programs include the U.S. Marine Corps Ground/Air Task Oriented Radar (G/ATOR) multi-mission radar...

  • Page 14
    ... and services include C4ISR Integration, Mission Systems Integration, Military Communications and Networks, Battle Management C2 and Decision Support Systems, Tactical and Operational C2, Ground and Maritime Combat Systems, Air and Missile Defense, Combat Support Solutions and Services, Enterprise...

  • Page 15
    ... division specializes in quick reaction capability and deployed operations in support of customers. Primary customers include the DoD, as well as international military and commercial customers. Corporate Our principal executive offices are located at 2980 Fairview Park Drive, Falls Church, Virginia...

  • Page 16
    ... are generally allocated to U.S. Government contracts. Company-sponsored IR&D expenses totaled $543 million, $580 million, and $588 million in 2011, 2010, and 2009, respectively. Expenses for research and development sponsored by the customer are charged directly to the related contracts. EMPLOYEE...

  • Page 17
    ... and long operating cycles are both key characteristics of our business and the defense industry. It is common in the defense 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 18
    ...the annual shareholders' meeting, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with the SEC. You can learn more about us by reviewing our SEC filings on the investor relations page of our web site at...

  • Page 19
    ... financial position, results of operations or cash flows. The funding of U.S. Government programs is subject to an annual congressional budget authorization and appropriation processes. For many programs, Congress appropriates funds on a fiscal year basis even though the program performance period...

  • Page 20
    ...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 21
    ... contracting environment in which we do business. In support of the implementation of the Better Buying Power initiative, the U.S. Government is issuing a large number of new regulations and statutory requirements which are shifting additional responsibility and performance risks to the contractor...

  • Page 22
    NORTHROP GRUMMAN CORPORATION defense industry depends upon our ability to develop and market our products and services, as well as our ability to provide the people, technologies, facilities, equipment and financial capacity needed to deliver those products and services with maximum efficiency. If ...

  • Page 23
    ... to a cost-share limit, which affects profitability. Under a cost-type contract, the allowable costs incurred by the contractor are also subject to reimbursement plus a fee that represents profit. We typically enter into cost-type contracts for development programs with complex design and technical...

  • Page 24
    ... or materials or perform the agreed-upon services in a timely and cost-effective manner. Our costs may increase over the term of our contracts. Through cost escalation provisions contained in some of our U.S. Government contracts, we may be protected from increases in material costs to the extent...

  • Page 25
    ... software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. These events could damage our reputation...

  • Page 26
    NORTHROP GRUMMAN CORPORATION We also manage information technology systems for various customers and other third parties. While we operate under information security policies and procedures for managing these systems, we generally face similar cybersecurity threats for these systems as for our own. ...

  • Page 27
    ... from these transactions depends, in part, upon the integration between the businesses involved, the performance of the underlying products, capabilities or technologies, the management of the operations and market conditions following these transactions. Accordingly, our financial results could...

  • Page 28
    NORTHROP GRUMMAN CORPORATION â...¢ 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 29
    ...a nuclear incident, whether or not it is within our control. The U.S. Government and prime contractors provide certain indemnity protection under certain of our contracts pursuant to, or in connection with, Public Law 85-804 and the Price-Anderson Nuclear Industries Indemnity Act for certain nuclear...

  • Page 30
    ... new information, future events or otherwise, except as required by applicable law. Item 2. Properties At December 31, 2011, we owned or leased approximately 37 million square feet of floor space at approximately 655 separate locations, primarily in the U.S., for manufacturing, warehousing, research...

  • Page 31
    ... square foot building located at 2980 Fairview Park Drive, Falls Church, Virginia, as the new location for our principal executive offices. In August 2011, we relocated our corporate office in Los Angeles, California and corporate employees in Rosslyn, Virginia to our new corporate office in Falls...

  • Page 32
    NORTHROP GRUMMAN CORPORATION company because of the company's reliance on government contracts and authorizations. Based on the information available to us to date, we do not believe that the outcome of any matter pending against the Company, including the matters specifically identified in Note 14,...

  • Page 33
    ... Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Market Information. Our common stock is listed on the New York Stock Exchange and trades under symbol NOC. The following table sets forth, for the periods indicated, the high and low closing sale prices of our...

  • Page 34
    ... close of business on December 31, 2006, in Northrop Grumman Corporation common stock, Standard & Poor's (S&P) 500 Index, and the S&P Aerospace & Defense Index. (2) The cumulative total return assumes reinvestment of dividends. In March 2011, we completed the HII spin-off. Our shareholders received...

  • Page 35
    ...$55.17 Total Numbers of Shares Purchased as Part of Publicly Announced Plans or Programs 6,461,209 2,329,649 2,978,115 11,768,973 (1) On June 16, 2010, the company's board of directors authorized a share repurchase program of up to $2 billion of the company's common stock. On April 25, 2011, after...

  • Page 36
    ...common share Year-End Financial Position Total assets(1) Notes payable to banks and long-term debt Total long-term obligations and preferred stock(2) Financial Metrics Cash provided by continuing operations Free cash flow from continuing operations(3) Other Information Company-sponsored research and...

  • Page 37
    ... stock dividend from $0.47 per share to $0.50 per share. â...¢ We paid $543 million in cash dividends. Other notable events for the year ended December 31, 2011: â...¢ We relocated our corporate offices in Los Angeles, California and in Rosslyn, Virginia to our new corporate office in Falls Church...

  • Page 38
    ... opportunities to 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. We believe that...

  • Page 39
    ...Inc., its wholly owned subsidiary TASC Services Corporation, and certain contracts carved out from other businesses also in Information Systems that provide systems engineering technical assistance (SETA) and other analysis and advisory services. Sales for ASD in the year ended December 31, 2009 was...

  • Page 40
    ... majority of our business from long-term government contracts for development, production, and support activities. Government contracts typically include the following major cost elements: material, labor, overhead, subcontract costs, and general and administrative costs. Unless otherwise specified...

  • Page 41
    ... 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 42
    ... operations and maintenance contracts, and outsourcing-type arrangements, primarily in Technical Services and Information Systems. We generally recognize revenue under such contracts on a straight-line basis over the period of contract performance, unless evidence suggests that the revenue is earned...

  • Page 43
    ... cost of new 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. Impairment assessment inherently involves management...

  • Page 44
    ... 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 trend rate and the estimated fair market value of plan assets. For certain plan assets where the fair market value is not readily...

  • Page 45
    ... relates to post-retirement benefits. For 2012 pension and post-retirement benefit plan purposes, we have assumed an expected long-term rate of return on plan assets of 8.25 percent. Health Care Cost Trend Rates - The health care cost trend rates represent the annual rates of change in the cost...

  • Page 46
    ...much as we do on total contract costs, which is the key driver of both revenue and operating income. In any given reporting period, each of our segments manages numerous contracts that provide for the delivery of products or services to our customers. Our contract management process involves the use...

  • Page 47
    ... growth in Aerospace Systems partially offset by lower product sales in Electronic Systems and Information Systems. Service revenues for the year ended December 31, 2010, increased $406 million, or 3 percent, as compared to 2009, primarily due to sales growth in Technical Services largely related to...

  • Page 48
    ... revenues % of service revenues General and administrative expenses % of total sales and service revenues Cost of sales and service revenues and general and administrative expenses 2009 $12,648 79.0% 10,157 87.2% 2,571 9.3% $25,376 (1) As of December 31, 2011, the company revised its reporting...

  • Page 49
    ... flat year-over-year segment sales. Cost of product sales at Aerospace Systems increased due to sales volume increases at Strike and Surveillance of $218 million and Battle Management and Engagement Systems of $517 million, offset by volume decreases at the Advanced Programs & Technology business...

  • Page 50
    ...included in Technical Service's sales, thus driving a 80 basis point improvement in margin rate for this segment. More modest margin rate improvements at Electronic Systems and Information Systems effectively offset the decline in margin rate at the Aerospace Systems business. 2010 - Cost of segment...

  • Page 51
    ... Activities 2011 - Cash provided by continuing operations in 2011 was $2.3 billion, as compared with $2.1 billion in 2010, and reflects lower tax payments and timing of trade working capital. In 2011, we contributed $1.1 billion to our pension plans, of which $1.0 billion was voluntarily pre-funded...

  • Page 52
    ... Income Aerospace Systems Electronic Systems Information Systems Technical Services Intersegment eliminations Total Segment Operating Income Non-segment factors affecting operating income Unallocated corporate expenses Net pension adjustment Royalty income adjustment Total operating income KEY...

  • Page 53
    ... by $90 million higher sales in Battle Management & Engagement Systems (BM&ES) and $87 million higher sales in Advanced Programs & Technology (AP&T). The lower sales at SS are primarily due to reduced funding for weather satellite programs and the James Webb Space Telescope (JWST), as well as lower...

  • Page 54
    ... sales in Targeting Systems and $72 million higher sales in Advanced Concepts & Technologies. The decrease in Land & Self Protection Systems is due to lower sales volume on the Ground/Air Task Oriented Radar (G/ATOR) program as it transitions from the development phase to the integration and test...

  • Page 55
    ...the New York City Wireless (NYCWiN) and Armed Forces Health Longitudinal Technology Application (AHLTA) programs. The increase in Defense Systems is primarily due to program growth on Battlefield Airborne Communications Node (BACN), Joint National Integration Center Research and Development Contract...

  • Page 56
    NORTHROP GRUMMAN CORPORATION TECHNICAL SERVICES Year Ended December 31 2011 2010 $2,699 216 8.0% $3,230 206 6.4% $ in millions Sales and service revenues Segment operating income As a percentage of segment sales 2009 $2,776 161 5.8% Sales and Service Revenues 2011 - Technical Services revenue ...

  • Page 57
    NORTHROP GRUMMAN CORPORATION The following table presents funded and unfunded backlog by segment for the year ended December 31, 2011 and total backlog for the year ended December 31, 2010: 2011 $ in millions Aerospace Systems Electronic Systems Information Systems Technical Services Total backlog ...

  • Page 58
    NORTHROP GRUMMAN CORPORATION New Awards 2011 -The estimated value of contract awards added to backlog during the year ended December 31, 2011, is $25.3 billion. Significant new awards during this period include $2.0 billion for F/A-18 program, $1.1 billion for E2-D Advanced Hawkeye program, $1.0 ...

  • Page 59
    ... could access capital markets for debt financing for longer-term funding, under current market conditions, if needed. 2010 - Cash provided by continuing operations in 2010 increased $61 million as compared with 2009, primarily the result of lower tax payments. Pension plan contributions totaled $789...

  • Page 60
    ... and in the capital markets, if needed, will be sufficient in 2012 to service debt and contract obligations, finance capital expenditures, pay federal, foreign, and state income taxes, fund required and voluntary pension and other post retirement benefit plan contributions, continue acquisition of...

  • Page 61
    ... excludes estimated minimum funding requirements for retiree benefit plans as set forth by ERISA in relation to the company's pension and postretirement benefit obligations totaling approximately $3.5 billion over the next five years: $185 million in 2012, $421 million in 2013, $1.2 billion in 2014...

  • Page 62
    ... contract supporting the U.S. Air Force, Army, Navy and Marine Corps C-20 aircraft including depot maintenance, contractor operational and maintained base supply, flight line maintenance and field team support at multiple main operating bases, located in the United States and overseas. Provide high...

  • Page 63
    ... solution. Maintain and improve the Department of States' enterprise-wide IT infrastructure. Direct commercial firm fixed-price program with Lockheed Martin Aeronautics Company to develop and produce 80 Lot systems for aircraft delivery to the United Arab Emirates Air Force as well as test equipment...

  • Page 64
    ...track, and target hostile ground movements, while 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 / JWFC to ensure the successful worldwide execution of the...

  • Page 65
    ...-safety wireless network. Long Endurance MultiIntelligence Vehicle (LEMV) LITENING Gen 4 National Security Technologies (NSTec) Navstar Global Positioning System Operational Control Segment (GPS OCX) Navy Unmanned Combat Air System (N-UCAS) Network Centric Solutions Defense Knowledge Online...

  • Page 66
    ...operations. Provide high-level IT consulting, IT infrastructure and services to Virginia state and local agencies including data center, help desk, desktop, network, applications and cross-functional services. Treasury Communication System (TCS) Vehicular Intercommunications Systems (VIS) Virginia...

  • Page 67
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Northrop Grumman Corporation Falls Church, Virginia We have audited the accompanying consolidated statements of financial position of Northrop Grumman Corporation and subsidiaries (the "Company") as of December 31, 2011...

  • Page 68
    ...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 revenues General and administrative expenses Operating income Other (expense) income Interest expense Charge on...

  • Page 69
    ... operations Total current liabilities Long-term debt, net of current portion Pension and post-retirement plan liabilities Other long-term liabilities Total liabilities Commitments and Contingencies (Note 15) Shareholders' Equity Preferred Stock, $1 par value; 10,000,000 shares authorized; no shares...

  • Page 70
    ...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 business Excess tax benefits from stock-based compensation Other cash payments Total uses of...

  • Page 71
    ... to net cash provided by operating activities Depreciation Amortization of assets 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, net Prepaid...

  • Page 72
    ... stock repurchased Employee stock awards and options At end of year Paid-in Capital At beginning of year Common stock repurchased Employee stock awards and options exercised Spin-off of Shipbuilding business At end of year Retained Earnings At beginning of year (Note 10) Net earnings Cash dividends...

  • Page 73
    ... defense electronics and systems, airborne fire control radars, situational awareness systems, early warning systems, airspace management systems, navigation systems, communications systems, marine systems, space systems, and logistics services. Information Systems is a leading provider of advanced...

  • Page 74
    NORTHROP GRUMMAN CORPORATION 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-...

  • Page 75
    ... operations and are generally allocated to government contracts. Company-sponsored IR&D expenses totaled $543 million, $580 million, and $588 million, in 2011, 2010, and 2009, respectively. Expenses for research and development sponsored by the customer are charged directly to the related contracts...

  • Page 76
    NORTHROP GRUMMAN CORPORATION 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 company does not use derivative financial instruments for trading or speculative purposes, nor does it use ...

  • Page 77
    ..., the lower end of the range is recorded. Legal fees are expensed as incurred. 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...

  • Page 78
    ...in the year incurred because it is allocated to production as product costs, and a portion remains in inventory at the end of a reporting period. The company's funding policy for pension plans is to contribute, at a minimum, the statutorily required amount to an irrevocable trust. Stock Compensation...

  • Page 79
    ... earnings per share amounts 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 4.8 million, 4.2 million, and 4.1 million shares for the years ended December 31, 2011, 2010...

  • Page 80
    ... at management's discretion or under pre-established, non-discretionary programs, depending on market conditions, in the open market, and in privately negotiated transactions. Under these programs, additional share repurchases took place during the year ended December 31, 2011. The company retires...

  • Page 81
    ...-owned 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 ASD in the year ended December 31, 2009...

  • Page 82
    ... INFORMATION The company is aligned into four reportable segments: Aerospace Systems, Electronic Systems, Information Systems, and Technical Services. The company, from time to time, acquires or disposes of businesses and realigns contracts, programs or business areas among and within its operating...

  • Page 83
    ... following table presents sales and service revenues and operating income by segment: $ in millions Sales and Service Revenues Aerospace Systems Electronic Systems Information Systems Technical Services Intersegment eliminations Total sales and service revenues Year Ended December 31 2011 2010 2009...

  • Page 84
    ...Systems Technical Services Total intersegment sales and operating income Other Financial Information $ in millions Assets Aerospace Systems Electronic Systems Information Systems Technical Services Segment assets Corporate (See Note 10) Assets of discontinued operations Total assets December 31 2011...

  • Page 85
    NORTHROP GRUMMAN CORPORATION Corporate assets principally consist of cash and cash equivalents and deferred tax assets. $ in millions Capital Expenditures from Continuing Operations Aerospace Systems Electronic Systems Information Systems Technical Services Corporate Total capital expenditures from ...

  • Page 86
    ...: $ in millions Production costs of contracts in process General and administrative expenses Progress payments received Product inventory Total inventoried costs, net 10. INCOME TAXES The company's effective tax rate on earnings from continuing operations for the year ended December 31, 2011 was 32...

  • Page 87
    ... tax expense on continuing operations at statutory rate Manufacturing deduction Research tax credit Settlement of IRS appeals cases, net of additional uncertain tax position accruals ESOP dividends Other, net Total federal and foreign income taxes Year Ended December 31 2011 2010 2009 $1,079 (32...

  • Page 88
    NORTHROP GRUMMAN CORPORATION The change in unrecognized tax benefits during 2011, 2010 and 2009, excluding interest, is as follows: $ in millions Unrecognized tax benefits at beginning of the year Additions based on tax positions related to the current year Additions for tax positions of prior years...

  • Page 89
    ... of financial position, results of operations or cash flows for any period presented. In order to correct the overstatement, the company has reduced the opening retained earnings balance as of January 1, 2007 by $121 million, which reduces opening retained earnings for the year ended December 31...

  • Page 90
    ... Goodwill related to businesses sold Balance as of December 31, 2011 Aerospace Systems $ 3,801 $3,801 Electronic Systems $ 2,402 (2) $2,400 Information Systems $ 5,248 $5,248 Technical Services $925 $925 Total $12,376 (2) $12,374 Segment Realignments - In January 2009, the company realigned certain...

  • Page 91
    ... 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. As of December 31, 2011 and 2010, the carrying values associated with these policies of $257 million and...

  • Page 92
    NORTHROP GRUMMAN CORPORATION 13. LONG-TERM DEBT Lines of Credit - The company has available uncommitted short term credit lines in the form of money market facilities with several banks. The amount and conditions for borrowing under these credit lines depend on the availability and terms prevailing ...

  • Page 93
    ...31, 2011, are as follows: $ in millions Year Ending December 31 2012 2013 2014 2015 2016 Thereafter Total principal payments Unamortized premium on long-term debt, net of discount Total long-term debt The premium on long-term debt primarily represents non-cash fair market value adjustments resulting...

  • Page 94
    ... 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 95
    ... adverse effect on the company's consolidated financial position as of December 31, 2011 or its annual results of operations or cash flows. 15. COMMITMENTS AND CONTINGENCIES Contract Performance Contingencies - Contract profit margins may include estimates of revenues not contractually agreed to...

  • Page 96
    ... position as of December 31, 2011 or its annual results of operations or cash flows. U.S. Government Cost Claims - From time to time, the company is advised of claims and penalties concerning certain potential disallowed costs. When such findings are presented, the company and the U.S. Government...

  • Page 97
    ... its employees. Pension benefits for most employees are based on the employee's years of service, age and compensation. It is the policy of the company to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S. Government...

  • Page 98
    ...health care benefits to its employees beginning this year. The company participated in the Early Retiree Reinsurance Program and continues to assess the extent to which the provisions of the new laws will affect its future health care and related employee benefit plan costs. Spin-off of Shipbuilding...

  • Page 99
    NORTHROP GRUMMAN CORPORATION The table below summarizes the components of changes in unamortized benefit plan costs for the years ended December 31, 2011, 2010, and 2009: $ in millions Changes in unamortized benefit plan costs Change in net actuarial loss Change in prior service cost Amortization of...

  • Page 100
    ... position for the company's defined benefit pension and retiree health care and life insurance benefit plans. Pension benefits data includes the qualified plans as well as 11 domestic unfunded non-qualified plans for benefits provided to directors, officers, and certain employees. The company...

  • Page 101
    ...assets Employer contributions Plan participants' contributions Benefits paid Other Fair value of plan assets at end of year Funded status Amounts Recognized in the Consolidated Statements of Financial Position Non-current assets Current liability Non-current liability Pension Benefits 2011 2010 $20...

  • Page 102
    ... 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 103
    ... Cash and 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 104
    ... at year-end. Fair value for real estate and private equity partnerships is primarily based on valuation methodologies that include third party appraisals, comparable transactions, discounted cash flow valuation models, and public market data. Non-government fixed income securities are invested...

  • Page 105
    ... years ended December 31, 2011 and 2010, the company made voluntary pension contributions of $1 billion and $728 million, respectively. 17. STOCK COMPENSATION PLANS AND OTHER COMPENSATION ARRANGEMENTS Stock Compensation Plans At December 31, 2011, Northrop Grumman had stock-based compensation awards...

  • Page 106
    ... Northrop Grumman outstanding stock options and stock awards, and the strike price for stock options were adjusted to maintain the aggregate intrinsic value of the grants at the date of the spin-off pursuant to the terms of the company's applicable stock-based compensation plans. Taking into account...

  • Page 107
    NORTHROP GRUMMAN CORPORATION At December 31, 2011, there was $144 million of unrecognized compensation expense related to unvested awards granted under the company's stock-based compensation plans, of which $14 million relates to stock options and $130 million relates to stock awards. These amounts ...

  • Page 108
    ...Carlo simulation model. For purposes of measuring compensation expense for performance awards, the number of shares ultimately expected to vest is estimated at each reporting date based on management's expectations regarding the relevant performance criteria. Stock award activity for the years ended...

  • Page 109
    NORTHROP GRUMMAN CORPORATION ultimately be paid out. Each unit has an initial value equal to the company's stock price on the date of grant. For purposes of measuring compensation expense, the amount ultimately expected to be paid out is estimated at each reporting date based on management's ...

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    ... in response to this item. Item 9A. Controls and Procedures Relocation of Corporate Office During the year ended December 31, 2011, we relocated our corporate office in Los Angeles, California and corporate employees in Rosslyn, Virginia to our new corporate office in Falls Church, Virginia. These...

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    ... 2011, 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 Chairman, Chief Executive Officer and President /s/ James F. Palmer Corporate...

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    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Northrop Grumman Corporation Falls Church, Virginia We have audited the internal control over financial reporting of Northrop Grumman Corporation and subsidiaries (the "Company") as of December 31, 2011, based...

  • Page 113
    ... Vice President and General Counsel 2010 Kenneth L. Bedingfield* Sheila C. Cheston 39 2011 53 2010 Gary W. Ervin 54 Gloria A. Flach 53 Corporate Vice President and President, Aerospace Systems Sector Corporate Vice President and President, Northrop Grumman Enterprise Shared Services 2009...

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    ... Management Command and Control - Navy Programs, Integrated Systems Sector (2006-2007); Sector Vice President of Business Development, Integrated Systems Sector (2004-2006) * As previously announced, Kenneth N. Heintz will retire from his position as Corporate Vice President, Controller and Chief...

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    ... to: Northrop Grumman Corporation, c/o Office of the Secretary, 2980 Fairview Park Drive, Falls Church, VA 22042. The website and information contained on it or incorporated in it are not intended to be incorporated in this report on Form 10-K or other filings with the Securities Exchange Commission...

  • Page 116
    ... by reference to Exhibit 4.1 to Form 10-Q for the quarter ended March 31, 2011, filed April 27, 2011) Second Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation, The Bank of New York Mellon (successor trustee to JPMorgan Chase Bank and The Chase...

  • Page 117
    ...-K for the year ended December 31, 2002, filed March 24, 2003) Third Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York Mellon (formerly known as The Bank of New York) as trustee...

  • Page 118
    ... for the year ended December 31, 2002, filed March 24, 2003) Third Supplemental Indenture dated as of March 30, 2011 by and among Northrop Grumman Systems Corporation (successor-in-interest to Litton Industries, Inc.), The Bank of New York Mellon (formerly known as The Bank of New York), as trustee...

  • Page 119
    ... for the year ended December 31, 2009, filed February 9, 2010) Tenth Supplemental Indenture dated as of March 30, 2011, by and among Northrop Grumman Systems Corporation (successor-in-interest to Northrop Grumman Space & Mission Systems Corp. and TRW, Inc.), The Bank of New York Mellon, as successor...

  • Page 120
    ... issued 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) Consultant Contract dated June 28, 2010 between...

  • Page 121
    NORTHROP GRUMMAN CORPORATION +10(i) Northrop Grumman 2001 Long-Term Incentive Stock Plan (As amended through December 19, 2007) (incorporated by reference to Exhibit A to the Company's Proxy Statement on Schedule 14A for the 2008 Annual Meeting of Shareholders filed April 21, 2008) (i) Form of ...

  • Page 122
    ... of Non-Employee Director Award Terms Under the 2011 Long-Term Incentive Stock Plan effective December 21, 2011 Northrop Grumman Supplemental Plan 2 (Amended and Restated Effective as of January 1, 2012) (i) Appendix A: Northrop Supplemental Retirement Income Program for Senior Executives (Amended...

  • Page 123
    ... May 17, 2011 and filed May 23, 2011) Offering letter dated February 1, 2007 from Northrop Grumman Corporation to James F. Palmer relating to position of Corporate Vice President and Chief Financial Officer (incorporated by reference to Exhibit 10(3) to Form 10-Q for the quarter ended March 31, 2007...

  • Page 124
    ... Northrop Grumman Corporation to Sheila C. Cheston relating to position of Corporate Vice President and General Counsel +10(nn) Letter dated June 23, 2011 from Wes Bush, Chief Executive Officer and President, regarding terms of the relocation arrangement for James F. Palmer, Corporate Vice President...

  • Page 125
    NORTHROP GRUMMAN CORPORATION Consolidated Statements of Operations, (ii) Consolidated Statements of Financial Position, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Changes in Shareholders' Equity, and (v) Notes to Consolidated Financial Statements + * ** Management ...

  • Page 126
    ... day of February 2012. 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
    ....com ANNUAL MEETING OF SHAREHOLDERS Wednesday, May 16, 2012 8 a.m. EDT Northrop Grumman Corporation Corporate Office 2980 Fairview Park Drive Falls Church, Virginia 22042 INDEPENDENT AUDITORS Deloitte & Touche LLP COMPANY SHAREHOLDER SERVICES Shareholders with questions regarding stock ownership...

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    2980 Fairview Park Drive Falls Church, VA 22042-4511 www.northropgrumman.com 10% C018793 NORTHROP GRUMMAN 2011 ANNUAL REPORT