e11vk
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 1-16411
A.   Full title of the plan and address of the plan, if different from that of the issuer named below:
NORTHROP GRUMMAN SAVINGS PLAN
B.   Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
NORTHROP GRUMMAN CORPORATION
1840 Century Park East
Los Angeles, California 90067
 
 

 

 

Northrop Grumman Savings Plan
Financial Statements as of December 31, 2008 and 2007,
and for the Year Ended December 31, 2008, and
Supplemental Schedule as of December 31, 2008 and
Report of Independent Registered Public Accounting Firm

2

 

NORTHROP GRUMMAN SAVINGS PLAN
TABLE OF CONTENTS
 
         
    Page(s)
    4  
FINANCIAL STATEMENTS:
        
    5  
    6  
    7-16  
SUPPLEMENTAL SCHEDULE:
        
    17  
    18  
EXHIBIT:
        
    19  
     
NOTE:    Schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because of the absence of conditions under which they are required.

3

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Benefit Plan Administrative Committee of the
Northrop Grumman Savings Plan
We have audited the accompanying statements of net assets available for benefits of the Northrop Grumman Savings Plan (the “Plan”) as of December 31, 2008 and 2007, and the related statement of changes in net assets available for benefits for the year ended December 31, 2008. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2008 and 2007, and the changes in net assets available for benefits for the year ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2008, is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This schedule is the responsibility of the Plan’s management. Such schedule has been subjected to the auditing procedures applied in our audit of the basic 2008 financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
June 17, 2009

4

 

NORTHROP GRUMMAN SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2008 AND 2007
 
                 
    2008     2007  
ASSETS:
                
Investment in Northrop Grumman Defined Contribution Plans Master Trust—at fair value
   $ 9,983,135,199     $ 13,224,791,634  
Investment in Charles Schwab Personal Choice Retirement Account—at fair value
     801,082,715       1,120,168,151  
Loans receivable from participants
     221,306,462       204,196,744  
Short-term investments — at fair value
     17,586,914       15,297,563  
 
            
Total investments
     11,023,111,290       14,564,454,092  
 
            
Receivables:
                
Participant contributions
             16,834  
Employer contributions
             7,717  
 
            
Total receivables
     —       24,551  
 
            
Total assets
     11,023,111,290       14,564,478,643  
 
            
 
                
LIABILITIES:
                
Accrued expenses
     4,266,443       7,674,239  
 
            
Total liabilities
     4,266,443       7,674,239  
 
            
NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE
     11,018,844,847       14,556,804,404  
Adjustment from fair value to contract value for fully benefit-responsive investment contracts
     39,128,804       (19,372,973 )
 
            
NET ASSETS AVAILABLE FOR BENEFITS
   $ 11,057,973,651     $ 14,537,431,431  
 
            
See notes to financial statements.

5

 

NORTHROP GRUMMAN SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2008
 
         
INVESTMENT INCOME (LOSS):
        
Plan interest in Northrop Grumman Defined Contribution Plans Master Trust
   $ (3,344,732,465 )
Net depreciation in fair value of other investments
     (419,516,106 )
Dividends
     17,349,222  
Interest
     16,819,367  
 
      
 
        
Total investment loss
     (3,730,079,982 )
 
      
CONTRIBUTION ADDITIONS:
        
Participant
     893,829,020  
Employer
     292,593,318  
 
      
 
        
Total contribution additions
     1,186,422,338  
 
      
DEDUCTIONS:
        
Benefits paid to participants
     (958,793,017 )
Administrative expenses
     (12,224,222 )
 
      
 
        
Total deductions
     (971,017,239 )
 
      
 
        
TRANSFER OF NET ASSETS FROM PLANS MERGED DURING THE YEAR
     35,217,103  
 
      
 
        
DECREASE IN NET ASSETS
     (3,479,457,780 )
 
      
 
        
NET ASSETS AVAILABLE FOR BENEFITS:
        
Beginning of year
     14,537,431,431  
 
      
End of year
   $ 11,057,973,651  
 
      
See notes to financial statements.

6

 

NORTHROP GRUMMAN SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2008 AND 2007, AND FOR THE YEAR ENDED DECEMBER 31, 2008
 
1.   DESCRIPTION OF THE PLAN
 
    The following description of the Northrop Grumman Savings Plan (the “Plan”) provides only general information. Participants should refer to the plan document for a more complete description of the Plan’s provisions.
 
    General — The Plan is a qualified profit-sharing and employee stock ownership plan sponsored by Northrop Grumman Corporation (the “Company”) established February 1, 1962 and restated effective January 1, 2006. It covers substantially all hourly and salaried employees of the Company who are at least 18 years old, are citizens or residents of the United States of America and are not covered under another plan. Non-union represented employees hired after June 30, 2008 are eligible to participate in this Plan in lieu of a defined benefit pension plan. The Benefit Plan Administrative Committee of the Company controls and manages the operation and administration of the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
 
    All of the Plan’s investments are participant-directed. The Plan utilizes the Northrop Grumman Defined Contribution Plans Master Trust (the “DC Master Trust”) for its investments, except for the participant loans, temporary (short-term) investments and participant-directed brokerage accounts held in the Charles Schwab Personal Choice Retirement Account (“PCRA”).
 
    Contributions — Plan participants may contribute between 1 percent and 75 percent of eligible compensation in increments of 1 percent, on a tax-deferred (before-tax) basis, or an after-tax basis, or a combination thereof through payroll withholdings. An active participant may change the percentage of his or her contributions at any time. Effective January 1, 2007, eligible newly hired, rehired or transferred participants will be enrolled automatically into the Plan at a 2 percent tax-deferred contribution rate approximately 45 days after the date of hire, rehire or transfer unless an alternative election is made. Such contributions will be automatically increased by 1 percent each year thereafter. Contributions are subject to certain limitations imposed by the Internal Revenue Code of 1986, as amended (the “Code”).
 
    The Company’s matching contributions are generally as follows:
         
    Company
Employee Contribution   Match
First 2 percent of eligible compensation
     100  percent
Next 2 percent of eligible compensation
     50  
Next 4 percent of eligible compensation
     25  
Contribution over 8 percent
     0  
    Participant Accounts — A separate account is maintained for each participant. Each participant’s account is credited with the participant’s contribution and allocations of (a) the Company’s contribution, (b) Plan earnings, and (c) administrative expenses. Allocations are based on participant earnings on account balances, as defined in the plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
 
    Vesting — Plan participants are fully vested (100 percent) at all times in the balance of their accounts (both employee and employer contributions), none of which may be forfeited for any reason.
 
    Investment Options — Upon enrollment in the Plan, each participant directs contributions and Company matching contributions, in 1 percent increments, to be invested in any of the following investment funds. The investment funds are managed by an independent professional investment manager appointed by the Plan’s Investment Committee.

7

 

      U.S. Equity Fund — The U.S. Equity Fund consists predominantly of holdings in large and medium sized U.S. company stocks. The fund’s objectives are capital appreciation over the long term, along with current income (dividends).
 
      U.S. Fixed Income Fund — The U.S. Fixed Income Fund consists of holdings in marketable, fixed income securities rated within the three highest investment grades assigned by Moody’s Investor Services or Standard & Poor’s Corporation, U.S. Treasury or federal agency obligations, or cash equivalent instruments. The fund is broadly diversified by investing in a wide range of fixed income securities that mature, on average, in 8 to 10 years.
 
      Stable Value Fund — The Plan holds an interest in the Northrop Grumman Stable Value Fund (the “Stable Value Fund”, see Note 6). Investments of the Stable Value Fund are diversified among U.S. Government securities and obligations of government agencies, bonds, short-term investments, cash and investment contracts issued by insurance companies and banks.
 
      Northrop Grumman Fund — The Northrop Grumman Fund (“NG Stock Fund”) invests primarily in Northrop Grumman Corporation common stock.
 
      Balanced Fund — The Balanced Fund is designed to provide investors with a fully diversified portfolio consisting of targeted proportions of fixed income securities (35 percent), U.S. equities (45 percent), and international equities (20 percent). The fund seeks to exceed the return of the bond market and approach the return of the stock market, but with less risk than an investment only in stocks.
 
      International Equity Fund — The International Equity Fund consists of stocks of a diversified group of companies in developed countries outside the United States. The fund’s objectives are capital appreciation over the long term, along with current income (dividends).
 
      Small Cap Fund — The Small Cap Fund is designed to achieve high total return by investing primarily in a diversified group of U.S. companies with lower market capitalization and higher revenue growth than the large, well established companies that make up the S&P 500 Index. The objective is capital appreciation over the long term, rather than to provide current income.
 
      Emerging Markets Fund — The Emerging Markets Fund consists of a diversified portfolio of stocks issued by companies based in developing countries. The fund’s objective is capital appreciation over the long term.
 
      Schwab Personal Choice Retirement Account — The PCRA consists of more than 3,200 mutual funds, more than 360 fund families and the option to invest in individual stocks and bonds.
 
      Retirement Path Portfolios — Each Retirement Path is a broadly diversified portfolio of funds consisting of equities, fixed income securities and other investments tailored to the investment time horizon of the investor. The name of each strategy represents the year when the investor will most likely begin to draw interest and/or principal out of their portfolio. The portfolios are the Retirement Path, the 2010 Retirement Path, the 2020 Retirement Path, the 2030 Retirement Path, and the 2040 Retirement Path.
    Participants may change their investment direction weekly. Existing account balances can be transferred daily, subject to certain restrictions.
 
    Contributions deposited into each investment fund buy units of that fund based on unit values that are updated daily prior to any Plan transactions, including contributions, withdrawals, distributions and transfers. The value of each participant’s account within each fund depends on two factors: (1) the number of units purchased to date and (2) the current value of each unit.
    Participant Loans — Participants may borrow from their fund accounts with loans of a minimum of $1,000, up to a maximum equal to the lesser of $50,000, reduced by the highest outstanding loan balance over the past 12 months, or 50 percent of their account balance (not including certain Company contributions). A participant may not have more than two outstanding loans at any given time (except for those merged from other plans). Loans will be prorated across all investment funds and are secured by the balance in the participant’s account. The interest rate is fixed on the last business day of each month at the prime rate as determined by the Plan’s trustee plus one percent. Repayments are made from payroll deductions (for active employees) or other form of payment (for former employees or employees on a leave of absence). The maximum loan period is five years or, effective January 1, 2003, fifteen years for a loan used to acquire a dwelling that is the principal residence of the participant. However, loans transferred in as the result

8

 

    of a plan merger may have maximum loan periods greater than 15 years. Loans may be repaid early in full; partial early repayments are not permitted. As of December 31, 2008, participant loans have maturities through 2034 at interest rates ranging from 5 percent to 9.25 percent.
 
    Payment of Benefits — On termination of employment with the Company (including termination due to death, disability or retirement), a participant may receive a lump sum payment of his or her entire account balance (net of any outstanding loan balances). A participant may also delay payment until age 701/2, if the account balance exceeds $1,000. Certain partial distributions after termination of employment and before age 701/2 are permitted by the Plan. Participants may rollover account balances to individual retirement accounts or another employer’s qualified retirement plan to postpone federal and most state income taxes. Participants with frozen account balances under a previous savings plan may be eligible to elect special distribution options under the previous plan.
 
    Distributions from the NG Stock Fund will be paid in cash, stock, or a combination of both, depending on the participant’s election.
 
    Withdrawals — A participant may withdraw all or a portion of his or her after-tax contributions (plus earnings) at any time, limited to one withdrawal per quarter. In addition, a participant may withdraw all or a portion of his or her Company matching contribution (plus earnings) at any time, also limited to one withdrawal per quarter. A participant may withdraw all or a portion of his or her before-tax contributions for any reason after reaching age 591/2, or prior to reaching age 591/2, in the case of hardship (as described in the plan document). Withdrawals are limited to the amount of a participant’s account balance net of any loan balances outstanding.
 
    Plan Mergers — Five savings plans were merged into the Plan during 2008. In connection with the mergers, net assets available for plan benefits of $35,217,103 were transferred into the Plan related to the five merged savings plan’s participant accounts.
 
2.   SIGNIFICANT ACCOUNTING POLICIES
 
    Basis of Accounting — The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
 
    Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
 
    Risk and Uncertainties — The Plan invests in various securities, including U.S. Government securities, corporate debt instruments and corporate stocks. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities may occur in the near term, and those changes could materially affect the amounts reported in the financial statements.
 
    Investment Valuation and Income Recognition — The Plan’s investments are stated at fair value as determined by State Street Bank and Trust Company (“State Street” or the “Trustee”). The Plan’s investments, including the underlying investments in the DC Master Trust, are valued as follows:
 
    Investments in common and preferred stock are valued at the last reported sales price of the stock on the last business day of the plan year. The shares of registered investment companies are valued at quoted market prices that represent the net asset values of shares held by the Plan at year end. Investments in common trust funds are valued based on the redemption price of units owned by the Plan, which is based on the current fair value of the funds’ underlying assets. Fair values for securities are based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisals by qualified persons, transactions and bona fide offers in assets of the type in question and other information customarily used in the valuation of assets or if market values are not available, at their fair values as provided to the Trustee by the party with authority to trade in such securities (investment managers, the Plan’s Investment Committee, or in the case of participant-directed brokerage accounts, the participant’s broker, as applicable).
 
    Synthetic guaranteed investment contracts (“SICs”) held by the Plan through the Stable Value Fund of the DC Master Trust are recorded at fair value. The fair value of the SICs equals the total fair value of the underlying assets plus the total wrapper contract

9

 

    rebid value, which is calculated by discounting the excess annual rebid fee over the duration of the contract assets. The SICs are considered to be fully benefit-responsive and therefore their carrying value is adjusted from fair market value to contract value in the Statements of Net Assets Available for Benefits.
 
    All securities and cash or cash equivalents are quoted in the local currency and then converted into U.S. dollars using the appropriate exchange rate obtained by the Trustee. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Broker commissions, transfer taxes, and other charges and expenses incurred in connection with the purchase, sale, or other disposition of securities or other investments are added to the cost of such securities or other investments, or are deducted from the proceeds of the sale or other disposition thereof, as appropriate. Taxes, if any, on the assets of the funds, or on any gain resulting from the sale or other disposition of such assets, or on the earnings of the funds, are apportioned among the participants whose interests in the Plan are affected, and the share of such taxes apportioned to each such person is charged against his or her account in the Plan.
 
    The Trustee relies on the prices provided by pricing sources, the investment managers, Plan’s Investment Committee or participant’s broker as a certification as to value in performing any valuations or calculations required of the Trustee.
 
    Participant loans are valued at their outstanding balances, which approximate fair value.
 
    The DC Master Trust allocates investment income, realized gains and losses, and unrealized appreciation and depreciation on the underlying securities to the participating plans daily based upon the market value of each plan’s investment. The unrealized appreciation or depreciation amount is the aggregate difference between the current fair market value and the cost of investments. The realized gain or loss on investments is the difference between the proceeds received and the average cost of investments sold.
 
    Expenses — Administrative expenses of the Plan are paid by either the Plan or the Plan’s sponsor as provided in the plan document.
 
    Payment of Benefits — Benefit payments to participants are recorded upon distribution. Amounts allocated to accounts of participants who have elected to withdraw from the Plan but have not yet been paid were $1,285,653 and $1,563,353 at December 31, 2008 and 2007, respectively, and such amounts continue to accrue investment earnings/(losses) until paid.
 
    New Accounting Guidance — Financial Accounting Standards Board (“FASB”) Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133, was issued on March 19, 2008, and will be effective for fiscal years beginning after November 15, 2008. FASB Statement No. 161 expands the disclosures required by FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, about an entity’s derivative instruments and hedging activities. The Plan is currently evaluating the provisions of FASB Statement No. 161 and their impact on the Plan’s financial statements.
 
3.   INVESTMENTS
 
    The Plan’s investments consist of a proportionate interest in certain investments held by the DC Master Trust. Those investments are stated at fair values determined and reported by the Trustee, in accordance with the DC Master Trust Agreement established by the Company.
 
    Proportionate interests of each participating plan are determined based on the standard trust method of accounting for master trust arrangements. Plan assets represent 90 percent of total net assets reported by the Trustee of the DC Master Trust as of December 31, 2008 and 2007.

10

 

    The net assets of the DC Master Trust as of December 31, 2008 and 2007 are as follows:
                 
    2008     2007  
Assets:
                
Common/collective trust funds
   $ 2,994,696,204     $ 5,006,022,852  
Synthetic guaranteed investment contracts
     2,877,408,078       2,383,381,968  
Common and preferred stock
     2,711,002,127       4,796,556,561  
Cash equivalents and temporary investments
     544,752,719       198,612,949  
U.S. and foreign government securities
     508,953,992       487,419,253  
Corporate debt instruments
     295,601,126       204,932,467  
Asset-backed securities and other investments
     137,977,522       111,730,100  
Assets on loan to third party borrowers
     1,145,110,941       1,612,026,368  
Collateral held under securities lending agreements
     1,171,827,587       1,651,697,124  
Receivable for investments sold
     123,179,423       146,848,320  
Dividends, interest and taxes receivable
     16,504,448       14,220,848  
 
            
Total assets
     12,527,014,167       16,613,448,810  
Liabilities:
                
Collateral held under securities lending agreements
     1,171,827,587       1,651,697,124  
Due to broker for securities purchased
     303,992,159       227,577,621  
Accrued expenses
     3,334,265       11,454,197  
 
            
Total liabilities
     1,479,154,011       1,890,728,942  
 
            
Net assets of the DC Master Trust — at fair value
     11,047,860,156       14,722,719,868  
 
                
Adjustment from fair value to contract value for fully benefit-responsive investment contracts
     41,564,656       (20,540,943 )
 
            
 
                
Net assets of the DC Master Trust
   $ 11,089,424,812     $ 14,702,178,925  
 
            
      Investment loss for the DC Master Trust for the Plan year ended December 31, 2008 is as follows:
         
Investment (loss):
        
Net appreciation (depreciation) in fair value of investments:
        
U.S. and foreign government securities
   $ 18,888,924  
Cash equivalents and temporary investments
     13,079  
Asset-backed securities and other investments
     (25,840,508 )
Corporate debt instruments
     (32,817,154 )
Common/collective trust funds
     (1,755,759,794 )
Common and preferred stock
     (2,313,303,734 )
 
      
Net depreciation
     (4,108,819,187 )
 
      
   
Dividends
     228,928,914  
Interest
     197,130,899  
Other income
     31,857,671  
Other expenses
     (11,021,603 )
Investment manager fees
     (25,848,799 )
 
      
Total investment loss
   $ (3,687,772,105 )
 
      
    Investments, other than the Plan’s investment in the DC Master Trust, that represent 5 percent or more of the Plan’s net assets available for Plan benefits as of December 31, 2008 and 2007 are as follows:
                 
    2008     2007  
Schwab Personal Choice Retirement Account
   $ 801,082,715     $ 1,120,168,151  
    The DC Master Trust participates in a securities lending program with the Trustee. The program allows the Trustee to loan securities, which are assets of the DC Master Trust, to approved borrowers. The Trustee requires borrowers, pursuant to a security loan agreement, to deliver collateral to secure each loan. The collateral required is 102 percent of the fair value of U.S. securities borrowed and 105

11

 

    percent for foreign securities borrowed. The Plan bears the risk of loss with respect to the unfavorable change in fair value of the invested cash collateral. However, the borrower bears the risk of loss related to the decrease in the fair value of the securities collateral and, therefore, may have to deliver additional cash or securities to maintain the required collateral. In the event of default by the borrower, the Trustee shall indemnify the DC Master Trust.
 
    DC Master Trust Assets on loan to third party borrowers under security lending agreements at December 31, 2008 and 2007 are as follows:
                 
    2008     2007  
Synthetic guaranteed investment contracts
   $ 807,556,927     $ 809,549,668  
Common and preferred stock
     292,797,758       699,159,006  
U.S. and foreign government securities
     28,400,868       14,747,789  
Corporate debt instruments
     15,901,171       84,907,759  
International common and preferred stock
     454,217       3,662,146  
 
            
Total DC Master Trust Assets on loan to third party borrowers
   $ 1,145,110,941     $ 1,612,026,368  
 
            
    Such assets could be subject to sale restrictions in the event security-lending agreements are terminated and the securities have not been returned to the DC Master Trust. The DC Master Trust held $1,171,827,587 and $1,651,697,124 of collateral for securities on loan as of December 31, 2008 and 2007, respectively, consisting primarily of cash equivalents.
 
4.   DERIVATIVE FINANCIAL INSTRUMENTS
 
    Derivative financial instruments may be used by the investment managers of the DC Master Trust as part of their respective strategies. These strategies include the use of futures contracts, interest rate swaps, options on futures and options as substitutes for certain types of securities. Notional amounts disclosed below do not quantify risk or represent assets or liabilities of the DC Master Trust, but are used in the calculation of the cash settlements under the contracts.
 
    The fair value of these instruments is recorded as investments of the DC Master Trust. To the extent that a gain has been recognized, these instruments are recorded as assets and to the extent that a loss has been recognized, these instruments are recorded as liabilities. Changes in the fair value of the derivative instrument are reflected in investment income as appreciation (depreciation) in the DC Master Trust. As of December 31, 2008 and 2007, these derivative financial instruments were held for trading purposes. The notional amounts and fair values are presented as gross assets and liabilities as of December 31, 2008 as follows:
                         
    December 31, 2008
    Notional   Fair Value   Fair Value
    Amount   Asset   (Liability)
Futures Contracts:
                        
U.S. Treasury
   $ 157,977,513     $ 7,211,087     $ (8,760,386 )
Eurodollar
     327,484,954       3,383,438       (297,929 )
Index
     911,761       14,231       (1,355 )
Interest rate swaps
     424,576,255       11,808,869       (15,478,138 )
Options on futures and swap rates
     40,475,000       1,937,940       (2,398,070 )

12

 

    The notional amounts and fair values are presented as net assets and liabilities as of December 31, 2007 as follows:
                 
    December 31, 2007
            Fair Value
    Notional   Asset
    Amount   (Liability)
Futures Contracts (net position):
                
U.S. Treasury
   $ (61,120,631 )   $ 759,398  
Eurodollar
     774,254,258       6,888,495  
Index
     2,565,339       (122,460 )
Interest rate swaps
     388,980,000       4,327,338  
Options on futures and swap rates (net position)
     110,030,350       262,697  
    Futures Contracts — The DC Master Trust enters into futures contracts in the normal course of investing activities to manage market risk associated with equity and fixed income investments and to achieve overall investment portfolio objectives. These contracts involve elements of market risk in excess of amounts recognized in the Statements of Net Assets Available for Benefits. The credit risk associated with these contracts is minimal as they are traded on organized exchanges and settled daily. The terms of these contracts typically do not exceed one year. Notional amounts related to these contracts in the table above are stated as a net buy (sell) position.
 
    Interest Rate Swaps — The DC Master Trust enters into interest rate swap contracts in the normal course of its investing activities to manage the interest rate exposure associated with fixed income investments. The credit risk associated with these contracts is minimal as they are entered into with a limited number of highly-rated counterparties.
 
    Options on Futures and Swap Rates — The DC Master Trust enters into option contracts in the normal course of its investing activities to manage the interest rate exposure associated with fixed income investments. The credit risk associated with these contracts is minimal as they are entered into with a limited number of highly-rated counterparties. Notional amounts related to these contracts in the table above are stated as a net buy (sell) position.
 
5.   FAIR VALUE MEASUREMENTS
 
    The Plan adopted the disclosure requirements of Statement of Financial Accounting Standards No. 157 — Fair Value Measurements (“SFAS No. 157”) effective January 1, 2008. SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value instruments.
 
    The valuation techniques required by SFAS No. 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
      Level 1 – Quoted prices for identical instruments in active markets.
 
      Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.
 
      Level 3 – Significant inputs to the valuation model are unobservable.
    The following tables set forth by level within the fair value hierarchy the investments held by the DC Master Trust and the Plan as of December 31, 2008. As required by SFAS No. 157, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

13

 

                                 
    Level 1     Level 2     Level 3     Total  
DC Master Trust:
                                
   
Common/collective trust funds
   $ 587,058,172     $ 2,407,638,032             $ 2,994,696,204  
Common and preferred stock
     2,999,199,177       5,054,925               3,004,254,102  
Cash equivalents and temporary investments
     2,366,643       542,386,076               544,752,719  
U.S. and foreign government securities
             537,354,860               537,354,860  
Corporate debt instruments
             311,502,297               311,502,297  
Asset-backed securities and other investments
             137,977,522               137,977,522  
Collateral held under securities lending agreements
             1,171,827,587               1,171,827,587  
Synthetic guaranteed investment contracts:
                                
Common/collective trust funds
             589,842,323               589,842,323  
Fixed income bond portfolio
             3,095,122,682               3,095,122,682  
 
                        
Total DC Master Trust
   $ 3,588,623,992     $ 8,798,706,304       —     $ 12,387,330,296  
   
Other Plan Investments:
                                
PCRA
   $ 801,082,715                     $ 801,082,715  
Plan participant loans
                   $ 221,306,462       221,306,462  
State Street Bank and Trust Company cash or short-term investment accounts
             17,586,914               17,586,914  
 
                        
Total Other Plan Investments
   $ 801,082,715     $ 17,586,914     $ 221,306,462     $ 1,039,976,091  
    The table below sets forth a summary of changes in the fair value of the Plan’s level 3 assets for the year ended December 31, 2008:
         
    Level 3 Assets  
    Year Ended  
    December 31, 2008  
    Participant Loans  
Balance, beginning of year
   $ 204,196,744  
Purchases, sales, issuances and settlements (net)
     17,109,718  
 
      
Balance, end of year
   $ 221,306,462  
 
      
6.   INTEREST IN NORTHROP GRUMMAN STABLE VALUE FUND
 
    The DC Master Trust includes amounts in the Northrop Grumman Stable Value Fund, which was established for the investment of assets of certain savings plans sponsored by the Company and its affiliates. Each participating savings plan has an undivided interest in the Stable Value Fund. At December 31, 2008 and 2007, the Plan’s interests in the net assets of the Stable Value Fund were approximately 94 percent of the total fund value. Investment income and administrative expenses relating to the Stable Value Fund are allocated among the participating plans on a daily basis.
 
    Investments held in the Stable Value Fund as of December 31, 2008 and 2007 are as follows:
                 
    2008     2007  
Synthetic guaranteed investment contracts (at contract value)
   $ 3,726,529,661     $ 3,172,390,693  
Cash and cash equivalents
     414,098,163       69,114,543  
 
            
Total
   $ 4,140,627,824     $ 3,241,505,236  
 
            
    Investment income of the Stable Value Fund totaled $157,320,011 for the year ended December 31, 2008.
 
    The DC Master Trust has an arrangement with the investment manager of the Stable Value Fund whereby the investment manager has the ability to borrow amounts from third parties to satisfy liquidity needs of the Stable Value Fund, if necessary. As of December 31, 2008 and 2007, no borrowings under this arrangement were outstanding.

14

 

    The Stable Value Fund holds wrapper contracts in order to manage the market risk and return of certain securities held by the Stable Value Fund. The wrapper contracts generally modify the investment characteristics of certain underlying securities such that they perform in a manner similar to guaranteed investment contracts. Each wrapper contract and the related underlying assets comprise the SICs and are recorded at contract value. Contract value represents contributions made under the contract, plus interest at the contract rate, less withdrawals and contract administrative expenses.
 
    The fair value of the underlying assets related to the SICs was $3,684,965,005 and $3,192,931,636 as of December 31, 2008 and 2007, respectively, and the fair value of the wrapper contracts was $6,146,985 at December 31, 2008 and nil at December 31, 2007. The weighted-average yield (excluding administrative expenses) for all investment contracts was 4.23 percent and 4.88 percent at December 31, 2008 and 2007, respectively. Average duration for all investment contracts was 2.68 years and 3.20 years at December 31, 2008 and 2007, respectively. The crediting interest rate for all investment contracts was 3.80 percent and 5.00 percent at December 31, 2008 and 2007, respectively. Crediting interest rates are reset on a monthly basis and guaranteed by the wrapper contracts not to be less than zero. Resets are determined based upon the market-to-book ratio, along with the yield and duration of the underlying investments.
 
    In certain circumstances, the amounts withdrawn from a wrapper contract would be payable at fair value rather than at contract value. These events include termination of the Plan, a material adverse change to the provisions of the Plan, a withdrawal from a wrapper contract in order to switch to a different investment provider, or adoption of a successor plan (in the event of the spin-off or sale of a division) that does not meet the wrapper contract issuer’s underwriting criteria for issuance of a clone wrapper contract. Plan management believes that the events described above that could result in the payment of benefits at fair value rather than contract value are not probable of occurring in the foreseeable future.
 
7.   EXEMPT PARTY-IN-INTEREST TRANSACTIONS
 
    Party-in-interest transactions through the DC Master Trust include the purchase and sale of investments managed by affiliates of the Plan’s Trustee, transactions involving Northrop Grumman Corporation common stock, and payments made to the Company for certain Plan administrative costs. The NG Stock Fund within the DC Master Trust held 21,783,164 and 21,948,209 shares of common stock of the Company with a fair value of $981,113,707 and $1,726,007,156 at December 31, 2008 and 2007, respectively. The Plan’s interest in the net assets of the NG Stock Fund was approximately 99.7 percent and 99.9 percent at December 31, 2008 and 2007, respectively. During 2008, the NG Stock Fund earned dividends of $34,337,587 from its investment in Northrop Grumman Corporation common stock. A significant decline in the market value of the Company’s common stock would significantly affect the net assets available for benefits.
 
    State Street affiliates managed $17,586,914 and $15,297,563 of Plan assets held in the short-term investment fund as of December 31, 2008 and 2007, respectively. The Plan paid $1,501,501 to the Trustee in fees for the year ended December 31, 2008. The Plan had transactions with the Trustee’s short-term investment fund, a liquidity pooled fund in which participation commences and terminates on a daily basis. In Plan management’s opinion, fees paid during the year for services rendered by parties-in-interest were based upon customary and reasonable rates for such services.
 
    The DC Master Trust utilized various investment managers to manage its net assets. These net assets may be invested into funds also managed by the investment managers. Therefore, these transactions qualify as party-in-interest transactions.
 
8.   PLAN TERMINATION
 
    Although it has not expressed any intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of the Plan’s termination, the interests of all participants in their accounts are 100 percent vested and non-forfeitable.
 
9.   LITIGATION
 
    As previously disclosed, the U.S. District Court for the Central District of California consolidated two separately filed ERISA lawsuits, which the plaintiffs sought to have certified as class actions, into the In Re Northrop Grumman Corporation ERISA Litigation. On August 7, 2007, the Court denied plaintiffs’ motion for class certification, and the plaintiffs appealed the Court’s decision on class certification to the U.S. Court of Appeals for the Ninth Circuit. On October 11, 2007, the Ninth Circuit granted

15

 

    appellate review and stayed the action in the trial court, which delayed the commencement of trial previously scheduled to begin January 22, 2008. Each lawsuit seeks unspecified damages against the fiduciaries, removal of individuals acting as fiduciaries to the respective plans, payment of attorney fees and costs, and an accounting. The damages are not being sought against the Plan or the Northrop Grumman Financial Security and Savings Program.
 
10.   FEDERAL INCOME TAX STATUS
 
    The plan obtained its latest determination letter dated July 17, 2002, in which the Internal Revenue Service determined that the Plan terms at the time of the determination letter application were in compliance with applicable sections of the Code and, therefore, the related trust is exempt from taxation. The Plan has been amended since receiving the determination letter. Although the amendments have not yet been filed for a favorable determination letter, management will make any changes necessary to maintain the Plan’s qualified status. However, management believes that the Plan and related trust are currently designed and operated in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
 
11.   RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
 
    The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500 as of December 31, 2008 and 2007:
                 
    2008     2007  
Net assets available for benefits, per the financial statements
   $ 11,057,973,651     $ 14,537,431,431  
Less: Amounts allocated to withdrawing participants
     (1,285,653 )     (1,563,353 )
 
            
Net assets available for benefits per Form 5500
   $ 11,056,687,998     $ 14,535,868,078  
 
            
    The following is a reconciliation of benefits paid to participants per the financial statements to Form 5500 for the year ended December 31, 2008:
         
Benefits paid to participants per the financial statements
   $ 958,793,017  
Add: Amounts allocated to withdrawing participants at December 31, 2008
     1,285,653  
Less: Amounts allocated to withdrawing participants at December 31, 2007
     (1,563,353 )
 
      
Benefits paid to participants per Form 5500
   $ 958,515,317  
 
      
    Amounts allocated to withdrawing participants are recorded on Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, 2008 and 2007 but not yet paid as of that date.
 
12.   SUBSEQUENT EVENT
 
    The Benefit Plan Administrative Committee of the Company approved the mergers of the Fibersense Technology Corporation 401(k) Plan and Integic Corporation 401(k) Plan into the Plan effective May 6, 2009 and May 20, 2009, respectively.
* * * * *

16

 

NORTHROP GRUMMAN SAVINGS PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4i,
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2008
 
                     
(a)   (b)   (c)   (d)   (e)  
        Description of Investment,          
        Including Maturity Date, Rate of          
    Identity of Issue, Borrower,   Interest, Collateral, and Par or          
    Lessor or Similar Party   Maturity Value   Cost   Current Value  
*
  Northrop Grumman Defined Contribution
Plans Master Trust 		  Participation in Northrop Grumman
Defined Contribution Plans Master Trust 		  **   $ 9,983,135,199 ***
 
                    
*
  Charles Schwab   Schwab Personal Choice Retirement Account   **     801,082,715  
 
                    
 
  Plan Participants   Participant loans (maturing 2009 to 2034 at interest rates ranging from 5.00 percent to 9.25 percent)   **     221,306,462  
 
                    
*
  State Street Bank and Trust Company   Participation in the Cash or Short-Term Investment Fund Accounts   **     17,586,914  
 
                 
 
  Total           $ 11,023,111,290  
 
                 
*   Party-in-interest
 
**   Cost information is not required for participant-directed investments and loans, and therefore is not included.
 
***   Excludes adjustment from fair value to contract value for fully benefit-responsive investment contracts.

17

 

SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  NORTHROP GRUMMAN SAVINGS PLAN
 		  
  By:   /s/ Ian Ziskin    
Dated: June 17, 2009    Ian Ziskin   
    Chairman, Benefit Plan Administrative Committee   

18