FILED PURSUANT TO
RULE 424(b)(5)
REGISTRATION NO. 333-71290
PROSPECTUS SUPPLEMENT
(To Prospectus Dated October 26, 2001)
[LOGO] Northrop Grumman
8,000,000 Shares
Common Stock
-----------------
We are offering 8,000,000 shares of common stock. We have granted the
underwriters an option to purchase up to 1,200,000 additional shares of common
stock to cover over-allotments.
Our common stock is listed on the New York Stock Exchange under the symbol
"NOC." On November 15, 2001, the last reported sale price of our common stock
on the New York Stock Exchange was $89.02.
Concurrently with this offering, we are also offering $600 million of our
equity security units, each of which will initially consist of a contract to
purchase shares of our common stock on November 16, 2004 and $100 principal
amount of our senior notes due November 16, 2006. Neither offering is
conditioned on the other.
See "Forward-Looking Statements and Important Factors" beginning on page
S-16 to read about important factors you should consider before buying our
common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
Per Share Total
--------- ------------
Public offering price........................ $88.500 $708,000,000
Underwriting discount........................ $ 3.319 $ 26,552,000
Proceeds to Northrop Grumman, before expenses $85.181 $681,448,000
The underwriters will donate 25,000 of the 8,000,000 shares of common stock
they are purchasing from us in this offering to the Twin Towers Fund. Each
underwriter's donation will be based on its proportionate participation in the
concurrent offerings.
The underwriters expect to deliver the shares of common stock in book-entry
form only through the facilities of The Depository Trust Company against
payment in New York, New York, on November 21, 2001.
-----------------
Joint Bookrunning Managers
Salomon Smith Barney JPMorgan
-----------------
Goldman, Sachs & Co.
Lehman Brothers
Merrill Lynch & Co.
SG Cowen
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Wachovia Securities
BNP PARIBAS
BNY Capital Markets, Inc.
Scotia Capital Inc.
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November 15, 2001
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY............................................................. S-3
FORWARD-LOOKING STATEMENTS AND IMPORTANT FACTORS.................... S-16
USE OF PROCEEDS..................................................... S-18
CAPITALIZATION...................................................... S-19
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY..................... S-20
UNDERWRITING........................................................ S-21
LEGAL MATTERS....................................................... S-23
EXPERTS............................................................. S-23
WHERE YOU CAN FIND MORE INFORMATION................................. S-23
Prospectus
ABOUT THIS PROSPECTUS............................................... 2
WHERE YOU CAN FIND MORE INFORMATION................................. 3
FORWARD-LOOKING STATEMENTS AND IMPORTANT FACTORS.................... 4
NORTHROP GRUMMAN CORPORATION........................................ 6
USE OF PROCEEDS..................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES.................................. 7
DESCRIPTION OF DEBT SECURITIES...................................... 8
DESCRIPTION OF PREFERRED STOCK...................................... 14
DESCRIPTION OF COMMON STOCK......................................... 19
DESCRIPTION OF WARRANTS............................................. 20
DESCRIPTION OF THE STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS 21
PLAN OF DISTRIBUTION................................................ 22
VALIDITY OF THE DEBT AND EQUITY SECURITIES.......................... 23
EXPERTS............................................................. 23
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This document is in two parts. The first part is the prospectus supplement,
which describes the specific terms of the common stock and also adds to and
updates information contained in the accompanying prospectus and the documents
incorporated by reference in that prospectus. The second part, the accompanying
prospectus, gives more general information about securities we may offer from
time to time, including securities other than the common stock.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell the shares of common stock in any
state where the offer or sale is not permitted. You should assume that the
information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
S-2
SUMMARY
This summary highlights certain information incorporated by reference or
appearing elsewhere in this prospectus supplement and the accompanying
prospectus. As a result, it is not complete and does not contain all of the
information that you should consider before purchasing our shares of common
stock. You should read the following summary in conjunction with the more
detailed information contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference. References to "Northrop
Grumman" refer to Northrop Grumman Corporation. Unless the context requires
otherwise, references to "we," "us" or "our" refer collectively to Northrop
Grumman and its subsidiaries.
Northrop Grumman
We are a leading global aerospace and defense company providing a wide range
of products and services in defense and commercial electronics, systems
integration, information technology and non-nuclear shipbuilding and systems.
As a prime contractor, principal subcontractor, partner, or preferred supplier,
we participate in many high-priority defense and commercial technology programs
in the United States and abroad.
We are aligned into five business sectors: Electronic Systems, Information
Technology, Integrated Systems, Ship Systems and Component Technologies.
Electronic Systems designs, develops and manufactures a wide variety of
defense electronics and systems, airspace management systems, precision
weapons, marine systems, logistic systems, space systems and automation and
information systems. These include fire control radars for the F-16 fighter
aircraft, the F-22 air dominance fighter and the Longbow Apache helicopter.
Other key products include the AWACS airborne early warning radar, the Joint
STARS air-to-ground surveillance radar sensor, the Longbow Hellfire missile and
the BAT "brilliant" anti-armor submunition. This sector also provides tactical
military radars and countrywide air defense systems, as well as airborne
electronic countermeasures systems intended to jam enemy aircraft and weapons
systems. Electronic Systems is an international leader in airspace management
as a producer of civilian air traffic control systems. The sector also makes
sophisticated undersea warfare systems and naval propulsion and power
generation systems, as well as postal automation, image processing, material
management, asset track and trace and data communication systems. In addition,
this sector designs, develops and manufactures inertial navigation, guidance
and control, IFF (identification friend or foe) and marine electronic systems,
and provides electronic warfare systems and integrates avionics systems and
shipboard information and communication systems.
Information Technology is a leader in advanced information technologies,
systems and services. Information Technology includes our information systems
businesses, which design, develop, integrate and support computer-based
information systems and provide information technology and services primarily
for government customers. This sector is the prime contractor with the General
Services Administration ANSWER and Millennia programs. Information Technology
is also part of a team working with the Internal Revenue Service to modernize
the U.S. federal tax system. Information Technology has extensive expertise in
command, control, communications, computers, intelligence, surveillance and
reconnaissance (C4ISR). It is a key management support element for major
weapons systems, such as the U.S. Navy's AEGIS class destroyer as well as
mission planning for the U.S. Navy, Air Force and Special Operations Command.
Information Technology provides base operations support for NASA's Kennedy
Space Center, Cape Canaveral Air Station and Patrick Air Force Base, among
others. In addition, this sector provides information technology services to
commercial customers and to our other sectors.
Integrated Systems is a leader in design, development and production of
airborne early warning, electronic warfare and surveillance and battlefield
management systems. Integrated Systems is the prime contractor for the
S-3
Joint STARS advanced airborne targeting and battle management system and the
U.S. Air Force's B-2 Spirit stealth bomber. It has a principal role in
producing the U.S. Navy's F/A-18 Hornet strike fighter. The sector also is
upgrading the EA-6B Prowler electronic countermeasures aircraft and produces
the E-2C Hawkeye early-warning aircraft. We have a principal role in the
Global Hawk program, a development stage integrated unmanned aerial vehicle for
reconnaissance and surveillance. We are also a principal member of the Lockheed
Martin Joint Strike Fighter Team.
Ship Systems is engaged in the building of large multimission non-nuclear
surface ships for the U.S. Navy as well as other government and commercial
customers and is a provider of overhaul, repair, modernization, ship design and
engineering services. Key products include amphibious assault ships (WASP LHD 1
Class, San Antonio LPD 17 Class), destroyers (Arleigh Burke DDG 51 Class),
sealift transport ships (T-AKR Ro/Ro) and double-hulled oil tankers. In
addition, the new Full Service Center, a standalone business within the sector,
offers its customers a full range of ship-related services, which cover the
entire spectrum of an acquisition program, as well as a worldwide network of
fleet support services. If the pending acquisition of Newport News is
consummated, we will have expanded shipbuilding capabilities, including a
nuclear platform. See "--Recent Developments."
Component Technologies is a premier international supplier of complex
backplanes, connectors, laser crystals, solder materials, specialty products,
oxygen generating systems and other electronic components used primarily in the
aerospace, telecommunications, industrial and computer markets.
Strategy
We intend to grow our sales, enhance our profitability and strengthen our
position as a leader in the defense industry. Our strategy to achieve these
objectives includes:
. Leveraging our position as a systems integrator, defense electronics
leader and information technology provider to meet the defense needs of
the United States and allied foreign governments;
. Broadening further our business mix by diversifying program positions
and sources of revenues as well as enhancing our importance to, and
expanding our relationships with, our existing customers;
. Targeting business areas with significant growth prospects;
. Pursuing initiatives of continuous improvement in our manufacturing
operations, product quality and customer support with a view to
improving operating margins, efficiency and shareholder value; and
. Capitalizing on strategic acquisition opportunities to enhance and
expand our existing product offerings and capabilities in areas
synergistic with our present businesses and consistent with our outlook
on future customer needs and requirements.
Acquisitions and Dispositions
Strategic acquisitions have played a critical role in our transformation
into a leading diversified technology company for the U.S. Department of
Defense. In 1992 we acquired 49% of Vought Aircraft Company (Vought). In 1994
we made the first of our major acquisitions by purchasing Grumman Corporation.
In the same year we also acquired the remaining 51% of Vought. We followed
these acquisitions by acquiring the defense electronic systems group of
Westinghouse Electric Corporation in 1996. In August 1997, we completed our
merger with Logicon, Inc. In 1998, we acquired Inter-National Research
Institute Inc. (INRI). In 1999, we acquired the Information Systems Division of
California Microwave, Inc., Data Procurement Corporation (DPC), and Ryan
Aeronautical, an operating unit of Allegheny Teledyne Inc. In 2000, we acquired
Navia Aviation SA, Comptek Research, Federal Data Corporation and Sterling
Software FSG. Also in 2000, we divested our Commercial Aerostructures business
(including Vought), which generated $1.38 billion in net sales in 1999.
S-4
In April 2001, we acquired Litton Industries, Inc. (Litton) for a
combination of cash, common stock and our Series B Preferred Stock in a
transaction valued at $5.2 billion, including assumed debt. We have combined
the related Litton operations into our Electronic Systems and Information
Technology sectors, and have added the Ship Systems and Component Technologies
sectors to reflect business segments acquired in the Litton acquisition.
In October 2001, we completed our acquisition of the Electronics and
Information Systems (EIS) Group of AeroJet-General Corporation, a wholly owned
subsidiary of GenCorp Inc., for $315 million in cash. The EIS business unit
provides space-borne sensing for early warning systems, weather and ground
systems that process C4ISR data from space-based platforms, and smart weapons
technology for high-priority U.S. government national security programs. This
operation is now part of our Electronic Systems sector's newly formed Space
Systems Division.
Northrop Grumman is a holding company formed in connection with our
acquisition of Litton in April 2001. Our principal executive offices are
located at 1840 Century Park East, Los Angeles, California 90067 and our
telephone number is (310) 553-6262.
Recent Developments
Newport News
On May 23, 2001, we announced the commencement of an exchange offer to
acquire all of the outstanding shares of common stock of Newport News
Shipbuilding Inc. (Newport News). Under the terms of our offer, as amended,
Newport News shareholders will be provided the option to receive for their
shares $67.50 per share in cash or shares of our common stock designed to
provide a value of $67.50 per share, subject to certain proration and other
limitations. The exact exchange ratio will be determined by dividing $67.50 by
the average of the closing sale prices for a share of our common stock over a
trading period established in the exchange offer. However, the exchange ratio
will in no event be more than 0.84375 ($67.50/$80.00) or less than 0.675
($67.50/$100.00).
On October 23, 2001, the Department of Defense recommended to the Department
of Justice that our proposed acquisition of Newport News be approved and the
Department of Justice filed suit to block the proposed acquisition of Newport
News by General Dynamics Corporation. Newport News and General Dynamics
subsequently announced that they had terminated their merger agreement. On
November 2, 2001, we were informed that the Department of Justice had closed
its investigation of our proposed acquisition of Newport News, thereby allowing
us to proceed with the acquisition. On November 8, 2001, we and Newport News
announced that we had signed a definitive agreement under which we will acquire
Newport News pursuant to the terms of the exchange offer described above.
Subject to the tender of a majority of the outstanding shares of Newport News
common stock, the transaction is expected to close by the end of November 2001.
The exchange will be followed by a second-step merger in which the same
consideration of cash or shares of our common stock will be paid. There is no
assurance that the Newport News acquisition will be consummated. This offering
is not conditioned upon completion of the Newport News acquisition. See
"--Unaudited Pro Forma Condensed Combined Financial Statements."
S-5
Third Quarter Results
On November 1, 2001, we reported an adjustment to our previously reported
third quarter and nine month results to reflect a charge of $60 million to
operating margin attributable to the cessation of construction of two cruise
ships in the Project America program, as described below. As adjusted, we
reported:
. Net sales of $3,605 million for the third quarter, up from $1,731 million
in the third quarter of 2000;
. Operating margin of $225 million for the third quarter, compared with $242
million in the third quarter of 2000; and
. Net income of $79 million for the third quarter of 2001, compared with
$132 million for the third quarter of 2000, and diluted earnings per share
of $0.84 for the third quarter of 2001, compared with $1.86 for the third
quarter of 2000.
Net sales increased primarily due to our acquisition of Litton and organic
growth in Electronic Systems and Information Technology. Sector operating
margin increases in Integrated Systems, Electronic Systems and Information
Technology were offset by operating losses in Ship Systems and Component
Technologies.
Following American Classic Voyages Co.'s (AMCV) bankruptcy filing on October
19, 2001, we stopped work on Project America, an AMCV cruise ship program to
build two 1,900-passenger cruise ships. This decision followed negotiations
with the U.S. Maritime Administration, which has decided not to continue the
guaranteed funding necessary to complete the construction of the ships.
New President
On September 20, 2001, we announced that Ronald D. Sugar has been named
president and chief operating officer of Northrop Grumman. We also announced
that we have established an Office of the Chairman, which will consist of Kent
Kresa, Northrop Grumman's chairman and chief executive officer, and Mr. Sugar.
The Office of the Chairman will be responsible for our total operations.
Joint Strike Fighter
On October 26, 2001, we announced that, as a result of the selection by the
U.S. Department of Defense of the Lockheed Martin Joint Strike Fighter Team, we
are a principal member in the largest defense procurement in U.S. history. The
Joint Strike Fighter is a stealthy, supersonic aircraft designed for the U.S.
Air Force, Navy and Marine Corps, as well as the British Royal Air Force and
Navy.
S-6
Summary Historical Consolidated Financial Data
The following table sets forth a summary of our historical financial data
for the periods and as of the dates presented and should be read together with
the consolidated financial statements and notes thereto filed by us and our
subsidiaries with the SEC and which are incorporated in this prospectus
supplement by reference. The financial data for each of the years ended
December 31, 1996 through 2000 are derived from our audited consolidated
financial statements. The financial data for the nine months ended September
30, 2000 and 2001 are derived from our unaudited consolidated financial
statements. We have prepared the unaudited information on the same basis as the
audited financial statements and have included all adjustments, consisting only
of normal recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results for these periods.
Historical results are not necessarily indicative of our future results and
interim period results are not necessarily indicative of our annual results.
Nine Months ended
September 30, Year ended December 31,
---------------- ----------------------------------------
2001 2000 2000 1999 1998 1997 1996
(in millions, except per share data and ratios)
Operating data(a):
Product sales and service revenue..... $ 9,254 $5,389 $ 7,618 $7,616 $7,367 $7,798 $ 7,667
Operating margin...................... 690 846 1,098 954 752 741 752
Interest expense (net)................ (237) (114) (146) (206) (221) (240) (261)
Income from continuing operations
before income taxes and accounting
change.............................. 485 756 975 747 309 512 478
Income from continuing operations
before accounting change............ 296 481 625 474 193 318 330
Diluted earnings per share from
continuing operations before
accounting change................... $ 3.50 $ 6.84 $ 8.82 $ 6.80 $ 2.78 $ 4.67 $ 5.18
Cash dividends per common share....... 1.20 1.20 1.60 1.60 1.60 1.60 1.60
Balance sheet data:
Total assets.......................... $17,214 $9,354 $ 9,622 $9,285 $9,536 $9,667 $ 9,645
Net working capital................... 51 271 (162) 329 666 221 106
Total debt(b)......................... 5,319 1,820 1,615 2,225 2,831 2,791 3,378
Mandatorily redeemable preferred
stock............................... 350 -- -- -- -- - -- ---
Shareholders' equity.................. 5,275 3,805 3,919 3,257 2,850 2,623 2,282
Other data:
Net cash from operations.............. $ 192 $ 596 $ 1,010 $1,207 $ 244 $ 730 $ 743
Funded order backlog.................. 15,972 9,080 10,106 8,499 8,415 9,700 10,451
Pension income........................ 249 410 538 343 270 114 28
Depreciation and amortization......... 469 281 381 353 359 380 340
Amortization of goodwill and other
purchased intangibles............... 278 149 206 191 180 180 159
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(c)......................... 1,191 1,151 1,502 1,306 889 1,132 1,079
Ratio of earnings to fixed charges(d). 2.32 5.32 5.26 3.78 2.11 2.68 2.50
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(a)Reflects the acquisition of Litton on April 3, 2001. The 2001 financial data
includes preliminary estimates of the fair market value of the assets
acquired and liabilities assumed and the related allocations of the purchase
price related to the Litton acquisition. Final valuations and allocations,
which are expected to be completed by December 31, 2001, may differ from the
amounts included herein.
S-7
(b)Total debt does not include borrowings of approximately $315 million
incurred subsequent to September 30, 2001 in connection with our acquisition
of the Electronics and Information Systems Group of AeroJet General
Corporation.
(c)We calculated EBITDA by adding back net interest expense and depreciation
and amortization expense to income from continuing operations before taxes
and accounting change. Since all companies do not calculate EBITDA or
similarly titled financial measures in the same manner, disclosures by other
companies may not be comparable with EBITDA as defined herein. EBITDA is a
financial measure used by analysts to value companies. Therefore, our
management believes that the presentation of EBITDA provides relevant
information to investors. EBITDA should not be construed as an alternative
to operating income or cash flows from operating activities as determined in
accordance with United States generally accepted accounting principles or as
a measure of liquidity. Amounts reflected as EBITDA are not necessarily
available for discretionary use as a result of restrictions imposed by
applicable law or agreements upon the payment of dividends or distributions,
among other things.
(d)For purposes of computing the ratios of earnings to fixed charges, earnings
represent earnings from continuing operations before income taxes and fixed
charges, and fixed charges consist of interest expense, the portion of
rental expense calculated to be representative of the interest factor,
amortization of discounts and capitalized expenses related to indebtedness,
and preferred stock dividends. The ratios should be read in conjunction with
the financial statements and other financial data included or incorporated
by reference in this prospectus supplement or the accompanying prospectus.
See "Where You Can Find More Information."
S-8
Unaudited Pro Forma Condensed Combined Financial Statements
The unaudited pro forma condensed combined financial statements presented
below are derived from the historical consolidated financial statements of each
of Northrop Grumman, Northrop Grumman Systems Corporation, which we refer to as
Northrop Systems, Litton and Newport News. The unaudited pro forma condensed
combined financial statements are prepared using the purchase method of
accounting, with Northrop Grumman treated as the acquiror and as if the Newport
News and Litton acquisitions had been completed as of the beginning of the
periods presented for statement of income purposes and as if the Newport News
acquisition had been completed on September 30, 2001 for statement of financial
position purposes. As of the date of this prospectus supplement, the Newport
News acquisition had not yet been completed. Please refer to "--Recent
Developments" above.
The unaudited pro forma condensed combined financial statements are based
upon the historical financial statements of Northrop Grumman, Northrop Systems,
Litton and Newport News adjusted to give effect to, in the case of the pro
forma statements of income, the Litton acquisition and the Newport News
acquisition and, in the case of the pro forma statement of financial position,
the Newport News acquisition. The pro forma adjustments are described in the
accompanying notes presented on the following pages. The pro forma financial
statements have been developed from (a) the audited consolidated financial
statements of Northrop Systems contained in its Annual Report on Form 10-K/A
for the year ended December 31, 2000 and the unaudited consolidated financial
statements of Northrop Grumman contained in its Quarterly Report on Form 10-Q
for the nine months ended September 30, 2001, which are incorporated by
reference in this prospectus supplement, (b) the audited consolidated financial
statements of Litton contained in its Annual Report on Form 10-K for the fiscal
year ended July 31, 2000 and the unaudited consolidated financial statements of
Litton contained in its Quarterly Report on Form 10-Q for the six months ended
January 31, 2001, which are incorporated by reference in this prospectus
supplement, and (c) the audited consolidated financial statements of Newport
News contained in its Annual Report on Form 10-K for the year ended December
31, 2000 and the unaudited consolidated financial statements of Newport News
contained in its Quarterly Report on Form 10-Q for the quarter ended September
16, 2001, which are incorporated by reference in this prospectus supplement. In
addition, the audited consolidated financial statements of Litton contained in
its Annual Report on Form 10-K for the fiscal year ended July 31, 2000 and the
unaudited consolidated financial statements of Litton contained in its
Quarterly Report on Form 10-Q for the six months ended January 31, 2001 have
been used to bring the financial reporting periods of Litton to within 90 days
of those of Northrop Systems and Northrop Grumman. The pro forma financial
statements should be read in conjunction with these separate historical
consolidated financial statements and related notes.
The acquisition of Litton, which is valued at approximately $5.2 billion,
including the assumption of Litton's net debt of $1.3 billion, is accounted for
using the purchase method of accounting. Under the purchase method of
accounting, the purchase price is allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based on their respective
fair market values, with the excess recorded as goodwill. The pro forma
financial statements reflect preliminary estimates of the fair market value of
the Litton assets acquired and liabilities assumed and the related allocations
of purchase price, and preliminary estimates of adjustments necessary to
conform Litton data to Northrop Grumman's accounting policies. The pro forma
financial statements do not include the recognition of liabilities associated
with certain potential restructuring activities. Northrop Grumman is currently
reviewing the preliminary estimates of the fair market value of the Litton
assets acquired and liabilities assumed, including valuations associated with
certain contracts and preliminary valuation study results for intangible
assets, property, plant and equipment, and retiree benefits assets and
liabilities. Northrop Grumman is also evaluating several possible restructuring
activities of Litton operations. The final determination of the fair market
value of assets acquired and liabilities assumed and final allocation of the
purchase price may differ from the amounts assumed in these pro forma financial
statements. Adjustments to the purchase price allocations are expected to be
finalized by December 31, 2001, and will be reflected in future Northrop
Grumman filings. These adjustments may be material.
S-9
As of the date of this prospectus supplement, Northrop Grumman has not
completed the valuation studies necessary to arrive at the required estimates
of the fair market value of the Newport News assets to be acquired and the
Newport News liabilities to be assumed and the related allocations of purchase
price, nor has it identified the adjustments necessary, if any, to conform
Newport News data to Northrop Grumman's accounting policies. Accordingly,
Northrop Grumman has used the historical book values of the assets and
liabilities of Newport News and has used the historical revenue recognition
policies of Newport News to prepare the pro forma financial statements, with
the excess of the purchase price over the historical net assets of Newport News
recorded as goodwill and other purchased intangibles. Once Northrop Grumman has
completed the valuation studies necessary to finalize the required purchase
price allocations and identified any necessary conforming changes, the pro
forma financial statements will be subject to adjustment. These adjustments may
be material.
The pro forma financial statements are provided for illustrative purposes
only and do not purport to represent what the actual consolidated results of
operations or the consolidated financial position of Northrop Grumman would
have been had the Litton and Newport News acquisitions occurred on the dates
assumed, nor are they necessarily indicative of future consolidated results of
operations or financial position.
The pro forma financial statements do not include the realization of cost
savings from operating efficiencies, synergies or other restructurings
resulting from the Litton and Newport News acquisitions, except for preliminary
estimates of costs to consolidate the Litton and Northrop Grumman corporate
offices.
S-10
Unaudited Pro Forma Condensed Combined
Statement of Financial Position
September 30, 2001
($ in millions)
Pro Forma
Northrop Newport ---------------------
Grumman News Adjustment Combined
-------- ------- ---------- --------
Assets:
Current assets
Cash and cash equivalents.................................. $ 310 $ 66 $ -- $ 376
Accounts receivable........................................ 2,297 131 -- 2,428
Inventoried costs.......................................... 1,222 409 -- 1,631
Deferred income taxes...................................... 35 110 -- 145
Prepaid expenses and other current assets.................. 140 19 -- 159
------- ------ ------ -------
Total current assets....................................... 4,004 735 -- 4,739
------- ------ ------ -------
Property, plant and equipment................................. 3,297 1,616 -- 4,913
Accumulated depreciation...................................... (1,211) (950) -- (2,161)
------- ------ ------ -------
Property, plant and equipment, net............................ 2,086 666 -- 2,752
------- ------ ------ -------
Other assets
Goodwill and other purchased intangibles, net.............. 7,956 -- 2,110 (a) 10,066
Prepaid retiree benefits cost and intangible pension asset. 2,773 -- -- 2,773
Other assets............................................... 395 237 -- 632
------- ------ ------ -------
11,124 237 2,110 13,471
------- ------ ------ -------
$17,214 $1,638 $2,110 $20,962
======= ====== ====== =======
Liabilities and Shareholders' Equity:
Current liabilities
Notes payable and current portion of long-term debt........ $ 134 $ 46 $ -- $ 180
Accounts payable........................................... 757 87 -- 844
Accrued employees' compensation............................ 629 -- -- 629
Advances on contracts...................................... 837 -- -- 837
Income taxes............................................... 373 -- -- 373
Other current liabilities.................................. 1,223 484 -- 1,707
------- ------ ------ -------
Total current liabilities.................................. 3,953 617 -- 4,570
------- ------ ------ -------
Long-term debt................................................ 5,185 432 917 (a) 6,534
Accrued retiree benefits...................................... 1,478 -- -- 1,478
Deferred tax and other long-term liabilities.................. 973 285 -- 1,258
Mandatorily redeemable preferred stock........................ 350 -- -- 350
Shareholders' equity
Paid-in capital and unearned compensation.................. 2,366 452 1,045 (a) 3,863
Retained earnings.......................................... 2,928 236 (236) (a) 2,928
Accumulated other comprehensive loss....................... (19) -- -- (19)
Stock employee compensation trust.......................... -- (384) 384 (a) --
------- ------ ------ -------
5,275 304 1,193 6,772
------- ------ ------ -------
$17,214 $1,638 $2,110 $20,962
======= ====== ====== =======
S-11
Unaudited Pro Forma Condensed Combined
Statement of Income
Nine Months Ended September 30, 2001
($ in millions, except per share)
Pro Forma Pro Forma
Northrop -------------------------- Newport ----------------------
Grumman Litton Adjustment Combined News Adjustment Combined
-------- ------ ---------- -------- ------- ---------- --------
Product sales and
service revenue...... $9,254 $1,345 $ (18) (b) $10,581 $1,639 $ -- $12,220
Cost of product sales
and service revenue
Operating costs..... 7,656 1,120 19 (b)(c)(d) 8,795 1,481 (140)(h)(j) 10,136
Administrative and
general expenses.. 908 121 -- 1,029 -- 153 (j) 1,182
------ ------ ----- ------- ------ ----- -------
Operating margin....... 690 104 (37) 757 158 (13) 902
Interest expense....... (269) (27) (64) (e) (360) (37) (23)(i) (420)
Other, net............. 64 3 -- 67 (1) -- 66
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations before
income taxes......... 485 80 (101) 464 120 (36) 548
Federal and foreign
income taxes......... 189 30 (35) (f) 184 48 (18)(f)(j) 214
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations........... $ 296 $ 50 $ (66) $ 280 $ 72 $ (18) $ 334
====== ====== ===== ======= ====== ===== =======
Less, dividends paid to
preferred
shareholders......... (12) -- (6) (g) (18) -- -- (18)
------ ------ ----- ------- ------ ----- -------
Income available to
common shareholders.. $ 284 $ 50 $ (72) $ 262 $ 72 $ (18) $ 316
====== ====== ===== ======= ====== ===== =======
Weighted average
shares outstanding,
basic................ 80.3 85.3 102.0
Weighted average
shares outstanding,
diluted.............. 81.0 86.1 102.8
Basic earnings per
share:
Continuing
operations........ $ 3.53 $ 3.07 $ 3.10
Diluted earnings per
share:
Continuing
operations........ $ 3.50 * $ 3.04 * $ 3.08 *
--------
* Calculated by dividing income available to common shareholders by average
shares diluted, which is calculated assuming preferred shares are not
converted to common shares, resulting in the most dilutive effect.
S-12
Unaudited Pro Forma Condensed Combined
Statement of Income
Year Ended December 31, 2000
($ in millions, except per share)
Pro Forma Pro Forma
Northrop -------------------------- Newport ----------------------
Grumman Litton Adjustment Combined News Adjustment Combined
-------- ------ ---------- -------- ------- ---------- --------
Product sales and service
revenue.................. $7,618 $5,626 $ (61) (b) $13,183 $2,072 $ -- $15,255
Cost of product sales and
service revenue
Operating costs......... 5,446 4,669 88 (b)(c)(d) 10,203 1,870 (251)(h)(j) 11,822
Administrative and
general expenses...... 1,074 491 -- 1,565 -- 271 (j) 1,836
------ ------ ----- ------- ------ ----- -------
Operating margin........... 1,098 466 (149) 1,415 202 (20) 1,597
Interest expense........... (175) (105) (191) (e) (471) (53) (31)(i) (555)
Other, net................. 52 16 -- 68 4 -- 72
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations before income
taxes.................... 975 377 (340) 1,012 153 (51) 1,114
Federal and foreign income
taxes.................... 350 151 (119) (f) 382 63 (26)(f)(j) 419
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations............... $ 625 $ 226 $(221) $ 630 $ 90 $ (25) $ 695
====== ====== ===== ======= ====== ===== =======
Less, dividends paid to
preferred shareholders... -- -- (25) (g) (25) -- -- (25)
------ ------ ----- ------- ------ ----- -------
Income available to common
shareholders............. $ 625 $ 226 $(246) $ 605 $ 90 $ (25) $ 670
====== ====== ===== ======= ====== ===== =======
Weighted average shares
outstanding, basic....... 70.6 83.6 100.2
Weighted average shares
outstanding, diluted..... 70.9 84.0 100.6
Basic earnings per share:
Continuing operations... $ 8.86 $ 7.24 $ 6.69
Diluted earnings per share:
Continuing operations... $ 8.82 $ 7.20 * $ 6.66 *
--------
* Calculated by dividing income available to common shareholders by average
shares diluted, which is calculated assuming preferred shares are not
converted to common shares, resulting in the most dilutive effect.
S-13
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
(a)Adjustments to (i) eliminate the equity of Newport News, (ii) record
issuance of common stock, (iii) record debt financing for the Newport News
acquisition along with additional acquisition related costs, and (iv) record
goodwill and other purchased intangibles. The amount of the purchase price
allocated to goodwill was calculated based on the following assumptions: (i)
the price per share of our common stock is $90.00 at the completion of our
offer and merger with Newport News, which is the midpoint of the common
stock range described below; (ii) the exchange ratio is 0.75; and (iii) we
issue the maximum number of shares of our common stock available for
issuance (16,636,885) in our offer and merger with Newport News. Any
fluctuation in our common stock price within the range from $80.00 to
$100.00 will not have a material impact on our pro forma calculation of
goodwill. In the event that our common stock price is greater than $100.00
at the completion of our offer and merger, the goodwill balance will
increase by $15.0 million for each $1.00 incremental increase in our common
stock price in excess of $100.00.
(b)Adjustment to eliminate intercompany sales and cost of sales transactions
between Northrop Grumman and Litton.
(c)Adjustment to amortize the preliminary estimate of goodwill and other
purchased intangible assets arising out of the acquisition of Litton over an
estimated weighted average life of 26 years on a straight line basis.
(d)Adjustment to record preliminary depreciation of property, plant and
equipment and amortization of capitalized software arising out of the
acquisition of Litton.
(e)Adjustment to record interest expense on, and the amortization of debt
issuance costs of, financing for the acquisition of Litton at a weighted
average rate of 6.8% and 7.5% for the nine months ended September 30, 2001
and the year ended December 31, 2000, respectively.
(f)Adjustment to record income tax effects on pre-tax pro forma adjustments,
using a statutory tax rate of 35%.
(g)Adjusted, pro rata, for dividends to preferred shareholders using $7 per
share dividend rate for redeemable preferred stock issued in the acquisition
of Litton.
(h)Adjustment to amortize purchased intangible assets arising out of the
Newport News acquisition over an estimated life of 30 years on a straight
line basis.
(i)Adjustment to record interest on debt financing for the Newport News
acquisition at the current rate of 3.4% as of October 26, 2001.
(j)Adjustment to conform Newport News data to classifications utilized by
Northrop Grumman.
S-14
The Offering
Common stock offered...... 8,000,000 shares
Common stock to be
outstanding after this
offering................ 93,793,930 shares
Use of proceeds........... We estimate that our net proceeds, before
expenses and after deducting underwriting
discounts and commissions, from the sale of
shares of our common stock in this offering
will be approximately $681.5 million, or
$783.7 million if the underwriters exercise
their over-allotment option in full. We
anticipate using the net proceeds from this
offering, together with an estimated $582.0
million of net proceeds, before expenses and
after deducting underwriting discounts and
commissions, from the concurrent offering of
equity security units, or $669.3 million if
the underwriters exercise their
over-allotment option to purchase additional
equity security units in full, primarily to
repay indebtedness incurred under our
five-year revolving credit facility. We may
also use the proceeds for general corporate
purposes, including working capital needs,
capital expenditures and acquisitions.
New York Stock Exchange symbol NOC
The number of shares of common stock that will be outstanding after this
offering is based on the number of shares of common stock outstanding as of
October 26, 2001. This number excludes the following:
. Shares of our common stock issuable upon exercise of outstanding awards
under our stock compensation plans (9,214,121 as of September 30, 2001);
. 1,200,000 shares that the underwriters may purchase from us if they
exercise their over-allotment option in full; and
. a maximum of 6,779,400 shares of our common stock that will be issuable
in the future as a result of the concurrent offering of our equity
security units, or a maximum of 7,796,310 shares if the underwriters
exercise their over-allotment option to purchase additional equity
security units in full.
Concurrent Offering
We are also offering, in a concurrent offering, $600 million of our equity
security units. Each equity security unit initially consists of a purchase
contract to purchase shares of our common stock and $100 principal amount of
our senior notes due 2006. The purchase contract requires the holder to
purchase from us, and us to sell to the holder, a number of shares of our
common stock on November 16, 2004. The number of shares of common stock that
each holder will be required to purchase, and we will be obligated to sell,
will be determined based on the average trading price of our common stock at
that time. The purchase contracts will pay quarterly contract adjustment
payments at the annual rate of 2.0%. The 5.25% senior notes, which will be
pledged to secure each holder's obligations under the related purchase
contract, will pay interest quarterly at the annual rate of 5.25% on their
principal amount through and including November 16, 2004, which rate is
expected to be reset as of the third business day immediately preceding August
16, 2004. This common stock offering and the concurrent offering of equity
security units are not conditioned on each other.
S-15
FORWARD-LOOKING STATEMENTS AND IMPORTANT FACTORS
This prospectus supplement and the information incorporated by reference in
it contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements concern our plans,
expectations and objectives for future operations. These include statements and
assumptions with respect to expected future revenues, margins, program
performance, earnings and cash flows, acquisitions of new contracts, the
outcome of competitions for new programs, the outcome of contingencies
including litigation and environmental remediation, the effect of completed and
planned acquisitions and divestitures of businesses or business assets, the
anticipated costs of capital investments, and anticipated industry trends. We
base these statements on assumptions and analyses we have made in light of our
experience and our historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate in the
circumstances. Our actual results and trends may differ materially from the
information, statements and assumptions as described, and actual results could
be materially less than our planned results.
Important factors that should be considered in connection with an investment
in our common stock and that could cause our actual results to differ
materially from those suggested by the forward-looking statements include:
. We depend on a limited number of customers. We are heavily dependent on
government contracts many of which are only partially funded; the
termination or failure to fund one or more significant contracts could
have a negative impact on our operations. We are a supplier, either
directly or as a subcontractor or team member, to the U.S. Government
and its agencies as well as foreign governments and agencies. These
contracts are subject to each customer's political and budgetary
constraints, changes in short-range and long-range plans, the timing of
contract awards, the congressional budget authorization and
appropriation processes, the relevant government's ability to terminate
contracts for convenience or for default, as well as other risks such as
contractor debarment in the event of certain violations of legal and
regulatory requirements.
. Many of our contracts are fixed price contracts. While firm, fixed price
contracts allow us to benefit from cost savings, they also expose us to
potential cost overruns. If our initial estimates used for calculating
the contract price are incorrect, we can incur losses on those
contracts. In addition, some of our contracts have provisions relating
to cost controls and audit rights and if we fail to meet the terms
specified in those contracts then we may not realize their full
benefits. Our ability to manage costs on these contracts may affect our
financial condition. Lower earnings caused by cost overruns and cost
controls would have an adverse effect on our financial results.
. We are subject to significant competition. Our markets include defense
and commercial markets in which we compete with companies of substantial
size and resources. Our success or failure in winning new contracts or
follow-on orders for our existing or future products may cause material
fluctuations in our future revenues and operating results.
. Our operations may be subject to events that cause adverse effects on
our ability to meet contract obligations within anticipated cost and
time parameters. We may encounter internal problems and delays in
delivery as a result of issues with respect to design, technology,
licensing and patent rights, labor or materials and components that
prevent us from achieving contract requirements. We may be affected by
delivery or performance issues with key suppliers and subcontractors, as
well as other factors inherent in our businesses that may adversely
affect operating results. Changes in inventory requirements or other
production cost increases may also have a negative impact on our
operating results.
. We must integrate our acquisitions successfully. Acquiring businesses is
a significant challenge. If we do not execute our acquisition and
integration plans for these businesses in accordance with our strategic
timetable, our operating results may be adversely affected. We acquired
several businesses in 2000 and we acquired Litton earlier this year. We
have also agreed to acquire Newport News. We believe our integration
processes are well-suited to achieve the anticipated
S-16
strategic and operating benefits of these acquisitions, but if we do not
perform our plans as intended, or if we encounter unforeseen problems in
the acquired businesses, or problems in those businesses develop
subsequent to acquisition, our operating results may be adversely
affected. Among the factors that may be involved would be unforeseen
costs and expenses, previously undisclosed liabilities, diversion of
management focus, and any effects of complying with government-imposed
organizational conflicts of interest rules as a result of the
acquisitions.
. We rely on continuous innovation. We are dependent upon our ability to
anticipate changing needs for defense products, military and civilian
electronic systems and support, and information technology. Our success
is dependent on designing new products which will respond to such
requirements within customers' price limitations.
. We have significant foreign operations and sales, and are therefore
subject to the additional risks associated with international
activities. These risks include currency fluctuations, devaluation,
regional political instability, acts of international terrorists,
compliance with foreign laws and U.S. laws affecting the activities of
U.S. companies overseas, expropriations, antitrust and export/import
controls, taxation, extended span of managerial control, economic
conditions, governmental policies requiring inward investment as a
prerequisite to transacting business on the governmental level,
practical requirements and restrictions in retaining representatives and
consultants in connection with sales efforts, uprisings, acts of war,
embargoes and cultural and ethical differences. One or more of these or
other international risks could result in an adverse effect on our sales
and operations.
. We assume that any divestiture of non-core businesses and assets will be
completed successfully. Our performance may be affected by our inability
to successfully dispose of assets and businesses that do not fit with or
are no longer appropriate to our strategic plan. If any sales of such
businesses or assets can only be made at a loss, our earnings will be
negatively impacted.
. We are subject to environmental and other liabilities. Our performance
may be affected by known environmental risks, pending litigation and
other loss contingencies, if not resolved within the parameters of our
internal plans, and by unanticipated environmental or other liabilities.
. Our pension income may fluctuate. Pension income, a non-cash item which
is included in our earnings, is based on assumptions of market
performance and actual performance may differ. If an event causes us to
revalue our pension income during the calendar year, the portion of our
earnings attributed to pension income could vary significantly.
. Our indebtedness, primarily incurred in connection with the Litton
acquisition, is approximately $3.7 billion higher at September 30, 2001
than our indebtedness at December 31, 2000. The increase in debt
increases demands on our cash resources.
. A substantial portion of our employees in the Ship Systems sector are
represented by labor unions, and unions represent some of our employees
in other sectors as well. If we are unable to maintain satisfactory
relations with the unions, our productivity and profitability may
suffer. Union representation can involve various activities and tactics,
including work stoppages, to achieve negotiated terms in collective
bargaining agreements. A negative impact on timely deliveries occasioned
by a work stoppage could result in problems with our governmental and
other customers and consequently affect operating results in an adverse
manner.
Additional information with respect to important factors and uncertainties
in our business is contained in our SEC filings, including, without limitation,
Northrop Systems' Annual Report on Form 10-K/A for the year ended December 31,
2000 and our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001, June 30, 2001 and September 30, 2001. We intend all forward-looking
statements that we make to be subject to safe harbor protection of the federal
securities laws as found in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.
S-17
Accordingly, you should not rely on the accuracy of predictions contained in
forward-looking statements. These statements speak only as of the date of this
prospectus supplement and, in the case of the accompanying prospectus, the date
of such prospectus, or, in the case of documents incorporated by reference, the
date of those documents. We do not assume any obligation to update our
forward-looking statements to reflect events, circumstances, changes in
expectations or the occurrence of unanticipated events occurring after the date
of those statements.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of our common
stock in this offering, before expenses and after deducting underwriting
discounts and commissions, will be approximately $681.5 million, or $783.7
million if the underwriters exercise their over-allotment option in full.
We intend to use our net proceeds from the sale of shares of common stock,
together with an estimated $582.0 million of net proceeds, before expenses and
after deducting underwriting discounts and commissions, from the concurrent
offering of our equity security units, or $669.3 million if the underwriters
exercise their over-allotment option to purchase additional equity security
units in full, primarily to repay indebtedness incurred under our five-year
revolving credit facility. We may also use the proceeds for general corporate
purposes, including working capital needs, capital expenditures and
acquisitions. We entered into, and incurred indebtedness under, our five-year
revolving credit facility and a separate 364-day revolving credit facility in
connection with our acquisition of Litton in April 2001. As a result of our
concurrent offering of equity security units, we will reduce the amount of
credit available under our 364-day revolving credit facility to zero.
Indebtedness incurred under our five-year credit facility bears interest at a
rate equal to adjusted LIBOR, or an adjusted base rate, at our election, in
each case plus an incremental margin based on our credit rating. As of
September 30, 2001, the weighted average interest rate of borrowings under the
five-year credit facility was approximately 4.35%.
S-18
CAPITALIZATION
The following table sets forth:
. our capitalization as of September 30, 2001,
. our capitalization as adjusted to reflect this offering,
. our capitalization as further adjusted to reflect the concurrent
offering of our equity security units, and
. our capitalization as further adjusted to reflect, on a pro forma basis,
our proposed acquisition of Newport News.
From time to time, we may issue additional debt or equity securities. The
following information should be read in conjunction with our consolidated
financial statements, including the notes thereto, which are incorporated
herein by reference. See "Where You Can Find More Information."
September 30, 2001
---------------------------------------
As Pro Forma,
(Unaudited) As Further as Further
Actual Adjusted Adjusted Adjusted
----------- -------- -------- ----------
($ in millions)
Cash and cash equivalents(1)................................. $ 310 $ 310 $ 723 $ 376
======= ======= ======= =======
Short-term debt:
Notes payable............................................. 130 130 130 130
Current portion of long-term debt......................... 4 4 4 50
------- ------- ------- -------
Total short-term debt................................. 134 134 134 180
------- ------- ------- -------
Long-term debt:
Notes and Debentures exclusive of equity security units
senior notes............................................ 4,212 4,212 4,212 4,644
Equity security units senior notes........................ -- -- 600 600
Long-term revolving credit facility(2).................... 850 169 -- 504
Other..................................................... 123 123 123 123
------- ------- ------- -------
Total long-term debt, less current maturities......... 5,185 4,504 4,935 5,871
------- ------- ------- -------
Mandatorily redeemable preferred stock....................... 350 350 350 350
Shareholders' equity:
Preferred Stock, par value $1 per share,10,000,000 shares
authorized; 3,500,000 shares issued and outstanding
reported above . ....................................... -- -- -- --
Common Stock, par value $1 per share, 400,000,000 shares
authorized; issued and outstanding: 85,671,983, actual;
93,671,983, as adjusted and as further adjusted;
110,308,868, pro forma, as further adjusted(3).......... 2,386 3,067 3,067 4,564
Retained earnings......................................... 2,928 2,928 2,928 2,928
Unearned compensation..................................... (20) (20) (20) (20)
Accumulated other comprehensive loss...................... (19) (19) (19) (19)
------- ------- ------- -------
Total shareholders' equity............................ 5,275 5,956 5,956 7,453
------- ------- ------- -------
Total capitalization............................... $10,944 $10,944 $11,375 $13,854
======= ======= ======= =======
--------
(1)Cash proceeds may be used for general corporate purposes, including working
capital needs, capital expenditures and acquisitions.
(2)Borrowings of approximately $315 million incurred subsequent to September
30, 2001 in connection with our acquisition of the Electronics and
Information Systems Group of AeroJet-General Corporation are not reflected.
(3)Assumes that we will issue the maximum number of shares of our common stock
available for issuance in the Newport News acquisition, and assumes a common
stock price of $90.00 per share, the midpoint of the collar utilized in the
acquisition agreement with Newport News.
S-19
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed and principally traded on the New York Stock
Exchange under the symbol "NOC." The following table sets forth, for the
calendar quarters indicated, the high and low last reported sale prices per
share of our common stock as reported on the New York Stock Exchange Composite
Transaction Tape. The following tables also set forth the cash dividends
declared per share on our common stock for the corresponding periods.
Period High Low Dividend
------ ------- ------ --------
1999:
First Quarter.............................. $ 75.63 $56.63 $0.40
Second Quarter............................. 73.88 57.31 0.40
Third Quarter.............................. 75.94 59.56 0.40
Fourth Quarter............................. 63.31 47.00 0.40
2000:
First Quarter.............................. $ 55.63 $42.63 $0.40
Second Quarter............................. 81.38 51.19 0.40
Third Quarter.............................. 93.25 64.38 0.40
Fourth Quarter............................. 93.88 74.00 0.40
2001:
First Quarter.............................. $ 99.09 $79.13 $0.40
Second Quarter............................. 95.37 77.60 0.40
Third Quarter.............................. 102.97 77.00 0.40
Fourth Quarter (through November 15, 2001). 108.97 89.02 --
The last reported sale price for our common stock on November 15, 2001 was
$89.02. The approximate number of holders of record of our common stock on
November 7, 2001 was 13,536. Our credit facilities restrict our ability to pay
dividends to our stockholders under provisions that we do not currently believe
will limit our ability to pay dividends at the current rate.
S-20
UNDERWRITING
Northrop Grumman and the underwriters named below have entered into an
underwriting agreement with respect to the common stock. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares set forth in the following table.
Number of Shares
Underwriters ----------------
Salomon Smith Barney Inc............. 2,400,000
J.P. Morgan Securities Inc........... 2,400,000
Goldman, Sachs & Co.................. 580,000
Lehman Brothers Inc.................. 580,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................ 580,000
SG Cowen Securities Corporation...... 580,000
First Union Securities, Inc.......... 320,500
BNY Capital Markets, Inc............. 186,500
Scotia Capital (USA) Inc............. 186,500
BNP Paribas, London Branch.......... 186,500
---------
Total............................. 8,000,000
=========
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,200,000 shares from us to cover such sales. They may exercise that option for
30 days. If any units are purchased pursuant to this option, the underwriters
will severally purchase units in approximately the same proportion as set forth
above.
The following table summarizes the underwriting discounts and commissions we
will pay.
No Exercise Full Exercise
Paid by Northrop Grumman ----------- -------------
Per Share........ $ 3.319 $ 3.319
Total............ $26,552,000 $30,534,800
Shares sold by the underwriters to the public will initially be offered at
the public offering price set forth on the cover of this prospectus supplement.
Any shares sold by the underwriters to securities dealers may be sold at a
discount from the public offering price of up to $1.991 per share. Any such
securities dealers may resell any share purchased from the underwriters to
certain other brokers or dealers at a discount from the public offering price
of up to $0.10 per share. If all the shares are not sold at the initial
offering price, the underwriters may change the offering price and the other
selling terms.
The underwriters will donate 25,000 of the 8,000,000 shares of common stock
they are purchasing from us in this offering to the Twin Towers Fund. Each
underwriter's donation will be based on its proportionate participation in the
concurrent offerings.
In connection with this offering, the underwriters may purchase and sell the
shares in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. "Covered" short
sales are sales made in an amount not greater than the underwriters' option to
purchase additional shares from us in the offering. The underwriters may close
out any covered short position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In determining the
source of shares to close out the covered short position, the underwriters will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares through
the overallotment option. "Naked" short sales are any sales in excess of such
S-21
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the shares in the open market after pricing that will adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the shares while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased the shares
sold by or for the account of such underwriter in stabilizing or short-covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the shares. As a result, the price of the shares may
be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the New York Stock Exchange, in
the over-the-counter market or otherwise.
We and our executive officers and directors have agreed for a period of 90
days from the date of this prospectus supplement, subject to certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, or file with the SEC a registration statement under the
Securities Act of 1933 relating to, shares of our common stock, securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction that would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any
of the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of any such securities
or cash, without the prior written consent of J.P. Morgan Securities Inc. and
Salomon Smith Barney Inc. We may take such actions with respect to currently
contemplated issuances of our common stock, issuances of our common stock as
consideration in future acquisitions and transfers of our common stock to
affiliates. Our executive officers and directors may each sell up to 50,000
shares of our common stock during the period beginning on the 30th day after
the date of this prospectus supplement and ending on the 90th day following the
date of this prospectus supplement.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
From time to time, the underwriters and certain of their affiliates have
engaged, and may in the future engage, in transactions with, and perform
services for, us and our affiliates in the ordinary course of business.
Concurrently with this offering, we are also offering 6,000,000 equity security
units, with an over-allotment option of 900,000 equity security units, for
which the underwriters of this offering are also acting as underwriters under a
separate underwriting agreement. The two offerings are not conditioned on each
other. In addition, the underwriters, or their affiliates, except for Goldman,
Sachs & Co., Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are lenders under the five-year and the 364-day revolving credit
agreements dated as of March 30, 2001, among us and the lenders listed therein,
borrowings under which will be repaid from the net proceeds of this offering
and the concurrent common stock offering. We estimate, based on information
currently available, that the underwriters and their affiliates will be repaid
approximately $600 million from the application of the net proceeds of the
offerings.
First Union Securities, Inc. (acting under the trade name Wachovia
Securities) is an indirect, wholly-owned subsidiary of Wachovia Corporation.
Wachovia Corporation conducts its investment banking, institutional and capital
markets businesses through its various bank, broker-dealer and nonbank
subsidiaries (including First Union Securities, Inc.) under the trade name of
Wachovia Securities. Any references to Wachovia Securities in this prospectus
supplement, however, do not include Wachovia Securities, Inc., member NASD/SIPC
and a separate broker-dealer subsidiary of Wachovia Corporation and an
affiliate of First Union Securities, Inc., which may or may not be
participating as a selling dealer in the distribution of the securities offered
by this prospectus supplement.
S-22
LEGAL MATTERS
The validity of the shares of common stock offered by us will be passed upon
for us by Sheppard, Mullin, Richter & Hampton LLP, Los Angeles, California.
Certain legal matters will be passed upon for the underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The audited financial statements of Newport News incorporated in this
prospectus supplement by reference from Newport News' Annual Report on Form
10-K for the year ended December 31, 2000 have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said
firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
Northrop Grumman and its subsidiaries have filed, and Newport News has
filed, annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any such report, statement or
other information at the SEC's public reference rooms at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You may obtain additional
information about the public reference rooms by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a site on the Internet at
http://www.sec.gov that contains reports, proxy statements and other
information regarding issuers that file electronically with the SEC. You may
also read such reports, proxy statements and other documents at the offices of
the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
We are "incorporating by reference" information into this prospectus
supplement. This means that we are disclosing important information to you by
referring you to another document that has been filed separately with the SEC.
The information incorporated by reference is considered to be part of this
prospectus supplement. Information that is filed with the SEC after the date of
this prospectus supplement will automatically modify and supersede the
information included or incorporated by reference in this prospectus supplement
to the extent that the subsequently filed information modifies or supersedes
the existing information. We incorporate by reference our future filings with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 until we complete this offering.
The following documents filed with the SEC by Northrop Grumman are hereby
incorporated by reference:
. Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
2001, June 30, 2001 and September 30, 2001;
. Current Reports on Form 8-K and Form 8-K/A filed April 17, 2001 and June
14, 2001, respectively, and Current Report on Form 8-K filed November
14, 2001;
. Form 8-A registering our common stock under the Securities Exchange Act
of 1934, filed on March 28, 2001; and
. Form 8-A registering our Series B preferred stock under the Securities
Exchange Act of 1934, filed on March 7, 2001.
The following document filed with the SEC by Northrop Grumman Systems
Corporation (SEC File Number 2-26850) is hereby incorporated by reference:
. Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000.
S-23
The following documents filed with the SEC by Litton Industries, Inc. (SEC
File Number 1-3998) are hereby incorporated by reference:
. Annual Report on Form 10-K for the fiscal year ended July 31, 2000; and
. Quarterly Reports on Form 10-Q for the fiscal quarters ended October 31,
2000 and January 31, 2001.
The following documents filed with the SEC by Newport News (SEC File Number
1-12385) are hereby incorporated by reference:
. Annual Report on Form 10-K for the fiscal year ended December 31, 2000;
. Quarterly Reports on Form 10-Q for the fiscal quarters ended March 18,
2001, June 17, 2001 and September 16, 2001; and
. Current Reports on Form 8-K filed April 25, 2001 and November 8, 2001.
You may request a copy of any of these filings at no cost by writing to or
telephoning us at the following address and telephone number: John H. Mullan,
Corporate Vice President and Secretary, 1840 Century Park East, Los Angeles,
California 90067, telephone (310) 201-3081.
We maintain an Internet site at http://www.northgrum.com. The information
contained at our Internet site is not incorporated by reference in this
prospectus supplement, and you should not consider it a part of this prospectus
supplement.
Any statement made in this prospectus supplement concerning the contents of
any contract, agreement or other document is only a summary of the actual
document. You may obtain a copy of any document summarized in this prospectus
supplement at no cost by writing to or telephoning us at the address and
telephone number given above. Each statement regarding a contract, agreement or
other document is qualified in its entirety by reference to the actual document.
S-24
PROSPECTUS
$2,000,000,000
Northrop Grumman Corporation
Debt Securities
Preferred Stock
Common Stock
Warrants to Purchase Debt Securities
Warrants to Purchase Equity Securities
Stock Purchase Contracts
Stock Purchase Units
You should read this prospectus and any supplement carefully before you
invest.
This prospectus describes debt and equity securities that we may issue and
sell at various times:
. Our prospectus supplements will contain the specific terms of each
issuance of debt or equity securities.
. We can issue debt and equity securities with a total offering price of
up to $2,000,000,000 under this prospectus.
. We may sell the debt and equity securities to or through underwriters,
dealers or agents. We also may sell debt and equity securities directly
to investors.
Our common shares are listed on the New York Stock Exchange and the Pacific
Stock Exchange under the trading symbol "NOC." Our Series B preferred shares
are listed on the New York Stock Exchange under the trading symbol "NOC pb." We
will not sell any of the securities being offered without delivery of the
applicable prospectus supplement describing the method and terms of the
offering of such series of securities being offered. Any common stock sold
pursuant to a prospectus supplement will be listed on the New York Stock
Exchange and the Pacific Stock Exchange, subject to official notice of issuance.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
This prospectus is dated October 26, 2001.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS............................................... 2
WHERE YOU CAN FIND MORE INFORMATION................................. 3
FORWARD-LOOKING STATEMENTS AND IMPORTANT FACTORS.................... 4
NORTHROP GRUMMAN CORPORATION........................................ 6
USE OF PROCEEDS..................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES.................................. 7
DESCRIPTION OF DEBT SECURITIES...................................... 8
DESCRIPTION OF PREFERRED STOCK...................................... 14
DESCRIPTION OF COMMON STOCK......................................... 19
DESCRIPTION OF WARRANTS............................................. 20
DESCRIPTION OF THE STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS 21
PLAN OF DISTRIBUTION................................................ 22
VALIDITY OF THE DEBT AND EQUITY SECURITIES.......................... 23
EXPERTS............................................................. 23
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf registration
process, we may sell any combination of the debt and equity securities
described in this prospectus in one or more offerings for total proceeds of up
to $2,000,000,000. This prospectus provides you with a general description of
the securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. This prospectus supplement may add, update or change information
contained in this prospectus. It is important for you to consider the
information contained in this prospectus and any prospectus supplement together
with additional information described under the heading, "Where You Can Find
More Information."
References to "Northrop Grumman" refer to Northrop Grumman Corporation,
formerly NNG, Inc.; references in this prospectus to "Northrop Systems" refer
to Northrop Grumman Systems Corporation, formerly Northrop Grumman Corporation;
references to "Litton" refer to Litton Industries, Inc. Unless the context
requires otherwise, references to "we," "us" or "our" refer collectively to
Northrop Grumman and its subsidiaries.
You should rely only on the information incorporated by reference or
provided in the prospectus or a prospectus supplement. We have not authorized
anyone else to provide you with different information. Neither we, nor any
other person on behalf of us, are making an offer to sell or soliciting an
offer to buy any of the securities described in this prospectus or in a
prospectus supplement in any state where the offer is not permitted by law. You
should not assume that the information in this prospectus or a prospectus
supplement is accurate as of any date other than the date on the front of the
documents. There may have been changes in our affairs since the date of the
prospectus or a prospectus supplement.
2
WHERE YOU CAN FIND MORE INFORMATION
Northrop Grumman and its subsidiaries Northrop Systems and Litton have filed
annual, quarterly and current reports, proxy statements and other information
with the SEC. Northrop Grumman has succeeded to the filing obligations of
Northrop Systems and all future filings by Northrop Grumman will be on a
consolidated basis with Northrop Systems and Litton. Litton is no longer
obligated to file reports with the SEC. You may read and copy any such report,
statement or other information at the SEC's public reference rooms at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain additional
information about the public reference rooms by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a site on the Internet at
http://www.sec.gov that contains reports, proxy statements and other
information regarding issuers that file electronically with the SEC. You may
also read such reports, proxy statements and other documents at the offices of
the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
We are "incorporating by reference" information into this prospectus. This
means that we are disclosing important information to you by referring you to
another document that has been filed separately with the SEC. The information
incorporated by reference is considered to be part of this prospectus.
Information that is filed with the SEC after the date of this prospectus will
automatically modify and supersede the information included or incorporated by
reference in this prospectus to the extent that the subsequently filed
information modifies or supersedes the existing information. We incorporate by
reference our future filings with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 until we complete this offering.
The following documents filed with the SEC by Northrop Grumman are hereby
incorporated by reference:
. Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30,
2001 and March 31, 2001;
. Current Reports on Form 8-K and Form 8-K/A filed April 17, 2001 and June
14, 2001, respectively;
. Form 8-A registering our common stock under the Securities Exchange Act
of 1934, filed on March 28, 2001; and
. Form 8-A registering our Series B preferred stock under the Securities
Exchange Act of 1934, filed on March 27, 2001.
The following document filed with the SEC by Northrop Systems (SEC File
Number 2-26850) is hereby incorporated by reference:
. Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000.
The following documents filed with the SEC by Litton (SEC File Number
1-3998) are hereby incorporated by reference:
. Annual Report on Form 10-K for the fiscal year ended July 31, 2000; and
. Quarterly Reports on Form 10-Q for the fiscal quarters ended October 31,
2000 and January 31, 2001.
You may request a copy of any of these filings at no cost by writing to or
telephoning us at the following address and telephone number: John H. Mullan,
Corporate Vice President and Secretary, 1840 Century Park East, Los Angeles,
California 90067, telephone (310) 201-3081.
We maintain an Internet site at http://www.northgrum.com. The information
contained at our Internet site is not incorporated by reference in this
prospectus, and you should not consider it a part of this prospectus.
Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is only a summary of the actual document.
You may obtain a copy of any document summarized in this prospectus at no cost
by writing to or telephoning us at the address and telephone number given
above. Each statement regarding a contract, agreement or other document is
qualified in its entirety by reference to the actual document.
3
FORWARD-LOOKING STATEMENTS AND IMPORTANT FACTORS
Some of the information included in this prospectus and in the documents
incorporated by reference are forward-looking statements within the meaning of
the securities laws. These statements concern our plans, expectations and
objectives for future operations. These include statements and assumptions with
respect to expected future revenues, margins, program performance, earnings and
cash flows, acquisitions of new contracts, the outcome of competitions for new
programs, the outcome of contingencies including litigation and environmental
remediation, the effect of completed and planned acquisitions and divestitures
of businesses or business assets, the anticipated costs of capital investments,
and anticipated industry trends. Our actual results and trends may differ
materially from the information, statements and assumptions as described, and
actual results could be materially less than our planned results.
Important factors that could cause actual results to differ materially from
those suggested by the forward-looking statements include:
. We depend on a limited number of customers. We are heavily dependent on
government contracts many of which are only partially funded; the
termination or failure to fund one or more significant contracts could
have a negative impact on our operations. We are a supplier, either
directly or as a subcontractor or team member, to the U.S. Government
and its agencies as well as foreign governments and agencies. These
contracts are subject to each customers' political and budgetary
constraints, changes in short-range and long-range plans, the timing of
contract awards, the congressional budget authorization and
appropriation processes, the government's ability to terminate contracts
for convenience or for default, as well as other risks such as
contractor debarment in the event of certain violations of legal and
regulatory requirements.
. Many of our contracts are fixed price contracts. While firm, fixed price
contracts allow us to benefit from cost savings, they also expose us to
the risk of cost overruns. If our initial estimates used for calculating
the contract price are incorrect, we can incur losses on those
contracts. In addition, some of our contracts have provisions relating
to cost controls and audit rights and if we fail to meet the terms
specified in those contracts then we may not realize their full
benefits. Our ability to manage costs on these contracts may affect our
financial condition. Lower earnings caused by cost overruns and cost
controls would have an adverse effect on our financial results.
. We are subject to significant competition. Our markets include defense
and commercial areas where we compete with companies of substantial size
and resources. Our success or failure in winning new contracts or follow
on orders for our existing or future products may cause material
fluctuations in our future revenues and operating results.
. Our operations may be subject to events that cause adverse effects on
our ability to meet contract obligations within anticipated cost and
time parameters. We may encounter internal problems and delays in
delivery as a result of issues with respect to design, technology,
licensing and patent rights, labor or materials and components that
prevent us from achieving contract requirements. We may be affected by
delivery or performance issues with key suppliers and subcontractors, as
well as other factors inherent in our businesses which may cause
operating results to be adversely affected. Changes in inventory
requirements or other production cost increases may also have a negative
impact on our operating results.
. We must integrate our acquisitions successfully. Acquiring businesses is
a significant challenge. If we do not execute our acquisition and
integration plans for these businesses in accordance with our strategic
timetable, our operating results may be adversely affected. We acquired
several businesses in 2000 and 2001, including Litton. We believe our
integration processes are well-suited to achieve the anticipated
strategic and operating benefits of these acquisitions, but if we do not
perform our plans as intended, or if we encounter unforeseen problems in
the acquired businesses, or problems in those businesses develop
subsequent to acquisition, our operating results may be adversely
affected. Among the factors that may be involved would be unforeseen
costs and expenses, previously undisclosed
4
liabilities, diversion of management focus, and any effects of complying
with government-imposed organizational conflicts of interest rules as a
result of the acquisitions.
. We rely on continuous innovation. We are dependent upon our ability to
anticipate changing needs for defense products, military and civilian
electronic systems and support, and information technology. Our success
is dependent on designing new products which will respond to such
requirements within customers' price limitations.
. We face significant challenges in the international marketplace. Our
international business is subject to changes in import and export
policies, technology transfer restrictions, limitations imposed by
United States law that are not applicable to our foreign competitors,
and other legal, financial and governmental risks.
. We assume that any divestiture of non-core businesses and assets will be
completed successfully. Our performance may be affected by our inability
to successfully dispose of assets and businesses that do not fit with or
are no longer appropriate to our strategic plan. If any sales of such
businesses or assets can only be made at a loss, our earnings will be
negatively impacted.
. We are subject to environmental and other liabilities. Our performance
may be affected by known environmental risks, pending litigation and
other loss contingencies, if not resolved within the parameters of our
internal plans, and by unanticipated environmental or other liabilities.
. Our pension income may fluctuate. Pension income, a non-cash item which
is included in our earnings, is based on assumptions of market
performance and actual performance may differ. If an event causes us to
revalue our pension income during the calendar year, the portion of our
earnings attributed to pension income could vary significantly.
. Our indebtedness, incurred in connection with the Litton acquisition, is
higher than our indebtedness at December 31, 2000. The increase in debt
will increase demands on our cash resources.
Additional information with respect to risks and uncertainties in our
business is contained in our SEC filings, including, without limitation,
Northrop Systems' Annual Report on Form 10-K/A for the year ended December 31,
2000 and our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001 and June 30, 2001.
Accordingly, you should not rely on the accuracy of predictions contained in
forward-looking statements. These statements speak only as of the date of this
prospectus, or, in the case of documents incorporated by reference, the date of
those documents. We cannot undertake any obligation to update our
forward-looking statements to reflect events, circumstances, changes in
expectations or the occurrence of unanticipated events occurring after the date
of those statements.
5
NORTHROP GRUMMAN CORPORATION
We are a leading global aerospace and defense company providing products and
services in defense and commercial electronics, systems integration,
information technology and non-nuclear shipbuilding and systems. As a prime
contractor, principal subcontractor, partner, or preferred supplier, we
participate in many high-priority defense and commercial technology programs in
the United States and abroad. We are a holding company formed in connection
with our acquisition of Litton in April 2001. Our principal executive offices
are located at 1840 Century Park East, Los Angeles, California 90067 and our
telephone number is (310) 553-6262.
We are aligned into five business sectors: Integrated Systems, Electronic
Systems, Information Technology, Ship Systems and Component Technologies.
Integrated Systems. This sector includes the design, development and
production of airborne early warning, electronic warfare and surveillance and
battlefield management systems. Integrated Systems is the prime contractor for
the Joint STARS advanced airborne targeting and battle management system, the
U.S. Air Force's B-2 Spirit stealth bomber, unmanned vehicles including The
Global Hawk, and the EA-6B Prowler electronic countermeasures aircraft, and is
upgrading the E-2C Hawkeye early warning aircraft. Integrated Systems also has
a principal role in producing the U.S. Navy's F/A 18 Hornet strike fighter.
Electronic Systems. This sector includes the design, development,
manufacture and integration of a wide variety of defense electronics and
systems, airspace management systems, precision weapons, marine systems,
logistics systems, space systems, and automation and information systems.
Significant programs include fire control radars for the F-16 and F-22 fighter
aircraft and the Longbow Apache helicopter, the AWACS airborne early warning
radar, the Joint STARS air-to-ground surveillance radar sensor, the Longbow
Hellfire missile and the BAT "brilliant" anti-armor submunition. This sector
also provides tactical military radars and country-wide air defense systems,
plus airborne electronic countermeasures systems intended to jam enemy aircraft
and weapons systems. The sector includes our advanced electronics businesses,
which design, develop and manufacture inertial navigation, guidance and
control, IFF (identification friend or foe), and marine electronic systems, and
provide electronic warfare systems and integrate avionics systems and shipboard
information and communication systems. The U.S. Government is a significant
customer.
Information Technology. This sector includes the design, development,
operation and support of computer systems for scientific and management
information. Information Technology has extensive expertise in command,
control, communications, computers, intelligence, surveillance and
reconnaissance (C4ISR). It is a key management support element for major
weapons systems, such as the U.S. Navy's AEGIS class destroyer and also
provides mission planning for the U.S. Navy, Air Force and Special Operations
Command. Information Technology provides base operations support for NASA's
Kennedy Space Center, Cape Canaveral Air Station and Patrick Air Force Base,
among others. In addition, Information Technology provides information
technology services to commercial customers and to our other sectors.
Information Technology includes our information systems businesses, which
design, develop, integrate and support computer-based information systems and
provide information technology and services primarily for government customers.
Ship Systems. This sector is engaged in the building of large multimission
non-nuclear surface ships for the U.S. Navy as well as for other government and
commercial customers worldwide and is a provider of overhaul, repair,
modernization, ship design and engineering services. The U.S. Government is a
significant customer.
Component Technologies. This sector includes international suppliers of
complex backplanes, connectors, laser crystals, solder materials, specialty
products and other electronic components used primarily in the
telecommunications, industrial and computer markets.
6
USE OF PROCEEDS
We will use the net proceeds from the sale of the debt and equity securities
for general corporate purposes. These purposes may include repayment of debt,
working capital needs, capital expenditures, acquisitions and any other general
corporate purpose. If we identify a specific purpose for the net proceeds of an
offering, we will describe that purpose in the applicable prospectus supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratios of earnings to fixed charges for
each of the fiscal years ended December 31, 1996 through December 31, 2000 and
for the six months ended June 30, 2000 and June 30, 2001.
Six Months
Ended June 30, Year Ended December 31,
-------------- ------------------------
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
2.61 5.34 5.26 3.78 2.11 2.68 2.50
For purposes of computing the ratios of earnings to fixed charges, earnings
represent earnings from continuing operations before income taxes and fixed
charges, and fixed charges consist of interest expense, the portion of rental
expense calculated to be representative of the interest factor, amortization of
discounts and capitalized expenses related to indebtedness, and preferred stock
dividends. The ratios should be read in conjunction with the financial
statements and other financial data included or incorporated by reference in
this prospectus. See "Where You Can Find More Information."
7
DESCRIPTION OF DEBT SECURITIES
As used in this prospectus, "debt securities" means the senior and
subordinated debentures, notes, bonds and other evidences of indebtedness that
we issue and a trustee authenticates and delivers under the applicable
indenture. We will describe the particular terms of any series of debt
securities, and the extent to which the general terms summarized below may
apply, in the prospectus supplement relating to that series.
We will issue senior debt securities and subordinated debt securities under
separate indentures between us and The Chase Manhattan Bank, as trustee. We
have summarized the material provisions of the indentures on the following
pages. We filed the forms of both the senior indenture and the subordinated
indenture as exhibits to this registration statement and you should read the
indentures for provisions that may be important to you. If you would like more
information on these provisions, see "Where You Can Find More Information" on
how to locate the indentures. We refer to the senior indenture and the
subordinated indenture as the "indenture."
If we use another trustee or another indenture for a series of debt
securities, we will provide the details in a prospectus supplement. We will
file the forms of any other indentures with the SEC at the time we use them.
Terms
The indenture provides for the issuance of debt securities in one or more
series. A prospectus supplement relating to a series of debt securities will
include specific terms relating to the offering. These terms will include some
or all of the following:
. the title and type of the debt securities;
. whether the debt securities will be senior or subordinated debt
securities and the terms of the subordination provisions;
. any limit on the total principal amount of the debt securities;
. the person who will receive interest payments on any debt securities if
other than the registered holder;
. the price or prices at which we will sell the debt securities;
. the maturity date or dates of the debt securities;
. the rate or rates, which may be fixed or variable, per annum at which
the debt securities will bear interest and the date from which such
interest will accrue;
. the dates on which interest will be payable and the related record dates;
. whether any index, formula or other method will determine payments of
principal or interest and the manner of determining the amount of such
payments;
. the place or places of payments on the debt securities;
. whether the debt securities are redeemable;
. any redemption dates, prices, obligations and restrictions on the debt
securities;
. any mandatory or optional sinking fund or purchase fund or analogous
provisions;
. the denominations of the debt securities if other than $1,000 or
multiples of $1,000;
. the currency of principal and interest payments if other than US Dollars;
. any provisions granting special rights if certain events happen;
. any deletions from, changes in or additions to the events of default or
the covenants specified in the indenture;
8
. any trustees, authenticating or paying agents, transfer agents,
registrars or other agents for the debt securities if other than The
Chase Manhattan Bank;
. any conversion or exchange features of the debt securities;
. whether we will issue the debt securities as original issue discount
securities for federal income tax purposes;
. any special tax implications of the debt securities;
. the terms of payment upon acceleration; and
. any other material terms of the debt securities.
We may issue debt securities that are convertible into or exchangeable for
our common stock or other securities, or the debt or equity of another company.
If we issue these types of debt securities, we will provide additional
information in a prospectus supplement.
We may sell debt securities at a discount below their stated principal
amount, bearing no interest or interest at a rate that, at the time of
issuance, is different than market rates. When we refer to the principal and
interest on debt securities, we also mean the payment of any additional amounts
that we must pay under the indenture or the debt securities, including amounts
for certain taxes, assessments or other governmental charges which holders of
debt securities must pay.
Denomination, Form, Payment and Transfer
Normally, we will denominate and make payments on debt securities in U.S.
dollars. If we issue debt securities denominated, or with payments, in a
foreign or composite currency, a prospectus supplement will specify the
currency or composite currency.
We may from time to time issue debt securities as registered securities.
This means that holders will be entitled to receive certificates representing
the debt securities registered in their name. You can transfer or exchange debt
securities in registered form without service charge, upon reimbursement of any
taxes or government charges. You can make this transfer or exchange at the
trustee's corporate trust office or at any other office we maintain for such
purposes. If the debt securities are in registered form, we can pay interest by
check mailed to the person in whose name the debt securities are registered on
the days specified in the indenture.
As a general rule, however, we will issue debt securities in book-entry
form. This means that one or more permanent global certificates registered in
the name of a depositary, or a nominee of the depositary, will represent the
debt securities. Only persons who have accounts with depositaries, which are
known as participants, or persons that may hold interests through participants,
can have beneficial ownership interests in global certificates representing a
series of debt securities. The depositary will maintain a computerized
book-entry and transfer system that keeps track of the principal amounts of
debt securities held in the accounts of participants. Participants keep records
of the interests of their clients who have purchased debt securities through
them. Beneficial ownership interests in debt securities issued in book-entry
form may be shown only on, and may be transferred only through, records
maintained by the depositary and its participants. Some states require that
certain purchasers receive securities only in certificate form. These state
laws may limit the ability of beneficial owners to transfer their interests.
The Depository Trust Company, or DTC, frequently acts as the depositary for
debt securities. DTC is owned by a number of its participants and by the NYSE,
AMEX and the NASD. The information below regarding DTC, which DTC provides, is
included informational purposes only. You should not treat it as a
representation, warranty or contract modification of any kind. If we issue the
debt securities of any series in book-entry form and the depositary is someone
other than DTC, we will provide you with additional information in a prospectus
supplement.
9
DTC holds securities that its participants deposit. Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. DTC's book-entry system is also available to other
organizations such as securities brokers and dealers, banks and trust companies
that work through a participant. DTC electronically records the settlement
among participants of their securities transactions in deposited securities.
Issuers make interest and principal payments to DTC, which in turn credits
payments to participants' accounts according to their beneficial ownership
interests as reflected in DTC's records. In addition, DTC currently assigns any
voting rights to participants by using an omnibus proxy. These payments and
voting rights are governed by the customary practices between the participants
and holders of beneficial interests.
DTC will be the sole owner of the global certificates. We, the trustee and
the paying agent have no responsibility or liability for the records relating
to beneficial ownership interests in the global certificates or for the
payments of principal and interest due for the accounts of beneficial holders
of interests in the global certificates. The global certificates representing a
series of debt securities normally may not be transferred except by DTC to its
nominees or successors in accordance with the indenture. A series of debt
securities represented by global certificates will be exchangeable for debt
securities in registered form with the same terms in authorized denominations
if:
. DTC notifies us that it is unwilling or unable to continue as depositary
or if DTC ceases to be a clearing agency registered under applicable law
and we do not appoint a successor depositary within 90 days; or
. we decide not to require all of the debt securities of a series to be
represented by global certificates and notify the trustee of that
decision.
Events of Default
Unless we indicate otherwise in a prospectus supplement, the following are
events of default under the indenture with respect to any issued debt
securities:
. failure to pay the principal or any premium on any debt security of that
series when due;
. failure for 30 days to pay interest on any debt security of that series
when due;
. failure to deposit any sinking fund payment on any debt security of that
series when due;
. failure to perform any other covenant in the indenture that continues
for 90 days after we have been given written notice of such failure; or
. the occurrence of certain events in bankruptcy, insolvency or
reorganization.
An event of default for one series of debt securities does not necessarily
constitute an event of default for any other series. The trustee may withhold
notice to the debt securities holders of any default, except a payment default,
if it considers such action to be in the holders' interests.
If an event of default occurs and continues, the trustee, or the holders of
at least 25% in aggregate principal amount of the debt securities of the
series, may declare the entire principal of all the debt securities of that
series to be due and payable immediately. If this happens, under a number of
circumstances, the holders of a majority of the aggregate principal amount of
the debt securities of that series can void the acceleration of payment.
The indenture provides that the trustee has no obligation to exercise any of
its rights at the direction of any holders, unless the holders offer the
trustee reasonable indemnity. If they provide this indemnification, the holders
of a majority in principal amount of any series of debt securities have the
right to direct any proceeding, remedy, or power available to the trustee with
respect to that series.
Subordination
The subordinated debt securities will be subordinated and junior in right of
payment to all our senior indebtedness to the extent set forth in the
applicable prospectus supplement.
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Conversion Rights
We will describe the terms upon which debt securities may be convertible
into our common stock or other securities in a prospectus supplement. These
terms will include provisions as to whether conversion is mandatory or
optional. They may also include provisions adjusting the number of shares of
our common stock or other securities.
Our Obligations Under the Senior Indenture
Under the senior indenture, we will agree to the following:
Limitations on Liens. The senior indenture restricts our ability to encumber
our assets and the assets of our restricted subsidiaries. If we, or any
restricted subsidiary, pledge or mortgage any of our property to secure any
debt, then we will, unless an exception applies, pledge or mortgage the same
property to the trustee to secure the debt securities for as long as such debt
is secured by such property. Restricted subsidiary means one of our
subsidiaries that has substantially all of its assets located in, or carries on
substantially all of its business in, the United States.
This restriction will not apply in various situations. We may encumber
assets if the encumbrance is a permitted lien, as defined below, without regard
to the amount of debt secured by the encumbrance. We may also encumber assets
if the amount of all debt secured by encumbrances, other than some permitted
encumbrances, does not exceed the greater of $1,000,000,000 or 10% of our
consolidated net tangible assets. Consolidated net tangible assets means our
total assets, including the assets of our subsidiaries, as reflected in our
most recent balance sheet, less current liabilities, goodwill, patents and
trademarks. Permitted liens include:
. liens on a corporation's property, stock or debt at the time it becomes
a restricted subsidiary;
. liens on property at the time we or a restricted subsidiary acquire the
property;
. liens securing debt owing by a restricted subsidiary to us or another
restricted subsidiary;
. liens existing at the time the senior indenture becomes effective;
. liens on property of an entity at the time such entity is merged into or
consolidated with us or a restricted subsidiary or at the time we or a
restricted subsidiary acquire all or substantially all of the assets of
the entity;
. liens in favor of any governmental customer to secure payments or
performance pursuant to any contract or statute, or to secure
indebtedness we incur with respect to the acquisition or construction of
the property subject to the liens, any related indebtedness, or debt
guaranteed by a government or governmental authority; and
. any renewal, extension or replacement for any lien permitted by one of
the exceptions described above.
Limitations on Sale Leaseback Arrangements. Except under various
circumstances, the senior indenture also restricts our ability and the ability
of any restricted subsidiaries to enter into sale-leaseback transactions. Such
an arrangement is permissible if we or our restricted subsidiary would be
permitted to incur indebtedness secured by a principal property at least equal
in amount to the attributable debt with respect to such arrangement.
Sale-leaseback transaction means, subject to some exceptions, an arrangement
pursuant to which we, or a restricted subsidiary, transfer a principal property
to a person and contemporaneously lease it back from that person. Principal
property means, with some exceptions, any manufacturing plant or facility
located in the United States which we or one or more of our restricted
subsidiaries owns, except any plant or facility which our board of directors
determines is not of material importance to our total business. Attributable
debt for a sale and leaseback transaction means the lesser of the fair value of
such property as determined by our board of directors or the present value of
the obligation of the lessee for net rental payments during the remaining term
of the lease.
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The applicable indenture will not otherwise limit our ability to incur
additional debt, unless we tell you this in a prospectus supplement.
Consolidation, Merger or Sale
We may neither consolidate with nor merge into another corporation nor
transfer all or substantially all of our assets to another corporation unless:
. the successor corporation assumes all of our obligations under the debt
securities and the indenture;
. immediately following the transaction, no event of default and no
circumstances which, after notice or lapse of time or both, would become
an event of default, shall have happened and be continuing; and
. we have delivered to the trustee an officers' certificate and a legal
opinion confirming that we have complied with the indenture.
Defeasance and Covenant Defeasance
Any series of our debt securities is subject to the defeasance and discharge
provisions of the applicable indenture. Under those provisions, we may elect
either:
. to defease and be discharged from any and all our obligations with
respect to those debt securities, except for the rights of holders of
those debt securities to receive payments on the securities solely from
the trust fund established pursuant to the indenture and the obligations
to exchange or register the transfer of the securities, to replace
temporary or mutilated, destroyed, lost or stolen securities, to
maintain an office or agency with respect to the securities and to hold
moneys for payment in trust ("defeasance"); or
. to be released from our obligations with respect to those debt
securities concerning restrictive covenants which are subject to
covenant defeasance, and the occurrence of certain events of default
with respect to those restrictive covenants shall no longer be an event
default ("covenant defeasance").
To invoke defeasance or covenant defeasance with respect to any series of
debt securities, we must irrevocably deposit with the trustee, in trust, money
or U.S. Government obligations, or both, which will provide money in an amount
sufficient to pay all sums due on that series.
As a condition to defeasance or covenant defeasance, we must deliver to the
indenture trustee an opinion of counsel stating that holders of the debt
securities will not recognize gain or loss for federal income tax purposes as a
result of the defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if we did not elect the defeasance or covenant
defeasance. We may exercise our defeasance option with respect to the
securities notwithstanding our prior exercise of our covenant defeasance
option. If we exercise our defeasance option, payment of the securities may not
be accelerated by the reference to restrictive covenants which are subject to
covenant defeasance. If we do not comply with our remaining obligations after
exercising our covenant defeasance option and the securities are declared due
and payable because of the occurrence of any event of default, the amount of
money and U.S. Government obligations on deposit in the defeasance trust may be
insufficient to pay amounts due on the securities at the time of the
acceleration. However, we will remain liable for those payments.
Changes to the Indenture
Holders who own more than 50% in principal amount of the debt securities of
a series can agree with us to change the provisions of the indenture relating
to that series. However, no change can affect the payment
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terms or the percentage required to change other terms without the consent of
all holders of debt securities of the affected series.
We may enter into supplemental indentures for other specified purposes and
to make changes that would not materially adversely affect the holders'
interests, including the creation of any new series of debt securities, without
the consent of any holder of debt securities.
Governing Law
New York law will govern the indentures and the debt securities.
Trustee
The Chase Manhattan Bank will serve as trustee under each indenture. It is
the trustee under the existing senior debt securities indenture of Northrop
Systems. If we use a different trustee for any debt securities, we will let you
know in a prospectus supplement.
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DESCRIPTION OF PREFERRED STOCK
The following description discusses the general terms of the preferred stock
which we have issued and may issue in the future. Our certificate of
incorporation, the applicable certificate of designation to our certificate of
incorporation and the prospectus supplement will describe the terms of the
related series of preferred stock. We will provide you copies of these
documents upon request.
General. Our certificate of incorporation authorizes our board of directors,
from time to time and without further stockholder action, to provide for the
issuance of up to 10,000,000 shares of preferred stock, par value $1.00 per
share. Our board of directors may authorize the issuance of preferred stock in
one or more series and may fix the relative rights and preferences of the
shares, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges.
There are 3,500,000 shares of Series B preferred stock, par value $1.00 per
share, outstanding as of the date of this prospectus. As of the date of this
prospectus, there is no other series of preferred stock outstanding, and there
are no agreements or understandings for the issuance of any other preferred
stock, except for the issuance of Series A Junior Participating Preferred Stock
in connection with preferred share purchase rights attached to our common
stock. See "Description of Common Stock--Preferred Share Purchase Rights."
The shares of any series of preferred stock will be, when issued, fully paid
and non-assessable and holders of preferred stock will not have preemptive
rights.
Series B Preferred Stock
The following is a summary of the rights, preferences and privileges of our
existing Series B Preferred Stock, as set forth in a Certificate of
Designations, Preferences and Rights of Series B Preferred Stock filed with the
Secretary of State of Delaware. This summary is not a complete description of
such rights, preferences and privileges and the rights of holders of our Series
B preferred stock are governed by the precise language of the certificate of
designations, not this summary.
Conversion. Each share of our Series B preferred stock is convertible, at
any time, at the option of the holder, into the right to receive shares of our
common stock. Initially, each share of Series B preferred stock is convertible
into the right to receive the number of shares of common stock equal to the
liquidation value per share of Series B preferred stock of $100.00 divided by
$109.75.
The conversion ratio is subject to adjustment in the event of certain
dividends and distributions; upon a subdivision or reclassification of the
outstanding shares of common stock; a merger or consolidation or the sale of
substantially all of our assets; upon the liquidation of Northrop Grumman; upon
the occurrence of certain specified distributions with respect to the common
stock; and upon certain other events described in the certificate of
designations.
If any adjustment in the number of shares of common stock into which each
share of Series B preferred stock may be converted would result in an increase
or decrease of less than 1% in the number of shares of common stock into which
each share of Series B preferred stock is then convertible, the amount of the
adjustment will be carried forward and the adjustment will be made at the time
of and together with any subsequent adjustment, which, together with any
adjustment amounts carried forward, would equal at least 1% of the number of
shares of common stock into which each share of Series B preferred stock is
then convertible.
Liquidation. In any liquidation of Northrop Grumman, each share of Series B
preferred stock is entitled to a liquidation preference of $100.00 plus accrued
but unpaid dividends, whether or not declared, before any distribution may be
made on the common stock or any other class or series of our capital stock
which is junior to the Series B preferred stock. In any liquidation of Northrop
Grumman, no distribution may be made on any shares of our capital stock ranking
on a parity with the Series B preferred stock as to dividends, redemption
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payments and rights upon liquidation, dissolution or winding up of Northrop
Grumman, unless the holders of Series B preferred stock participate ratably in
the distribution along with the holders of capital stock ranking on a parity
with the Series B preferred Stock as to such matters.
Reacquired Shares. Any shares of Series B preferred stock converted,
redeemed, purchased or otherwise acquired by us will be retired and canceled.
The reacquired shares will become authorized but unissued shares of Series B
preferred stock, which we may reissue at a later date.
Rank. The Series B preferred stock ranks with respect to payment of
dividends, redemption payments and rights upon liquidation, dissolution or
winding up, prior to the common stock and any class or series of Series B
preferred stock which by its terms ranks junior to the Series B preferred
stock. The Series B preferred stock ranks on parity with each other class or
series of preferred stock unless such class or series by its terms ranks senior
to the Series B preferred stock.
Voting Rights. Holders of Series B preferred stock have no voting rights
except in certain specified circumstances described below or as required by
applicable law. The affirmative vote of the holders of two-thirds of the
aggregate number of outstanding shares of the Series B preferred stock is
required for an amendment of our certificate of incorporation, for a merger or
any other action which would:
. authorize any class or series of stock ranking prior or senior to the
Series B preferred stock as to dividends, redemption payments or rights
upon liquidation, dissolution or winding up;
. adversely alter the preference, special rights or powers given to the
Series B preferred stock; or
. cause or permit the purchase or redemption of less than all of the
Series B preferred stock unless all dividends to which such shares are
entitled have been declared and paid or provided for.
If accrued dividends on the Series B preferred stock are not paid for six
quarterly dividend periods (whether or not consecutive), a majority of the
holders of the Series B preferred stock, voting separately as a class, will
have the right to elect two directors. If such holders exercise their right to
elect two directors to our board, the size of our board will be increased by
two members until the dividends in default are paid in full or payment for the
past-due dividends is set aside.
Dividends. Holders of Series B preferred stock are entitled to cumulative
cash dividends, payable quarterly in April, July, October and January of each
year at a dividend rate per share $7.00 per year. If dividends are payable and
have not been paid or set apart in full, the deficiency must be fully paid or
set apart for payment before:
. distributions or dividends are paid on stock ranking junior to the
Series B preferred stock; and
. the redemption, repurchase or other acquisition for consideration of any
shares of our capital stock ranking junior to the Series B preferred
stock.
Mandatory Redemption for Cash After Twenty Years. We are required to redeem
all of the shares of Series B preferred stock for cash twenty years and one day
from the date of issuance of the Series B preferred stock. The redemption price
per share is equal to the liquidation value of $100.00 per share of Series B
preferred stock plus accrued but unpaid dividends, whether or not declared, to
the mandatory redemption date.
Optional Redemption for Common Stock After Seven Years. We have the option
to redeem shares of the Series B preferred stock in exchange for common stock
at any time after the seventh anniversary of the date of the initial issuance
of the Series B preferred stock. Upon redemption, holders of Series B preferred
stock will receive the number of shares of common stock equal to the
liquidation value of $100.00 per share of Series B preferred stock plus accrued
but unpaid dividends to the redemption date divided by the current market price
of the common stock on the redemption date.
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Change in Control. Upon a fundamental change in control of Northrop Grumman,
as defined below, holders of Series B preferred stock have the right, which may
be exercised during the period of 20 business days following notice from us, to
exchange their shares of Series B preferred stock for common stock. Each share
of Series B preferred stock may be exchanged in such circumstances for that
number of shares of common stock determined by dividing the liquidation value
of $100.00 per share of Series B preferred stock, plus accrued but unpaid
dividends to such date by the current market value of the common stock on the
exchange date.
A "fundamental change in control" is defined as any merger, consolidation,
sale of all or substantially all of our assets, liquidation or recapitalization
(other than solely a change in the par value of equity securities) of the
common stock in which more than one-third of the previously outstanding common
stock is exchanged for cash, property or securities other than our capital
stock or the capital stock of another corporation.
If the fundamental change in control occurred as a result of a transaction
(excluding certain dividends or distributions on, and reclassifications of,
common stock) in which the previously outstanding common stock is changed into
or exchanged for different securities of Northrop Grumman or securities of
another corporation or interests in a non-corporate entity, the common stock
that would otherwise have been issued to a holder of Series B preferred stock
for each share of Series B preferred stock will be deemed instead to be the
kind and amount of securities and property receivable upon completion of such
transaction in respect of the common stock that would result in the fair market
value of such securities and property, measured as of the exchange date, being
equal to the liquidation value plus accrued and unpaid dividends.
Other Series of Preferred Stock
The following description discusses the general terms of preferred stock
which we may issue in the future. You should refer to the prospectus supplement
relating to the class or series of preferred stock being offered for the
specific terms of that class or series, including:
. the title and stated value of the preferred stock being offered;
. the number of shares of preferred stock being offered, their liquidation
preference per share and their purchase price;
. the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculating the payment date(s) applicable to the preferred stock being
offered;
. whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on the preferred stock being
offered shall accumulate;
. the procedures for any auction and remarketing, if any, for the
preferred stock being offered;
. the provisions for a sinking fund, if any, for the preferred stock being
offered;
. the provisions for redemption, if applicable, of the preferred stock
being offered;
. any listing of the preferred stock being offered on any securities
exchange or market;
. the terms and conditions, if applicable, upon which the preferred stock
being offered will be convertible into our common stock, including the
conversion price, or the manner of calculating the conversion price, and
the conversion period;
. the terms and conditions, if applicable, upon which the preferred stock
being offered will be exchangeable into debt or equity securities,
including the exchange price, or the manner of calculating the exchange
price, and the exchange period;
. voting rights, if any, of the preferred stock being offered;
. whether interests in the preferred stock being offered will be
represented by depositary shares;
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. a discussion of any material and/or special United States federal income
tax considerations applicable to the preferred stock being offered;
. the relative ranking and preferences of the preferred stock being
offered as to dividend rights and rights upon liquidation, dissolution
or winding up of the affairs of the company;
. any limitations on the issuance of any class or series of preferred
stock ranking senior to or on a parity with the series of preferred
stock being offered as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the company; and
. any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock being offered.
Rank. Unless otherwise specified in the applicable prospectus supplement,
the preferred stock will, with respect to distribution rights and rights upon
liquidation, dissolution or winding up of the company, rank:
(a)senior to all classes or series of our common stock and to all equity
securities the terms of which specifically provide that such equity
securities rank junior to the preferred stock being offered;
(b)junior to all equity securities issued by us the terms of which
specifically provide that such equity securities rank senior to the
preferred stock being offered; and
(c)on a parity with all equity securities issued by us other than those
referred to in clauses (a) and (b) of this subheading.
Distributions. A prospectus supplement will describe the circumstances
relating to distributions on our preferred stock. If our board of directors
approves distributions, holders of our preferred stock of each series will be
entitled to receive distributions out of our assets legally available for
payment to stockholders. These distributions may be cash distributions, or
distributions in kind or in other property. The prospectus supplement will
describe the rates of the distributions and the dates we will make
distributions. Each distribution shall be payable to holders of record on such
record date as shall be fixed by our board of directors. Distributions on any
series of preferred stock, if cumulative, will be cumulative from and after the
date set forth in the applicable prospectus supplement.
Redemption. A prospectus supplement may provide that the preferred stock
will be subject to mandatory redemption or redemption at our option, in whole
or in part. The prospectus supplement will describe the terms, the times and
the redemption prices of the preferred stock.
Liquidation Preference. If we liquidate, dissolve or wind up our affairs,
then, before we make distributions to holders of common stock or any other
class or series of shares of our capital stock ranking junior to the preferred
stock in the distribution of assets, the holders of each series of preferred
stock shall be entitled to receive liquidating distributions out of our assets
legally available for distribution to stockholders. We will make liquidating
distributions in the amount of the liquidation preference set forth in the
applicable prospectus supplement plus an amount equal to all accumulated and
unpaid distributions. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of shares of preferred
stock will have no right or claim to any of our remaining assets.
If we liquidate, dissolve or wind up and we do not have enough legally
available assets to pay the amount of the liquidating distributions on all
outstanding shares of preferred stock and other classes of capital stock
ranking equally with the preferred stock in the distribution of assets, then
the holders of the preferred stock and all other such classes or series of
shares of capital stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
Voting Rights. Holders of preferred stock will not have any voting rights,
except as set forth below or as otherwise from time to time required by law, or
as indicated in the applicable prospectus supplement.
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Under the Delaware General Corporation Law, holders of outstanding shares of
a series of preferred stock would be entitled to vote as a separate class on a
proposed amendment to the terms of that series of preferred stock or our
certificate of incorporation if the amendment would increase or decrease the
par value of that series of preferred stock or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely, in which case the approval of the proposed amendment would require
the affirmative vote of at least a majority of the outstanding shares of that
series of preferred stock.
Conversion Rights. The terms and conditions, if any, upon which any series
of preferred stock is convertible into common stock will be set forth in the
applicable prospectus supplement. These terms will include the following:
. the number of shares of common stock into which the shares of preferred
stock are convertible;
. the conversion price or the manner of calculating the conversion price;
. the conversion date(s) or period(s);
. provisions as to whether conversion will be at the option of the holders
of the preferred stock or at our option; and
. the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of that
series of preferred stock.
Transfer Agent and Registrar. EquiServe Trust Company is the transfer agent
and registrar for our Series B preferred stock. We currently plan to retain
EquiServe Trust Company to serve as the transfer agent and registrar for any
other series of preferred stock that we issue.
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DESCRIPTION OF COMMON STOCK
We have authority to issue 400,000,000 shares of common stock, par value
$1.00 per share. As of September 25, 2001, 85,611,682 shares of common stock
were outstanding. Our common stock is listed on the New York Stock Exchange and
the Pacific Stock Exchange.
Dividends. Dividends may be paid on the common stock and on any class or
series of stock entitled to participate with the common stock as to dividends,
but only when and as declared by our board of directors.
Voting Rights. Each holder of our common stock is entitled to one vote per
share on all matters submitted to a vote of stockholders and does not have
cumulative voting rights for the election of directors.
Liquidation. If we liquidate, holders of common stock are entitled to
receive all remaining assets available for distribution to stockholders after
satisfaction of our liabilities and the preferential rights of any preferred
stock that may be outstanding at that time.
Other Rights. Our outstanding common shares are fully paid and
nonassessable. The holders of our common stock do not have any preemptive,
conversion or redemption rights.
Registrar and Transfer Agent. The registrar and transfer agent for our
common stock is EquiServe Trust Company.
Preferred Share Purchase Rights. We have adopted a rights plan pursuant to
which a preferred share purchase right is attached to each share of our common
stock that is or becomes outstanding prior to October 31, 2008. The rights
become exercisable 10 days after the public announcement that any person or
group has (i) acquired 15% or more of the outstanding shares of our common
stock, or (ii) initiated a tender offer for shares of our common stock, which,
if consummated, would result in any person or group acquiring 15% or more of
the outstanding shares of our common stock. Once exercisable, each right will
entitle the holder to purchase one one-thousandth of a share of our Series A
junior participating preferred stock, par value $1.00 per share, at a price of
$250.00 per one one-thousandth of a share, subject to adjustment.
Alternatively, under certain circumstances involving an acquisition of 15% or
more of our common stock outstanding, each right will entitle its holder to
purchase, at a fifty percent discount, a number of shares of our common stock
having a market value of two times the exercise price of the right. We may (i)
exchange the rights at an exchange ratio of one share of our common stock per
right, and (ii) redeem the rights, at a price of $0.01 per right, at any time
prior to an acquisition of 15% or more of the outstanding shares of our common
stock by any person or group.
Some Important Charter and Statutory Provisions. Our certificate of
incorporation provides for the division of our board of directors into three
classes of directors, each serving staggered, three year terms. Our certificate
of incorporation further provides generally that any alteration, amendment or
repeal of the sections of our certificate of incorporation dealing with the
following subjects requires the approval of the holders of at least 80% of our
outstanding voting power, unless such action is approved by a majority of our
board of directors:
. the election and classification of the board of directors;
. liability of directors; and
. the vote requirements for amendments to our certificate of incorporation,
If any of these changes to our certificate of incorporation are approved by our
board of directors, the approval of a majority of our outstanding voting power
is required to make these changes effective.
These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of the company.
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We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a Delaware corporation which
has a class of stock which is listed on a national stock exchange or which has
2,000 or more stockholders of record from engaging in a business combination
with an interested stockholder (generally, the beneficial owner of 15% or more
of the corporation's outstanding voting stock) for three years following the
time the stockholder became an interested stockholder, unless, prior to that
time, the corporation's board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, or if at least two-thirds of the outstanding shares not
owned by that interested stockholder approve the business combination, or if,
upon becoming an interested stockholder, that stockholder owned at least 85% of
the outstanding shares, excluding those held by officers, directors and some
employee stock plans. A "business combination" includes a merger, asset sale,
or other transaction resulting in a financial benefit, other than
proportionately as a stockholder, to the interested stockholder.
DESCRIPTION OF WARRANTS
General. We may issue warrants to purchase our debt or equity securities. We
may issue warrants independently or together with any offered securities and
the warrants may be attached to or separate from those offered securities. We
will issue the warrants under warrant agreements to be entered into between us
and a bank or trust company, as warrant agent, all as described in the
applicable prospectus supplement. The warrant agent will act solely as our
agent in connection with the warrants of the series being offered and will not
assume any obligation or relationship of agency or trust for or with any
holders or beneficial owners of warrants.
The applicable prospectus supplement will describe the following terms,
where applicable, of warrants in respect of which this prospectus is being
delivered:
. the title of the warrants;
. the designation, amount and terms of the securities for which the
warrants are exercisable;
. the designation and terms of the other securities, if any, with which
the warrants are to be issued and the number of warrants issued with
each such security;
. the price or prices at which the warrants will be issued;
. the aggregate number of warrants;
. any provisions for adjustment of the number or amount of securities
receivable upon exercise of the warrants or the exercise price of the
warrants;
. the price or prices at which the securities purchasable upon exercise of
the warrants may be purchased;
. if applicable, the date on and after which the warrants and the
securities purchasable upon exercise of the warrants will be separately
transferable;
. if applicable, a discussion of the material United States federal income
tax considerations applicable to the exercise of the warrants;
. any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants;
. the date on which the right to exercise the warrants shall commence, and
the date on which the right shall expire;
. the maximum or minimum number of warrants which may be exercised at any
time; and
. information with respect to book-entry procedures, if any.
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Exercise of Warrants. Each warrant will entitle the holder of warrants to
purchase for cash the amount of debt or equity securities, at the exercise
price as shall be set forth in, or be determinable as set forth in, the
prospectus supplement relating to the warrants. Warrants may be exercised at
any time up to the close of business on the expiration date set forth in the
prospectus supplement relating to the warrants. After the close of business on
the expiration date, unexercised warrants will become void.
Warrants may be exercised as set forth in the prospectus supplement relating
to the warrants. When the warrant holder makes the payment and properly
completes and signs the warrant certificate at the corporate trust office of
the warrant agent or any other office indicated in the prospectus supplement,
we will, as soon as possible, forward the debt or equity securities which the
warrant holder has purchased. If the warrant holder exercises the warrant for
less than all of the warrants represented by the warrant certificates, we will
issue a new warrant certificate for the remaining warrants.
DESCRIPTION OF THE STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and us to sell to the holders, a specified number
of shares of common stock at a future date or dates, which we refer to herein
as "stock purchase contracts." The price per share of common stock and the
number of shares of common stock may be fixed at the time the stock purchase
contracts are issued or may be determined by reference to a specific formula
set forth in the stock purchase contracts. The stock purchase contracts may be
issued separately or as part of units consisting of a stock purchase contract
and debt securities, obligations of third parties, including U.S. treasury
securities, securing the holders' obligations to purchase the common stock
under the stock purchase contracts, which we refer to herein as "stock purchase
units." The stock purchase contracts may require holders to secure their
obligations thereunder in a specified manner. The stock purchase contracts also
may require us to make periodic payments to the holders of the stock purchase
units or vice versa, and such payments may be unsecured or refunded on some
basis.
The applicable prospectus supplement will describe the terms of the stock
purchase contracts or stock purchase units. The description in the prospectus
supplement will not necessarily be complete, and reference will be made to the
stock purchase contracts, and, if applicable, collateral or depositary
arrangements, relating to the stock purchase contracts or stock purchase units.
Material United States federal income tax considerations applicable to the
stock purchase units and the stock purchase contracts will also be discussed in
the applicable prospectus supplement.
21
PLAN OF DISTRIBUTION
We may sell any series of debt or equity securities:
. through underwriters or dealers;
. through agents;
. directly to one or more purchasers; or
. directly to stockholders.
We may effect the distribution of the debt or equity securities from time to
time in one or more transactions either:
. at a fixed price or prices which may be changed;
. at market prices prevailing at the time of sale;
. at prices relating to such prevailing market prices; or
. at negotiated prices.
For each offering of debt or equity securities, the prospectus supplement
will describe the plan of distribution.
If we use underwriters in the sale, they will buy the debt or equity
securities for their own account. The underwriters may then resell the debt or
equity securities in one or more transactions at a fixed public offering price
or at varying prices determined at the time of sale or after the sale. The
obligations of the underwriters to purchase the debt or equity securities will
be subject to various conditions. The underwriters will be obligated to
purchase all the debt or equity securities offered if they purchase any debt or
equity securities. Any initial public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers may be changed from time
to time.
If we use dealers in the sale, we will sell debt or equity securities to
these dealers as principals. The dealers may then resell the debt or equity
securities to the public at varying prices to be determined by these dealers at
the time of resale. If we use agents in the sale, they will use their
reasonable best efforts to solicit purchasers for the period of their
appointment. If we sell directly, no underwriters or agents would be involved.
We are not making an offer of debt or equity securities in any state that does
not permit such an offer.
Underwriters, dealers and agents that participate in the debt or equity
securities distribution may be deemed to be underwriters as defined in the
Securities Act of 1933. Any discounts, commissions, or profit they receive when
they resell the debt or equity securities may be treated as underwriting
discounts and commissions under that Act. We may have agreements with
underwriters, dealers and agents to indemnify them against various civil
liabilities, including certain liabilities under the Securities Act of 1933, or
to contribute with respect to payments that they may be required to make.
We may authorize underwriters, dealers or agents to solicit offers from
institutions whereby the institution contractually agrees to purchase the debt
or equity securities from us on a future date at a specified price. This type
of contract may be made only with institutions that we specifically approve.
These institutions could include banks, insurance companies, pension funds,
investment companies and educational and charitable institutions. The
underwriters, dealers or agents will not be responsible for the validity or
performance of these contracts.
Underwriters, dealers and agents may engage in transactions with us or
perform services for us in the ordinary course of business.
22
VALIDITY OF THE DEBT AND EQUITY SECURITIES
Sheppard, Mullin, Richter & Hampton LLP, Los Angeles, California, will issue
an opinion about the legality of the debt and equity securities for us.
Underwriters, dealers or agents, who we will identify in a prospectus
supplement may have their counsel opine about certain legal matters relating to
the debt and equity securities.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this prospectus by reference from Northrop Systems'
Annual Report on Form 10-K/A for the year ended December 31, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited interim financial information of Northrop
Grumman for the periods ended March 31, 2001 and June 30, 2001 and Northrop
Systems for the periods ended March 31, 2000 and June 30, 2000 which is
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included in Northrop Grumman's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and June
30, 2001 and incorporated by reference herein, they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act of 1933 for their reports on the unaudited interim financial information
because those reports are not "reports" or a "part" of the registration
statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of the Act.
The consolidated financial statements incorporated in this prospectus by
reference from Litton's Annual Report on Form 10-K for the year ended July 31,
2000 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
23
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8,000,000 Shares
NORTHROP GRUMMAN CORPORATION
Common Stock
[LOGO OF NORTHROP GRUMMAN]
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Joint Bookrunning Managers
Salomon Smith Barney JPMorgan
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Goldman, Sachs & Co. Lehman Brothers Merrill Lynch & Co. SG Cowen
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Wachovia Securities
BNP PARIBAS
BNY Capital Markets, Inc.
Scotia Capital Inc.
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