<PAGE> 1
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3998
LITTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1775499
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 North Crescent Drive 90210-4867
Beverly Hills, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 859-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
------------------------
Title of each class which registered
------------------- ------------------------
Common Stock, par value $1 per share New York Stock Exchange
Pacific Stock Exchange
Series B $2 Cumulative Preferred Stock, New York Stock Exchange
par value $5 per share Pacific Stock Exchange
12 5/8% Subordinated Debentures Due 2005 New York Stock Exchange
------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
On September 30, 1994, the aggregate market value of the Registrant's
voting stock held by non-affiliates was $1.695 billion.
On September 30, 1994, there were 45,957,862 shares of Common Stock
outstanding, exclusive of treasury shares or shares held by subsidiaries of the
Registrant.
Part III incorporates information by reference from the definitive
Proxy Statement in connection with the Registrant's Annual Meeting of
Shareholders to be held on December 8, 1994.
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LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Item 1: Business 1
Item 2: Properties 5
Item 3: Legal Proceedings 6
Item 4: Submission of Matters to a Vote of Security Holders 7
PART II
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters 8
Item 6: Selected Financial Data 8
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 8: Financial Statements and Supplementary Data 8
Item 9: Disagreements on Accounting and Financial Disclosure 8
PART III
Item 10: Directors and Executive Officers of the Registrant 14
Item 11: Executive Compensation 16
Item 12: Security Ownership of Certain Beneficial Owners
and Management 16
Item 13: Certain Relationships and Related Transactions 16
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on
Form 8-K 17
Signatures 20
</TABLE>
<PAGE> 3
PART I
Item 1. Business
- -----------------
Litton Industries, Inc. (hereafter together with its consolidated subsidiaries
referred to as the "Company" or "Litton" unless the context otherwise
indicates) is mainly a high-technology aerospace/defense corporation which
provides advanced electronic and defense systems and marine engineering and
production to U.S. and world markets. The Company also provides electronic
components and interconnect products to customers worldwide. The Company was
founded in California in 1953 and has evolved into a major international
organization with approximately 29,000 employees at more than 20 major
divisions.
The Company's businesses are reported in three business segments: Advanced
Electronics, Marine Engineering and Production, and Interconnect Products.
Information about the Company's business segments appears on pages F-30
and F-31 of this Annual Report on Form 10-K. This information includes
sales and service revenues, operating profit (loss) and identifiable assets for
the Company's business segments for each of the three years in the period
ended July 31, 1994.
Advanced Electronics
- --------------------
The Company is a major supplier of electronic systems and related services to
the United States and international military electronics markets. Principal
programs and products include development, manufacture and assembly of inertial
navigation and guidance systems; command, control, communications and
intelligence systems; and electronic warfare systems. The Company participates
in ongoing development and production programs as well as upgrade and retrofit
business worldwide to serve both defense and commercial aerospace markets. The
Company also provides navigation systems for the worldwide commercial aircraft
market, as well as electronic components and computer services to a variety of
commercial customers.
Sales backlog for the Advanced Electronics segment was $1.703 billion and
$1.934 billion at July 31, 1994 and 1993, respectively. Of the backlog at
July 31, 1994, $1.152 billion has been funded and $512 million is expected to
be realized as sales in years after fiscal 1995.
Significant revenues of the Advanced Electronics segment in 1994 were derived
from sales to the U.S. Government (approximately 65%).
Marine Engineering and Production
- ---------------------------------
The Company's Ingalls Shipbuilding subsidiary is a leading designer and builder
of complex surface combat ships for the U.S. Navy. Ingalls has delivered a
total of 64 new destroyers, cruisers and amphibious assault ships to the Navy
since 1975. Current construction work includes twelve Aegis destroyers and
three amphibious assault ships for the U.S. Navy, and two corvettes for another
country. The division is also a major provider of modernization, overhaul and
repair work.
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Item 1. Business, continued
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Marine Engineering and Production, continued
- ---------------------------------
Sales backlog for the Marine Engineering and Production segment was $3.694
billion and $4.638 billion at July 31, 1994 and 1993, respectively. Of the
backlog at July 31, 1994, $3.578 billion has been funded and approximately
$2.321 billion is expected to be realized as sales in years after fiscal 1995.
In an announcement made in June 1994, the U.S. Navy awarded the Company a
contract to construct an additional Aegis destroyer with options for two more.
The backlog at July 31, 1994 did not include the options for the two
destroyers, but it is anticipated that the U.S. Navy will fund their
construction from its fiscal year 1995 budget.
Significant revenues of the Marine Engineering and Production segment in 1994
were derived from sales to the U.S. Government (approximately 93%).
Interconnect Products
- ---------------------
The Company's interconnect products operations provide interconnection
subsystems, electronic and electrical connectors, printed circuit boards, back
panels, card cages and solder products.
Discontinued Operations
- -----------------------
On June 17, 1993, the Company's Board of Directors approved a plan to
distribute to Litton shareholders all of the outstanding common stock of
Western Atlas Inc. ("WAI"), a then wholly-owned subsidiary of Litton. WAI
owned and conducted the oilfield services and industrial automation systems
businesses. The accounts of WAI have been segregated and reflected as
discontinued operations in the Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10-K. On March 17, 1994, Litton
distributed the outstanding common stock of WAI to shareholders of record
on March 14, 1994. For further information, see Note B of Notes to
Consolidated Financial Statements.
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Item 1. Business, continued
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Methods of Distribution
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The Company principally markets its products and services throughout the world
through the home offices and branch offices of its various operations. In
general, each of the Company's operations is responsible for selecting,
implementing and maintaining an efficient and effective marketing program.
Raw Materials
- -------------
The Company uses a wide variety of raw materials in the manufacture of its many
products. The availability of any individual raw material is not critical to
the Company's operations.
Working Capital
- ---------------
The working capital requirements of the Company's divisions and subsidiaries
are financed primarily from operations. The Company also has available credit
commitments of up to $400 million for its general use.
Patents
- -------
The Company owns a large number of patents, trademarks and copyrights relating
to its manufactured products, which have been secured over a period of years.
These patents, trademarks and copyrights have been of value in the growth of
the Company's business and may continue to be of value in the future. However,
the Company's business generally is not dependent upon the protection of any
patent, patent application or patent license agreement, or group thereof, and
would not be materially affected by expiration thereof.
Competition
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Competition exists with respect to all products manufactured and services
rendered by the Company. Competition ranges from companies which produce a
single product or offer a single service to some of the world's largest
corporations.
U.S. Government Contracts
- -------------------------
Contracts with the U.S. Government are, in many cases, performed over extended
periods of time and are subject to changes in design, scope, schedules, costs
and funding. In addition, contracts with the U.S. Government are subject to
certain laws and regulations, the non-compliance with which by the contractor
may result in various sanctions including monetary penalties and fines as well
as debarment or suspension from further Government contracts.
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Item 1. Business, continued
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U.S Government Contracts, continued
- ------------------------
Substantially all of the Company's contracts for and with the U.S. Government
are terminable at the option of the Government whenever it believes that such
termination would be in its best interests. Under contracts so terminated, the
Company is generally entitled to receive payment for work completed and
reasonable allowable costs incurred. Whether the occurrence of any such
termination would have an adverse effect on the Company would depend upon the
particular contract and the nature of the termination. At the present time,
management is not aware of any circumstances which would result in a material
impact on its consolidated financial statements.
Approximately 73% of the Company's consolidated revenues for fiscal year 1994
were derived from sales to the U.S. Government. Although uncertainties exist
with regards to future defense budgets, the Company's current operating plans
assume continuing reductions in defense spending.
Research and Development
- ------------------------
Worldwide expenditures on research and development activities amounted to
$220.1 million, $254.6 million and $201.9 million, of which approximately 26%,
21% and 38% were Company-sponsored in the years ended July 31, 1994, 1993 and
1992, respectively. In fiscal 1994, the Advanced Electronics segment accounted
for 99% of total research and development expenditures.
Environmental Protection
- ------------------------
During the fiscal year ended July 31, 1994, the amounts incurred in compliance
with federal, state and local regulations pertaining to environmental standards
did not have a material effect upon the capital expenditures or earnings of the
Company. For additional information with respect to environmental matters, see
Items 3, 7, and 8 of this Annual Report on Form 10-K.
Number of Employees
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At July 31, 1994, the Company had approximately 29,000 full-time employees.
Employment by business segment was as follows:
<TABLE>
<S> <C>
Advanced Electronics 12,600
Marine Engineering and Production 14,400
Interconnect Products and Other 2,000
------
29,000
======
</TABLE>
Financial Information by Geographic Area
- ----------------------------------------
See the table and related notes thereto, Operations by Geographic Area, which
appear on pages F-30 and F-32 of this Annual Report on Form 10-K.
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Item 2. Properties
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The Company's principal plants and offices have an aggregate floor area of
approximately 7,640,000 square feet, of which 6,502,000 square feet (85.1%) are
located in the United States, and 1,138,000 square feet (14.9%) are located
outside of the United States, primarily in Canada and Western Europe. The
Company's executive offices are currently located in Beverly Hills, California,
but will be moving to owned premises located in Woodland Hills, California.
These properties are used by the various business segments as follows:
<TABLE>
<S> <C>
Square Feet
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Advanced Electronics 4,932,000
Marine Engineering and Production 1,890,000
Interconnect Products 561,000
Corporate and Other Businesses 257,000
---------
7,640,000
=========
</TABLE>
Approximately 6,963,000 square feet (91.1%) of the principal plant, office and
commercial floor area is owned by the Company, and the balance is held under
lease.
The Company's principal plants and offices in the United States are situated in
26 locations in 17 states as follows:
<TABLE>
<S> <C>
State Square Feet
----- -----------
Mississippi 1,890,000
California 1,787,000
Massachusetts 375,000
Maryland 355,000
Illinois 323,000
Utah 216,000
Iowa 203,000
Other states 1,353,000
---------
6,502,000
=========
</TABLE>
The above-mentioned facilities are in satisfactory condition and suitable for
the particular purposes for which they were acquired or constructed and are
adequate for present operations.
The foregoing information excludes Company held properties leased to others and
also excludes plants or offices which, when added to all other Company plants
and offices in the same city, have a total floor area of less than 50,000
square feet.
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Item 3. Legal Proceedings
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(a) Litton Systems, Inc. ("LSI"), a subsidiary of the Company, was a
defendant in a previously reported civil suit brought under the
so-called qui tam provisions of the False Claims Act, which permit
an individual to bring suit in the name of the United States
Government and share in any recovery received. If the plaintiffs
had prevailed in such litigation, the total damages and penalties
could have exceeded $500 million. Without admitting any
liability or wrongdoing, LSI and the plaintiffs, on July 14,
1994, agreed to settle all issues in connection with the matter.
The Court dismissed the civil suit with prejudice, thereby
terminating this proceeding. Accordingly, results for fiscal
year 1994 included a charge of $86.0 million pre-tax, or $53.8
million after-tax, to reflect the settlement.
(b) The Company and certain of its divisions or subsidiaries
have been named as potentially responsible parties
by the United States Environmental Protection Agency, various
state environmental agencies, and other potentially responsible
parties for costs associated with cleanup of several sites to
which they may have contributed wastes. Also, the Company and
certain of its divisions and subsidiaries have incurred costs,
which have not had a material impact on the Company's
consolidated financial statements in any one year, for cleaning
up a number of sites owned or leased by the Company (or by
subsidiaries or divisions thereof). In addition, the Company and
certain of its divisions or subsidiaries have been named as
defendants in certain lawsuits for personal injuries allegedly
resulting from environmental contamination.
At this time, the Company believes that its ultimate liability
for additional expenditures associated with these matters
will not materially adversely affect its consolidated
financial statements.
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<PAGE> 9
Item 3. Legal Proceedings, continued
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(c) On August 31, 1993 a U.S. District Court jury rendered a verdict
in favor of Litton against Honeywell, Inc. in the amount of $1.2
billion. The jury found that Honeywell willfully infringed a
Litton patent relating to the manufacture of ring laser gyro
navigation systems which are used in commercial aircraft. The
jury also found that Honeywell actively induced a Litton
licensee to infringe Litton's patent and Honeywell interfered
with Litton's prospective economic advantage. The Court is
currently considering post trial motions filed by both Honeywell
and Litton. It is expected that any decision of the Court would
be appealed by the party which does not prevail, and the Company
cannot predict when this litigation will be ultimately concluded.
There are various other litigation proceedings in which the Company is
involved. Although the results of litigation cannot be predicted with
certainty, it is the opinion of the General Counsel that the Company does not
have a potential liability in connection with these other proceedings which
would have an adverse material effect on the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended July 31, 1994.
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<PAGE> 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------
Matters
-------
See the information with respect to the market for and number of holders of the
Company's Common stock and quarterly market information which is set forth on
pages F-33 through F-35 and dividend information which is set forth on page F-20
of this Annual Report on Form 10-K. The number of holders of record of the
Company's Common stock was computed by a count of record holders on September
30, 1994.
Item 6. Selected Financial Data
- --------------------------------
See the information with respect to selected financial data on pages 9a
through 9d of this Annual Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
---------------------
See the information under the caption "Financial Review and Analysis" on
pages 10 through 13 of this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Responsibility for Financial Reporting F-1
Independent Auditors' Report F-2
Consolidated Statements of Operations F-3
Consolidated Balance Sheets F-5
Consolidated Statements of Shareholders' Investment F-7
Consolidated Statements of Cash Flows F-9
Notes to Consolidated Financial Statements F-11
Quarterly Financial Information (unaudited) F-33
</TABLE>
Item 9. Disagreements on Accounting and Financial Disclosure
- -------------------------------------------------------------
Not applicable.
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<PAGE> 11
Item 6. Selected Financial Data
- --------------------------------
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUMMARY OF FINANCIAL INFORMATION
(dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended July 31
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Results
Sales and Service Revenues $3,446.1 $3,474.2 $3,710.8 $3,526.2 $3,586.8
Segment Operating Profit 181.4 264.1 289.9 178.9 325.4
Earnings before Extraordinary Item and
Cumulative Effect of a Change in
Accounting Principle
Continuing Operations $ 51.3 $ 87.3 $ 87.3 $ 6.0 $ 126.2
Discontinued Operations (173.1) 95.0 87.1 57.5 52.6
Extraordinary Loss (30.7) - - - -
Cumulative Effect of a Change in
Accounting Principle
Continuing Operations - (106.7) - - -
Discontinued Operations - (10.4) - - -
- -----------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ (152.5) $ 65.2 $ 174.4 $ 63.5 $ 178.8
=============================================================================================================================
Sales to the U.S. Government
as a Percent of Total Sales 73% 73% 70% 69% 65%
</TABLE>
See Notes on page 9d.
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Item 6. Selected Financial Data, continued
- --------------------------------
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUMMARY OF FINANCIAL INFORMATION
(dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended July 31
------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Financial Position at Year End
Total Assets $2,254.3 $2,749.1 $2,953.1 $3,207.1 $3,795.2
Shareholders' Investment 610.4 578.4 322.3 111.3 492.5
Long-term Obligations 105.6 106.5 131.2 126.6 140.6
Convertible Subordinated Notes
and Other Subordinated Debentures - 435.8 735.6 1,151.9 1,311.3
Working Capital 36.9 435.3 365.0 878.9 1,274.7
Current Ratio 1.03 1.36 1.25 1.70 1.97
Common Share Data
Earnings per Share
Primary
Earnings (Loss) before Extraordinary
Item and Cumulative Effect of a Change
in Accounting Principle
Continuing Operations $ 1.10 $ 2.10 $ 2.10 $ 0.12 $ 2.56
Discontinued Operations (3.79) 2.31 2.12 1.33 1.07
Extraordinary Loss (0.67) - - - -
Cumulative Effect of a Change in
Accounting Principle
Continuing Operations - (2.60) - - -
Discontinued Operations - (0.25) - - -
- --------------------------------------------------------------------------------------------------------------------------------
Total Primary $ (3.36) $ 1.56 $ 4.22 $ 1.45 $ 3.63
================================================================================================================================
</TABLE>
See Notes on page 9d.
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Item 6. Selected Financial Data, continued
- --------------------------------
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUMMARY OF FINANCIAL INFORMATION
(dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended July 31
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Fully Diluted
Earnings (Loss) before Extraordinary
Item and Cumulative Effect of a Change
in Accounting Principle
Continuing Operations $ 1.10 $ 2.10 $2.10 $0.12 $2.56
Discontinued Operations (3.79) 2.31 1.84 1.33 1.07
Extraordinary Loss (0.67) - - - -
Cumulative Effect of a Change in
Accounting Principle
Continuing Operations - (2.60) - - -
Discontinued Operations - (0.25) - - -
- --------------------------------------------------------------------------------------------------------------------------
Total Fully Diluted $(3.36) $ 1.56 $3.94 $1.45 $3.63
==========================================================================================================================
Book Value per Share 13.07 12.48 7.71 2.55 10.54
Common Shares Outstanding
at Year End (in millions) 45.9 45.5 40.5 39.7 44.8
Shares Used to Compute Primary
Earnings (Loss) per Share (in millions) 45.7 41.2 41.2 43.4 49.1
Shares Used to Compute Fully
Diluted Earnings (Loss) per Share 45.7 41.2 47.3 43.5 49.1
(in millions)
</TABLE>
See Notes on page 9d.
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Item 6. Selected Financial Data, continued
- --------------------------------
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUMMARY OF FINANCIAL INFORMATION
(dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended July 31
---------------------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Other Selected Financial Information
Capital Expenditures 80.6 73.6 81.5 90.2 89.9
Depreciation and Amortization Expense 98.4 107.4 113.0 120.1 129.7
Research and Development Expenditures 220.1 254.6 201.9 224.5 269.6
Backlog at Year End 5,466.6 6,700.4 6,570.0 6,654.4 7,650.2
Number of Employees at Year End 29,000 32,300 34,700 36,900 37,700
</TABLE>
Notes:
(A) Information has been restated to conform with the current presentation
and, as applicable, for the two-for-one Common stock split which occurred
in fiscal year 1992 (see Note F on page F-20).
(B) Results for fiscal year 1994 included the settlement of a civil suit (see
Notes I and J on pages F-28 and F-29) and extraordinary loss on early
extinguishment of debt (see Notes C and J on pages F-15 and F-29).
(C) In the fourth quarter of fiscal year 1991, the Company provided for the
loss on sale of a division, which resulted in a charge to pre-tax
earnings of $120.0 million or $100.1 million after tax. The effect on
primary earnings per share for the year was a decrease of $2.31.
(D) During the five year period ended July 31, 1994, the Company declared no
dividends on its Common stock.
-9d-
<PAGE> 15
Item 7. Financial Review and Analysis
- --------------------------------------
Sales for the Company's continuing operations amounted to $3.45 billion, $3.47
billion and $3.71 billion for fiscal years 1994, 1993 and 1992, respectively.
Earnings before extraordinary loss on the early extinguishment of debt for
fiscal year 1994 were $51.3 million. Fiscal year 1993 earnings before the
cumulative effect of a change in accounting for retiree health care and life
insurance benefits amounted to $87.3 million. Earnings for fiscal year 1992
were $87.3 million.
The Advanced Electronics segment reported sales of $1.73 billion, $1.84
billion and $1.96 billion for fiscal years 1994, 1993 and 1992, respectively.
Related operating profit was $36 million, $118 million and $138 million,
respectively. The decline in sales reflected the continuing reduction in
defense budgets both in the U.S. and internationally. Although uncertainties
exist with regards to the size and focus of future defense budgets, management
believes that the Company's participation in a broad mix of programs will help
lessen the impact of single program reductions or cancellations. The Company
continues to focus on improving the cost structures and capacity of these
operations to facilitate their competitive positions. The upfront costs of
these efforts have affected profit and profit margin, but will enhance the
ability of these operations to effectively compete for future contracts.
Operating profit for fiscal year 1994 reflected a charge of $86.0 million for
the settlement of a civil suit brought under the provisions of the False Claims
Act (see Notes I and J of Notes to Consolidated Financial Statements). The
U. S. Government and the other plaintiffs agreed to release all claims in
connection with the settlement. The settlement brought a conclusion to an
uncertainty which would have required the commitment of company resources on a
long-term basis. The strong cash flow generated by these operations, along
with a lower level of debt, provide the Company with flexibility to pursue
selective acquisitions in the defense industry. The backlog for this segment
at July 31, 1994 was $1.70 billion compared with $1.93 billion at July 31, 1993.
The Marine Engineering and Production segment reported sales of $1.48
billion, $1.39 billion and $1.49 billion for fiscal years 1994, 1993 and 1992,
respectively. Related operating profit was $141 million, $130 million and $138
million, respectively. This segment's major customer is the U.S. Government;
however, it is continuing to explore opportunities internationally. Management
has continued to monitor and adjust the size of its operations to enhance
efficiency, which will benefit its ability to compete successfully in the
marketplace. This segment continued its solid performance and strong cash flow
during fiscal year 1994. Sales showed a modest increase and there was an
improvement in profit margin in fiscal year 1994 over 1993. Backlog at
July 31, 1994 was $3.69 billion compared with $4.64 billion at July 31, 1993.
In an announcement made in June 1994, the U.S. Navy awarded the Company a
contract to construct an additional Aegis destroyer with options for two more.
The backlog at July 31, 1994 did not include the options for the two
destroyers, but it is anticipated that the U.S. Navy will fund their
construction from its fiscal year 1995 budget.
The Interconnect Products segment provides a broad line of electronic
components and interconnect products to diverse markets worldwide. This
segment reported sales of $289 million, $307 million and $324 million for
fiscal years 1994, 1993 and 1992, respectively. Operating profit for each of
-10-
<PAGE> 16
Item 7. Financial Review and Analysis, continued
- --------------------------------------
these years was $8 million, $19 million and $16 million, respectively. The
lower operating profit in fiscal year 1994 was primarily due to a charge
recorded to adjust the net assets of a division to net realizable value in
connection with its possible sale or closure.
Information about the Company's segments can be found on pages F-30 and F-31.
In the current environment, the Company, along with other government
contractors, will be subject to reviews and investigations by the U.S.
Government in connection with the performance of and accounting for contracts.
In the event a contractor is found to be in noncompliance with procurement
rules and regulations, the U.S. Government may impose various sanctions
including monetary payments as well as suspension or debarment from receiving
further contracts. The U.S. Government may also unilaterally terminate
contracts with compensation for work completed and costs incurred. At the
present time, management is not aware of any circumstances which would
result in a material impact on its consolidated financial statements.
Discontinued Operations
On March 17, 1994, Litton distributed all of the issued and outstanding
shares of common stock of its previously wholly-owned subsidiary, Western Atlas
Inc. ("WAI"), which has been reflected herein as discontinued operations (see
Note B of Notes to Consolidated Financial Statements). The balance sheet
effect of the distribution was a reduction to Litton's Shareholders' Investment
in the amount of $915.3 million representing the book value of net assets
distributed. Results for fiscal year 1994 included special charges totalling
$179 million, net of tax, recorded to reflect the write-down of net assets in
connection with WAI's decision to sell the Core Laboratories division of
Western Atlas International, Inc. and to provide for obsolescence of older
technology equipment, vessels and inventory and the consolidation of
facilities.
Liquidity and Capital Resources
Cash and marketable securities amounted to $117.1 million and $353.7
million at July 31, 1994 and 1993, respectively. The significant uses of cash
during fiscal year 1994 included the early extinguishment (see Note C of Notes
to Consolidated Financial Statements) of the Company's 12 5/8% Subordinated
Debentures in the principal amount of $435.8 million and the $86.0 million
payment in connection with the settlement of the civil suit previously
discussed. Both of these transactions occurred in July 1994. Cash flow from
operations was the primary source of funds utilized in these transactions. The
Company also received approximately $100 million repayment from WAI for certain
intercompany indebtedness at the time of the distribution of the common stock
of WAI.
Net interest expense for fiscal year 1994 was $32.6 million compared
with $66.1 million for fiscal year 1993 and $85.2 million for fiscal year 1992.
Interest expense declined significantly in fiscal year 1994 compared with 1993
due primarily to the June 28, 1993 call for redemption of the zero coupon
convertible subordinated notes. Substantially all of the notes outstanding
were converted into 6.114 million shares of Litton Common stock
-11-
<PAGE> 17
Item 7. Financial Review and Analysis, continued
- --------------------------------------
and the remainder was redeemed in cash. Corporate interest costs of $7.0
million, $12.0 million and $12.0 million were attributed to WAI and, therefore,
reclassified to discontinued operations for fiscal years 1994, 1993 and 1992,
respectively. Additionally, interest income was higher in fiscal year 1994 due
to higher average invested cash balances. The decrease in net interest expense
in fiscal year 1993 compared with 1992 was primarily due to the redemption in
July 1992 of the Company's 11 1/2% Subordinated Notes in the principal amount
of $435.8 million. In connection with the transaction, the Company
repatriated certain earnings of a foreign subsidiary for which U.S. taxes had
been provided, but not previously paid. The taxes due on the repatriated
earnings were the principal reason for the higher tax payments in fiscal year
1992. Tax payments amounted to $195.0 million, $180.6 million and $220.7
million in fiscal years 1994, 1993 and 1992, respectively.
Management believes that the Company will be able to meet its working capital
requirements with existing cash and marketable securities and internally
generated funds. In addition, the Company has available credit commitments of
up to $400 million for its general use.
Shareholder Rights Plan
On August 17, 1994, the Company's Board of Directors declared a dividend of
one purchase right to a portion of a preferred share for each outstanding
share of Common stock, payable August 31, 1994 to shareholders of record on
that date. See Note F of Notes to Consolidated Financial Statements for
further discussion.
Environmental Matters
The Company has been named as a potentially responsible party in respect to
various sites to which certain of its operations may have contributed wastes.
Also, the Company and certain of its divisions and subsidiaries have incurred
costs, which have not had a material impact on the Company's consolidated
financial statements in any one year, for cleaning up a number of sites owned
or leased by the Company. At this time, the Company believes that its ultimate
liability for additional expenditures associated with sites owned and other
sites to which it may have contributed wastes will not have a material adverse
effect on its consolidated financial statements.
-12-
<PAGE> 18
Item 7. Financial Review and Analysis, continued
- --------------------------------------
New Accounting Standards
In November 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits, which establishes standards of accounting and
reporting for the estimated costs of benefits provided to former or inactive
employees after employment but before retirement. In May 1993, the FASB issued
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which addresses the accounting and
reporting for investments in debt securities and equity securities. The Company
believes that the adoption of these standards, to be made in the first quarter
of fiscal year 1995, will have virtually no impact on its consolidated
financial statements.
-13-
<PAGE> 19
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information on directors of the Company will be included under the caption "The
Election of Directors" of the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on December 8, 1994, which is
hereby incorporated by reference.
The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company. The following information indicates the position and
age of the executive officers at October 10, 1994 and their business experience
during the prior five years:
<TABLE>
<CAPTION>
Positions and offices presently
Name Age held and business experience
- ---- --- -------------------------------
<S> <C> <C>
John M. Leonis 61 President and Chief Executive Officer and a director since
March, 1994; prior thereto Senior Vice President since July,
1990 and Group Executive of the Company's Navigation, Guidance
and Control Systems Group since 1988; Vice President from 1988
to 1990.
Rudolph E. Lang, Jr. 58 Senior Vice President and Chief Financial Officer and a
director since March, 1994; prior thereto Senior Vice
President and Controller since December, 1988.
Michael R. Brown 53 Senior Vice President since June, 1992 and Group Executive of
the Electronic Warfare Systems Group since 1988; Vice
President from 1989 to 1992.
Richard D. Fleck 64 Senior Vice President since 1988 and Group Executive of the
Command, Control and Communications Systems Group since 1986.
Larry A. Frame 58 Senior Vice President and Group Executive of the Navigation, Guidance
and Control Systems Group since March, 1994; prior thereto Division
President of the Guidance and Control Systems Division since
April, 1988; Vice President from 1990 to 1994.
Gerald J. St. Pe' 54 Senior Vice President of the Company since 1986 and President
of Ingalls Shipbuilding, Inc., a subsidiary of the Company,
since 1987.
</TABLE>
-14-
<PAGE> 20
Item 10. Directors and Executive Officers of the Registrant, continued
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Positions and offices presently
Name Age held and business experience
- ---- --- -------------------------------
<S> <C> <C>
John E. Preston 53 Senior Vice President and General Counsel since March, 1994;
prior thereto Vice President and Associate General Counsel
since April, 1990; Vice President and Group Counsel for
Advanced Electronics Group since 1978.
Timothy G. Paulson 47 Vice President and Treasurer since June, 1994; prior thereto
Vice President of Finance and Administration of the Company's
Amecom Division since 1991; Division Controller since 1986.
Carol A. Wiesner 55 Vice President and Controller since June, 1994; prior thereto
Vice President and Treasurer since June, 1988. Chief
Accounting Officer of the Company.
</TABLE>
-15-
<PAGE> 21
Item 11. Executive Compensation
- --------------------------------
Information on executive compensation will be included under the caption
"Compensation of Executive Officers" of the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on December
8, 1994, which is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information on beneficial ownership of the Company's voting securities by each
director and all officers and directors as a group, and by any person known to
beneficially own more than 5% of any class of voting security of the Company
will be included under the caption "Beneficial Ownership of the Company's
Securities" of the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on December 8, 1994, which is hereby
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information on certain relationships and related transactions including
information with respect to management indebtedness will be included under the
caption "Information Regarding Indebtedness of Management to the Company" of
the Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on December 8, 1994, which is hereby incorporated by
reference.
-16-
<PAGE> 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(a)(1) Financial Statements
See Part II
(a)(2) Financial Statement Schedules *
Litton Industries, Inc. and Subsidiary Companies
Schedule I - Marketable Securities and Other Investments S-1
Schedule II - Amounts Receivable From Related
Parties and Employees Other Than
Related Parties S-2a
Schedule V - Property, Plant and Equipment S-3
Schedule VI - Accumulated Depreciation and Amortization of Property,
Plant and Equipment S-4
Schedule IX - Short-term Borrowings S-5
Schedule X - Supplementary Income Statement Information S-6
(a)(3) Executive Compensation Plans and Arrangements 18
(b) Reports on Form 8-K
(1) In a report filed on Form 8-K dated July 11, 1994, the Company
reported that it effected an in-substance defeasance of its
12 5/8% Subordinated Debentures in the principal amount of
$435.8 million due July 1, 2005. See Notes C and J of Notes
to Consolidated Financial Statements included in this Annual
Report on Form 10-K for further information.
(2) In a report filed on Form 8-K dated July 14, 1994, the Company
reported that it settled a previously reported civil suit.
See Notes I and J of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for
further information.
(c) Index to Exhibits E-1
* All other schedules and notes specified under Regulation S-X are omitted
because they are either not applicable, not required or the information
called for therein appears in the consolidated financial statements or
notes thereto.
</TABLE>
-17-
<PAGE> 23
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EXECUTIVE COMPENSATION PLANS and ARRANGEMENTS
<TABLE>
<CAPTION>
Report With
Exhibit Which Exhibit
Description No. Was Filed
- ----------- ------- -------------
<S> <C> <C>
Directors' annual retainer and attendance 10.1 April, 1994
fees. Form 10-Q
Director retirement age and postretirement 10.2(b) 1991 Form 10-K
payments to directors.
Litton Supplemental Retirement Plan. 10.3 1983 Form 10-K
-Amendment to the Litton Supplemental 10.1 April, 1993
Retirement Plan. Form 10-Q
Form of the agreement under the Litton 10.4(a) 1984 Form 10-K
Industries, Inc. Executive Survivor
Benefit Plan.
-Amendment to the Executive Survivor 10.4(a) 1986 Form 10-K
Benefit Plan, adopted June 13, 1986.
Extended notice of termination. 10.7 1992 Form 10-K
Incentive loans. 10.8(a) 1991 Form 10-K
Supplemental Medical Insurance Plan. 10.10 1990 Form 10-K
Litton Industries, Inc. 1981 Incentive Stock 10.12(a) 1982 Form 10-K
Option Plan.
-Adjustment for the distribution of 10.12(b) 1993 Form 10-K
Western Atlas Inc.
Orion L. Hoch Supplemental Retirement 10.13(b) 1983 Form 10-K
Agreement and Supplemental Medical
Insurance Plan.
-First Amendment. 10.13(c) 1984 Form 10-K
-Second Amendment. 10.4 April, 1994
Form 10-Q
-Approval for participation in the 10.2 April, 1994
Supplemental Medical Insurance Plan Form 10-Q
Lifetime participation of Fred W. O'Green 10.13(e) 1988 Form 10-K
and Mildred G. O'Green in the Supplemental
Medical Insurance Plan.
Litton Industries, Inc. 1984 Long-Term Stock 10.14(a) 1992 Form 10-K
Incentive Plan, as amended.
-Amendment dated August 12, 1993. 10.14(c) 1993 Form 10-K
-Adjustment for the distribution of 10.14(d) 1993 Form 10-K
Western Atlas Inc.
</TABLE>
-18-
<PAGE> 24
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EXECUTIVE COMPENSATION PLANS and ARRANGEMENTS
(continued)
<TABLE>
<CAPTION>
Report With
Exhibit Which Exhibit
Description No. Was Filed
- ----------- ------- -------------
<S> <C> <C>
Litton Industries, Inc. Performance Award 10.15 1984 Form 10-K
Plan.
-Amendment dated December 2, 1992. 10.2 April, 1993
Form 10-Q
Litton Industries, Inc. Restoration Plan. 10.16 1989 Form 10-K
Litton Industries, Inc. Director Stock 10.18(a) 1989 Form 10-K
Option Plan.
-Adjustment for the distribution of 10.18(c) 1993 Form 10-K
Western Atlas Inc.
Consulting agreement between a subsidiary of 10.5 April, 1994
the Company and Thomas B. Hayward, a Form 10-Q
director.
The Company's "Group Bonus Plan Fiscal 10.24 1992 Form 10-K
1992."
Incentive compensation plan of Ingalls 10.25 1992 Form 10-K
Shipbuilding, Inc., a subsidiary of the
Company.
Litton Industries, Inc. Deferred 10.26 April, 1993
Compensation Plan for Directors. Form 10-Q
Form of Change of Control Employment 10.27 1993 Form 10-K
Agreement.
</TABLE>
-19-
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LITTON INDUSTRIES, INC.
/s/ Carol A. Wiesner
-----------------------------
Carol A. Wiesner
Vice President and Controller
(Chief Accounting Officer)
October 14, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
/s/ W. W. Booth /s/ Alton J. Brann
- ------------------------------------- ---------------------------------------
Wallace W. Booth, October 14, 1994 Alton J. Brann, October 14, 1994
Director Director and
Chairman of the Board
/s/ J. T. Casey /s/ Carol B. Hallett
- ------------------------------------- ---------------------------------------
Joseph T. Casey, October 14, 1994 Carol B. Hallett, October 14, 1994
Director Director
/s/ Thomas B. Hayward /s/ O. L. Hoch
- ------------------------------------- ---------------------------------------
Thomas B. Hayward, October 14, 1994 Orion L. Hoch, October 14, 1994
Director Director
/s/ /s/ Rudolph E. Lang, Jr.
- ------------------------------------- ---------------------------------------
David E. Jeremiah, October 14, 1994 Rudolph E. Lang, Jr., October 14, 1994
Director Director,
Senior Vice President and
Chief Financial Officer
/s/ Robert H. Lentz /s/ John M. Leonis
- ------------------------------------- ---------------------------------------
Robert H. Lentz, October 14, 1994 John M. Leonis, October 14, 1994
Director Director,
President and
Chief Executive Officer
/s/ /s/ C. B. Thornton, Jr.
- ------------------------------------- ---------------------------------------
William P. Sommers, October 14, 1994 C. B. Thornton, Jr., October 14, 1994
Director Director
/s/ Carol A. Wiesner
- -------------------------------------
Carol A. Wiesner, October 14, 1994
Vice President and Controller
(Chief Accounting Officer)
</TABLE>
-20-
<PAGE> 26
Litton Industries, Inc.
Management's Responsibility for Financial Reporting
The consolidated financial statements of Litton Industries, Inc. and subsidiary
companies, and related financial information included in this Annual Report,
have been prepared by the Company, whose management is responsible for their
integrity. These statements, which necessarily reflect estimates and
judgments, have been prepared in conformity with generally accepted accounting
principles.
The Company maintains a system of internal controls to provide
reasonable assurance that assets are safeguarded and transactions are properly
executed and recorded. As part of this system, the Company has an internal
audit staff to monitor the compliance with and the effectiveness of established
procedures.
The consolidated financial statements have been audited by DELOITTE &
TOUCHE LLP, independent certified public accountants, whose report appears on
page F-2.
The Audit and Compliance Committee of the Board of Directors, which
consists solely of directors who are not employees of the Company, meets
periodically with management, the independent auditors and the Company's
internal auditors to review the scope of their activities and reports relating
to internal controls and financial reporting matters. The independent and
internal auditors have full and free access to the Audit and Compliance
Committee and meet with the Committee both with and without the presence of
Company management.
/s/ Rudolph E. Lang, Jr.
- ------------------------
Rudolph E. Lang, Jr.
Senior Vice President and
Chief Financial Officer
October 10, 1994
F-1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Litton Industries, Inc.
Beverly Hills, California
We have audited the accompanying consolidated balance sheets of Litton
Industries, Inc. and subsidiary companies as of July 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' investment and
cash flows for each of the three years in the period ended July 31, 1994. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a)(2). These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Litton Industries, Inc. and
subsidiary companies as of July 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1994, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note H to the consolidated financial statements, in fiscal year
1993 the Company changed its method of accounting for postretirement benefits
other than pensions to conform with Statement of Financial Accounting Standards
No. 106.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 22, 1994
F-2
<PAGE> 28
Litton Industries, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars, ----------------------------------------
except per share amounts) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and Service Revenues $3,446,053 $3,474,158 $3,710,838
- --------------------------------------------------------------------------------
Costs and Expenses
Cost of sales (exclusive of
depreciation shown below) 2,777,462 2,801,485 2,989,279
Selling, general and
administrative 360,875 354,826 378,983
Depreciation and amortization 98,444 107,380 113,023
Interest - net (Note C) 32,624 66,101 85,230
Unusual item -
litigation settlement
(Notes I and J) 86,000 - -
- --------------------------------------------------------------------------------
Total 3,355,405 3,329,792 3,566,515
- --------------------------------------------------------------------------------
Earnings from Continuing
Operations before Taxes on
Income, Extraordinary Item and
Cumulative Effect of a Change in
Accounting Principle 90,648 144,366 144,323
Taxes on Income (Note G) (39,342) (57,025) (57,024)
- --------------------------------------------------------------------------------
Earnings from Continuing
Operations before Extraordinary
Item and Cumulative Effect of a
Change in Accounting Principle 51,306 87,341 87,299
Discontinued Operations (Note B) (173,079) 94,962 87,138
- --------------------------------------------------------------------------------
Earnings (Loss) before
Extraordinary Item and Cumulative
Effect of a Change in
Accounting Principle (121,773) 182,303 174,437
Extraordinary Loss (Notes C and J) (30,732) - -
Cumulative Effect of a Change
in Accounting Principle (Note H)
Continuing Operations - (106,727) -
Discontinued Operations - (10,390) -
- --------------------------------------------------------------------------------
Net Earnings (Loss) $ (152,505) $ 65,186 $ 174,437
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 29
Litton Industries, Inc.
Consolidated Statements of Operations
(continued)
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars, ------------------------------------
except per share amounts) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (Loss) per Share (Notes A
and F)
Primary
Earnings before Extraordinary
Item and Cumulative Effect
of a Change in
Accounting Principle
Continuing Operations $ 1.10 $ 2.10 $2.10
Discontinued Operations (3.79) 2.31 2.12
Extraordinary Loss (0.67) - -
Cumulative Effect of a
Change in Accounting
Principle
Continuing Operations - (2.60) -
Discontinued Operations - (0.25) -
- -----------------------------------------------------------------------------
Total Primary $(3.36) $ 1.56 $4.22
=============================================================================
Fully Diluted
Earnings before Extraordinary
Item and Cumulative Effect
of a Change in
Accounting Principle
Continuing Operations $ 1.10 $ 2.10 $2.10
Discontinued Operations (3.79) 2.31 1.84
Extraordinary Loss (0.67) - -
Cumulative Effect of a
Change in Accounting
Principle
Continuing Operations - (2.60) -
Discontinued Operations - (0.25) -
- -----------------------------------------------------------------------------
Total Fully Diluted $(3.36) $ 1.56 $3.94
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 30
Litton Industries, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31
-------------------------
(thousands of dollars) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and marketable securities (Note C) $ 117,104 $ 353,737
Accounts receivable less allowance for
doubtful accounts of $12,866 (1994)
and $12,017 (1993) (Note D) 320,985 470,970
Inventories less progress billings
(Notes A and D) 481,073 509,078
Deferred tax assets (Note G) 330,495 313,966
Prepaid expenses 14,416 12,790
- -----------------------------------------------------------------------------
Total Current Assets 1,264,073 1,660,541
- -----------------------------------------------------------------------------
Property, Plant and Equipment, Net
(Notes A and E) 597,616 638,038
- -----------------------------------------------------------------------------
Goodwill and Other Intangibles, Net of
Amortization of $54,668 (1994)
and $47,751 (1993) (Notes A and B) 138,395 137,193
- -----------------------------------------------------------------------------
Long-term Investments and Other Assets
(Includes $1,951 (1994) and $4,634 (1993)
Due from Related Parties and $100 million
due from Western Atlas Inc. (1993)) (Note H) 254,212 313,298
- -----------------------------------------------------------------------------
Net Assets of Western Atlas Inc. (Note B) - 1,085,353
- -----------------------------------------------------------------------------
Total Assets $2,254,296 $3,834,423
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 31
Litton Industries, Inc.
Consolidated Balance Sheets
(continued)
<TABLE>
<CAPTION>
July 31
------------------------
(thousands of dollars) 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Investment
Current Liabilities
Accounts payable $ 555,895 $ 546,349
Payrolls and related expenses 225,124 263,801
Taxes on income 120,511 152,029
Notes payable and current portion of
long-term obligations (Note C) 97,734 65,721
Customer deposits and contract
liabilities (Note D) 227,877 197,335
- ----------------------------------------------------------------------------
Total Current Liabilities 1,227,141 1,225,235
- ----------------------------------------------------------------------------
Long-term Obligations (Note C) 105,621 106,474
- ----------------------------------------------------------------------------
Postretirement Benefit Obligations
other than Pensions (Note H) 198,795 183,032
- ----------------------------------------------------------------------------
Other Long-term Liabilities 63,833 115,110
- ----------------------------------------------------------------------------
Deferred Tax Liabilities (Note G) 48,492 105,049
- ----------------------------------------------------------------------------
Subordinated Debentures (Note C) - 435,805
- ----------------------------------------------------------------------------
Shareholders' Investment (Notes A and F and
accompanying statements)
Capital stock
Voting preferred stock - Series B
(liquidating preference $8,213) 2,053 2,053
Common stock (shares outstanding:
45,913,646 (1994) and 45,519,821 (1993)) 45,914 45,520
Additional paid-in capital 273,280 706,191
Retained earnings 317,681 934,605
Cumulative currency translation adjustment (28,514) (24,651)
- ----------------------------------------------------------------------------
Total Shareholders' Investment 610,414 1,663,718
- ----------------------------------------------------------------------------
Total Liabilities and Shareholders' Investment $2,254,296 $3,834,423
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 32
Litton Industries, Inc.
Consolidated Statements of Shareholders' Investment
<TABLE>
<CAPTION>
Capital Stock
-------------------------
Total Preferred Cumulative
Share- Series B Common Additional Currency
holders' Par Par Paid-in Retained Translation
(thousands of dollars) Investment Value $5 Value $1 Capital Earnings Adjustment
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1991 $1,157,069 $2,053 $39,658 $359,582 $765,860 $(10,084)
Net earnings 174,437 - - - 174,437 -
Cash dividends on Preferred-
Series B ($2.00 per share) (821) - - - (821) -
Purchase of Common stock (1,458) - (32) (1,229) (197) -
Exercise of employee stock options 31,163 - 829 30,334 - -
Currency translation adjustment 3,671 - - - - 3,671
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1992 1,364,061 2,053 40,455 388,687 939,279 (6,413)
Net earnings 65,186 - - - 65,186 -
Cash dividends on Preferred-
Series B ($2.00 per share) (821) - - - (821) -
Purchase of Common stock (90,957) - (1,769) (20,149) (69,039) -
Exercise of employee stock options 31,900 - 720 31,180 - -
Conversion of zero coupon
convertible subordinated notes 312,587 - 6,114 306,473 - -
Currency translation adjustment (18,238) - - - - (18,238)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1993 1,663,718 2,053 45,520 706,191 934,605 (24,651)
</TABLE>
Financial information at July 31, 1991 has been adjusted for a two-for-one
common stock split (see Note F).
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 33
Litton Industries Inc.
Consolidated Statements of Shareholders' Investment
(continued)
<TABLE>
<CAPTION>
Capital Stock
-------------
Total Preferred Cumulative
Share- Series B Common Additional Currency
holders' Par Par Paid-in Retained Translation
(thousands of dollars) Investment Value $5 Value $1 Capital Earnings Adjustment
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1993 1,663,718 2,053 45,520 706,191 934,605 (24,651)
Net loss (152,505) - - - (152,505) -
Cash dividends on Preferred-
Series B ($2.00 per share) (821) - - - (821) -
Purchase of Common stock (2,736) - (44) (803) (1,889) -
Exercise of employee stock options 15,850 - 438 15,412 - -
Currency translation adjustment 2,201 - - - - 2,201
Distribution of Western Atlas Inc.
(Note B) (915,293) - - (447,520) (461,709) (6,064)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1994 $ 610,414 $2,053 $45,914 $ 273,280 $ 317,681 $(28,514)
===============================================================================================================================
</TABLE>
Financial information at July 31, 1991 has been adjusted for a two-for-one
common stock split (see Note F).
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 34
Litton Industries, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended July 31
-------------------------------------------
(thousands of dollars) 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents at beginning
of period $ 237,440 $ 169,972 $ 341,273
- ---------------------------------------------------------------------------------------------
Cash Was Provided by (Used for)
Operating Activities
Continuing Operations
Net earnings (loss) 20,574 (19,386) 87,299
Adjustments to reconcile net
earnings (loss) to net cash provided
by operating activities
Extraordinary loss on early
extinguishment of debt 30,732 - -
Cumulative effect of a change in
accounting principle - 106,727 -
Depreciation and amortization 98,444 107,380 113,023
Deferred income tax benefit (105,115) (46,601) (237,005)
Decrease in accounts receivable 152,523 101,072 60,960
Decrease (increase) in inventory 16,714 60,222 (9,489)
Increase in deferred tax assets (16,529) (9,260) (7,427)
(Increase) decrease in prepaid
expenses (1,445) 703 30
Increase (decrease) in accounts
payable 12,632 48,876 (27,934)
(Decrease) increase in payrolls
and related expenses (30,734) 2,791 (4,845)
(Decrease) increase in taxes
on income (17,712) (29,384) 96,308
Increase (decrease) in customer
deposits and contract liabilities 30,542 (113,060) (300)
Other operating activities 1,860 (14,834) (6,673)
- ---------------------------------------------------------------------------------------------
Cash provided by operating activities 192,486 195,246 63,947
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 35
Litton Industries, Inc.
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
Year Ended July 31
---------------------------------------------
(thousands of dollars) 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investing Activities
Continuing Operations
Purchase of capital assets (80,599) (73,611) (81,459)
Decrease in other current
marketable securities 43,512 32,329 240,651
Purchase of businesses, net
of cash acquired (21,919) (11,642) (83,266)
Proceeds from sale of investments 16,360 44,570 28,644
Proceeds from sale of property,
plant and equipment 14,594 15,517 12,311
Other investing activities 18,712 (5,853) 13,438
- -------------------------------------------------------------------------------------------
Cash (used for) provided by
investing activities (9,340) 1,310 130,319
- -------------------------------------------------------------------------------------------
Financing Activities
Continuing Operations
Early extinguishment of debt and
repayment of other subordinated
notes and long-term obligations (493,405) (9,413) (444,998)
Increase (decrease) in short-term
obligations, net 33,614 (79,951) 58,805
Purchase of Common stock (2,536) (87,720) (192)
Other financing activities 13,830 17,736 22,105
- -------------------------------------------------------------------------------------------
Cash used for financing activities (448,497) (159,348) (364,280)
- -------------------------------------------------------------------------------------------
Net cash (used for) provided by
continuing operations (265,351) 37,208 (170,014)
- -------------------------------------------------------------------------------------------
Net cash provided by (used for)
discontinued operations 72,437 30,260 (1,287)
- -------------------------------------------------------------------------------------------
Resulting in (Decrease) Increase in
Cash and Cash Equivalents (Note A) (192,914) 67,468 (171,301)
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 44,526 $ 237,440 $ 169,972
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 36
Litton Industries, Inc.
Notes To Consolidated Financial Statements
Note A: Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION The accounts of Litton Industries, Inc. and all
its majority-owned subsidiaries (the "Company" or "Litton") are included in the
accompanying consolidated financial statements. All material intercompany
transactions have been eliminated. Certain reclassifications of prior period
information were made to conform to the current year presentation. The shares
of common stock of Western Atlas Inc. ("WAI"), a former subsidiary of Litton,
were distributed to holders of Litton Common stock in the form of a dividend on
March 17, 1994. The accounts of WAI have been segregated and reflected as
discontinued operations (see Note B).
CASH EQUIVALENTS The Company considers securities purchased within three
months of their date of maturity to be cash equivalents.
EARNINGS PER SHARE Primary earnings per share computations are based on the
weighted average number of common shares outstanding and common share
equivalents with dilutive effects, if applicable. Computations were based on
45,720,585 (1994), 41,160,479 (1993) and 41,175,564 (1992) weighted average
shares and net earnings after provision for cash dividends on preferred stock.
Fully diluted earnings per share are calculated assuming the conversion
of all potentially dilutive securities, if applicable. For fiscal year 1992
the calculation included an increase to available income by pro forma reduction
of interest expense for the zero coupon convertible subordinated notes, net of
income taxes. For fiscal year 1993 the impact of the pro forma earnings
adjustment of the foregoing interest expense caused fully diluted earnings per
share to be anti-dilutive, therefore primary earnings per share amounts also
reflected fully diluted earnings per share amounts. See the "Quarterly
Financial Information (Unaudited)" for fully diluted earnings per share for
the interim quarters of fiscal year 1993. As discussed in Note C, on
June 28, 1993 the Company called for redemption its zero coupon convertible
subordinated notes due 2010. Shares used in calculating fully diluted
earnings per share for the fiscal year ended July 31, 1992 were 47,326,240.
INVENTORIES AND LONG-TERM CONTRACTS Inventories are stated at the lower of
cost or market. Costs accumulated under long-term contracts approximate actual
costs incurred. Other inventories are generally valued using the first-in,
first-out method or average cost method. General and administrative costs are
allocated to and included in the work in process inventory of the Marine
Engineering and Production segment and certain divisions of the Advanced
Electronics segment. Otherwise, general and administrative costs are expensed
as incurred.
Revenues and profits on long-term contracts are recorded under the
percentage-of-completion method of accounting. Major contracts for complex
weapons and defense systems are performed over extended periods of time and are
subject to changes in scope of work and delivery schedules. Total revenues on
these contracts are necessarily estimated while the changes are being
negotiated and their impact assessed. Any anticipated losses on contracts are
charged to operations as soon as they are determinable.
F-11
<PAGE> 37
Note A: (continued)
RESEARCH AND DEVELOPMENT Company-sponsored research and development
expenditures are charged to expense as incurred. Worldwide expenditures on
research and development activities amounted to $220.1 million, $254.6 million
and $201.9 million, of which 26%, 21% and 38% were Company-sponsored, in the
years ended July 31, 1994, 1993 and 1992, respectively.
PROPERTY, PLANT AND EQUIPMENT Investment in property, plant and equipment is
stated at cost. Allowances for depreciation and amortization, computed
generally by the straight-line method for financial reporting purposes, are
provided over the estimated useful lives of the related assets.
INCOME TAXES The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109),
effective August 1, 1993 (see Note G). The adoption of this statement did not
have a material impact on the Company's consolidated financial statements.
Prior years' financial statements have not been restated.
FOREIGN CURRENCIES The currency effects of translating the financial
statements of those non-U.S. subsidiaries and divisions of the Company which
operate in local currency environments are included in the "Cumulative currency
translation adjustment" component of Shareholders' Investment. Currency
adjustments included in the Consolidated Statements of Operations are
principally related to transactions and are as follows:
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars) 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Currency adjustment gain (loss) $ 1,422 $3,763 $(2,600)
Tax (provision) benefit (1,046) (561) 1,153
- ------------------------------------------------------------------------------
Net currency adjustment gain (loss) $ 376 $3,202 $(1,447)
==============================================================================
</TABLE>
The Company enters into forward purchase contracts and buys put options
to hedge, at amounts deemed appropriate, the exposure of certain of its
assets (exclusive of property, plant and equipment) and liabilities. The
carrying amounts of the hedging contracts at July 31, 1994 and 1993 were not
material, nor were the amounts hedged.
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company adopted Statement
of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS No. 106) in the fourth
quarter of fiscal year 1993. The Company's postretirement plans other than
pensions consist primarily of health care and life insurance benefits. The
Company elected immediate recognition of the transition liability. For further
discussion of accounting policies for pension and other postretirement benefit
plans see Note H.
F-12
<PAGE> 38
Note A: (continued)
GOODWILL AND OTHER INTANGIBLES For financial statement purposes, goodwill and
other intangibles are generally amortized using the straight-line method over
their estimated useful lives, not exceeding 40 years. The current and future
profitability of the operations to which the goodwill relates are continually
evaluated (at least annually). These factors, along with management's plans
with respect to the operations and the projected undiscounted cash flows, are
considered in assessing the recoverability of the goodwill.
ENVIRONMENTAL COSTS Provisions for environmental costs are recorded when the
Company determines its responsibility for remedial efforts and such amounts are
reasonably estimable. The Company's exposure is mitigated by potential
insurance reimbursements and to the extent such costs are recoverable under the
Company's U.S. Government contracts. These recoveries are not recorded until
collection is probable.
F-13
<PAGE> 39
Note B: Business Divestitures and Acquisitions
Distribution of WAI
On March 17, 1994, Litton distributed all of the issued and outstanding shares
of common stock of its previously wholly-owned subsidiary Western Atlas Inc.
("WAI"). The WAI operations, reflected herein as discontinued operations,
comprised substantially all of the Company's former oilfield services and
industrial automation systems businesses. The distribution ("Distribution")
was made in the form of a dividend to holders of record of Litton Common stock
at the close of business on March 14, 1994. Litton shareholders of record
received one share of WAI common stock for each share of Litton Common stock
owned. The consolidated financial statements reflect an accounting date for
the Distribution of February 28, 1994, which resulted in a reduction of
Litton's Shareholders' Investment in the amount of $915.3 million representing
the book value of net assets distributed.
Sales were $1.09 billion, $2.01 billion and $1.98 billion for the
seven months ended February 28, 1994, fiscal year 1993 and fiscal year 1992,
respectively. Net earnings (loss) were ($173) million, $85 million and
$87 million for the same periods. Results for the seven months ended
February 28, 1994 included special charges totalling $179 million, net of
tax, recorded to reflect the write-down of net assets of a certain division
and to provide for obsolescence of older technology equipment, vessels and
inventory and the consolidation of facilities. Net earnings for fiscal year
1993 included the cumulative effect of a change in accounting principle for
$10 million. Corporate interest costs of $7 million, $12 million and
$12 million have been attributed to WAI and, therefore, reclassified to
discontinued operations for the seven months ended February 28, 1994, fiscal
year 1993 and fiscal year 1992, respectively. Income tax expense (benefit)
allocated to WAI for the same periods was ($55) million, $79 million and
$73 million.
During fiscal year 1994, WAI purchased from Dresser Industries, Inc. its 29.5%
minority interest in Western Atlas International, Inc. for $358 million in
cash and four subordinated notes of $50 million each which mature,
respectively, in each of four years commencing in 1998. Additionally, WAI
purchased the business and substantially all of the assets of Halliburton
Company's geophysical services business for an estimated purchase price of
$190 million, of which $100 million was paid in cash and the remainder in
notes maturing over periods of three and one-half to four years following the
closing date of the transaction. The funds used to effect these transactions
were advanced by Litton and were reimbursed to Litton at Distribution.
Acquisitions
In August 1992, the Company acquired General Instrument Corporation's Defense
Systems group ("Defense Systems group"). The Defense Systems group is a
leading supplier of passive electronic warfare systems, such as threat warning
and electronic support measures systems, for the U.S. Department of Defense and
for allied nations. The purchase price was $83 million, inclusive of goodwill
of $27 million which is being amortized over a period of 10 years.
Other acquisitions which were made during the three years ended July 31,
1994 are integral to the Company's goals though not material in aggregate to
the Company's consolidated financial statements in any one year. The
acquisitions were paid in cash and have been accounted by the purchase method.
F-14
<PAGE> 40
Note C: Cash and Marketable Securities, Debt and Interest
Cash and marketable securities consist of the following interest-earning
investments:
<TABLE>
<CAPTION>
July 31
(thousands of dollars) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Time deposits and certificates of deposit $ 61,007 $111,871
U.S. Government and U.S. Government agency
obligations 54,097 113,023
Other short-term negotiable instruments 2,000 128,843
- -------------------------------------------------------------------------------
$117,104 $353,737
===============================================================================
</TABLE>
The Company's marketable securities consist of high quality securities
issued by a number of institutions having high credit ratings. This
investment policy limits the Company's exposure to concentrations of credit
risk. In July 1994, the Company purchased approximately $489 million face
value in U.S. Government obligations to effect the early extinguishment of
debt as further explained below.
Cash and cash equivalents (see Note A) at July 31, 1994 consisted of
$37.1 million in time deposits and certificates of deposit, $5.4 million in
U.S. Government obligations and $2.0 million in commercial paper. At July 31,
1993 cash and cash equivalents consisted of $110.6 million in time deposits and
certificates of deposit and $126.8 million in commercial paper.
Notes payable and current portion of long-term obligations are composed of:
<TABLE>
<CAPTION>
July 31
(thousands of dollars) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $ 86,443 $ 55,363
Current portion of long-term obligations 11,291 10,358
- -------------------------------------------------------------------------------
$ 97,734 $ 65,721
===============================================================================
</TABLE>
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
July 31
(thousands of dollars) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Capital lease commitments (Note E) $ 24,347 $ 31,425
- -------------------------------------------------------------------------------
Other long-term obligations
Pension accruals (other than U.S. and
Canadian plans) 49,480 43,820
Industrial Development Revenue Bonds, with
interest based generally on 70% of
the current prime rate in fiscal
years 1994 and 1993, due to 2008 21,315 21,383
Other debt, with average interest at 7.7%
(1994) and 8.125% (1993), due to 2002 10,479 9,846
- -------------------------------------------------------------------------------
81,274 75,049
- -------------------------------------------------------------------------------
$105,621 $106,474
===============================================================================
</TABLE>
F-15
<PAGE> 41
Note C: (continued)
Other long-term obligations at July 31, 1994 mature as follows:
<TABLE>
<CAPTION>
(thousands of dollars)
- ------------------------------------------------------------------------------
Year ended July 31
<S> <C>
1996 $ 3,997
1997 4,047
1998 4,007
1999 4,129
Years subsequent to July 31, 1999 65,094
- ------------------------------------------------------------------------------
$ 81,274
==============================================================================
</TABLE>
On July 11, 1994 the Company effected an early extinguishment of debt
through an in-substance defeasance of its 12 5/8% Subordinated Debentures in
the principal amount of $435.8 million due July 1, 2005. The Company purchased
approximately $489 million face value in U.S. Government obligations and
deposited them in an irrevocable trust administered by The Bank of New York
for the sole purpose of satisfying the scheduled payments with respect to the
12 5/8% Subordinated Debentures. The trust can not be rescinded or revoked
nor its assets otherwise accessed by the Company or others. The U.S.
Government obligations provide cash flows, from interest at fixed rates and at
maturity, which coincide with the scheduled interest payments and the eventual
redemption, at 104.2% of par plus accrued interest, on July 1, 1995. Due to
this in-substance defeasance, results for the fourth quarter of fiscal year
1994 included an extraordinary loss on early extinguishment of debt of $49.2
million pre-tax, or $30.7 million after tax.
On June 28, 1993, the Company called for redemption its zero coupon
convertible subordinated notes due 2010. The notes were convertible into
6.126 shares of Litton Common stock per $1,000 principal amount of the notes.
At July 31, 1993, substantially all of the notes outstanding had been converted
into 6,114,401 shares of Litton Common stock and the remainder had been
settled for cash. This transaction resulted in an increase to Shareholders'
Investment of $312.6 million.
The Company has various credit commitments which provide for revolving
credit or term loans of up to $400 million for its general use at July 31,
1994.
F-16
<PAGE> 42
Note C: (continued)
The estimated market value, based on quoted market prices, of the
Company's marketable securities at July 31, 1994 was $59.3 million compared
with the carrying amount of $56.1 million. The other financial instruments on
the Company's Consolidated Balance Sheet included Accounts receivable, Accounts
payable, Payrolls and related expenses, Notes payable and current portion of
long-term obligations and other miscellaneous long-term assets and liabilities.
The carrying amounts of the short-term assets and liabilities were deemed to
approximate their market values due to their short maturity. The carrying
amounts of the remainder of the financial instruments were not material. As
discussed in Note I, the Company also has off-balance sheet guarantees and
letter of credit agreements with face values totalling $190 million at July 31,
1994 relating principally to the guarantee of future performance on mainly
foreign government contracts.
Net interest expense is composed of the following:
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $ 58,738 $ 83,342 $131,473
Interest income (26,114) (17,241) (46,243)
- -------------------------------------------------------------------------------
Net interest expense $ 32,624 $ 66,101 $ 85,230
===============================================================================
</TABLE>
Total cash interest payments made during fiscal year 1994 amounted to $100.6
million which included $37 million of prepaid interest in connection with the
previously discussed early extinguishment of debt. Payments for fiscal years
1993 and 1992 were $66.1 million and $121.6 million, respectively. Capitalized
interest costs in each of the three years in the period ended July 31, 1994
were not material.
F-17
<PAGE> 43
Note D: Accounts Receivable and Inventories
Following are the details of accounts receivable:
<TABLE>
<CAPTION>
July 31
(thousands of dollars) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Receivables related to long-term contracts
Amounts billed
U.S. Government $ 89,571 $ 165,468
Other 43,821 51,704
Unbilled recoverable costs and accrued profit
on progress completed and retentions
U.S. Government 25,103 89,260
Other 11,404 22,842
- -------------------------------------------------------------------------------
169,899 329,274
Other receivables, principally from
commercial customers 151,086 141,696
- -------------------------------------------------------------------------------
$ 320,985 $ 470,970
===============================================================================
</TABLE>
Of the retentions balance and amounts not billed at July 31, 1994, $31.1
million is expected to be collected in fiscal year 1995 with the balance to be
collected in subsequent years, as contract deliveries are made and warranty
periods expire.
Summarized below are the components of inventory balances:
<TABLE>
<CAPTION>
July 31
(thousands of dollars) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and work in process $ 202,344 $ 229,703
Finished goods 40,768 53,392
Inventoried costs related to long-term contracts 723,071 743,193
- -------------------------------------------------------------------------------
Gross inventories 966,183 1,026,288
Less progress billings related to long-term
contracts (485,110) (517,210)
- -------------------------------------------------------------------------------
Net inventories $ 481,073 $ 509,078
===============================================================================
</TABLE>
The amounts included in "Inventoried costs related to long-term contracts"
representing general and administrative costs and production cost of delivered
units in excess of anticipated average cost of all units expected to be
produced are not significant.
If the receivable, inventory and progress billings amounts related to
any one contract result in a net credit balance, such amounts are classified in
current liabilities as "Customer deposits and contract liabilities."
F-18
<PAGE> 44
Note E: Property, Plant and Equipment
Investment in property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
July 31
---------------------------
(thousands of dollars) 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment, at cost
Land $ 46,389 $ 49,056
Buildings 594,736 601,882
Machinery and equipment 843,413 906,448
- ------------------------------------------------------------------------------
1,484,538 1,557,386
Less accumulated depreciation (886,922) (919,348)
- ------------------------------------------------------------------------------
Net investment in property, plant
and equipment $ 597,616 $ 638,038
==============================================================================
</TABLE>
The net book value of assets utilized under capital leases was not material at
July 31, 1994 and 1993.
As of July 31, 1994, minimum rental commitments under capital and
noncancellable operating leases were:
<TABLE>
<CAPTION>
Capital Operating
(thousands of dollars) Leases Leases
- ------------------------------------------------------------------------------
<S> <C> <C>
Year ended July 31
1995 $ 8,795 $ 14,811
1996 8,765 6,757
1997 8,738 3,373
1998 8,707 1,234
1999 40 489
Years subsequent to July 31, 1999 - 1,249
---------- ----------
Total minimum lease payments 35,045 $ 27,913
Less amounts representing interest (3,326) ==========
----------
Net minimum lease payments 31,719
Less current portion of capital lease
commitments (7,372)
----------
Long-term portion of capital lease
commitments $ 24,347
==========
</TABLE>
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $32.4 million, $33.6
million and $34.9 million for the years ended July 31, 1994, 1993 and 1992,
respectively. The minimum future rentals receivable under subleases and the
contingent rental expenses were not significant.
F-19
<PAGE> 45
Note F: Shares Outstanding and Shareholders' Investment
SHARE INFORMATION
<TABLE>
<CAPTION>
Year Ended July 31
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Stock
Shares Outstanding
Preferred stock - Series B 410,643 410,643 410,643
===============================================================================
Common stock
Beginning balance 45,519,821 40,455,430 39,658,370
Exercise of employee stock
options 437,735 719,424 828,812
Purchases of Common stock (43,910) (1,769,434) (31,752)
Conversion of zero coupon
convertible subordinated
notes (Note C) - 6,114,401 -
- -------------------------------------------------------------------------------
Ending balance 45,913,646 45,519,821 40,455,430
===============================================================================
</TABLE>
At July 31, 1994, there were authorized 120 million shares of Common stock, par
value $1.00; 22 million shares of preferred stock, par value $5.00 and 8
million shares of Preference stock, par value $2.50.
No cash dividends were paid on the Common stock in the three fiscal
years ended July 31, 1994.
The Series B preferred stock receives a $2.00 annual dividend, is not
convertible into Common stock and is redeemable at the option of the Company at
$80.00 plus accrued dividends and, in the event of liquidation, is entitled to
receive $25.00 plus accrued dividends.
On March 12, 1992, the Company's Board of Directors declared a
two-for-one common stock split which was effected in the form of a 100 percent
stock dividend, distributed on May 8, 1992 to shareholders of record on April
3, 1992. Par value remains $1 per share.
STOCK OPTION INFORMATION The Company has stock option plans which provide for
the grant of incentive awards to officers and other key employees. Incentive
awards may be granted in the form of stock options at not less than 50% nor
more than 100% of the fair market value of the Company's Common stock on the
date of grant.
In connection with the Distribution of the shares of Western Atlas
common stock (see Note B), each option granted pursuant to the plans was
adjusted to account for the Distribution. Each Litton optionee with options
outstanding on the Distribution date received an equivalent number of Western
Atlas options. The option price was allocated in accordance with a
predetermined formula.
F-20
<PAGE> 46
Note F: (continued)
The awards outstanding under the Company's employee incentive plans at
July 31, 1994 and 1993 were stock options to purchase 2,499,771 and 2,482,129
shares, respectively, at exercise prices per share ranging from $7.40 to $37.19
and $14.35 to $57.38, respectively. Of these options, 979,461 and 1,129,019
were exercisable by their terms at July 31, 1994 and 1993, respectively.
During fiscal year 1994, prior to the Distribution, options were granted under
these plans to purchase 7,000 shares at prices per share ranging from $33.14 to
$66.69 and options to purchase 323,288 shares were exercised at prices per
share ranging from $14.35 to $47.94. For the period in fiscal year 1994
subsequent to the Distribution, options were granted under these plans to
purchase 421,000 shares at prices per share ranging from $15.19 to $37.19 and
options to purchase 81,070 shares were exercised at prices per share ranging
from $7.41 to $20.18. During fiscal year 1993, options were granted under
these plans to purchase 372,000 shares at prices per share ranging from $23.38
to $57.38 and options to purchase 719,424 shares were exercised at prices per
share ranging from $14.35 to $47.94. At July 31, 1994, there were 699,750
shares available for grants of future awards under these plans.
The Company has a Director Stock Option Plan which provides for the
grant of stock options to the Company's non-employee directors. Under this
plan, stock options are granted annually at the fair market value of the
Company's Common stock on the date of grant. The number of options so granted
annually is fixed by the plan. Such options become fully exercisable on the
first anniversary of their respective grant. The total number of shares to be
issued under this plan may not exceed 400,000 shares. During fiscal years 1994
(prior to the Distribution) and 1993, options under this plan were granted to
purchase 42,000 and 24,000 shares at prices per share of $64.06 and $42.50,
respectively. During fiscal year 1994, prior to the Distribution, options to
purchase 18,350 shares were exercised at prices per share ranging from $34.97
to $43.03. For the period in fiscal year 1994 subsequent to the Distribution,
options to purchase 18,000 shares were exercised at prices per share ranging
from $14.72 to $18.12. Options outstanding at July 31, 1994 and 1993 were
145,650 and 140,000, respectively. Of these options, 103,650 were
exercisable at July 31, 1994 and 116,000 were exercisable at July 31, 1993.
SHAREHOLDER RIGHTS PLAN On August 17, 1994 the Company's Board of Directors
adopted a Share Purchase Rights Plan (the "Plan") and, in accordance with
such Plan, declared a dividend of one preferred share purchase right for
each outstanding share of Common stock, payable August 31, 1994 to
shareholders of record on that date. The Plan contains provisions to protect
shareholders in the event of an unsolicited attempt to acquire the Company.
The Plan should deter any attempt to acquire the Company in a manner or on
terms not approved by the Board of Directors.
Once exercisable, each right will entitle the holder to purchase one
one-thousandth of a share of Series A Participating Preferred Stock, par value
$5, at a price of $150 per one one-thousandth of a Preferred Share, subject to
adjustment. Alternatively, under certain circumstances involving the
acquisition by a person or group of 15 percent or more of the Company's Common
stock, each right will entitle its holder to purchase a number of shares of
the Company's Common stock having a market value of two times the exercise
price of the right. In the event a merger or other business combination
transaction is effected after a person or group has acquired 15 percent or more
of the Company's Common shares, each right will entitle its holder to purchase
a number of the resulting company's common shares having a market value of two
times the exercise price of the right.
F-21
<PAGE> 47
Note F: (continued)
The Company may exchange the rights at an exchange ratio of one Common
share per right. The Company may also redeem the rights at $.01 per right at
any time prior to a 15 percent acquisition. The rights, which do not have
voting rights and are not entitled to dividends until such time as they become
exercisable, expire in August 2004.
WAI DISTRIBUTION In connection with the Distribution (see Note B),
Shareholders' Investment was reduced in the amount of $915.3 million
representing the book value of net assets distributed. The adjustments to
Retained earnings, Additional paid-in capital and Cumulative currency
translation adjustment were based, generally, on the respective Litton and
WAI balances as of the accounting date for the Distribution.
F-22
<PAGE> 48
Note G: Taxes on Income
Effective August 1, 1993, the Company adopted the provisions of SFAS No. 109
which requires the measurement of tax assets and liabilities based on a balance
sheet approach. Under SFAS No. 109, deferred tax assets and liabilities
reflect the effects of temporary differences between the carrying amounts of
assets and liabilities for financial statement purposes and for income tax
reporting purposes. The adoption of SFAS No. 109 did not have a material
impact on the Company's consolidated financial statements and prior years'
financial statements have not been restated.
Earnings from continuing operations before taxes on income, extraordinary item
and cumulative effect of a change in accounting principle by geographic area
are as follows:
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars) 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $102,453 $167,727 $ 165,270
Other nations (11,805) (23,361) (20,947)
- --------------------------------------------------------------------------------------
$ 90,648 $144,366 $ 144,323
======================================================================================
The components of taxes on income consist of the following provisions (benefits):
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars) 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States
Current $ 67,637 $ 76,152 $ 358,232
Deferred (33,203) (20,505) (307,021)
- --------------------------------------------------------------------------------------
34,434 55,647 51,211
- --------------------------------------------------------------------------------------
Other nations
Current (2,919) 7,373 1,745
Deferred 518 (14,244) (4,401)
- --------------------------------------------------------------------------------------
(2,401) (6,871) (2,656)
- --------------------------------------------------------------------------------------
State and local, primarily
current 7,309 8,249 8,469
- --------------------------------------------------------------------------------------
$ 39,342 $ 57,025 $ 57,024
======================================================================================
</TABLE>
F-23
<PAGE> 49
Note G: (continued)
The primary components of the Company's deferred income tax assets and
liabilities at July 31, 1994 are as follows:
<TABLE>
<CAPTION>
Deferred
Deferred Tax
(thousands of dollars) Tax Assets Liabilities
- -------------------------------------------------------------------------------------
<S> <C> <C>
Inventory and receivables $163,338 $ -
Employee benefits 108,654 73,017
Depreciation - 69,640
Accrued liabilities 65,652 -
Other items 87,016 -
- -------------------------------------------------------------------------------------
$424,660 $142,657
=====================================================================================
</TABLE>
The following is a reconciliation of income taxes at the U.S. statutory rate
to the provision for income taxes:
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars) 1994 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rate $31,727 $ 49,084 $ 49,070
State taxes net of federal
benefit 4,751 5,444 5,589
Earnings taxed at other than
U.S. statutory rate 946 1,922 (3,895)
Other items 1,918 575 6,260
- -------------------------------------------------------------------------------------
$39,342 $ 57,025 $ 57,024
=====================================================================================
Effective tax rate 43.4% 39.5% 39.5%
=====================================================================================
</TABLE>
Undistributed earnings of non-U.S. subsidiaries for which U.S. taxes have not
been provided are included in consolidated retained earnings in the amounts of
$123 million and $109 million at July 31, 1994 and 1993, respectively. If such
earnings were distributed, U.S. income taxes would be partially reduced by
available credits for taxes paid to the jurisdictions in which the income was
earned.
The Company made tax payments of $195.0 million, $180.6 million and
$220.7 million in fiscal years 1994, 1993 and 1992, respectively.
The Company and WAI have entered into a tax-sharing agreement which,
among other items, provides for the treatment of tax matters for periods
through the Distribution date and responsibility for any adjustment as a result
of audit by any taxing authority. The general terms and conditions provide
that Litton will indemnify and hold harmless WAI and its subsidiaries included
in Litton's consolidated U.S. tax returns against all liabilities for Federal
income taxes with respect to periods prior to the Distribution date.
F-24
<PAGE> 50
Note H: Pension and Other Postretirement Benefit Plans
Pension Benefits
The Company has various retirement and pension plans which cover most of its
employees. Net pension income for these plans for the years ended July 31,
1994, 1993 and 1992 was $14.7 million, $11.2 million and $4.4 million,
respectively.
Most of the Company's U.S. employees are covered by contributory defined
benefit plans under which employees are eligible for benefits at age 65.
Generally, benefits are determined under a formula based primarily on the
participant's total plan contributions. The Company's funding policy is to
make annual contributions to the extent such contributions are actuarially
determined and tax deductible.
The Company has a defined contribution voluntary savings plan for
eligible U.S. employees. This 401(K) plan is designed to enhance the existing
retirement programs of participating employees. The Company matches 50% of a
certain portion of participants' contributions to the plan.
The Company's non-U.S. subsidiaries also have retirement plans for
long-term employees. These plans are not considered to be significant
individually or in the aggregate to the Company's consolidated financial
position. The pension liabilities and their related costs are computed in
accordance with the laws of the individual nations and appropriate actuarial
practices.
A summary of the components of net periodic pension income (cost) for
the U.S. defined benefit plans, defined contribution plans and non-U.S. pension
plans for fiscal years 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars) 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans
Service cost - benefits
earned during the period $(24,543) $(23,996) $(25,894)
Interest cost on projected
benefit obligation (60,271) (61,071) (58,919)
Actual return on plan assets 114,769 113,479 121,742
Net amortization and deferral (1,607) (8,409) (18,417)
- ----------------------------------------------------------------------------
Net periodic pension income 28,348 20,003 18,512
Defined contribution plans (10,246) (9,908) (9,964)
Non-U.S. pension plans (3,445) 1,150 (4,126)
- ----------------------------------------------------------------------------
Net pension income $ 14,657 $ 11,245 $ 4,422
============================================================================
</TABLE>
The projected benefit obligation of the U.S. defined benefit plans was $832.0
million and $744.4 million at July 31, 1994 and 1993, respectively. The fair
value of plan assets, primarily equity securities and U.S. Government
securities, was $1,172.7 million at July 31, 1994 compared with $1,089.7
million at July 31, 1993. The unrecognized net transition asset was $70.4
million and $84.7 million at July 31, 1994 and 1993, respectively, and the
unrecognized net gain was $116.6 million at fiscal year end 1994 compared with
$166.5 million at fiscal year end 1993. Prepaid pension cost was $141.6
million at July 31, 1994 compared with $80.9 million at July 31, 1993.
F-25
<PAGE> 51
Note H: (continued)
The accumulated benefit obligation was $743.1 million at July 31, 1994,
inclusive of the vested benefit obligation of $719.1 million. At July 31,
1993, the accumulated benefit obligation was $650.9 million, inclusive of the
vested benefit obligation of $635.2 million.
Actuarial assumptions for the Company's U.S. defined benefit plans
included an expected long-term rate of return on plan assets of 9 1/4% for
fiscal years 1994 and 1993. The weighted-average discount rate used in
determining the actuarial present value of the projected benefit obligation at
July 31, 1994 was 8 1/4% and at July 31, 1993 was 8 1/2%. The rate of increase
in future compensation levels was 5% at July 31, 1994 and 1993.
The excess of plan assets over the projected benefit obligation at
August 1, 1986 (when the Company adopted Statement of Financial Accounting
Standards No. 87) and subsequent unrecognized gains and losses are fully
amortized over the average remaining service period of active employees
expected to receive benefits under the plans, generally 15 years. Pension
assets included in Long-term Investments and Other Assets were $181.1 million
and $122.9 million at July 31, 1994 and 1993, respectively.
In fiscal years 1994, 1993 and 1992, the Company incurred $18.7 million,
$13.5 million and $25.0 million, respectively, in costs for special separation
and supplemental early retirement benefits for certain employees in connection
with workforce reductions at certain operations.
In conjunction with the Distribution discussed in Note B, the Company
and WAI have entered into an Employee Benefits Agreement which provides for,
among other items, the transfer to WAI of plan assets with an estimated fair
market value of $188.2 million and the assumption by WAI of a projected benefit
obligation estimated at a present value of $116.5 million.
Other Postretirement Benefits
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefits plans. These
benefit plans are unfunded. In the fourth quarter of fiscal year 1993, the
Company adopted, effective as of the beginning of the fiscal year, the
provisions of SFAS No. 106 related to these plans. The Company elected
immediate recognition of the transition liability for such benefits and the
resultant cumulative effect of a change in accounting principle amounted to
$106.7 million, net of tax.
The components of net periodic postretirement benefit costs for fiscal
years 1994 and 1993 recognized under the provisions of SFAS No. 106 are as
follows:
<TABLE>
<CAPTION>
Year Ended July 31
(thousands of dollars) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned during the period $ 2,073 $ 2,516
Interest cost on projected benefit obligation 14,049 13,014
- -----------------------------------------------------------------------------
Net postretirement benefit cost $16,122 $15,530
=============================================================================
</TABLE>
F-26
<PAGE> 52
Note H: (continued)
The amount expensed in fiscal year 1992 under the cash basis of
accounting for postretirement benefits was not materially different. The
accumulated benefit obligation at July 31, 1994 was $198.8 million, of which
$146.1 million was attributable to retirees and $52.7 million was
attributable to active plan participants. The accumulated benefit obligation
at July 31, 1993 was $182.8 million, of which $116.3 million was attributable
to retirees and $66.5 million was attributable to active plan participants.
Actuarial assumptions used to measure the accumulated benefit obligation
include a discount rate of 8 1/4% and 8 1/2% at July 31, 1994 and 1993,
respectively. The assumed health care cost trend rate for fiscal year 1994 was
14.4% and is projected to decrease over 23 years to 6.75%, where it is
expected to remain thereafter. The effect of a one-percentage-point increase
in the assumed health care cost trend rate on the service cost and interest
cost components of the net periodic postretirement benefit cost is not
material. A one-percentage-point increase in the assumed health care cost
trend rate on the accumulated benefit obligation results in an increase of
approximately $12.6 million.
F-27
<PAGE> 53
Note I: Defense Contracts, Litigation and Contingencies
Approximately 73%, 73% and 70% of total sales and service revenues of the
Company for the years ended July 31, 1994, 1993 and 1992, respectively, were
from U.S. Government contracts and subcontracts. Approximately 87% of these
revenues for 1994 related to fixed-price type contracts. At July 31, 1994, of
the total Company backlog of $5.5 billion, the amount of worldwide defense
contract backlog was approximately $5.2 billion, of which $4.7 billion has
been funded. At July 31, 1993 and 1992, the amount of worldwide defense
contract backlog was $6.3 billion and $6.2 billion, respectively.
As is common with U.S. Government contracts, the Company's U.S. defense
contracts are unilaterally terminable at the option of the U.S. Government with
compensation for work completed and costs incurred. Contracts with the U.S.
Government are subject to certain laws and regulations, the noncompliance with
which may result in various sanctions.
Litton Systems, Inc. ("LSI"), a subsidiary of the Company, was a
defendant in a previously reported civil suit brought under the so-called qui
tam provisions of the False Claims Act, which permit an individual to bring
suit in the name of the United States Government and share in any recovery
received. If the plaintiffs had prevailed in such litigation, the total
damages and penalties could have exceeded $500 million. Without admitting any
liability or wrongdoing, LSI and the plaintiffs, on July 14, 1994, agreed to
settle all issues in connection with the matter. The Court dismissed the civil
suit with prejudice, thereby terminating this proceeding. Accordingly, results
for fiscal year 1994 included a charge of $86.0 million pre-tax, or $53.8
million after-tax, to reflect the settlement.
On August 31, 1993 a U.S. District Court jury rendered a verdict in
favor of Litton against Honeywell, Inc. in the amount of $1.2 billion. The
jury found that Honeywell willfully infringed a Litton patent relating to the
manufacture of ring laser gyro navigation systems which are used in commercial
aircraft. The jury also found that Honeywell actively induced a Litton
licensee to infringe Litton's patent and Honeywell interfered with Litton's
prospective economic advantage. The Court is currently considering post trial
motions filed by both Honeywell and Litton. It is expected that any decision
of the Court would be appealed by the party which does not prevail, and the
Company cannot predict when this litigation will be ultimately concluded.
There are various other litigation proceedings in which the Company is
involved. Although the results of litigation proceedings cannot be predicted
with certainty, it is the opinion of the General Counsel that the
Company does not have a potential liability in connection with these other
proceedings which would have an adverse material effect on the consolidated
financial statements.
The Company has issued or is a party to various guarantees and letter of
credit agreements totalling $190 million at July 31, 1994. These arrangements
relate principally to the guarantee of future performance, mainly on foreign
government contracts.
F-28
<PAGE> 54
Note J: Extraordinary Item and Unusual Item
On July 11, 1994, the Company effected an in-substance defeasance of its
12 5/8% Subordinated Debentures by placing direct U.S. Government
obligations in an irrevocable trust to provide for the redemption,
according to their terms, on July 1, 1995 at 104.2% of their principal
amount, plus accrued interest (see Note C). Due to this in-substance
defeasance, results for fiscal year 1994 included an extraordinary loss
on early extinguishment of debt of $49.2 million pre-tax, or $30.7
million after tax. The effect on primary earnings per share
for the year was a decrease of $.67.
On July 14, 1994, the Company settled a civil suit brought under the so-called
qui tam provisions of the False Claims Act (see Note I) and recorded a charge
of $86.0 million to the operating results of the Advanced Electronics segment.
On an after-tax basis, the impact of this settlement was a $53.8 million loss,
or a decrease of $1.18 to primary earnings per share for the year.
F-29
<PAGE> 55
Note K: Business Segment Reporting
As a result of the Distribution discussed in Note B, the Company's primary
operations now comprise three business segments: Advanced Electronics,
Marine Engineering and Production, and Interconnect Products.
The Advanced Electronics segment designs, develops and manufactures
inertial navigation, guidance and control, command, control and communications
and electronic warfare systems. The fiscal year 1994 Advanced Electronics
segment operating profit includes the effects of the settlement of a civil
suit (see Notes I and J).
The Marine Engineering and Production segment is involved in the
design, construction and overhaul of naval ships.
Intersegment sales, sales between geographic areas and export sales
are not material. All internal sales and transfers are based on
negotiated prices.
The U.S. Government is a significant customer of both the Advanced
Electronics and Marine Engineering and Production segments (see Note I).
In the first quarter of fiscal year 1994, the Company named its other
businesses "Interconnect Products" to reflect the principal products of this
group of businesses. This segment manufactures and distributes interconnection
subsystems, electronic connectors, printed circuit boards, backpanels and
soldering materials to diverse markets worldwide. Operating profit for
fiscal year 1994 includes a charge recorded to adjust the net assets of a
division to net realizable value in connection with its possible sale
or closure.
Costs for Corporate and Other Amounts include net interest expense and
foreign currency adjustments. Assets classified as Corporate and Other Amounts
consist primarily of cash and marketable securities, deferred tax assets
and, for fiscal years 1993 and 1992, net assets of WAI of $1,085 and $1,042
million, respectively. In fiscal year 1994, the Company used cash and
marketable securities to effect an early extinguishment of debt as discussed
in Note C.
Prior years' information has been restated to conform to the
current presentation.
F-30
<PAGE> 56
Note K: (continued)
Operations by Business Segment
(millions of dollars)
<TABLE>
<CAPTION>
Marine
Year Advanced Engineering Corporate
Ended Elec- and Interconnect and Other
July 31 tronics Production Products Amounts Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 1994 $1,732 $1,484 $289 $ (59) $3,446
1993 1,841 1,393 307 (67) 3,474
1992 1,957 1,485 324 (55) 3,711
Operating profit (loss) 1994 36* 141 8 (94) 91
1993 118 130 19 (123) 144
1992 138 138 16 (148) 144
Capital expenditures 1994 44 22 11 4 81
1993 43 23 7 1 74
1992 49 23 9 1 82
Depreciation and 1994 67 19 11 1 98
amortization expense 1993 75 18 11 3 107
1992 81 17 11 4 113
Identifiable assets 1994 1,156 330 197 571 2,254
at year end 1993 1,328 327 196 1,983 3,834
1992 1,491 347 207 1,950 3,995
</TABLE>
* Results for fiscal year 1994 included the settlement of a civil suit (see
Notes I and J).
F-31
<PAGE> 57
Note K: (continued)
Operations by Geographic Area
(millions of dollars)
<TABLE>
<CAPTION>
Year Corporate
Ended United Other and Other
July 31 States Nations Subtotal Amounts Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 1994 $3,160 $286 $3,446 $ - $3,446
1993 3,139 334 3,473 1 3,474
1992 3,215 495 3,710 1 3,711
Operating profit (loss) 1994 185 (4) 181 (90) 91
1993 283 (19) 264 (120) 144
1992 290 (1) 289 (145) 144
Identifiable assets 1994 1,470 213 1,683 571 2,254
at year end 1993 1,585 266 1,851 1,983 3,834
1992 1,701 344 2,045 1,950 3,995
</TABLE>
F-32
<PAGE> 58
Litton Industries, Inc.
Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
(millions of dollars,
except per share amounts) Quarter 1 Quarter 2 Quarter 3 Quarter 4* Total
- -------------------------------------------------------------------------------------------
Fiscal Year 1994
<S> <C> <C> <C> <C> <C>
Sales $ 841 $ 804 $ 957 $ 844 $3,446
Operating Profit (Loss) $ 44 $ 39 $ 51 $ (43) $ 91
Earnings (Loss) before
Extraordinary Item
Continuing Operations $ 26 $ 23 $ 30 $ (28) $ 51
Discontinued Operations 9 (175) (7) - (173)
Extraordinary Loss - - - (31) (31)
- -------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 35 $ (152) $ 23 $ (59) (153)
===========================================================================================
Primary Earnings (Loss)
per Share before
Extraordinary Item**
Continuing Operations $0.55 $ 0.51 $ 0.64 $(0.62) $ 1.10
Discontinued Operations 0.20 (3.83) (0.16) - (3.79)
Extraordinary Loss - - - (0.67) (0.67)
- -------------------------------------------------------------------------------------------
Total $0.75 $(3.32) $ 0.48 $(1.29) $(3.36)
===========================================================================================
Market Prices
Common Stock
High 69 3/8 71 3/8 74 3/4 37 5/8
Low 58 1/2 62 5/8 28 7/8*** 30 1/4
</TABLE>
* Results for the fourth quarter of fiscal year 1994 included the
settlement of a civil suit (see Notes I and J of Notes to Consolidated
Financial Statements). The impact on fourth quarter and fiscal year 1994
primary and fully diluted earnings per share was a loss of $1.17 and
$1.18, respectively. In addition, the Company effected an early
extinguishment of debt in the fourth quarter of fiscal year 1994 which
resulted in an extraordinary loss (see Notes C and J of Notes to
Consolidated Financial Statements).
** Primary earnings (loss) per share also reflected fully diluted earnings
(loss) per share in each of the four quarters of fiscal year 1994.
*** Pursuant to the Distribution, Western Atlas common stock began trading
separately from Litton Common stock in the third quarter of fiscal year
1994 (see Note B of Notes to Consolidated Financial Statements).
F-33
<PAGE> 59
Litton Industries, Inc.
Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
(millions of dollars,
except per share amounts) Quarter 1* Quarter 2 Quarter 3 Quarter 4* Total
- -------------------------------------------------------------------------------------
Fiscal Year 1993
<S> <C> <C> <C> <C> <C>
Sales $ 873 $ 754 $ 902 $ 945 $3,474
Operating Profit $ 40 $ 30 $ 40 $ 34 $ 144
Earnings before Cumulative
Effect of a Change in
Accounting Principle
Continuing Operations $ 24 $ 18 $ 24 $ 21 $ 87
Discontinued Operations 19 26 25 25 95
Cumulative Effect of a
Change in Accounting
Principle
Continuing Operations (107) - - - (107)
Discontinued Operations (10) - - - (10)
- -------------------------------------------------------------------------------------
Net Earnings (Loss) $ (74) $ 44 $ 49 $ 46 $ 65
=====================================================================================
Primary Earnings per Share
before Cumulative Effect
of a Change in Accounting
Principle
Continuing Operations $ 0.59 $0.44 $0.59 $0.49 $ 2.10
Discontinued Operations 0.46 0.63 0.63 0.60 2.31
Cumulative Effect of a
Change in Accounting
Principle
Continuing Operations (2.64) - - - (2.60)
Discontinued Operations (0.25) - - - (0.25)
- -------------------------------------------------------------------------------------
Total $(1.84) $1.07 $1.22 $1.09 $ 1.56
=====================================================================================
</TABLE>
F-34
<PAGE> 60
Litton Industries, Inc.
Quarterly Financial Information (unaudited)
(continued)
<TABLE>
<CAPTION>
(millions of dollars,
except per share amounts) Quarter 1* Quarter 2 Quarter 3 Quarter 4* Total
- ---------------------------------------------------------------------------------------
Fiscal Year 1993
<S> <C> <C> <C> <C> <C>
Fully Diluted Earnings per
Share before Cumulative
Effect of a Change in
Accounting Principle
Continuing Operations $ 0.59 $0.45 $0.59 $0.50 $ 2.10
Discontinued Operations 0.46 0.55 0.55 0.53 2.31
Cumulative Effect of a
Change in Accounting
Principle
Continuing Operations (2.64) - - - (2.60)
Discontinued Operations (0.25) - - - (0.25)
- ---------------------------------------------------------------------------------------
Total $(1.84) $1.00 $1.14 $1.03 $ 1.56
=======================================================================================
Market Prices
Common Stock
High 46 3/4 47 1/4 60 67 3/8
Low 39 1/2 41 1/8 46 3/4 56 1/2
</TABLE>
Litton Common stock is traded principally on the New York Stock Exchange and
the Pacific Stock Exchange. The symbol is "LIT".
As of September 30, 1994, there were approximately 36,900 holders of record
of the Common stock.
The total of quarterly amounts for earnings per share will not necessarily
equal the annual amount, since the computations are based on the average number
of common shares and dilutive common share equivalents outstanding during each
period.
* In the fourth quarter of fiscal year 1993, the Company adopted Statement
of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, effective as of August 1, 1992.
F-35
<PAGE> 61
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE I - MARKETABLE SECURITIES AND OTHER INVESTMENTS
JULY 31, 1994
(thousands of dollars)
<TABLE>
<CAPTION>
Amount
Carried
in the
Market Consol-
Name of Issuer and Units or Value at idated
- ------------------- Principal July 31, Balance
Title of Issue Amount Cost 1994 Sheet
- ------------------- --------- ------- ------- -------
<S> <C> <C> <C> <C>
Current Marketable
Securities:
U.S. Government
obligations $53,000 $54,097 $57,333 $54,097
Other 2,000 2,000 2,008 2,000
------- ------- ------- -------
$55,000 $56,097 $59,341 $56,097(A)
======= ======= ======= =======
</TABLE>
(A) Included in the caption "Cash and marketable securities" in the
Consolidated Balance Sheet at July 31, 1994.
S-1
<PAGE> 62
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND EMPLOYEES OTHER THAN RELATED PARTIES
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(thousands of dollars)
<TABLE>
<CAPTION>
Balance Balance Balance Balance
July 31, Addi- Collec- July 31, Addi- Collec- July 31, Addi- Collec- July 31,
1991 tions tions 1992 tions tions 1993 tions tions 1994
-------- ----- ------- -------- ----- ------- -------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dro Amirian $ 140 $ 140 $140
George E. Boullianne 136 136 $ 136 $136
Alton J. Brann 250 $ 86 336 $180 516 516
Michael R. Brown $250 $250
Joseph F. Caligiuri 310 310 310
Joseph T. Casey 415 415 415 415
Charles Cusumano 180 180 180
Larry A. Frame 135 $135
Orion L. Hoch 1,177 22 1,155 24 1,131 1,131
Rudolph E. Lang, Jr. 100 50 150 150 150
John M. Leonis 210 210 210 100 310
Timothy G. Paulson 135 135
John W. Paxton 200 200 70 270 270
Roland O. Peterson 145 145
Gerold E. Pokorny 125 125 125
John E. Preston 115 115 55 170 170
Norman L. Roberts 170 170 170 170
</TABLE>
S-2a
<PAGE> 63
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND EMPLOYEES OTHER THAN RELATED PARTIES, continued
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(thousands of dollars)
<TABLE>
<CAPTION>
Balance Balance Balance Balance
July 31, Addi- Collec- July 31, Addi- Collec- July 31, Addi- Collec- July 31,
1991 tions tions 1992 tions tions 1993 tions tions 1994
------- ----- ------- ------- ----- ------- ------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald J. St. Pe' 200 200 200 200
John J. Stirk 160 160 160 160
Fred M. Sullivan 140 140 30 110 110
Other related parties
and key employees
individually
$100,000 or less 816 50 120 746 70 816 240 576
------ ---- ---- ------ ---- ---- ------ ----- ------ ------
$4,584 $546 $422 $4,708 $555 $629 $4,634 $ 485 $3,168 $1,951
====== ==== ==== ====== ==== ==== ====== ===== ====== ======
NOTES:
(A) All of the amounts above are unsecured, bear interest at 4% per annum and
are payable on demand by the Company, but in any event not later than the
earlier of (i) termination of the borrower's employment or (ii)
December 31, 1996.
(B) Balances pertaining to individuals who became employees of WAI were repaid
in full at Distribution.
</TABLE>
S-2b
<PAGE> 64
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(thousands of dollars)
<TABLE>
<CAPTION>
Classification
-----------------------------------------------------
Machinery
and
Land Buildings Equipment Total
---- --------- --------- -----
<S> <C> <C> <C> <C>
Balance, July 31, 1991 $48,877 $584,368 $916,036 $1,549,281
Additions, at cost 1,446 18,868 61,145 81,459
Retirements or sales (122) (11,350) (74,301) (85,773)
Other changes add (deduct) 98 4,813 15,759 20,670
- -------------------------------------------------------------------------------------------
Balance, July 31, 1992 50,299 596,699 918,639 1,565,637
Additions, at cost 71 22,605 50,954 73,630
Retirements or sales (1,036) (13,825) (63,034) (77,895)
Other changes add (deduct) (278) (3,597) (111) (3,986)
- -------------------------------------------------------------------------------------------
Balance, July 31, 1993 49,056 601,882 906,448 1,557,386
Additions, at cost 371 20,324 59,904 80,599
Retirements or sales (675) (24,844) (86,668) (112,187)
Other changes add (deduct) (2,363) (2,626) (36,271) (41,260)
- -------------------------------------------------------------------------------------------
Balance, July 31, 1994 $46,389 $594,736 $843,413 $1,484,538
===========================================================================================
</TABLE>
S-3
<PAGE> 65
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(thousands of dollars)
<TABLE>
<CAPTION>
Classification
---------------------------------------------
Machinery
and
Buildings Equipment Total
--------- --------- -----
<S> <C> <C> <C>
Balance, July 31, 1991 $266,209 $588,101 $854,310
Additions charged to costs and
expenses (A) 25,362 80,697 106,059
Retirements (7,174) (67,449) (74,623)
Other charges add (deduct) 2,247 4,549 6,796
- -----------------------------------------------------------------------------------------
Balance, July 31, 1992 286,644 605,898 892,542
Additions charged to costs and
expenses (A) 26,873 73,708 100,581
Retirements (9,054) (54,722) (63,776)
Other charges add (deduct) (2,499) (7,500) (9,999)
- -----------------------------------------------------------------------------------------
Balance, July 31, 1993 301,964 617,384 919,348
Additions charged to costs and
expenses (A) 26,080 65,447 91,527
Retirements (22,192) (75,380) (97,572)
Other charges add (deduct) 395 (26,776) (26,381)
- -----------------------------------------------------------------------------------------
Balance, July 31, 1994 $306,247 $580,675 $886,922
=========================================================================================
</TABLE>
Note:
See Note A of Notes to Consolidated Financial Statements for discussion on
method of depreciation and amortization.
(A) Includes amortization of leasehold improvements and depreciation
of leased equipment.
S-4
<PAGE> 66
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE IX - SHORT-TERM BORROWINGS
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(thousands of dollars)
<TABLE>
<CAPTION>
Notes Payable to Banks For Borrowings
---------------------------------------
Year Ended July 31
---------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at end of year $ 86,443 $55,363 $139,684
Weighted average interest rate
on balance at end of year 5.8% 6.2% 5.7%
Maximum amount outstanding at
any month-end during the year $294,175 $77,827 $139,684
Average amount outstanding
during the year (A) $ 71,981 $53,223 $ 53,492
Weighted average interest rate
during the year (B) 5.1% 6.9% 6.8%
</TABLE>
NOTES:
(A) These balances were calculated by considering the beginning balance on
August 1 and the 12 month-end balances during the years ended July 31,
1994, 1993 and 1992, respectively.
(B) These percentages were determined by considering the time each
obligation was outstanding and the interest rate in effect during that
time.
S-5
<PAGE> 67
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(thousands of dollars)
<TABLE>
<CAPTION>
Charged to Costs and Expenses
-----------------------------------
Year Ended July 31
-----------------------------------
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Maintenance and repairs $47,599 $53,068 $55,851
</TABLE>
NOTE:
Other items of supplementary income statement information are less than one
percent of total sales and service revenues reported in the Consolidated
Statements of Operations.
S-6
<PAGE> 68
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO EXHIBITS
Exhibit No. and
Applicable Section
of Item 601 of
Regulation S-K
- ------------------
3.1(a) Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's 1984 Annual Report on Form
10-K, and incorporated herein by reference.
3.1(b) Amendment to the Company's Restated Certificate of Incorpo-
ration, filed as Exhibit 3.1(a) to the Company's October 31,
1986 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
3.2(a) By-laws of the Company as amended through the date of this
filing, filed as Exhibit 3.2 to the Company's 1988 Annual
Report on Form 10-K, and incorporated herein by reference.
3.2(b) Board of Directors Resolution amending the by-laws of the
Company with respect to the number of members of the Board
of Directors through the date of the filing and incorporated
herein by reference.*
4.1 Indenture dated as of June 10, 1985 between the Company and
The Bank of New York, Trustee, under which the 12 5/8%
Subordinated Debentures Due 2005 were issued, filed as
Exhibit 4.1 to the Company's April 30, 1985 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
4.2 Form of definitive 12 5/8% Subordinated Debenture Due 2005,
filed as Exhibit 4.4 to the Company's 1985 Annual Report on
Form 10-K, and incorporated herein by reference.
4.3 $400,000,000 Credit Agreement dated December 23, 1993 among
Litton Industries, Inc., a group of banks and Morgan
Guaranty Trust Company of New York, as Agent, and Wells Fargo
Bank, N.A., as Co-agent, filed as Exhibit 4.1 to the
Company's April 30, 1994 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
4.4 Other instruments defining the rights of holders of other
long-term debt of the Registrant are not filed as exhibits
because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the
Registrant and its consolidated subsidiaries. The
Registrant hereby undertakes to furnish a copy of any such
instrument to the Commission upon request.
* Copies of these documents have been included in this Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
E-1
<PAGE> 69
INDEX TO EXHIBITS, continued
4.5 Rights Agreement, together with exhibits thereto, dated
August 17, 1994 between Litton Industries, Inc. and The Bank
of New York, as Rights Agent, filed as Exhibit 99.2 to Form
8-K dated August 17, 1994, and incorporated herein by
reference.
10.1(a) Board of Directors Resolutions, adopted December 8, 1993,
with respect to nonemployee directors' annual retainer and
attendance fees filed as Exhibit 10.1 to the Company's April
30, 1994 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.1(b) Board of Directors Resolutions with respect to director
retirement age and with respect to postretirement payments
to directors, including those payments made in the event of
a change in control of the Company, adopted on October 16,
1991, filed as Exhibit 10.2(b) to the Company's 1991 Annual
Report on Form 10-K, and incorporated herein by reference.
10.2(a) Litton Supplemental Retirement Plan, filed as Exhibit 10.3
to the Company's 1983 Annual Report on Form 10-K, and
incorporated herein by reference.
10.2(b) Board of Directors Resolution, adopted December 2, 1992,
amending the Litton Supplemental Retirement Plan, filed as
Exhibit 10.1 to the Company's April 30, 1993 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.2(c) Agreement of Trust between the Company and First Interstate
Bank of California, dated December 20, 1988, regarding pay-
ments of pension benefits under the Litton Supplemental
Retirement Plan to certain former and present employees or
their beneficiaries, filed as Exhibit 10.17 to the Company's
1989 Annual Report on Form 10-K, and incorporated herein by
reference.
10.2(d) Amendments, through the date of the filing, to the Agreement
of Trust dated December 20, 1988, and incorporated herein by
reference.
10.2(e) Instruments dated April 16, 1990, and April 25, 1990,
removing First Interstate Bank of California as Trustee
under Agreement of Trust dated December 20, 1988, and
appointing Wells Fargo Bank, N.A., as Successor Trustee,
filed as Exhibit 10.17(c) to the Company's 1990 Annual
Report on Form 10-K, and incorporated herein by reference.
E-2
<PAGE> 70
INDEX TO EXHIBITS, continued
10.2(f) Letter of Credit dated November 17, 1989, issued by Wells
Fargo Bank, N.A. pursuant to Agreement of Trust dated
December 20, 1988, filed as Exhibit 10.17(d) to the
Company's 1990 Annual Report on Form 10-K, and incorporated
herein by reference.
10.3(a) Specimen of the form of the agreement presently outstanding
under the Litton Industries, Inc. Executive Survivor Benefit
Plan, applicable to officers and certain key employees,
filed as Exhibit 10.4 to the Company's 1984 Annual Report on
Form 10-K, and incorporated herein by reference.
10.3(b) Board of Directors Resolutions amending the Executive
Survivor Benefit Plan, adopted June 12, 1986, filed as
Exhibit 10.4(a) to the Company's 1986 Annual Report on Form
10-K, and incorporated herein by reference.
10.4 Board of Directors Resolutions with respect to extended
notice of termination of certain officers, adopted December
5, 1985, filed as Exhibit 10.7 to the Company's 1992 Annual
Report on Form 10-K, and incorporated herein by reference.
10.5(a) Board of Directors Resolution with respect to incentive
loans, adopted September 26, 1991, filed as Exhibit 10.8(a)
to the Company's 1991 Annual Report on Form 10-K, and
incorporated herein by reference.
10.5(b) Specimen of the form of promissory note applicable to loans
presently outstanding under the Company's incentive loan
program, filed as Exhibit 10.8(b) to the Company's 1991
Annual Report on Form 10-K, and incorporated herein by
reference.
10.6 Copy of Agreement between the Company and the Foundation of
the Litton Industries dated May 1, 1978, filed as Exhibit
1 to Post-Effective Amendment No. 7 to Registration
Statement No. 2-52592 on Form S-8, and incorporated herein
by reference.
10.7(a) Supplemental Medical Insurance Plan for Key Executive
Employees incorporating all amendments thereto through the
date of this filing, filed as Exhibit 10.10 to the Company's
1990 Annual Report on Form 10-K, and incorporated herein by
reference.
E-3
<PAGE> 71
INDEX TO EXHIBITS, continued
10.7(b) Resolution adopted by the Compensation and Selection
Committee, dated January 26, 1994, approving the
participation by Orion L. Hoch and Catherine Nan Hoch in the
Supplemental Medical Insurance Plan, filed as Exhibit 10.2
to the Company's April 30, 1994 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.8(a) Litton Industries, Inc. 1981 Incentive Stock Option Plan,
filed as Exhibit 10.12(a) to the Company's 1982 Annual
Report on Form 10-K, and incorporated herein by reference.
10.8(b) Compensation and Selection Committee Resolution, adopted
September 29, 1993, adjusting the options outstanding under
Litton Industries, Inc. 1981 Incentive Stock Option Plan.
10.9(a) Supplemental Retirement Agreement between the Company and
Orion L. Hoch, filed as Exhibit 10.13(b) to the Company's
1983 Annual Report on Form 10-K, and incorporated herein by
reference.
10.9(b) Amendments, through the date of the filing, to the
Supplemental Retirement Agreement between the Company and
Orion L. Hoch, and incorporated herein by reference.
10.9(c) Extract of the minutes of a meeting of the Compensation and
Selection Committee of the Board of Directors, held on March
31, 1988, with respect to the lifetime participation of Fred
W. O'Green and Mildred G. O'Green in the Supplemental
Medical Insurance Plan, filed as Exhibit 10.13(e) to the
Company's 1988 Annual Report on Form 10-K, and incorporated
herein by reference.
10.10(a) Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan,
as amended, filed as Exhibit 10.14(a) to the Company's 1992
Annual Report on Form 10-K, and incorporated herein by
reference.
10.10(b) Compensation and Selection Committee Resolutions, adopted
March 12, 1992, amending the Litton Industries, Inc. 1984
Long-Term Stock Incentive Plan for the effects of the
two-for-one Common stock split which was effective May 8,
1992, filed as Exhibit 10.14(b) to the Company's 1992 Annual
Report on Form 10-K, and incorporated herein by reference.
10.10(c) Board of Directors Resolutions, adopted August 12, 1993,
amending the Litton Industries, Inc. 1984 Long-term Stock
Incentive Plan.
10.10(d) Compensation and Selection Committee Resolution, adopted
September 29, 1993, adjusting the options outstanding under
the Litton Industries, Inc. 1984 Long-term Stock Incentive
Plan for the distribution of Western Atlas Inc. Common
stock.
E-4
<PAGE> 72
INDEX TO EXHIBITS, continued
10.11(a) Litton Industries, Inc. Performance Award Plan, filed as
Exhibit 10.15 to the Company's 1984 Annual Report on Form
10-K, and incorporated herein by reference.
10.11(b) Board of Directors Resolution, adopted December 2, 1992,
amending the Litton Industries, Inc. Performance Award Plan,
filed as Exhibit 10.2 to the Company's April 30, 1993
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.12 Litton Industries, Inc. Restoration Plan filed as Exhibit
10.16 to the Company's 1989 Annual Report on Form 10-K, and
incorporated herein by reference.
10.13(a) Litton Industries, Inc. Director Stock Option Plan, filed as
Exhibit 10.18(a) to the Company's 1989 Annual Report on Form
10-K, and incorporated herein by reference.
10.13(b) Board of Directors Resolution, adopted March 12, 1992,
amending the Litton Industries, Inc. Director Stock Option
Plan for the two-for-one Common stock split which was
effective May 8, 1992, filed as Exhibit 10.18(b) to the
Company's 1992 Annual Report on Form 10-K, and incorporated
herein by reference.
10.13(c) Board of Directors Resolution, adopted September 30, 1993,
adjusting the options outstanding under the Litton
Industries, Inc. Director Stock Option Plan for the
distribution of Western Atlas Inc. Common stock.
10.14 Consulting agreement between a subsidiary of the Company and
Thomas B. Hayward, a director of the Company, dated December
17, 1993, filed as Exhibit 10.5 to the Company's April 30,
1994 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
10.15 Board of Directors Resolution with respect to election of
Robert H. Lentz as Advisory Director effective April 1,
1990, filed as Exhibit 10.22 to the Company's 1992 Annual
Report of Form 10-K, and incorporated herein by reference.
10.16 Copy of the Company's "Group Bonus Plan Fiscal 1992", which
provides for incentive compensation rewards for certain
Group Executives and other key group personnel, filed as
Exhibit 10.24 to the Company's 1992 Annual Report on Form
10-K, and incorporated herein by reference.
10.17 Copy of the incentive compensation plan of Ingalls
Shipbuilding, Inc., a subsidiary of the Company, filed as
Exhibit 10.25 to the Company's 1992 Annual Report on Form
10-K, and incorporated herein by reference.
E-5
<PAGE> 73
INDEX TO EXHIBITS, continued
10.18 Litton Industries, Inc. Deferred Compensation Plan for
Directors together with Board of Directors Resolution
adopted December 2, 1992, filed as Exhibit 10.3 to the
Company's April 30, 1993 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.19 Form of Change of Control Employment Agreement between
the Company and certain executive officers.
10.20 Distribution and Indemnity Agreement between Litton
Industries, Inc. and Western Atlas Inc. dated as of March
17, 1994, filed as Exhibit 99.1 to Form 8-K dated March 17,
1994, and incorporated herein by reference.
10.21 Tax Sharing Agreement between Litton Industries, Inc. and
Western Atlas Inc. dated as of March 17, 1994, filed as
Exhbit 99.1 to Form 8-K dated March 17, 1994, and
incorporated herein by reference.
11 Statement of Computation of Earnings per Share included
herein on pages E-7a through E-8c.
21 Subsidiaries of the Registrant included herein on page E-9.
23 Independent Auditors' Consent included herein on page E-10.
27 Financial Data Schedule included herein.
99 Undertaking re: Indemnification for liabilities under
Securities Act, filed as Exhibit 19 to the Company's 1990
Annual Report on Form 10-K, and incorporated herein by
reference.
E-6
<PAGE> 1
[LITTON LOGO] EXHIBIT 3.2(b)
CERTIFICATION OF RESOLUTIONS
OF THE BOARD OF DIRECTORS OF
LITTON INDUSTRIES, INC.
I, the undersigned JEANETTE M. THOMAS, Secretary of LITTON INDUSTRIES, INC., a
corporation organized and existing under the laws of the State of Delaware, DO
HEREBY CERTIFY that the following is a true and correct extract of certain
resolutions duly adopted by the Board of Directors of said corporation on
August 4, 1994, in accordance with the laws of Delaware and the By-laws of this
corporation, and that these resolutions are in full force and effect as of the
date hereof:
RESOLVED, that in accordance with Section 1 of Article III of the
By-laws of this corporation, the number of directors is hereby
fixed at eleven (11).
RESOLVED, that William P. Sommers is hereby elected a member of
the Board of Directors of Litton Industries, Inc.
IN WITNESS WHEREOF, I have here unto subscribed my name and affixed the seal of
said corporation at Beverly Hills, California, this 5th day of October, 1994.
[SEAL] /s/ JEANETTE M. THOMAS
--------------------------------
Jeanette M. Thomas
Secretary
EXHIBIT 3.2 (b)
<PAGE> 2
[LITTON LOGO] EXHIBIT 3.2(b), continued
CERTIFICATION OF RESOLUTIONS
OF THE BOARD OF DIRECTORS OF
LITTON INDUSTRIES, INC.
I, the undersigned JEANETTE M. THOMAS, Secretary of LITTON INDUSTRIES, INC., a
corporation organized and existing under the laws of the State of Delaware, DO
HEREBY CERTIFY that the following is a true and correct extract of certain
resolutions duly adopted by the Board of Directors of said corporation on
September 22, 1994, in accordance with the laws of Delaware and the By-laws of
this corporation, and that these resolutions are in full force and effect as
of the date hereof:
RESOLVED, that in accordance with Section 1 of Article III of the
By-laws of this corporation, the number of directors is hereby
fixed at twelve (12).
RESOLVED, that David E. Jeremiah is hereby elected a member of
the Board of Directors of Litton Industries, Inc.
IN WITNESS WHEREOF, I have here unto subscribed my name and affixed the seal of
said corporation at Beverly Hills, California, this 5th day of October, 1994.
[SEAL] /s/ JEANETTE M. THOMAS
--------------------------------
Jeanette M. Thomas
Secretary
EXHIBIT 3.2(b)-1
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE (A)
(thousands of dollars, except per share data)
PRIMARY EARNINGS PER SHARE 1994 1993 1992 1991 1990
- -------------------------- ---------- ---------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Earnings available for common shares
and common stock equivalent shares
deemed to have a dilutive effect:
Earnings from continuing operations $ 51,306 $ 87,341 $ 87,299 $ 5,964 $126,243
Provision for cash dividends on
preferred stock (Series B) (821) (821) (821) (821) (821)
---------- ---------- -------- ------- --------
Net earnings from continuing operations 50,485 86,520 86,478 5,143 125,422
Discontinued operations (173,079) 94,962 87,138 57,539 52,569
Extraordinary loss (30,732) - - - -
Cumulative effect of a change in
accounting principle:
Continuing operations - (106,727) - - -
Discontinued operations - (10,390) - - -
---------- ---------- -------- ------- --------
Net earnings (loss) available for common
shares and common stock equivalent shares
deemed to have a dilutive effect $ (153,326) $ 64,365 $173,616 $62,682 $177,991
========== ========== ======== ======= ========
Primary earnings (loss) per share before
extraordinary item and cumulative effect of
a change in accounting principle: (B)
Continuing operations $ 1.10 $ 2.10 $ 2.10 $ 0.12 $ 2.56
Discontinued operations (3.79) 2.31 2.12 1.33 1.07
Extraordinary loss (0.67) - - - -
Cumulative effect of a change in
accounting principle:
Continuing operations - (2.60) - - -
Discontinued operations - (0.25) - - -
---------- ---------- -------- -------- --------
Total primary $ (3.36) $ 1.56 $ 4.22 $ 1.45 $ 3.63
========== ========== ========= ======== ========
</TABLE>
E-7a
<PAGE> 2
<TABLE>
<CAPTION>
EXHIBIT 11, continued
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE (A)
(thousands of dollars, except per share data)
SHARES USED IN COMPUTATION 1994 1993 1992 1991 1990
- -------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding
(net of treasury shares) 45,720,585 40,161,652 40,189,888 42,290,454 47,983,192
Common stock equivalents (C) 998,827 985,676 1,132,206 1,080,830
---------- ---------- ---------- ---------- ----------
Total common shares and
common stock equivalent
shares deemed to have a
dilutive effect 45,720,585 41,160,479 41,175,564 43,422,660 49,064,022
========== ========== ========== ========== ==========
</TABLE>
NOTES:
(A) Applicable financial information contained in this report has been
adjusted for a two-for-one Common stock split which occurred in fiscal
year 1992. See Note F of Notes to Consolidated Financial Statements
on page F-20 of this Annual Report on Form 10-K.
(B) Earnings per share amounts related to fiscal years 1992 and prior have
been restated to reflect the WAI businesses as discontinued operations
in connection with the spinoff discussed in Note B of Notes to
Consolidated Financial Statements on page F-14 of this Annual Report on
Form 10-K.
(C) The weighted average effect of stock options was anti-dilutive for
fiscal year 1994 and, therefore, not considered.
(Fully Diluted Earnings Per Share presented on next page.)
E-7b
<PAGE> 3
<TABLE>
<CAPTION>
EXHIBIT 11, continued
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE (A)
(thousands of dollars, except per share data)
FULLY DILUTED EARNINGS PER SHARE 1994 1993 1992 1991 1990
-------------------------------- --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Earnings available for common shares
and common stock equivalent shares
deemed to have a dilutive effect:
Earnings from continuing operations $ 51,306 $ 87,341 $ 87,299 $ 5,964 $126,243
Provision for cash dividends on
preferred stock (Series B) (821) (821) (821) (821) (821)
--------- --------- -------- ------- --------
Net earnings from continuing operations 50,485 86,520 86,478 5,143 125,422
Discontinued operations (173,079) 94,962 87,138 57,539 52,569
Extraordinary loss (30,732) - - - -
Cumulative effect of a change in
accounting principle:
Continuing operations - (106,727) - - -
Discontinued operations - (10,390) - - -
--------- --------- -------- ------- --------
Net earnings (loss) available for common
shares and common stock equivalent
shares deemed to have a dilutive effect (153,326) 64,365 173,616 62,682 177,991
Add: Interest expense on zero coupon
convertible subordinated notes
(net of tax) - (B) 13,083 (B) -
--------- --------- -------- ------- --------
Total $(153,326) $ 64,365 $186,699 $62,682 $177,991
========= ========= ======== ======= ========
</TABLE>
E-8a
<PAGE> 4
<TABLE>
EXHIBIT 11, continued
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE (A)
(thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Fully diluted earnings (loss) per share
before extraordinary item and cumulative
effect of a change in accounting
principle: (C)
Continuing operations $ 1.10 $ 2.10 $2.10 $0.12 $2.56
Discontinued operations (3.79) 2.31 1.84 1.33 1.07
Extraordinary loss (0.67) - - - -
Cumulative effect of a change in
accounting principle:
Continuing operations - (2.60) - - -
Discontinued operations - (0.25) - - -
------- ------- ----- ----- -----
Total fully diluted $(3.36) $ 1.56 $3.94 $1.45 $3.63
======= ====== ===== ===== =====
SHARES USED IN COMPUTATION 1994 1993 1992 1991 1990
- -------------------------- ---- ---- ---- ---- ----
Total common shares and common
stock equivalent shares deemed
to have a dilutive effect 45,720,585 41,160,479 41,175,564 43,422,660 49,064,022
Additional potentially dilutive
securities (equivalent in
common stock):
Stock options - - 24,676 29,676 120
Zero coupon convertible
subordinated notes (B) (B) 6,126,000 (B) -
---------- ---------- ---------- ---------- ----------
Total 45,720,585 41,160,479 47,326,240 43,452,336 49,064,142
========== ========== ========== ========== ==========
SUMMARY OF CASH DIVIDENDS
DECLARED PER SHARE
- -------------------------
Preferred - Series B $2.00 $2.00 $2.00 $2.00 $2.00
</TABLE>
E-8b
<PAGE> 5
EXHIBIT 11, continued
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE (A)
(thousands of dollars, except per share data)
NOTES:
(A) Applicable financial information contained in this report has been
adjusted for a two-for-one Common stock split which occurred in fiscal
year 1992. See Note F of Notes to Consolidated Financial Statements on
page F-20 of this Annual Report on Form 10-K.
(B) The fully diluted earnings per share calculation for fiscal 1993 and
1991 did not include the assumed conversion of zero coupon convertible
subordinated notes issued September 26, 1990, because the effect on
shares used in the calculation and the related increase to income for
the interest expense adjustment, net of tax, would be anti-dilutive.
As discussed in Note C of Notes to Consolidated Financial Statements on
page F-15 of this Annual Report on Form 10-K, substantially all of these
notes were converted into Common stock and the remainder redeemed for
cash in fiscal year 1993.
(C) Earnings per share amounts related to fiscal years 1992 and prior have
been restated to reflect the WAI businesses as discontinued operations
in connection with the spinoff discussed in Note B of Notes to
Consolidated Financial Statements on page F-14 of this Annual Report on
Form 10-K.
E-8c
<PAGE> 1
EXHIBIT 21
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction Percentage
of of
Name of Subsidiary Incorporation Ownership
------------------ ------------- ---------
<S> <C> <C>
Ingalls Shipbuilding, Inc. Delaware 100
Litton Systems, Inc. Delaware 100
</TABLE>
The Registrant has additional operating subsidiaries, which considered in the
aggregate as a single subsidiary, do not constitute a significant subsidiary.
All above listed subsidiaries have been consolidated in the Registrant's
financial statements.
E-9
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) Registration
Statement No. 2-93044 on Form S-8, (ii) Registration Statement No. 33-27467 on
Form S-8, (iii) Registration Statement No. 33-27468 on Form S-8, (iv)
Registration Statement No. 33-44684 on Form S-3 and (v) Registration Statement
No. 33-55944 on Form S-8 of our report dated September 22, 1994, appearing in
this Annual Report on Form 10-K of Litton Industries, Inc. and subsidiary
companies for the year ended July 31, 1994.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 14, 1994
E-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1994 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JULY 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 61,007
<SECURITIES> 56,097
<RECEIVABLES> 333,851
<ALLOWANCES> 12,866
<INVENTORY> 481,073
<CURRENT-ASSETS> 1,264,073
<PP&E> 1,484,538
<DEPRECIATION> 886,922
<TOTAL-ASSETS> 2,254,296
<CURRENT-LIABILITIES> 1,227,141
<BONDS> 105,621
<COMMON> 45,914
0
2,053
<OTHER-SE> 562,447
<TOTAL-LIABILITY-AND-EQUITY> 2,254,296
<SALES> 3,446,053
<TOTAL-REVENUES> 3,446,053
<CGS> 2,777,462
<TOTAL-COSTS> 3,236,781
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,624
<INCOME-PRETAX> 90,648
<INCOME-TAX> 39,342
<INCOME-CONTINUING> 51,306
<DISCONTINUED> (173,079)
<EXTRAORDINARY> (30,732)
<CHANGES> 0
<NET-INCOME> (152,505)
<EPS-PRIMARY> (3.36)
<EPS-DILUTED> (3.36)
</TABLE>
