<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 14, 1994
LITTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 1-3998 95-1775499
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
</TABLE>
360 North Crescent Drive, Beverly Hills, California 90210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 859-5000
Page 1 of 3
Exhibit Index appears on Page 2
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Item 5. Other Events
Prior to the settlement discussed herein, Litton Systems, Inc. ("LSI"), a
subsidiary of Litton Industries, Inc. (the "Registrant") , was a defendant in a
civil suit as previously reported in the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31, 1993. This action had been pending in
the United States District Court for the Central District of California (the
"Court") and was 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. This action was filed in
1988 by James Carton, a former employee of such subsidiary, and a nonprofit
corporation calling itself "Taxpayers Against Fraud". In March, 1989, the
United States Government intervened in the action and filed an amended
complaint in May, 1989. The civil suit alleged that Litton Computer Services
("LCS"), a division of LSI, improperly allocated computer service costs among
customers, resulting in an alleged over-allocation of costs to certain United
States Government contracts performed by other divisions of LSI where the cost
of data processing provided by LCS was included as an indirect item of expense.
The plaintiffs were seeking compensatory damages and civil penalties
aggregating more than $650 million.
After several meetings with a settlement judge, LSI and the plaintiffs, on July
14, 1994, agreed to settle all issues in connection with this matter. LSI,
without admitting any liability or wrongdoing, agreed to pay to the United
States Government $82.0 million in settlement. LSI has also agreed to pay the
other plaintiffs $4.0 million for attorney fees. The plaintiffs in return
agreed to release LSI from all claims, including attorney fees, in connection
with this litigation. The government also released other administrative
claims. The Court has dismissed the civil suit with prejudice, thereby
terminating this proceeding. Accordingly, results for the fourth quarter
ending July 31, 1994 will include a charge of $86.0 million, pre-tax, or $53.8
million, after-tax, to reflect the settlement.
Item 7. Exhibits
99.1 Press Release issued by the Registrant on July 14, 1994.
99.2 Settlement Agreement entered into in the matter of U.S. ex rel.
Taxpayers Against Fraud and James Carton v. Litton Systems, Inc., dated
July 14, 1994.
99.3 Stipulation of Dismissal with Prejudice, dated July 14, 1994.
Page 2 of 3
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LITTON INDUSTRIES, INC.
(Registrant)
By /s/John E. Preston
--------------------
John E. Preston
Senior Vice President
July 15, 1994
Page 3 of 3
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EXHIBIT 99.1
[LITTON LETTERHEAD]
FOR IMMEDIATE RELEASE
LITTON SETTLES LAWSUIT
WITH U.S. GOVERNMENT
BEVERLY HILLS, CA, July 14 -- Litton Industries, Inc. announced today
that its Litton Systems, Inc. subsidiary has settled all claims related to a
suit filed under the civil False Claims Act. The suit arose from a dispute
over the allocation of data processing costs among commercial and defense
customers of a division of the subsidiary.
The action is being dismissed by the U.S. District Court in Los Angeles
without any admission of wrongdoing or liability by Litton. The company will
pay $82 million to the U.S. government in settlement. Litton has also agreed
to pay $4 million to the nongovernment plaintiffs for attorneys fees. The
potential liability for damages and penalties could have totaled as much as
$650 million.
The lawsuit involved the interpretation of highly complex government
cost accounting provisions relating to the charging of costs at Litton
Computer Services division data center.
"A decision to settle is a difficult choice when you believe your
position is correct," said Litton Chairman Alton J. Brann. "This decision was
made in recognition of the potentially significant amount at risk and the
disruptive force of long-term litigation. The mutually acceptable agreement
fully disposes of an issue that could have taken several more years to resolve
through the judicial process. The settlement is in the financial interests of
our shareholders and allows Litton's new corporate management to focus its
total effort on the business opportunities ahead in the worldwide defense
marketplace."
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Litton Senior Vice President and General Counsel John E. Preston said,
"We believe that we correctly interpreted these complex government regulations,
and that the Litton employees involved acted in good faith. It is our further
belief that the accounting system in place at Litton Computer Services division
actually lowered the costs to all customers, including the government, by
several million dollars. It unfortunately illustrates the difficulty in
attempting to do government and commercial work in the same facility."
Litton is a leader in worldwide technology markets for advanced
electronic and defense systems, and a major designer and builder of surface
combat ships for the U.S. Navy and allied nations.
# # #
<PAGE> 1
EXHIBIT 99.2
SETTLEMENT AGREEMENT
This Settlement Agreement is entered into between Plaintiffs United
States of America ("United States"), Taxpayers Against Fraud, the Estate of
James Carton, represented by Anita Carton (Taxpayers Against Fraud and the
Estate of James Carton, represented by Anita Carton shall be referred to
jointly as "the Relators") and Defendant Litton Systems, Inc. ("Litton") and is
intended by the United States, the Relators, and Litton (jointly referred to
herein as "the parties") to settle the obligations and disputes hereinafter
described.
RECITALS
WHEREAS, in an action entitled U.S. ex rel. Taxpayers Against Fraud and
James Carton v. Litton Systems, Inc., No. 88-2276-MRP, filed in the U.S.
District Court for the Central District of California (the "Action"), the
United States and the Relators alleged, among other things, that Litton caused
financial harm to the United States through the misallocation of costs at the
Litton Computer Services Division facility at Woodland Hills, California
("LCS-WH") as set forth in the Second Amended Complaint filed on January 22,
1991 ("the Complaint");
WHEREAS, the United States alleges that it suffered financial harm
from January 1, 1981 through July 31, 1992;
WHEREAS, the United States alleges that it was caused financial harm
through similar cost allocation practices at the LCS facility in Reston,
Virginia ("LCS-Reston") from January 1, 1990 through July 31, 1992;
<PAGE> 2
WHEREAS, the United States Attorney's Office for the Central District
of California has declined criminal prosecution based on the conduct alleged in
the lawsuit;
WHEREAS, Litton denies that it has engaged in any of the wrongful
conduct alleged in the Complaint filed in the Action, or with respect to any
matters settled herein;
WHEREAS, Litton believes that the LCS-WH practices at issue in the
lawsuit were proper and reduced the costs of Litton's defense divisions
(Guidance and Control Systems Division, Applied Technology Division, and Data
Systems Division) and the United States; and
WHEREAS, it is the desire of the parties to this Settlement Agreement
to avoid the risks and expense attendant upon further litigation;
TERMS OF AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, the parties agree as follows:
A. On July 14, 1994, the parties will appear before the United States
District Court for the Central District of California. At that time, the
following events will occur:
1. The Relators and Litton will execute and submit to the
United States District Court a stipulation to substitute the Estate of James
Carton, as represented by Anita Carton, the executor and special administrator
of the estate, as a plaintiff in the Action. The United States will not object
to the stipulation. The District Court will be asked to sign the stipulation
of substitution.
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2. The United States, the Relators and Litton will execute
and submit to the United States District Court a stipulation of dismissal with
prejudice of the Action, except that the stipulation of dismissal specifically
will exclude from dismissal that part of the Action by which the Court has
jurisdiction to award the Relators a share of the proceeds of the action
pursuant to 31 U.S.C. Section 3730(d)(1). The District Court will be asked to
sign the stipulation of dismissal.
3. Concurrently with the Court's signing of the
stipulation of dismissal, Litton shall pay to the United States and deliver a
certified or cashier's check in the amount of $82,000,000 (eighty-two million
dollars) made payable to the United States Treasurer and delivered to the
United States Attorney for the Central District of California or her
representative.
B. Within three business days of the submission of the stipulation of
dismissal set forth in paragraph A.3, the United States and Litton will submit
to the United States Court of Appeals for the Federal Circuit an executed
agreement to dismiss Litton's appeal in Litton Systems, Inc. v. United States,
No. 93-5079, pursuant to Fed. R. App. P. 42. The agreement will provide that
each party will bear its own costs.
C. With the exception of programming costs and accommodation sales,
Litton will not seek further reimbursement from the United States for any
LCS-WH costs incurred on cost reimbursement and fixed price incentive contracts
from 1 August 1990 through 31 July 1992, except that Litton shall be entitled
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to seek reimbursement for LCS-WH costs incurred on fixed priced incentive
contract No. N00039-87-C-0330 (1988 and 1989 production options only), but in
no event shall the reimbursed LCS-WH cost payments (excluding programming costs
and accommodation sales) for those two production options exceed $2 million.
D. Subject only to the exceptions in paragraph E below, and in
consideration of the obligations of Litton set forth in this Settlement
Agreement, the United States hereby fully releases and discharges Litton, its
present or former officers, directors, employees, and agents from any and all
civil and administrative monetary claims and causes of action under the False
Claims Act, 31 U.S.C. Section Section 3729, et seq., common law causes of
action or any other statute creating causes of action for civil damages or
penalties, for the conduct that was the subject matter of the lawsuit,
including such claims based on any of the following:
1. The cost accounting practices followed by LCS-WH to
allocate costs between commercial customers on the one hand and the defense
divisions on the other hand, or among the defense divisions, from January 1,
1981 through July 31, 1992, and at LCS-Reston from January 1, 1990 through July
31, 1992.
2. The reasonableness of the amount of costs charged by
LCS-WH to the defense divisions from January 1, 1981 through July 31, 1992, and
by LCS-Reston from January 1, 1990 through July 31, 1992, to the extent that
the reasonableness of such costs is challenged because of the allocation
practices contested in this lawsuit.
4
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3. The adequacy of disclosure by Litton to the United States
of any cost accounting practice followed by LCS-WH from January 1, 1981 through
July 31, 1992, and by LCS-Reston from January 1, 1990 through July 31, 1992,
that is released and discharged pursuant to paragraph D of this Settlement
Agreement.
4. The prior approval of the United States for any change of
any cost accounting practice followed by LCS-WH from January 1, 1981 through
July 31, 1992, and at LCS-Reston from January 1, 1990 through July 31, 1992,
that is released and discharged pursuant to paragraph D of this Settlement
Agreement.
5. The currency, accuracy, or completeness of any cost or
pricing data submitted to the United States pertaining to costs incurred or
charged by LCS-WH from January 1, 1981 through July 31, 1992, or at LCS-Reston
from January 1, 1990 through July 31, 1992, provided that the claims that the
cost or pricing data are not current, accurate, or complete arises from the
conduct contested in the lawsuit.
6. The submission and/or certification of any indirect cost
rate proposal or final statement of costs, provided that the claim that the
submission includes unallowable costs or that the certification is inaccurate
or false is based on the inclusion of LCS-WH costs incurred or charged from
January 1, 1981 through July 31, 1992, or LCS-Reston costs incurred or charged
from January 1, 1990 through July 31, 1992, and arose from the conduct
contested in the lawsuit.
7. The estimate of any LCS-WH costs, provided that the claim
that the estimate is inaccurate or false arises because the
5
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estimate is based on the inclusion of LCS-WH costs proposed, incurred, or
charged from January 1, 1981 through July 31, 1992, or of LCS-Reston costs
incurred or charged from January 1, 1990 through July 31, 1992, and the claim
arises from the conduct contested in the lawsuit.
8. The capacity, or utilization of the capacity of the ADPE
equipment at LCS-WH from January 1, 1981 through July 31, 1992, and at
LCS-Reston from January 1, 1990 through July 31, 1992.
E. The United States does not release Litton from: (1) any claim not
released in paragraph D, above; (2) any claims arising under Title 26 U.S. Code
(Internal Revenue Code), or under securities laws; (3) any claims based upon
LCS-WH's failure to comply with FAR 31.205, except as provided in paragraph
D.2; (4) suspension and debarment rights of any federal agency; (5) any claims
based on such obligations as are created by this Settlement Agreement; or (6)
all claims based on conduct that occurred after July 31, 1992, including but
not limited to: a) unallowable excess lease costs included in LCS-WH charges
to the defense divisions, arising under FAR 31.205-2 and b) unallowable costs
included in LCS-WH charges to the defense divisions, arising from excess
mainframe capacity at LCS-WH. However, this paragraph shall not serve to
negate any claims released in the "Administrative Release" entered into by
Litton and a representative of the Defense Logistics Agency on July 14, 1994.
F. The parties agree that this Settlement Agreement does not affect
any rights that Litton has to seek compensation from
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the United States for: (a) the United States' exclusion after July 31, 1992 of
LCS-WH and/or LCS-Reston costs from billings by Litton; and (b) the United
States' exclusion after July 31, 1992 of LCS-WH and/or LCS-Reston costs from
overhead rates and direct contract costs when negotiating firm fixed price
contracts and fixed price incentive contracts.
G. Litton agrees that all costs (as defined in the Federal
Acquisition Regulations 31.205-47) incurred by or on behalf of Litton and its
officers, directors, agents and employees in connection with (1) the matters
covered by this Settlement Agreement, (2) the Government's audit and
investigation of the matters covered by this Settlement Agreement and any and
all related criminal investigations, (3) Litton's investigation, defense of the
foregoing matters including any and all related criminal matters, and
corrective actions, (4) the negotiation of this Settlement Agreement, and (5)
the payments made to the United States pursuant to this Settlement Agreement
and to the Relators' counsel relating to the lawsuit shall be unallowable costs
for government contract accounting purposes. These amounts shall be separately
accounted for by Litton.
H. The Relators acknowledge that this Settlement Agreement is fair,
adequate, and reasonable under all the circumstances.
I. It is agreed that in the event of default by any party to this
Settlement Agreement that the sole and exclusive civil remedy for any party
shall be suit for implementing and enforcing this Settlement Agreement.
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J. Nothing in this Agreement shall constitute evidence of an
admission by any party with respect to any issue of fact or law arising in the
civil action being settled.
K. This document, as supplemented but not superseded by the
"Administrative Release" and the "Litton-Relator Release Agreement," dated July
14, 1994, contains the complete agreement between the parties, and cannot be
amended except in writing signed by the United States, the Relators, and
Litton.
L. This Settlement Agreement shall be governed by the laws of the
United States. For purposes of construction, this Settlement Agreement shall
be deemed to have been drafted by all parties and shall not, therefore, be
construed against any party in any subsequent dispute.
M. Each of the representatives executing this Settlement Agreement
has the right and authority to enter into this Settlement Agreement on behalf
of his or her party and to release the claims and grant the rights herein
granted.
N. This Settlement Agreement may be executed in multiple counterparts
each of which will be considered an original but such counterparts shall
constitute but one and the same instruments.
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IN WITNESS THEREOF the parties have executed the Settlement Agreement
on the date indicated below.
Dated: July 14, 1994 THE UNITED STATES OF AMERICA
BY: /s/ HOWARD F. DANIELS
--------------------------------
HOWARD F. DANIELS
Assistant United States Attorney
U.S. Attorney's Office for the
Central District of California
Dated: July 14, 1994 LITTON SYSTEMS, INC.
BY: /s/ JOHN E. PRESTON
--------------------------------
JOHN E. PRESTON
Vice-President
Dated: July 14, 1994 TAXPAYERS AGAINST FRAUD
BY: /s/ LEONARD JACOBY
--------------------------------
Board of Directors
Taxpayers Against Fraud
Dated: July 14, 1994 ESTATE OF JAMES CARTON
BY: /s/ ANITA CARTON
--------------------------------
ANITA CARTON
Executor & Special
Administrator of the Estate
of James Carton
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EXHIBIT 99.3
RONALD L. OLSON
BRAD D. BRIAN
GLENN D. POMERANTZ
MARC A. BECKER
MUNGER, TOLLES & OLSON
355 S. Grand Avenue, 35th Floor
Los Angeles, California 90071
(213) 683-9100
Attorneys for Defendant
LITTON SYSTEMS, INC.
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA, ex rel., ) CASE NO. CV 88-02276-MRP (JRx)
TAXPAYERS AGAINST FRAUD, a )
non-profit corporation, and )
JAMES CARTON, ) STIPULATION OF DISMISSAL WITH
) PREJUDICE
Plaintiffs, )
)
v. )
)
LITTON SYSTEMS, INC., )
)
Defendant. )
- --------------------------------------
Pursuant to Federal Rule of Civil Procedure 41(a)(1)(ii),
and in order to effectuate the parties' settlement agreement, the parties
hereby stipulate that this action be and hereby is dismissed with prejudice,
except for that part of the Action by which the Court has jurisdiction to award
the Relators
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a share of the proceeds of the action pursuant to 31 U.S.C. Section
3730(d)(1). Except as provided in the Litton-Relator Release Agreement, each
party shall bear its own costs.
DATED: July 14, 1994 PHILLIPS, COHEN & GOLDSTEIN
By /s/ JANET L. GOLDSTEIN
-------------------------------
Janet L. Goldstein
Attorneys for Plaintiffs
TAXPAYERS AGAINST FRAUD and
ANITA L. CARTON, Special
Administrator and Executor of
the Estate of JAMES CARTON
DATED: July 14, 1994 Nora M. Manella
United States Attorney
Leon W. Weidman
Assistant United States Attorney
Chief, Civil Division
By /s/ HOWARD F. DANIELS
-------------------------------
Howard F. Daniels
Assistant United States Attorney
Chief, Civil Fraud Section
Attorneys for Plaintiff
UNITED STATES OF AMERICA
DATED: July 14, 1994 MUNGER, TOLLES & OLSON
By /s/ BRAD D. BRIAN
-------------------------------
Brad D. Brian
Attorneys for Defendant
LITTON SYSTEMS, INC.
O R D E R
IT IS SO ORDERED.
DATED: July 14, 1994 /s/ MARIANA R. PFAELZER
----------------------------------
HONORABLE MARIANA R. PFAELZER
United States District Court Judge
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