LITTON INDUSTRIES INC, 10-Q, 1996-12-13

LITTON INDUSTRIES INC
10-Q, 1996-12-13
SEARCH, DETECTION, NAVAGATION, GUIDANCE, AERONAUTICAL SYS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1996

[ ] 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)

<TABLE>
<S> <C>
DELAWARE 95-1775499
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

21240 BURBANK BOULEVARD, WOODLAND HILLS, CALIFORNIA 91367-6675
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 598-5000

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____

On November 30, 1996 there were 46,492,781 shares of Common Stock
outstanding.

Page 1 of 10

Exhibit Index appears on Page 8.

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<PAGE> 2

LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

INDEX

REPORT ON FORM 10-Q

FOR QUARTER ENDED OCTOBER 31, 1996

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three months ended October 31, 1996 and 1995.......................... 3
Consolidated Balance Sheets
October 31, 1996 and July 31, 1996.................................... 4
Consolidated Statements of Cash Flows
Three months ended October 31, 1996 and 1995.......................... 5
Notes to Consolidated Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 7

PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................ 8
Signature............................................................................. 10
</TABLE>

2
<PAGE> 3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-----------------------
1996 1995
---------- --------
<S> <C> <C>
Sales and Service Revenues........................................... $1,048,877 $836,197
---------- --------
Costs and Expenses
Cost of sales...................................................... 824,787 662,597
Selling, general and administrative................................ 112,276 87,315
Depreciation and amortization...................................... 34,165 24,122
Interest -- net.................................................... 11,305 522
---------- --------
Total...................................................... 982,533 774,556
---------- --------
Earnings before Taxes on Income...................................... 66,344 61,641
Taxes on Income...................................................... (26,538) (24,963)
---------- --------
Net Earnings............................................... $ 39,806 $ 36,678
========== ========
Primary Earnings per Share........................................... $ 0.83 $ 0.77
========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

3
<PAGE> 4

LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1996 1996
----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and marketable securities.................................... $ 108,089 $ 92,855
Accounts receivable, net.......................................... 671,840 685,216
Inventories less progress billings................................ 591,959 571,056
Deferred tax assets............................................... 359,407 365,657
Prepaid expenses.................................................. 38,430 31,989
---------- ----------
Total Current Assets...................................... 1,769,725 1,746,773
---------- ----------
Property, Plant and Equipment -- at cost............................ 1,588,278 1,603,160
Less accumulated depreciation..................................... (926,787) (922,847)
---------- ----------
Property, Plant and Equipment, Net.................................. 661,491 680,313
---------- ----------
Goodwill and Other Intangibles, Net................................. 683,022 691,834
---------- ----------
Other Assets and Long-term Investments.............................. 323,658 312,508
---------- ----------
Total Assets.............................................. $ 3,437,896 $3,431,428
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable.................................................. $ 791,465 $ 808,767
Payrolls and related expenses..................................... 300,305 295,527
Taxes on income................................................... 81,018 68,872
Notes payable and current portion of long-term obligations........ 185,675 249,727
Other current liabilities......................................... 290,818 255,105
---------- ----------
Total Current Liabilities................................. 1,649,281 1,677,998
---------- ----------
Long-term Obligations............................................... 511,967 514,542
---------- ----------
Postretirement Benefit Obligations Other than Pensions.............. 204,522 205,029
---------- ----------
Deferred Tax and Other Long-term Liabilities........................ 119,561 116,600
---------- ----------
Shareholders' Investment
Capital stock
Voting preferred stock -- Series B............................. 2,053 2,053
Common stock................................................... 46,521 46,565
Additional paid-in capital........................................ 298,092 296,899
Retained earnings................................................. 635,670 601,050
Cumulative currency translation adjustment........................ (29,771) (29,308)
---------- ----------
Total Shareholders' Investment............................ 952,565 917,259
---------- ----------
Total Liabilities and Shareholders' Investment............ $ 3,437,896 $3,431,428
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

4
<PAGE> 5

LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash and cash equivalents at beginning of period....................... $ 77,105 $ 60,229
-------- --------
Cash Was Provided by (Used for) Operating Activities
Net earnings......................................................... 39,806 36,678
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization..................................... 34,165 24,122
Deferred income tax charge........................................ 8,369 10,777
Changes in working capital accounts
Accounts receivable............................................. 12,487 49,565
Inventory....................................................... (7,518) 29,479
Prepaid expenses................................................ (6,461) (3,113)
Accounts payable................................................ (30,796) (39,203)
Payrolls and related expenses................................... 5,703 18,600
Taxes on income................................................. 12,124 5,768
Other current liabilities....................................... 35,713 (13,726)
Other operating activities........................................ (9,782) (7,036)
-------- --------
Cash provided by operating activities.................................. 93,810 111,911
-------- --------
Investing Activities
Purchase of capital assets........................................... (21,909) (12,785)
Proceeds from sale of capital assets................................. 14,615 2,125
Decrease in other current marketable securities...................... -- 10,073
Other investing activities........................................... (1,108) 967
-------- --------
Cash (used for) provided by investing activities....................... (8,402) 380
-------- --------
Financing Activities
Change in short-term obligations, net................................ (65,024) (2,235)
Other financing activities........................................... (5,150) 1,234
-------- --------
Cash used for financing activities..................................... (70,174) (1,001)
-------- --------
Resulting in increase in cash and cash equivalents..................... 15,234 111,290
-------- --------
Cash and cash equivalents at end of period............................. $ 92,339 $171,519
======== ========
Supplemental disclosure of cash flow information
Interest paid........................................................ $ 18,754 $ 1,074
Net income taxes paid................................................ $ 8,206 $ 7,580
Reconciliation to Consolidated Balance Sheet at October 31, 1996:
Cash and cash equivalents......................................... $ 92,339
Marketable securities............................................. 15,750
--------
Total cash and marketable securities............................ $108,089
========
</TABLE>

See accompanying notes to consolidated financial statements.

5
<PAGE> 6

LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED OCTOBER 31, 1996

1. The amounts included in this report are unaudited; however, in the opinion
of management, all adjustments necessary for a fair statement of results for
the stated periods have been included. These adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Certain
reclassifications of prior period information were made for comparative
purposes. These interim consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report to Shareholders for the fiscal year ended July 31,
1996. The results of operations for the three months ended October 31, 1996
are not necessarily indicative of operating results for the entire year.

2. The components of inventory balances are summarized below:

<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1996 1996
----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process............................ $ 879,343 $ 880,014
Finished goods............................................... 52,323 59,801
--------- ---------
931,666 939,815
Less progress billings....................................... (339,707) (368,759)
--------- ---------
Net inventories.............................................. $ 591,959 $ 571,056
========= =========
</TABLE>

3. Interest (expense) income is shown below:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
---------------------
1996 1995
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Interest expense............................................... $(13,636) $ (3,844)
Interest income................................................ 2,331 3,322
-------- --------
Net interest expense........................................... $(11,305) $ (522)
======== ========
</TABLE>

6
<PAGE> 7

PART I. FINANCIAL INFORMATION (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Sales and operating profit for the first quarter of fiscal year 1997 were
$1.05 billion and $91.6 million, representing increases of 25% and 24%,
respectively, over the prior year's first quarter. Corresponding results for the
first quarter of fiscal year 1996 were $836.2 million and $74.1 million,
respectively. After an increase in interest expense on debt incurred in
connection with the acquisitions, net earnings increased 9% to $39.8 million,
compared with $36.7 million for the prior year's first quarter. During the first
quarter of fiscal year 1997, the Company reduced the effective tax rate from
40.5% to 40%.

Effective July 31, 1996, certain businesses previously reported with the
Advanced Electronics segment have been grouped with the Electronic Components
and Materials segment (formerly known as the Interconnect Products segment).
Accordingly, the segment information for the first quarter of fiscal year 1996
as discussed below has been restated to reflect these changes.

Sales and operating profit for the Advanced Electronics segment increased
significantly to $630.9 million and $39.8 million compared with $366.7 million
and $27.3 million, respectively, for the prior year's first quarter. These
improvements were primarily as a result of the acquisitions completed during
fiscal year 1996, including PRC Inc. ("PRC") in February 1996 and Sperry Marine
Inc. ("Sperry Marine") in May 1996. PRC is a diversified information technology
company that designs, develops, integrates and supports computer-based
information handling and processing systems and re-engineers business processes.
Sperry Marine is a leading producer of marine electronic navigation and guidance
systems to military and commercial customers. Operating margins for this segment
were lower in the current year's quarter due to the inclusion of PRC, a
traditionally lower margin business. Backlog for the Advanced Electronics
segment at October 31, 1996 was $2.22 billion, not including PRC's unfunded
backlog with potential contract values totaling more than $1.1 billion.
Comparative backlog at July 31, 1996 was $2.23 billion. The Marine Engineering
and Production segment reported sales of $299.2 million and operating profit of
$35.4 million for the first quarter of fiscal year 1997, compared with $371.7
million and $37.0 million, respectively, for the prior year's first quarter. The
decrease in sales reflected the completion and the winding down of construction
activities on programs nearing completion, partially offset by the startup on
new contracts. Operating margins improved as a result of increased earnings
rates on programs maturing in the production process and cost reduction efforts.
Backlog for this segment at October 31, 1996 was $3.11 billion, compared with
$3.29 billion at July 31, 1996. Sales and operating profit for the Electronic
Components and Materials segment benefited from strong demand for its commercial
electronic products during the first quarter of fiscal year 1997 and, as a
result, reported improved performance over the same period a year ago.

The Company completed the first quarter with $108.1 million in cash and
marketable securities, compared with $92.9 million at fiscal year-end 1996.
During the current quarter, cash flow from operations provided the funds to
effect a net reduction of $64 million in short-term borrowings and the
repurchase of 125,000 shares of Common Stock, leaving approximately 3.7 million
shares authorized to be repurchased under a recently expanded buyback program.

Interest expense was significantly higher for the first quarter of fiscal
year 1997 compared with the first quarter of fiscal year 1996 as a result of the
issuance of $600 million in debt in fiscal year 1996 ($400 million in debentures
issued in March 1996 and $200 million in short-term borrowings in the fourth
quarter under the Company's existing revolving credit agreement). The Company
repaid $75 million of the short-term borrowings in the first quarter of fiscal
year 1997 and had unused credit commitments of $275 million available for its
general use at October 31, 1996.

In the first quarter of fiscal year 1997, the Company adopted Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS No. 121 requires that certain long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The adoption of SFAS No. 121 did not impact the results
of operations or financial condition of the Company.

7
<PAGE> 8

PART II. OTHER INFORMATION

ITEM 3. LEGAL PROCEEDINGS

Litton is suing Honeywell, Inc. ("Honeywell") for patent infringement
relating to the manufacture of ring laser gyro navigation systems which are used
in commercial aircraft. After trial of that case in the U.S. District Court for
the Central District of California, on August 31, 1993, the jury rendered a
verdict in favor of Litton in the amount of $1.2 billion. On January 9, 1995,
the District court released a Memorandum of Decision finding Litton's patent
invalid and rejecting the jury verdict. Litton appealed to the U.S. Court of
Appeals for the Federal Circuit. On July 3, 1996, the Court of Appeals rendered
a decision reversing the District Court's decision, finding the patent valid and
infringed by Honeywell. The Court of Appeals reinstated the jury's verdict on
liability including the findings of interference with contract and prospective
business advantage and ordered a new trial on the amount of damages sustained by
Litton in the District Court. A new trial on damages has been set by the
District Court for April 8, 1997.

Litton is also suing Honeywell on antitrust grounds in the same U.S.
District Court. On February 29, 1996, the jury rendered a verdict in favor of
Litton. On July 25, 1996, the District Court upheld the jury's verdict that
Honeywell attempted to illegally monopolize and did monopolize the market for
inertial reference systems for large commercial air transport, commuter and
business aircraft. However, the District Court declined to enter the $234
million jury verdict on the basis that Litton's damage study as presented failed
to disaggregate damages between illegal and legal acts. A new trial limited to
the issue of the amount of damages sustained by Litton attributable to
Honeywell's unlawful conduct has been ordered by the District Court. It is
expected that this trial will follow the patent case trial, but no date has yet
been set.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 4: Amendment No. 4 to the Amended and Restated Credit
Agreement dated December 22, 1994 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.

Exhibit 10.1: Litton Industries, Inc. 1984 Long-Term Stock Incentive
Plan, as amended and restated, as adopted by the Board of
Directors on September 19, 1996 and approved by
Shareholders on December 5, 1996.

Exhibit 10.2: Litton Industries, Inc. Performance Award Plan, as adopted
by the Board of Directors on September 19, 1996 and
approved by Shareholders on December 5, 1996.

Exhibit 11: Statement of Computation of Earnings per Share included
herein on page 9.

Exhibit 27: Financial Data Schedule.

(b) Reports on Form 8-K: There were no reports on Form 8-K filed during the
first quarter ended October 31, 1996.

8
<PAGE> 9

EXHIBIT 11

LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

PRIMARY EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings available for common shares and common stock equivalent
shares deemed to have a dilutive effect:
Earnings.......................................................... $ 39,806 $ 36,678
Provision for cash dividends on preferred stock (Series B)........ (205) (205)
---------- ----------
Net earnings available for common shares and common stock equivalent
shares deemed to have a dilutive effect............................ $ 39,601 $ 36,473
========== ==========
Primary earnings per share.......................................... $ 0.83 $ 0.77
========== ==========
FULLY DILUTED EARNINGS PER SHARE
Net earnings available for common shares and common stock equivalent
shares deemed to have a dilutive effect............................ $ 39,601 $ 36,473
========== ==========
Fully diluted earnings per share.................................... $ 0.83 $ 0.77
========== ==========
Shares used in primary earnings per share computation
Weighted average common shares outstanding (net of treasury
shares).......................................................... 46,560,603 46,208,504
Common stock equivalents.......................................... 1,156,559 1,208,303
---------- ----------
Total common shares and common stock equivalent shares deemed to
have a dilutive effect........................................... 47,717,162 47,416,807
========== ==========
Shares used in fully diluted earnings per share computation
Total common shares and common stock equivalent shares deemed to
have a dilutive effect........................................... 47,717,162 47,416,807
========== ==========
</TABLE>

9
<PAGE> 10

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 thereunto duly authorized.

LITTON INDUSTRIES, INC.
(Registrant)

By /s/ CAROL A. WIESNER
---------------------------------
Carol A. Wiesner
Vice President and Controller
(Chief Accounting Officer)

December 13, 1996

<PAGE> 1
EXHIBIT 4

CONFORMED COPY

AMENDMENT NO. 4 TO CREDIT AGREEMENT

AMENDMENT dated as of October 18, 1996 among LITTON INDUSTRIES, INC.
(the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks"),
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent") and WELLS
FARGO BANK, N.A., as Co-Agent (the "Co-Agent").

W I T N E S S E T H :

WHEREAS, the parties hereto have heretofore entered into an Amended and
Restated Credit Agreement dated as of December 22, 1994 (as heretofore amended,
the "Agreement") and desire to amend the Agreement as set forth herein;

NOW, THEREFORE, the parties hereto agree as follows:

SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.

SECTION 2. Amendments of Leverage Ratio Covenant and Related
Definitions. (a) The definition of "Leverage Ratio" contained in Section 1.01
of the Agreement is amended to read in full as follows:

"Leverage Ratio" means, at any date, the ratio of Total Borrowed Funds
at such date to Consolidated EBITDA for the period of the four fiscal
quarters most recently ended on or prior to such date.

(b) The following definition of "Consolidated EBITDA" is hereby added
to Section 1.01 of the Agreement immediately after the definition of
"Consolidated EBIT" and before the definition of "Consolidated Interest
Expense":

"Consolidated EBITDA" means, for any period, the Consolidated Net
Income of the Borrower and its Consolidated Subsidiaries for such period
before cumulative effect of accounting changes, provision for income tax,
interest expense and depreciation and amortization expense.

<PAGE> 2

(d) Section 5.05 of the Agreement is amended to read in full as
follows:

SECTION 5.05. Leverage Ratio. The Leverage Ratio will at no
time exceed 250%.

SECTION 3. Representations and Warranties. The Borrower hereby
represents and warrants that as of the date hereof and after giving effect
hereto:

(a) no Default under the Agreement has occurred and is continuing; and

(b) each representation and warranty of the Borrower set forth in the
Agreement is true and correct as though made on and as of this date.

SECTION 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

SECTION 5. Counterparts; Conditions to Effectiveness. This Amendment
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Amendment shall become effective as of the date
hereof when the Agent shall have received duly executed counterparts hereof
signed by the Borrower and the Required Banks (or, in the case of any party as
to which an executed counterpart shall not have been received, the Agent shall
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such party).

2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.

LITTON INDUSTRIES, INC.

By: /s/ Timothy G. Paulson
----------------------------------
Title: Vice President & Treasurer

<PAGE> 4

MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Bank and Agent

By: /s/ Diana H. Imhof
----------------------------------
Title: Vice President

BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION

By: /s/ Lori Y. Kannegieter
----------------------------------
Title: Managing Director

THE BANK OF NEW YORK

By: /s/ Craig J. Rethmeyer
----------------------------------
Title: Vice President

THE CHASE MANHATTAN BANK

By: /s/ Richard C. Smith
----------------------------------
Title: Vice President

UNION BANK OF SWITZERLAND

By: /s/ Christopher W. Criswell
----------------------------------
Title: Managing Director

By: /s/ Daniel R. Strickford
----------------------------------
Title: Assistant Vice President

<PAGE> 5

WELLS FARGO BANK, N.A.,
as Bank and Co-Agent

By: /s/ Daniel H. Hom
----------------------------------
Title: Vice President

THE BANK OF NOVA SCOTIA

By: /s/ Maarten Van Otterloo
----------------------------------
Title: Senior Relationship
Manager

CIBC INC.

By: /s/ Robert J. Wagner
----------------------------------
Title: Agent

CREDIT SUISSE

By: /s/ Stephen M. Flynn
----------------------------------
Title: Member of Senior Management

By: /s/ Deborah A. Shea
----------------------------------
Title: Associate

DRESDNER BANK AG, NEW YORK, BRANCH
AND GRAND CAYMAN BRANCH

By: /s/ John W. Sweeney
----------------------------------
Title: Assistant Vice President
Credit Administration

By: /s/ Thomas J. Nadramia
----------------------------------
Title: Vice President

<PAGE> 6

MELLON BANK, N.A.

By: /s/ Stephen P. Yost
----------------------------------
Title: First Vice President

NATIONSBANK OF TEXAS, N.A.

By: /s/ Michael F. Shea
----------------------------------
Title: Vice President

THE FIRST NATIONAL BANK OF CHICAGO

By: /s/ Paul C. Hennessy
----------------------------------
Title: Senior Vice President

THE NORTHERN TRUST COMPANY

By: /s/ Michelle D. Griffin
----------------------------------
Title: Vice President

TORONTO DOMINION (TEXAS), INC.

By: /s/ Federic Hawley
----------------------------------
Title: Vice President

BANK OF HAWAII

By: /s/ Susan McCarthy
----------------------------------
Title: Assistant Vice President

<PAGE> 1

EXHIBIT 10.1

LITTON INDUSTRIES, INC.

1984 LONG-TERM STOCK INCENTIVE PLAN

(AS AMENDED AND RESTATED ON SEPTEMBER 19, 1996)

SECTION 1. Purpose

The purpose of the Program is to promote the continued growth and
success of the Corporation by providing, or increasing, through the Incentive
Awards described herein, the proprietary interests of its key Employees who are
in a position to contribute materially to the future accomplishments of the
Corporation. The Program is intended to enable the Corporation through
utilization of these additional incentives to attract and retain experienced
Employees of exceptional talent and industry and align their interest with that
of the stockholders to the economic advantage of the Corporation.

SECTION 2. Definitions

Unless the context clearly indicates otherwise, the following terms,
when used in this Program, shall have the meanings set forth in this Section 2.

(a) "Board" shall mean the Board of Directors of Litton
Industries, Inc.

(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.

(c) "Committee" shall mean the Compensation and Selection
Committee of the Board or such other committee as may be designated by the
Board. The Committee shall consist of two or more members of the Board who are
Disinterested Persons.

(d) "Commission" shall mean the Securities and Exchange Commission
or any successor agency.

(e) "Corporation" shall mean Litton Industries, Inc., and its
subsidiaries.

(f) "Disinterested Person" shall mean a member of the Board who
qualifies as a disinterested person as defined in Rule 16b-3, as promulgated by
the Commission under the Exchange Act or any successor definition adopted by
the Commission and also qualifies as an "outside director" for purposes of
Section 162(m) of the Code.

(g) "Employee" shall mean any common law employee, including
officers, of the Corporation, as determined in the Code and the Treasury
Regulations thereunder, but shall not include a person on a non-medical leave
of absence.

(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

(i) "Fair Market Value" shall mean (1) the average between the
highest and lowest selling prices of the Stock on a particular day or (2) if
there are no sales on such date, then the average of the highest and lowest
prices of the first preceding day and the first succeeding day on which sales
were made. Such prices shall be those reported in the New York Stock
Exchange-Composite Transactions of The Wall Street Journal or such other
publication as the Committee designates.

(j) "Grantee" shall mean an Employee granted an Incentive Award.

(k) "Incentive Award" shall mean a Stock Option, a Stock
Appreciation Right or Restricted Stock granted pursuant to the Program.

(l) "Incentive Stock Option" shall mean a Stock Option intended to
qualify under Section 422 of the Code and the Treasury Regulations thereunder.

(m) "Nonstatutory Stock Option" shall mean any Stock Option that
is not intended to qualify as an Incentive Stock Option under Section 422 of
the Code and the Treasury Regulations thereunder.

(n) "Performance Objectives" shall mean the goals, if any, upon
which the Committee may condition the exercisability of one or more Incentive
Awards which goals may relate to profits, profit growth, profit-related return
ratios, cash flow or total shareholder return; where such goals may be stated
in absolute terms or relative to peer performance.

1
<PAGE> 2
(o) "Program" shall mean the Litton Industries, Inc., 1984
Long-Term Stock Incentive Plan as set forth herein and as amended from time to
time.

(p) "Restricted Stock" shall mean an Incentive Award granted under
Section 9.

(q) "Rule 16b-3" shall mean Rule 16b-3, as promulgated by the
Commission under Section 16(b) of the Exchange Act.

(r) "Stock" shall mean shares of the Common Stock of Litton
Industries, Inc.

(s) "Stock Appreciation Right" shall mean a right granted under
Section 8.

(t) "Stock Option" shall mean either an Incentive Stock Option or
a Nonstatutory Stock Option.

(u) "Subsidiary" shall mean any subsidiary corporation of the
Corporation as defined in Section 424 of the Code.

(v) "Totally Disabled" shall mean the condition when an Employee
is wholly prevented by occupational or non-occupational injury or sickness from
performing any and every duty pertaining to his or her regular occupation or
employment.

(w) "Treasury Regulations" shall mean the regulations under the
Code.

SECTION 3. Shares of Stock Subject to Grants

Subject to the adjustments required under the provisions of Section 10
hereof, the shares of Stock which may be issued or transferred pursuant to
Incentive Awards shall consist of (i) the 2,500,000 shares of Stock originally
authorized and reserved for issuance under the Program and (ii) during each
fiscal year of the Corporation beginning after July 31, 1992, a number of
shares of Stock of the Corporation equal to one and one half percent (1.5%) of
the total issued and outstanding shares of Stock as of the end of the preceding
fiscal year of the Corporation. Twenty percent (20%) of such shares of Stock
shall be available for the grant of Restricted Stock. Shares of Stock which
have been previously authorized to be granted as Incentive Awards, but which
were not granted, or, if granted, expired without having been exercised in full
or shares of Stock which are reacquired in any way by the Corporation shall be
available for the grant of Incentive Awards at any time prior to the
termination of the Program. Subject to the adjustments required under the
provisions of Section 10 hereof, the Stock which may be issued or transferred
pursuant to Incentive Stock Options granted hereunder after July 31, 1996,
shall not exceed 3,500,000 shares of Stock in the aggregate. In instances where
an Incentive Award is settled in cash, the shares of Stock, if any, covered by
such Incentive Award shall remain available for issuance under the Program.
Likewise, the payment of cash dividends and dividend equivalents paid in cash
in conjunction with any outstanding Incentive Awards shall not be counted
against the shares of Stock available for issuance under the Program. Any
shares of Stock that are issued by the Corporation, and any Incentive Awards
that are granted through the assumption of, or in substitution for, any
outstanding Incentive Awards previously granted by an acquired entity shall not
be counted against the shares of Stock available for issuance under the
Program.

SECTION 4. Administration of the Program

2
<PAGE> 3
The Program shall be administered by the Committee. Subject to the
express provisions of the Program, the Committee shall have plenary authority
to interpret the Program; to prescribe, amend, and rescind rules and
regulations relating to it; to determine the terms and provisions of Incentive
Award agreements and amendments thereto; and to make any and all other
determinations necessary or advisable for the administration of the Program.
The Committee may modify, amend or adjust the terms and conditions of any
Incentive Award at any time, including, but not limited to, the Performance
Objectives or measurements applicable to performance-based Incentive Awards
pursuant to the terms of the Program; provided, that no such modification or
amendment may be made if it could, in the best judgment of the Committee,
prevent any Incentive Award held by any Grantee who may be subject to the
limits on deductibility of compensation provided in Section 162(m) of the Code
from qualifying for the performance-based compensation exemption under Section
162(m) of the Code. Any controversy or claim arising out of or related to this
Program shall be determined unilaterally by and at the sole discretion of the
Committee.

The Committee may act only by a majority of its members. The Committee
may (i) delegate to an officer of the Corporation the authority to make
decisions pursuant to paragraphs (b), (c), (e) and (f) of Section 5 (provided
that no such delegation may be made that would cause Incentive Awards or other
transactions under the Program to cease to be exempt from Section 16(b) of the
Exchange Act or Section 162(m) of the Code) and (ii) authorize any one or more
of their members or an officer of the Corporation to execute and deliver
documents on behalf of the Committee.

SECTION 5. Granting of Incentive Awards

(a) Only key Employees of the Corporation shall be eligible to
receive Incentive Awards under the Program.

(b) The Committee shall determine and designate from time to time
those Employees who are to be granted Incentive Awards, the type of Incentive
Award to be granted, and the amount subject to each Incentive Award, provided,
that in any one fiscal year, no Grantee may be granted Incentive Awards
covering more than 150,000 shares of Stock.

(c) The Committee shall determine whether any particular Stock
Option shall become exercisable in one or more installments and the date or
dates upon which any such installments first become exercisable. Further, the
Committee may make such other provisions, including, but not limited to,
Performance Objectives.

(d) No Stock Option shall be exercisable more than ten years from
the date the Stock Option was granted.

(e) Upon the exercise of any Stock Option, the Grantee shall pay
the option exercise price provided in the particular Stock Option agreement.
The Committee may permit payment to be in Stock. To the extent Stock is
tendered as payment, it shall be valued at its then Fair Market Value.

(f) The Committee may at any time grant new Incentive Awards to an
Employee who has previously received Incentive Awards or other grants (including
other Stock Options) whether such prior Incentive Awards or such other grants
are still outstanding, have previously been exercised in whole or in part, or
are canceled in connection with the issuance of new Incentive Awards. The
purchase price of the Incentive Awards may be established by the Committee
without regard to the existing Incentive Awards or

3
<PAGE> 4
such other grants. Further, the Committee may, with the consent of the Grantee,
amend the terms of any existing Incentive Award previously granted to include
any provisions which could be incorporated in such Incentive Award at the time
of such amendment. Solely to illustrate the foregoing power, but without
limiting its scope, such amendments may accelerate the period of exercise or the
vesting period of any Incentive Award, or installment thereof, either absolutely
or conditionally for whatever reasons the Committee deems appropriate, including
without limitation, compensatory considerations, events which would result in
the delisting of the Stock, significant changes in the management or control of
the Corporation, or the occurrence of any attempt to effect such changes.

SECTION 6. Nonstatutory Stock Options

(a) There shall be available for the grant of Incentive Awards in
the form of Nonstatutory Stock Options the number of shares of Stock specified
in Section 3 of the Program, less the number of shares of Stock utilized for
the grant of Incentive Stock Options and Restricted Stock pursuant to Sections
7 and 9 of the Program.

(b) When granting a Nonstatutory Stock Option to a key Employee,
the Committee shall determine the purchase price of the Stock subject thereto.
Such price shall not be less than 100% of the Fair Market Value of such Stock
on the date the Nonstatutory Stock Option is granted.

SECTION 7. Incentive Stock Options

An Incentive Award in the form of an Incentive Stock Option shall be
subject to the following provisions:

(a) Subject to subsections (c), (d), and (e) hereof, there shall
be available for the grant of Incentive Awards in the form of Incentive Stock
Options the number of shares of Stock specified in Section 3 of the Program,
less the number of shares of Stock utilized for the grant of Nonstatutory Stock
Options and Restricted Stock pursuant to Sections 6 and 9 of the Program.

(b) When granting an Incentive Stock Option to a key Employee, the
price of an Incentive Stock Option shall not be less than 100% of the Fair
Market Value of the Stock subject thereto on the date such Incentive Stock
Option is granted.

(c) Subject to the adjustments required under the provisions of
Section 10 hereof, the Stock which may be issued or transferred pursuant to
Incentive Stock Options granted hereunder after July 31, 1996, shall not exceed
3,500,000 shares of Stock in the aggregate.

(d) None of the 2,500,000 shares of Stock originally authorized
and reserved for issuance under the Program may be utilized for the grant of
Incentive Stock Options subsequent to January 18, 1994.

(e) Notwithstanding any other provisions hereof, in the case of
Incentive Stock Options granted after December 31, 1986, the aggregate Fair
Market Value (determined at the time the Incentive Stock Option is granted) of
the Stock with respect to which Incentive Stock Options are exercisable for the

4
<PAGE> 5
first time by the Grantee during any calendar year (under all incentive stock
option plans of the Grantee's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000.

(f) All provisions of this Program except Sections 6, 8, 9 and
12(d)(ii) and (iii) shall apply to Incentive Stock Options.

SECTION 8. Stock Appreciation Rights

Stock Appreciation Rights may be granted independently of or in
conjunction with all or part of any Stock Option granted under the Program. In
the case of an Incentive Stock Option, such rights may be granted only at the
time of grant of such Incentive Stock Option. In the case of a Stock
Appreciation Right granted with a related Stock Option, a Stock Appreciation
Right shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option.

A Stock Appreciation Right may be exercised by a Grantee in accordance
with procedures established by the Committee and, in the case of a Stock
Appreciation Right granted with a related Stock Option, by surrendering the
applicable portion of the Stock Option in accordance with such procedures. Upon
the exercise of a Stock Appreciation Right, a Grantee shall be entitled to
receive an amount in cash, shares of Stock or both, equal in value to the
excess of the Fair Market Value of one share of Stock over the price per share
specified in the grant of the Stock Appreciation Right, which shall be not less
than the Fair Market Value of the Stock on the date of grant or in the related
Stock Option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.

In the case of Stock Appreciation Rights not granted in conjunction
with Stock Options, the Committee may, prior to the grant, condition the
vesting of any such Stock Appreciation Right upon the attainment of Performance
Objectives and upon the continued service of the Grantee.

SECTION 9. Restricted Stock

(a) The Committee shall, prior to grant, condition the vesting of
Restricted Stock upon the attainment of Performance Objectives and upon the
continued service of the Grantee.

To the extent required by Section 162(m) of the Code or otherwise
deemed advisable by the Committee, it shall be a condition precedent to the
vesting of Restricted Stock, or any installment thereof, that the Committee
certify in writing that any Performance Objectives relative to such vesting has
or have in fact been satisfied.

(b) Shares of Restricted Stock shall be evidenced in such manner
as the Committee may deem appropriate, including book-entry registration or
issuance of one or more Stock certificates. Any certificate issued in respect
of shares of Restricted Stock shall be registered in the name of such Grantee
and shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, substantially in the
following form:

"The transferability of this certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture) of the
Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan and a Restricted
Stock Agreement. Copies of such Plan and Agreement are on file at the offices
of Litton Industries, Inc., 21240 Burbank Boulevard, Woodland Hills, California
91367."

5
<PAGE> 6
The Committee may require that the certificates evidencing such shares
of Stock be held in custody by the Corporation until the restrictions thereon
shall have lapsed and that, as a condition of any Incentive Award of Restricted
Stock, the Grantee shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such Incentive Award.

(c) The Committee shall determine the per share amount to be paid
by a Grantee for each Incentive Award in the form of Restricted Stock. There
shall be a minimum payment of the total par value of the Stock by the Grantee
to the Corporation as required by law. Each Incentive Award in the form of
Restricted Stock shall be confirmed by, and be subject to the terms of, a
Restricted Stock agreement.

SECTION 10. Adjustment Provisions

(a) If the shares of Stock outstanding are changed in number or
class by reason of a split-up, merger, consolidation, reorganization,
reclassification, recapitalization, or any capital adjustment, including a
stock dividend, or if any distribution is made to the holders of Stock other
than a cash dividend, then

(1) the aggregate number and class of shares of Stock or other
securities that may be issued or transferred pursuant to Sections 3, 6, 7, 8,
or 9 and

(2) the number and class of shares or other securities which are
payable under outstanding Incentive Awards shall be adjusted as provided
hereinafter.

(b) Adjustments under this Section 10 shall be made in an
equitable manner by the Committee, whose determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding, and conclusive.
Such adjustments may include (i) treating employment with a corporation the
stock of which was distributed to holders of Stock (or a subsidiary of such a
corporation) as employment with the Corporation for purposes of the Program and
(ii) adjustments of the purchase price to be paid per share of Stock under
outstanding Incentive Awards.

(c) In the event of a corporate merger or consolidation, or the
acquisition by the Corporation of property or stock of an acquired corporation
or any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Code
section, substitute Incentive Awards under this Program for incentive awards
under the plan of the acquired corporation provided (i) the excess of the
aggregate Fair Market Value of the outstanding Incentive Awards immediately
after the substitution over the aggregate price of such Incentive Awards is not
more than the similar excess immediately before such substitution and (ii) the
new Incentive Awards do not give the Employee additional benefits, including
any extension of the exercise period.

SECTION 11. Termination of Employment

(a) Unless otherwise determined by the Committee, if a Grantee
incurs a termination of employment for any reason other than death, disability
or retirement, any Stock Option held by such Grantee shall thereupon terminate,
except that such Stock Option, to the extent then exercisable, or on such
accelerated basis as the Committee may determine, may be exercised for the
lesser of three months from the date of such termination of employment or the
balance of such Stock Option's term; provided,

6
<PAGE> 7
however, that if the Grantee dies within such three-month period, any
unexercised Stock Option held by such Grantee shall notwithstanding the
expiration of such three-month period, continue to be exercisable to the extent
to which it was exercisable at the time of death for a period of 12 months from
the date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.

(b) If a Grantee while an Employee retires or becomes Totally
Disabled, he or she will be considered to be an Employee for purposes of this
Program so long as the following conditions are met:

(i) The Grantee and the Corporation enter into a written
agreement, with the approval of the Secretary of the Committee, pursuant to
which the Grantee renders such advisory or consulting services to the
Corporation as may be required by said agreement from time to time;

(ii) The Grantee shall not, without prior written consent of the
Corporation, disclose or utilize confidential information or material
concerning the Corporation, its business and affairs, except in furtherance of
the Corporation's interests and at its request; and

(iii) The Grantee shall not engage in any activity which competes or
conflicts with, or is inimical to, the best interests of the Corporation.

SECTION 12. General Provisions

(a) Each Incentive Award shall be evidenced by a written
instrument containing such terms and conditions, not inconsistent with this
Program, as the Committee shall approve.

(b) The granting of an Incentive Award in any year shall not give
the Grantee any right to similar grants in future years or any right to be
retained in the employ of the Corporation, and all Employees shall remain
subject to discharge to the same extent as if the Program were not in effect.

(c) No Employee, and no beneficiary or other person claiming under
or through such Employee, shall have any right, title, or interest by reason of
any Incentive Award to any particular assets of the Corporation or any shares
of Stock allocated or reserved for the purposes of the Program or subject to
any Incentive Award except as set forth herein. The Corporation shall not be
required to establish any fund or make any other segregation of assets to
assure the payment of any Incentive Award.

(d) The Committee shall determine at the time an Incentive Award
is granted the extent to which such Incentive Award is transferable; provided,
however, that Incentive Awards granted under the Program shall not be
transferable or assignable other than:

(i) by will or the laws of descent and distribution;

(ii) by gift or other transfer of an award to any trust or estate
in which the original Incentive Award Grantee or such Grantee's spouse or other
immediate relative has a substantial beneficial interest, or to a spouse or
other immediate relative, provided that any such transfer is permitted subject
to Rule 16b-3 under the Exchange Act as in effect when such transfer occurs and
the Board does not rescind this provision prior to such transfer; or

(iii) pursuant to a qualified domestic relations order (as defined
by the Code). However, any Incentive Award so transferred shall continue to be
subject to all the terms and conditions contained in the

7
<PAGE> 8
instrument evidencing such Incentive Award. Notwithstanding the foregoing,
Incentive Awards granted as Incentive Stock Options or as Stock Appreciation
Rights granted in conjunction with Incentive Stock Options shall (i) only be
transferable pursuant to (i) above; and (ii) shall be exercisable during the
Grantee's lifetime only by the Grantee.

In the event that a Grantee terminates employment with the Corporation
to assume a position with a governmental, charitable, educational or non-profit
institution, the Committee may subsequently authorize a third party, including
but not limited to a "blind" trust, to act on behalf of and for the benefit of
such Grantee regarding any outstanding Incentive Awards held by the Grantee
subsequent to such termination of employment. If so permitted by the Committee,
a Grantee may designate a beneficiary or beneficiaries to exercise the rights
of the Grantee and receive any distribution under the Program upon the death of
the Grantee.

(e) Notwithstanding any other provision of this Program or
agreements made pursuant thereto, the Corporation shall not be required to
issue or deliver any certificate or certificates for shares of Stock under this
Program prior to fulfillment of all of the following conditions:

(1) The listing, or approval for listing upon notice of issuance,
of such shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Stock;

(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Committee
shall, in its absolute discretion upon the advice of counsel, deem necessary or
advisable; and

(3) The obtaining of any other consent, approval, or permit from
any state or federal governmental agency which the Committee shall, in its
absolute discretion after receiving the advice of counsel, determine to be
necessary or advisable.

(f) All payments to Grantees or to their legal representatives
shall be subject to any applicable tax, community property, or other statutes
or regulations of the United States or of any state having jurisdiction
thereof. The Grantee may be required to pay to the Corporation the amount of
any withholding taxes which the Corporation is required to withhold with
respect to an Incentive Award or its exercise. In such instances, the Committee
may, in its discretion and subject to such rules as it may adopt, permit the
Grantee to satisfy such obligations, in whole or in part, by electing to have
the Corporation withhold shares of Stock, or by transferring to the Corporation
shares of Stock, having a then Fair Market Value which is equal to or more than
the amount of withholding tax required to be withheld.

(g) In the case of a grant of an Incentive Award to any Employee
of a Subsidiary, the Corporation, may, if the Committee so directs, issue or
transfer the shares, if any, covered by the Incentive Award to the Subsidiary,
for such lawful consideration as the Committee may specify, upon the condition
or understanding that the Subsidiary will transfer the shares of Stock to the
Employee in accordance with the terms of the Incentive Award specified by the
Committee pursuant to the provisions of the Program.

SECTION 13. Amendment or Termination

The Board or the Committee with the approval of the Board, may, at any
time, alter, amend, suspend, discontinue, or terminate this Program; provided,
however, that such action shall not adversely

8
<PAGE> 9
affect the right of Grantees to Incentive Awards previously granted. No
amendment without the approval of the stockholders of the Corporation may (i)
increase the maximum number of shares of Stock which may be awarded under the
Program in the aggregate; (ii) materially increase the benefits accruing to
Grantees under the Program; (iii) change the class of Employees eligible to
receive Incentive Awards under the Program; or (iv) materially modify the
eligibility requirements for participation in the Program.

SECTION 14. Effective Date and Duration of Program

The Program became effective January 19, 1984, upon its approval by
the Board. Incentive Awards granted prior to stockholder approval of certain
amendments to the Program at the 1991 Annual Meeting of Shareholders of the
Corporation are governed by the Program as it existed prior to the adoption of
such amendments by the Board on October 16, 1991. Incentive Awards granted
after stockholder approval of such amendments are governed by the Program as
amended by the Board on October 16, 1991. Incentive Awards granted prior to
stockholder approval of certain amendments to the Program at the 1996 Annual
Meeting of Shareholders of the Corporation are governed by the Program as it
existed prior to the adoption of such amendments by the Board on September 19,
1996. Incentive Awards granted after stockholder approval of such amendments
are governed by the Program as amended by the Board on September 19, 1996. The
Program, as so amended, shall terminate on October 15, 2001, the day
immediately preceding the tenth anniversary of the date of adoption of the
first of such amendments by the Board, and no Incentive Award may be granted
under the Program thereafter, but such termination shall not affect any
Incentive Award theretofore granted.

<PAGE> 1

EXHIBIT 10.2

LITTON INDUSTRIES, INC.

PERFORMANCE AWARD PLAN

SECTION 1. Purpose and Term

1.1. Purpose. The purpose of the Litton Industries, Inc. Performance Award
Plan (the "Plan") is to establish and maintain a competitive incentive
compensation program (a) to attract and retain employees who are in a position
to contribute materially to the success of Litton Industries, Inc. (the
"Company"), (b) to reward performance, and (c) to qualify as
"performance-based" compensation under the federal tax laws.

1.2. Effective Date and Term of Plan. The effective date of the Plan is
August 1, 1996, subject to approval by the shareholders of the Company. The
Plan will remain in effect until terminated by the Board of Directors of the
Company (the "Board").

SECTION 2. Eligibility and Participation

2.1. Eligibility. Eligibility for participation in the Plan shall be limited
to officers and key employees of the Company or its subsidiaries whose
employment and responsibility contribute to the success of the Company.

2.2. Participation. Participation in the Plan will be determined annually by
the Compensation and Selection Committee of the Board (the "Committee") from
those eligible. The Committee will, at all times, consist of persons who are
"outside directors" as that term is defined under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").

SECTION 3. Determination of Performance Objectives

3.1. Company Performance Objectives. To comply with Section 162(m) of the
Code the Committee will establish, prior to the beginning of each fiscal year
(or any other later date allowable under Section 162(m) of the Code), a planned
level of Company performance objectives (the "Performance Objectives")
determined by the following financial measurements of Company performance : (i)
profits; (ii) profit growth; (iii) profit related return ratios; (iv) cash
flow; (v) total shareholder return; or (vi) other objective business criteria
the Committee deems appropriate. The Committee may also provide for additional
opportunities based upon the attainment of various productivity and long-term
growth objectives, including, without limitation, reductions in the Company's
overhead ratio and expense to asset ratio. Any criteria may be measured in
absolute terms or as compared to another company or companies.

3.2. Change of Company Performance Objectives. Once established, the Company
Performance Objectives ordinarily may not be changed in the same fiscal year.
However, if the Committee determines that external changes or other
unanticipated business conditions have materially affected the fairness of the
Performance Objectives, then the Committee may approve appropriate adjustments.
No adjustments may be made to potential awards under the Plan to executive
officers which would prevent any such awards from meeting the requirements for
deductibility by the Company of such award under Section 162(m) of the Code.

1
<PAGE> 2
SECTION 4. Awards

4.1. Individual Award Determination. A participant's award for any fiscal
year of the Company will be determined solely on the basis of the participant's
performance. No award to any individual participant may exceed $2,000,000
(valued as of the date of such award) for any such fiscal year.

4.2. Payment of Awards. A participant's award will be paid in the manner and
at the time(s) determined by the Committee. The Committee may elect to delay
the payment of all or a portion of a participant's award until such time as the
amount payable would be deductible to the Company as contemplated by Section
162(m) of the Code.

4.3. Deferral of Award. The Committee may adopt provisions for any fiscal
year which allow participants to defer all or part of the award payment.
Deferral provisions may allow initial cash awards to be converted to an
equivalent number of shares of Company common stock or stock units which could
have been purchased at fair market value on the date such award was made, to be
distributed in Company common stock at the time of payout.

SECTION 5. Administration

5.1. Administration. The Plan will be administered by the Committee
according to any rules and regulations that it may establish that are
consistent with the provisions and intent of the Plan. The Committee will have
full authority to administer the Plan, including the authority to interpret and
construe any provision of the Plan, and all rules, regulations and
interpretations shall be conclusive and binding on all persons. The Committee
has sole responsibility for selecting eligible participants, establishing
Performance Objectives, setting award targets and determining award amounts.

SECTION 6. Amendment and Termination

6.1. Amendment and Termination. The Board, in its sole discretion may
modify or amend any or all of the provisions of the Plan at any time, and
without notice, may suspend or terminate it entirely. However, no such
modification, amendment, suspension, or termination, may, without the consent
of the participant (or the consent of any beneficiary in the case of the death
of the participant), reduce the right of a participant (or any beneficiary as
the case may be) to a payment or distribution to which the participant is
entitled by reason of an award as approved by the Committee under Section 4.1.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 92,339
<SECURITIES> 15,750
<RECEIVABLES> 671,840
<ALLOWANCES> 0
<INVENTORY> 591,959
<CURRENT-ASSETS> 1,769,725
<PP&E> 1,588,278
<DEPRECIATION> 926,787
<TOTAL-ASSETS> 3,437,896
<CURRENT-LIABILITIES> 1,649,281
<BONDS> 511,967
0
2,053
<COMMON> 46,521
<OTHER-SE> 903,991
<TOTAL-LIABILITY-AND-EQUITY> 3,437,896
<SALES> 1,048,877
<TOTAL-REVENUES> 1,048,877
<CGS> 824,787
<TOTAL-COSTS> 824,787
<OTHER-EXPENSES> 34,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,305
<INCOME-PRETAX> 66,344
<INCOME-TAX> 26,538
<INCOME-CONTINUING> 39,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,806
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.83

</TABLE>