<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
================================================================================
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 JANUARY 31, 1997
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)
<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 February 28, 1997 there were 46,336,514 shares of Common Stock
outstanding.
Page 1 of 12
Exhibit Index appears on Page 10.
================================================================================
<PAGE> 2
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX
REPORT ON FORM 10-Q
FOR QUARTER ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Six months ended January 31, 1997 and 1996............................. 3
Consolidated Statements of Operations
Three months ended January 31, 1997 and 1996........................... 4
Consolidated Balance Sheets
January 31, 1997 and July 31, 1996..................................... 5
Consolidated Statements of Cash Flows
Six months ended January 31, 1997 and 1996............................. 6
Notes to Consolidated Financial Statements............................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...................... 10
Item 6. Exhibits and Reports on Form 8-K......................................... 10
Signature............................................................................ 12
</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>
SIX MONTHS ENDED
JANUARY 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Sales and Service Revenues.......................................... $2,009,347 $1,575,639
---------- ----------
Costs and Expenses
Cost of sales..................................................... 1,575,210 1,230,620
Selling, general and administrative............................... 218,330 178,708
Depreciation and amortization..................................... 67,273 49,620
Interest -- net................................................... 21,891 39
---------- ----------
Total..................................................... 1,882,704 1,458,987
---------- ----------
Earnings before Taxes on Income..................................... 126,643 116,652
Taxes on Income..................................................... (50,658) (47,244)
---------- ----------
Net Earnings.............................................. $ 75,985 $ 69,408
========== ==========
Primary Earnings per Share.......................................... $ 1.59 $ 1.45
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Sales and Service Revenues.......................................... $ 960,470 $ 739,442
-------- --------
Costs and Expenses
Cost of sales..................................................... 750,423 568,023
Selling, general and administrative............................... 106,054 91,393
Depreciation and amortization..................................... 33,108 25,498
Interest -- net................................................... 10,586 (483)
-------- --------
Total..................................................... 900,171 684,431
-------- --------
Earnings before Taxes on Income..................................... 60,299 55,011
Taxes on Income..................................................... (24,120) (22,281)
-------- --------
Net Earnings.............................................. $ 36,179 $ 32,730
======== ========
Primary Earnings per Share.......................................... $ 0.76 $ 0.68
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and marketable securities.................................... $ 47,706 $ 92,855
Accounts receivable, net.......................................... 658,031 685,216
Inventories less progress billings................................ 630,515 571,056
Deferred tax assets............................................... 355,278 365,657
Prepaid expenses.................................................. 29,722 31,989
---------- ----------
Total Current Assets...................................... 1,721,252 1,746,773
---------- ----------
Property, Plant and Equipment -- at cost............................ 1,580,885 1,603,160
Less accumulated depreciation..................................... (931,808) (922,847)
---------- ----------
Property, Plant and Equipment, Net.................................. 649,077 680,313
---------- ----------
Goodwill and Other Intangibles, Net................................. 673,725 691,834
---------- ----------
Other Assets and Long-term Investments.............................. 336,394 312,508
---------- ----------
Total Assets.............................................. $ 3,380,448 $3,431,428
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable.................................................. $ 764,956 $ 808,767
Payrolls and related expenses..................................... 272,342 295,527
Taxes on income................................................... 59,910 68,872
Notes payable and current portion of long-term obligations........ 230,553 249,727
Other current liabilities......................................... 255,655 255,105
---------- ----------
Total Current Liabilities................................. 1,583,416 1,677,998
---------- ----------
Long-term Obligations............................................... 495,521 514,542
---------- ----------
Postretirement Benefit Obligations Other than Pensions.............. 204,586 205,029
---------- ----------
Deferred Tax and Other Long-term Liabilities........................ 116,681 116,600
---------- ----------
Shareholders' Investment
Capital stock
Voting preferred stock -- Series B............................. 2,053 2,053
Common stock................................................... 46,420 46,565
Additional paid-in capital........................................ 298,325 296,899
Retained earnings................................................. 665,831 601,050
Cumulative currency translation adjustment........................ (32,385) (29,308)
---------- ----------
Total Shareholders' Investment............................ 980,244 917,259
---------- ----------
Total Liabilities and Shareholders' Investment............ $ 3,380,448 $3,431,428
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31,
---------------------
1997 1996
-------- --------
<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......................................................... 75,985 69,408
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization..................................... 67,273 49,620
Deferred income tax charge........................................ 9,916 27,480
Changes in working capital accounts
Accounts receivable............................................. 23,573 29,257
Inventory....................................................... (48,085) 16,421
Prepaid expenses................................................ 2,238 (3,063)
Accounts payable................................................ (59,462) (46,645)
Payrolls and related expenses................................... (22,032) 2,917
Taxes on income................................................. (8,864) (22,103)
Other current liabilities....................................... 2,950 (9,124)
Other operating activities........................................ (20,133) (16,145)
-------- --------
Cash provided by operating activities.................................. 23,359 98,023
-------- --------
Investing Activities
Purchase of capital assets........................................... (44,699) (31,430)
Proceeds from sale of capital assets................................. 23,429 2,414
Purchase of businesses............................................... -- (43,417)
Decrease in other current marketable securities...................... -- 32,014
Other investing activities........................................... (2,814) (1,021)
-------- --------
Cash used for investing activities..................................... (24,084) (41,440)
-------- --------
Financing Activities
Change in short-term obligations, net................................ (19,802) 4,224
Repayment of long-term obligations................................... (13,739) (8,168)
Purchase of Common stock............................................. (12,820) --
Other financing activities........................................... 1,937 2,525
-------- --------
Cash used for financing activities..................................... (44,424) (1,419)
-------- --------
Resulting in (decrease)increase in cash and cash equivalents........... (45,149) 55,164
-------- --------
Cash and cash equivalents at end of period............................. $ 31,956 $115,393
======== ========
Supplemental disclosure of cash flow information
Interest paid........................................................ $ 22,005 $ 2,468
Net income taxes paid................................................ $ 60,436 $ 44,107
Reconciliation to Consolidated Balance Sheet at January 31, 1997:
Cash and cash equivalents............................................ $ 31,956
Marketable securities................................................ 15,750
--------
Total cash and marketable securities............................ $ 47,706
========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1997
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 six months ended January 31, 1997 are
not necessarily indicative of operating results for the entire year.
2. The components of inventory balances are summarized below:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1997 1996
----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process............................ $ 920,900 $ 880,014
Finished goods............................................... 47,246 59,801
--------- ---------
968,146 939,815
Less progress billings....................................... (337,631) (368,759)
--------- ---------
Net inventories.............................................. $ 630,515 $ 571,056
========= =========
</TABLE>
3. Interest (expense) income is shown below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- --------------------
1997 1996 1997 1996
-------- ------- -------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Interest expense.......................... $(25,928) $(6,442) $(12,292) $(2,598)
Interest income........................... 4,037 6,403 1,706 3,081
-------- ------- -------- -------
Net interest (expense)/income............. $(21,891) $ (39) $(10,586) $ 483
======== ======= ======== =======
</TABLE>
7
<PAGE> 8
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company reported sales of $960.5 million and $2.01 billion for the
second quarter and six months ended January 31, 1997, representing improvements
of 30% and 28% over corresponding amounts for the prior year's periods of $739.4
million and $1.58 billion, respectively. Operating profit improved to $84.6
million and $176.2 million for the second quarter and six months ended January
31, 1997 compared with $68.0 million and $142.1 million for the corresponding
periods of the prior year. Net earnings, after reflecting an increase in
interest expense resulting from debt incurred in connection with acquisitions
completed during the second half of fiscal year 1996, rose 10.5% to $36.2
million for the quarter and 9% to $76.0 million for the six months ended January
31, 1997. Corresponding amounts for the fiscal year 1996 periods were $32.7
million and $69.4 million, respectively.
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 fiscal year 1996 periods discussed
below has been restated to reflect these changes.
The Advanced Electronics segment reported sales and operating profit of
$601.1 million and $38.6 million for the second quarter of fiscal year 1997
compared with $357.9 million and $28.1 million, respectively, for the second
quarter of fiscal year 1996. Sales and operating profit for the six months of
the current fiscal year were $1.23 billion and $78.4 million, compared with
$724.7 million and $55.4 million, respectively, for the six months of fiscal
year 1996. These increases were primarily attributable to the acquisitions
completed during fiscal year 1996, particularly 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. The U.S. Government is PRC's primary customer, for both its
military and non-defense related services. Sperry Marine is a leading producer
of marine electronic navigation and guidance systems. Operating margins for this
segment were lower than those of the prior year's periods primarily as a result
of PRC being a lower margin business and certain other businesses' developmental
costs on pre-production programs. Subsequent to the end of the second quarter,
the Company completed the acquisition of Racal Marine Group, a producer of
marine electronic equipment with annual sales of approximately $100 million, and
SAI Technology, a supplier of mobile computing equipment and systems with annual
sales of approximately $90 million. These purchases reflect Litton's continued
focus on acquisitions that offer growth potential in its core businesses, with a
particular emphasis on marine electronics and information technology. Backlog
for the Advanced Electronics segment at January 31, 1997 was $2.16 billion
compared with $2.23 billion at July 31, 1996. These backlog amounts did not
include PRC's unfunded backlog with potential contract values totaling
approximately $1.4 billion and $1.0 billion for the respective periods. The
Marine Engineering and Production segment reported sales and operating profit of
$250.5 million and $29.9 million for the second quarter ended January 31, 1997
compared with $286.2 million and $29.0 million for the second quarter of fiscal
year 1996. The respective amounts for the six months of fiscal year 1997 were
$549.7 million and $65.4 million compared with $657.9 million and $65.9 million
for the six months of fiscal year 1996. The decrease in sales reflected a lower
level of construction activities as a result of contracts being completed,
including two Aegis destroyers completed during fiscal year 1996 and a third
Aegis destroyer completed in early fiscal year 1997. This decline was partially
offset by other contracts moving into more advanced stages of production.
Operating margins improved as a result of increased earnings rates on programs
maturing in the production process and continued cost reduction efforts. Backlog
for the Marine Engineering and Production segment increased to $3.60 billion at
January 31, 1997 as a result of the U.S. Navy's decision in December 1996 to
exercise the option for the construction of two additional Aegis destroyers at a
combined contract value of approximately $650 million. Comparative backlog at
July 31, 1996 was $3.29 billion. The Electronic Components and Materials segment
benefited from continued strong demand in the telecommunications-related markets
for its commercial electronic products. Cost reduction efforts and process
improvements led to significant increases in operating margins for the
businesses in this segment.
8
<PAGE> 9
Interest expense was significantly higher in the second quarter and six
months of the current fiscal year compared with the same periods of fiscal year
1996. This increase resulted from debt issued in fiscal year 1996 including $300
million principal amount of 7.75% debentures, $100 million principal amount of
6.98% debentures and $200 million in short-term borrowings under the Company's
revolving credit agreement.
Cash and marketable securities amounted to $47.7 million at January 31,
1997, compared with $92.9 million at July 31, 1996. During the first half of
fiscal year 1997, there was a net use of cash to reduce debt, including $25
million of net paydown on borrowings under the revolving credit agreement. The
Company also used cash of $12.8 million to repurchase shares of Common stock
under an expanded buyback program, leaving approximately 3.5 million shares
authorized to be repurchased. Management believes that cash flow from
operations, along with unused credit commitments of up to $225 million, will be
sufficient to meet operating requirements.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant's 1996 Annual Meeting of Shareholders was held on December
5, 1996 in Beverly Hills, California.
Proxies for the meeting were solicited on behalf of the Board of Directors
of the Company. There was no solicitation in opposition to the Board of
Directors' nominees for election of directors as listed in the Company's
definitive Proxy Statement dated October 28, 1996. All of the nominees were
elected as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
---------------------------------------------- ---------- --------
<S> <C> <C>
Alton J. Brann................................ 40,858,803 247,633
Michael R. Brown.............................. 40,837,296 269,140
Joseph T. Casey............................... 40,759,242 347,194
Carol B. Hallett.............................. 40,862,146 244,290
Orion L. Hoch................................. 40,744,170 362,266
David E. Jeremiah............................. 40,822,833 283,603
Rudolph E. Lang, Jr........................... 40,757,672 348,764
Robert H. Lentz............................... 40,743,232 363,204
John M. Leonis................................ 40,832,382 274,054
William P. Sommers............................ 40,825,593 280,843
C. B. Thornton, Jr............................ 40,872,567 233,869
</TABLE>
In addition to electing directors, the shareholders voted to: ratify the
appointment of Deloitte & Touche LLP as independent auditors by the following
votes: 41,011,864 shares "for", 53,403 shares "against", and 41,169 shares
"abstained"; approve the Litton Industries, Inc. Performance Award Plan by the
following votes: 40,112,917 shares "for", 742,059 shares "against", 124,800
shares "abstained", and 126,660 shares of "broker non-votes"; and approve the
amended and restated Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan
by the following votes: 35,770,008 shares "for", 5,071,073 shares "against",
138,695 shares "abstained", and 126,660 shares of "broker non-votes".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11: Statement of Computation of Earnings per Share included
herein on page 11.
Exhibit 27: Financial Data Schedule.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during the
second quarter ended January 31, 1997.
10
<PAGE> 11
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>
SIX MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings available for common shares and
common stock equivalent shares deemed
to have a dilutive effect:
Earnings............................. $ 75,985 $ 69,408 $ 36,179 $ 32,730
Provision for cash dividends on
preferred stock (Series B).......... (410) (410) (205) (205)
----------- ----------- ----------- -----------
Net earnings available for common shares
and common stock equivalent shares
deemed to have a dilutive effect....... $ 75,575 $ 68,998 $ 35,974 $ 32,525
=========== =========== =========== ===========
Primary earnings per share.............. $ 1.59 $ 1.45 $ 0.76 $ 0.68
=========== =========== =========== ===========
FULLY DILUTED EARNINGS PER SHARE
Net earnings available for common shares
and common stock equivalent shares
deemed to have a dilutive effect....... $ 75,575 $ 68,998 $ 35,974 $ 32,525
=========== =========== =========== ===========
Fully diluted earnings per share........ $ 1.59 $ 1.45 $ 0.76 $ 0.68
=========== =========== =========== ===========
Shares used in primary earnings per share
computation
Weighted average common shares
outstanding (net of treasury
shares).............................. 46,522,907 46,239,696 46,475,643 46,270,081
Common stock equivalents................ 1,122,378 1,250,579 1,088,196 1,292,852
----------- ----------- ----------- -----------
Total common shares and common stock
equivalent shares deemed to have a
dilutive effect........................ 47,645,285 47,490,275 47,563,839 47,562,933
=========== =========== =========== ===========
Shares used in fully diluted earnings per
share computation
Total common shares and common stock
equivalent shares deemed to have a
dilutive effect........................ 47,645,285 47,490,275 47,563,839 47,562,933
Additional potentially dilutive
securities (equivalent in common
stock):
Stock options........................ -- 154,451 -- 95,453
----------- ----------- ----------- -----------
Total........................... 47,645,285 47,644,726 47,563,839 47,658,386
=========== =========== =========== ===========
</TABLE>
11
<PAGE> 12
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)
March 14, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JANUARY 31, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 31,956
<SECURITIES> 15,750
<RECEIVABLES> 658,031
<ALLOWANCES> 0
<INVENTORY> 630,515
<CURRENT-ASSETS> 1,721,252
<PP&E> 1,580,885
<DEPRECIATION> 931,808
<TOTAL-ASSETS> 3,380,448
<CURRENT-LIABILITIES> 1,583,416
<BONDS> 495,521
0
2,053
<COMMON> 46,420
<OTHER-SE> 931,771
<TOTAL-LIABILITY-AND-EQUITY> 3,380,448
<SALES> 2,009,347
<TOTAL-REVENUES> 2,009,347
<CGS> 1,575,210
<TOTAL-COSTS> 1,575,210
<OTHER-EXPENSES> 67,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,891
<INCOME-PRETAX> 126,643
<INCOME-TAX> 50,658
<INCOME-CONTINUING> 75,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,985
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
