<PAGE>
[LOGO]
October 27, 1997
TO OUR SHAREHOLDERS:
You are cordially invited to the 1997 Annual Meeting of Shareholders to be held
at the Regent Beverly Wilshire Hotel in Beverly Hills, California, on Thursday,
December 4, 1997, beginning at 11:00 a.m.
The principal items of business at this year's Meeting will be the election of
Directors and the appointment of the independent auditors. We will also report
on the Company's operations during 1997, and give you an opportunity to ask
questions. Your vote is important, and we urge you to sign, date and return the
proxy card in the envelope provided whether or not you plan to attend the
meeting. If you decide to attend the meeting, you may vote your shares in
person, if you wish.
We look forward to seeing you at the Meeting.
/s/ John M. Leonis
John M. Leonis
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
21240 Burbank Boulevard
Woodland Hills, CA 91367-6675
October 27, 1997
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 1997 Annual Meeting of the Shareholders of LITTON INDUSTRIES, INC. (the
"Company"), will be held at the Regent Beverly Wilshire Hotel, 9500 Wilshire
Boulevard, Beverly Hills, California, on Thursday, December 4, 1997, at 11:00
a.m., for the following purposes:
1. To elect a Board of Directors.
2. To ratify the appointment of Deloitte & Touche LLP as independent
auditors.
3. To consider and act upon such other matters as may properly be presented
for action at the meeting or any adjournment.
Only shareholders of record at the close of business on October 10, 1997 are
entitled to vote at the meeting. A list of such shareholders shall be open to
the examination of any shareholder at the meeting, and for a period of ten days
prior to the date of the meeting for any purpose germane to the meeting during
ordinary business hours at Wells Fargo Bank, 9600 Santa Monica Boulevard,
Beverly Hills, California.
Holders of a majority of the Company's outstanding voting shares must be present
either in person or by proxy in order for the meeting to be held. WHETHER YOU
EXPECT TO ATTEND THE ANNUAL MEETING OR NOT, YOUR VOTE IS IMPORTANT. ACCORDINGLY,
YOU ARE REQUESTED TO SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE.
/S/ JEANETTE M. THOMAS
Jeanette M. Thomas
VICE PRESIDENT AND CORPORATE SECRETARY
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE, AND RETURN YOUR PROXY CARD
1
<PAGE>
LITTON INDUSTRIES, INC.
21240 BURBANK BOULEVARD, WOODLAND HILLS, CA 91367-6675
PROXY STATEMENT
The Board of Directors of Litton Industries, Inc. ("Litton") is soliciting
proxies to be voted at the Annual Meeting of Shareholders to be held on December
4, 1997, and at any adjournment. This Proxy Statement is being mailed to
shareholders beginning on or about October 27, 1997, accompanied by Litton's
annual report for the fiscal year ended July 31, 1997.
At the close of business on October 10, 1997, the record date, there were
46,066,558 shares of $1 par value Common Stock and 410,643 shares of Series B $2
Cumulative Preferred Stock, par value $5, outstanding and entitled to vote. Each
share of Common Stock or Series B Preferred Stock entitles the holder to one
vote.
A proxy is enclosed for use at the meeting. The proxy may be revoked by the
shareholder at any time before it is voted, by giving written notice to the
Corporate Secretary at the address shown above. Unless other instructions are
indicated on the proxy, all shares represented by valid proxies received from
this solicitation (and not revoked before they are voted) will be voted FOR
election of the ten nominees for directors named below; and FOR ratification of
the appointment of Deloitte & Touche LLP as independent auditors.
The holders of a majority of the issued and outstanding shares of Common
Stock represented in person or by proxy at the Annual Meeting will constitute a
quorum for the transaction of business at the meeting. Directors are elected by
a plurality of the shares represented in person or by proxy at the meeting;
votes withheld will be excluded entirely from the vote and will have no effect.
The appointment of auditors requires the approval of a majority of the shares
represented in person or by proxy.
2
<PAGE>
ITEM ONE: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A "YES" VOTE FOR ALL CANDIDATES.
If any nominee, for any reason presently unknown, cannot be a candidate for
election, the shares represented by valid proxies will be voted in favor of the
remaining nominees and may be voted for the election of a substitute nominee
recommended by the Board of Directors (or the number of authorized directors may
be reduced). Each of the nominees was elected to his or her present term of
office at Litton's last Annual Meeting of Shareholders.
In keeping with the Board's retirement policy, one incumbent member of the
Board, Robert H. Lentz, is not standing for re-election. The Company has
benefited greatly from the wise counsel of Mr. Lentz during his many years of
service as an officer and general counsel, to his retirement as Senior Vice
President and General Counsel in 1990, and during the years he has served as a
member of the Board of Directors. The Company thanks him for his dedicated
service.
The following information concerning the principal occupation, other
affiliations, and past business experience was furnished to the Company by the
nominees for directors.
<TABLE>
<S> <C> <C> <C>
ALTON J. BRANN MICHAEL R. BROWN
[PHOTO1] - Chairman and Chief Executive [PHOTO1] - President and Chief Operating
Officer of UNOVA, Inc. Officer of Litton Industries,
- Age 55 Inc.
- Director since 1990 - Age 56
- Director since 1995
Background: UNOVA, Inc., is an industrial Background: Joined Litton in 1968 and has been
technologies company providing automated data President and Chief Operating Officer since 1995;
systems and industrial automation solutions. Executive Vice President (1995), Group
Chairman of Western Atlas Inc., an oilfield Executive-Information Systems (1995-1997), Senior
information technology company. Former Litton Vice President (1992-1995), Group
Chairman of the Board (1994-1995), President Executive-Electronic Warfare Systems (1989-1995),
(1990-1994) and Chief Executive Officer elected Corporate Vice President (1989).
(1992-1994). Director, Los Angeles World Affairs
Council. Board of Governors, Town Hall of Los
Angeles. Board of Overseers, the Executive
Council on Foreign Diplomacy. President's Cabinet
of California Polytechnic State University. Board
of National Association of Manufacturers. Senior
Member, Institute of Electrical and Electronics
Engineers. Member, the Optical Society of
America, the U.S.-Russia Business Council,
California Business Higher Education Forum,
Institute of Navigation, and Society of Petroleum
Engineers. Trustee, Manufacturers Alliance for
Productivity and Innovation.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
JOSEPH T. CASEY CAROL B. HALLETT
[PHOTO1] - Retired Vice Chairman and [PHOTO1] - President and Chief Executive
Chief Financial Officer of Officer of Air Transport
Western Atlas Inc. Association
- Age 66 - Age 60
- Director since 1981 - Director since 1993
Background: Former Western Atlas Inc. Vice Background: Senior Government Relations Advisor,
Chairman and Chief Financial Officer (1994-1996). Collier, Shannon, Rill & Scott. Trade Advisor,
Former Litton Vice Chairman and Chief Financial Clark Company (1993-1995). Commissioner of United
Officer (1988-1994). Director, Western Atlas Inc. States Customs (1989-1993). U.S. Ambassador to
Trustee, Claremont McKenna College and Don Bosco the Commonwealth of the Bahamas (1986-1989).
Technical Institute. Member, Board of Overseers Director, Fleming Companies, Inc. and American
of the Rand Corporation Center for Russian and Association of Exporters and Importers. Member,
Eurasian Studies. President's Cabinet of California Polytechnic
State University. Trustee, Junior Statesmen of
America.
</TABLE>
<TABLE>
<S> <C> <C> <C>
ORION L. HOCH DAVID E. JEREMIAH
[PHOTO1] - Chairman Emeritus of Litton [PHOTO1] - Partner and President,
Industries, Inc. Technology Strategies &
- Age 68 Alliances
- Director since 1982 - Age 63
- Director since 1994
Background: Technology Strategies & Alliances is
Background: Former Litton Chairman of the Board a strategic consulting firm specializing in
(1988-1994), President (1982-1988) and Chief positioning clients and creating strategic
Executive Officer (1986-1992). Director and alliances in high technology and defense
Chairman of the Executive Committee of Board of industries. Retired Admiral, U.S. Navy (1994).
Directors of Western Atlas Inc. Director, Vice Chairman, Joint Chiefs of Staff (1990-1994).
Bessemer Group Inc. and Bessemer Trust Companies. Commander-in-Chief, U.S. Pacific Fleet
Trustee, Carnegie Mellon University. (1987-1990). Director, Alliant Techsystems Inc.,
Geobiotics, Inc., Standard Missile Company, and
National Committee on U.S.-China Relations. Board
of Visitors, Northrop Grumman Corporation
(Melbourne Division) and Board of Advisors,
Jewish Institute for National Security Affairs.
Member, ManTech International Advisory Board,
International Council of the George Washington
University Elliott School of International
Affairs and the National Defense Panel.
</TABLE>
<TABLE>
<S> <C> <C> <C>
RUDOLPH E. LANG, JR. JOHN M. LEONIS
[PHOTO1] - Senior Vice President and [PHOTO1] - Chairman and Chief Executive
Chief Financial Officer, Litton Officer, Litton Industries,
Industries, Inc. Inc.
- Age 61 - Age 64
- Director since 1994 - Director since 1994
Background: Joined Litton in 1959. Chairman of
Background: Joined Litton in 1962. Senior Vice the Board since 1995; Chief Executive Officer
President since 1988 and Chief Financial Officer since 1994. President (1994), Senior Vice
since 1994. Elected Corporate Vice President President (1990-1994), Group
(1984), Division Vice President of Finance Executive-Navigation, Guidance and Control
(1969), and Group Vice President (1978). Systems (1988-1993) and Division President
(1986). Director, Los Angeles World Affairs
Council and HCC Industries Inc. Board of
Governors, Town Hall of Los Angeles and Aerospace
Industries Association.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
WILLIAM P. SOMMERS C. B. THORNTON, JR.
[PHOTO1] - President and Chief Executive [PHOTO1] - President, Thornton
Officer, SRI International Corporation
- Age 64 - Age 55
- Director since 1994 - Director since 1981
Background: SRI International is an independent Background: Thornton Corporation is engaged in
nonprofit research, technology, development and mining and private investments. Former President
consulting organization. Former Executive Vice and principal owner of T Lazy S Ranch in Nevada
President, Iameter, Inc. Former Director and (1974-1982). Former executive of Cessna Aircraft.
President, Booz-Allen & Hamilton's Technology Former consultant with McKinsey & Company.
Management Group. Director, Rohr, Inc., Member, Society of Experimental Test Pilots.
Therapeutic Discovery Co., Nuance Communications, Trustee, Thornton Foundation, Harvey Mudd
and Bay Area Council. Member, The Major Gifts College, and Harvard-Westlake School.
Committee of the University of Michigan. Trustee,
Kemper Mutual Funds.
</TABLE>
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
During fiscal year 1997, the Board of Directors of the Company held eight
meetings and acted once by unanimous written consent. The average attendance at
Board meetings was 98%, and attendance at committee meetings was 100%. The Board
has established four standing committees to assist it in carrying out its
duties: the Executive Committee, the Audit and Compliance Committee, the
Compensation and Selection Committee, and the Nominating Committee.
BOARD COMMITTEES AND MEETING ATTENDANCE
The Executive Committee consists of Alton J. Brann, Chairman, Michael R.
Brown, Joseph T. Casey, Rudolph E. Lang, Jr., Robert H. Lentz and John M.
Leonis. The Executive Committee exercises all powers of the Board of Directors
when the full Board is not in session and supervises the management and business
of the Company. The Executive Committee held two meetings in fiscal year 1997
and acted twenty times by unanimous written consent. Actions taken by the
Executive Committee are subsequently ratified by the full Board of Directors.
The Audit and Compliance Committee consists of C.B. Thornton, Jr., Chairman,
Joseph T. Casey, Carol B. Hallett, and William P. Sommers. The Audit and
Compliance Committee reviews the audit of the Company conducted by the
independent auditors and the activities of the Company's internal auditors. The
Audit and Compliance Committee is also responsible for the Company's Ethics
Program and the Conflicts of Interests Program. The Audit and Compliance
Committee held four meetings in fiscal year 1997.
The Compensation and Selection Committee consists of David E. Jeremiah,
Chairman, Carol B. Hallett, C.B. Thornton, Jr., and William P. Sommers. The
Compensation and Selection Committee has responsibility for the design,
implementation, and administration of the Company's executive compensation
program and its various components which include annual performance awards,
long-term stock options, and incentive loans. The Compensation and Selection
Committee also reviews and approves the terms of change in control agreements
with executive officers. The Compensation and Selection Committee held three
meetings in fiscal year 1997.
The Nominating Committee consists of Carol B. Hallett, Chairman, David E.
Jeremiah, Alton J. Brann, and John M. Leonis. The Nominating Committee reviews
the qualifications of all Board of Directors candidates and recommends possible
candidates to fill vacancies on the Board of Directors. The Nominating Committee
held one meeting and acted once by written unanimous consent in fiscal year
1997.
5
<PAGE>
DIRECTOR'S COMPENSATION AND RETIREMENT POLICIES
Directors who are employees of the Company are not paid any fee or
additional remuneration for services, as members of the Board of Directors or
any Committee.
ANNUAL FEES FOR NON-EMPLOYEE DIRECTORS
- Board members receive $27,500, payable in equal quarterly installments;
- Board and Committee meeting attendance fee of $1,500 per meeting ($2,500
per meeting for the Chairman of the Committee);
- Executive Committee members receive an additional annual fee of $12,000
($15,000 for the Chairman of the Executive Committee).
DEFERRED COMPENSATION PLAN FOR DIRECTORS
- Directors may defer annual Board fees, meeting and Committee attendance
fees, bearing interest at the prime rate in effect on first business day
of the calendar quarter, to be paid after the end of the director's Board
service in the number of annual installments requested by the director;
- A change in control of the Company causes deferred amounts to become
immediately due and payable in a lump sum.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On the first business day following the Annual Meeting, new directors
receive an automatic initial option grant to purchase 10,000 shares of the
Company's Common Stock at fair market value on the date of grant. Each year
thereafter there is an automatic annual option grant to purchase 2,000 shares.
Option grants become fully exercisable on the first anniversary of the grant.
RETIREMENT PROGRAM FOR DIRECTORS
- Mandatory retirement at next Annual Meeting after reaching age 72;
- Incumbent directors who retire or die while in office, at or after age 65,
will receive the active Board members' annual fee (or, if larger, the fee
in effect at the Annual Meeting immediately following the earlier of their
retirement or death) for the shorter of ten years, the number of years a
director, or the remaining life of the director or surviving spouse;
- Directors who resign, are removed, or fail to be re-elected prior to their
65th birthday because of a change in control of the Company receive the
annual fee in effect prior to the change in control, for the shorter of
ten years, the number of years a director, or the life of the director or
surviving spouse.
6
<PAGE>
OTHER INFORMATION ON DIRECTORS
Joseph T. Casey, a former Chief Financial Officer and Vice Chairman of the
Company, receives certain retirement benefits by reason of his former employment
by the Company. Under the terms of a predecessor supplemental retirement plan of
the Company, Mr. Casey received a monthly benefit of $35,683 until October 1,
1996, and thereafter, a monthly benefit of $27,075 in the form of a 100% joint
and survivor annuity. In addition, during fiscal 1997, Mr. Casey received
$12,000 as a member of the Investment Committee of Litton Industries, Inc.
Orion L. Hoch, a former President, Chief Executive Officer and Chairman of
the Company, receives certain medical and retirement benefits by reason of his
former employment by the Company. The premium paid by the Company for Dr. Hoch's
medical insurance in fiscal 1997 was $26,187. Under the terms of a
Company-provided contractual pension benefit, and the Restoration Plan described
on page 11, Dr. Hoch receives a combined monthly benefit of $60,391 in the form
of a 100% joint and survivor annuity.
Robert H. Lentz, a former Senior Vice President and General Counsel of the
Company, receives certain medical and retirement benefits. The premium paid by
the Company for Mr. Lentz's medical insurance in fiscal year 1997 was $26,187.
Under the terms of the Company's basic retirement plan, the Restoration Plan,
and a predecessor supplemental retirement plan, Mr. Lentz receives a combined
monthly benefit of $14,081 in the form of a 100% joint and survivor annuity. In
addition, during fiscal 1997, Mr. Lentz received $12,000 as a member of the
Investment Committee of Litton Industries, Inc.
7
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
LITTON COMMON STOCK
<TABLE>
<CAPTION>
SHARES SUBJECT
SHARES OF COMMON STOCK TO OPTIONS DEFERRED
BENEFICIALLY OWNED AS EXERCISABLE AT STOCK UNITS PERCENT OF
OF 9/30/97 12/31/97 (#)(G) CLASS*
<S> <C> <C> <C> <C>
NON-EMPLOYEE DIRECTORS
Alton J. Brann 3,400 29,440 -0- *
Joseph T. Casey 32,023(a) 98,000 -0- *
Carol B. Hallett 490 16,000 -0- *
Orion L. Hoch 89,599(b) 31,916 -0- *
David E. Jeremiah 500 13,500 -0- *
Robert H. Lentz 7,238(c) 14,000 -0- *
William P. Sommers 350 14,000 -0- *
C. B. Thornton, Jr. 832,874(b)(d) 26,000 -0- 1.81%
NAMED EXECUTIVE OFFICERS
John M. Leonis 12,590 80,600 12,196 *
Michael R. Brown 5,795 68,805 -0- *
Rudolph E. Lang, Jr. 16,842 80,200 1,084 *
Gerald J. St. Pe 10,246 70,200 632 *
John E. Preston 13,024(b) 17,778 1,777 *
GROUP
Directors, Nominees and
Executive Officers as a
Group (19 people) 1,107,100(b)(e)(f) 647,820 19,579 2.40%
</TABLE>
* Percentage of shares are given only where such percentage exceeds 1% of the
Common Stock outstanding on the record date, exclusive of treasury shares.
(a) Excludes 9,500 shares held by a charitable corporation of which Mr. Casey
serves as trustee. Mr. Casey has voting and investment power with respect to
such 9,500 shares and may be deemed to have incidents of beneficial
ownership.
(b) Includes shares which are beneficially owned by certain family members of
certain directors and officers who disclaim beneficial ownership of such
shares. The shares are reported on the presumption that the individual may
share voting and/or investment power because of family relationships.
(c) Excludes 358 shares held by a trust under the will of a deceased spouse of
Mr. Lentz.
(d) Excludes 25,378 shares owned by a private foundation of which Mr. Thornton
is an officer and trustee. Mr. Thornton shares voting and investment power
with another trustee and may be deemed to have incidents of beneficial
ownership.
(e) Excludes 255,126 shares owned by the Litton Master Trust which holds certain
retirement funds of the Company and its Subsidiaries. Messrs. Casey, Lang
and Lentz are members of the Investment Committee which has sole investment
and voting power, and thus may be deemed to have incidents of beneficial
ownership. If these shares were included as beneficially owned shares, then
the percentage of Common Stock owned by the group would be 2.96%.
(f) Includes 50,000 shares held by the Foundation of the Litton Industries whose
President and Treasurer vote the shares and are also officers of the
Company, and whose directors have investment power of the shares, are
elected and may be removed by the Nominating Committee of the Board of
Directors of the Company.
8
<PAGE>
(g) Individuals with share numbers in this column have elected to defer a
portion of their 1997 fiscal year bonus award. On the bonus award date, the
bonus award is converted into a number of share units equal to the number of
shares of Company Common Stock which could have been purchased at fair
market value on that date. Deferred awards are paid in full shares of
Company Common Stock upon retirement, termination, death, or a change of
control. Although individuals may be deemed to have incidents of beneficial
ownership, they do not have any voting power with respect to these shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities and Exchange Act of 1934 requires the Company's officers and
directors to timely file reports of ownership and changes in ownership on Forms
3, 4, and 5 with the Securities and Exchange Commission ("SEC"). During fiscal
year 1997, two reports were filed late with the SEC: a Form 4 should have been
filed on behalf of William P. Sommers by May 10, 1997, but was not filed until
June 3, 1997; a Form 4 should have been filed on behalf of Carol B. Hallett by
April 10, 1997, however, a Form 5 was timely filed on September 15, 1997.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
NAMED EXECUTIVE OFFICERS AWARDS COMPENSATION
FISCAL BONUS OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(A) (#) ($)(B)
<S> <C> <C> <C> <C> <C>
John M. Leonis 1997 675,000 675,000 50,000 5,032
CHAIRMAN AND CHIEF EXECUTIVE OFFICER 1996 574,054 600,000 50,000 6,905
1995 445,681 500,000 -0- 3,688
Michael R. Brown 1997 441,542 440,000 35,000 7,740
PRESIDENT AND CHIEF OPERATING OFFICER 1996 379,236 400,000 73,000 8,641
1995 277,414 260,000 -0- 4,649
Rudolph E. Lang, Jr. 1997 363,667 300,000 10,000 5,826
SENIOR VICE PRESIDENT AND CHIEF 1996 349,030 330,000 15,000 6,448
FINANCIAL OFFICER 1995 337,418 340,000 -0- 4,531
Gerald J. St. Pe 1997 366,231 350,000 12,000 2,951
SENIOR VICE PRESIDENT 1996 342,020 350,000 15,000 6,242
1995 326,385 335,000 -0- 4,670
John E. Preston 1997 284,964 246,000 15,000 7,270
SENIOR VICE PRESIDENT AND GENERAL 1996 265,552 230,000 14,000 6,527
COUNSEL 1995 252,412 205,000 -0- 4,166
</TABLE>
(a) Fiscal year 1995 and 1996 bonus awards are paid under the Company's then
applicable performance award plan policy which provided that the award be
paid in three installments of 50%, 25%, and 25%. Fiscal year 1997 bonus
awards will be paid in full in December 1997. Certain executive officers
have elected to defer the following portions of their 1997 bonus awards, as
indicated in the Security Ownership table on page 8: Mr. Leonis, 100%; Mr.
Lang, 20%; Mr. St. Pe, 10%; and Mr. Preston, 40%.
(b) Includes for fiscal 1997, 1996 and 1995, respectively, taxable amounts
imputed under various life insurance arrangements provided by the Company,
and amounts of imputed interest on the loans described on pages 12-13.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
NAMED EXECUTIVE PRICE APPRECIATION FOR OPTION
OFFICERS INDIVIDUAL GRANTS TERM
HYPOTHETICAL HYPOTHETICAL
% OF TOTAL OPTIONS VALUE REALIZED VALUE REALIZED
OPTIONS GRANTED TO EXERCISE AT 5% STOCK AT 10% STOCK
GRANTED EMPLOYEES IN FISCAL PRICE EXPIRATION APPRECIATION APPRECIATION
NAME (#) YEAR ($/SH) DATE ($) ($)
<S> <C> <C> <C> <C> <C> <C>
John M. Leonis 50,000 7.03% 47.96 6/27/07 1,508,089 3,821,794
Michael R. Brown 35,000 4.92% 47.96 6/27/07 1,055,662 2,675,256
Rudolph E. Lang, Jr. 10,000 1.41% 47.96 6/27/07 301,618 764,359
Gerald J. St. Pe 12,000 1.69% 47.96 6/27/07 361,941 917,231
John E. Preston 15,000 2.11% 47.96 6/27/07 452,427 1,146,538
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS IN-THE-MONEY OPTIONS
EXERCISE REALIZED AT JULY 31, 1997 (#) AT JULY 31, 1997 ($)
NAME COMPANY* (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C> <C>
John M. Leonis LIT 3,991 84,836 80,600 130,250 2,413,577 1,712,282
WAI -0- -0- 34,000 -0- 1,943,053 -0-
Total 3,991 84,836 114,600 130,250 4,356,630 1,712,282
Michael R. Brown LIT -0- -0- 57,245 103,906 1,536,748 843,634
WAI 5,980 278,996 22,060 2,960 1,244,552 176,891
Total 5,980 278,996 79,305 106,866 2,781,300 1,020,525
Rudolph E. Lang, LIT -0- -0- 80,200 34,800 2,669,042 402,812
Jr. WAI 7,400 332,873 -0- -0- -0- -0-
Total 7,400 332,873 80,200 34,800 2,669,042 402,812
Gerald J. St. Pe LIT -0- -0- 70,200 36,000 2,256,839 392,941
WAI -0- -0- 14,700 -0- 841,108 -0-
Total -0- -0- 84,900 36,000 3,097,947 392,941
John E. Preston LIT -0- -0- 17,778 38,480 456,655 443,530
WAI -0- -0- 4,040 -0- 233,643 -0-
Total -0- -0- 21,818 38,480 690,298 443,530
</TABLE>
* On March 17, 1994, all of the common stock of Western Atlas Inc. ("WAI"), a
wholly-owned subsidiary of the Company, was distributed to the Company's
then shareholders. Under the Company's 1984 Long-Term Stock Incentive Plan,
each Company stock option granted prior to that date was converted into both
a Company option and an option of Western Atlas Inc.
10
<PAGE>
RETIREMENT BENEFITS
- THE FSSP AND RELATED RETIREMENT PLANS
Litton's Financial Security and Savings Program ("FSSP") is a defined
contribution plan intended to qualify under Section 401(k) of the Internal
Revenue Code (the "Code"). Participation in the FSSP is generally available to
U.S. employees of the Company's corporate offices and participating subsidiaries
and divisions. All of the Named Executive Officers participate in the FSSP.
The first 1% to 4% of pay a participant elects to contribute to the FSSP
results in an annual retirement benefit payable at age 65 equal to the greater
of (a) 60% of such contributions, or (b) 85% of such contributions, less 75% of
estimated Social Security primary insurance. The benefit is payable as an
annuity and is reduced by the actuarial equivalent of any elected lump sum
distribution of the contributions, as adjusted for earnings or losses.
Participants may contribute an additional 1% to 14% of pay into the Savings
Account portion of the FSSP and receive a 50% Company match on the first 1% to
4% of those contributions. For any calendar year, a participant's contributions
to the FSSP may not exceed the maximum deferral amount prescribed by Section
401(k) of the Code or, if less, 18% of a participant's annual compensation.
- RESTORATION PLAN
The Litton Industries, Inc. Restoration Plan is an unfunded, nonqualified
retirement plan that restores company-provided retirement benefits, and FSSP
Savings Account company-matching contributions which an FSSP participant could
have received if it were not for the limitations prescribed by the Code. Such
benefit is payable as an annuity from the Company's general assets at
retirement.
The following table sets forth the current estimated annual retirement
benefits of the Named Executive Officers assuming their continued maximum
participation in the above described plans, retirement at age 65 and election of
a single life annuity.
<TABLE>
<CAPTION>
COMPANY PROVIDED
NAME TOTAL PENSION PORTION
<S> <C> <C>
John M. Leonis $ 242,856 $ 220,691
Michael R. Brown 417,586 374,612
Rudolph E. Lang, Jr. 308,219 273,273
Gerald St. Pe 393,114 349,095
John E. Preston 307,853 261,867
</TABLE>
- SUPPLEMENTAL PLAN
The Litton Industries, Inc. Supplemental Executive Retirement Plan ("SERP")
is an unfunded, nonqualified defined benefit retirement plan that provides
certain key employees of the Company with supplemental retirement benefits.
Participants must be at least age 50, and vesting occurs when a participant
reaches age 60 and has at least fifteen years of service with the Company. The
SERP retirement benefit is determined based on a participant's Average Earnings
(for the highest three twelve month periods out of their last 60 months of
compensation) and years of service since age 40 (up to a maximum of 25 years).
Under the SERP, the credited years of service at September 30, 1997, of the
Named Executive Officers are as follows: Mr. Leonis, 23 years; Mr. Brown, 16
years; Mr. Lang, 21 years; Mr. St. Pe, 17 years; and Mr. Preston, 15 years.
The following table indicates the approximate annual benefit which would be
received by a participant in the SERP, based on the following assumptions: (i)
retirement at age 65 and (ii) payment as a single life annuity. Such benefit
would be reduced by the Social Security benefit, and the greater of the maximum
11
<PAGE>
amount of Company provided pension benefits that the employee either actually
accrued or could have accrued under other Company sponsored retirement plans.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
REMUNERATION YEARS OF SERVICE
(AVERAGE 25 OR
EARNINGS) 15 20 MORE
<S> <C> <C> <C>
600,000 $ 186,750 $ 249,000 $ 311,250
800,000 252,750 337,000 421,250
1,000,000 318,750 425,000 531,250
1,200,000 384,750 513,000 641,250
1,400,000 450,750 601,000 751,250
1,600,000 516,750 689,000 861,250
1,800,000 582,750 777,000 971,250
</TABLE>
CHANGE IN CONTROL
The Company is a party to change in control agreements with all of the Named
Executive Officers. The agreements become operative only upon the occurrence of
one of the following events: (1) a change in the majority of the members of the
Company's Board of Directors; (2) a third party acquires at least 30% of the
Company's outstanding voting stock, other than as a result of a repurchase by
the Company of its voting stock; (3) a merger, reorganization, or consolidation
of the Company with another party (other than certain limited types of mergers);
(4) a sale or disposition of substantially all of the Company's assets; or (5)
the shareholders approve the liquidation or dissolution of the Company.
Each change in control agreement provides that for three years after a
change in control there will be no adverse change in the executive's salary,
bonus opportunity, benefits, or location of employment. If, during this
three-year period, the executive's employment is terminated by the Company, the
executive terminates his or her employment, or voluntarily leaves during the
30-day period following the first anniversary of the change in control, the
executive is entitled to receive an accrued salary and annual incentive payment
through the date of termination and a lump sum severance payment equal to three
times the sum of the executive's base salary and annual bonus. The Company will
also provide the executive with certain pension credits, insurance and other
welfare plan benefits.
The SERP provides that in the event of a change in control, all participants
in the SERP become fully vested in their benefit, which will be paid as a lump
sum payment based upon certain actuarial factors. Alternatively, the
Compensation and Selection Committee of the Board may direct that, in the event
of a change in control, the Company fund a trust with sufficient assets to
adequately satisfy the liabilities of the SERP and that the Company pay SERP
benefits monthly as an annuity. The assets of such trust would be subject to the
claims of the Company's creditors in the event of the insolvency or bankruptcy
of the Company.
INDEBTEDNESS OF MANAGEMENT TO THE COMPANY
As a form of additional incentive, the Company provides loans to certain key
employees. Under the Company's incentive loan program, unsecured loans, not to
exceed $6,000,000 in the aggregate outstanding at any one time, may be made to
not more than 50 employees and may not exceed the annual salary rate of the
borrower. These loans presently bear interest at the rate of 4% per annum and
are payable on the Company's demand, or by (i) termination of the borrower's
employment or (ii) December 31, 2001, whichever occurs first. Granting of loans
requires the approval of the Compensation and Selection Committee.
12
<PAGE>
As of October 7, 1997, loans upon the terms set forth above in the aggregate
amount of $595,000 were outstanding to three of the Named Executive Officers:
Michael R. Brown, $275,000; Rudolph E. Lang, Jr., $150,000; and John E. Preston,
$170,000. John M. Leonis paid the principal balance of $310,000, plus accrued
interest, on a Company incentive loan on July 16, 1997. The Company has $400,000
in loans outstanding to two other executive officers as of October 7, 1997. The
largest total amount of indebtedness of all executive officers outstanding at
any time since July 31, 1996 was $1,538,000.
REPORT OF THE COMPENSATION AND SELECTION COMMITTEE
The Compensation and Selection Committee of the Board of Directors is
composed entirely of outside directors. The Committee has been charged with the
responsibility of determining and administering the Company's executive
compensation program.
The Committee has designed the Company's executive compensation program to
reward both individual and collective performance and to create incentives for
both short-term and long-term performances. The objective of the program is to
provide appropriate incentives including a substantial equity component, in
order to reward senior management for superior performance.
The Company's executive compensation program consists of three components:
(1) base annual salaries of senior executive management, including the Chief
Executive Officer; (2) annual incentive awards designed to reward performance
related to specific performance goals of the Company; and (3) long-term
incentives in the form of stock options. The Committee annually retains a
compensation consulting firm to provide a review of each component of the
Company's executive compensation program, and to assess its competitiveness in
relation to a peer group of companies made up of other similar industry
companies, including those which directly compete with the Company for business
and talent.
BASE ANNUAL SALARY
The Committee determines base annual salaries of the Company's senior
executive management, including the Chief Executive Officer, by evaluating
certain criteria, which include: level of responsibility and experience;
individual performance; specific contributions to the Company and its business
objectives; internal Company issues, such as fairness; and comparable levels of
responsibility and compensation at the peer group of companies identified by the
compensation consultant.
After careful evaluation of the above-described criteria, the Committee
determined to grant increases in base annual salary to the Company's Named
Executive Officers (other than Mr. Leonis) which averaged approximately 9%.
These increases in the base salaries of the Named Executive Officers became
effective on October 1, 1996.
The Committee set Mr. Leonis' base annual salary at $675,000, effective
October 1, 1996. In evaluating the performance of Mr. Leonis and establishing
the adjustment to his base annual salary, the Committee reviewed the overall
performance of the Company and Mr. Leonis' contributions during the 1996 fiscal
year. The Committee gave special recognition to the following 1996
accomplishments realized under Mr. Leonis' leadership: (i) the Company added
breadth and depth to its capabilities through the acquisition and integration of
four companies with combined annual revenues of approximately $1 billion; (ii)
financial performance for the year was strong, reaching $3.6 billion in sales,
an increase of 9% over the 1995 fiscal year; (iii) net income increased 12% over
the 1995 fiscal year; (iv) earnings per share rose 11% for the 1996 fiscal year;
(v) improved earnings permitted the Company to make investments while
maintaining a strong balance sheet.
ANNUAL INCENTIVE AWARDS
The Committee administers annual incentive awards pursuant to various
performance-based plans, including the Company's Performance Award Plan. The
Committee annually determines which officers and key employees will be eligible
to receive annual incentive awards. Under the Company's Performance
13
<PAGE>
Award Plan, an award is payable in full in December of the year it is granted,
provided the recipient is then employed by the Company.
The Performance Award Plan requires the Committee to establish, prior to the
beginning of each fiscal year, a planned level of Company performance objectives
determined by certain financial measurements, such as profits, profit-growth,
profit related return ratios, cash flow, and total shareholder return. The
Committee has discretion to provide for additional opportunities to receive
annual incentive awards based upon the attainment of various productivity and
long-term growth objectives. For fiscal year 1997, the Committee established a
performance objective based on a formula which calculates earnings per share and
earnings per share growth based on beginning-year shares and earnings on an
after-tax basis. Using this formula, the total bonus pool available for fiscal
year 1997 incentive awards is $2,953,000.
The Committee granted Mr. Leonis a bonus of $675,000, of which $415,000 is a
discretionary bonus in excess of the bonus pool. In determining Mr. Leonis'
bonus for the 1997 fiscal year, the Committee considered the following factors:
the Company's sales for the 1997 fiscal year increased 16% and earnings per
share increased 8% over the fiscal year 1996 results; the Company generated
sufficient cash flow in fiscal year 1997 to facilitate acquisitions, reduce its
debt by more than $100 million, and repurchase 875,000 shares of the Company's
Common Stock; and through the acquisition of the Racal Marine Group and SAI
Technology, the Company has strengthened its position in the marine electronics
and electronic display markets, respectively. The Committee also noted that
under Mr. Leonis' leadership, certain of the Company's operating groups
successfully entered into new markets. Finally, the Committee determined that
the discretionary bonus was warranted because Mr. Leonis was successfully
guiding the Company through the process of reassessing its goals and
reorganizing its operations in order to better compete in the U.S. and global
marketplace.
LONG-TERM INCENTIVE AWARDS
The Company uses stock option grants as a long-term incentive to attract and
retain key employees whose talents and contributions are important to the
long-term success of the Company. Stock option grants also align the employee's
interest with that of the shareholders. The Committee grants stock options
pursuant to the Company's 1984 Long-Term Stock Incentive Plan, and sets
guidelines for the number and terms of such grants based on peer group data and
the Company's business objectives. The 1984 Long-Term Stock Incentive Plan
requires that options be granted at no less than 100% of fair market value.
Options granted by the Committee generally become exercisable in cumulative
installments over a period of five years, and, in general, upon termination of
employment, the individual forfeits any installment which has not vested during
the period of employment.
In fiscal year 1997, the Named Executive Officers were granted the number of
options to purchase shares of the Company's Common stock as provided in the
table on page 10.
THE FOREGOING REPORT HAS BEEN FURNISHED BY THE FOLLOWING MEMBERS OF THE
COMPENSATION AND SELECTION COMMITTEE:
<TABLE>
<S> <C>
David E. Jeremiah, CHAIRMAN William P. Sommers
Carol B. Hallett C.B. Thornton, Jr.
</TABLE>
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the dates indicated in the footnotes below, the following table sets
forth entities which were known to beneficially own more than 5% of the
Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF CLASS
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (AS OF RECORD DATE)
<S> <C> <C>
Unitrin, Inc.
One East Wacker Drive
Chicago, Illinois 60601 12,657,764(a) 27.48%
FMR Corp
82 Devonshire Street
Boston, Massachusetts 02109 5,433,900(b) 11.80%
</TABLE>
(a) Unitrin, Inc. ("Unitrin") has reported in a filing with the SEC on Schedule
13D that, as of October 5, 1995, shares of Litton Common Stock are owned by
Unitrin (1,827,893 shares) and two of its subsidiaries, Trinity Universal
Insurance Company (5,378,883 shares) and United Insurance Company of America
(5,450,988 shares). Unitrin reported that such subsidiaries each share
voting power and dispositive power with Unitrin over the shares respectively
reported by them.
(b) FMR Corp has reported in a March 10, 1997 filing with the SEC on Schedule
13G that it beneficially owns, in the aggregate, 5,433,900 shares of Litton
Common Stock. Of these reported shares, 5,418,700 shares are owned by its
wholly-owned subsidiary, Fidelity Management & Research Company, as a result
of its acting as investment adviser to various investment companies
registered under the Investment Company Act of 1940; and 15,200 shares are
owned by its wholly-owned subsidiary Fidelity Management Trust Company as a
result of its serving as investment manager to institutional accounts. FMR
Corp. reported that it has sole dispositive power with respect to these
shares and sole voting power with respect to 15,200 shares.
15
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Litton Industries Inc $100 148 192 200 223 269
S&P Aerospace Defense Index $100 128 146 217 282 400
S&P 500 Index $100 109 114 144 168 256
</TABLE>
The above graph illustrates the performance of Litton Common Stock over the
five-year period from August 1, 1992 through July 31, 1997, compared to the
performance of the S&P 500 Index and the S&P Aerospace/Defense Index. Assumes
$100 invested August 1, 1992 in Litton Industries, Inc. Common Stock, the S&P
500 Index and the S&P Aerospace/Defense Index (dividends reinvested).
16
<PAGE>
ITEM TWO: RATIFICATION OF APPOINTMENT OF AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE 1998 FISCAL
YEAR.
Deloitte & Touche LLP and a predecessor firm have served as Litton's
independent auditors continuously since fiscal 1954, are familiar with the
business and operations of the Company and its subsidiaries, and have offices in
or convenient to most of the localities in the United States and in most other
countries where the Company and its subsidiaries operate.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's annual meetings consistent with regulations adopted by
the SEC. For such proposals to be considered for inclusion in the Proxy
Statement and form of proxy relating to the 1998 Annual Meeting, they must be
received by the Company not later than July 1, 1998. Such proposals should be
directed to the attention of the Secretary of the Company at 21240 Burbank
Boulevard, Woodland Hills, California 91367-6675.
OTHER MATTERS
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by directors, officers, or regular employees of Litton in person or by
telephone, telegraph, facsimile transmission, or telex. The Company also has
retained D. F. King & Co., Inc., to aid in the solicitation at an estimated cost
of $12,000 plus out-of-pocket expenses. Arrangements have been made for
brokerage houses, nominees, and other custodians to send proxy materials to
their principals, and the Company will reimburse them for doing so.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Common Stock Performance Graph on page 16 and the Report
of the Compensation and Selection Committee on pages 13-14 shall not be
incorporated by reference into any such filings.
The Board of Directors does not know of any other matters that are to be
presented for action at the December 4, 1997, meeting. Should any other matter
come before the meeting, the accompanying proxy will be voted with respect to
the matter in accordance with the best judgment of the persons voting the proxy.
THE BOARD OF DIRECTORS
LITTON INDUSTRIES, INC.
17
<PAGE>
/ /
Directors reconfirmed a vote "FOR" Items 1 and 2
1. Election of FOR all nominees WITHHOLD AUTHORITY to *EXCEPTIONS
Directors listed below vote for ALL nominees
listed below
/ / / / / /
Nominees: Alton J. Brann, Michael R. Brown, Joseph T. Casey, Carol B. Hagan,
Orion L. Moca, David E. Jeremiah, Rudolph E. Lang, Jr.,
John M. Leonis, William P. Sommers, C. B. Thornton, Jr.
INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and with that nominee's name in the space
provided below.
*Exceptions __________________________________________________________________
2. Proposal to ratify the selection of
Deloitte & Touche LLP as independent
auditors for the fiscal year ending
July 31, 1996. FOR / / AGAINST / / ABSTAIN / /
ADDRESS CHANGE
AND/OR COMMENTS / /
Note: Please sign exactly as shown
at left. If stock is jointly held,
each owner should sign. Executors,
administrators, trustees, guardians,
attorneys and corporate officers
should indicate their fiduciary
capacity or full title when signing.
Dated: _____________________, 1997
__________________________________
Signature
__________________________________
Signature
(if jointly held)
Please Mark, Date, Sign and Mail
This Proxy Card Promptly in the Votes must be Indicated
Enclosed Envelope. (X) in Black or Blue ink. / /
<PAGE>
LITTON INDUSTRIES, INC.
P R O X Y
John M. Leonis and Rudolph E. Lang, Jr., or either of them individually
and each of them with power of substitution, are hereby appointed Proxies of
the undersigned to vote all Common Stock and Series B Preferred Stock of
Litton Industries, Inc. owned on the record date by the undersigned at the
Annual Meeting of Shareholders to be held in the Regent Beverly Wilshire
Hotel, Beverly Hills, California at 11:00 a.m. on Thursday, December 4, 1997,
or any adjournment thereof, upon such business as may properly come before
the meeting, including the item on the reverse side of this form, as set
forth in the Notice of 1997 Annual Meeting of Shareholders and the Proxy
Statement dated October 27, 1997.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
(Continued, and to be signed and dated, on reverse side.)
LITTON INDUSTRIES, INC.
P. O. BOX 11065
NEW YORK, N.Y. 10203-0065
