<PAGE> 1
As filed with the Securities and Exchange Commission on December 8, 1999
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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, 1999
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, 91367-6675
WOODLAND HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</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, 1999 there were 45,530,168 shares of Common Stock
outstanding.
Page 1 of 15
Exhibit Index appears on Page 14.
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<PAGE> 2
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX
REPORT ON FORM 10-Q
FOR QUARTER ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three months ended October 31, 1999 and 1998.............. 3
Consolidated Balance Sheets
October 31, 1999 and July 31, 1999........................ 4
Consolidated Statements of Cash Flows
Three months ended October 31, 1999 and 1998.............. 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 10
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signature.............................................................. 15
</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,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Sales and Service Revenues.................................. $1,370,790 $1,207,538
---------- ----------
Costs and Expenses
Cost of sales............................................. 1,082,237 945,209
Selling, general and administrative....................... 126,599 127,526
Depreciation and amortization............................. 46,996 39,838
Interest -- net........................................... 25,531 16,250
---------- ----------
Total............................................. 1,281,363 1,128,823
---------- ----------
Earnings before Taxes on Income and Cumulative Effect of a
Change in Accounting Principle............................ 89,427 78,715
Taxes on Income............................................. (36,665) (31,486)
---------- ----------
Earnings before Cumulative Effect of a Change in Accounting
Principle................................................. 52,762 47,229
Cumulative Effect of a Change in Accounting Principle, net
of tax.................................................... (2,777) --
---------- ----------
Net Earnings................................................ $ 49,985 $ 47,229
========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
Earnings per Share:
Basic: Earnings before Cumulative Effect of a Change in
Accounting Principle............................ $ 1.15 $1.03
Cumulative Effect of a Change in Accounting
Principle.................................... $(0.06) --
Net Earnings.................................... $ 1.09 $1.03
Diluted: Earnings before Cumulative Effect of a Change in
Accounting Principle.......................... $ 1.13 $1.01
Cumulative Effect of a Change in Accounting
Principle.................................... $(0.06) --
Net Earnings.................................... $ 1.07 $1.01
</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,
1999 1999
----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and marketable securities............................ $ 68,452 $ 30,693
Accounts receivable, net.................................. 871,043 859,074
Inventories less progress payments........................ 762,674 637,635
Deferred tax assets....................................... 434,687 436,512
Prepaid expenses.......................................... 33,664 28,900
---------- ----------
Total Current Assets.............................. 2,170,520 1,992,814
---------- ----------
Property, Plant and Equipment -- at cost.................... 1,771,889 1,564,848
Less accumulated depreciation............................. (958,855) (939,566)
---------- ----------
Property, Plant and Equipment, Net.......................... 813,034 625,282
---------- ----------
Goodwill and Other Intangibles, Net......................... 1,412,635 1,062,499
---------- ----------
Other Assets and Long-term Investments...................... 540,559 519,277
---------- ----------
Total Assets...................................... $4,936,748 $4,199,872
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable.......................................... $ 325,798 $ 317,651
Accrued expenses.......................................... 548,377 555,626
Payrolls and related expenses............................. 252,374 207,622
Taxes on income........................................... 68,015 64,207
Short-term debt........................................... 367,125 162,751
Contract liabilities and customer deposits................ 362,536 392,320
---------- ----------
Total Current Liabilities......................... 1,924,225 1,700,177
---------- ----------
Long-term Obligations....................................... 1,300,351 859,315
---------- ----------
Postretirement Benefit Obligations Other than Pensions...... 220,705 205,856
---------- ----------
Deferred Tax and Other Long-term Liabilities................ 140,054 134,278
---------- ----------
Shareholders' Investment
Capital stock
Voting preferred stock -- Series B..................... 2,053 2,053
Common stock........................................... 45,553 45,560
Additional paid-in capital................................ 345,342 345,005
Retained earnings......................................... 1,004,475 955,538
Accumulated other comprehensive loss-
Cumulative currency translation adjustment............. (46,010) (47,910)
---------- ----------
Total Shareholders' Investment.................... 1,351,413 1,300,246
---------- ----------
Total Liabilities and Shareholders' Investment.... $4,936,748 $4,199,872
========== ==========
</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,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Cash and cash equivalents at beginning of period............ $ 30,693 $ 16,175
--------- --------
Operating Activities
Net earnings.............................................. 49,985 47,229
Adjustments to reconcile net earnings to net cash provided
by operating activities
Cumulative effect of a change in accounting
principle............................................. 2,777 --
Depreciation and amortization.......................... 46,996 39,838
Changes in assets and liabilities, net of effects of
acquisitions/divestitures
Accounts receivable.................................. 8,056 (57,424)
Inventories.......................................... (17,189) (15,145)
Prepaid expenses..................................... 339 166
Accounts payable..................................... (46,417) (43,599)
Accrued expenses..................................... (23,954) (12,859)
Payrolls and related expenses........................ 18,913 17,291
Deferred and current taxes on income................. 21,045 16,729
Contract liabilities and customer deposits........... (29,784) 5,399
Other operating activities............................. (23,800) (11,262)
--------- --------
Cash provided by (used for) operating activities............ 6,967 (13,637)
--------- --------
Investing Activities
Purchase of businesses, net of cash acquired.............. (536,121) --
Purchase of capital assets................................ (27,547) (20,839)
Proceeds from sale of businesses.......................... -- 43,522
Other investing activities................................ 297 1,962
--------- --------
Cash (used for) provided by investing activities............ (563,371) 24,645
--------- --------
Financing Activities
Proceeds from issuance of senior notes due 2009........... 397,127 --
Change in short-term debt, net............................ 200,283 33,852
Purchase of Common stock.................................. (1,000) (20,975)
Other financing activities................................ (2,247) 342
--------- --------
Cash provided by financing activities....................... 594,163 13,219
--------- --------
Resulting in increase in cash and cash equivalents.......... 37,759 24,227
--------- --------
Cash and cash equivalents at end of period.................. $ 68,452 $ 40,402
========= ========
Supplemental disclosure of cash flow information
Interest paid............................................. $ 37,921 $ 29,319
Income taxes paid, net.................................... $ 11,444 $ 14,051
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents................................. $ 68,452 $ 40,402
Marketable securities..................................... -- 15,750
--------- --------
Total cash and marketable securities.............. $ 68,452 $ 56,152
========= ========
</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, 1999
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 annual 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, 1999. The results of operations for the three months ended
October 31, 1999 are not necessarily indicative of operating results for the
entire year.
2. The components of inventory balances are summarized below:
<TABLE>
<CAPTION>
OCTOBER 31, 1999 JULY 31, 1999
---------------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in progress......................... $1,498,724 $1,037,155
Finished goods............................................. 56,271 32,438
---------- ----------
1,554,995 1,069,593
Less progress payments..................................... (792,321) (431,958)
---------- ----------
Net inventories............................................ $ 762,674 $ 637,635
========== ==========
</TABLE>
The increases at October 31, 1999 reflect the acquisition of Avondale
Industries, Inc. ("Avondale") discussed in Note 7.
3. Interest (expense) income is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
----------------------
1999 1998
-------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense............................................ $(26,827) $(18,041)
Interest income............................................. 1,296 1,791
-------- --------
Net interest expense........................................ $(25,531) $(16,250)
======== ========
</TABLE>
4. Basic earnings per share ("EPS") is calculated based on the weighted average
number of shares outstanding and diluted EPS includes the effects of
dilutive potential common shares.
6
<PAGE> 7
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED OCTOBER 31, 1999
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-----------------------------
1999 1998
------------- -------------
(THOUSANDS OF DOLLARS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Earnings before Cumulative Effect of a Change in Accounting
Principle................................................. $ 52,762 $ 47,229
Preferred stock dividends................................... (205) (205)
----------- -----------
Net earnings before Cumulative Effect of a Change in
Accounting Principle available to common shareholders..... 52,557 47,024
Cumulative Effect of a Change in Accounting Principle....... (2,777) --
----------- -----------
Net earnings available to common shareholders............... $ 49,780 $ 47,024
=========== ===========
Weighted average common shares outstanding used for basic
earnings per share........................................ 45,577,845 45,545,459
Dilutive effect of stock options............................ 764,752 934,868
----------- -----------
Number of shares used for diluted earnings per share........ 46,342,597 46,480,327
=========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
Earnings per share
Basic:
Earnings before Cumulative Effect of a Change in
Accounting Principle................................... $ 1.15 $1.03
Cumulative Effect of a Change in Accounting Principle..... $(0.06) --
Net earnings per share.................................... $ 1.09 $1.03
Diluted:
Earnings before Cumulative Effect of a Change in
Accounting Principle................................... $ 1.13 $1.01
Cumulative Effect of a Change in Accounting Principle..... $(0.06) --
Net earnings per share.................................... $ 1.07 $1.01
</TABLE>
5. The Company reports comprehensive income and its components in accordance
with Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." Comprehensive income includes "all changes in equity
during a period except those resulting from investments by owners and
distributions to owners."
Comprehensive income and its components are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Net earnings................................................ $49,985 $47,229
Currency translation adjustments............................ 1,900 6,425
------- -------
Total comprehensive income.................................. $51,885 $53,654
======= =======
</TABLE>
6. The Company's operations are reported in four segments: Advanced
Electronics, Information Systems, Ship Systems, and Electronic Components
and Materials.
The Advanced Electronics segment designs, develops and manufactures inertial
navigation, guidance and control, IFF (identification friend or foe) and
marine electronic systems. This segment also provides command, control and
communications and electronic warfare systems and integrates avionics
systems and shipboard information and communication systems.
7
<PAGE> 8
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED OCTOBER 31, 1999
The Information Systems segment designs, develops, integrates and supports
computer-based information systems and provides information technology and
services. This segment is also engaged in the reengineering of business
processes.
The Ship Systems segment is engaged in the building of large multimission
surface combatant ships and is a provider of overhaul, repair,
modernization, ship design and engineering services. The results for the
three months ended October 31, 1999 include the Avondale acquisition
(discussed in Note 7) which also is the primary reason for the increase in
assets for this segment to $1.04 billion at October 31, 1999 from $361
million at July 31, 1999.
The U.S. Government is a significant customer of the Advanced Electronics,
Information Systems and Ship Systems segments.
The Electronic Components and Materials segment is an international
supplier of laser crystals, connectors, multilayer circuit boards, solder
materials and other electronic components used primarily in the
telecommunication, industrial and computer markets.
Corporate amounts include primarily general corporate expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
----------------------
1999 1998
--------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Sales and Service Revenues from Unaffiliated Customers
Advanced Electronics........................................ $ 337 $ 399
Information Systems....................................... 402 391
Ship Systems.............................................. 472 268
Electronic Components and Materials....................... 160 150
------ ------
Total Sales and Service Revenues............................ $1,371 $1,208
====== ======
Intersegment Sales and Service Revenues
Advanced Electronics...................................... $ 5 $ 5
Information Systems....................................... 3 6
Electronic Components and Materials....................... 2 2
------ ------
Total Intersegment Sales and Service Revenues............... $ 10 $ 13
====== ======
Operating Profit (Loss)
Advanced Electronics...................................... $ 28 $ 29
Information Systems....................................... 21 21
Ship Systems.............................................. 59 35
Electronic Components and Materials....................... 24 26
Intersegment Eliminations................................. -- (1)
------ ------
Operating Profit.......................................... 132 110
Interest and Corporate Amounts............................ (43) (31)
------ ------
Earnings before Taxes on Income and Cumulative Effect of a
Change in Accounting Principle............................ $ 89 $ 79
====== ======
</TABLE>
7. On August 2, 1999, the Company completed the acquisition of Avondale for
$39.50 per share in cash. The total purchase price was approximately $590
million and the acquisition has been accounted for under the purchase method
of accounting. Avondale, with revenues of approximately $750 million in its
fiscal year ended December 31, 1998, is engaged in the design, construction,
repair and overhaul of
8
<PAGE> 9
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED OCTOBER 31, 1999
various types of ocean-going vessels, primarily for the U.S. Navy. The
results herein reflect a preliminary allocation of the purchase price and
the estimates of fair values will be refined during fiscal year 2000 and
changes, if any, will be reflected in the consolidated financial statements.
The preliminary goodwill amount of approximately $360 million is being
amortized over twenty-five years.
8. In July of fiscal year 1999, the Company recorded special charges totaling
$74.6 million pre-tax and $44.8 million after-tax in connection with a plan
to exit the mainframe and professional services business at the Litton
Enterprise Solutions, Inc. ("LES") subsidiary and to consolidate certain
manufacturing facilities at its Data Systems and Applied Technology (now a
part of the Advanced Systems division) divisions to reduce excess capacity.
The portion representing non-cash asset write-downs totaled $19.8 million
for goodwill impairment and abandonment of software and facilities
improvements. The components and balances of the remainder of the special
charges accrual at July 31, 1999 and October 31, 1999 are as follows:
<TABLE>
<CAPTION>
JULY 31, 1999 CASH PAID OCTOBER 31, 1999
------------- --------- ----------------
<S> <C> <C> <C>
Software and hardware lease termination
costs....................................... $41.3 $ -- $41.3
Severance and termination costs............... 10.2 1.9 8.3
Other closure and exit costs.................. 3.3 -- 3.3
----- ---- -----
$54.8 $1.9 $52.9
===== ==== =====
</TABLE>
The $1.9 million in severance and termination payments made in the first
quarter of fiscal year 2000 resulted from the termination of 192 employees
out of a total of approximately 800 to be terminated in accordance with the
aforementioned plan. Substantially all of the employees at LES will be
impacted while the consolidation of manufacturing facilities at the Data
Systems and Applied Technology divisions will affect manufacturing,
engineering and administrative personnel.
9. Effective August 1, 1999, the Company adopted Statement of Position 97-3
("SOP 97-3"), "Accounting by Insurance and Other Enterprises for Insurance
Related Assessments", which required a change in the accounting for
assessments by the workers' compensation second-injury fund administered by
the Department of Labor. The resulting cumulative effect of a change in
accounting principle was a charge of $2.8 million, net of tax or $.06 per
share.
9
<PAGE> 10
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company reported revenues and segment operating profit of $1.37 billion
and $131.7 million for the first quarter ended October 31, 1999 compared with
$1.21 billion and $110.0 million, respectively, for the first quarter of fiscal
year 1999. Net earnings and diluted earnings per share, after the cumulative
effect of a change in accounting principle, were $50.0 million and $1.07,
respectively, for the first quarter of the current fiscal year. The comparative
amounts for the first quarter of the prior year were $47.2 million and $1.01,
respectively. The cumulative effect of a change in accounting principle resulted
from the adoption of SOP 97-3 discussed in Note 9 of Notes to Consolidated
Financial Statements.
The Advanced Electronics segment reported revenues and operating profit of
$341.6 million and $28.4 million compared with $403.2 million and $29.4 million,
respectively, for the first quarter of fiscal year 1999. The decrease in
revenues reflected lower sales of older generation inertial navigation units,
the sale of a division in October 1998, and the consolidation of manufacturing
facilities at the Company's Applied Technology division, which manufactures
defense electronic systems. In connection with the aforementioned facilities
consolidation process, the Company recorded a special charge totaling $4.1
million in the fourth quarter of fiscal year 1999. The charge included $2.3
million for severance and related benefits in connection with the termination of
approximately 170 employees and $1.8 million to vacate a facility and for the
write-off of software with no future use. During the first quarter of fiscal
year 2000, 25 employees were terminated and although the Company has begun the
process of consolidation, it expects the activities to accelerate during the
remainder of fiscal year 2000 and be completed by fiscal year-end. Backlog for
the Advanced Electronics segment amounted to $1.36 billion at October 31, 1999
compared with $1.31 billion at July 31, 1999.
Revenues and operating profit for the Information Systems segment were
$404.9 million and $20.5 million for the current quarter compared with $396.8
million and $20.5 million, respectively, for the prior year's first quarter.
Increased revenues from the Company's PRC, Inc. ("PRC") and TASC, Inc. ("TASC")
subsidiaries offset the reduction in revenue and expenses resulting from the
prior year's plan to exit the commercial mainframe outsourcing business. The
Company recorded special charges in the fourth quarter of fiscal year 1999
totaling $65.2 million in connection with the exit plan, which included $41.3
million in software and hardware lease termination costs, $4.0 million for
employee severance and termination benefits, $16.9 million for the write-off of
software, building improvements and goodwill and $3.0 million of other exit
costs. Although the Company is proceeding with such plan and has terminated 67
out of a total 360 employees during the first quarter of fiscal year 2000, the
Company is also in discussions regarding a possible sale of the business. In the
fourth quarter of fiscal 1999, the Company also recorded a special charge
totaling $5.3 million in connection with consolidating manufacturing facilities
used in the command and control businesses at its Data Systems division. This
charge included $3.9 million for severance and termination benefits for
approximately 270 employees and $1.4 million for vacating facilities and other
costs. During the first quarter of fiscal year 2000, 100 employees were
terminated and the Company has made significant progress in this consolidation
effort which it expects to conclude by fiscal year-end 2000. Firm backlog at
October 31, 1999 for this segment increased to $1.03 billion from $976.1 million
at July 31, 1999. Additionally, PRC and TASC had unfunded backlog with potential
contract values of $2.1 billion at October 31, 1999 compared with $2.2 billion
at July 31, 1999.
The Ship Systems segment reported revenues and operating profit of $472.4
million and $58.6 million for the first quarter of fiscal year 2000 compared
with $268.2 million and $35.0 million for the first three months of fiscal year
1999. These increases were primarily due to the acquisition of Avondale in
August 1999 as described in Note 7 of Notes to Consolidated Financial
Statements. Current construction activities at Avondale include one amphibious
transport ship under the U.S. Navy's LPD program, five Sealift support ships
also for the U.S. Navy and two double-hulled crude oil carriers for a commercial
customer. Additionally, a higher level of construction activities on long-term
contracts at the Company's Ingalls Shipbuilding, Inc. subsidiary ("Ingalls"),
partially offset by the completion and delivery of an Aegis destroyer in the
second quarter of fiscal year 1999, also contributed to the improved results for
this segment. Current construction activities for Ingalls include six Aegis
destroyers and one LHD class amphibious assault ship for the U.S.
10
<PAGE> 11
PART I. FINANCIAL INFORMATION (CONTINUED)
Navy. With the addition of Avondale, backlog for this segment increased to $5.41
billion at October 31, 1999 from $4.09 billion at July 31, 1999.
Sales and operating profit for the Electronic Components and Materials
segment were $161.5 million and $24.4 million for the first quarter of fiscal
year 2000 compared with $152.2 million and $25.8 million for the first quarter
of the prior fiscal year. Revenues increased despite a slow-down in demand from
the segment's principal markets. Operating profit and margins were impacted by
start up costs at a new manufacturing facility and costs associated with meeting
more stringent specifications for semiconductor materials as well as a different
sales mix attributable to slower sales of laser crystals. During the current
quarter, the Company completed the acquisition of TEC Electrical Components
Group Ltd. ("TEC"). TEC, with annual revenues of approximately $8.6 million, is
a UK based manufacturer and supplier of electrical connectors to the military,
aerospace and commercial industries.
Net interest expense was $25.5 million for the three months ended October
31, 1999 compared with $16.3 million for the corresponding period of the prior
fiscal year. The increase in interest expense resulted from the debt incurred in
connection with financing the acquisition of Avondale in August 1999, for which
the Company issued $400 million principal amount of 8.00% Senior Notes due 2009
and sold commercial paper. Cash flow from operations generated $7 million
(compared to a use of $14 million for last year's first quarter) which provided
a portion of the funds for capital expenditures and the repurchase of 20,000
shares of Common stock. Management believes that cash flow from operations,
along with borrowing capacity, will be sufficient to meet anticipated needs for
the foreseeable future. At October 31, 1999, the Company had unused credit
commitments of $400 million under an existing revolving credit agreement with
various banks available for its general use and replacement of existing debt.
The Company also has two additional short-term credit agreements, totaling $800
million, which serve as back-up facilities for its commercial paper program.
EURO CONVERSION
A majority of the European Union member countries adopted the "Euro" on
January 1, 1999. The existing national currencies of the participating countries
will continue to be acceptable until January 1, 2002 after which the Euro will
be the sole legal tender for the participating countries. The Company is in the
process of modifying and replacing its financial and accounting systems to
incorporate the Euro and continues to implement the necessary actions to reflect
the economic and operational impact of the Euro. The Company does not expect the
Euro to have a material effect on its consolidated financial statements.
YEAR 2000 READINESS DISCLOSURES
The Company is substantially complete with its program to address the
potential impact of the Year 2000 on its business systems, facilities, and
products which may include embedded software. This program includes an
assessment and inventory of potential Year 2000 issues and detailed
implementation plans for the required modifications. The process and progress
have been monitored on a regular basis by a special corporate task group of
management, internal audit, and legal personnel, and reported to management and
the Audit and Compliance Committee of the Board of Directors.
The implementation of required changes, developed after the assessment and
inventory phases, has been completed. The Company has also been in contact with
major suppliers and customers and has received written confirmation regarding
their Year 2000 readiness and has tested certain situations. Based on the
foregoing, the Company does not anticipate significant third party Year 2000
issues; however, there can be no assurance that non-compliance by a supplier or
other third parties will not occur. The Company has developed contingency plans
both in relation to internal systems, facilities, and products and third parties
to mitigate the impact of potential non-compliance.
Although the Company cannot accurately predict the extent of operational
and financial impact resulting from any non-compliance, including that by a
third party, the Company does not believe there are any material risks related
to Year 2000 issues based on progress and results achieved to date.
11
<PAGE> 12
PART I. FINANCIAL INFORMATION (CONTINUED)
Incremental costs to address and achieve Year 2000 compliance are expensed
as incurred and have totaled approximately $25 million through October 31, 1999
of which $2 million was expended during the first three months of fiscal year
2000. Total incremental costs will approximate $26 million.
SAFE HARBOR CAUTIONARY STATEMENT
This document contains forward-looking statements made in reliance upon the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements reflect management's current assumptions and
estimates of future performance and economic conditions, and are subject to
risks and uncertainties that could cause actual results to differ materially.
For a discussion identifying important factors that could cause actual results
to vary materially from those anticipated in the forward-looking statements, see
the Company's 1999 Annual Report on Form 10-K, and other documents, filed with
the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As previously discussed, the Company issued $400 million principal amount
of 8.0% Senior Notes due 2009 ("Senior Notes") as well as sold commercial paper
to finance the acquisition of Avondale. The estimated fair value of the fixed
rate Senior Notes at October 31, 1999 was $401.9 million, and if there was a 10%
decrease in the interest rate, the estimated fair value would have been $424.3
million. With respect to the short-term commercial paper borrowings, a
hypothetical 10% increase to the interest rate would not have had a material
impact on the Company's consolidated financial statements.
For further disclosures about the Company's exposure to market risks, see
Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," of the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1999.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litton brought suit against Honeywell, Inc. for patent infringement
relating to the manufacture of ring laser gyro navigation systems used in
commercial aircraft. In August 1993, the jury rendered a verdict in favor of
Litton that the District Court rejected in January 1995. In July 1996, the
Federal Circuit Court of Appeals reversed the District Court's decision,
reinstated parts of the jury's verdict related to liability in favor of Litton
and ordered a new trial on the amount of damages. In March 1997, the United
States Supreme Court vacated the Court of Appeals' ruling and remanded the case
to the Court of Appeals for further consideration. On April 7, 1998, the Court
of Appeals reinstated its finding that the patent was valid, however, it
remanded the case back to the District Court for a determination on both
liability and damages. In July 1999, the District Court heard motions for
summary judgment filed on behalf of Litton and Honeywell. On September 23, 1999,
the U.S. District Court granted Honeywell's motions rejecting the patent and
state law claims. Those rulings, when finalized by the District Court, will be
appealed by the Company to the Federal Circuit Court of Appeals.
Litton also brought suit against Honeywell for illegal monopolization of
the market for inertial reference systems for large commercial air transport,
commuter and business aircraft. In February 1996, a jury rendered a verdict in
favor of Litton. The District Court upheld the jury's verdict on liability, but
declined to enter the jury's damage award on the basis that Litton's damages
study did not disaggregate damages among legal and illegal conduct. A new trial
limited to the amount of damages resulted in a jury verdict on December 9, 1998,
of $250 million in favor of Litton. On January 27, 1999, U.S. District Court
Judge Mariana R. Pfaelzer entered a final judgment against Honeywell of $250
million which, by law, is trebled to $750 million, plus post-judgment interest
from the date of entry of judgment, costs and attorney fees. On May 20, 1999,
the court heard Honeywell's post trial motions. On September 23, 1999, the court
denied Honeywell's motions as they related to Litton Systems, Inc. but granted a
motion regarding Litton Systems Canada, holding it did not have standing or
jurisdiction to bring its claims in the United States. As a result of that
ruling, the judgment against Honeywell was reduced to $660 million plus
interest, attorney fees and costs. Honeywell has filed a notice of appeal to the
U.S. Court of Appeals for the Federal Circuit.
On November 12, 1999, a lawsuit was filed in the United States District
Court for the Eastern District of Louisiana entitled Harry L. Thompson, Jr. et
al. v. Avondale Industries, Inc., et al. challenging certain actions of Avondale
Industries, Inc. ("Avondale"), a wholly-owned subsidiary of the Company, certain
Avondale officers, and certain fiduciaries under the Avondale Employee Stock
Ownership Plan (the "ESOP"). The actions were taken in connection with the sale,
by the ESOP, of approximately 4,681,000 shares of Avondale common stock during
the period from 1996 to 1998, prior to the acquisition of Avondale by the
Company in August, 1999.
The lawsuit alleges that one sale involving 1,100,000 shares violated the
Securities Exchange Act of 1934 and that with respect to all of such sales, the
defendants also breached fiduciary duties owed to the ESOP participants under
the Employee Retirement Income Security Act of 1974 ("ERISA").
The Company is assessing its response to the action and there appear to be
meritorious defenses to the allegations. The Company does not believe it will
have a material financial impact on the Company. The Company anticipates filing
its response in January, 2000.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
Exhibit 3.1: Amendment to Restated and Amended By-laws of the Company as
adopted by the Board of Directors on December 3, 1999.
Exhibit 10.1: Form of the Litton Industries, Inc. Performance-Based
Restricted Stock Agreement.
Exhibit 27: Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during the
first quarter ended October 31, 1999.
14
<PAGE> 15
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 8, 1999
15
<PAGE> 1
EXHIBIT 3.1
[LITTON LOGO]
CERTIFICATE OF RESOLUTIONS
OF THE BOARD OF DIRECTORS OF
LITTON INDUSTRIES, INC.
I, the undersigned Jeanette M. Thomas, Vice President and Secretary of LITTON
INDUSTRIES, INC., a corporation organized and existing under the laws of the
State of Delaware, DO HEREBY CERTIFY that the following is a true and correct
extract of certain resolutions duly adopted by the Board of Directors of said
corporation on December 3, 1999, in accordance with the laws of Delaware and
the By-laws of this corporation, and that these resolutions are in full force
and effect as of the date hereof:
RESOLVED, that Section 6 of Article III of the By-laws of the Corporation
be and hereby is deleted in its entirety and replaced with the following:
SECTION 6. AUDIT AND COMPLIANCE COMMITTEE--
(a) The Audit and Compliance Committee's primary function is to assist
the Board in fulfilling its oversight responsibilities by regular review of
the Corporation's financial information, review of the systems of internal
controls regarding finance, accounting, legal compliance and ethics and by
review of the auditing, accounting and financial reporting processes in
accord with the policies that management and the Board have established.
(b) The Committee shall consist of not less than three independent
directors as generally defined under the rules of the New York Stock
Exchange and federal securities laws and regulations chosen by the full
Board of Directors. Members shall serve until their resignation or removal
by the Board. The Committee shall meet at least four times each calendar
year. The Committee shall keep regular minutes of its proceedings and
report the same to the Board of Directors when required.
RESOLVED, that Section 7 of Article III of the By-laws of the Corporation
be and hereby is deleted in its entirety and replaced with the following:
SECTION 7. COMPENSATION AND SELECTION COMMITTEE--
(a) The Compensation and Selection Committee shall review and
recommend benefit programs for executive officers of the Corporation; shall
review the succession management and development program; and approve the
executive compensation package for senior officers, including base annual
salary, annual bonus awards, long-term incentive awards, and all
<PAGE> 2
other compensation or perquisites, for all members of the senior executive
staff of the Corporation; and shall report to the full Board of Directors. The
specific duties of the Committee shall be determined by resolution of the Board
of Directors at its organization meeting.
(b) The Committee shall consist of not less than three independent
directors as generally defined under the rules of the New York Stock Exchange
and tax and federal securities laws and regulations chosen by the full Board of
Directors. Members shall serve until their resignation or removal by the Board
of Directors. The Committee shall meet at least twice each calendar year. The
Committee shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required.
RESOLVED, that Section 8 of Article III of the By-laws of the Corporation be
and hereby is deleted in its entirety and replaced with the following:
SECTION 8. NOMINATING AND BOARD GOVERNANCE COMMITTEE --
(a) The Nominating and Board Governance Committee shall review and
recommend policies and procedures to ensure that the Board is appropriately
constituted and organized to carry out its statutory and fiduciary
responsibilities; review and recommend to the Board qualified candidates for
election to the Board; and recommend programs and procedures relating to the
compensation, evaluation and terms of directors.
(b) The Committee shall consist of the Chairman or Chief Executive
Officer or President and not less than three independent (non-employee)
directors chosen by the full Board of Directors. Members shall serve until
their resignation or removal by the Board of Directors. The Committee shall
meet as often as necessary to fulfill its duties but in no event less than once
each calendar year. The Committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required.
IN WITNESS WHEREOF, I have here unto subscribed my name and affixed the seal
of said corporation at Woodland Hills, California, this 7th day of December,
1999.
/s/ JEANETTE M. THOMAS
------------------------------
[SEAL] Jeanette M. Thomas
Vice President & Secretary
<PAGE> 1
EXHIBIT 10.1
LITTON INDUSTRIES, INC.
PERFORMANCE-BASED
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT is entered into as of ________, by and between Litton
Industries, Inc., (the "Company"), and __________ (the "Participant").
WHEREAS, the Company maintains the 1984 Long-Term Stock Incentive Plan
(the "Plan"), which is incorporated into and forms a part of this Agreement, and
the Participant has been selected by the Compensation and Selection Committee of
the Board of Directors of the Company (the "Committee") to receive a
Performance-Based Restricted Stock Award ("Award");
WHEREAS, the Award shall be subject to the terms and conditions set
forth below and shall be contingent upon the satisfaction of certain performance
measures and continued employment with the Company by the Participant; and
WHEREAS, in consideration of the Award and other benefits, the
Participant is willing to accept the Award provided in this Agreement and is
willing to abide by the obligations imposed under this Agreement;
NOW, THEREFORE, in consideration of the mutual benefits hereinafter
provided, and each intending to be legally bound, the Company and the
Participant hereby agree as follows:
1. EFFECT OF THE AGREEMENT.
The Award shall be subject to the terms and conditions set forth
in this Agreement. The Participant shall abide by, and the Award shall be
subject to, all of the provisions of this Agreement.
2. AWARD.
2.1 NUMBER.
The Company hereby grants to the Participant the right to
receive up to a total of ______ shares of Stock (the "Restricted Stock"). Unless
and until the restrictions lapse, the Restricted Stock granted under this
Agreement shall be identified as units reflected in a book account maintained by
the Company during the Performance Period
-1-
<PAGE> 2
(as described below). This Restricted Stock Award is made as of the date first
set forth above, (the "Grant Date").
2.2 SETTLEMENT OF AWARDS.
The Company shall deliver to the Participant one share of common
stock, par value $1, of the Company ("Stock") for each share of Restricted Stock
no longer subject to the restrictions set forth in this Agreement.
3. VESTING OF RESTRICTED STOCK.
3.1 VESTING REQUIREMENTS.
Except as otherwise provided in this Agreement, all of the
Restricted Stock granted hereby shall be forfeited by the Participant upon the
termination of Service (as defined below) at any time. The Participant shall
have no rights with respect to any of the Restricted Stock that has been
forfeited, including, without limitation, any right to vote or to receive
dividends, if any. Any or all of the Restricted Stock may become free of this
risk of forfeiture by "vesting" in accordance of this Agreement. Except in the
case of death, disability, retirement, or a Change of Control of Company, all
units of Restricted Stock shall vest on the third anniversary of the Award Date
provided that the Participant is in Service of the Company on each such date and
provided the Company meets the Performance Requirements contained in Exhibit 1.
"Service" means the Participant's employment with the Company or a subsidiary of
the Company.
3.2 PERFORMANCE PERIOD.
The period during which the Restricted Stock is subject to
forfeiture is the Performance Period. During the Period and prior to the
satisfaction of any other restrictions prescribed under this Agreement, the
Participant may not sell, transfer, assign, pledge or otherwise encumber or
dispose of the Restricted Stock.
3.3 DELIVERY OF STOCK AND PAYMENT THEREFOR.
Upon the expiration of the Performance Period, the restrictions
applicable to such Restricted Stock shall lapse, and a stock certificate
representing a number of shares of the Company's Common Stock, par value $1
("stock"), equal to the number of shares of Restricted Stock for which the
restrictions have lapsed shall be delivered, subject to Section 7.2 below, free
of all the restrictions, to the Participant or his or her beneficiary or estate,
as the case may be.
3.4 DEATH, DISABILITY, OR RETIREMENT.
If the Participant either dies, is permanently and totally
disabled, or retires before the end of the Performance Period, provided the
Participant was in the Service of the Company or a subsidiary of the company at
the time of his death, disability, or
-2-
<PAGE> 3
retirement, the Restricted Stock shall vest at the discretion of the Committee
on a pro rata basis and shall be deliverable pursuant to Section 3.3 above to
the executors, administrators, legatees or distributees of the Participant's
estate at the completion of the Performance Period. For purpose of this
Agreement, "permanent and total disability" shall be determined under the
Company's long-term disability plan.
3.5 VESTING IN THE EVENT OF A CHANGE IN CONTROL OF THE COMPANY.
Notwithstanding any other provision of the Agreement to the
contrary, in the event of a Change in Control any Restricted Stock outstanding
as of the date such Change in Control is determined to have occurred shall
become fully vested.
For purposes hereof, a "Change in Control" shall mean the
happening of any of the following events:
(i) An acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d) of the Securities Exchange Act of 1934
as amended from time to time, and any successor thereto,[the "Exchange Act"]) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either (1) the then outstanding shares
of the Company Common Stock (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities of the Company,
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following acquisitions of
Outstanding Company Common Stock and Outstanding Company Voting Securities: (1)
any acquisition directly from the Company, (2) any acquisition by the Company,
(3) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (4)
any acquisition by any Person pursuant to a transaction which complies with
clauses (1), (2) and (3) of subsection (iii) hereof; or
(ii) Individuals who, as of the date hereof constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individuals who becomes a member of
the Board subsequent to such effective date, whose election, or nomination for
election by the shareholders, was approved by a vote of at least a majority of
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; but, provided further, that any
such individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board shall not be so considered as a member of the Incumbent Board; or
(iii) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of its
assets ("Business Combination"); excluding, however, such a Business Combination
pursuant to which (1) all or substantially all of the individuals and entities
who are the beneficial owners,
-3-
<PAGE> 4
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination own, directly
or indirectly, more than 60% of, respectively, the outstanding shares of common
stock, and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company, or all or substantially all of its assets either directly or indirectly
or through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (2) no person (other than any employee benefit plan (or related
trust) sponsored or maintained by the Company or such corporation resulting from
such Business Combination) will beneficially own, directly or indirectly, 30% or
more of, respectively, the outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
outstanding voting securities of such corporation entitled to vote generally in
the election of directors except to the extent that such ownership existed with
respect to the Company, prior to the Business Combination and (3) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) The approval of the shareholders thereof of a complete
liquidation or dissolution of the Company.
3.6. TERMINATION OF SERVICE DURING PERFORMANCE PERIOD.
If the Participant's Service with the Company or its subsidiary
terminates during the Performance Period for any reason other than the
Participant's disability, death, or retirement, the Restricted Stock granted
under this Agreement will be forfeited on the date of such termination of
employment; provided, however, that in such circumstances, the Committee, in its
discretion, may determine that the Participant will be entitled to receive a
prorated or other portion of the Restricted Stock.
4. DIVIDEND AND VOTING RIGHTS.
Subject to the following provisions, the Participant shall not
have the right to vote the Restricted Stock and to receive any dividends
declared or paid thereon.
5. REORGANIZATION.
Restricted Stock will be subject to the same adjustment, if any,
accorded to all other outstanding shares of Stock in the event of (i) any change
in the total number of shares of Stock of the Company outstanding or the number
or kind of securities into which shares have been changed, (ii) any
reorganization or change in the Company's
-4-
<PAGE> 5
capital structure, or (iii) any other transaction or event having an effect
similar to the foregoing.
6. REQUIREMENTS OF LAW.
Notwithstanding any other provision of this Agreement, the
Company shall not be required to deliver any shares of Stock under this
Agreement if the delivery of the shares would constitute a violation by the
Participant or by the Company of any provision of any law or regulation of any
governmental authority, including, without limitation, any federal or state
securities laws or regulations. Notwithstanding any other provisions of this
Agreement, if at any time the Company shall determine, in its sole discretion,
that the listing, registration or qualification of any shares of Stock subject
to this Agreement upon any securities exchange or under any state or federal
law, or the consent or approval of any government regulatory body, is necessary
or desirable as a condition of, or in connection with, the deliver of shares of
Stock hereunder, the Restricted Stock shall not vest in whole or in part unless
the listing, registration, qualification, consent or approval has been effected
or obtained free of any conditions not acceptable to the Company. Specifically
in connection with the Securities Act of 1933 (as now in effect or as hereafter
amended) (the "Act"), unless a registration statement under the Act is in effect
with respect to the shares of Stock covered by this Agreement, the Company shall
not be required to deliver the shares of Stock unless the Company has received
evidence satisfactory to it that the Participant may acquire the shares of Stock
pursuant to an exemption from registration under the Act. These determinations
by the Company shall be final, binding and conclusive. Notwithstanding any other
provision of this Agreement, as to any jurisdiction that expressly imposes the
requirement that the Restricted Stock shall not vest unless and until registered
or subject to an available exemption from registration, the vesting of the
Restricted Stock (under circumstances in which the laws of the jurisdiction
apply) shall be deemed conditional upon the effectiveness of the registration or
the availability of the exemption.
7. TAXES.
7.1 TAX CONSEQUENCES.
The Participant understands that the Participant (and not the
Company) shall be responsible for any federal, state, local or foreign tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Participant is relying solely on the determination of the
Participant's own tax advisors or own determinations, and not on any statements
or representations of the Company or any of its agents with regard to all such
tax matters.
7.2 WITHHOLDING.
The Company shall have the right to deduct from payments of any
kind otherwise due to the Participant any federal, state, or local taxes of any
kind required by law to be withheld with respect to the vesting of or other,
lapse of restrictions applicable
-5-
<PAGE> 6
to Restricted Stock. At the time of the vesting or lapse, the Participant shall
pay to the Company any amount that the Company may reasonably determine to be
necessary to satisfy the legal withholding obligation. Subject to prior approval
of the Company, the Participant may elect to satisfy these obligations, in whole
or in part, (i) by causing the Company to withhold shares of Stock otherwise
deliverable or (ii) by delivering to the Company, shares of Stock already owned
by the Participant. The shares of Stock so delivered or withheld shall have a
fair market value equal to the withholding obligations. The fair market value of
the shares of Stock used to satisfy the withholding obligation shall be
determined by the Company as of the date that the amount of tax to be withheld
is to be determined based on the average between the high and low trading price
for the Stock on such date. If the Participant makes an election pursuant to
this Section 7.2, the Participant may satisfy the tax withholding obligation
only with shares of Stock that are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
8. DISCLAIMER OF RIGHTS.
No provision in this Agreement shall be construed (i) to confer
upon the Participant the right to remain in the Service of the Company or any
subsidiary or affiliate of the Company or (ii) to interfere in any way with the
right and authority of the Company, either to increase or decrease the
compensation of the Participant at any time or to terminate any employment,
service or other relationship with the Participant.
9. HEIRS AND SUCCESSORS.
This Agreement shall be binding upon, and inure to the benefit
of, the Company and its successors and assigns, and upon any person acquiring,
whether by merger, consolidation, purchase of assets or otherwise, all or
substantially all of the Company's assets and business. If any rights of the
Participant or benefits distributable to the Participant under this Agreement
have not been exercised or distributed, respectively, at the time of the
Participant's death, such rights shall be exercisable by the Designated
Beneficiary, and such benefits shall be distributed to the Designated
Beneficiary, in accordance with the provisions of this Agreement and the Plan.
The "Designated Beneficiary" shall be the beneficiary or beneficiaries
designated by the Participant in a writing filed with the Committee in such form
and at such time as the Committee shall require. If a deceased Participant fails
to designate a beneficiary, or if the Designated Beneficiary does not survive
the Participant, any rights that would have been exercisable by the Participant
and any benefits distributable to the Participant shall be exercised by or
distributed to the legal representative of the estate of the Participant. If a
deceased Participant designates a beneficiary but the Designated Beneficiary
dies before the Designated Beneficiary's exercise of all rights under this
Agreement or before the complete distribution of benefits to the Designated
Beneficiary under this Agreement, then any rights that would have been
exercisable by the Designated Beneficiary shall be exercised by the legal
representative of the estate of the Designated Beneficiary, and any benefits
distributable to the Designated Beneficiary shall be distributed to the legal
representative of the estate of the Designated Beneficiary.
-6-
<PAGE> 7
10. ADMINISTRATION.
The authority to manage and control the operation and
administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of the Agreement by the Committee and
any decision made by it with respect to the Agreement is final and binding.
11. PLAN GOVERNS.
Notwithstanding anything in this Agreement to the contrary, the
terms of this Agreement shall be subject to the terms of the Plan, a copy of
which may be obtained by the Participant from the office of the Secretary of the
Company.
12. AMENDMENT.
This Agreement may be amended by written Agreement of the
Participant and the Company, without the consent of any other person.
13. INTERPRETATION OF THIS AGREEMENT.
All determinations, decisions and interpretations made by the
Board with regard to any questions or matter arising under this Agreement or the
Plan shall be final, binding and conclusive on the Company and the Participant.
14. GOVERNING LAW.
This Agreement is executed pursuant to and shall be governed by
the laws of Delaware (but not including the choice of law rules thereof).
15. SEVERABILITY.
If any provision of this Agreement is determined to be illegal
or unenforceable by any court of law in any jurisdiction, the remaining
provisions shall be severable and enforceable in accordance with their terms,
and all provisions shall remain enforceable in any other jurisdiction.
16. NO WAIVER.
The failure or delay of the Company (whether on one or more
occasions) to enforce any of the provisions of this Agreement or to exercise any
right or privilege hereunder (including, without limitation, any right arising
from a breach or default by the Participant) shall not be a waiver of the
provision, right or privilege, either as to the
-7-
<PAGE> 8
specific instance(s) of the failure or delay of its enforcement or exercise or
as to its future enforcement or exercise.
17. ENTIRE AGREEMENT.
This Agreement and all determinations, decisions, actions and
interpretations of the Board pursuant hereto, constitutes the entire agreement
between the parties hereto with respect to the Award, and it supersedes all
prior oral or written agreements, commitments or understandings.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
LITTON INDUSTRIES, INC.
By:
---------------------------------
Jeanette M. Thomas
Vice President and
Secretary
---------------------------------
Participant
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1999 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 68,452
<SECURITIES> 0
<RECEIVABLES> 871,043
<ALLOWANCES> 0
<INVENTORY> 762,674
<CURRENT-ASSETS> 2,170,520
<PP&E> 1,771,889
<DEPRECIATION> 958,855
<TOTAL-ASSETS> 4,936,748
<CURRENT-LIABILITIES> 1,924,225
<BONDS> 1,300,351
0
2,053
<COMMON> 45,553
<OTHER-SE> 1,303,807
<TOTAL-LIABILITY-AND-EQUITY> 4,936,748
<SALES> 1,370,790
<TOTAL-REVENUES> 1,370,790
<CGS> 1,082,237
<TOTAL-COSTS> 1,082,237
<OTHER-EXPENSES> 46,996
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,531
<INCOME-PRETAX> 89,427
<INCOME-TAX> 36,665
<INCOME-CONTINUING> 52,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,777)
<NET-INCOME> 49,985
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.07
</TABLE>
