<PAGE>   1
 
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1998
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
(MARK ONE)
     [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
 
                    FOR THE FISCAL YEAR ENDED JULY 31, 1998
 
                                       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
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                              NAME OF EACH EXCHANGE ON
          TITLE OF EACH CLASS                                     WHICH REGISTERED
          -------------------                                 ------------------------
<S>                                                      <C>
Common Stock, par value $1 per share                     New York Stock Exchange
                                                         Pacific Exchange, Inc.
Series B $2 Cumulative Preferred Stock,                  New York Stock Exchange
  par value $5 per share                                 Pacific Exchange, Inc.
</TABLE>
 
                            ------------------------
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
 
     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 [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
 
     On September 30, 1998 the aggregate market value of the Registrant's voting
stock held by non-affiliates was $2.678 billion.
 
     On September 30, 1998 there were 45,455,777 shares of Common Stock
outstanding, exclusive of treasury shares or shares held by subsidiaries of the
Registrant.
 
     Part III incorporates information by reference from the definitive Proxy
Statement in connection with the Registrant's Annual Meeting of Shareholders to
be held on December 3, 1998.
 
================================================================================
<PAGE>   2
 
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                             INDEX TO ANNUAL REPORT
 
                                  ON FORM 10-K
 
<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>            <C>                                                           <C>
PART I

  Item  1:     Business....................................................     1
  Item  2:     Properties..................................................     4
  Item  3:     Legal Proceedings...........................................     4
  Item  4:     Submission of Matters to a Vote of Security Holders.........     5

PART II
 
  Item  5:     Market for the Registrant's Common Equity and Related
                 Stockholder Matters.......................................     6
  Item  6:     Selected Financial Data.....................................     6
  Item  7:     Management's Discussion and Analysis of Financial Condition
               and Results of Operations...................................     6
  Item 7a:     Quantitative and Qualitative Disclosures About Market
                 Risk......................................................     6
  Item  8:     Financial Statements and Supplementary Data.................     6
  Item  9:     Disagreements on Accounting and Financial Disclosure........     6

PART III
 
  Item 10:     Directors and Executive Officers of the Registrant..........    13
  Item 11:     Executive Compensation......................................    14
  Item 12:     Security Ownership of Certain Beneficial Owners and
                 Management................................................    14
  Item 13:     Certain Relationships and Related Transactions..............    14

PART IV
 
  Item 14:     Exhibits, Financial Statement Schedules and Reports on Form
                 8-K.......................................................    15

Signatures.................................................................    17
</TABLE>
<PAGE>   3
 
                                     PART I
 
ITEM 1. BUSINESS
 
     Litton Industries, Inc. (hereafter together with its consolidated
subsidiaries referred to as the "Company" or "Litton" unless the context
otherwise indicates) is a high-technology electronics company which provides
advanced electronic, defense, marine and technology-based information systems
and products to military, non-defense governmental, civil and commercial
customers. In addition, the Company is a primary builder of large multimission
surface combatant ships and a provider of overhaul, repair, modernization,
design and engineering services, primarily for the U.S. Navy. Litton is also an
international supplier of connectors, multilayer circuit boards, solder
materials, laser crystals and other electronic components used primarily in the
telecommunications, industrial and computer markets. The Company was founded in
California in 1953 and has evolved into a major international organization with
approximately 34,900 employees at more than 26 divisions and seven countries.
 
     The Company's businesses are reported in four business segments: Advanced
Electronics, Information Systems, Marine Engineering and Production, and
Electronic Components and Materials. Information about the Company's business
segments appears on pages F-20 and F-21 of this Annual Report on Form 10-K. This
information includes sales and service revenues, operating profit and
identifiable assets for each of the three years ended July 31, 1998. Effective
August 1, 1997, Information Systems, previously reported with the Advanced
Electronics segment, has been reported as a separate segment. Accordingly, the
segment information for prior periods presented herein has been restated to
reflect this change.
 
  Advanced Electronics
 
     The Advanced Electronics segment is a major supplier and integrator of
electronic systems and related services to the U.S. and international military
and commercial markets. The principal businesses comprising the Advanced
Electronics segment are navigation, guidance and control systems, marine
electronics and electronic warfare systems. The primary products include
inertial navigation systems, IFF (identification friend or foe) systems, marine
bridge, steering and machinery control systems, displays, computers, laser range
finders and target designators, threat warning and electro-optical systems,
microwave tubes and military air traffic control systems. The Company also
provides and integrates shipboard engineering, information and communications
control systems and avionics systems.
 
     Sales backlog for the Advanced Electronics segment was $1.463 billion and
$1.612 billion at July 31, 1998 and 1997. Of the backlog at July 31, 1998, $303
million is expected to be realized as sales in years after fiscal year 1999 and
$960 million is related to worldwide defense contract backlog.
 
     Approximately 48% of the Advanced Electronics segment's revenues in fiscal
year 1998 were derived from sales to the U.S. Government.
 
  Information Systems
 
     The Information Systems segment is a leading supplier of information
systems, technology and related services to the U.S. Government (for both
defense and non-defense applications), as well as state, local and commercial
customers. In addition to systems integration and networking solutions, this
segment supplies tactical command, control and communication systems to military
customers and provides systems and related services and support to other
non-defense governmental and commercial customers. The acquisition of TASC, Inc.
("TASC") in April 1998 provides access to the national intelligence sector and
enhanced the Company's opportunities in the expanding C(4)ISR markets (command,
control, communications, computer, intelligence, surveillance and
reconnaissance).
 
     Firm backlog for the Information Systems segment was $877.7 million and
$518.1 million at July 31, 1998 and 1997. Of the backlog at July 31, 1998, $299
million is expected to be realized as sales in years after fiscal year 1999 and
$434 million is related to defense contract backlog. In addition, PRC Inc.
("PRC", a
 
                                        1
<PAGE>   4
 
subsidiary of the Company) and TASC had unfunded backlog with potential future
contract values totaling approximately $1.8 billion at July 31, 1998 compared
with $1.5 billion for PRC at July 31, 1997.
 
     Approximately 86% of the revenues for the Information Systems segment in
fiscal year 1998 were derived from sales to the U.S. Government.
 
  Marine Engineering and Production
 
     The Marine Engineering and Production 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 primarily for the
U.S. Navy. Since 1975, the Company has delivered a total of 76 new destroyers,
cruisers and amphibious assault ships to the U.S. Navy. The Company is also
exploring opportunities in commercial vessels, offshore drilling rigs and
production platforms and has been under contract to build multiple offshore
supply vessels for a company engaged in marine supply services.
 
     Sales backlog for the Marine Engineering and Production segment was $3.472
billion and $3.231 billion at July 31, 1998 and 1997, respectively. Of the
backlog at July 31, 1998, approximately $2.407 billion is expected to be
realized as sales in years after fiscal 1999.
 
     Approximately 97% of the revenues for the Marine Engineering and Production
segment in fiscal year 1998 were derived from sales to the U.S. Government.
 
  Electronic Components and Materials
 
     The Electronic Components and Materials segment designs and manufactures
backpanel assemblies, printed circuit boards, specialty motors, slip rings and
signal, power and fiber optic connectors and produces soldering materials, laser
crystals, gallium arsenide substrates and microwave components for primarily
commercial markets worldwide.
 
     Sales backlog for the Electronic Components and Materials segment was
$228.7 million and $164.6 million at July 31, 1998 and 1997, respectively.
Substantially all of the backlog at July 31, 1998 is expected to be realized in
sales in the next fiscal year.
 
  Methods of Distribution
 
     The Company principally markets its products and services throughout the
world through the home offices and branch offices of its various operations. In
general, each of the Company's operations is responsible for selecting,
implementing and maintaining an efficient and effective marketing program.
 
  Raw Materials
 
     The Company uses a wide variety of raw materials in the manufacture of its
many products. The availability of any individual raw material is not critical
to the Company's operations.
 
  Patents
 
     The Company owns a large number of patents, trademarks and copyrights
relating to its manufactured products, which have been obtained over a period of
years. The Company considers these patents, trademarks and copyrights, in the
aggregate, to be valuable to its operations. However, the Company does not
believe that the conduct of its businesses, as a whole, is materially dependent
upon any single patent, trademark or copyright.
 
  Competition
 
     Competition exists with respect to all products manufactured and services
rendered by the Company, particularly with respect to the defense related
businesses. Competition ranges from companies which produce a single product or
offer a single service to some of the world's largest corporations. The Company
is continuing to enhance its competitive position by developing new applications
for its technologies as well as
                                        2
<PAGE>   5
 
pursuing commercial opportunities and developing strategic alliances.
Additionally, recent acquisitions have provided the Company access to
non-defense markets, including the systems integration market, that offer growth
opportunities.
 
  U.S. Government Contracts
 
     Approximately 66% of the Company's total sales and service revenues for
fiscal year 1998 were from U.S. Government contracts and subcontracts.
Approximately 70% of these revenues related to fixed-price type contracts. As is
common with U.S. Government contracts, the Company's U.S. defense contracts are
unilaterally terminable at the option of the U.S. Government with compensation
for work completed and costs incurred. Contracts with the U.S. Government are
subject to certain laws and regulations, the noncompliance with which may result
in various sanctions. In the current government contracting environment,
contractors, sometimes without their knowledge, are subject to investigations by
the U.S. Government initiated in various ways. Most investigations result in no
action being taken or administrative resolution. Litton is aware of ongoing
investigations and is cooperating in those investigations. Should any
investigation result in the filing of formal charges against the Company by the
U.S. Government, disclosure will be made if the amount involved or the relief
sought is deemed by the Company to be material.
 
  Research and Development
 
     Worldwide expenditures on research and development activities amounted to
$233.8 million, $241.8 million and $217.0 million, of which approximately 33%,
29% and 30% was Company-sponsored in the years ended July 31, 1998, 1997 and
1996, respectively. In fiscal 1998, the Advanced Electronics segment accounted
for 61%, of the total research and development expenditures.
 
  Environmental Protection
 
     During the fiscal year ended July 31, 1998, the amounts incurred to comply
with federal, state and local regulations pertaining to environmental standards
did not have a material effect upon the capital expenditures or earnings of the
Company. For additional information with respect to environmental matters, see
Items 3, 7, and 8 of this Annual Report on Form 10-K.
 
  Number of Employees
 
     At July 31, 1998, the Company had approximately 34,900 full-time employees.
Employment by business segment was as follows:
 
<TABLE>
     <S>                                                           <C>
     Marine Engineering and Production...........................  10,800
     Advanced Electronics........................................  10,600
     Information Systems.........................................   9,300
     Electronic Components and Materials.........................   4,200
                                                                   ------
                                                                   34,900
                                                                   ======
</TABLE>
 
  Financial Information by Geographic Area
 
     See Operations by Geographic Area on pages F-20 and F-21 of this Annual
Report on Form 10-K.
 
  Forward-Looking Statements
 
     Except for the historical information, this Annual Report on Form 10-K
contains forward-looking statements, which involve risks and uncertainties,
including but not limited to economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices, and other factors discussed herein. As a supplier of
services and defense products to the United States, estimates or projections
particularly can be affected by government budgets and stability of
international relations.
 
                                        3
<PAGE>   6
 
ITEM 2. PROPERTIES
 
     The Company's principal plants and offices have an aggregate floor area of
approximately 8,718,000 square feet, of which 7,642,000 square feet (87.7%) are
located in the United States, and 1,076,000 square feet (12.3%) are located
outside of the United States, primarily in Canada and Western Europe. The
Company's executive offices, in owned premises, are at 21240 Burbank Boulevard,
Woodland Hills, California.
 
     These properties are used by the various business segments as follows:
 
<TABLE>
<CAPTION>
                                                                   SQUARE FEET
                                                                   -----------
     <S>                                                           <C>
     Advanced Electronics........................................   3,574,000
     Marine Engineering and Production...........................   1,891,000
     Information Systems.........................................   1,850,000
     Electronic Components and Materials.........................   1,297,000
     Corporate...................................................     106,000
                                                                    ---------
                                                                    8,718,000
                                                                    =========
</TABLE>
 
     Approximately 6,236,000 square feet (71.5%) of the principal plant, office
and commercial floor area is owned by the Company, and the balance is held under
lease.
 
     The Company's principal plants and offices in the United States are
situated in 35 locations in 18 states as follows:
 
<TABLE>
<CAPTION>
     STATE                                                        SQUARE FEET
     -----                                                        -----------
     <S>                                                           <C>
     California..................................................   2,131,000
     Mississippi.................................................   1,946,000
     Virginia....................................................   1,373,000
     Pennsylvania................................................     236,000
     Utah........................................................     216,000
     Iowa........................................................     203,000
     Other states................................................   1,537,000
                                                                    ---------
                                                                    7,642,000
                                                                    =========
</TABLE>
 
     The above-mentioned facilities are in satisfactory condition and suitable
for the particular purposes for which they were acquired or constructed and are
adequate for present operations.
 
     The foregoing information excludes Company held properties leased to others
and also excludes plants or offices which, when added to all other Company
plants and offices in the same city, have a total floor area of less than 50,000
square feet.
 
ITEM 3. LEGAL PROCEEDINGS
 
     (a) Litton is suing Honeywell, Inc. ("Honeywell") for patent infringement
relating to the manufacture of ring laser gyro navigation systems which are used
in commercial aircraft. After trial of that case in the U.S. District Court for
the Central District of California, on August 31, 1993, the jury rendered a
verdict in favor of Litton in the amount of $1.2 billion. On January 9, 1995,
the District Court released a Memorandum of Decision finding Litton's patent
invalid and rejecting the jury verdict. Litton appealed to the U.S. Court of
Appeals for the Federal Circuit. On July 3, 1996, the Court of Appeals rendered
a decision reversing the District Court's decision, finding the patent valid and
infringed by Honeywell. The Court of Appeals reinstated the jury's verdict on
liability including the findings of interference with contract and prospective
business advantage and ordered a new trial on the amount of damages sustained by
Litton in the District Court. On March 17, 1997, the U.S. Supreme Court vacated
the Court of Appeals ruling and remanded the case to the Court of Appeals for
further consideration in view of the Supreme Court's decision in Warner-Jenkins
Co. v. Hilton Davis Chemical Co. On April 7, 1998, the Court of Appeals
reinstated its finding that the patent was
 
                                        4
<PAGE>   7
 
valid and ordered a new trial on both liability and damages for the patent and
interference with contract and prospective business advantage claims. The
Company has requested a trial date in December of 1998.
 
     Litton is also suing Honeywell on antitrust grounds in the same U.S.
District Court. On February 29, 1996, a jury rendered a verdict in favor of
Litton. On July 25, 1996, the District Court upheld the jury's verdict that
Honeywell attempted to illegally monopolize and did monopolize the market for
inertial reference systems for large commercial air transport, commuter and
business aircraft. However, the District Court declined to enter the $234
million jury verdict on the basis that Litton's damage study as presented failed
to disaggregate damages between illegal and legal acts. A new trial limited to
the issue of the amount of damages sustained by Litton attributable to
Honeywell's unlawful conduct has been ordered by the District Court. The
District Court set a trial date of October 28, 1998.
 
     (b) The Company and certain of its divisions or subsidiaries have been
named as potentially responsible parties by the United States Environmental
Protection Agency, various state environmental agencies, and other potentially
responsible parties for costs associated with cleanup of a number of sites to
which they may have contributed wastes. Also, the Company and certain of its
divisions and subsidiaries have incurred costs, which have not had a material
impact on the Company's consolidated financial statements in any one year, for
cleaning up a number of sites, presently or formerly owned or leased by the
Company (or by subsidiaries or divisions thereof). In addition, the Company and
certain of its divisions or subsidiaries have been named as defendants in
certain lawsuits for personal injuries and property damage allegedly resulting
from environmental contamination.
 
     At this time, the Company believes that its ultimate liability for
additional expenditures associated with these matters will not materially
adversely affect its consolidated financial statements.
 
     There are various other litigation proceedings in which the Company is
involved. Although the results of litigation proceedings cannot be predicted
with certainty, it is the opinion of the General Counsel that the ultimate
resolution of these other proceedings will not have a material adverse effect on
the Company's financial statements.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended July 31, 1998.
 
                                        5
<PAGE>   8
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS
 
     See the information with respect to the market for and number of holders of
the Company's Common stock and quarterly market information which is set forth
on page F-22 and dividend information which is set forth on page F-13 of this
Annual Report on Form 10-K. The number of holders of record of the Company's
Common stock was computed by a count of record holders on September 30, 1998.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     See the information with respect to selected financial data on pages 7 and
8 of this Annual Report on Form 10-K.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     See the information under the caption "Financial Review and Analysis" on
pages 9 through 12 of this Annual Report on Form 10-K.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     See the information under the caption "Financial Review and Analysis" on
page 11 of this Annual Report on Form 10-K.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
Management's Responsibility for Financial Reporting.....................  F-1
Independent Auditors' Report............................................  F-2
Consolidated Statements of Operations...................................  F-3
Consolidated Balance Sheets.............................................  F-4
Consolidated Statements of Shareholders' Investment.....................  F-5
Consolidated Statements of Cash Flows...................................  F-6
Notes to Consolidated Financial Statements..............................  F-7
Quarterly Financial Information (unaudited).............................  F-22
</TABLE>
 
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                        6
<PAGE>   9
 
ITEM 6. SELECTED FINANCIAL DATA
 
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                        SUMMARY OF FINANCIAL INFORMATION
             (DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED JULY 31
                                             ----------------------------------------------------
                                               1998       1997       1996       1995       1994
                                             --------   --------   --------   --------   --------
<S>                                          <C>        <C>        <C>        <C>        <C>
Operating Results
  Sales and Service Revenues...............  $4,399.9   $4,175.5   $3,611.5   $3,319.7   $3,446.1
  Segment Operating Profit.................     410.0      369.6      320.1      280.5      181.4
  Earnings (Loss) before Extraordinary Item
     Continuing Operations.................  $  181.4   $  162.0   $  150.9   $  135.0   $   51.3
     Discontinued Operations...............        --         --         --         --     (173.1)
  Extraordinary Loss.......................        --         --         --         --      (30.7)
                                             --------   --------   --------   --------   --------
  Net Earnings (Loss)......................  $  181.4   $  162.0   $  150.9   $  135.0   $ (152.5)
                                             ========   ========   ========   ========   ========
  Sales to the U.S. Government as a Percent
     of Total Sales........................        66%        67%        71%        73%        73%
Financial Position at Year End
  Total Assets.............................  $4,049.8   $3,519.7   $3,431.4   $2,559.6   $2,254.3
  Shareholders' Investment.................   1,187.2    1,039.0      917.3      758.1      610.4
  Long-term Obligations....................     771.3      507.3      514.5      103.6      105.6
  Working Capital..........................     162.6      121.2       68.8      130.1       36.9
  Current Ratio............................      1.09       1.07       1.04       1.10       1.03
Common Share Data
Earnings (Loss) per Share:
Basic
  Earnings (Loss) before Extraordinary Item
     Continuing Operations.................  $   3.91   $   3.48   $   3.24   $   2.92   $   1.10
     Discontinued Operations...............        --         --         --         --      (3.79)
  Extraordinary Loss.......................        --         --         --         --      (0.67)
                                             --------   --------   --------   --------   --------
          Total Basic......................  $   3.91   $   3.48   $   3.24   $   2.92   $  (3.36)
                                             ========   ========   ========   ========   ========
Diluted
  Earnings (Loss) before Extraordinary Item
     Continuing Operations.................  $   3.82   $   3.40   $   3.15   $   2.84   $   1.08
     Discontinued Operations...............        --         --         --         --      (3.70)
  Extraordinary Loss.......................        --         --         --         --      (0.66)
                                             --------   --------   --------   --------   --------
          Total Diluted....................  $   3.82   $   3.40   $   3.15   $   2.84   $  (3.28)
                                             ========   ========   ========   ========   ========
 
See Notes on page 8.
</TABLE>
 
                                        7
<PAGE>   10
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                  SUMMARY OF FINANCIAL INFORMATION (CONTINUED)
                          (DOLLAR AMOUNTS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED JULY 31
                                             ----------------------------------------------------
                                               1998       1997       1996       1995       1994
                                             --------   --------   --------   --------   --------
<S>                                          <C>        <C>        <C>        <C>        <C>
Book Value per Share at Year End...........     25.71      22.37      19.48      16.19      13.07
Common Shares Outstanding at Year End (in
  millions)................................      45.8       46.0       46.6       46.2       45.9
Shares Used to Compute Basic Earnings
  (Loss) per Share (in millions)...........      46.1       46.3       46.3       46.0       45.7
Shares Used to Compute Diluted Earnings
  (Loss) per Share (in millions)...........      47.3       47.4       47.6       47.2       46.8
Other Selected Financial Information
  Capital Expenditures.....................  $  115.7   $  113.1   $   91.0   $   98.3   $   80.6
  Depreciation and Amortization Expense....     147.6      137.5      113.8       95.4       98.4
  Research and Development Expenditures....     233.8      241.8      217.0      227.1      220.1
  Backlog at Year End*.....................   6,041.5    5,525.5    5,666.9    5,137.8    5,466.6
  Number of Employees at Year End..........    34,900     31,500     33,500     29,100     29,000
</TABLE>
 
---------------
* In addition, the Company's PRC Inc. and TASC, Inc. (acquired in fiscal year
  1998) subsidiaries had unfunded backlog with potential contract values
  totaling approximately $1.8 billion, $1.5 billion and $1 billion for fiscal
  years 1998, 1997 and 1996, respectively.
 
NOTES:
 
(A) Financial information for fiscal year 1994 included the results of Western
    Atlas Inc. ("WAI"), a former subsidiary of Litton. The shares of common
    stock of WAI were distributed to holders of Litton Common stock in the form
    of a dividend on March 17, 1994. The accounts of WAI have been segregated
    and reflected as discontinued operations. Results for fiscal year 1994 also
    included the settlement of a civil suit and extraordinary loss on early
    extinguishment of debt.
 
(B) During the five year period ended July 31, 1998, the Company declared no
    cash dividends on its Common stock. In 1994, the Company distributed all of
    the issued and outstanding shares of common stock of its previously
    wholly-owned subsidiary, WAI, in the form of a dividend to holders of Litton
    Common stock.
 
                                        8
<PAGE>   11
 
ITEM 7. FINANCIAL REVIEW AND ANALYSIS
 
     The Company is a high-technology electronics company which provides
advanced electronic, defense, marine and technology-based information systems
and products to military, non-defense governmental, civil and commercial
customers. In addition, the Company is a primary builder of large multimission
surface combatant ships and a provider of overhaul, repair, modernization,
design and engineering services, primarily for the U.S. Navy. Litton is also an
international supplier of connectors, multilayer circuit boards, solder
materials, laser crystals and other electronic components used primarily in the
telecommunications, industrial and computer markets.
 
     Effective August 1, 1997, the Information Systems businesses have been
reported as a separate segment. Accordingly, the segment information relating to
prior fiscal years discussed herein has been restated to reflect this change.
 
     Segment information can be found on pages F-20 and F-21.
 
  Fiscal Year 1998 Compared To 1997
 
     The Company reported sales and operating profit of $4.40 billion and $410.0
million for fiscal year 1998 compared with $4.18 billion and $369.6 million,
respectively, for fiscal year 1997. Operating margins improved for the Advanced
Electronics, Marine Engineering and Production and Electronic Components and
Materials segments. Net earnings and earnings per share rose 12% to $181.4
million and $3.82, respectively, compared with $162.0 million and $3.40,
respectively, for the prior fiscal year.
 
     The Advanced Electronics segment reported sales and operating profit of
$1.59 billion and $110.6 million for fiscal year 1998 compared with $1.53
billion and $96.5 million, respectively, for the fiscal year 1997. The
improvements in sales and operating profit for the current fiscal year were
primarily attributable to higher volume on programs in the integrated avionics
systems and radar warning systems businesses and the acquisition of Racal Marine
Group("Decca") in February 1997. Operating profit also benefited from reduced
program costs in certain defense electronics programs. Backlog for this segment
at July 31, 1998 was $1.46 billion compared with $1.61 billion at July 31, 1997.
 
     The Information Systems segment reported sales and operating profit of
$1.24 billion and $70.4 million for fiscal year 1998 compared with $1.08 billion
and $74.9 million for fiscal year 1997. The increase in sales was mainly due to
the acquisitions of TASC in April 1998, as described in Note B, and SAI
Technology ("SAIT") in March 1997. TASC provides a broad spectrum of
technology-based information services and products to the national intelligence
sector, the U.S. Department of Defense and to non-defense government and
commercial customers. The increase in sales from these acquisitions was offset
by lower than expected volume under the PRC Inc. subsidiary's Super-Minicomputer
contract with various U.S. Government agencies to provide computer systems
integration and networking solutions. Operating profit was also impacted by an
increasingly competitive federal procurement environment and by investments in
new programs and technology made to address new market opportunities associated
with software used in mobile command and control systems and displays and
computer products. Firm backlog at July 31, 1998 for the Information Systems
segment increased to $877.7 million from $518.1 million at July 31, 1997 due
mainly to the acquisition of TASC. In addition, TASC and PRC have unfunded
backlog with potential contract values of up to $1.8 billion at July 31, 1998
compared with $1.5 billion for PRC at July 31, 1997.
 
     The Marine Engineering and Production segment reported sales and operating
profit of $1.03 billion and $134.4 million for fiscal year 1998 compared with
$1.11 billion and $135.0 million for fiscal year 1997. The decline in sales
reflected contracts completed during fiscal years 1997 and 1998 including an
Aegis destroyer and a LHD class amphibious assault ship delivered in the third
and fourth quarter, respectively, of the current fiscal year. This sales decline
was partially offset by other contracts moving into more advanced stages of
production, including a seventh LHD class amphibious assault ship and three
Aegis destroyers. Operating margins improved as a result of increased earnings
rates on programs maturing in the production process and continued production
efficiencies. Current construction activities include four Aegis destroyers, one
LHD class amphibious assault ship, and multiple offshore supply vessels for a
commercial customer. During fiscal year
 
                                        9
<PAGE>   12
 
1998, the U.S. Navy awarded the Company a contract to build six additional Aegis
destroyers with options for two more. Two of the six Aegis destroyers awarded
have been funded for construction and contributed to an increase in backlog to
$3.48 billion at July 31, 1998 from $3.23 billion at July 31, 1997.
 
     The Electronic Components and Materials segment reported sales and
operating profit of $595.8 million and $98.6 million for the current fiscal year
compared with $508.3 million and $69.7 million for the prior year. These
improvements were driven by continued strong demand for this segment's
commercial electronics products as a result of the trend of outsourcing by
original equipment manufacturers (OEMs) in the telecommunications and computer
industries. Process improvements and cost reduction also contributed to the
improved results. The Company is responding to the strong demand by investing in
product development and expanding production capacity.
 
  Fiscal Year 1997 Compared To 1996
 
     Total sales and operating profit for fiscal year 1997 were $4.18 billion
and $369.6 million, respectively, representing increases of 16% and 15%,
respectively, over the prior year's results. Net earnings increased 7% to $162.0
million after an increase in interest expense for fiscal year 1997 compared with
net earnings of $150.9 million for fiscal year 1996.
 
     The increase in sales and operating profit for the Advanced Electronics
segment primarily reflected the acquisitions of Sperry Marine Inc. ("Sperry
Marine"), a leading supplier of marine electronic navigation and guidance
systems, in May 1996 and Decca, a provider of marine electronic equipment, in
February 1997. The combined technologies and capabilities of Sperry Marine and
Decca have enabled the Company to provide systems-wide solutions to the marine
markets for both defense and commercial applications. Backlog for the Advanced
Electronics segment was $1.61 billion at July 31, 1997 compared with $1.66
billion at July 31, 1996.
 
     Sales and operating profit for the Information Systems segment were
significantly higher primarily as a result of the acquisition of PRC in February
1996. PRC is a diversified information technology company that designs,
develops, integrates and supports computer-based information handling and
processing systems and reengineers business processes for the U.S. Government
and other customers. PRC generates a significant portion of its revenues from
providing systems integration and computer-based solutions to the non-defense
federal, state and local government markets. The Company also strengthened its
position in the electronic display market with the acquisition of SAIT in March
1997. SAIT provides customized and ruggedized mobile computing equipment and
systems for commercial and military operations worldwide. Firm backlog for the
Information Systems segment at July 31, 1997 amounted to $518.1 million compared
with $569.2 million at July 31, 1996. In addition, PRC had unfunded backlog with
potential contract values totaling approximately $1.5 billion at July 31, 1997
compared with $1.0 billion at July 31, 1996.
 
     Sales for the Marine Engineering and Production segment for fiscal year
1997 decreased due to a lower level of construction activities as a result of
contracts being completed, including two Aegis destroyers during each of fiscal
years 1997 and 1996 and a fifth LHD class amphibious assault ship in fiscal year
1997. This decline was partially offset by other contracts moving into more
advanced stages of production and the startup of production on a seventh LHD
class amphibious assault ship. Operating margins improved as a result of
increased earnings rates on programs maturing in the production process and
continued cost reduction efforts. During fiscal year 1997, the U.S. Navy awarded
the Company a contract to begin advance procurement of material to be used in
the construction of Aegis destroyers, for which a contract to build six
additional Aegis destroyers, along with options for two more, was awarded during
fiscal year 1998. The Company also received two contract awards in fiscal year
1997 to build multiple offshore supply vessels for a customer in the commercial
ship chartering industry. Backlog for the Marine Engineering and Production
segment at July 31, 1997 was $3.23 billion compared with $3.29 billion at July
31, 1996.
 
     The Electronic Components and Materials segment contributed with improved
sales and operating profit in fiscal year 1997. This segment benefited from the
growth in the markets which it serves, particularly from the strong demand in
the telecommunication-related markets for its commercial electronic products.
Cost reduction efforts and process improvements have also contributed to the
improved operating margins.
 
                                       10
<PAGE>   13
 
  Liquidity and Capital Resources
 
     In connection with the acquisition of TASC in April 1998, the Company
issued $100 million principal amount of 6.05% Senior Notes due 2003, $200
million principal amount of 6.75% Senior Debentures due 2018 and sold commercial
paper (see Note C). The aforementioned borrowings incurred for the acquisition
of TASC as well as borrowings in connection with a payment of prior years' taxes
were the primary reasons for the increase in interest expense in fiscal year
1998 compared with 1997. During the year, cash flow from operations provided the
funds to meet operating needs, make capital expenditures and repurchase 822,100
shares of Common stock. During fiscal year 1998, the Company entered into a new
revolving credit agreement totaling $400 million which serves as a back-up
facility for its commercial paper program. The Company also has unused credit
commitments of $400 million under a revolving credit agreement with various
banks available for its general use and replacement of existing debt.
 
  Environmental Matters
 
     As previously reported, the Company or certain of its divisions or
subsidiaries has been named as a potentially responsible party in respect to
various sites to which certain of its operations may have contributed wastes.
Also, the Company and certain of its divisions and subsidiaries have incurred
costs, which have not had a material impact on the Company's consolidated
financial statements in any one year, for cleaning up a number of sites now or
formerly owned or leased by the Company. At this time, the Company believes that
its ultimate liability for additional expenditures associated with such owned or
leased sites and other sites to which it may have contributed wastes will not
have a material adverse effect on its consolidated financial position. In the
first quarter of fiscal year 1998, the Company adopted Statement of Position
96-1 ("SOP 96-1"), "Environmental Remediation Liabilities", issued by the
American Institute of Certified Public Accountants. The adoption of SOP 96-1 did
not have an impact on the Company's results of operations or financial position.
 
  Market Risk Disclosure
 
     The Company has exposures to interest rate risk primarily from its
short-term and long-term borrowings and to exchange rate risk with respect to
its foreign operations and from foreign currency transactions. In general, the
Company's long-term borrowings are fixed rate debt and the short-term borrowings
are variable rate debt. See Note C for components of the Company's short-term
and long-term obligations. At July 31, 1998, the carrying value of the long-term
fixed rate borrowings was $699.5 million compared with an estimated fair value
of $731.8 million. If the interest rates were 10% lower, the projected fair
value at July 31, 1998 would have been $789.3 million. Based on short-term
borrowings outstanding at July 31, 1998 and the weighted-average interest rates
related to such borrowings as of July 31, 1998, a hypothetical 10% increase to
the interest rates would not have a significant impact on the Company's results
of operations or cash flows.
 
     The Company from time to time enters into foreign currency exchange
contracts to hedge certain foreign currency transactions and commitments and to
reduce its exposure resulting from investments in certain foreign operations.
These contracts were not significant at July 31, 1998. A hypothetical 10% change
in the relevant currency rates at July 31, 1998 would not have a material impact
on the Company's results of operations or cash flows.
 
  Year 2000
 
     The Company has developed plans and a program to address the potential
impact of the Year 2000 on its business systems, facilities and products which
may include imbedded software. Each of these areas has been inventoried for
potential Year 2000 impact. Detailed implementation plans are in place for the
required modifications or replacements. The process and progress is monitored on
a regular basis by a special corporate task group of management, audit and legal
personnel and reported to management and the Audit and Compliance Committee of
the Board of Directors. Implementation of the required changes to critical
systems, facilities and products is expected to be completed during fiscal year
1999. The Company is in contact with major suppliers and customers and is
developing backup and contingency plans both in relation to internal
 
                                       11
<PAGE>   14
 
systems, facilities and products and third parties. Incremental costs to address
and achieve Year 2000 compliance are expensed as incurred. Such costs are
approximately $9 million through July 31, 1998 and expected to total $22
million. In addition, the Company has continued its process of replacing
manufacturing and business systems with more efficient and technologically up to
date systems that are also Year 2000 compliant. The Company believes it is
taking reasonable steps to prevent a material adverse operational or financial
impact from a non-compliant situation. The effect, if any, on the Company's
results of operations if the Company, any of its customers or suppliers is not
Year 2000 compliant is not reasonably estimable. This discussion contains
forward-looking statements containing such words as "expected", "estimated",
"believes" and "reasonably estimable". The actual results may differ if
implementation plans, the backup and contingency plans are not implemented by
third parties or the information provided by third parties is incorrect.
 
                                       12
<PAGE>   15
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information on directors of the Company will be included under the caption
"Election of Directors" of the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on December 3, 1998, which is
hereby incorporated by reference.
 
     The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company. The following information indicates the position and
age of the executive officers at October 7, 1998 and their business experience
during the prior five years:
 
<TABLE>
<CAPTION>
                                                          POSITIONS AND OFFICES PRESENTLY
               NAME                  AGE                   HELD AND BUSINESS EXPERIENCE
               ----                  ---                  -------------------------------
<S>                                  <C>    <C>
Michael R. Brown...................  57     Chief Executive Officer since March, 1998, President since
                                            December, 1995 and a director since September, 1995; prior
                                            thereto: Chief Operating Officer (1995-1998), Executive
                                            Vice President (1995), Group Executive of the Information
                                            Systems Group (1995-1997), Senior Vice President
                                            (1992-1995).
Larry A. Frame.....................  62     Senior Vice President and Group Executive of the
                                            Navigation, Guidance and Control Systems Group since March,
                                            1994; prior thereto: Vice President (1990-1994).
Harry Halamandaris.................  60     Senior Vice President since June, 1996 and Group Executive
                                            of the Electronic Warfare Systems Group since September,
                                            1995; prior thereto: Vice President for Strategic Planning
                                            (1995), Vice President and Group Executive of Kaiser
                                            Aerospace & Electronics, Inc. (1994-1995), Director of
                                            Corporate Technology, Teledyne, Inc. (1989-1994).
John M. Leonis.....................  64     Chairman of the Board since December, 1995 and a director
                                            since March, 1994; prior thereto: Chief Executive Officer
                                            (1994-1998), President (1994-1995), Senior Vice President
                                            (1990-1994).
Donald A. Lepore...................  62     Senior Vice President since September, 1996 and Group
                                            Executive of the Electronic Components and Materials Group
                                            since 1986; prior thereto: Vice President (1986-1996).
Alden V. Munson, Jr................  56     Senior Vice President and Group Executive of the
                                            Information Systems Group since April 1997; prior thereto:
                                            Vice President, TRW Credit and Commercial Information
                                            Systems (1995-1997), Vice President and Program Manager,
                                            TRW Space and Electronics Group (1994-1995), Vice President
                                            and General Manager, TRW Systems Development Division
                                            (1988-1994).
Timothy G. Paulson.................  51     Vice President and Treasurer since June, 1994; prior
                                            thereto: Vice President of Finance and Administration of
                                            the Company's Amecom Division (1991-1994).
</TABLE>
 
                                       13
<PAGE>   16
 
<TABLE>
<CAPTION>
                                                          POSITIONS AND OFFICES PRESENTLY
               NAME                  AGE                   HELD AND BUSINESS EXPERIENCE
               ----                  ---                  -------------------------------
<S>                                  <C>    <C>
John E. Preston....................  57     Senior Vice President and General Counsel since March,
                                            1994; prior thereto: Vice President and Associate General
                                            Counsel (1990-1994).

Gerald J. St. Pe'..................  58     Senior Vice President since 1986 and President of Ingalls
                                            Shipbuilding, Inc., a subsidiary of the Company, since
                                            1987.

Carol A. Wiesner...................  59     Vice President and Controller since June, 1994; prior
                                            thereto: Vice President and Treasurer (1988-1994).
</TABLE>
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Information on executive compensation will be included under the caption
"Compensation of Executive Officers" of the Company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on December 3, 1998,
which is hereby incorporated by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information on beneficial ownership of the Company's voting securities by
each director and all officers and directors as a group, and by any person known
to beneficially own more than 5% of any class of voting security of the Company
will be included under the captions "Security Ownership of Directors and
Executive Officers" and "Security Ownership of Certain Beneficial Owners" of the
Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on December 3, 1998, which is hereby incorporated by
reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Information on certain relationships and related transactions including
information with respect to management indebtedness will be included under the
caption "Indebtedness of Management to the Company" of the Company's definitive
Proxy Statement relating to the Annual Meeting of Shareholders to be held on
December 3, 1998, which is hereby incorporated by reference.
 
                                       14
<PAGE>   17
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                           <C>
(a)(1)   Financial Statements

         See Item 8 of Part II hereof

(a)(2)   Financial Statement Schedules

            The schedules specified under Regulation S-X are either 
            not applicable or immaterial to the Company's consolidated 
            financial statements for each of the three years in the 
            period ended July 31, 1998.

(a)(3)   Executive Compensation Plans and Arrangements...............   16

(b)      Reports on Form 8-K

         (1) There were no reports on Form 8-K filed during the
         fourth quarter ended July 31, 1998.

(c)      Index to Exhibits...........................................  E-1
</TABLE>
 
                                       15
<PAGE>   18
 
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
 
<TABLE>
<CAPTION>
                                                                           REPORT WITH
                                                              EXHIBIT     WHICH EXHIBIT
                        DESCRIPTION                             NO.         WAS FILED
                        -----------                           -------     --------------
<S>                                                           <C>         <C>
Directors' annual retainer and attendance fees..............  10.1  (a)   1998 Form 10-K
Director retirement age and postretirement payments to
  directors.................................................  10.2  (b)   1991 Form 10-K
Litton Supplemental Retirement Plan.........................  10.3        1983 Form 10-K
     -- Amendment to the Litton Supplemental Retirement
      Plan..................................................  10.1        April, 1993
                                                                          Form 10-Q
Form of the agreement under the Litton Industries, Inc.
  Executive Survivor Benefit Plan...........................  10.4  (a)   1984 Form 10-K
     -- Amendment to the Executive Survivor Benefit Plan,
      adopted June 13, 1986.................................  10.4  (a)   1986 Form 10-K
Incentive loans.............................................  10.8  (a)   1991 Form 10-K
     -- Amendment to Incentive loan program.................  10.5  (b)   1996 Form 10-K
Supplemental Medical Insurance Plan.........................  10.10       1990 Form 10-K
Orion L. Hoch Supplemental Retirement Agreement and
  Supplemental Medical Insurance Plan.......................  10.13 (b)   1983 Form 10-K
     -- First Amendment.....................................  10.13 (c)   1984 Form 10-K
     -- Second Amendment....................................  10.4        April, 1994
                                                                          Form 10-Q
     -- Approval for participation in the Supplemental
      Medical Insurance Plan................................  10.2        April, 1994
                                                                          Form 10-Q
Lifetime participation of Fred W. O'Green and Mildred G.
  O'Green in the Supplemental Medical Insurance Plan........  10.13 (e)   1988 Form 10-K
Litton Industries Inc. 1984 Long-Term Stock Incentive Plan,
  as amended and restated...................................  10.1        October, 1996
                                                                          Form 10-Q
     -- Amendment dated September 18, 1997..................  10.10 (f)   1997 Form 10-K
Litton Industries, Inc. Performance Award Plan..............  10.2        October, 1996
                                                                          Form 10-Q
Litton Industries, Inc. Restoration Plan....................  10.16       1989 Form 10-K
Litton Industries, Inc. Director Stock Option Plan..........  10.18 (a)   1989 Form 10-K
     -- Amendment dated March 12, 1992......................  10.18 (b)   1992 Form 10-K
     -- Adjustment for the distribution of Western Atlas
      Inc...................................................  10.18 (c)   1993 Form 10-K
     -- Board of Directors Resolution adopted October 27,
      1994..................................................  10.13 (d)   1995 Form 10-K
     -- Board of Directors Resolution adopted September 18,
      1997..................................................  10.13 (e)   1997 Form 10-K
The Company's "Group Bonus Plan"............................  10          October, 1997
                                                                          Form 10-Q
Litton Industries, Inc. Supplemental Executive Retirement
  Plan......................................................  10.22       1995 Form 10-K
     -- Amendment No. 1.....................................  10.22 (b)   1997 Form 10-K
     -- Amendment No. 2.....................................  10.22 (c)   1997 Form 10-K
Litton Industries, Inc. Deferred Compensation Plan for        10.26       April, 1993
  Directors.................................................              Form 10-Q
Form of Change of Control Employment Agreement..............  10.27       1993 Form 10-K
</TABLE>
 
                                       16
<PAGE>   19
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) 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.
 
                                          /s/ CAROL A. WIESNER
 
                                          --------------------------------------
                                          Carol A. Wiesner
                                          Vice President and Controller
                                          (Principal Financial Officer)
 
October 12, 1998
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
 
<TABLE>
<S>                                                <C>
/s/ ALTON J. BRANN                                 /s/ MICHAEL R. BROWN
--------------------------------------------       --------------------------------------------
Alton J. Brann, October 12, 1998                   Michael R. Brown, October 12, 1998
Director                                           Director,
                                                   President and Chief Executive Officer
 

/s/ J. T. CASEY                                    /s/ CAROL B. HALLETT
--------------------------------------------       --------------------------------------------
Joseph T. Casey, October 12, 1998                  Carol B. Hallett, October 12, 1998
Director                                           Director
 
/s/ O. L. HOCH                                     /s/ DAVID E. JEREMIAH
--------------------------------------------       --------------------------------------------
Orion L. Hoch, October 12, 1998                    David E. Jeremiah, October 12, 1998
Director                                           Director
 
/s/ JOHN M. LEONIS                                 /s/ WILLIAM P. SOMMERS
--------------------------------------------       --------------------------------------------
John M. Leonis, October 12, 1998                   William P. Sommers, October 12, 1998
Director,                                          Director
Chairman of the Board
 
/s/ C. B. THORNTON, JR.                            /s/ CAROL A. WIESNER
--------------------------------------------       --------------------------------------------
C. B. Thornton, Jr., October 12, 1998              Carol A. Wiesner, October 12, 1998
Director                                           Vice President and Controller
                                                   (Principal Financial Officer)
</TABLE>
 
                                       17
<PAGE>   20
 
                            LITTON INDUSTRIES, INC.
 
              MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
 
     The consolidated financial statements of Litton Industries, Inc. and
subsidiary companies, and related financial information included in this Annual
Report, have been prepared by the Company, whose management is responsible for
their integrity. These statements, which necessarily reflect estimates and
judgments, have been prepared in conformity with generally accepted accounting
principles.
 
     The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor the compliance with and the effectiveness of established procedures.
 
     Deloitte & Touche LLP, an independent auditing firm, is engaged to audit
the consolidated financial statements of the Company and issue a report thereon.
They have informed management and the Audit and Compliance Committee of the
Board of Directors that their audits were conducted in accordance with generally
accepted auditing standards that require a review and evaluation of internal
controls to determine the nature, timing, and extent of audit testing. The
Independent Auditors' Report is on page F-2 of this report.
 
     The Audit and Compliance Committee of the Board of Directors, which
consists solely of directors who are not employees of the Company, meets
periodically with management, the independent auditors and the Company's
internal auditors to review the scope of their activities and reports relating
to internal controls and financial reporting matters. The independent and
internal auditors have full and free access to the Audit and Compliance
Committee and meet with the Committee both with and without the presence of
Company management.
 
/s/ CAROL A. WIESNER
------------------------------------------------------
Carol A. Wiesner
Vice President and Controller
 
September 23, 1998
 
                                       F-1
<PAGE>   21
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Shareholders
Litton Industries, Inc.
Woodland Hills, California
 
     We have audited the accompanying consolidated balance sheets of Litton
Industries, Inc. and subsidiary companies as of July 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' investment, and
cash flows for each of the three years in the period ended July 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Litton Industries, Inc. and
subsidiary companies as of July 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1998 in conformity with generally accepted accounting principles.
 
DELOITTE & TOUCHE LLP
 
Los Angeles, California
September 23, 1998
 
                                       F-2
<PAGE>   22
 
                            LITTON INDUSTRIES, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED JULY 31
                                                         --------------------------------------
                                                            1998          1997          1996
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Sales and Service Revenues
  Product Sales........................................  $3,159,142    $3,090,702    $2,999,964
  Service Revenues.....................................   1,240,746     1,084,822       611,574
                                                         ----------    ----------    ----------

          Total........................................   4,399,888     4,175,524     3,611,538
                                                         ----------    ----------    ----------
Costs and Expenses
  Cost of product sales................................   2,391,990     2,376,755     2,353,232
  Cost of service revenues.............................     998,485       889,682       452,408
  Selling, general and administrative..................     507,531       457,239       424,724
  Depreciation and amortization........................     147,556       137,502       113,833
  Interest -- net......................................      52,043        44,370        13,728
                                                         ----------    ----------    ----------

          Total........................................   4,097,605     3,905,548     3,357,925
                                                         ----------    ----------    ----------
Earnings before Taxes on Income........................     302,283       269,976       253,613
Taxes on Income........................................    (120,913)     (107,990)     (102,713)
                                                         ----------    ----------    ----------

          Net Earnings.................................  $  181,370    $  161,986    $  150,900
                                                         ==========    ==========    ==========
Earnings per Share
  Basic................................................       $3.91         $3.48         $3.24
                                                              =====         =====         =====

  Diluted..............................................       $3.82         $3.40         $3.15
                                                              =====         =====         =====

</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       F-3
<PAGE>   23
 
                            LITTON INDUSTRIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                                                      JULY 31
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
                                        ASSETS
Current Assets
  Cash and marketable securities............................  $   31,925    $   19,894
  Accounts receivable less allowance for doubtful accounts
     of $34,785 (1998) and $37,019 (1997)...................     820,624       666,867
  Inventories less progress payments........................     635,942       629,206
  Deferred tax assets.......................................     417,719       414,177
  Prepaid expenses..........................................      27,770        30,272
                                                              ----------    ----------
          Total Current Assets..............................   1,933,980     1,760,416
                                                              ----------    ----------
Property, Plant and Equipment, Net..........................     613,514       654,545
                                                              ----------    ----------
Goodwill and Other Intangibles, Net of Amortization of
  $154,062 (1998) and $114,480 (1997).......................   1,075,299       737,554
                                                              ----------    ----------
Other Assets and Long-term Investments......................     427,022       367,171
                                                              ----------    ----------
          Total Assets......................................  $4,049,815    $3,519,686
                                                              ==========    ==========
                       LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
  Accounts payable..........................................  $  876,850    $  869,880
  Payrolls and related expenses.............................     200,059       211,686
  Taxes on income...........................................      74,040        94,102
  Short-term debt...........................................     274,178       147,182
  Contract liabilities and customer deposits................     346,270       316,406
                                                              ----------    ----------
          Total Current Liabilities.........................   1,771,397     1,639,256
                                                              ----------    ----------
Long-term Obligations.......................................     771,321       507,344
                                                              ----------    ----------
Postretirement Benefit Obligations Other than Pensions......     206,397       205,331
                                                              ----------    ----------
Deferred Tax and Other Long-term Liabilities................     113,461       128,736
                                                              ----------    ----------
Shareholders' Investment
  Capital stock
     Voting preferred stock -- Series B (liquidation
      preference $8,213)....................................       2,053         2,053
     Common stock (shares outstanding: 45,783,077 (1998) and
      45,996,175 (1997))....................................      45,783        45,996
  Additional paid-in capital................................     316,628       301,839
  Retained earnings.........................................     869,359       730,019
  Cumulative currency translation adjustment................     (46,584)      (40,888)
                                                              ----------    ----------
          Total Shareholders' Investment....................   1,187,239     1,039,019
                                                              ----------    ----------
          Total Liabilities and Shareholders' Investment....  $4,049,815    $3,519,686
                                                              ==========    ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       F-4
<PAGE>   24
 
                            LITTON INDUSTRIES, INC.
 
              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
                             (THOUSANDS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                                     CAPITAL STOCK
                                                  --------------------
                                       TOTAL      PREFERRED                                      CUMULATIVE
                                       SHARE-     SERIES B     COMMON    ADDITIONAL               CURRENCY
                                      HOLDERS'       PAR        PAR       PAID-IN     RETAINED   TRANSLATION
                                     INVESTMENT   VALUE $5    VALUE $1    CAPITAL     EARNINGS   ADJUSTMENT
                                     ----------   ---------   --------   ----------   --------   -----------
<S>                                  <C>          <C>         <C>        <C>          <C>        <C>
BALANCE AT JULY 31, 1995...........  $  758,143    $2,053     $46,182     $284,399    $451,862    $(26,353)
  Net earnings.....................     150,900        --          --           --     150,900          --
  Cash dividends on Preferred --
     Series B ($2.00 per share)....        (821)       --          --           --        (821)         --
  Purchase of Common stock.........      (1,056)       --         (25)        (157)       (874)         --
  Exercise of stock options........      13,048        --         408       12,657         (17)         --
  Currency translation
     adjustment....................      (2,955)       --          --           --          --      (2,955)
                                     ----------    ------     -------     --------    --------    --------
BALANCE AT JULY 31, 1996...........     917,259     2,053      46,565      296,899     601,050     (29,308)
  Net earnings.....................     161,986        --          --           --     161,986          --
  Cash dividends on Preferred --
     Series B ($2.00 per share)....        (821)       --          --           --        (821)         --
  Purchase of Common stock.........     (38,675)       --        (875)      (5,604)    (32,196)         --
  Exercise of stock options........      10,850        --         306       10,544          --          --
  Currency translation
     adjustment....................     (11,580)       --          --           --          --     (11,580)
                                     ----------    ------     -------     --------    --------    --------
BALANCE AT JULY 31, 1997...........   1,039,019     2,053      45,996      301,839     730,019     (40,888)
  Net earnings.....................     181,370        --          --           --     181,370          --
  Cash dividends on Preferred --
     Series B ($2.00 per share)....        (821)       --          --           --        (821)         --
  Purchase of Common stock.........     (47,448)       --        (822)      (5,524)    (41,102)         --
  Exercise of stock options........      20,815        --         609       20,313        (107)         --
  Currency translation
     adjustment....................      (5,696)       --          --           --          --      (5,696)
                                     ----------    ------     -------     --------    --------    --------
BALANCE AT JULY 31, 1998...........  $1,187,239    $2,053     $45,783     $316,628    $869,359    $(46,584)
                                     ==========    ======     =======     ========    ========    ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       F-5
<PAGE>   25
 
                            LITTON INDUSTRIES, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED JULY 31
                                                             --------------------------------
                                                               1998        1997        1996
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Cash and cash equivalents at beginning of period...........  $  4,144    $ 77,105    $ 60,229
                                                             --------    --------    --------
Operating Activities
  Net earnings.............................................   181,370     161,986     150,900
  Adjustments to reconcile net earnings to net cash
     provided by operating activities
     Depreciation and amortization.........................   147,556     137,502     113,833
     Changes in assets and liabilities, net of effects of
       acquisitions
       Accounts receivable.................................   (50,094)     41,353       4,263
       Inventories.........................................   (16,831)    (48,032)    (21,155)
       Prepaid expenses....................................     7,770       4,324      (3,661)
       Accounts payable....................................    (4,772)    (83,754)    (77,773)
       Payrolls and related expenses.......................     9,552     (15,703)      4,510
       Deferred and current taxes on income................   (46,724)     14,313     (67,054)
       Contract liabilities and customer deposits..........    34,693      63,901      (2,487)
     Other operating activities............................   (41,892)    (53,011)    (31,498)
                                                             --------    --------    --------
Cash provided by operating activities......................   220,628     222,879      69,878
                                                             --------    --------    --------
Investing Activities
  Purchase of businesses, net of cash acquired.............  (445,483)    (87,541)   (647,674)
  Purchase of capital assets...............................  (115,665)   (113,054)    (91,019)
  Proceeds from sale of capital assets.....................    47,210      47,837      11,351
  Decrease in other current marketable securities..........        --          --      34,717
  Other investing activities...............................   (17,117)    (15,770)      9,866
                                                             --------    --------    --------
Cash used for investing activities.........................  (531,055)   (168,528)   (682,759)
                                                             --------    --------    --------
Financing Activities
  Proceeds from issuance of long-term obligations..........   296,839      33,038     395,176
  Change in short-term debt, net...........................    91,447    (113,384)    224,462
  Purchase of Common stock.................................   (47,448)    (38,675)       (891)
  Other financing activities...............................   (18,380)     (8,291)     11,010
                                                             --------    --------    --------
Cash provided by (used for) financing activities...........   322,458    (127,312)    629,757
                                                             --------    --------    --------
Resulting in increase (decrease) in cash and cash
  equivalents..............................................    12,031     (72,961)     16,876
                                                             --------    --------    --------
Cash and cash equivalents at end of period.................  $ 16,175    $  4,144    $ 77,105
                                                             ========    ========    ========
Reconciliation to Consolidated Balance Sheets:
  Cash and cash equivalents................................  $ 16,175    $  4,144    $ 77,105
  Marketable securities (U.S. Government obligations)......    15,750      15,750      15,750
                                                             --------    --------    --------
  Total cash and marketable securities.....................  $ 31,925    $ 19,894    $ 92,855
                                                             ========    ========    ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       F-6
<PAGE>   26
 
                            LITTON INDUSTRIES, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE A:  SIGNIFICANT ACCOUNTING POLICIES
 
     PRINCIPLES OF CONSOLIDATION  The accounts of Litton Industries, Inc. and
its wholly-owned subsidiaries (the "Company" or "Litton") are included in the
accompanying consolidated financial statements. Intercompany accounts and
transactions have been eliminated. Certain reclassifications of prior period
information were made to conform to the current year presentation.
 
     USE OF ESTIMATES  The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions, including estimates of anticipated contract costs and
revenues utilized in the earnings recognition process, that affect the reported
amounts in the financial statements and accompanying notes. Due to the inherent
uncertainty involved in making estimates, actual results could differ from those
estimates.
 
     CASH AND MARKETABLE SECURITIES  Cash and marketable securities consist of
the following:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Time deposits...............................................   $16,175      $ 4,144
U.S. Government obligations.................................    15,750       15,750
                                                               -------      -------
                                                               $31,925      $19,894
                                                               =======      =======
</TABLE>
 
     Cash equivalents consist of securities purchased within three months of
their maturity date and amounted to $16.2 million and $4.1 million in time
deposits at July 31, 1998 and 1997, respectively.
 
     The Company's marketable securities at July 31, 1998 and 1997 consisted of
obligations issued by the U.S. Government with an estimated fair market value of
$19.4 million for both periods, based on quoted market prices, compared with a
carrying amount of $15.8 million for both periods. These investments have been
classified as held-to-maturity securities.
 
     EARNINGS PER SHARE  The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"), during fiscal year 1998.
SFAS 128 replaced the previously reported primary and fully diluted earnings per
share ("EPS") with basic and diluted EPS. Basic EPS is calculated based on the
weighted-average number of shares outstanding and diluted EPS includes the
effects of dilutive potential common shares. EPS amounts for prior periods
presented have been restated to conform to the requirements of SFAS 128.
 
     The following table sets forth the computation of basic and diluted
earnings per share:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED JULY 31
                                                  ------------------------------------------------
                                                       1998             1997             1996
                                                  --------------   --------------   --------------
                                                  (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>              <C>              <C>
Net earnings....................................   $   181,370      $   161,986      $   150,900
Preferred stock dividends.......................          (821)            (821)            (821)
                                                   -----------      -----------      -----------
Net earnings used for basic and diluted earnings
  per share calculations........................   $   180,549      $   161,165      $   150,079
                                                   ===========      ===========      ===========
Weighted-average common shares outstanding-used
  for basic earnings per share..................    46,125,197       46,338,833       46,345,444
Dilutive effect of stock options................     1,156,912        1,061,446        1,228,225
                                                   -----------      -----------      -----------
Number of shares used for diluted earnings per
  share.........................................    47,282,109       47,400,279       47,573,669
                                                   ===========      ===========      ===========
Basic earnings per share........................   $      3.91      $      3.48      $      3.24
                                                   ===========      ===========      ===========
Diluted earnings per share......................   $      3.82      $      3.40      $      3.15
                                                   ===========      ===========      ===========
</TABLE>
 
                                       F-7
<PAGE>   27
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     INVENTORIES, LONG-TERM CONTRACTS AND REVENUE RECOGNITION  Inventory costs
under long-term contracts generally reflect actual or average costs and include
general and administrative costs of the Marine Engineering and Production
segment. For the Company's other business segments, general and administrative
costs are expensed as incurred. Inventories other than costs under long-term
contracts are stated at the lower of cost or market, generally using the average
or actual cost method. Progress payments received are first offset against the
related balance of unbilled receivables and inventories with any remainder
included in "Contract liabilities and customer deposits".
 
     Product revenues and profits on long-term contracts, performed over
extended periods of time, are recognized under the percentage-of-completion
method of accounting, principally based on direct labor dollars incurred for the
Marine Engineering and Production segment and generally on the costs incurred or
units-of-delivery basis for the Company's other operations. Service revenues
from fixed price and fixed price incentive contracts are recognized under the
percentage of completion method on the basis of costs incurred to estimated
total costs. Service revenues on cost reimbursement type contracts and time and
materials contracts are recognized as costs are incurred or as work is
performed. Revenues and profits on long-term contracts are based on the
Company's estimates to complete and are reviewed periodically, with adjustments
recorded in the period in which the revisions are made. Any anticipated losses
on contracts are charged to operations as soon as they are determinable.
 
     RESEARCH AND DEVELOPMENT  Worldwide expenditures on research and
development activities amounted to $233.8 million, $241.8 million and $217.0
million, of which 33%, 29% and 30% was Company-sponsored, in the years ended
July 31, 1998, 1997 and 1996, respectively. Company-sponsored research and
development expenditures are charged to expense as incurred.
 
     PROPERTY, PLANT AND EQUIPMENT  Investment in property, plant and equipment
is stated at cost. Allowances for depreciation and amortization, computed
generally by the straight-line method for financial statement purposes, are
provided over the estimated useful lives of the related assets.
 
     FOREIGN CURRENCIES  The currency effects of translating the financial
statements of those non-U.S. subsidiaries and divisions of the Company which
operate in local currency environments are included in the "Cumulative currency
translation adjustment" component of Shareholders' Investment. Gains and losses
resulting from foreign currency transactions are included in results of
operations and were not material in each of the three years in the period ended
July 31, 1998.
 
     GOODWILL AND OTHER INTANGIBLES  For financial statement purposes, goodwill
and other intangibles are generally amortized using the straight-line method
over their estimated useful lives, not exceeding 40 years. Goodwill at July 31,
1998 and 1997 was $1,064.6 million and $722.0 million, respectively. The current
and future profitability of the operations to which the goodwill relates are
evaluated at least annually. These factors, along with management's plans with
respect to the operations and the projected undiscounted cash flows, are
considered in assessing the recoverability of the goodwill.
 
     ENVIRONMENTAL COSTS  Provisions for environmental costs are recorded when
the Company determines its responsibility for remedial efforts or environmental
liability and such amounts are reasonably estimable. The Company's exposure may
be mitigated by potential insurance reimbursements and recovery under the
Company's U.S. Government contracts, to the extent recoverable. These
reimbursements and recoveries are not recorded until collection is probable.
 
     FINANCIAL INSTRUMENTS  In addition to the previously discussed cash and
marketable securities and certain long-term notes and debentures discussed in
Note C, the Company's other financial instruments include accounts receivable,
accounts payable, short-term debt and other miscellaneous long-term assets and
liabilities. The carrying amounts of the short-term assets and liabilities
approximate their market values due to their short maturity. Differences between
the recorded amounts and market value of the remainder of the financial
instruments were not material. The Company, from time to time, enters into
foreign currency
 
                                       F-8
<PAGE>   28
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
exchange contracts to reduce its exposure resulting from net investments in
certain foreign operations. Gains and losses are included in "Cumulative
currency translation adjustment". There were no outstanding contracts at July
31, 1998 and 1997. The Company also occasionally enters into foreign currency
exchange contracts to hedge certain foreign currency transactions and firm
commitments. The aggregate notional amounts of these contracts were not material
at July 31, 1998 and 1997. As discussed in Note I, the Company also has off-
balance sheet guarantees and letter of credit agreements with notional values
totaling $453 million at July 31, 1998, relating principally to the guarantee of
future performance on foreign government contracts.
 
     OTHER NEW ACCOUNTING STANDARDS  In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which requires that all derivatives be recognized as assets or
liabilities in the consolidated balance sheet and measured at fair value. SFAS
133 is effective for the Company starting in its fiscal year 2000, but currently
is not expected to have a significant impact.
 
     In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits -- an amendment of FASB
Statements No. 87, 88 and 106", which revises the disclosure requirements for
pensions and other postretirement benefits. SFAS 132 is effective for the
Company starting in its fiscal year 1999.
 
     In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes new requirements on the
reporting of information about operating segments, products and services,
geographic areas and major customers. Although SFAS 131, which is effective for
the Company starting in its fiscal year 1999, will require additional reporting
and expanded disclosures, the Company does not anticipate significant changes to
its reportable segments.
 
     In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components. Comprehensive income includes "all changes in equity during
a period except those resulting from investments by owners and distributions to
owners". SFAS 130 is effective for the Company starting in its fiscal year 1999
and is expected to impact the Company's reporting of currency effects from
translating the financial statements of non-U.S. subsidiaries and divisions
currently included as a component of Shareholders' Investment.
 
NOTE B:  ACQUISITIONS
 
     On April 1, 1998, the Company acquired TASC from Primark Corporation for a
preliminary purchase price of $432 million in cash. TASC, with revenues of
approximately $440 million for its fiscal year ended December 31, 1997, is a
leading provider of information technology and services to the national
intelligence sector, the Department of Defense and non-defense and commercial
customers. The acquisition has been accounted for under the purchase method of
accounting and reflected herein based upon preliminary allocations of the
purchase price which is subject to finalization.
 
     During fiscal year 1997, the Company completed the acquisitions of Decca
and SAIT. Decca, headquartered in the U.K., provides diverse marine electronic
equipment, including radars, electronic chart systems, chart video plotting
systems and bridge monitoring systems. SAIT manufactures customized and
ruggedized mobile computing equipment and systems for military and commercial
applications worldwide. Acquisitions made during fiscal year 1996 included PRC
and Sperry Marine. PRC is a diversified information technology company that
designs, develops, integrates and supports computer-based information handling
and processing systems and reengineers business processes for the U.S.
Government, commercial customers and state and local governments. Sperry Marine
is a provider of advanced electronic navigation and guidance systems to
commercial and military customers for marine uses. Other acquisitions made
during each of the three fiscal years ended July 31, 1998 are considered
integral to the Company's goals, but did not significantly affect the
consolidated financial statements.
 
                                       F-9
<PAGE>   29
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE C:  DEBT AND INTEREST
 
     Short-term debt is composed of:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Commercial paper and notes payable to banks, with
  weighted-average interest at 5.7%(1998) and 5.3% (1997)...  $270,538     $124,318
Current portion of long-term obligations....................     3,640       22,864
                                                              --------     --------
                                                              $274,178     $147,182
                                                              ========     ========
</TABLE>
 
     Long-term obligations consist of the following:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
6.05% senior notes due 2003.................................  $100,000     $     --
6.75% senior debentures due 2018............................   200,000           --
7.75% debentures due 2026...................................   300,000      300,000
6.98% debentures due 2036...................................   100,000      100,000
Pension accruals (other than U.S. plans)....................    62,327       59,102
Notes payable with weighted-average interest at 5.8%........        --       31,189
Other.......................................................     8,994       17,053
                                                              --------     --------
                                                              $771,321     $507,344
                                                              ========     ========
</TABLE>
 
     Long-term obligations at July 31, 1998 mature as follows:
 
<TABLE>
<CAPTION>
                                                              (THOUSANDS OF DOLLARS)
                                                              ----------------------
<S>                                                           <C>
Year ended July 31
2000........................................................         $  4,440
2001........................................................            3,526
2002........................................................            3,395
2003........................................................          102,155
Years subsequent to July 31, 2003...........................          657,805
                                                                     --------
                                                                     $771,321
                                                                     ========
</TABLE>
 
     In connection with the acquisition of TASC in April 1998, the Company
issued $100 million principal amount of 6.05% senior notes due April 15, 2003
(the "2003 notes"), $200 million principal amount of 6.75% senior debentures due
April 15, 2018 (the "2018 debentures" and together with the 2003 notes, the
"securities") and sold commercial paper. Interest on the securities is payable
semi-annually on April 15 and October 15, commencing October 15, 1998. The 2003
notes are not redeemable prior to maturity. The 2018 debentures are redeemable,
in whole or in part, at the option of the Company at any time at a redemption
price equal to the greater of 100% of the principal amount of such debentures or
the sum of the present values of the remaining scheduled payments of principal
and interest thereon at U.S. Treasury Rates plus, in each case, accrued interest
thereon to the date of redemption. The aggregate estimated fair value of the
$300 million principal amount of notes and debentures at July 31, 1998 was
$297.8 million, based on interest rates available for debt with similar terms.
 
     In fiscal year 1996, the Company issued $300 million principal amount of
7.75% debentures due March 15, 2026 and $100 million principal amount of 6.98%
debentures due March 15, 2036 in connection
 
                                      F-10
<PAGE>   30
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
with the acquisition of PRC. Interest on these debentures is payable
semiannually on March 15 and September 15, commencing on September 15, 1996. The
debentures are redeemable in whole or in part, at the option of the Company at
any time in the case of the 7.75% debentures and at any time after March 15,
2006 in the case of the 6.98% debentures. In either case the redemption price is
equal to the greater of 100% of the principal amount of such debentures or the
sum of the present values of the remaining scheduled payments of principal and
interest thereon at U.S. Treasury Rates plus, in each case, accrued interest
thereon to the date of redemption. The holders of the 6.98% debentures may elect
to have such debentures redeemed on March 15, 2006 at 100% of the principal
amount, together with accrued interest to March 15, 2006. The aggregate
estimated fair values of the $400 million principal amount of debentures at July
31, 1998 and 1997 was $434.0 million and $411.5 million, respectively, based on
interest rates available for debt with similar terms.
 
     During fiscal year 1998, the Company entered into a new revolving credit
agreement totaling $400 million which serves as a back-up facility for its
commercial paper program. Commercial paper outstanding at July 31, 1998 amounted
to $230.3 million. The Company also has unused credit commitments of $400
million under a revolving credit agreement with various banks available for its
general use and replacement of existing debt.
 
     Net interest expense is composed of the following:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED JULY 31
                                                       ------------------------------
                                                        1998       1997        1996
                                                       -------    -------    --------
                                                           (THOUSANDS OF DOLLARS)
<S>                                                    <C>        <C>        <C>
Interest expense.....................................  $59,308    $52,673    $ 26,312
Interest income......................................   (7,265)    (8,303)    (12,584)
                                                       -------    -------    --------
Net interest expense.................................  $52,043    $44,370    $ 13,728
                                                       =======    =======    ========
</TABLE>
 
     Total cash interest payments made during fiscal year 1998 amounted to $47.8
million compared with $45.2 million for fiscal year 1997 and $7.7 million for
fiscal year 1996. Capitalized interest costs in each of the three years in the
period ended July 31, 1998 were not material.
 
NOTE D:  ACCOUNTS RECEIVABLE AND INVENTORIES
 
     Following are the details of accounts receivable:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Receivables related to long-term contracts
  Amounts billed
     U.S. Government........................................  $232,468     $195,344
     Other..................................................    82,353       61,510
                                                              --------     --------
                                                               314,821      256,854
                                                              --------     --------
  Unbilled recoverable costs and accrued profit on progress
     completed and retentions
     U.S. Government........................................   201,458      164,415
     Other..................................................    21,754       11,715
                                                              --------     --------
                                                               223,212      176,130
                                                              --------     --------
Other receivables, principally from commercial customers....   282,591      233,883
                                                              --------     --------
                                                              $820,624     $666,867
                                                              ========     ========
</TABLE>
 
                                      F-11
<PAGE>   31
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Of the $223.2 million in retentions and amounts not billed at July 31,
1998, $199.6 million is expected to be collected in fiscal year 1999 with the
balance to be collected in subsequent years, as contract deliveries are made and
warranty periods expire.
 
     Summarized below are the components of inventory balances:
 
<TABLE>
<CAPTION>
                                                                      JULY 31
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
Raw materials and work in process...........................  $  346,824    $  318,920
Finished goods..............................................      42,746        51,196
Inventoried costs related to long-term contracts............     689,668       668,797
                                                              ----------    ----------
Gross inventories...........................................   1,079,238     1,038,913
Less progress payments, principally related to long-term
  contracts.................................................    (443,296)     (409,707)
                                                              ----------    ----------
Net inventories.............................................  $  635,942    $  629,206
                                                              ==========    ==========
</TABLE>
 
     The amounts included in "Inventoried costs related to long-term contracts"
representing general and administrative costs and production cost of delivered
units in excess of anticipated average cost of all units expected to be produced
are not significant.
 
NOTE E:  PROPERTY, PLANT AND EQUIPMENT
 
     Investment in property, plant and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                                      JULY 31
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
Property, plant and equipment, at cost
  Land......................................................  $   33,895    $   52,557
  Buildings.................................................     527,187       565,806
  Machinery and equipment...................................     981,959       941,273
                                                              ----------    ----------
                                                               1,543,041     1,559,636
  Less accumulated depreciation.............................    (929,527)     (905,091)
                                                              ----------    ----------
Net investment in property, plant and equipment.............  $  613,514    $  654,545
                                                              ==========    ==========
</TABLE>
 
     The net book value of assets utilized under capital leases was not material
at July 31, 1998 and 1997.
 
     The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
 
<TABLE>
<S>                                                           <C>
Buildings...................................................  10 - 45 years
Land improvements and building improvements.................   2 - 20 years
Machinery and equipment.....................................   2 - 20 years
</TABLE>
 
                                      F-12
<PAGE>   32
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     As of July 31, 1998, minimum rental commitments under noncancellable
operating leases were:
 
<TABLE>
<CAPTION>
                                                              (THOUSANDS OF DOLLARS)
                                                              -----------------------
<S>                                                           <C>
Year ended July 31
  1999......................................................         $ 59,166
  2000......................................................           44,982
  2001......................................................           31,066
  2002......................................................           21,593
  2003......................................................           17,742
Years subsequent to July 31, 2003...........................           49,094
                                                                     --------
Total.......................................................         $223,643
                                                                     ========
</TABLE>
 
     Minimum rental commitments under capital leases were not material at July
31, 1998.
 
     Rental expense for operating leases, including amounts for short-term
leases with nominal, if any, future rental commitments, was $64.0 million, $54.5
million and $38.5 million for the years ended July 31, 1998, 1997 and 1996,
respectively. The minimum future rentals receivable under subleases and the
contingent rental expenses were not significant.
 
NOTE F:  SHAREHOLDERS' INVESTMENT
 
     SHARE INFORMATION  At July 31, 1998, there were authorized 120 million
shares of Common stock, par value $1.00; 22 million shares of Preferred stock,
par value $5.00 and 8 million shares of Preference stock, par value $2.50.
 
     No cash dividends were paid on the Common stock in the three fiscal years
ended July 31, 1998.
 
     The Series B Preferred stock receives a $2.00 annual dividend, is not
convertible into Common stock and is redeemable at the option of the Company at
$80.00 plus accrued dividends and, in the event of liquidation, is entitled to
receive $25.00 plus accrued dividends. There were 410,643 shares of Series B
Preferred stock outstanding for each of the three fiscal years ended July 31,
1998.
 
     STOCK OPTION INFORMATION  The Company has a stock option plan which
provides for the grant of incentive awards to officers and other key employees.
Incentive awards may be granted in the form of stock options at fair market
value of the Company's Common stock on the date of grant. Prior to August 1,
1996, options could have been and were granted at an option price of not less
than 50% nor more than 100% of the fair market value of the Company's Common
stock. Options subject to grant under the plan consist of 5,000,000 shares
originally authorized plus 1.5% of the total issued and outstanding shares of
Common stock as of the end of the preceding fiscal year, subject to certain
limitations. Options so granted remain exercisable for a period of 10 years from
date of grant. The Company also has a Director Stock Option Plan which provides
for the grant of stock options to the Company's non-employee directors at the
fair market value of the Company's Common stock on the date of grant. The number
of options which are granted annually under the Director Stock Option plan is
fixed by the plan and become fully exercisable on the first anniversary of their
respective grant date.
 
                                      F-13
<PAGE>   33
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     The following is a summary of stock option activity for the three fiscal
years ended July 31, 1998:
 
<TABLE>
<CAPTION>
                                                                              WEIGHTED-
                                                               NUMBER OF       AVERAGE
                                                              SHARES UNDER    EXERCISE
                                                                 OPTION        PRICES
                                                              ------------    ---------
<S>                                                           <C>             <C>
Outstanding at July 31, 1995................................   2,947,554       $19.78
  Granted...................................................     858,000       $43.27
  Exercised.................................................    (429,800)      $13.24
  Canceled..................................................     (81,800)      $26.12
                                                               ---------
Outstanding at July 31, 1996................................   3,293,954       $26.59
  Granted...................................................     727,600       $47.58
  Exercised.................................................    (320,749)      $18.37
  Canceled..................................................     (65,120)      $29.15
                                                               ---------
Outstanding at July 31, 1997................................   3,635,685       $31.47
  Granted...................................................     808,000       $57.73
  Exercised.................................................    (619,944)      $18.48
  Canceled..................................................    (160,975)      $36.01
                                                               ---------
Outstanding at July 31, 1998................................   3,662,766       $39.26
                                                               =========
</TABLE>
 
     Exercisable options at July 31, 1998, 1997 and 1996 were 1,569,089,
1,641,094 and 1,317,070 at weighted-average exercise prices of $28.05, $21.82
and $18.40, respectively.
 
     The following table summarizes information with respect to options
outstanding at July 31, 1998:
 
<TABLE>
<CAPTION>
                        OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                -----------------------------------   ---------------------
                             WEIGHTED-
                              AVERAGE     WEIGHTED-               WEIGHTED-
   RANGE OF                  REMAINING     AVERAGE                 AVERAGE
   EXERCISE     NUMBER OF   CONTRACTUAL   EXERCISE    NUMBER OF   EXERCISE
    PRICE        OPTIONS       LIFE         PRICE      OPTIONS      PRICE
--------------  ---------   -----------   ---------   ---------   ---------
<S>             <C>         <C>           <C>         <C>         <C>
$ 7.40 - 20.05    564,820    4.1 years     $14.06       462,445    $13.48
$20.18 - 34.19    877,666    5.4 years     $28.68       674,466    $27.38
$37.88 - 47.88    779,220    7.9 years     $43.21       308,398    $43.37
$47.97 - 59.69  1,441,060    9.5 years     $53.44       123,780    $47.97
                ---------                             ---------
                3,662,766                             1,569,089
                =========                             =========
</TABLE>
 
     The Company recognizes compensation expense for stock options in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Under the provisions of Statement of Financial Accounting Standards
No. 123, compensation expense related to stock options would have been measured
using a fair value based method, resulting in the following pro forma net
earnings, basic earnings per share and diluted earnings per share amounts:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED JULY 31
                                                           --------------------------
                                                            1998      1997      1996
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Pro forma net earnings (in millions).....................  $176.3    $158.4    $150.2
Pro forma basic earnings per share.......................  $ 3.80    $ 3.40    $ 3.22
Pro forma diluted earnings per share.....................  $ 3.71    $ 3.32    $ 3.14
</TABLE>
 
                                      F-14
<PAGE>   34
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     The pro forma results are based on estimated weighted-average fair values
of options granted during fiscal years 1998, 1997 and 1996 of $19.68, $17.41 and
$17.01, respectively. The fair value of each grant is estimated on the grant
date using the Black-Scholes option pricing model with the following
weighted-average assumptions:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED JULY 31
                                                              --------------------
                                                              1998    1997    1996
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Expected life (in years)....................................   6.0     6.0     6.5
Risk-free interest rate.....................................  5.55%   6.40%   6.68%
Volatility..................................................    20%     20%     20%
</TABLE>
 
     SHAREHOLDER RIGHTS PLAN  The Company has a Share Purchase Rights Plan which
becomes exercisable under certain circumstances involving the acquisition by a
person or group of 15% or more of the Company's Common stock. Each right will
entitle the holder to purchase one one-thousandth of a share of Series A
Participating Preferred Stock ("Preferred Share") at a price of $150 per one
one-thousandth of a Preferred Share, subject to adjustment. Alternatively, each
right will entitle its holder to purchase a number of shares of the Company's
Common stock having a market value of two times the exercise price of the right.
The Company may exchange the rights for one Common share per right or redeem
them at $.01 per right at any time before they become exercisable. The rights
expire in August 2004.
 
NOTE G:  TAXES ON INCOME
 
     Earnings before taxes on income and by geographic area are as follows:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED JULY 31
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
                                                          (THOUSANDS OF DOLLARS)
<S>                                                  <C>         <C>         <C>
United States......................................  $276,549    $276,705    $261,735
Other nations......................................    25,734      (6,729)     (8,122)
                                                     --------    --------    --------
                                                     $302,283    $269,976    $253,613
                                                     ========    ========    ========
</TABLE>
 
     The components of taxes on income consist of the following provisions
(benefits):
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED JULY 31
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
                                                          (THOUSANDS OF DOLLARS)
<S>                                                  <C>         <C>         <C>
United States
  Current..........................................  $ 53,011    $ 86,804    $ 63,110
  Deferred.........................................    44,601      13,302      30,178
                                                     --------    --------    --------
                                                       97,612     100,106      93,288
                                                     --------    --------    --------
Other nations
  Current..........................................     3,638       3,605      (1,773)
  Deferred.........................................     5,214      (5,555)       (338)
                                                     --------    --------    --------
                                                        8,852      (1,950)     (2,111)
                                                     --------    --------    --------
State and local, primarily current.................    14,449       9,834      11,536
                                                     --------    --------    --------
Taxes on income....................................  $120,913    $107,990    $102,713
                                                     ========    ========    ========
</TABLE>
 
                                      F-15
<PAGE>   35
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     The primary components of the Company's deferred income tax assets and
liabilities are as follows:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Deferred Tax Assets:
  Inventories and receivables...............................  $226,594     $224,257
  Employee benefits.........................................   141,915      151,716
  Accrued liabilities.......................................    84,387       89,974
  Other items...............................................    44,383       32,439
                                                              --------     --------
                                                               497,279      498,386
                                                              --------     --------
Deferred Tax Liabilities:
  Employee benefits.........................................   113,444       97,715
  Depreciation..............................................    56,415       60,970
                                                              --------     --------
                                                               169,859      158,685
                                                              --------     --------
Net deferred tax assets.....................................  $327,420     $339,701
                                                              ========     ========
</TABLE>
 
     The deferred tax assets and liabilities are classified on the Consolidated
Balance Sheets as follows:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Net current deferred tax assets.............................  $417,719     $414,177
Net long-term deferred tax liabilities......................    90,299       74,476
                                                              --------     --------
                                                              $327,420     $339,701
                                                              ========     ========
</TABLE>
 
     The following is a reconciliation of income taxes at the U.S. statutory
rate to the provision for income taxes:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED JULY 31
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
                                                          (THOUSANDS OF DOLLARS)
<S>                                                  <C>         <C>         <C>
Tax at U.S. statutory rate.........................  $105,799    $ 94,492    $ 88,765
State taxes net of federal benefit.................     9,392       6,392       7,629
Nondeductible goodwill amortization (tax
  effected)........................................     7,267       6,284       3,994
Earnings taxed at other than U.S. statutory rate
  and other........................................    (1,545)        822       2,325
                                                     --------    --------    --------
Taxes on income....................................  $120,913    $107,990    $102,713
                                                     ========    ========    ========
Effective tax rate.................................      40.0%       40.0%       40.5%
                                                     ========    ========    ========
</TABLE>
 
     Undistributed earnings of non-U.S. subsidiaries, deemed to be permanently
reinvested, for which U.S. taxes have not been provided are included in
consolidated retained earnings in the amounts of $130 million and $132 million
at July 31, 1998 and 1997, respectively. If such earnings were distributed, U.S.
income taxes would be partially reduced for taxes paid to the jurisdictions in
which the income was earned.
 
     The Company made cash tax payments, including amounts for prior years'
taxes, of $148.9 million, $105.6 million and $169.9 million in fiscal years
1998, 1997 and 1996, respectively.
 
                                      F-16
<PAGE>   36
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
 
     PENSION BENEFITS  The majority of the Company's U.S. employees are covered
by contributory defined benefit plans under which employees are eligible for
benefits at age 65. Generally, benefits are determined under a formula based
primarily on the participant's total plan contributions. The Company's funding
policy is to make annual contributions to the extent such contributions are
actuarially determined and tax deductible.
 
     The Company has a defined contribution voluntary savings plan for eligible
U.S. employees. This 401(K) plan is designed to enhance the existing retirement
programs for participating employees. The Company matches 50% of a certain
portion of participants' contributions to the plan. Additionally, PRC and TASC
have various defined contribution pension plans covering substantially all of
their employees, some of which provide for discretionary contributions.
 
     The Company's non-U.S. subsidiaries also have retirement plans for
long-term employees. These plans are not considered to be significant
individually or in the aggregate to the Company's consolidated financial
position. The pension liabilities and their related costs are computed in
accordance with the laws of the individual nations and appropriate actuarial
practices.
 
     A summary of the components of net periodic pension income (cost) for the
U.S. defined benefit plans and costs for defined contribution plans and non-U.S.
pension plans for fiscal years 1998, 1997 and 1996 is as follows:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED JULY 31
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
                                                          (THOUSANDS OF DOLLARS)
<S>                                                  <C>         <C>         <C>
Defined benefit plans
  Service cost-benefits earned during the period...  $(31,758)   $(27,590)   $(25,235)
  Interest cost on projected benefit obligation....   (70,673)    (68,535)    (66,679)
  Actual return on plan assets.....................   238,045     168,775     159,459
  Net amortization and deferral....................   (93,790)    (42,712)    (38,646)
                                                     --------    --------    --------
  Net periodic pension income......................    41,824      29,938      28,899
Defined contribution plans.........................   (25,055)    (19,337)    (14,951)
Non-U.S. pension plans.............................    (6,286)     (4,518)     (4,647)
                                                     --------    --------    --------
Net pension income.................................  $ 10,483    $  6,083    $  9,301
                                                     ========    ========    ========
</TABLE>
 
     A reconciliation of the funded status of the U.S. defined benefit plans is
as follows:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                            --------------------------
                                                               1998           1997
                                                            -----------    -----------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                         <C>            <C>
Fair value of plan assets.................................  $ 2,068,596    $ 1,616,205
Projected benefit obligation..............................   (1,096,493)    (1,013,069)
Unrecognized net transition asset.........................      (20,610)       (34,361)
Unrecognized net gain.....................................     (686,195)      (351,284)
Unrecognized prior service costs..........................       22,126         24,194
                                                            -----------    -----------
Prepaid pension cost......................................  $   287,424    $   241,685
                                                            ===========    ===========
</TABLE>
 
     The accumulated benefit obligations at July 31, 1998 and 1997 were $1,005.7
million and $927.1 million, inclusive of vested benefit obligations of $978.7
million and $899.9 million, respectively.
 
                                      F-17
<PAGE>   37
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     The primary actuarial assumptions used include:
 
<TABLE>
<CAPTION>
                                                                JULY 31
                                                              ------------
                                                              1998    1997
                                                              ----    ----
<S>                                                           <C>     <C>
Expected long-term rate of return...........................    9%      9%
Weighted-average discount rate..............................  7 1/4%  7 3/4%
Rate of increase on future compensation levels..............    5%      5%
</TABLE>
 
     The excess of plan assets over the projected benefit obligation at August
1, 1986 (when the Company adopted SFAS No. 87) and subsequent unrecognized gains
and losses are fully amortized over the average remaining service period of
active employees expected to receive benefits under the plans, generally 15
years. Pension assets included in "Other Assets and Long-term Investments" were
$285.7 million and $279.6 million at July 31, 1998 and 1997, respectively. Plan
assets are invested primarily in listed common stock and fixed income
securities.
 
     OTHER POSTRETIREMENT BENEFITS  In addition to pension benefits, certain of
the Company's U.S. employees are covered by postretirement health care and life
insurance benefit plans. These benefit plans are unfunded.
 
     The components of net periodic postretirement benefit costs for fiscal
years 1998, 1997 and 1996 recognized under the provisions of SFAS No. 106 are as
follows:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED JULY 31
                                                        -----------------------------
                                                         1998       1997       1996
                                                        -------    -------    -------
                                                           (THOUSANDS OF DOLLARS)
<S>                                                     <C>        <C>        <C>
Service cost -- benefits earned during the period.....  $ 1,540    $ 1,625    $ 1,569
Interest cost on projected benefit obligation.........   10,298     10,779     11,939
Net amortization and deferral of actuarial amounts....   (1,253)    (1,422)    (1,212)
                                                        -------    -------    -------
Net postretirement benefit cost.......................  $10,585    $10,982    $12,296
                                                        =======    =======    =======
</TABLE>
 
     The following is a summary of the status of the postretirement benefit
plans:
 
<TABLE>
<CAPTION>
                                                                     JULY 31
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Accumulated benefit obligation:
  Retirees..................................................  $137,824     $125,660
  Fully eligible plan participants..........................    24,634       22,166
  Other active plan participants............................    14,464       17,112
                                                              --------     --------
Total accumulated benefit obligation........................   176,922      164,938
Unrecognized actuarial amounts..............................    29,475       40,393
                                                              --------     --------
Accrued benefit obligation..................................  $206,397     $205,331
                                                              ========     ========
</TABLE>
 
     Actuarial assumptions used to measure the accumulated postretirement
benefit obligation include a discount rate of 7 1/4% and 7 3/4% at July 31, 1998
and 1997, respectively. The assumed health care cost trend rate for fiscal year
1999 is 9.33%, decreasing over 19 years to 6% where it is expected to remain
thereafter. The assumed health care cost trend rates for fiscal years 1998 and
1997 were 9.5% and 10.3%, respectively, decreasing over 20 and 21 years,
respectively, to 6%. The effect of a one-percentage-point increase in the
assumed health care cost trend rate on the service cost and interest cost
components of the net periodic postretirement benefit cost is not material. A
one-percentage-point change in the assumed health care cost trend rate would
impact the accumulated benefit obligation by approximately $13.2 million.
 
                                      F-18
<PAGE>   38
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE I:  DEFENSE CONTRACTS, LITIGATION AND CONTINGENCIES
 
     Approximately 66%, 67% and 71% of total sales and service revenues of the
Company for the years ended July 31, 1998, 1997 and 1996 were from U.S.
Government contracts and subcontracts. Approximately 70% of these revenues for
1998 related to fixed-price type contracts. As is common with U.S. Government
contracts, the Company's U.S. defense contracts are unilaterally terminable at
the option of the U.S. Government with compensation for work completed and costs
incurred. Contracts with the U.S. Government are subject to certain laws and
regulations, the noncompliance with which may result in various sanctions. In
the current government contracting environment, contractors, sometimes without
their knowledge, are subject to investigations by the U.S. Government initiated
in various ways. Most investigations result in no action being taken or
administrative resolution. Litton is aware of ongoing investigations and is
cooperating in those investigations. Should any investigation result in the
filing of formal charges against the Company by the U.S. Government, disclosure
will be made if the amount involved or the relief sought is deemed by the
Company to be material.
 
     Litton is suing Honeywell, Inc. ("Honeywell") for patent infringement
relating to the manufacture of ring laser gyro navigation systems which are used
in commercial aircraft. After trial of that case in the U.S. District Court for
the Central District of California, on August 31, 1993, the jury rendered a
verdict in favor of Litton in the amount of $1.2 billion. On January 9, 1995,
the District Court released a Memorandum of Decision finding Litton's patent
invalid and rejecting the jury verdict. Litton appealed to the U.S. Court of
Appeals for the Federal Circuit. On July 3, 1996, the Court of Appeals rendered
a decision reversing the District Court's decision, finding the patent valid and
infringed by Honeywell. The Court of Appeals reinstated the jury's verdict on
liability including the findings of interference with contract and prospective
business advantage and ordered a new trial on the amount of damages sustained by
Litton in the District Court. On March 17, 1997, the U.S. Supreme Court vacated
the Court of Appeals ruling and remanded the case to the Court of Appeals for
further consideration in view of the Supreme Court's decision in Warner-Jenkins
Co. v. Hilton Davis Chemical Co. On April 7, 1998, the Court of Appeals
reinstated its finding that the patent was valid and ordered a new trial on both
liability and damages for the patent and interference with contract and
prospective business advantage claims. The Company has requested a trial date in
December of 1998.
 
     Litton is also suing Honeywell on antitrust grounds in the same U.S.
District Court. On February 29, 1996, a jury rendered a verdict in favor of
Litton. On July 25, 1996, the District Court upheld the jury's verdict that
Honeywell attempted to illegally monopolize and did monopolize the market for
inertial reference systems for large commercial air transport, commuter and
business aircraft. However, the District Court declined to enter the $234
million jury verdict on the basis that Litton's damage study as presented failed
to disaggregate damages between illegal and legal acts. A new trial limited to
the issue of the amount of damages sustained by Litton attributable to
Honeywell's unlawful conduct has been ordered by the District Court. The
District Court set a trial date of October 28, 1998.
 
     There are various other litigation proceedings in which the Company is
involved. Although the results of litigation proceedings cannot be predicted
with certainty, it is the opinion of the General Counsel that the ultimate
resolution of these other proceedings will not have a material adverse effect on
the Company's financial statements.
 
     The Company has issued or is a party to various guarantees and letter of
credit agreements totaling $453 million at July 31, 1998, relating principally
to the guarantee of future performance on foreign government contracts.
 
                                      F-19
<PAGE>   39
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE J:  BUSINESS SEGMENT REPORTING
 
     The Company's primary operations are reported in the following four
segments: Advanced Electronics, Information Systems, Marine Engineering and
Production, and Electronic Components and Materials. The Information Systems
businesses, formerly reported with the Advanced Electronics segment, have been
reported as a separate segment effective August 1, 1997. Accordingly, the
segment information for fiscal years 1997 and 1996 as presented herein has been
restated to reflect this change.
 
     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.
 
     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 Marine Engineering and Production 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 U.S. Government is a significant customer of the Advanced Electronics,
Information Systems and Marine Engineering and Production segments (see Note I).
 
     The Electronic Components and Materials segment is an international
supplier of laser crystals, connectors, mutilayer circuit boards, solder
materials and other electronic components used primarily in the
telecommunication, industrial and computer markets.
 
     Export sales were $578.3 million, $489.1 million and $406.8 million in
fiscal years 1998, 1997 and 1996, respectively. Intersegment sales and sales
between geographic areas are not material. All internal sales and transfers are
based on negotiated prices.
 
     Costs for Corporate, Interest and Other include unallocated expenses and
net interest expense, and its assets consist primarily of cash, marketable
securities and deferred tax assets.
 
                                      F-20
<PAGE>   40
                            LITTON INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
              OPERATIONS BY BUSINESS SEGMENT (MILLIONS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                                                     MARINE      ELECTRONIC
                              YEAR                                 ENGINEERING   COMPONENTS    CORPORATE,
                              ENDED     ADVANCED     INFORMATION       AND          AND       INTEREST AND
                             JULY 31   ELECTRONICS     SYSTEMS     PRODUCTION    MATERIALS       OTHER       TOTAL
                             -------   -----------   -----------   -----------   ----------   ------------   ------
<S>                          <C>       <C>           <C>           <C>           <C>          <C>            <C>
Sales and service
  revenues.................   1998       $1,586        $1,241        $1,034         $596         $ (57)      $4,400
                              1997        1,533         1,085         1,112          508           (62)       4,176
                              1996        1,326           612         1,295          450           (71)       3,612
 
Operating profit (loss)....   1998          111            70           134           99          (112)         302
                              1997           96            75           135           70          (106)         270
                              1996           87            45           143           51           (72)         254
 
Capital expenditures.......   1998           31            18            34           33            --          116
                              1997           30            27            29           26             1          113
                              1996           37            13            19           20             2           91
 
Depreciation and
  amortization expense.....   1998           68            40            20           18             2          148
                              1997           68            33            19           16             2          138
                              1996           61            17            19           15             2          114
 
Identifiable assets at year
  end......................   1998        1,343         1,422           338          385           562        4,050
                              1997        1,443           866           327          340           544        3,520
                              1996        1,383           776           361          338           573        3,431
</TABLE>
 
              OPERATIONS BY GEOGRAPHIC AREA (MILLIONS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                      YEAR                                       CORPORATE,
                                      ENDED     UNITED     OTHER                  INTEREST
                                     JULY 31    STATES    NATIONS    SUBTOTAL    AND OTHER     TOTAL
                                     -------    ------    -------    --------    ----------    ------
<S>                                  <C>        <C>       <C>        <C>         <C>           <C>
Sales and service revenues.........   1998      $3,919     $481       $4,400       $  --       $4,400
                                      1997       3,707      469        4,176          --        4,176
                                      1996       3,263      349        3,612          --        3,612
 
Operating profit (loss)............   1998         380       30          410        (108)         302
                                      1997         370       (1)         369         (99)         270
                                      1996         321       (1)         320         (66)         254
 
Identifiable assets at year end....   1998       3,136      352        3,488         562        4,050
                                      1997       2,619      357        2,976         544        3,520
                                      1996       2,450      408        2,858         573        3,431
</TABLE>
 
                                      F-21
<PAGE>   41
 
                            LITTON INDUSTRIES, INC.
 
                  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
                (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                  SALES     EARNINGS
                                   AND       BEFORE                EARNINGS PER SHARE    COMMON STOCK
                                 SERVICE    TAXES ON     NET      --------------------   HIGH AND LOW
                                 REVENUES    INCOME    EARNINGS    BASIC      DILUTED    MARKET PRICES
                                 --------   --------   --------   --------   ---------   -------------
<S>                              <C>        <C>        <C>        <C>        <C>         <C>
Fiscal Year 1998
  First Quarter...............    $1,039      $ 72       $ 43      $ .94       $ .92     High 57
                                                                                         Low 45 7/8
  Second Quarter..............       974        68         41      $ .88       $ .86     High 59 15/16
                                                                                         Low 47 3/4
  Third Quarter...............     1,143        78         47      $1.01       $ .98     High 63 7/16
                                                                                         Low 56 7/8
  Fourth Quarter..............     1,244        84         50      $1.09       $1.07     High 61 15/16
                                 -------    -------    -------                           Low 55 1/2
  Fiscal Year 1998............    $4,400      $302       $181      $3.91       $3.82
                                  ======      ====       ====
 
Fiscal Year 1997
  First Quarter...............    $1,049      $ 67       $ 40      $ .85       $ .83     High 49 1/4
                                                                                         Low 42 3/4
  Second Quarter..............       960        60         36      $ .77       $ .76     High 48 3/8
                                                                                         Low 43 1/8
  Third Quarter...............     1,096        70         42      $ .90       $ .89     High 45 1/4
                                                                                         Low 38 1/8
  Fourth Quarter..............     1,071        73         44      $ .95       $ .93     High 54 5/8
                                 -------    -------    -------                           Low 42 1/2
  Fiscal Year 1997............    $4,176      $270       $162      $3.48       $3.40
                                  ======      ====       ====
</TABLE>
 
---------------
The total of quarterly amounts for earnings per share will not necessarily equal
the annual amount, since the computations are based on the weighted-average
number of common shares and dilutive potential common shares outstanding during
each period.
 
Litton Common stock is traded principally on the New York Stock Exchange and the
Pacific Exchange, Inc. under the symbol "LIT".
 
As of September 30, 1998, there were approximately 23,300 holders of record of
the Common stock.
 
                                      F-22
<PAGE>   42
 
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT NO. AND
APPLICABLE SECTION
  OF ITEM 601 OF
  REGULATION S-K
------------------
<S>                   <C>
      3.1(a)          Restated Certificate of Incorporation of the Company, filed
                      as Exhibit 3.1 to the Company's 1984 Annual Report on Form
                      10-K, and incorporated herein by reference.
      3.1(b)          Amendment to the Company's Restated Certificate of
                      Incorporation, filed as Exhibit 3.1(a) to the Company's
                      October 31, 1986 Quarterly Report on Form 10-Q, and
                      incorporated herein by reference.
      3.2(a)          By-laws of the Company as amended through the date of this
                      filing, and incorporated herein by reference.
      4.1             Indenture dated as of April 13, 1998 between the Company and
                      The Bank of New York, Trustee, under which the 6.05% Senior
                      Notes due 2003 and the 6.75% Senior Debentures due 2018 were
                      issued, filed as Exhibit 4.1 to the Company's April 30, 1998
                      Quarterly Report on Form 10-Q, and incorporated herein by
                      reference.
      4.2             $400,000,000 Credit Agreement dated March 27, 1998 among
                      Litton Industries, Inc., a group of banks and Morgan
                      Guaranty Trust Company of New York, as Agent, filed as
                      Exhibit 4.2 to the Company's April 30, 1998 Quarterly Report
                      on Form 10-Q, and incorporated herein by reference.
      4.3             Indenture dated as of December 15, 1991 between the Company
                      and The Bank of New York, Trustee, under which the 7.75% and
                      6.98% debentures due 2026 and 2036 were issued and specimens
                      of such debentures, filed as Exhibit 4.1 of the Company's
                      April 30, 1996 Quarterly Report on Form 10-Q, and
                      incorporated herein by reference.
      4.4             $400,000,000 Amended and Restated Credit Agreement dated
                      December 22, 1994, along with amendment dated March 17,
                      1995, among Litton Industries, Inc., a group of banks and
                      Morgan Guaranty Trust Company of New York, as Agent, and
                      Wells Fargo Bank, N.A., as Co-Agent, filed as Exhibit 4.3 to
                      the Company's 1995 Annual Report on Form 10-K, and
                      incorporated herein by reference.
      4.4(a)          Amendment No. 2 dated November 30, 1995 to the $400,000,000
                      Amended and Restated Credit Agreement, filed as Exhibit 4 to
                      the Company's Form 8-K/A dated March 4, 1996, and
                      incorporated herein by reference.
      4.4(b)          Amendment No. 3 dated April 25, 1996 to the $400,000,000
                      Amended and Restated Credit Agreement, filed as Exhibit 4.2
                      to the Company's April 30, 1996 Quarterly Report on Form
                      10-Q, and incorporated herein by reference.
      4.4(c)          Amendment No. 4 dated October 18, 1996 to the $400,000,000
                      Amended and Restated Credit Agreement, filed as Exhibit 4 to
                      the Company's October 31, 1996 Quarterly Report on Form
                      10-Q, and incorporated herein by reference.
      4.5             Other instruments defining the rights of holders of other
                      long-term debt of the Registrant are not filed as exhibits
                      because the amount of debt authorized under any such
                      instrument does not exceed 10% of the total assets of the
                      Registrant and its consolidated subsidiaries. The Registrant
                      hereby undertakes to furnish a copy of any such instrument
                      to the Commission upon request.
      4.6             Rights Agreement, together with exhibits thereto, dated
                      August 17, 1994 between Litton Industries, Inc. and The Bank
                      of New York, as Rights Agent, filed as Exhibit 99.2 to Form
                      8-K dated August 17, 1994, and incorporated herein by
                      reference.
</TABLE>
 
                                       E-1
<PAGE>   43
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                         INDEX TO EXHIBITS (CONTINUED)
 
<TABLE>
<CAPTION>
 EXHIBIT NO. AND
APPLICABLE SECTION
  OF ITEM 601 OF
  REGULATION S-K
------------------
<S>                   <C>
     10.1(a)          Board of Directors Resolutions, adopted December 4, 1997,
                      with respect to nonemployee directors' annual retainer and
                      attendance fees.*
     10.1(b)          Board of Directors Resolutions with respect to director
                      retirement age and with respect to postretirement payments
                      to directors, including those payments made in the event of
                      a change in control of the Company, adopted on October 16,
                      1991, filed as Exhibit 10.2(b) to the Company's 1991 Annual
                      Report on Form 10-K, and incorporated herein by reference.
     10.2(a)          Litton Supplemental Retirement Plan, filed as Exhibit 10.3
                      to the Company's 1983 Annual Report on Form 10-K, and
                      incorporated herein by reference.
     10.2(b)          Board of Directors Resolution, adopted December 2, 1992,
                      amending the Litton Supplemental Retirement Plan, filed as
                      Exhibit 10.1 to the Company's April 30, 1993 Quarterly
                      Report on Form 10-Q, and incorporated herein by reference.
     10.2(c)          Agreement of Trust between the Company and First Interstate
                      Bank of California, dated December 20, 1988, regarding
                      payments of pension benefits under the Litton Supplemental
                      Retirement Plan to certain former and present employees or
                      their beneficiaries, filed as Exhibit 10.17 to the Company's
                      1989 Annual Report on Form 10-K, and incorporated herein by
                      reference.
     10.2(d)          Amendments, through the date of the filing, to the Agreement
                      of Trust dated December 20, 1988, and incorporated herein by
                      reference.
     10.2(e)          Instruments dated April 16, 1990, and April 25, 1990,
                      removing First Interstate Bank of California as Trustee
                      under Agreement of Trust dated December 20, 1988, and
                      appointing Wells Fargo Bank, N.A., as Successor Trustee,
                      filed as Exhibit 10.17(c) to the Company's 1990 Annual
                      Report on Form 10-K, and incorporated herein by reference.
     10.2(f)          Letter of Credit dated November 17, 1989, issued by Wells
                      Fargo Bank, N.A. pursuant to Agreement of Trust dated
                      December 20, 1988, filed as Exhibit 10.17(d) to the
                      Company's 1990 Annual Report on Form 10-K, and incorporated
                      herein by reference.
     10.3(a)          Specimen of the form of the agreement presently outstanding
                      under the Litton Industries, Inc. Executive Survivor Benefit
                      Plan, applicable to officers and certain key employees,
                      filed as Exhibit 10.4 to the Company's 1984 Annual Report on
                      Form 10-K, and incorporated herein by reference.
     10.3(b)          Board of Directors Resolutions amending the Executive
                      Survivor Benefit Plan, adopted June 12, 1986, filed as
                      Exhibit 10.4(a) to the Company's 1986 Annual Report on Form
                      10-K, and incorporated herein by reference.
     10.5(a)          Board of Directors Resolution with respect to incentive
                      loans, adopted September 26, 1991, filed as Exhibit 10.8(a)
                      to the Company's 1991 Annual Report on Form 10-K and
                      incorporated herein by reference.
     10.5(b)          Board of Directors Resolution, adopted September 19, 1996,
                      amending the Company's incentive loan program, filed as
                      Exhibit 10.5(b) to the Company's 1996 Annual Report on Form
                      10-K and incorporated herein by reference.
</TABLE>
 
---------------
 
<TABLE>
<S>                  <C>
* Copies of these documents have been included in this Annual Report on Form 10-K
  filed with the Securities and Exchange Commission.
</TABLE>
 
                                       E-2
<PAGE>   44
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                         INDEX TO EXHIBITS (CONTINUED)
 
<TABLE>
<CAPTION>
 EXHIBIT NO. AND
APPLICABLE SECTION
  OF ITEM 601 OF
  REGULATION S-K
------------------
<S>                   <C>
     10.5(c)          Specimen of the form of promissory note applicable to loans
                      presently outstanding under the Company's incentive loan
                      program, filed as Exhibit 10.8(b) to the Company's 1991
                      Annual Report on Form 10-K, and incorporated herein by
                      reference.
     10.7(a)          Supplemental Medical Insurance Plan for Key Executive
                      Employees incorporating all amendments thereto through the
                      date of this filing, filed as Exhibit 10.10 to the Company's
                      1990 Annual Report on Form 10-K, and incorporated herein by
                      reference.
     10.7(b)          Resolution adopted by the Compensation and Selection
                      Committee, dated January 26, 1994, approving the
                      participation by Orion L. Hoch and Catherine Nan Hoch in the
                      Supplemental Medical Insurance Plan, filed as Exhibit 10.2
                      to the Company's April 30, 1994 Quarterly Report on Form
                      10-Q, and incorporated herein by reference.
     10.9(a)          Supplemental Retirement Agreement between the Company and
                      Orion L. Hoch, filed as Exhibit 10.13(b) to the Company's
                      1983 Annual Report on Form 10-K, and incorporated herein by
                      reference.
     10.9(b)          Amendments, through the date of the filing, to the
                      Supplemental Retirement Agreement between the Company and
                      Orion L. Hoch, and incorporated herein by reference.
     10.9(c)          Extract of the minutes of a meeting of the Compensation and
                      Selection Committee of the Board of Directors, held on March
                      31, 1988, with respect to the lifetime participation of Fred
                      W. O'Green and Mildred G. O'Green in the Supplemental
                      Medical Insurance Plan, filed as Exhibit 10.13(e) to the
                      Company's 1988 Annual Report on Form 10-K, and incorporated
                      herein by reference.
     10.10(a)         Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan,
                      as amended and restated, filed as Exhibit 10.1 to the
                      Company's October 31, 1996 Quarterly Report on Form 10-Q,
                      and incorporated herein by reference.
     10.10(b)         Amendment to Litton Industries, Inc. 1984 Long-Term Stock
                      Incentive Plan, adopted September 18, 1997, with respect to
                      options issued to employees of Western Atlas Inc. and
                      subsequently UNOVA, Inc., filed as Exhibit 10.10(f) to the
                      Company's 1997 Annual Report on Form 10-K, and incorporated
                      herein by reference.
     10.11            Litton Industries, Inc. Performance Award Plan, filed as
                      Exhibit 10.2 to the Company's October 31, 1996 Quarterly
                      Report on Form 10-Q, and incorporated herein by reference.
     10.12            Litton Industries, Inc. Restoration Plan filed as Exhibit
                      10.16 to the Company's 1989 Annual Report on Form 10-K, and
                      incorporated herein by reference.
     10.13(a)         Litton Industries, Inc. Director Stock Option Plan, filed as
                      Exhibit 10.18(a) to the Company's 1989 Annual Report on Form
                      10-K, and incorporated herein by reference.
     10.13(b)         Board of Directors Resolution, adopted March 12, 1992,
                      amending the Litton Industries, Inc. Director Stock Option
                      Plan for the two-for-one Common stock split which was
                      effective May 8, 1992, filed as Exhibit 10.18(b) to the
                      Company's 1992 Annual Report on Form 10-K, and incorporated
                      herein by reference.
     10.13(c)         Board of Directors Resolution, adopted September 30, 1993,
                      adjusting the options outstanding under the Litton
                      Industries, Inc. Director Stock Option Plan for the
                      distribution of Western Atlas Inc. common stock, filed as
                      Exhibit 10.18(c) to the Company's 1993 Annual Report on Form
                      10-K, and incorporated herein by reference.
</TABLE>
 
                                       E-3
<PAGE>   45
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                         INDEX TO EXHIBITS (CONTINUED)
 
<TABLE>
<CAPTION>
 EXHIBIT NO. AND
APPLICABLE SECTION
  OF ITEM 601 OF
  REGULATION S-K
------------------
<S>                   <C>
     10.13(d)         Board of Directors Resolution, adopted October 27, 1994,
                      with respect to options issued to directors of the Company
                      who became directors of Western Atlas Inc., filed as Exhibit
                      10.13(d) to the Company's 1995 Annual Report on Form 10-K,
                      and incorporated herein by reference.
     10.13(e)         Board of Directors Resolution, adopted September 18, 1997,
                      with respect to options issued to directors of the Company
                      who became directors of Western Atlas Inc. and subsequently
                      UNOVA, Inc., filed as Exhibit 10.13(e) to the Company's 1997
                      Annual Report on Form 10-K, and incorporated herein by
                      reference.
     10.16            Copy of the Company's "Group Bonus Plan", which provides for
                      incentive compensation rewards for certain Group Executives
                      and other key group personnel, filed as Exhibit 10 to the
                      Company's October 31, 1997 Quarterly Report on Form 10-Q,
                      and incorporated herein by reference.
     10.18            Litton Industries, Inc. Deferred Compensation Plan for
                      Directors together with Board of Directors Resolution
                      adopted December 2, 1992, filed as Exhibit 10.3 to the
                      Company's April 30, 1993 Quarterly Report on Form 10-Q, and
                      incorporated herein by reference.
     10.19            Form of Change of Control Employment Agreement between the
                      Company and certain executive officers, filed as Exhibit
                      10.27 to the Company's 1993 Annual Report on Form 10-K, and
                      incorporated herein by reference.
     10.20            Distribution and Indemnity Agreement between Litton
                      Industries, Inc. and Western Atlas Inc. dated March 17,
                      1994, filed as Exhibit 99.1 to Form 8-K dated March 17,
                      1994, and incorporated herein by reference.
     10.21            Tax Sharing Agreement between Litton Industries, Inc. and
                      Western Atlas Inc. dated March 17, 1994, filed as Exhibit
                      99.1 to Form 8-K dated March 17, 1994, and incorporated
                      herein by reference.
     10.22(a)         Litton Industries, Inc. Supplemental Executive Retirement
                      Plan, effective August 1, 1995, to provide supplemental
                      retirement benefits to certain key executive employees,
                      filed as Exhibit 10.22 to the Company's 1995 Annual Report
                      on Form 10-K, and incorporated herein by reference.
     10.22(b)         Amendment No. 1 to the Litton Industries, Inc. Supplemental
                      Executive Retirement Plan, filed as Exhibit 10.22(b) to the
                      Company's 1997 Annual Report on Form 10-K, and incorporated
                      herein by reference.
     10.22(c)         Amendment No. 2 to the Litton Industries, Inc. Supplemental
                      Executive Retirement Plan, filed as Exhibit 10.22(c) to the
                      Company's 1997 Annual Report on Form 10-K, and incorporated
                      herein by reference.
     21               Subsidiaries of the Registrant included herein on page E-5.
     23               Independent Auditors' Consent included herein on page E-6.
     27               Financial Data Schedule included herein.
     99               Undertaking re: Indemnification for liabilities under
                      Securities Act, filed as Exhibit 19 to the Company's 1990
                      Annual Report on Form 10-K, and incorporated herein by
                      reference.
     99.1             Stock Purchase Agreement dated as of December 13, 1995 By
                      and Among The Black & Decker Corporation, PRC Investments,
                      Inc., PRC Inc. and Litton Industries, Inc. filed as Exhibit
                      99.2 to the Company's Form 8-K dated February 22, 1996 and
                      incorporated herein by reference.
</TABLE>
 
                                       E-4
<PAGE>   46
 
                                                                      EXHIBIT 21
 
                LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
 
                         SUBSIDIARIES OF THE REGISTRANT
 
<TABLE>
<CAPTION>
                                                              JURISDICTION     PERCENTAGE
                                                                   OF              OF
                     NAME OF SUBSIDIARY                       INCORPORATION    OWNERSHIP
                     ------------------                       -------------    ----------
<S>                                                           <C>              <C>
Ingalls Shipbuilding, Inc...................................  Delaware            100
Litton Systems, Inc.........................................  Delaware            100
PRC Inc.....................................................  Delaware            100
Sperry Marine Inc...........................................  Delaware            100
TASC, Inc...................................................  Massachusetts       100
</TABLE>
 
     The Registrant has additional operating subsidiaries, which considered in
the aggregate as a single subsidiary, do not constitute a significant
subsidiary.
 
     All above listed subsidiaries have been consolidated in the Registrant's
financial statements.
 
                                       E-5
<PAGE>   47
 
                                                                      EXHIBIT 23
 
                         INDEPENDENT AUDITORS' CONSENT
 
     We consent to the incorporation by reference in (i) Registration Statement
No. 2-93044 on Form S-8, (ii) Registration Statement No. 33-27467 on Form S-8,
(iii) Registration Statement No. 33-27468 on Form S-8, (iv) Registration
Statement No. 33-44684 on Form S-3, (v) Registration Statement No. 33-55944 on
Form S-8, (vi) Registration Statement No. 333-13193 on Form S-3, (vii)
Registration Statement No. 333-23447 on Form S-8, (viii) Registration Statement
No. 333-28295 on Form S-3, and (ix) Registration Statement No. 333-50675 on Form
S-8 of our report dated September 23, 1998, appearing in this Annual Report on
Form 10-K of Litton Industries, Inc. for the year ended July 31, 1998.
 
DELOITTE & TOUCHE LLP
 
Los Angeles, California
October 12, 1998
 
                                       E-6