<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): AUGUST 15,
1996
ALLEGHENY TELEDYNE INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 1-12001 25-1792394
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1000 SIX PPG PLACE, PITTSBURGH, PENNSYLVANIA 15222-5479
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 412-394-2800
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Item 2. Acquisition or Disposition of Assets.
------------------------------------
On August 15, 1996, pursuant to an Agreement and Plan
of Merger and Combination dated as of April 1, 1996, as amended
and restated (the "Combination Agreement"), among Allegheny
Teledyne Incorporated (the "Company"), Allegheny Ludlum
Corporation ("Allegheny Ludlum"), ALS Merger Corporation,
Teledyne, Inc. ("Teledyne") and TDY Merger, Inc., ALS Merger
Corporation was merged with and into Allegheny Ludlum and TDY
Merger, Inc. was merged with and into Teledyne, whereupon each of
Allegheny Ludlum and Teledyne became a wholly owned subsidiary of
the Company (the "Combination").
Allegheny Ludlum is one of the world's leading
manufacturers of specialty materials and one of the largest
domestic producers of stainless steel. Teledyne is a technology-
based manufacturing corporation serving worldwide customers with
commercial and government-related aviation and electronics
products; specialty metals for consumer, industrial and aerospace
applications; and industrial and consumer products.
Pursuant to the Combination Agreement, at the effective
time of the Combination, each outstanding share of Common Stock,
par value $.10 per share, of Allegheny Ludlum (other than shares
owned by Teledyne or any subsidiary of Teledyne, or shares held
in Allegheny Ludlum's treasury immediately prior to the effective
time of the Combination) was converted into the right to receive
one share of Common Stock, par value $.10 per share, of the
Company ("Company Common Stock"), and each share of Common Stock,
par value $1.00 per share, of Teledyne (other than shares owned
by Allegheny Ludlum or any subsidiary of Allegheny Ludlum, or
shares held in Teledyne's treasury immediately prior to the
effective time of the Combination) was converted into the right
to receive 1.925 shares of Company Common Stock (with cash paid
in lieu of fractional shares). The foregoing conversion ratios
were determined on the basis of arms' length negotiations between
representatives of Allegheny Ludlum and Teledyne.
Item 5. Other Events.
------------
Subject to certain conditions, the Private Securities
Litigation Reform Act of 1995 provides a safe harbor from
liability in any private action that is based on an alleged
untrue statement of a material fact or alleged omission of a
material fact necessary to make the statement not misleading.
To the extent that the Company or its representatives make oral
forward-looking statements, following are important factors that
could cause actual results to differ materially from those in
such forward-looking statements.
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Certain Business Risks Affecting the Company
--------------------------------------------
Demand for products of the Company's specialty metals
businesses, which, on a pro forma basis would have accounted for
a significant portion of the Company's 1995 total sales and its
1995 total income, is cyclical because the industries in which
customers of such businesses operate are cyclical and are subject
to changes in general economic conditions, including decreases in
the rate of consumption or use of their products due to economic
recessions or due to increases in use or decreases in price of
other materials which may be used in lieu of the materials they
produce, national and international overcapacity, flucutations in
the value of the United States dollar against other currencies
and levels of lower priced imports, which affect market demand
for specialty materials. From time to time, these industries
have experienced significant downturns. Significant downturns in
the domestic economy are believed to have adversely affected the
results of operations of each of Allegheny Ludlum and Teledyne
from time to time during their respective histories. As a
result, the Company's operating results could be subject to
significant fluctuation.
Certain of the principal raw materials used to produce
specialty metals can be acquired in large part only from foreign
sources, some of which are located in countries that may be
subject to unstable political and economic conditions which might
disrupt supplies or affect the prices of these materials.
Purchase prices of certain critical raw materials are volatile.
As a result, the Company's operating results could be subject to
significant fluctuation. It is anticipated that the Company may
enter into raw material futures contracts from time to time to
hedge its exposure to price fluctuations. It is expected that
these contracts will not be significant to the Company's total
raw material purchases and will not be material from a financial
point of view.
The Company is subject to various federal, state, local and
foreign environmental laws and regulations. Environmental laws
and regulations have changed rapidly in recent years, and it is
likely that the Company will be subject to increasingly stringent
environmental standards in the future. The Company believes that
its businesses are being operated in compliance in all material
respects with applicable environmental laws and regulations.
Allegheny Ludlum and Teledyne are parties to lawsuits and other
proceedings involving alleged violations of environmental laws.
Based on currently available information, management of the
Company does not believe that costs in excess of those accrued
for environmental matters will have a material adverse effect on
the Company. There can be no assurance that additional future
developments, administrative actions or liabilities relating to
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environmental matters will not have a material adverse effect on
the Company's financial condition or results of operations.
Teledyne performs work on a number of contracts with the
Department of Defense and other agencies and departments of the
U.S. Government. Such business has certain inherent risks that
could have a material effect on the Company's business, results
of operations and financial condition, including the following:
(1) U.S. Government contracts are conditioned upon the continuing
availability of Congressional appropriations. Congress usually
appropriates funds for a given program on a fiscal-year basis
even though contract performance may take more than one year.
Consequently, at the outset of a major program, the contract is
usually partially funded, and additional monies are normally
committed to the contract by the procuring agency only as
appropriations are made by Congress for future fiscal years. The
U.S. defense budget has been declining in real terms since the
mid-1980's, resulting in some delays in new program starts,
program stretch-outs and program cancellations, and future
significant declines may occur; (2) Most of Teledyne's U.S.
Government contracts are, by their terms, subject to termination
by the U.S. Government either for its convenience or for the
default of the contractor. Termination-for-convenience
provisions provide only for the recovery by Teledyne of costs
incurred or committed, settlement expenses, and profit on work
completed prior to termination. Termination-for-default
provisions provide for the contractor to be liable for excess
costs incurred by the U.S. Government in procuring undelivered
items from another source; (3) Teledyne obtains many U.S.
Government prime and sub contracts through the process of
competitive bidding. There can be no assurance that Teledyne
will continue to be successful in having its bids accepted or, if
accepted, that awarded contracts will generate sufficient sales
to result in profitability for Teledyne's government contracting
businesses; (4) A number of Teledyne's U.S. Government prime and
sub contracts are fixed price-type contracts, with the inherent
risk that actual performance cost may exceed the contract price.
This is particularly true where the contract was awarded and the
price finalized in advance of final completion of design (which
may result in unforeseen technological difficulties and/or cost
overruns); and (5) Teledyne, like other government contractors,
has been and is presently subject to various audits, reviews and
investigations (including private party "whistleblower"lawsuits)
relating to its compliance with federal and state laws. In
addition, Teledyne has adopted a rigorous compliance program,
which from time to time surfaces issues that lead to voluntary
disclosures to the U.S. Government. Generally, claims arising
out of these U.S. Government inquiries and voluntary disclosures
are resolved without resort to litigation. However, should the
unit involved be charged with wrongdoing, or should the U.S.
Government determine that the unit is not a "presently
responsible contractor," that unit, and conceivably Teledyne,
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<PAGE> 5
could be temporarily suspended or, in the event of a conviction,
could be debarred for up to three years from receiving new
government contracts or government-approved subcontracts. In
addition, substantial amounts may be expended in defending such
charges and in damages, fines and penalties if such charges are
proven or result in negotiated settlements.
It is anticipated that export sales will account for a
significant percentage of the Company's sales. Among the risks
associated with export sales are export controls, changes in
legal and regulatory requirements, policy changes affecting the
markets for the Company's products, changes in tax laws and
tariffs, exchange rate fluctuations (which may affect sales to
foreign customers and the value of, and profits earned on, such
sales when translated into U.S. dollars), political and economic
instability, accounts receivable collection, and the seasonality
of foreign sales. Any of these factors could have a material
adverse effect on the Company's business, results of operations
and financial condition.
Inherent Uncertainties Relating to Certain
Effects of the Combination
------------------------------------------
The success of the Combination in enhancing long-term
stockholder value depends in part on the ability of the
respective managements of Allegheny Ludlum and Teledyne to
coordinate the operations of their two substantial business
enterprises. As in every business combination, such coordination
will require the dedication of management resources, which may
temporarily divert attention from the day-to-day business of the
Company. The difficulties of coordination may be increased by the
necessity of managing geographically separated organizations and
by the fact that three of Teledyne's segments engage in
businesses in which Allegheny Ludlum has never engaged. There can
be no assurance that the coordination necessary to maximize the
benefits of the Combination will be wholly realized.
In considering the Combination, the senior managements
of Allegheny Ludlum and Teledyne have identified reductions of at
least $85 million per year in pre-tax expenses and increases of
at least $50 million per year in after-tax cash flow which they
believe can be achieved, without taking into account or
attempting to quantify any of the incremental operating profits
or other cost savings expected to be realized over time through
the Combination. There can be no assurance that the Company will
be able to realize, or do so within any particular time frame,
the expected cost reductions and cash-flow increases (a
substantial portion of which are based on the ability to merge
the respective pension plans of Allegheny Ludlum and Teledyne and
use the surplus created by such merger to meet both the current
underfunding in Allegheny Ludlum's plans and its obligations for
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retiree health benefits) or generate additional revenue to offset
any unanticipated inability to realize such expected cost
reductions and cash-flow increases.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
-----------------------------------------------------
(a) The following financial statements of Allegheny Ludlum
Corporation are filed as part of this Current Report on Form 8-K:
Consolidated Statement of Income for the
years ended December 31, 1995,
January 1, 1995 and January 2, 1994
Consolidated Balance Sheets at December 31,
1995 and January 1, 1995
Consolidated Statement of Cash Flows for the
years ended December 31, 1995, January 1,
1995 and January 2, 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent
Accountants
Consolidated Statements of Income for the
six month periods ended June 30,
1996 and July 2, 1995
Consolidated Balance Sheet at June 30, 1996
Consolidated Statements of Cash Flows for
the six month periods ended June 30,
1996 and July 2, 1995
Notes to Consolidated Financial Statements
The following financial statements of Teledyne, Inc.
are filed as part of this Current Report on Form 8-K:
Consolidated Balance Sheets at December 31,
1995 and 1994
Consolidated Statements of Operations for
the years ended December 31, 1995,
1994 and 1993
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<PAGE> 7
Consolidated Statements of Cash Flows for
the years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1995, 1994 and 1993
Report of Arthur Andersen LLP, Independent
Public Accountants
Notes to Consolidated Financial Statements
Consolidated Balance Sheet at June 30, 1996
Consolidated Statements of Operations for
the six month periods ended June 30,
1996 and 1995
Consolidated Statements of Cash Flows for
the six month periods ended June 30,
1996 and 1995
Notes to Consolidated Financial Statements
(b) The following unaudited pro forma condensed combined
financial information is filed as part of this Current Report on
Form 8-K:
Unaudited Pro Forma Condensed Combined Financial
Information
Unaudited Pro Forma Consolidated Balance
Sheet at June 30, 1996
Unaudited Pro Forma Consolidated Statement
of Income for the six months ended
June 30, 1996
Unaudited Pro Forma Consolidated Statement
of Income for the six months ended
June 30, 1995
Unaudited Pro Forma Consolidated Statement
of Income for the year ended
December 31, 1995
Unaudited Pro Forma Consolidated Statement
of Income for the year ended
December 31, 1994
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<PAGE> 8
Unaudited Pro Forma Consolidated Statement
of Income for the year ended
December 31, 1993
Notes to Pro Forma Consolidated Financial
Information
(c) The following Exhibit is incorporated by reference as
part of this Current Report on Form 8-K:
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger and
Combination dated April 1, 1996, as
amended and restated, among
Allegheny Teledyne Incorporated,
Allegheny Ludlum Corporation, ALS
Merger Corporation, Teledyne, Inc.
and TDY Merger, Inc. (Incorporated
by reference to Exhibit 2.1 to the
Registration Statement of Allegheny
Teledyne Incorporated on Form S-4,
Registration No. 333-8235.)
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ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
December 31, January 1, January 2,
1995 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Net Sales $1,494,302 $1,076,871 $1,100,187
Costs and expenses:
Cost of products
sold 1,173,374 915,039 877,662
Research, development
and technology 46,180 36,545 41,901
Commercial and
administrative 55,290 45,752 46,048
Depreciation and
amortization 40,525 38,167 30,708
---------- ---------- ----------
1,315,369 1,035,503 996,319
---------- ---------- ----------
Income from Steel
Operations 178,933 41,368 103,868
Operating earnings
from assets held for
sale 11,536 - -
Other income (expense):
Interest expense
- net (1,516) (6,003) (2,638)
(Loss) gain from
limited partnership - (2,590) 15,740
Other income - net 1,794 167 1,996
---------- ---------- ----------
11,814 (8,426) 15,098
---------- ---------- ----------
Income before Income
Taxes and Extraordinary
Loss 190,747 32,942 118,966
Income Taxes 75,952 14,730 48,206
---------- ---------- ----------
</TABLE>
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ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Continued)
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
December 31, January 1, January 2,
1995 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Income before Extra-
ordinary Loss 114,795 18,212 70,760
Extraordinary Loss on
Early Retirement of Debt,
Net of Income Tax Benefit
of $1,950 (2,924) - -
---------- ---------- ----------
Net Income $ 111,871 $ 18,212 $ 70,760
========== ========== ==========
Per Common Share:
Income before
extraordinary loss $ 1.66 $ .26 $ 1.06
Extraordinary loss (.04) - -
---------- ---------- ----------
Net Income $ 1.62 $ .26 $ 1.06
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE> 11
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 70,913 $ 11,185
Trade receivables, less allowances
for doubtful accounts of $3,873
and $3,715 137,016 141,042
Inventories 236,459 232,379
Prepaid expenses and other
current assets 9,886 11,035
---------- ----------
Total Current Assets 454,274 395,641
Properties, plants and equipment
- net 451,623 464,977
Cost in excess of net assets acquired 130,103 133,862
Deferred income taxes 44,670 49,027
Assets held for sale 46,477 37,738
Other assets 17,125 13,453
---------- ----------
Total Assets $1,144,272 $1,094,698
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,941 $ 1,993
Accounts payable 93,464 96,417
Accrued compensation and benefits 60,892 46,115
Deferred income taxes 8,962 5,527
Income taxes 3,935 1,596
Other accrued expenses 14,293 18,632
---------- ----------
Total Current Liabilities 183,487 170,280
Long-term debt, less current portion 181,157 133,097
Pensions 105,699 135,758
Postretirement benefit liability 265,559 267,136
Other 32,922 26,721
---------- ----------
Total Liabilities 768,824 732,992
========== ==========
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<PAGE> 12
Shareholders' Equity:
Preferred stock, par value $1:
authorized--50,000,000 shares;
issued--none
Common stock, par value $.10:
authorized--250,000,000 shares;
issued--72,878,242 shares
(outstanding--67,106,871 and
70,650,571 shares) 7,288 7,288
Additional capital 271,473 270,571
Retained earnings 214,128 136,027
Equity adjustment related to minimum
liability for pension plans (14,727) (20,682)
Common stock in treasury at cost
--5,771,371 and 2,227,671 shares (102,714) (31,498)
---------- ----------
Total Shareholders' Equity 375,448 361,706
========== ==========
Total Liabilities and Shareholders'
Equity $1,144,272 $1,094,698
========== ==========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 13
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31, January 1, January 2,
Fiscal Year Ended 1995 1995 1994
----------------- ------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 111,871 $ 18,212 $ 70,760
Adjustments to
reconcile net
income to cash
flow from operating
activities:
Depreciation and
amortization 40,525 38,167 30,708
Loss (gain) from
limited partnership - 2,590 (15,740)
Deferred taxes 3,485 3,141 (3,143)
Net reinvested
earnings of assets
held for sale (8,739) - -
Extraordinary loss on
early retirement of
debt 2,924 - -
Change in operating
assets and liabilities:
Long-term pension
liability (19,330) (13,385) (10,840)
Long-term post-
retirement liability (1,577) 2,876 18,236
Deferred employee
benefits 6,611 (3,118) 4,185
Trade receivables 4,026 (30,080) 359
Inventories (4,080) 22,385 15,441
Trade payables (2,953) 12,665 1,047
Income taxes payable 3,525 (5,566) (5,191)
Net change in other
current assets and
current liabilities 19,493 (14,036) (541)
Other changes (738) 7,343 529
---------- ----------- -----------
Cash Flows From
Operating Activities 155,043 41,194 105,810
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<PAGE> 14
Cash flows from
investing activities:
Purchases of properties,
plants and equipment (30,863) (52,738) (50,446)
Disposals of properties,
plants and equipment 1,148 235 242
Sales of short-term
investments - 50,466 21,649
Increase in limited
partnership investment - - (5,437)
Limited partnership
distribution 346 - 22,822
Increase in notes
receivable (1,175) (160) (892)
Payments related to
the 1993 acquisition
primarily debt payment - (25,000) (57,800)
---------- ----------- -----------
Cash Used by
Investing Activities (30,544) (27,197) (69,862)
Cash flows from
financing activities:
Issuance of debentures 150,000 - -
Payments on long-term
debt (101,992) (6,938) (7,495)
Dividends paid (33,893) (33,993) (31,571)
Purchases of treasury
stock (75,562) (10,910) (1,307)
Debt prepayment premium (4,110) - -
Employee stock plans 786 922 1,095
----------- ----------- -----------
Cash Used by
Financing
Activities (64,771) (50,919) (39,278)
----------- ----------- -----------
Increase (Decrease)
in Cash and Cash
Equivalents 59,728 (36,922) (3,330)
Balance of cash and
cash equivalents at
beginning of year 11,185 48,107 51,437
----------- ----------- -----------
Cash and Cash
Equivalents at End
of Year $ 70,913 $ 11,185 $ 48,107
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 15
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Nature of Business
------------------
The Company is one of the world's leading manufacturers of
specialty materials and one of the largest domestic producers of
stainless steel. The Company manufactures stainless steel sheet,
strip, plate, foil, welded tubing and stampings; silicon electrical
steel sheet and strip; and other specialty steel and specialty
metals alloys, including tool steels, magnetic, thermostatic and
electronic sheet and strip, and high-temperature alloys. Common end
uses of specialty steel include automobiles, appliances,
communications and electronics equipment, marine equipment,
electric power generating and distribution equipment, environmental
equipment, home utensils and cutlery, construction products, tools,
dies, food and chemical processing equipment, medical and health
equipment and aircraft and defense equipment. The Company's
products are sold worldwide.
Estimates
---------
The use of estimates is inherent in the preparation of
financial statements in conformity with generally accepted
accounting principles.
Consolidation
-------------
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated.
Business Segment
----------------
The Company operates in a single business segment, specialty
steel.
Cash and Cash Equivalents
-------------------------
Cash includes currency on hand and demand deposits with
financial institutions. Cash equivalents are short-term, highly
liquid investments both readily convertible to known amounts of
cash and so near maturity, three months or less, that there is
insignificant risk of fluctuations in value because of changes in
interest rates and thus the carrying amounts approximate market.
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<PAGE> 16
Accounts Receivable
-------------------
The Company markets its products to a diverse customer base,
principally throughout the United States. Trade credit is extended
based upon evaluations of each customer's ability to perform its
obligations, which are updated periodically. Credit losses are
provided for in the financial statements and have been within
management's expectations.
Inventories
-----------
Inventories are valued at the lower of cost or market. Cost
for most inventories is determined by the last-in, first-out (LIFO)
method. Inventories not on LIFO (1995 - $24,588,000; 1994 -
$25,031,000) are determined using the average cost method.
Properties, Plants and Equipment
--------------------------------
Properties, plants and equipment are carried at cost.
Depreciation is computed using the straight-line method at rates
considered sufficient to amortize the costs over the estimated
service lives. Depreciation for income tax purposes is computed
principally using accelerated methods.
Taxes on Income
---------------
Provisions for income taxes include deferred taxes resulting
from temporary differences in income for financial and tax purposes
using the liability method. Such temporary differences result
primarily from differences in the carrying value of assets and
liabilities.
Fiscal Year-End
---------------
The Company's fiscal year ends on the Sunday nearest to
December 31.
Reclassifications
-----------------
Certain amounts in the prior year financial statements have
been reclassified to conform to the 1995 presentation.
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<PAGE> 17
Net Income per Share of Common Stock
------------------------------------
Net income per share is based upon the weighted average number
of shares of common stock outstanding. The weighted average number
of shares was 69,246,949 for the fiscal year ended December 31,
1995, 70,827,362 for the fiscal year ended January 1, 1995 and
66,614,353 for the fiscal year ended January 2, 1994.
Accounting Pronouncements
-------------------------
FAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of" and FAS No.
123, "Accounting for Stock-based Compensation" were issued in 1995.
The statements are not expected to have a material impact on the
Company. The Company intends to continue to account for stock-based
compensation under Accounting Principles Board Opinion No. 25 as
allowed by FAS No. 123.
Note 2 - Inventories
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
Raw materials $ 63,994 $ 52,332
Work-in-process and finished products 249,139 213,282
Supplies 16,515 16,048
---------- ----------
Total inventories at current cost 329,648 281,662
Less allowance to reduce current
cost values to LIFO basis 93,189 49,283
---------- ----------
Total Inventories $ 236,459 $ 232,379
========== ==========
</TABLE>
Certain LIFO inventory quantities were reduced, resulting in a
liquidation of items carried at costs that prevailed in prior
years. The effect of the liquidations was to increase net income by
approximately $32,000, $543,000 and $1,531,000 in 1995, 1994 and
1993, respectively.
The Company enters into raw material (principally nickel)
future contracts from time to time to hedge its exposure to price
fluctuations. Gains and losses on hedged contracts are deferred and
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<PAGE> 18
recognized in cost of sales upon expiration of the hedged period.
These contracts are not significant to the Company's total raw
material purchases and are not material from a financial point of
view.
Note 3 - Properties, Plants and Equipment
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
Land $ 8,267 $ 8,220
Buildings 65,174 64,679
Machinery and equipment 612,729 591,277
---------- ----------
686,170 664,176
Less allowance for depreciation
and amortization 234,547 199,199
---------- ----------
Total Properties, Plants
and Equipment $ 451,623 $ 464,977
========== ==========
</TABLE>
Note 4 - Credit Agreement and Long-Term Debt
Credit Agreement
----------------
The Company's credit agreement with a group of banks provides
for borrowings of up to $100,000,000 on a revolving credit basis.
Interest is payable at prime or other alternative interest rate
bases, at the Company's option. The annual facility fee is 1/8%.
The revolving credit facility was not used in 1995. The credit
agreement has various covenants which limit the Company's ability
to dispose of properties and merge with another corporation. The
Company is also required to maintain certain financial ratios as
defined in the agreement which can also limit the amount of
dividend payments and share repurchases. Under the most restrictive
requirement, 100% of retained earnings are currently free of
restrictions pertaining to cash dividend distributions and share
repurchases. Borrowings outstanding under the credit agreement are
unsecured.
<PAGE>
<PAGE> 19
Debentures
----------
In December of 1995, the Company issued $150 million of 6.95%
debentures due December 15, 2025. In December of 1995, a portion of
the proceeds from this issue was used to extinguish the Company's
$100 million of 5 7/8% convertible subordinated debentures, which
were scheduled to mature in 2002, at a call price of 104.11%. This
transaction resulted in an extraordinary loss on early retirement
of debt of $2,924,000 net of income tax benefit of $1,950,000.
Other
-----
The industrial revenue bonds and capital lease obligations
consist of 11 separate issues at December 31, 1995. Nine issues
(aggregating $23,046,000) have an average interest rate of 4.8%,
and two issues ($10,052,000) have variable interest rates, ranging
from 2.50% to 6.3%. The average interest rate for all outstanding
issues was 4.8% in 1995, 4.8% in 1994 and 4.6% in 1993. The
variable rate obligations are subject to remarketing agreements,
which provide that the bondholder may present the bonds to a
remarketing agent for purchase prior to the stated maturity date.
Bonds presented to the remarketing agent are then resold in the
bond market.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
------------ ----------
<S> <C> <C>
6.95% debentures due 2025 $ 150,000 $ -
5 7/8% convertible subordinated
debentures due 2002 - 100,000
Industrial revenue bonds due 1996
through 2007 17,963 19,425
Capital lease obligations under
industrial revenue bonds due
1996 through 2007 15,135 15,665
---------- ----------
183,098 135,090
Less current portion 1,941 1,993
---------- ----------
Total long-term debt $ 181,157 $ 133,097
========== ==========
</TABLE>
Properties, plants and equipment include the following amounts for
leases that have been capitalized:
<PAGE>
<PAGE> 20
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
------------ ----------
<S> <C> <C>
Land and buildings $ 2,693 $ 2,693
Machinery 18,054 18,054
----------- ----------
20,747 20,747
Less allowance for amortization 10,368 9,218
----------- ----------
Total leases $ 10,379 $ 11,529
=========== ==========
</TABLE>
Amortization of leased assets is included in depreciation and
amortization expense.
Scheduled maturities of all long-term obligations for the five
years succeeding December 31, 1995 are $1,941,000 in 1996,
$1,914,000 in 1997, $1,974,000 in 1998, $1,499,000 in 1999 and
$1,320,000 in 2000.
Interest expense was $8,260,000 in 1995, $8,515,000 in 1994
and $8,668,000 in 1993. Interest and commitment fees paid amounted
to $9,630,000 in 1995, $8,448,000 in 1994 and $8,149,000 in 1993.
Note 5 - Pension Plans and Other Postemployment Benefits
The Company and its subsidiaries have several defined benefit
pension plans and several defined contribution plans, which cover
substantially all of their employees. Benefits under the defined
benefit pension plans are generally based on years of service and
the employee's average annual compensation in the five consecutive
years of the ten years prior to retirement in which such earnings
were the highest. The Company funds at least the amount necessary
to meet the minimum funding requirements of ERISA and the Internal
Revenue Code.
The following table sets forth the funded status and amount
recognized for the defined benefit pension plans in the
consolidated balance sheets:
<PAGE>
<PAGE> 21
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
------------ ----------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligations, including
vested benefits of $570,243 in
1995 and $507,565 in 1994 $ 608,300 $ 535,057
---------- ----------
Actuarial present value of projected
benefit obligations for services
rendered to date 673,824 600,668
Less plan assets at fair value,
primarily listed stocks,
government securities and
pooled investment funds 504,519 393,048
---------- ----------
Projected Benefit Obligations in
Excess of Plan Assets 169,305 207,620
Unrecognized net loss from past
experience different from
assumed (49,666) (60,651)
Unrecognized prior service costs (47,972) (48,518)
Additional minimal liability 34,032 44,761
---------- ----------
Pension Liabilities $ 105,699 $ 143,212
========== ==========
</TABLE>
Pension liabilities are included in the balance sheets as
follows:
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands of dollars) 1995 1995
------------ ----------
<S> <C> <C>
Accrued compensation and benefits $ - $ 7,454
Pensions 105,699 135,758
---------- ---------
Total Pension Liabilities $ 105,699 $ 143,212
========== =========
</TABLE>
A summary of the net pension cost for the defined benefit
pension plans is as follows:
<PAGE>
<PAGE> 22
(In thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost -
benefits earned
during the period $ 6,506 $ 7,520 $ 4,751
Interest cost on
projected benefit
obligations 46,101 40,150 33,916
Actual return on plan
assets (111,014) 3,674 (28,935)
Net amortization and
deferral 82,377 (35,803) 1,058
---------- ---------- ------------
Net Pension Cost $ 23,970 $ 15,541 $ 10,790
========== ========== ============
</TABLE>
The average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.0% in 1995
and 8.0% in 1994. The rates of increase of future years'
compensation levels ranged from 3% to 4% in 1995, 1994 and 1993.
The expected long-term rate of return on plan assets was 9% in
1995, 1994 and 1993.
On November 10, 1988, the Board of Directors amended the
salaried defined benefit pension plan to provide that no benefits
would accrue thereunder on or after January 1, 1989. At the same
time, the Board also adopted, effective January 1, 1989, a defined
contribution plan. Pension costs for this plan were $5,780,000 in
1995, $5,165,000 in 1994 and $4,746,000 in 1993.
The Company has guaranteed employees who meet certain age and
service criteria that at retirement their aggregate benefit from
the salaried defined benefit pension plan and the defined
contribution plan will not be less than the benefit which would
have been payable from the salaried defined benefit pension plan if
such plan had not been amended.
Other Postretirement Benefit Plans
----------------------------------
The Company sponsors several defined benefit postretirement plans
covering most salaried and hourly employees. The plans provide
health care and life insurance benefits for eligible retirees. The
<PAGE>
<PAGE> 23
basic health care plans are noncontributory, and the major medical
options are contributory, with retiree contributions adjusted
periodically. The life insurance plans are generally
noncontributory. The Company funds postretirement benefit
obligations for hourly employees represented by the USWA based on
the available funds and amounts allowable by the Internal Revenue
Code.
The following table sets forth the postretirement benefit
plans' combined funded status reconciled with the amounts
recognized in the balance sheet:
<TABLE>
<CAPTION>
Health Life
Care Insurance Total
------ --------- -----
(In thousands of dollars)
<S> <C> <C> <C>
December 31, 1995
-----------------
Accumulated postretirement
benefit obligation (APBO):
Retirees $186,932 $ 15,486 $ 202,418
Fully eligible active
participants 61,481 3,906 65,387
Other active
participants 115,027 4,561 119,588
-------- ---------- ----------
363,440 23,953 387,393
Less plan assets at fair
value, primarily
investment in limited
partnership funds 45,645 - 45,645
-------- ----------- ----------
Accumulated postretirement
benefit obligations
in excess of plan assets 317,795 23,953 341,748
Unrecognized net gain (52,853) (2,149) (55,002)
Unrecognized prior service
cost (21,167) (20) (21,187)
Accrued postretirement
benefit cost $243,775 $ 21,784 $ 265,559
-------- ----------- ----------
</TABLE>
<PAGE>
<PAGE> 24
<TABLE>
<CAPTION>
Health Life
Care Insurance Total
------ --------- -----
(In thousands of dollars)
<S> <C> <C> <C>
January 1, 1995
---------------
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 159,089 $ 13,731 $ 172,820
Fully eligible active
participants 44,560 3,106 47,666
Other active participants 88,613 3,686 92,299
--------- ----------- ----------
292,262 20,523 312,785
Less plan assets at fair
value, primarily investment
in limited partnership
funds 31,834 - 31,834
--------- ----------- ----------
Accumulated postretirement
benefit obligations in
excess of plan assets 260,428 20,523 280,951
Unrecognized net gain 4,511 295 4,806
Unrecognized prior service
cost (18,742) 121 (18,621)
--------- ----------- ----------
Accrued postretirement
benefit cost $ 246,197 $ 20,939 $ 267,136
========= =========== ==========
</TABLE>
The Company's Chairman serves on the advisory boards of the
limited partnership funds. The discount rate used in determining
the APBO was 7.0% at December 31, 1995 and 8.0% at January 1, 1995.
The expected long-term rate of return on plan assets ranged from 9%
to 15% in 1995 and 15% in 1994.
<PAGE>
<PAGE> 25
Net postretirement benefit expenses included the following
components:
<TABLE>
<CAPTION>
Health Life
Care Insurance Total
------ --------- -----
(In thousands of dollars)
<S> <C> <C> <C>
1995
----
Service cost $ 5,857 $ 256 $ 6,113
Interest cost 22,124 1,509 23,633
Actual return on plan
assets (419) - (419)
Net amortization and
deferral (1,751) 12 (1,739)
---------- ---------- ----------
Net periodic postretirement
benefit expense $ 25,811 $ 1,777 $ 27,588
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Health Life
Care Insurance Total
------- --------- ------
(In thousands of dollars)
<S> <C> <C> <C>
1994
----
Service cost $ 6,230 $ 263 $ 6,493
Interest cost 19,390 1,498 20,888
Actual return on plan
assets (1,516) - (1,516)
Net amortization and
deferral 47 77 124
--------- ---------- ----------
Net periodic postretirement
benefit expense $ 24,151 $ 1,838 $ 25,989
========= ========== ==========
</TABLE>
<PAGE>
<PAGE> 26
<TABLE>
<CAPTION>
Health Life
Care Insurance Total
------ --------- -----
(In thousands of dollars)
<S> <C> <C> <C>
1993
----
Service cost $ 4,700 $ 206 $ 4,906
Interest cost 18,679 1,424 20,103
--------- ---------- ----------
Net periodic postretirement
benefit expense $ 23,379 $ 1,630 $ 25,009
========= ========== ==========
</TABLE>
The annual assumed rate of increase in the per capita cost of
covered benefits (the health care cost trend rate) for health care
plans is 10.3% for 1996 and is assumed to decrease to 5.25% by 2002
and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported.
If the assumed health care cost trend rates were increased by one
percentage point in each year, this would increase the APBO for
health care plans as of December 31, 1995 by $54,976,000 and the
aggregate of service and interest cost components of net periodic
postretirement benefit expense for 1995 by $4,416,000.
The actual cash payments of retiree health care and life
insurance benefits totaled approximately $15,870,000 in 1995,
$13,064,000 in 1994 and $9,295,000 in 1993.
Note 6 - Shareholders' Equity
<TABLE>
<CAPTION>
Common Additional Retained Treasury
Stock Capital Earnings Shares
------- ---------- -------- ---------
<S> <C> <C> <C> <C>
(In thousands of dollars
except per share amounts)
Balance at January 3, 1993 $6,722 $160,876 $113,169 $ (23,873)
-------------------------- ------ -------- -------- ---------
Net income 70,760
Dividends on common
stock at $.47 per share (31,571)
Common stock issued 516 107,746
Employee stock plans 490 (100) 2,297
<PAGE>
<PAGE> 27
Purchase of 65,500
treasury shares at cost (1,307)
------ -------- -------- ---------
Balance at January 2, 1994 7,288 269,112 152,258 (22,883)
------ -------- -------- ---------
Net income 18,212
Dividends on common stock
at $.48 per share (33,993)
Employee stock plans 1,459 (450) 2,295
Purchase of 571,300 shares
at cost (10,910)
------- -------- -------- ---------
Balance at January 1, 1995 7,288 270,571 136,027 (31,498)
------- -------- -------- ---------
Net income 111,871
Dividends on common stock
at $.49 per share (33,893)
Employee stock plans 902 123 4,346
Purchase of 3,826,900 treasury
shares at cost (75,562)
------- -------- -------- ---------
Balance at December 31, 1995 $ 7,288 $271,473 $214,128 $(102,714)
======= ======== ======== =========
</TABLE>
Preferred Stock
---------------
The authorized preferred stock may be issued in one or more
series, with designations, powers and preferences as shall be
designated by the Board of Directors. At December 31, 1995, there
were no shares of preferred stock issued.
Common Stock
------------
The Board of Directors adopted and the shareholders approved
the 1987 Stock Option Incentive Plan ("Plan") in March, 1987. The
Plan, which expires January 1, 1997, provides for the granting of
stock options and stock appreciation rights ("Awards") of up to
2,700,000 shares of common stock to key employees.
Awards may be granted under the Plan at a price not less
than the fair market value of the stock as determined by the
Personnel and Compensation Committee ("Committee") on the date
the Awards are granted. Awards will not be immediately
exercisable and vesting of the Awards will be established at the
date of each grant but generally will not be more rapid than the
<PAGE>
<PAGE> 28
rate of one-third of the number of shares in the third, fourth,
and fifth years following the date of the Award.
Transactions under the Plan are summarized as follows:
<TABLE>
<CAPTION>
Stock
Stock Appreciation Price
Options Rights Range
------- ------------ -----
<S> <C> <C> <C>
Balance at January 3, 1993 999,152 11,250
Granted 620,400 - $ 22.94
Exercised (153,489) (11,250) 8.33-11.08
Cancelled (14,601) - 10.75
--------- ---------- -----------
Balance at January 2, 1994 1,451,462 -
Granted 33,068 - 19.88
Exercised (119,731) - 8.33-11.88
Cancelled (44,935) - 10.75-22.94
--------- ---------- -----------
Balance at January 1, 1995 1,319,864 -
Granted 13,801 - 17.00
Exercised (109,025) - 8.33-11.08
Cancelled (23,067) - 10.75-22.94
--------- ---------- -----------
Balance at December 31, 1995 1,201,573 - $8.33-22.94
========= ========== ===========
</TABLE>
At December 31, 1995 there were 579,704 options for shares
exercisable under the Plan.
In March 1987, the Board of Directors adopted and the
shareholders approved a Performance Share Plan for Key Employees,
which provides that the Chief Executive Officer may establish
certain performance objectives for a period established by the
Board. The Committee, with the advice of the Chief Executive
Officer, may grant performance units payable in common stock
and/or cash to key employees. Up to 900,000 shares of common
stock were reserved for the Plan. Upon full or partial
achievement of the performance objectives for the period, the
full or partial dollar amount and/or number of shares of common
stock credited to an employee's account will be distributed to
the employee in three equal annual installments.
A three-year award period under the Performance Share Plan
began in 1991 and 97% of the performance objectives to be
achieved during this award period were achieved. Payments equal
<PAGE>
<PAGE> 29
to 92.5% of the base value of awarded units began in 1994 and
ended in February 1996. Forty-three participants held an
aggregate of 69,050 performance units. The base value of each
unit consisted of $50 in cash and four shares of common stock.
In November 1994, the Board of Directors established the
1995-1996 award period under the Performance Share Plan and the
performance objectives to be achieved during the 1995-1996 award
period were set. Forty-five employees hold an aggregate of 76,000
performance units for the 1995-1996 award period. The base value
of each unit consists of $50 in cash and four shares of common
stock.
In 1994, the Board of Directors adopted and the shareholders
approved a Stock Acquisition and Retention Plan. The plan
provides participating officers with an opportunity to purchase
additional shares of common stock directly from the Company and
provides for the grant of one share of restricted stock for each
two shares purchased under the plan and one share of restricted
stock for each two shares of common stock already owned by a
participant that are designated as subject to the plan. In
general, the restricted shares will vest only if the participant
retains the shares that are purchased and/or designated by the
participant as subject to the plan for five years. The expense
related to the plan is being recognized over the vesting period.
A maximum of 1,000,000 shares is available for issuance under the
plan. In 1995, 60,238 restricted shares of common stock were
issued under the plan and in 1994 17,681 restricted shares were
issued under the plan.
In 1993, the Board of Directors adopted and the shareholders
approved a Director Share Incentive Plan, which provides for the
annual delivery to non-employee directors of the Company of
shares of common stock (rounded to the nearest whole share) with
a fair market value equal to $5,000. A total of 200,000 shares
have been reserved for the plan. Pursuant to the plan, on January
3, 1995, each of the Company's eleven non-employee directors
received 268 shares of common stock and on January 2, 1996, each
of the Company's twelve non-employee directors received 267
shares of common stock.
Note 7 - Fair Values of Financial Instruments
Fair Values of Financial Instruments
------------------------------------
The following methods and assumptions were used to estimate
the fair value of financial instruments.
<PAGE>
<PAGE> 30
Cash and cash equivalents
-------------------------
The carrying amount approximates fair value because of the
short maturity of those instruments.
Debentures
----------
The fair values of the 6.95% debentures and 5 7/8%
convertible subordinated debentures are based on quoted market
prices.
Long-term debt
--------------
The fair values of long-term debt obligations are
established from the market value of each issue if available or
from market values of similar issues.
The carrying amounts and fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1995 January 1, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 70,913 $ 70,913 $ 11,185 $ 11,185
6.95% debentures in 1995
and 5 7/8% convertible
subordinated debentures
in 1994 150,000 150,000 100,000 100,050
Long-term debt 33,098 33,110 35,090 34,133
-------- -------- -------- --------
</TABLE>
<PAGE>
<PAGE> 31
Note 8 - Taxes on Income
Income taxes (credits) consist of the following:
<TABLE>
<CAPTION>
(In thousands of dollars)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $60,143 $ 9,411 $40,653
State 12,324 2,178 10,696
------- ------- -------
Subtotal current expense 72,467 11,589 51,349
------- ------- -------
Deferred:
Federal 1,390 571 (1,828)
State 2,095 2,570 (1,315)
------- ------- -------
Subtotal deferred expense 3,485 3,141 (3,143)
------- ------- -------
Total income tax expense $75,952 $14,730 $48,206
------- ------- -------
Income taxes paid $69,642 $14,385 $56,649
======= ======= =======
</TABLE>
The following is a reconciliation of the statutory federal
income tax rate to the actual effective income tax rate:
<TABLE>
<CAPTION>
Percent of pretax income 1995 1994 1993
------------------------ ---- ---- ----
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax benefit 4.9 9.4 5.1
Amortization of cost in excess
of net assets acquired .6 3.8 -
Other (.7) (3.5) 0.4
---- ---- ----
Total effective income tax rate 39.8% 44.7% 40.5%
===== ===== =====
</TABLE>
<PAGE>
<PAGE> 32
Deferred tax assets and/or liabilities result from temporary
differences in the recognition of income and expense for
financial and income tax reporting purposes, and differences
between the fair value of assets acquired in business
combinations accounted for as purchases for financial reporting
purposes and their corresponding tax bases. They represent future
tax benefits or costs to be recognized when those temporary
differences reverse.
The categories of assets and liabilities which have resulted
in differences in the timing of the recognition of income and/or
expense are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets
-------------------
(In thousands of dollars)
1995 1994
---- ----
<S> <C> <C>
Postretirement benefits other
than pensions $104,553 $107,284
Deferred compensation and other
benefit plans 60,238 71,604
Other items 19,733 18,524
-------- --------
Total deferred tax assets 184,524 197,412
Deferred Tax Liabilities
------------------------
Basis of property, plant and
equipment - net 109,046 113,212
Inventory valuation - net 28,153 28,175
Other items 11,617 12,525
-------- -------
Total deferred tax liabilities 148,816 153,912
-------- -------
Net deferred tax asset $ 35,708 $ 43,500
======== ========
</TABLE>
<PAGE>
<PAGE> 33
Note 9 - Supplemental Operating Information
Export sales were $87,000,000 in 1995, $73,000,000 in 1994
and $79,000,000 in 1993.
Direct research and development expenditures aggregated
$9,171,000 in 1995, $8,238,000 in 1994 and $9,170,000 in 1993.
"Research, development and technology" in the income statement
covers a broad range of activities throughout the Company.
Approximately 70% of the Company's workforce are covered by
various union contracts. None of the contracts expire within one
year.
Note 10 - Litigation
As previously disclosed, the Company is a defendant in a
case filed in 1989 by Allegheny International, Inc. in the United
States District Court for the Western District of Pennsylvania
which is being pursued by Sunbeam Corporation. The case involves
a claim to recover a $5.5 million refund received by the Company
in 1989 with respect to a federal income tax overpayment, plus
interest. Immediately prior to the commencement of the trial of
the case, Sunbeam withdrew with prejudice its related claims for
reimbursement of various alleged insurance coverage costs in the
amount of $.5 million plus interest. In August 1995, a jury
verdict in favor of the Company was entered in this case which
Sunbeam has appealed. The Company is vigorously defending the
favorable decision.
As previously announced, in June 1995, the U.S. Department
of Justice commenced an action against the Company in the United
States District Court for the Western District of Pennsylvania,
asserting, in 64 claims, multiple violations of the federal Clean
Water Act occurring at various times since 1987.
The complaint seeks injunctive relief and assessment of
penalties of up to $25,000 per day of violation. While it is too
early to predict the outcome of the case, the Company believes
that any costs or penalties should not be material to the
financial condition of the Company or its results of operation.
In addition, the Company is involved in various lawsuits from
time to time arising in the ordinary course of business and
otherwise. In management's opinion, the outcome of these matters
will not have a material adverse effect on the Company's
financial statements.
Note 11 - Acquisition
On November 10, 1993, the Company completed the acquisition
of the stock of Athlone Industries, Inc. Athlone, through its
<PAGE>
<PAGE> 34
subsidiary, Jessop Steel Company, was primarily a manufacturer of
specialty steels in plate form. The Company issued 5,153,376
shares of common stock in the transaction. The transaction is
being accounted for as a purchase. The excess of the purchase
price paid over the value of net assets acquired is being
amortized over 40 years on a straight-line basis. Accumulated
amortization was $7,656,000 and $4,224,000 at December 31, 1995
and January 1, 1995, respectively.
Pro forma results, as if the transaction were completed at
the beginning of 1993, are as follows:
<TABLE>
<S> <C>
Sales $1,215,039,000
Net income $ 77,126,000
Earnings per share $ 1.09
</TABLE>
The pro forma presentation is not necessarily indicative of
either the results of operations that would have occurred had the
acquisition taken place at the beginning of 1993 or of future
results of the combined companies.
In addition to Jessop Steel, the Company acquired Green
River Steel Corporation and Reynolds Fasteners, Inc., as part of
the Athlone acquisition. The Company has determined that these
businesses do not meet its strategic objectives and decided that
they would be held for sale. The recorded value for assets held
for sale represents management's estimate of net realizable value
and includes a reserve for estimated losses until disposition
which is not material in relation to the Company's results of
operations. Net income for these companies in the amount of
$3,603,000, which resulted from the Company's successful efforts
to improve the productivity and reduce the costs of these
businesses, was excluded from the Company's 1994 results. In
1996, Reynolds Fasteners, Inc. was sold. The sale will not have a
significant effect on the Company's results of operation.
Cash flows for 1994 and 1993 do not include non-cash items
related to the acquisition.
<PAGE>
<PAGE> 35
Note 12 - Quarterly Data (Unaudited)
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
--------------------------------------------
April 2 July 2 October 1 December 31
------- ------ --------- -----------
<S> <C> <C> <C> <C>
Fiscal 1995
-----------
Net sales $395,332 $390,468 $373,631 $334,871
Cost of products sold 313,742 301,306 288,985 269,341
Operating income 46,474 53,142 48,461 30,856
Income before extraordinary
loss 28,854 34,470 30,119 21,352
Extraordinary loss on early
retirement of debt - - - (2,924)
Net income 28,854 34,470 30,119 18,428
Net income per share:
Primary
Income before extraordinary
loss $ .41 $ .49 $ .44 $ .32
Extraordinary loss - - - (.04)
Net income $ .41 $ .49 $ .44 $ .28
Fully diluted $ .39 $ .47 $ .42 $ .28
Weighted average common
shares outstanding 70,567,973 69,959,030 68,963,949 67,495,993
---------- ---------- ---------- ----------
</TABLE>
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
--------------------------------------------
April 3 July 3(1) October 2 January 1
------- ------ --------- -----------
<S> <C> <C> <C> <C>
Fiscal 1994
-----------
Net sales $313,932 $172,187 $262,255 $328,497
Cost of products sold 245,717 191,283 211,720 266,319
Operating income (loss) 35,747 (49,413) 20,913 34,121
Net income (loss) 18,118 (29,179) 10,328 18,945
<PAGE>
<PAGE> 36
Net income (loss) per share:
Primary $.26 $(.41) $.14 $.27
Fully diluted $.25 $(.41) $.14 $.26
Weighted average common
shares outstanding 70,938,937 70,792,035 70,787,897 70,790,579
---------- ---------- ---------- ----------
</TABLE>
(1) The USWA called a strike in the second quarter which lasted 10 weeks.
<PAGE>
<PAGE> 37
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Allegheny Ludlum Corporation
We have audited the accompanying consolidated balance sheets of
Allegheny Ludlum Corporation and subsidiaries as of December 31, 1995 and
January 1, 1995, and the related consolidated statements of income and cash
flows for each of the three fiscal years in the period ended December 31,
1995. These financial statements are the responsibility of Allegheny Ludlum
Corporation'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, based on our audits, the financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Allegheny Ludlum Corporation and subsidiaries at
December 31, 1995 and January 1, 1995, and the consolidated results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 30, 1996
<PAGE>
<PAGE> 38
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Fiscal Fiscal
Six Months Six Months
Ended Ended
June 30, July 2,
1996 1995
---------- ----------
<S> <C> <C>
NET SALES $691,655 $785,800
Costs and expenses:
Cost of products sold 552,254 615,048
Research, development and
technology 21,574 23,284
Commercial and administrative 27,158 28,356
Depreciation and amortization 22,843 19,496
-------- --------
623,829 686,184
-------- --------
INCOME FROM STEEL OPERATIONS 67,826 99,616
Operating earnings from assets
held for sale 1,876 7,268
Other income (expense):
Interest expense - net (3,116) (876)
Other - net 1,690 1,153
-------- --------
(1,426) 277
-------- --------
Income before income taxes 68,276 107,161
Income taxes 28,716 43,837
-------- --------
NET INCOME $ 39,560 $ 63,324
======== ========
Per common share:
Primary $.60 $.90
======== ========
Fully diluted $.86
========
Dividends declared per common share $.26 $.24
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 39
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30, 1996
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 92,585
Trade receivables - net 145,525
Inventories (Note 2) 225,173
Prepaid expenses and other current assets 12,384
----------
TOTAL CURRENT ASSETS 475,667
Properties, plans and equipment - net 442,102
Cost in excess of net assets acquired 128,384
Deferred income taxes 46,426
Other assets including assets held for sale 44,207
----------
TOTAL ASSETS $1,136,786
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,960
Accounts payable 70,782
Accrued compensation and benefits 55,175
Income taxes payable and deferred 10,098
Other accrued expenses 31,336
----------
TOTAL CURRENT LIABILITIES 169,351
Long-term debt, less current portion 179,847
Pensions 108,834
Postretirement benefit liability 272,819
Other 29,279
----------
TOTAL LIABILITIES 760,130
</TABLE>
<PAGE>
<PAGE> 40
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(in thousands of dollars)
(Continued)
<TABLE>
<CAPTION>
June 30, 1996
-------------
<S> <C>
SHAREHOLDERS' EQUITY:
Preferred stock, par value $1:
authorized--50,000,000 shares;
issued--none
Common stock, par value $.10:
authorized--250,000,000 shares;
issued--72,878,242 shares 7,288
Additional capital 271,348
Retained earnings 236,558
Equity adjustment related to minimum
liability for pension plans (14,727)
Common stock in treasury at cost--
6,855,866 and 5,771,371 shares (123,811)
----------
TOTAL SHAREHOLDERS' EQUITY 376,656
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,136,786
==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 41
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Fiscal
Six Months Six Months
Ended Ended
June 30, July 2,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39,560 $ 63,324
Adjustment to reconcile net income
to cash flow from operating
activities:
Depreciation and amortization 22,843 19,496
Reinvested earnings from assets
held for sale 329 (5,130)
Deferred taxes (3,132) 3,015
Change in operating assets
and liabilities:
Long-term retirement liabilities 8,876 (12,988)
Trade receivables (8,509) (15,181)
Inventories 11,286 45,076
Trade payables (22,682) (13,268)
Net change in other current
assets and current liabilities (885) 20,275
Other changes (1,587) 3,163
--------- ---------
CASH FROM OPERATING ACTIVITIES 46,099 107,782
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of properties, plants
and equipment--net (11,624) (10,227)
Proceeds from assets held for sale 24,602 -
Long-term investments (4,535) 346
Notes receivable 218 (12)
--------- ---------
CASH FROM (USED BY) INVESTING
ACTIVITIES 8,661 (9,893)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and
capital leases (1,291) (1,278)
Dividends paid (8,646) (8,480)
Purchases of treasury stock (23,710) (30,023)
Employee stock plans 559 262
--------- ---------
</TABLE>
<PAGE>
<PAGE> 42
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands of dollars)
(Continued)
<TABLE>
<CAPTION>
Fiscal Fiscal
Six Months Six Months
Ended Ended
June 30, July 2,
1996 1995
---------- ----------
<S> <C> <C>
CASH USED BY FINANCING ACTIVITIES (33,088) (39,519)
INCREASE IN CASH AND CASH EQUIVALENTS 21,672 58,370
Balance of cash and cash equivalents
at beginning of period 70,913 11,185
--------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 92,585 $ 69,555
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 43
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--FINANCIAL STATEMENTS
This financial information should be read in conjunction
with the financial statements and notes thereto for the fiscal
year ended December 31, 1995. The accompanying unaudited
condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting only of normal accruals) considered necessary for a
fair presentation have been included. Operating results for the
fiscal quarter and six months ended June 30, 1996 are not
necessarily indicative of results of operations that may be
expected for the fiscal year ending December 29, 1996.
Net income per common share was computed based on the
weighted average number of shares of common stock outstanding
during the periods: 66,009,201 and 66,300,786 shares for the
fiscal quarter and six months, respectively, ended June 30, 1996
and 69,959,030 and 70,263,501 shares for the fiscal quarter and
six months, respectively, ended July 2, 1995.
The Company's fiscal year and fiscal quarters end on the
Sunday closest to the last day of the calendar month.
NOTE 2--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(in thousands of dollars)
<S> <C> <C>
Raw materials $ 38,426 $ 63,994
Work-in-process and finished
products 253,431 249,139
Supplies 17,220 16,515
-------- --------
Total inventories at current cost 309,077 329,648
Less allowances to reduce current
cost values to LIFO basis 83,904 93,189
<PAGE>
<PAGE> 44
-------- --------
$225,173 $236,459
======== ========
</TABLE>
Substantially all of the Company's inventories are determined by
the LIFO method.
NOTE 3--LITIGATION
In June 1996, the United States Court of Appeals for the
Third Circuit upheld a lower court ruling that found in favor of
the Company in a case brought by Allegheny International, Inc.
(AI) to cover a $5.5 million refund received by Allegheny Ludlum
in 1989 with respect to a federal income tax overpayment. The
case, which was brought in the United States District Court for
the Western District of Pennsylvania, arose out of the 1980
management-led buyout of the Company from AI and was pursued by
Sunbeam Corporation, the successor to AI following AI's
bankruptcy reorganization. Sunbeam asked the Third Circuit for a
rehearing which the Court denied. The Company intends to
continue to vigorously defend the favorable decision.
On June 28, 1995, the U.S. Department of Justice commenced
an action against the Company in the United States District Court
for the Western District of Pennsylvania, asserting, in 64
claims, multiple violations of the federal Clean Water Act
occurring at various times since 1987. The complaint seeks
injunctive relief and assessment of penalties of up to $25,000
per day of violation. While it is too early to predict the
outcome of the case, the Company believes that any costs or
penalties should not be material to the financial condition of
the Company or its results of operations.
NOTE 4--COMBINATION
As previously announced, on April 1, 1996, Allegheny Ludlum
and Teledyne, Inc. entered into an Agreement and Plan of Merger
and Combination. Pursuant to this Agreement, Allegheny Ludlum
and Teledyne would each become a subsidiary of a new corporation
named Allegheny Teledyne Incorporated, each share of Allegheny
Ludlum common stock would be converted into one share of
Allegheny Teledyne common stock and each share of Teledyne common
stock would be converted into 1.925 shares of Allegheny Teledyne
common stock. The transaction is subject to approval by the
shareholders of Allegheny Ludlum and Teledyne and other customary
closing conditions. Special shareholder meetings of each company
are scheduled for August 15, 1996. If shareholder approval is
obtained, the Combination is expected to be consummated as soon
as practicable following the shareholder meetings.
<PAGE>
<PAGE> 45
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In millions except share and per share amounts)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and marketable securities $ 41.7 $ 29.7
Receivables 417.5 409.8
Inventories 229.4 196.9
Deferred income taxes 82.2 104.9
Prepaid expenses 17.3 16.5
--------- ---------
Total current assets 788.1 757.8
Property and Equipment 304.3 304.3
Prepaid Pension Cost 386.6 332.7
Other Assets 127.2 82.9
--------- ---------
$ 1,606.2 $ 1,477.7
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 130.5 $ 162.0
Accrued liabilities 273.2 303.6
--------- ---------
Total current liabilities 403.7 465.6
Long-Term Debt 380.0 356.6
Accrued Postretirement Benefits 276.3 275.9
Other Long-Term Liabilities 117.5 106.6
--------- ---------
$ 1,177.5 $ 1,204.7
========= =========
Redeemable Preferred Stock,
$1.00 par value, 2,500,000 shares
authorized, 2,209,122 shares
issued and outstanding in 1995 $ 33.1 $ -
--------- ---------
</TABLE>
<PAGE>
<PAGE> 46
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In millions except share and per share amounts)
(Continued)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Shareholders' Equity:
Common stock, $1.00 par value,
100,000,000 shares authorized,
55,781,423 shares in 1995 and
55,462,298 shares in 1994
issued and outstanding 55.8 55.5
Additional paid-in capital 41.4 35.3
Retained earnings 284.0 178.3
Other 14.4 3.9
--------- ---------
Total shareholders' equity 395.6 273.0
--------- ---------
$ 1,606.2 $ 1,477.7
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 47
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
(In millions except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales $2,567.8 $2,391.2 $2,491.7
Costs and Expenses:
Cost of sales 1,912.8 1,787.8 1,917.9
Selling and administrative
expenses 430.1 576.3 468.5
Interest expense 42.3 43.5 45.1
---------- -------- --------
2,385.2 2,407.6 2,431.5
---------- -------- --------
Earnings (Loss) before
Other Income 182.6 (16.4) 60.2
Other Income, Net 67.6 12.7 53.1
---------- -------- --------
Income (Loss) before
Income Taxes, Extraordinary
Loss and Cumulative Effect
of Accounting Change* 250.2 (3.7) 113.3
Provision for Income Taxes 88.2 4.7 40.5
---------- -------- --------
Income (Loss) before
Extraordinary Loss and
Cumulative Effect of
Accounting Change 162.0 (8.4) 72.8
Extraordinary Loss on
Redemption of Debt - - (3.7)
Cumulative Effect of
Accounting Change - - (185.6)
---------- --------- --------
Net Income (Loss) 162.0 (8.4) (116.5)
Dividends on Preferred Stock 1.6 - -
---------- --------- --------
Net Income (Loss) Available
to Common Shareholders $160.4 $(8.4) $(116.5)
========== ======== ========
</TABLE>
<PAGE>
<PAGE> 48
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
(In millions except per share amounts)
(Continued)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income (Loss) Per Common Share:
Income (loss) before
extraordinary loss and
cumulative effect of
accounting change $2.88 $(0.15) $1.32
Extraordinary loss on
redemption of debt - - (0.07)
Cumulative effect of
accounting change - - (3.35)
----------- --------- ---------
Net Income (Loss) Per
Common Share $2.88 $(0.15) $(2.10)
=========== ========= =========
</TABLE>
*Includes non-cash pension income of $80.7 million in 1995, $79.1
million in 1994 and $66.2 million in 1993.
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 49
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
(In millions)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $162.0 $(8.4) $(116.5)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 70.4 70.2 72.7
Increase in prepaid pension cost (53.9) (52.4) (58.2)
Gain on sale of businesses (51.1) - -
Decrease (increase) in
deferred income taxes 38.8 41.0 (57.1)
Decrease in accounts payable
and accrued liabilities (20.4) (29.9) (53.9)
Decrease (increase) in
receivables (11.5) (82.3) 17.4
Decrease (increase) in
inventories (8.9) (26.8) 21.8
Increase in accrued income
taxes 8.9 - -
Increase (decrease) in accrued
post-retirement benefits 0.4 (1.6) 299.2
Gain on sale of Litton common
stock - - (40.4)
Other, net (12.5) (28.3) (1.7)
-------- -------- --------
Net cash provided by (used in)
operating activities 122.2 (118.5) 83.3
-------- -------- --------
Investing activities:
Net decrease (increase)
in short-term investments (5.6) 11.0 28.5
Sale of marketable securities - 121.4 163.5
Purchases of marketable
securities - (8.0) (70.4)
-------- -------- --------
Net sales (purchases)
of marketable securities (5.6) 124.4 121.6
Proceeds from the sales
of businesses 69.0 7.2 9.2
Purchases of property and
equipment (62.9) (64.5) (81.2)
</TABLE>
<PAGE>
<PAGE> 50
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
(In millions)
(Continued)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Purchase of businesses (43.2) - (4.0)
Proceeds from the sales
of property and equipment 13.5 10.9 9.7
Collection of notes receivable
from the sales of businesses 0.3 2.9 17.1
Other, net (14.4) (9.3) (11.6)
-------- -------- --------
Net cash provided by (used in)
investing activities (43.3) 71.6 60.8
-------- -------- --------
Financing activities:
Increase (decrease) in
checks outstanding (64.2) 51.7 7.9
Cash dividends (23.2) - (44.3)
Increase (decrease) in
long-term debt 8.5 (4.2) (101.6)
Other, net 6.4 0.4 0.5
-------- -------- --------
Net cash provided by (used in)
financing activities (72.5) 47.9 (137.5)
-------- -------- --------
Increase in cash $ 6.4 $ 1.0 $ 6.6
======== ======== ========
Noncash transactions:
Preferred stock dividend
on common stock $ 33.1 $ - $ -
======== ======== ========
Interest paid on long-term debt $ 38.3 $ 40.1 $ 41.7
======== ======== ========
Income taxes paid (received) $ (14.6) $ 0.9 $ (2.6)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 51
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
(In millions except per share amounts)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Other Equity
----- --------- --------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1992 $55.4 $34.5 $347.5 $3.7 $441.1
Net loss - - (116.5) -
(116.5)
Cash dividends on common
stock ($0.80 per share) - - (44.3) - (44.3)
Exercise of stock
options - 0.4 - - 0.4
Currency translation
adjustment - - - (0.2) (0.2)
------- ------- -------- ------- --------
Balance, December 31,
1993 55.4 34.9 186.7 3.5 280.5
Net loss - - (8.4) - (8.4)
Exercise of stock
options 0.1 0.4 - - 0.5
Net unrealized
appreciation - - - 0.5 0.5
Currency translation
adjustment - - - (0.1) (0.1)
------- -------- -------- ------- --------
Balance, December 31,
1994 55.5 35.3 178.3 3.9 273.0
Net income - - 162.0 - 162.0
Preferred stock dividends
on common stock ($0.60
per share) - - (33.1) - (33.1)
Cash dividends on
common stock ($0.40
per share) - - (22.6) - (22.6)
Cash dividends on
preferred stock
($0.60 per share) - - (0.6) - (0.6)
Exercise of stock options 0.3 6.1 - - 6.4
Net unrealized
appreciation - - - 9.8 9.8
Currency translation
adjustment - - - 0.7 0.7
------- ------- ------- ------- --------
<PAGE>
<PAGE> 52
Balance, December 31,
1995 $55.8 $41.4 $284.0 $14.4 $395.6
======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of Teledyne, Inc.:
We have audited the accompanying consolidated balance sheets
of Teledyne, Inc. (a Delaware corporation) and subsidiaries (the
Company) as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1995. 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, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Teledyne, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted
accounting principles.
As explained in Note 9 to the consolidated financial
statements, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106 in 1993.
/s/Arthur Andersen LLP
Los Angeles, California
January 13, 1996
<PAGE>
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1. Summary of Significant Accounting Policies -
Principles of Consolidation. The consolidated financial
statements include the accounts of Teledyne, Inc. and
subsidiaries. All material intercompany accounts and
transactions have been eliminated. Certain amounts for 1994 and
1993 have been reclassified to conform with the 1995
presentation.
Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of certain assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Management believes that the
estimates are reasonable.
Receivables. Receivables are presented net of a reserve for
doubtful accounts of $7.1 million at December 31, 1995 and $6.3
million at December 31, 1994.
Inventories. Inventories are stated at the lower of cost
(last-in, first-out and first-in, first-out methods) or market,
less progress payments. Costs include direct material, direct
labor and applicable manufacturing and engineering overhead, and
other direct costs. Any foreseeable losses are charged to income
when determined.
Cost in Excess of Net Assets of Purchased Businesses. Other
assets include cost in excess of net assets of purchased
businesses of $30.9 million at December 31, 1995 and $24.7
million at December 31, 1994. Costs related to businesses
purchased after November 1970 are being amortized on a straight-
line basis over periods not exceeding 20 years.
Financial Instruments. The fair value of financial instruments,
except for long-term debt, approximated their carrying values at
December 31, 1995. Fair values have been determined through
information obtained from quoted market sources and management
estimates.
In 1994, the Company changed its accounting for investments
in debt and equity securities to comply with the provisions of
Statement of Financial Accounting Standards No. 115. The
statement requires that these investments be classified as either
held-to-maturity, trading or available-for-sale. The Company's
investments in debt and equity securities are classified as
<PAGE>
<PAGE> 55
available-for-sale and are reported at fair value, with net
unrealized appreciation and depreciation on investments reported
as a separate component of shareholders' equity.
Revenue Recognition. Commercial sales and revenue from U.S.
government fixed-price type contracts are generally recorded as
deliveries are made or as services are rendered. For certain
fixed-price type contracts that require substantial performance
over a long time period before deliveries begin, sales are
recorded based upon attainment of scheduled performance
milestones. Sales under cost-reimbursement contracts are
recorded as costs are incurred and fees are earned.
Depreciation and Amortization. Buildings and equipment are
depreciated primarily on declining balance methods over their
estimated useful lives. Leasehold improvements are amortized on
a straight-line basis over the life of the lease. Maintenance
and repair costs are charged to income as incurred, and
betterments and major renewals are capitalized. Cost and
accumulated depreciation of property sold, retired or fully
depreciated are removed from the accounts, and any resultant gain
or loss is included in income.
Research and Development. Company-funded research and
development costs, which include bid and proposal costs, ($57.3
million in 1995, $65.9 million in 1994 and $64.0 million in 1993)
are expensed as incurred. Costs related to customer-funded
research and development contracts are charged to costs and
expenses as the related sales are recorded. A portion of the
costs incurred for company-funded research and development is
recoverable through overhead cost allowances on government
contracts.
Environmental. Costs that mitigate or prevent future
environmental contamination or extend the life, increase the
capacity or improve the safety or efficiency of property utilized
in current operations are capitalized. Other costs that relate
to current operations or an existing condition caused by past
operations are expensed. Liabilities are recorded when the
Company's liability is probable and the costs are reasonably
estimable, but generally not later than completion of the
remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change.
Liabilities are estimated and evaluated independently of possible
recoveries, if any, from insurance carriers and other third
parties. The measurement of environmental liabilities by the
Company is based on currently available facts, present laws and
regulations, and current technology. Such estimates take into
consideration the Company's prior experience in site
investigation and remediation, the data concerning cleanup costs
available from other companies and regulatory authorities, and
the professional judgment of the Company's environmental experts
<PAGE>
<PAGE> 56
in consultation with outside environmental specialists, when
necessary. The estimates also reflect an assessment of the
likelihood that other companies which have been designated
potentially responsible parties will have the financial resources
to fulfill their obligations at Superfund sites where they and
the Company may be jointly and severally liable. Costs of future
expenditures for environmental remediation obligations are not
discounted to their present value.
Income Taxes. Provision for income taxes includes federal, state
and foreign income taxes. Deferred income taxes are provided for
temporary differences in the recognition of income and expenses.
Deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax bases
of assets and liabilities using the enacted marginal tax rate in
effect for the year in which the differences are expected to
reverse. Deferred income tax expenses or credits are based on
the changes in the financial statement and tax bases of assets
and liabilities and tax rates, if any, from period to period.
Net Income (Loss) Per Share. The weighted average number of
shares of common stock used in the computation of net income per
share was 55,656,827 in 1995, 55,446,296 in 1994 and 55,420,654
in 1993. The potential dilution of common stock equivalents is
not material and, therefore, is not included in the computation
of per share data.
Note 2. Inventories -
Inventories at December 31, 1995 and 1994 were as follows (in
millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials and work-in-process $212.4 $ 301.9
Finished goods 61.3 47.2
--------- --------
273.7 349.1
Progress payments (44.3) (152.2)
--------- --------
$229.4 $196.9
========= ========
</TABLE>
Inventories, before progress payments, determined on the last-in,
first-out method were $199.6 million at December 31, 1995 and
$234.8 million at December 31, 1994. The remainder of the
inventories was determined using the first-in, first-out method.
<PAGE>
<PAGE> 57
Inventories stated on the last-in, first-out basis were
$179.8 million and $189.2 million less than their first-in,
first-out values at December 31, 1995 and 1994, respectively.
These first-in, first-out values do not differ materially from
current cost.
During 1995, 1994 and 1993, inventory usage resulted in
liquidations of last-in, first-out inventory quantities. These
inventories were carried at the lower costs prevailing in prior
years as compared with the cost of current purchases. The effect
of these last-in, first-out inventory liquidations was to
increase net income by $8.0 million in 1995 and 1994, and $11.4
million in 1993.
Inventories, before progress payments, related to long-term
contracts were $25.3 million and $163.4 million at December 31,
1995 and 1994, respectively. Progress payments related to
long-term contracts were $24.1 million and $136.9 million at
December 31, 1995 and 1994, respectively.
Note 3. Long-Term Debt -
Long-term debt at December 31, 1995 and 1994 was as follows (in
millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
10% Subordinated Debentures, due 2004,
Series A and C (net of unamortized
discount of $24.6 in 1995 and $27.8
in 1994) $332.4 $332.2
7% Subordinated Debentures, due 1999,
$1.9 payable annually 22.4 23.9
Variable Rate Note, due 1997 14.2 -
Other 17.7 2.6
--------- --------
386.7 358.7
Current portion (6.7) (2.1)
--------- --------
$380.0 $356.6
========= ========
</TABLE>
At December 31, 1995, the estimated fair value of the Company's
long-term debt was $421.9 million.
<PAGE>
<PAGE> 58
Long-term debt is payable $6.7 million in 1996, $27.6
million in 1997, $2.6 million in 1998 and $17.4 million in 1999.
No amount is due in 2000.
The Company had available credit facilities at December 31,
1995, with various U.S. and foreign banks, totaling $151.0
million ($135.0 million expiring in July 1997, and $16.0 million
expiring in December 1997) for which there is a $75.0 million
letters of credit sublimit. Borrowings under the credit
agreements, at the Company's election, bear interest at a
floating rate generally based on either a defined prime rate or a
fixed rate based on an interbank offered rate. A fee is charged
on the amount of the unused commitment. The agreements contain
restrictive covenants including those relating to net worth,
investments, asset sales and material changes in lines of
business. During 1995, the Company utilized $14.2 million of its
lines of credit in the acquisition of the material handling
business of Kooi B.V. At December 31, 1995, the interest rate on
this borrowing was 4.4 percent. Commitments under separate
standby letters of credit outstanding were $51.1 million at
December 31, 1995 and $86.2 million at December 31, 1994.
In 1994, the Company settled with the U.S. government two
civil cases relating to its Teledyne Relays and Systems units.
In connection with the settlement, the Company paid the U.S.
government $112.5 million and related interest of $2.1 million in
1994.
In 1993, the Company redeemed at par $100 million of its 10%
Subordinated Debentures due 2004, Series C resulting in an
extraordinary loss of $6.0 million or $3.7 million, net of tax.
Note 4. Supplemental Balance Sheet Information -
Cash and marketable securities at December 31, 1995 and 1994 were
as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash $ 22.1 $ 15.7
Repurchase agreements, at cost which
approximates market 13.0 14.0
Other short-term investments, at cost
which approximates market 6.6 -
--------- --------
$41.7 $29.7
========= ========
</TABLE>
<PAGE>
<PAGE> 59
Property and equipment at December 31, 1995 and 1994 were as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 28.3 $ 28.9
Buildings 224.4 229.8
Equipment and leasehold improvements 614.3 597.2
--------- --------
867.0
855.9
Accumulated depreciation and
amortization (562.7) (551.6)
--------- --------
$304.3 $304.3
========= ========
</TABLE>
In 1995, Statement of Financial Accounting Standards No. 121
was issued which establishes accounting standards for the
impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets. This
statement, which will be effective in 1996, addresses when
impairment losses should be recognized and how impairment losses
should be measured. The adoption of this statement by the
Company is not expected to have a material effect on the
consolidated financial statements.
Accounts payable included $9.6 million at December 31, 1995
and $73.8 million at December 31, 1994 for checks outstanding in
excess of cash balances.
Accrued liabilities at December 31, 1995 and 1994 were as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Salaries and wages $ 69.0 $ 68.6
Accrued postretirement benefits 22.0 22.5
Advances and billings in excess
of costs 17.2 34.4
Other 165.0 178.1
--------- --------
$273.2 $303.6
========= ========
</TABLE>
<PAGE>
<PAGE> 60
Note 5. Redeemable Preferred Stock -
During 1995, dividends consisting in part of cash and in
part of redeemable preferred stock were paid to common
shareholders. The redeemable preferred stock is a new issue of
Series E Cumulative Preferred Stock, $15.00 stated value per
share, callable by the Company at any time at $15.00 per share,
with a mandatory call at $16.50 per share on change of control,
paying an annual cumulative cash dividend of $1.20 per share
payable semi-annually. For each dividend on the common stock,
shareholders received one share of the Series E Cumulative
Preferred Stock for each one hundred shares of common stock, with
cash paid in lieu of fractional shares.
Note 6. Shareholders' Equity -
The Company is authorized to issue 15 million shares of
preferred stock, $1 par value. In 1988, the Board of Directors
authorized the purchase of up to five million shares of the
Company's common stock. As of December 31, 1995, the Company had
purchased and subsequently retired 1,432,000 shares.
The Company has compensation plans which allow for issuance
of restricted stock, stock options and stock appreciation rights
covering an aggregate of 5,200,000 shares of the Company's common
stock. Under the plans, options to purchase shares of the
Company's common stock may be granted to certain key employees
and non-employee directors and may be incentive stock options or
non-qualified stock options. If incentive stock options are
granted, the exercise price of the options is the fair market
value of the shares on the date of the grant. Non-qualified
stock options may be granted with an exercise price below the
fair market value of the shares on the date of the grant.
Options are generally nontransferable and are exercisable in
installments.
In 1995, the 1995 Non-Employee Director Stock Option Plan
was approved by the Company s shareholders. This plan, which is
available only to non-employee directors of the Company who
first became directors after January 1, 1994, allows for the
issuance of stock options covering 200,000 shares of the
Company's common stock.
<PAGE>
<PAGE> 61
Stock option activity for the year ended December 31, 1995
was as follows:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price per Share
--------- ---------------
<S> <C> <C>
Outstanding at
December 31, 1994 3,276,375 $16.375 - $25.125
Granted 548,528 $15.330 - $24.750
Exercised (319,125) $16.375 - $20.250
Canceled (76,625) $16.375 - $25.125
--------- -----------------
Outstanding at
December 31, 1995 3,429,153 $15.330 - $24.750
========= =================
</TABLE>
The options granted to date are exercisable in installments
beginning one and two years from the date of grant and expiring
10 or 11 years from the date of grant. As of December 31, 1995,
options for 1,401,472 common shares were available for future
grant and 1,518,891 of the stock options were exercisable.
In 1995, SFAS No. 123 was issued which requires certain
disclosures about stock-based employee compensation arrangements
using the fair value based method of accounting. This statement,
effective in 1996, allows for companies to either adopt the new
method of accounting or to continue using the intrinsic value
based method of accounting but make pro forma disclosures of net
income and earnings per share as if the fair value based method
of accounting had been applied. The Company has not yet
determined the method it will use or the impact of SFAS No. 123
on the the consolidated financial statements.
On January 4, 1995, the Company's Board of Directors adopted
a Stockholders Rights Plan (the Plan). In accordance with the
Plan, the Board of Directors declared a dividend of one purchase
right for each outstanding common share. These rights have no
current value and their distribution is not taxable to
shareholders. If a person or group, without the prior approval
of the Company's Board of Directors, becomes the beneficial owner
of 15 percent or more of the Company's outstanding common stock,
each right, except any such rights held by the non-approved
acquiror (or its affiliates or transferees), will entitle the
holder to purchase a number of shares of the Company's common
stock that has a then-current market value of twice the exercise
<PAGE>
<PAGE> 62
price of the right, which is $75 (subject to adjustment). In
addition, if, after such an event, the Company is involved in a
business combination with, or sells 50 percent or more of its
assets or earning power to, the non-approved acquiror (or any
other person if the transaction does not treat all shareholders
alike), each right, except any such rights held by the non-
approved acquiror (or its affiliates or transferees), will
entitle the holder to buy a number of shares of the voting stock
of the other party to the transaction that has a then-current
market value of twice the exercise price. The Plan and the
rights will expire January 4, 2005. The rights may be redeemed
by the Board of Directors for $0.01 per right at any time prior
to the occurrence of the first triggering event described above
or prior to the expiration of the rights.
Note 7. Income Taxes -
The components of the net deferred tax asset at December 31, 1995
and 1994, were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Pension income $(148.9) $(124.0)
Postretirement benefits 115.0 116.1
Inventory valuations 17.6 21.7
Long-term contracts 13.6 29.0
Self-insurance reserves 12.1 14.3
Vacation benefits 9.7 10.1
Other deferred assets 59.0 66.9
Other deferred liabilities (17.5) (28.4)
--------- --------
$60.6 $105.7
========= ========
</TABLE>
Provision (credit) for income taxes for the years ended December
31, 1995, 1994 and 1993 was as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current - Federal $40.2 $(41.1) $(20.1)
- State 5.0 2.9 0.4
- Foreign 4.1 2.0 1.5
<PAGE>
<PAGE> 63
----- ------ -----
- Total 49.3 (36.2) (18.2)
----- ------ -----
Deferred - Federal 28.4 40.3 49.3
- State 10.5 0.6 9.4
----- ------ -----
- Total 38.9 40.9 58.7
----- ------ -----
Provision for income taxes $88.2 $ 4.7 $40.5
===== ====== =====
</TABLE>
Income (loss) before income taxes, extraordinary loss and
cumulative effect of accounting changes included income (loss)
from domestic operations of $246.4 million in 1995, $(9.3)
million in 1994 and $113.7 million in 1993.
Differences between the provision for income taxes and
income taxes at the statutory federal income tax rate for the
years ended December 31, 1995, 1994 and 1993 were as follows (in
millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income tax at statutory
federal rate $87.4 $(1.3) $39.6
State and local income
taxes, net of federal
income tax effect 10.1 2.3 6.4
Revisions to prior years'
estimated income tax
liabilites (9.3) - -
Foreign sales corporation
exemption (1.2) (1.9) (2.5)
Non-deductible settlement
expenses - 4.7 0.5
Effect of tax rate change - - (4.6)
Other, net 1.2 0.9 1.1
------ ------ ------
Provision for income taxes $ 88.2 $ 4.7 $ 40.5
====== ====== ======
</TABLE>
<PAGE>
<PAGE> 64
The Omnibus Budget Reconciliation Act of 1993 increased the
corporate federal income tax rate to 35 percent in 1993 from 34
percent in 1992. The tax law change resulted in the recognition
of additional income by the Company due primarily to revaluing
the Company's net deferred tax asset.
Note 8. Pension Benefits -
The Company sponsors defined benefit pension plans covering
substantially all of its employees. Benefits are generally based
on years of service and/or final average pay. The Company funds
the pension plans in accordance with the requirements of the
Employee Retirement Income Security Act of 1974, as amended.
Components of pension expense (income) for the years
ended December 31, 1995, 1994 and 1993 included the following (in
millions):
<TABLE>
<CAPTION>
Expense (Income)
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits
earned during the year $21.0 $31.2 $29.6
Interest cost on benefits
earned in prior years 74.8 64.2 68.4
Expected return on plan
assets (129.6) (111.8) (106.1)
Net amortization of
unrecognized amounts (50.0) (59.8) (58.9)
----- ------ -----
Pension income for
defined benefit plans (83.8) (76.2) (67.0)
Other 3.1 (2.9) 0.8
----- ----- -----
Pension income $(80.7) $(79.1) $(66.2)
====== ====== ======
</TABLE>
Actual return on plan assets was income of $264.6 million in
1995, loss of $44.8 million in 1994 and income of $174.1 million
in 1993. Actuarial assumptions used to develop the components of
pension expense (income) for the years ended December 31, 1995,
1994 and 1993 were as follows:
<PAGE>
<PAGE> 65
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.5% 7.0% 8.0%
Rate of increase in future
compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of
return on assets 7.5% 6.0% 6.0%
===== ===== =====
</TABLE>
Plan assets in excess of projected benefit obligation at December
31, 1995 and 1994 were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Plan assets at fair value $1,910.8 $1,761.8
-------- --------
Actuarial present value of
benefit obligations:
Vested benefit obligation 959.5 750.8
Non-vested benefit obligation 3.3 5.0
-------- ---------
Accumulated benefit obligation 962.8 755.8
Additional benefits related to future
compensation levels 96.6 78.1
-------- ---------
Projected benefit obligation 1,059.4 833.9
-------- ---------
Plan assets in excess of projected
benefit obligation $851.4 $927.9
======== =========
Plan assets in excess of projected
benefit obligation:
Included in balance sheet:
Prepaid pension cost $386.6 $332.7
Other long-term liabilities (0.1) (12.5)
Not included in balance sheet:
Unrecognized net gain due to experience
different from that assumed and
changes in the discount rate 299.9 400.5
<PAGE>
<PAGE> 66
Unrecognized net asset at adoption of
SFAS No. 87, net of amortization 195.6 234.5
Unrecognized prior service cost (30.6) (27.3)
-------- ---------
Plan assets in excess of projected
benefit obligation $851.4 $927.9
======== =========
</TABLE>
Any reversion of pension plans' assets to the Company would be
subject to federal and state income taxes, substantial excise tax
and other possible claims.
At December 31, 1995 and 1994, the plans' assets, which
consisted primarily of fixed maturities, included debt
obligations of the Company (primarily Teledyne 10% Subordinated
Debentures) with a market value of $79.1 million and $76.7
million, respectively.
A discount rate of 7.5 percent at December 31, 1995 and 8.5
percent at December 31, 1994 and a rate of increase in future
compensation levels of 4.5 percent at December 31, 1995 and 1994
were used for the valuation of pension obligations.
Note 9. Postretirement Benefits -
The Company provides postretirement health care and life
insurance benefits, which are paid as incurred, to certain
employees and their dependents meeting eligibility requirements.
Most of the plans are of a defined benefit nature and are subject
to deductibles, co-payment provisions and other limitations.
Retiree contributions to the premium cost are generally required
based on coverage type, plan and medicare eligibility. In many
plans, company contributions toward premiums are capped based on
the cost as of a certain date thereby creating a defined
contribution. The Company generally reserves the right to change
or eliminate the plans. Non-represented employees who commenced
employment after January 1, 1986 and union represented employees
who commence employment after the most recently negotiated labor
agreement are not eligible for medical benefits upon retirement.
Effective January 1, 1993, the Company changed its method of
accounting for postretirement health care and life insurance
benefits, as required by SFAS No. 106. This statement requires
that the expected cost of providing postretirement health care
and life insurance benefits be charged to expense during the
years that the employees render service. Prior to 1993, the
Company expensed the cost of these benefits as they were paid.
As a result of adopting SFAS No. 106, the Company recorded a
charge of $301.7 million or $185.6 million, net of tax, to
recognize the accumulated postretirement benefit obligation at
<PAGE>
<PAGE> 67
the date of adoption. The new accounting method has no effect on
the Company's cash outlays for postretirement health care
benefits.
Cash from excess pension assets of $17.5 million in 1995 and
$15.0 million in 1994 was transferred pre-tax under Section 420
of the Internal Revenue Code from the Company's defined benefit
pension plans to the Company. The Internal Revenue Code permits
transfers annually of an amount not to exceed the Company s
actual expenditures on retiree health care benefits. While not
affecting reported operating profit, cash flow increased by the
after-tax effect of the transferred amount.
Components of postretirement expense for the years ended
December 31, 1995, 1994 and 1993 included the following (in
millions):
<TABLE>
<CAPTION>
Expense (Income)
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned
during the year $0.8 $0.9 $1.3
Interest cost on benefits earned
in prior years 23.1 21.3 23.4
Net amortization of unrecognized
amounts (2.1) (2.1) -
Other - - (1.8)
----- ----- -----
Postretirement expense $ 21.8 $ 20.1 $ 22.9
======= ======= =======
</TABLE>
The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 10.5
percent in 1995, gradually declining to 6.5 percent in the year
2012 and remaining at that level thereafter. A one percentage
point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit
obligation by $22.2 million and the 1995 postretirement benefit
expense by $2.0 million. A discount rate of 8.5 percent in 1995,
7.0 percent in 1994 and 8.0 percent in 1993 was used in
determining the postretirement expense. A discount rate of 7.5
percent at December 31, 1995 and 8.5 percent at December 31, 1994
was used to determine the postretirement benefit obligation.
<PAGE>
<PAGE> 68
Accumulated postretirement benefit obligations at
December 31, 1995 and 1994 were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accumulated present value of
benefit obligations:
Retirees $280.0 $248.7
Other fully eligible plan
participants 17.0 13.2
Other active plan participants 14.8 11.6
------- -------
Accumulated benefit obligation $ 311.8 $ 273.5
======= =======
Accumulated benefit obligation:
Included in balance sheet:
Current portion included in
accrued liabilities $ 22.0 $ 22.5
Accrued postretirement benefits 276.3 275.9
Not included in balance sheet:
Unrecognized net loss (gain)
due to experience different
from that assumed and changes
in the discount rate 13.5 (24.9)
------- -------
Accumulated benefit obligation $ 311.8 $ 273.5
======= =======
</TABLE>
Note 10. Acquisitions -
In January 1995, the Company acquired the material handling
business of Kooi B.V., a Netherlands company that is Europe s
largest supplier of truck-mountable, self-propelled material
handlers. In December 1995, the Company acquired two businesses
complementing existing operations: Stellram Group, based in
Europe, manufacturers of high precision milling, boring and
drilling systems primarily for the European market; and Envases
Comerciales, S.A., a Costa Rican manufacturer of specialty
packaging for pharmaceutical and food companies throughout
Central America and Mexico. These three businesses were
purchased for $59.5 million, consisting of $43.2 million in cash
and the assumption of $16.3 million in debt. In connection with
these purchases, the Company acquired operating assets with a
fair value of $87.9 million and assumed operating liabilities of
$28.4 million.
<PAGE>
<PAGE> 69
Note 11. Business Segments -
Teledyne, Inc. is a technology-based manufacturing
corporation serving worldwide customers with commercial and
government-related aviation and electronics products; specialty
metals for consumer, industrial and aerospace applications; and
industrial and consumer products.
The Company's major business segments include aviation and
electronics, specialty metals, industrial and consumer.
Companies in the aviation and electronics segment produce piston
and turbine engines for aircraft and land based vehicle
applications, airframe structures, unmanned aerial vehicles,
target drone systems, and equipment and subsystems for spacecraft
and avionics. Other activities in this segment include the
manufacture of electronic equipment, aircraft-monitoring and
control systems for military and commercial applications, relays
and other related products and systems. Products in the
specialty metals segment include zirconium, titanium, high
temperature nickel-based alloys, specialty and tool steels,
tungsten and molybdenum. Other operations in this segment
consist of processing, casting, rolling and forging metals. The
industrial segment is comprised of companies that are involved in
the design and/or manufacture of military vehicles, diesel
engines, material handling equipment, machine tools, dies and
molds, nitrogen cylinders, specialty valves, pumps and boosters.
The consumer segment manufactures oral hygiene, shower and water
purification systems, swimming pool and spa heaters, residential
and commercial heating systems, and specialty packaging for
consumer products.
Information on the Company's business segments for the years
ended December 31, 1995, 1994 and 1993 was as follows (in
millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales:
Aviation and electronics:
Continuing $1,015.4 $882.0 $951.9
Discontinued - 148.5 180.6
--------- -------- --------
1,015.4 1,030.5 1,132.5
--------- -------- --------
Specialty metals:
Continuing 867.6 709.7 650.8
<PAGE>
<PAGE> 70
Discontinued 1.5 1.7 8.0
--------- -------- --------
869.1 711.4 658.8
--------- -------- --------
Industrial:
Continuing 346.8 318.1 333.5
Discontinued 9.9 23.6 53.8
--------- -------- --------
356.7 341.7 387.3
--------- -------- --------
Consumer:
Continuing 326.6 307.6 313.1
Discontinued - - -
--------- -------- --------
326.6 307.6 313.1
--------- -------- --------
Total:
Continuing 2,556.4 2,217.4 2,249.3
Discontinued 11.4 173.8 242.4
--------- -------- --------
$2,567.8 $2,391.2 $2,491.7
========= ======== ========
</TABLE>
The Company's backlog of confirmed orders was approximately $1.0
billion at December 31, 1995 and $1.4 billion at December 31,
1994. Backlog of the aviation and electronics segment was $456.6
million at December 31, 1995 and $850.7 million at December 31,
1994.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales to the U.S. government
including direct sales as
prime contractor and indirect
sales as subcontractor or
supplier:
Aviation and electronics $582.2 $595.6 $729.4
Specialty metals 38.7 41.8 59.2
Industrial 93.5 99.4 134.7
Consumer 38.8 38.4 37.7
------ ------ ------
$753.2 $775.2 $961.0
====== ====== ======
</TABLE>
<PAGE>
<PAGE> 71
Sales to the U.S. government include sales to the department of
defense of $613.4 million in 1995, $599.5 million in 1994 and
$791.3 million in 1993.
Total foreign sales were $548.6 million in 1995, $519.4
million in 1994 and $505.5 million in 1993. Of these amounts,
sales by operations in the United States to customers in other
countries were $439.5 million in 1995, $381.3 million in 1994 and
$371.3 million in 1993. Sales between business segments, which
were not material, generally were priced at prevailing market
prices.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income (Loss) before Taxes,
Extraordinary Loss and
Cumulative Effect of Accounting
Change:
Aviation and electronics:
Continuing $102.7 $(4.2) $41.3
Discontinued - (35.8) (13.6)
Pension income 18.1 12.8 13.8
------- ------- -------
120.8 (27.2) 41.5
------- ------- -------
Specialty metals:
Continuing 85.3 27.1 29.9
Discontinued - 1.4 4.0
Pension income 8.3 8.7 9.9
------- ------- -------
93.6 37.2 43.8
------- ------- -------
Industrial:
Continuing 18.7 13.0 13.2
Discontinued 0.6 (1.3) 1.3
Pension income 25.9 25.8 38.8
------- ------- -------
45.2 37.5 53.3
------- ------- -------
Consumer:
Continuing 18.7 21.5 19.6
Discontinued - (2.8) 2.0
Pension income 0.2 (0.1) 0.5
------- ------- -------
18.9 18.6 22.1
------- ------- -------
<PAGE>
<PAGE> 72
Total:
Continuing 225.4 57.4 104.0
Discontinued 0.6 (38.5) (6.3)
------- ------- -------
226.0 18.9 97.7
------- ------- -------
Corporate expense:
Salaries and benefits (23.0) (18.7) (17.8)
Closed businesses expenses (11.9) (8.4) (6.6)
Other (47.2) (41.3) (35.6)
Interest expense (42.3) (43.5) (45.1)
Pension income 80.7 79.1 66.2
Other income 67.9 10.2 54.5
------- ------- -------
$250.2 $(3.7) $113.3
======= ======= =======
</TABLE>
In 1993, Teledyne undertook a major realignment which
consolidated its operating companies. The realignment built on
the 1992-1993 restructure which focused the Company on those
businesses in which it has significant leadership roles. The
restructure consisted of the sale, closure or transfer of certain
operations. Discontinued results include the estimated
realignment and restructure cost, before pension income, and
results of operations divested. As a result of the January 1995
sale of substantially all of the Company's defense electronic
systems business and related assets at a gain of $50.7 million
(included in other income), sales and operating results for the
business have been reclassified and are presented in discontinued
results of the aviation and electronics segment.
Operating results of continuing operations for the aviation
and electronics segment included income of $8.4 million in 1995
and $7.0 million in 1994 and charges of $15.1 million in 1993
related to adjustment of loss reserves on fixed-price development
and initial production contracts. Discontinued results included
provision for losses on fixed-price development and initial
production contracts of approximately $11.5 million in 1994 and
$4.4 million in 1993.
Operating results of continuing operations for the aviation
and electronics segment were adversely impacted by charges of
$88.8 million in 1994 and $3.6 million in 1993 to resolve certain
U.S. government contracting matters. Discontinued results for
the aviation and electronics segment included charges of $35.0
million in 1994 and $13.0 million in 1993 to resolve certain U.S.
government contracting matters. Operating results of continuing
operations for the specialty metals segment included a charge of
$13.0 million in 1994 to resolve a U.S. government export
investigation matter.
<PAGE>
<PAGE> 73
In 1995, the New Piper Aircraft Company emerged from
bankruptcy with Teledyne having exchanged its major creditor
position for 24.2 percent ownership and an option to purchase an
additional 24.2 percent. As a result, Teledyne recognized a gain
for the year 1995 of $5.9 million, included in other income. In
1993, the Company sold its investment in Litton common stock
resulting in a $40.4 million gain, included in other income.
Teledyne's non-cash pension income recorded the amount by
which the amortization into income of pension surplus and
estimated return on plan assets exceeded the current year s cost
of providing benefits.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Depreciation and Amortization:
Aviation and electronics $15.6 $19.1 $22.0
Specialty metals 32.0 28.3 27.9
Industrial 7.8 8.1 9.0
Consumer 7.8 7.7 6.9
Corporate 7.2 7.0 6.9
------- ------- ------
$70.4 $70.2 $72.7
======= ======= ======
Capital Expenditures:
Aviation and electronics $12.8 $15.8 $22.8
Specialty metals 31.6 26.6 35.0
Industrial 9.2 6.2 5.2
Consumer 6.4 11.1 9.9
Corporate 2.9 4.8 8.3
------- ------- -------
$62.9 $64.5 $81.2
======= ======= =======
Identifiable Assets:
Aviation and electronics $257.7 $299.7 $284.6
Specialty metals 420.7 315.6 288.0
Industrial 158.9 114.1 113.1
Consumer 135.3 117.1 105.4
Corporate 633.6 631.2 686.7
-------- -------- --------
$1,606.2 $1,477.7 $1,477.8
======== ======== ========
</TABLE>
<PAGE>
<PAGE> 74
Note 12. Commitments and Contingencies -
Rental expense under operating leases was $22.9 million in 1995,
$26.8 million in 1994, and $27.0 million in 1993. Future minimum
rental commitments under operating leases with non-cancelable
terms of more than one year as of December 31, 1995, are as
follows: $15.8 million in 1996, $11.2 million in 1997, $9.9
million in 1998, $8.7 million in 1999, $6.8 million in 2000 and
$37.7 million thereafter.
The Company has made voluntary disclosures to the U.S.
government of government contracting irregularities discovered in
certain of its current or former business units. The Company has
cooperated with the government in the investigation of these
matters, and management does not believe that the outcome of
these matters is likely to have a material adverse effect on the
financial condition of the Company.
The Company learns from time to time that it has been named
as a defendant in civil actions filed under seal pursuant to the
False Claims Act. Generally, as these cases are under seal, the
Company does not possess sufficient information to determine
whether the Company will sustain a material loss in such matters,
or to reasonably estimate the amount of any loss attributable to
such case or cases. Consequently, the Company has not been able
to identify the existence of a material loss contingency arising
therefrom.
For further information concerning government contract
matters, and for a discussion of environmental matters, see
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>
<PAGE> 75
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions except share and per share amounts)
<TABLE>
<CAPTION>
June 30, 1996
-------------
(Unaudited)
<S> <C>
ASSETS
------
Current Assets:
Cash and marketable securities $ 101.9
Receivables 413.3
Inventories 221.5
Deferred income taxes 74.6
Prepaid expenses 13.3
-----------
Total current assets 824.6
Property and Equipment 292.0
Prepaid Pension Cost 420.8
Other Assets 130.9
-----------
$ 1,668.3
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable 128.8
Accrued liabilities 268.7
Total current liabilities 397.5
Long-Term Debt 375.3
Accrued Postretirement Benefits 268.7
Deferred Income Taxes 31.6
Other Long-Term Liabilities 101.3
-----------
1,174.4
-----------
Redeemable Preferred Stock, $1.00 par value,
5,000,000 shares authorized,
2,763,722 shares at June 30, 1996 and
2,209,122 shares at December 31, 1995
issued and outstanding 41.5
-----------
Shareholders' Equity:
Preferred stock, $1.00 par value,
15,000,000 shares authorized -
<PAGE>
<PAGE> 76
Common stock, $1.00 par value,
100,000,000 shares authorized,
56,054,682 shares at June 30, 1996
and 55,781,423 shares at December
31, 1995 issued and outstanding 56.1
Additional paid-in capital 46.1
Retained earnings 345.0
Other 5.2
-----------
Total shareholders' equity 452.4
-----------
$ 1,668.3
===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 77
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
---------- ---------
<S> <C> <C>
Sales $ 1,331.5 $ 1,332.2
Costs and Expenses*:
Cost of sales 966.6 996.3
Selling and administrative expenses 230.4 216.8
Interest expense 21.1 21.0
-------- --------
1,218.1 1,234.1
-------- --------
Earnings Before Other Income 113.4 98.1
Other Income 52.0 56.9
-------- --------
Income before Income Taxes 165.4 155.0
Provision for Income Taxes 63.0 58.1
-------- --------
Net Income 102.4 96.9
Preferred Stock Dividends (2.0) (0.4)
-------- --------
Net Income Applicable to Common
Shareholders $ 100.4 $ 96.5
======== ========
Net Income Per Common Share $ 1.79 $ 1.74
========= =========
Dividends Per Share $ 0.685 $ 0.50
========== =========
</TABLE>
* Includes a credit of pension income of $19.5 million and $39.3
million for the second quarter and first half of 1996 and $21.1
million and $42.2 million for the same periods in 1995.
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 78
TELEDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
---------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 102.4 $ 96.9
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Gain on sale of businesses (43.7) (49.8)
Increase in prepaid pension
cost (40.8) (34.5)
Depreciation and amortization
of property and equipment 36.3 36.4
Decrease in deferred income
taxes 24.4 43.5
Increase in receivables (12.0) (4.7)
Decrease in accrued income
taxes (10.0) -
Decrease in accounts payable
and accrued liabilities (9.2) (18.6)
Increase in inventories (7.0) (22.9)
Other, net 3.2 (9.5)
------- -------
Net cash provided by operating
activities 43.6 36.8
------- -------
Investing Activities:
Proceeds from the sale of
businesses 79.6 63.2
Net decrease (increase) in
short-term investments (48.1) 2.0
Purchases of property and
equipment (23.1) (31.2)
Purchases of businesses (13.5) (11.7)
Other, net 2.9 (3.3)
------- -------
Net cash provided by (used in)
investing activities (2.2) 19.0
------- -------
<PAGE>
<PAGE> 79
Financing Activities:
Cash dividends (33.1) (11.3)
Exercise of stock options 4.9 4.0
Increase (decrease) in checks
outstanding 3.5 (58.3)
Reduction of long-term debt (2.8) (5.3)
Increase in long-term debt 1.4 16.7
------- -------
Net cash used in financing
activities (26.1) (54.2)
------- -------
Increase in cash $ 15.3 $ 1.6
======= =======
Non cash transactions:
Preferred stock dividend on
common stock $ 8.3 $ 16.5
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 80
TELEDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Consolidated Financial Statements -
The interim consolidated financial statements of Teledyne,
Inc. and subsidiaries have not been examined by independent
public accountants; however, in the opinion of the Company, all
adjustments (which include only recurring normal adjustments)
required for a fair presentation of the financial position as of
June 30, 1996, and the results of operations and cash flows for
the six months ended June 30, 1996 and 1995, have been made.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's December 31, 1995 annual report
to shareholders. The results of operations for these interim
periods are not necessarily indicative of the operating results
for a full year. Certain amounts for prior periods have been
reclassified to conform with the 1996 presentation.
Note 2. Inventories -
Inventories were as follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Raw materials $ 45.3 $ 43.6
Work-in-process 131.7 168.8
Finished goods 70.8 61.3
---------- ----------
247.8 273.7
Progress payments (26.3) (44.3)
---------- ----------
$ 221.5 $ 229.4
========== ==========
</TABLE>
<PAGE>
<PAGE> 81
Note 3. Supplemental Balance Sheet Information -
Cash and marketable securities were as follows (in
millions):
<TABLE>
<CAPTION> June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Cash $ 37.4 $ 22.1
Repurchase agreements, at
market, which approximates
cost 64.5 13.0
Other short-term investments,
at market, which approximates
cost - 6.6
---------- ----------
$ 101.9 $ 41.7
========== ==========
</TABLE>
Property and equipment is presented net of accumulated
depreciation and amortization of $571.3 million at June 30, 1996
and $562.7 million at December 31, 1995.
Accounts payable included $13.1 million at June 30, 1996 and
$9.6 million at December 31, 1995 for checks outstanding in
excess of cash balances.
Note 4. Dispositions -
In March 1996, the Company sold Teledyne Vehicle Systems, a
defense supplier of combat vehicles, mobility systems, tactical
wheeled vehicles and vehicle modernization, at a pretax gain of
$41.0 million, included in other income. In January 1995, the
Company sold substantially all of its defense electronic systems
business and related assets at a pretax gain of $50.7 million,
included in other income.
Note 5. Combination with Allegheny Ludlum -
On April 1, 1996, the Company entered into a definitive
agreement to combine with Allegheny Ludlum, a leading producer of
a wide range of specialty materials including stainless steels,
tool steels, high technology alloys and grain-oriented silicon
steel. Under the agreement, each Company will become a wholly
owned subsidiary of the new company, Allegheny Teledyne
Incorporated. Teledyne shareholders will receive 1.925 shares of
common stock in Allegheny Teledyne for each of their Teledyne
common shares. Allegheny Ludlum shareholders will receive one
<PAGE>
<PAGE> 82
share in the new company for each of their shares in Allegheny
Ludlum. The transaction is expected to be tax-free to
shareholders and accounted for as a pooling of interests. Both
companies will hold special shareholder meetings on August 15,
1996 to vote on the proposed combination.
Note 6. Redemption of Preferred Stock -
On June 28, 1996, the Board of Directors approved the
redemption of all of the outstanding shares of the Company s
Series E Cumulative Preferred Stock. The redemption price of
$15.00 per share, together with an additional $0.60 per share,
representing an amount equal to the dividend payment that would
otherwise be due September 1, 1996, will be payable on August 14,
1996.
Note 7. Business Segments -
Information on the Company's business segments for the three
and six months ended June 30, 1996 and 1995 was as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales:
Specialty metals: $ 269.7 $ 226.1 $ 515.9 $ 450.1
------- ------- ------- -------
Aviation and electronics:
Continuing 239.3 317.8 487.4 542.5
Discontinued 6.8 8.4 14.4 18.8
------- ------- ------- -------
246.1 326.2 501.8 561.3
------- ------- ------- -------
Consumer: 90.5 80.0 172.8 155.0
------- ------- ------- -------
Industrial:
Continuing 55.2 52.6 111.3 99.0
Discontinued 1.3 21.8 29.7 66.8
------- ------- ------- -------
56.5 74.4 141.0 165.8
------- ------- ------- -------
<PAGE>
<PAGE> 83
Total:
Continuing 654.7 676.5 1,287.4 1,246.6
Discontinued 8.1 30.2 44.1 85.6
------- ------- ------- -------
$662.8 $706.7 $1,331.5 $1,332.2
======= ======= ======= =======
Income before Income Taxes:
Specialty metals:
Continuing $ 35.9 $ 23.5 $ 66.2 $ 48.3
Pension income 0.7 2.6 2.7 5.2
------- ------- ------- -------
36.6 26.1 68.9 53.5
------- ------- ------- -------
Aviation and electronics:
Continuing 21.9 29.2 47.3 57.7
Discontinued (0.6) (1.6) (1.2) (2.4)
Pension income 3.9 4.5 8.3 9.0
------- ------- ------- -------
25.2 32.1 54.4 64.3
------- ------- ------- -------
Consumer:
Continuing 7.3 3.9 12.3 6.6
Pension income (0.2) 0.1 (0.2) 0.1
------- ------- ------- -------
7.1 4.0 12.1 6.7
------- ------- ------- -------
Industrial:
Continuing 5.9 5.5 11.0 10.9
Discontinued (0.3) (0.9) 0.1 (0.8)
Pension income 0.4 5.9 6.7 11.9
------- ------- ------- -------
6.0 10.5 17.8 22.0
------- ------- ------- -------
Total:
Continuing 71.0 62.1 136.8 123.5
Discontinued (0.9) (2.5) (1.1) (3.2)
------- ------- ------- -------
70.1 59.6 135.7 120.3
------- ------- ------- -------
Corporate expense:
Salaries and
benefits (5.9) (6.0) (10.4) (11.8)
Closed businesses'
expenses (4.5) (3.4) (7.3) (4.5)
Other (12.0) (11.5) (22.8) (27.1)
Interest expense (10.3) (10.4) (21.1) (21.0)
<PAGE>
<PAGE> 84
Pension income 19.5 21.1 39.3 42.2
Other income 7.6 2.7 52.0 56.9
------- ------- ------- -------
$ 64.5 $ 52.1 $ 165.4 $ 155.0
======= ======= ======= =======
</TABLE>
Sales and operating results for the Company's aviation and
electronics wire and cable business, which was sold in May 1996,
have been reclassified and presented in discontinued results.
Teledyne's pension income reflects the amount by which the
amortization into income of pension surplus and estimated return
on plan assets exceeded the current year's cost of providing
benefits.
Note 8. Net Income Per Share -
The weighted average number of shares of common stock used
in the computation of net income per share for the three and six
months ended June 30, 1996 was 56,016,608 and 55,938,099,
respectively, and 55,627,166 and 55,563,892, respectively, for
the same periods in 1995.
Note 9. Commitments and Contingencies -
The Company is defending an action brought under the False
Claims Act in the U.S. District Court for the Western District of
Missouri. The case was first filed in 1991 and concerns the
Company's former Teledyne Neosho unit, divested in 1992. The
U.S. government has elected to intervene and, on or about May 7,
1996, filed an amended complaint alleging misappropriation of
government-owned aircraft parts and falsification of inventory
control documents. Two former Teledyne Neosho employees have
pleaded guilty to related criminal charges. The outcome of this
matter could have a material adverse effect on the Company's
results of operations in the period in which the matter is
resolved, but management does not believe the outcome is likely
to have a material adverse effect on the Company's financial
condition or liquidity.
On January 13, 1993, the Company's Teledyne Thermatics unit
sought admission into the Department of Defense Voluntary
Disclosure Program with respect to testing practices at variance
from military specifications, and was accepted into the program
on April 2, 1993. On May 26, 1994, the Company reached
preliminary agreement with the U.S. government to settle the
matter for $3.8 million, subject to conclusion of the
government's investigation at Teledyne Thermatics. In connection
therewith, the Company established a reserve in the amount of
$3.8 million. On March 28, 1996, the Company learned that the
<PAGE>
<PAGE> 85
government had concluded its investigation. By letter dated
May 7, 1996, the government advised the Company that it may seek
substantially more in settlement. While liability in this matter
is probable, and resolution could have a material adverse effect
on the Company's results of operations in the period in which the
matter is resolved, management does not believe that the outcome
is likely to have a material adverse effect on the Company's
financial condition or liquidity.
The Company has also made voluntary disclosures to the U.S.
government of government contracting irregularities discovered in
certain other of its current or former business units, and has
cooperated with the government in the investigation of these
matters. Management does not believe that the outcome of any of
these matters is likely to have a material adverse effect on the
Company's financial condition or liquidity, although the
resolution in any reporting period of one or more of these
matters could have a material adverse effect on the Company's
results of operations for that period.
The Company learns from time to time that it has been named
as a defendant in civil actions filed under seal pursuant to the
False Claims Act. Generally, as these cases are under seal, the
Company does not possess sufficient information to determine
whether the Company will sustain a material loss in such matters,
or to reasonably estimate the amount of any loss attributable to
such case or cases. Consequently, the Company has not been able
to identify the existence of a material loss contingency arising
therefrom.
The Company is subject to federal, state and local
environmental laws and regulations which require that it
investigate and remediate the effects of the release or disposal
of materials at sites associated with past and present
operations, including sites at which the Company has been
identified as a potentially responsible party under the federal
Superfund laws and comparable state laws. The Company is
currently involved in the investigation and remediation of a
number of sites under these laws.
As discussed in Note 1 to the Company's consolidated
financial statements in the December 31, 1995, annual report to
shareholders, the Company accrues for losses associated with
environmental remediation obligations when the Company's
liability is probable and the costs are reasonably estimable. In
many cases, however, investigations are not yet at a stage where
the Company has been able to determine whether it is liable or,
if liability is probable, to reasonably estimate the loss or
range of loss, or certain components thereof. Estimates of the
Company's liability are further subject to uncertainties
regarding the nature and extent of site contamination, the range
of remediation alternatives available, evolving remediation
<PAGE>
<PAGE> 86
standards, imprecise engineering evaluations and estimates of
appropriate cleanup technology, methodology and cost, the extent
of corrective actions that may be required, and the number and
financial condition of other potentially responsible parties, as
well as the extent of their responsibility for the remediation.
Accordingly, as investigation and remediation of these sites
proceeds, it is likely that adjustments in the Company's accruals
will be necessary to reflect new information. The amounts of any
such adjustments could have a material adverse effect on the
Company's results of operations in a given period, but are not
reasonably estimable. Based on currently available information,
however, management does not believe future environmental costs
at sites with which the Company has been identified in excess of
those accrued are likely to have a material adverse effect on the
Company's financial condition or liquidity.
At June 30, 1996, the Company's reserves for environmental
remediation obligations totaled approximately $44 million, of
which approximately $14 million was included in other current
liabilities. The reserve includes estimated probable future
costs of $16 million for federal Superfund and comparable state-
managed sites; $8 million for formerly owned or operated sites
for which the Company has remediation or indemnification
obligations; $12 million for owned or controlled sites at which
Company operations have been discontinued; and $8 million for
sites utilized by the Company in its ongoing operations. The
Company has resolved claims against its insurance carriers for
recovery of environmental costs, and does not expect to recover a
material amount of future costs for environmental liabilities
from its carriers or from third parties other than participating
potentially responsible parties.
The timing of expenditures depends on a number of factors
that vary by site, including the nature and extent of
contamination, the number of potentially responsible parties, the
timing of regulatory approvals, the complexity of the
investigation and remediation, and the standards for remediation.
The Company expects that it will expend present accruals over
many years, and will complete remediation of all sites with which
it has been identified in up to thirty years.
A number of lawsuits, claims and proceedings have been or
may be asserted against the Company relating to the conduct of
its business, including those pertaining to product liability,
patent infringement, commercial, employment, employee benefits,
shareholder, tax and government contract matters. While the
outcome of litigation cannot be predicted with certainty, and
some of these lawsuits, claims or proceedings may be determined
adversely to the Company, management does not believe that the
disposition of any such pending matters is likely to have a
material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one
<PAGE>
<PAGE> 87
or more of these matters could have a material adverse effect on
the Company's results of operations for that period.
<PAGE>
<PAGE> 88
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma consolidated financial information
gives effect to the Combination on the basis that it will be
accounted for as a pooling of interests. The consolidated
financial information on the following pages presents the
historical unaudited consolidated balance sheets of each of
Allegheny Ludlum and Teledyne at June 30, 1996 and the pro forma
unaudited consolidated balance sheet of the Company as of June
30, 1996, giving effect to the Combination as if it had occurred
on that date, and the historical consolidated statements of
income of each of Allegheny Ludlum and Teledyne for the six
months ended June 30, 1996 and 1995 and for each of the three
years in the period ended December 31, 1995, and the pro forma
unaudited consolidated statements of income for the six months
ended June 30, 1996 and 1995 and for each of the three years in
the period ended December 31, 1995, giving effect to the
Combination as if it had been effected at the beginning of the
period presented. Certain reclassifications have been made to
the historical financial information to conform to current
presentation. Intercompany transactions between Allegheny Ludlum
and Teledyne are immaterial and, accordingly, have not been
eliminated.
The unaudited pro forma consolidated balance sheet gives
effect to anticipated expenses and nonrecurring charges related
to the Combination and assumes each of the outstanding shares of
Allegheny Ludlum Common Stock is converted into one share of
Company Common Stock and each of the outstanding shares of
Teledyne Common Stock is converted into 1.925 shares of Company
Common Stock. However, pro forma financial information excludes
the estimated effect of revenue enhancements and expense savings
associated with the consolidation of the operations of Allegheny
Ludlum and Teledyne.
The unaudited pro form consolidated financial statements are
intended for informational purposes and may not be indicative of
the combined financial position or results of operations that
actually would have occurred had the transaction been consummated
during the periods or as of the dates indicated, or which will be
attained in the future.
<PAGE>
<PAGE> 89
ALLEGHENY TELEDYNE INCORPORATED
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1996
(in millions of dollars)
<TABLE>
<CAPTION>
Allegheny Pro Forma Pro
Ludlum Teledyne Adjustments Forma(1)
---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Assets
-------
Current assets:
Cash and marketable
securities $92.6 $101.9 $ (43.5)(2) $151.0
Trade receivables 145.5 413.3 -- 558.8
Inventories 225.2 221.5 -- 446.7
Deferred income taxes -- 74.6 (7.6)(3) 67.0
Prepaid expenses and
other current assets 12.4 13.3 -- 25.7
------- ------- ------- -------
Total current assets 475.7 824.6 (51.1) 1,249.2
Properties, plants and
equipment 442.1 292.0 -- 734.1
Cost in excess of net
assets acquired 128.4 45.5 -- 173.9
Prepaid pension cost -- 420.8 (74.8)(4) 346.0
Other assets, including
assets held for sale 44.2 85.4 (9.8)(4) 119.8
Deferred income taxes 46.4 -- (41.1)(3)(4) 5.3
------- ------- ------- -------
Total assets $1,136.8 $1,668.3 $(176.8) $2,628.3
======= ======== ======= =======
Liabilities and
shareholders' equity
--------------------
Current liabilities:
Current portion of long-
term debt $2.0 $10.0 $ -- $12.0
Accounts payable 70.8 128.8 (.1)(2) 199.5
Income taxes payable 10.1 2.2 (7.6)(3) 4.7
Other accrued expenses 86.5 256.5 19.4 (2)(5) 362.4
------- ------- ------- -------
Total current
liabilities 169.4 397.5 11.7 578.6
Long-term debt 179.8 375.3 -- 555.1
<PAGE>
<PAGE> 90
Pensions 108.8 -- (108.8)(4) --
Postretirement benefit
liability 272.8 268.7 -- 541.5
Deferred income taxes -- 31.6 (31.6)(3) --
Other 29.3 101.3 -- 130.6
------- ------- ------- -------
Total liabilities 760.1 1,174.4 (128.7) 1,805.8
Redeemable preferred
stock -- 41.5 (41.5)(2) --
Shareholders' equity
Common stock 7.3 56.1 (46.0)(6) 17.4
Additional capital 271.3 46.1 (77.8)(6) 239.6
Retained earnings 236.6 345.0 (21.3)(5) 560.3
Other -- 5.2 -- 5.2
Equity adjustment-
pension minimum
liability (14.7) -- 14.7(4) --
Common stock in
treasury (123.8) -- 123.8(6) --
------- ------- ------- -------
Total shareholders'
equity 376.7 452.4 (6.6) 822.5
------- ------- ------- -------
Total liabilities
and shareholders'
equity $1,136.8 $1,668.3 $(176.8) $2,628.3
======== ======== ======= ========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE>
<PAGE> 91
ALLEGHENY TELEDYNE INCORPORATED
Unaudited Pro Forma Consolidated Statement of Income
Six Months Ended June 30, 1996
(in millions, except per share and share data)
<TABLE>
<CAPTION>
Allegheny
Ludlum Teledyne Pro Forma (7)
---------- --------- -------------
<S> <C> <C> <C>
Sales $691.7 $1,331.5 $2,023.2
Costs and expenses:
Cost of sales 573.9 930.3 1,504.2
Commercial and
administrative 27.2 230.4 257.6
Depreciation and
amortization 22.8 36.3 59.1
Interest expense-net 3.1 19.4 22.5
------ -------- --------
627.0 1,216.4 1,843.4
Operating earnings-assets
held for sale 1.9 -- 1.9
Other income-net 1.7 50.3 52.0
------ -------- --------
Income before income taxes 68.3 165.4 233.7
Income taxes 28.7 63.0 91.7
------ -------- --------
Net income $ 39.6 $ 102.4 $ 142.0
====== ======== ========
Net income per common share $ .60 $ 1.79 $ .82
======= ======== ========
Average common shares
outstanding 66,300,786 55,938,099 173,981,627
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE>
<PAGE> 92
ALLEGHENY TELEDYNE INCORPORATED
Unaudited Pro Forma Consolidated Statement of Income
Six Months ended June 30, 1995
(in millions, except per share and share data)
<TABLE>
<CAPTION>
Allegheny
Ludlum Teledyne Pro Forma (7)
---------- --------- -------------
<S> <C> <C> <C>
Sales $785.8 $1,332.2 $2,118.0
Costs and expenses:
Cost of sales 638.3 959.9 1,598.2
Commercial and
administrative 28.4 216.8 245.2
Depreciation and
amortization 19.5 36.4 55.9
Interest expense-net .9 20.1 21.0
------ -------- --------
687.1 1,233.2 1,920.3
Operating earnings-assets
held for sale 7.3 -- 7.3
Other income-net 1.2 56.0 57.2
------ -------- --------
Income before income taxes 107.2 155.0 262.2
Income taxes 43.9 58.1 102.0
------ -------- --------
Net income $ 63.3 $ 96.9 $ 160.2
====== ======== ========
Net income per common share $ .90 $ 1.74 $ .90
====== ======== ========
Average common shares
outstanding 70,262,501 55,563,892 177,222,993
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE>
<PAGE> 93
ALLEGHENY TELEDYNE INCORPORATED
Unaudited Pro Forma Consolidated Statement of Income
Year ended December 31, 1995
(in millions, except per share and share data)
<TABLE>
<CAPTION>
Allegheny
Ludlum Teledyne Pro Forma (7)
---------- --------- -------------
<S> <C> <C> <C>
Sales $1,494.3 $2,567.8 $4,062.1
Costs and expenses:
Cost of sales 1,219.6 1,842.4 3,062.0
Commercial and administrative 55.3 430.1 485.4
Depreciation and amortization 40.5 70.4 110.9
Interest expense-net 1.5 39.3 40.8
-------- -------- --------
1,316.9 2,382.2 3,699.1
Operating earnings-assets held
for sale 11.5 -- 11.5
Other income-net 1.8 64.6 66.4
-------- -------- --------
Income before income taxes
and extraordinary item 190.7 250.2 440.9
Income taxes 75.9 88.2 164.1
-------- -------- --------
Income before extraordinary
item $ 114.8 $ 162.0 $ 276.8
======== ======== ========
Income per common share before
extraordinary item $ 1.66 $ 2.88 $ 1.57
======== ======== ========
Average common shares
outstanding 69,246,949 55,656,827 176,386,341
</TABLE>
See accompanying notes to pro forma consolidated financial information
<PAGE>
<PAGE> 94
ALLEGHENY TELEDYNE INCORPORATED
Unaudited Pro Forma Consolidated Statement of Income
Year ended December 31, 1994
(in millions, except per share and share data)
<TABLE>
<CAPTION>
Allegheny
Ludlum Teledyne Pro Forma (7)
---------- --------- -------------
<S> <C> <C> <C>
Sales $1,076.9 $2,391.2 $3,468.1
Costs and expenses:
Cost of sales 951.6 1,717.6 2,669.2
Commercial and
administrative 45.8 576.3 622.1
Depreciation and
amortization 38.2 70.2 108.4
Interest expense-net 6.0 38.0 44.0
-------- --------- --------
1,041.6 2,402.1 3,443.7
Other income (loss)-net (2.4) 7.2 4.8
-------- --------- --------
Income (loss) before
income taxes 32.9 (3.7) 29.2
Income taxes 14.7 4.7 19.4
-------- --------- --------
Net income (loss) $ 18.2 $ (8.4) $ 9.8
======== ========= ========
Net income (loss) per common
share $ .26 $ (.15) $ .06
======== ========= ========
Average common shares
outstanding 70,827,362 55,446,296 177,561,482
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE>
<PAGE> 95
ALLEGHENY TELEDYNE INCORPORATED
Unaudited Pro Forma Consolidated Statement of Income
Year ended December 31, 1993
(in millions, except per share and share data)
<TABLE>
<CAPTION>
Allegheny
Ludlum Teledyne Pro Forma(7)
----------- ---------- ------------
<S> <C> <C> <C>
Sales $ 1,100.2 $ 2,491.7 $ 3,591.9
Costs and expenses:
Cost of sales 919.6 1,845.2 2,764.8
Commercial and
administrative 46.0 468.5 514.5
Depreciation and
amortization 30.7 72.7 103.4
Interest expense-net 2.6 33.2 35.8
----------- ----------- -----------
998.9 2,419.6 3,418.5
Other income-net 17.7 41.2 58.9
----------- ----------- ----------
Income before income taxes,
extraordinary item and
cumulative effect of
accounting change 119.0 113.3 232.3
Income taxes 48.2 40.5 88.7
----------- ----------- ----------
Income before extraordinary
item and cumulative effect of
accounting change $ 70.8 $ 72.8 $ 143.6
=========== ========== ==========
Income per common share before
extraordinary item and
cumulative effect of
accounting change $ 1.06 $ 1.32 $ .83
=========== ========== ==========
Average common shares
outstanding 66,614,353 55,420,654 173,299,112
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE>
<PAGE> 96
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(1) The pro forma consolidated balance sheet gives effect to the
Combination by combining the respective balance sheets of
the two companies at June 30, 1996 on a pooling of interests
basis.
(2) The pro forma balance sheet gives effect to the redemption
of Teledyne Series E Cumulative Preferred Stock.
(3) Reflects reclassification of deferred income tax
liabilities.
(4) Prepaid and accrued pension obligations, equity adjustment
and the associated deferred tax amounts related to minimum
liabilities of Allegheny Ludlum have been eliminated on the
pro forma balance sheet to reflect the excess of plan assets
over projected benefit obligations of Teledyne. Although the
Company is pursuing a course of action which would allow
Teledyne's surplus pension funds to be utilized to fund
Allegheny Ludlum's underfunded pension obligations
subsequent to the Combination, no adjustment has been made
to reflect the foregoing in the pro forma statements of
income.
(5) A liability of $25 million has been recorded in the pro
forma consolidated balance sheet to reflect management's
estimate of anticipated expenses related to the Combination,
including $3.7 million which was expensed in the 1996 second
quarter.
(6) The capital accounts have been adjusted to reflect the
issuance of 174.2 million shares of Company Common Stock in
exchange for all the outstanding shares of Allegheny Ludlum
Common Stock and Teledyne Common Stock, and the cancellation
of treasury stock.
(7) The pro forma consolidated statements of income give effect
to the Combination by combining the respective statements of
income of the two companies for the six months ended June
30, 1996 and 1995 and for each of the three years in the
period ended December 31, 1995. The pro forma consolidated
statements of income do not give effect to anticipated
expenses and nonrecurring charges related to the Combination
and the estimated effect of revenue enhancements and expense
savings associated with the combination of the operations of
Allegheny Ludlum and Teledyne.
Earnings per common share amounts for Allegheny Ludlum and
Teledyne are based on the historical weighted average number
of common shares outstanding for each company during the
<PAGE>
<PAGE> 97
period. With respect to the pro forma earnings per share
computation, shares have been adjusted to the equivalent
shares of the Company for each period.
<PAGE>
<PAGE> 98
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Allegheny Teledyne Incorporated
Date: August 30, 1996 By: /s/Jon D. Walton
------------------------
Jon D. Walton
Vice President-General
Counsel and Secretary
