UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
Commission File Number 1-12001
ALLEGHENY TELEDYNE INCORPORATED
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 25-1792394
------------------------------ ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
- --------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(412) 394-2800
---------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
At November 5, 1997, Registrant had outstanding 174,265,645 shares of its
Common Stock.
<PAGE>
ALLEGHENY TELEDYNE INCORPORATED
SEC FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
September 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Cash and cash equivalents $ 32.9 $ 62.5
Accounts receivables 533.4 525.3
Inventories 550.4 518.4
Deferred income taxes 47.7 70.1
Tax refund 51.5 -
Prepaid expenses and other current assets 27.8 23.5
---------- -----------
Total Current Assets 1,243.7 1,199.8
Property, plant and equipment 701.6 731.4
Prepaid pension cost 395.3 352.5
Cost in excess of net assets acquired 174.0 177.1
Other assets 124.7 145.6
---------- -----------
Total Assets $ 2,639.3 $ 2,606.4
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 210.5 $ 241.7
Accrued liabilities 334.5 339.6
Current portion of long-term debt 3.4 4.5
---------- -----------
Total Current Liabilities 548.4 585.8
Long-term debt 409.6 443.4
Accrued postretirement benefits 577.0 567.5
Other 140.3 138.2
---------- -----------
Total Liabilities 1,675.3 1,734.9
---------- -----------
Stockholders' Equity:
Preferred stock, par value $0.10: authorized-
50,000,000 shares; issued-None - -
Common stock, par value $0.10, authorized-600,000,000
shares; issued and outstanding-174,967,635
shares at September 30, 1997 and 174,389,377
shares at December 31, 1996 17.6 17.4
Additional paid-in capital 288.4 246.6
Retained earnings 699.4 596.7
Treasury stock (42.1) -
Other 0.7 10.8
---------- -----------
Total Stockholders' Equity 964.0 871.5
---------- -----------
Total Liabilities and Stockholders' Equity $ 2,639.3 $ 2,606.4
========== ===========
The accompanying notes are an integral part of these statements.
3
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<TABLE>
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
(Unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $2,824.2 $2,895.3 $909.2 $879.7
Costs and expenses:
Cost of sales 2,147.2 2,219.8 698.6 664.0
Selling and administrative expenses 351.8 383.1 112.8 132.3
Merger and restructuring costs 10.4 38.6 - 31.9
Interest expense, net 15.9 29.1 5.7 9.4
------- ------- ------- -------
2,525.3 2,670.6 817.1 837.6
------- ------- ------- -------
Earnings before Other Income 298.9 224.7 92.1 42.1
Other Income 47.6 52.5 9.5 1.4
------- ------- ------- -------
Income before Income Taxes 346.5 277.2 101.6 43.5
Provision for Income Taxes 131.8 115.6 37.3 23.9
------- ------- ------- -------
Net Income 214.7 161.6 64.3 19.6
Dividends on Preferred Stock - 2.0 - -
------- ------- ------- -------
Net Income Available to $214.7 $159.6 $64.3 19.6
Common Stockholders ======= ======= ======= =======
Net Income Per Common Share $1.22 $0.91 $0.37 $0.11
======= ======= ======= =======
Cash Dividends Per Equivalent Common Share $0.48 $0.43 $0.16 $0.16
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
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<TABLE>
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 214.7 $ 161.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 76.5 82.8
Gains on sales of businesses and investments (53.7) (44.3)
Deferred income taxes (3.2) 19.2
Change in operating assets and liabilities:
Prepaid pension cost (41.3) (56.2)
Inventories (33.3) (11.8)
Accounts payables (30.6) (18.6)
Accrued postretirement benefits 9.5 9.3
Accounts receivables (5.0) 17.9
Accrued liabilities 2.4 15.5
Other 5.0 (8.7)
---------- ----------
Cash provided by operating activities 141.0 166.7
---------- ----------
Investing Activities:
Purchases of property, plant and equipment (65.6) (54.9)
Proceeds from the sales of businesses and investments 58.4 106.0
Disposals of property, plant and equipment 13.4 8.0
Investment in ventures and purchases of businesses (12.4) (22.0)
Other (4.7) (5.2)
---------- ----------
Cash (used) provided by investing activities (10.9) 31.9
---------- ----------
Financing Activities:
Payments on long-term debt (25.8) (10.4)
Increase in long-term debt 2.5 34.6
---------- ----------
Net (decrease) increase in long-term debt (23.3) 24.2
Purchases of treasury stock (86.7) (23.7)
Cash dividends (84.3) (78.2)
Exercises of stock options 34.6 12.7
Redemption of preferred stock - (41.4)
---------- ----------
Cash used in financing activities (159.7) (106.4)
---------- ----------
Increase (decrease) in cash and cash equivalents (29.6) 92.2
---------- ----------
Cash and cash equivalents at beginning of the year 62.5 112.6
---------- ----------
Cash and cash equivalents at end of period $ 32.9 $ 204.8
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
5
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ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies -
Basis of Presentation
The interim consolidated financial statements include the accounts of
Allegheny Teledyne Incorporated and its subsidiaries.
These unaudited 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 note disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of the Company, all adjustments (which include only recurring normal
adjustments) considered necessary for a fair presentation have been included.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report. The results of operations for these interim periods are not
necessarily indicative of the operating results for any future period or for a
full year. Certain amounts for 1996 have been reclassified to conform with the
1997 presentation.
Accounting Pronouncements
Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income," and Financial Accounting Standards Board Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information," were
issued in 1997. These statements will be adopted by the Company in 1998, and are
not expected to have a material effect on the consolidated financial statements.
Note 2. Inventories -
Inventories were as follows (in millions):
September 30, December 31,
1997 1996
---- ----
Raw materials and supplies $ 144.7 $ 153.8
Work-in-process 543.1 515.1
Finished goods 110.6 104.8
--------- ---------
Total inventories at current cost 798.4 773.7
Less allowances to reduce current cost
values to LIFO basis (226.8) (229.6)
Progress payments (21.2) (25.7)
--------- ---------
Total Inventories $ 550.4 $ 518.4
========= =========
Note 3. Business Segments -
Following is certain financial information with respect to the Company's
business segments for the periods presented (in millions):
6
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<TABLE>
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Specialty metals $1,584.2 $1,562.4 $510.0 $486.4
Aerospace and electronics 654.0 698.9 208.8 211.5
Industrial 327.6 343.2 104.3 100.2
Consumer 226.5 207.2 75.0 68.2
------- -------- ------- -------
Total continuing operations 2,792.3 2,811.7 898.1 866.3
Operations sold or held for sale 31.9 83.6 11.1 13.4
------- -------- ------- -------
Total Sales $2,824.2 $2,895.3 $909.2 $879.7
======== ========= ======= =======
Operating Profit
Specialty metals $ 215.7 $ 208.3 $ 62.3 $ 59.2
Aerospace and electronics 61.2 63.3 17.7 18.4
Industrial 40.0 32.9 12.1 8.7
Consumer 25.9 12.5 9.3 3.2
------- ------- ------- -------
Total operating profit 342.8 317.0 101.4 89.5
------- ------- ------- -------
Merger and restructuring costs (10.4) (38.6) - (31.9)
Corporate expenses (22.8) (32.3) (6.6) (12.2)
Interest expense, net (15.9) (29.1) (5.7) (9.4)
Investments and operations sold or
held for sale 40.8 48.2 8.5 1.5
Excess pension income 12.0 12.0 4.0 6.0
------- ------- ------- -------
Income before income taxes $ 346.5 $277.2 $101.6 $43.5
======= ======== ======= =======
</TABLE>
7
<PAGE>
Investments and operations sold or held for sale in the 1997 third quarter
included an $8.4 million gain on the sale of Teledyne Economic Development.
In addition, the nine months ended September 1997 included a $27.6 million
gain on the sale of the Company's investment in Semtech Corporation common
stock, a gain of $15.3 million on the sale of the Company's investment in
Nitinol Development Corporation, and a $3.1 million gain on other investments.
These gains were partially offset by a charge of $6.8 million for a settlement
of a U.S. government contract dispute related to a unit divested in 1995 and by
a charge of $5.3 million to write-off the Company's investment in a research and
development venture.
In the nine months ended September 1996, investments and operations sold or
held for sale included a gain of $41.0 million on the sale of the Company's
defense vehicle business.
Pension income in excess of amounts allocated to business segments to
offset pension and other postretirement benefit expenses is presented
separately.
Note 4. 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 nine months ended
September 30, 1997 was 175,508,743 and 175,479,511, respectively, and
174,068,161 and 174,010,470 for the same periods in 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of this change on earnings per
share for the three and nine months ended September 30, 1997 and for the same
periods in 1996 was not material.
Note 5. Redemption of 7% Subordinated Debentures -
The Company redeemed the Teledyne, Inc. 7% subordinated debentures on
September 23, 1997. Payment was made in an amount equal to 100% of the principal
amount of the debentures, in the aggregate amount of $19.5 million, plus accrued
interest to the redemption date.
Note 6. Redemption of Preferred Stock -
On August 14, 1996, all of the outstanding shares of Teledyne Series E
Cumulative Preferred Stock were redeemed at $15.00 per share, together with an
additional $0.60 per share, representing an amount equal to the dividend payment
that would have otherwise been due September 1, 1996.
Note 7. Commitments and Contingencies -
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.
8
<PAGE>
Environmental liabilities are recorded 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 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 proceed, 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 in excess of those accrued with respect to sites with which
the Company has been identified are likely to have a material adverse effect on
the Company's financial condition or liquidity. However, there can be no
assurance that additional future developments, administrative actions or
liabilities relating to environmental matters will not have a material adverse
effect on the Company's financial condition or results of operations.
At September 30, 1997, the Company's reserves for environmental remediation
obligations totaled approximately $36 million, of which approximately $11
million was included in other current liabilities. The reserve includes
estimated probable future costs of $13 million for federal Superfund and
comparable state-managed sites; $4 million for formerly owned or operated sites
for which the Company has remediation or indemnification obligations; $7
million for owned or controlled sites at which Company operations have been
discontinued; and $12 million for sites utilized by the Company in its ongoing
operations. The Company is evaluating whether it may be able to recover a
portion of future costs for environmental liabilities from its insurance
carriers and 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.
In 1996, Statement of Position 96-1, "Environmental Remediation
Liabilities," which was issued by the American Institute of Certified Public
Accountants, establishes accounting standards for recognition of environmental
costs. This statement, which became effective in 1997, did not have a material
effect on the consolidated financial statements.
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, including claims based on business
practices and cost classifications and actions under the False Claims Act.
Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal
legal or administrative proceedings may ensue. Depending on the circumstances
and the outcome, such proceedings could result in fines, penalties, compensatory
and treble damages or the cancellation or suspension of payments under one or
more U.S. Government contracts. Under government regulations, a company, or one
9
<PAGE>
or more of its operating divisions or units, can also be suspended or debarred
from government contracts based on the results of investigations. However,
although the outcome of these matters cannot be predicted with certainty,
management does not believe there is any audit, review or investigation
currently pending against the Company of which management is aware that is
likely to result in suspension or debarment of the Company, or that is otherwise
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,
since such cases are under seal, the Company does not in all cases possess
sufficient information to determine whether the Company will sustain a material
loss in connection with such cases, or to reasonably estimate the amount of any
loss attributable to such cases.
A number of other 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, and stockholder 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 or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
Note 8. Proposed Acquisition Of Oregon Metallurgical Corporation -
As previously announced, on October 31, 1997, the Company and Oregon
Metallurgical Corporation (OREMET) entered into an Agreement and Plan of Merger.
Pursuant to this Agreement, the Company agreed to acquire OREMET as a wholly
owned subsidiary and each outstanding share of OREMET common stock will be
converted into 1.296 shares of Company common stock. Upon the closing of the
transaction, former OREMET shareholders would own approximately 11 percent
pro-forma ownership of Company Common Stock. The following table sets forth
pro-forma combined sales for the two companies for the twelve months ended
September 30, 1997:
Business Segment Sales ($ millions) Percent of total
Specialty Metals
- Stainless steel $1,000 25%
- Titanium 426 11
- Nickel-based super alloys 274 7
- Other specialty metals 643 16
----- --
Subtotal 2,343 59
Aerospace and Electronics 895 22
Industrial 432 11
Consumer 307 8
====== ===
TOTAL $3,977 100%
Combined net income of the two companies, based on pro-forma financial
results for the twelve month period ending September 30, 1997, was $298 million.
Combined assets totaled $2.9 billion. The merger is expected to be tax free to
OREMET shareholders and will be accounted for under the pooling of interests
method. The transaction is subject to the approval of the shareholders of OREMET
as well as regulatory approval and other customary closing conditions.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Allegheny Teledyne Incorporated is a group of technology-based
manufacturing companies with significant concentration in specialty metals
complemented by aerospace and electronics, industrial, and consumer products.
On October 31, 1997, the Company and OREMET announced that they had entered
into an Agreement and Plan of Merger. See Note 8 of the Notes to Condensed
Consolidated Financial Statements (Unaudited).
Sales and operating profit for the Company's four business segments are
discussed below.
This discussion should be read in conjunction with the information in the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements.
SPECIALTY METALS
Operating profit increased 5 percent to $62.3 million in the third quarter
1997 compared to $59.2 million for the same quarter last year despite an
increasingly difficult pricing environment for stainless steel commodity grades.
Sales for the 1997 third quarter increased 5 percent to $510.0 million. For the
1997 nine months, operating profit increased 4 percent to $215.7 million while
sales increased 1 percent to $1,584.2 million. Tight operating cost controls
remained in effect throughout the specialty metals segment.
Operating profit and sales from businesses other than flat-rolled products
increased 41 percent and 15 percent, respectively, compared to the third quarter
1996 and increased 63 percent and 19 percent, respectively, over the 1996 nine
months. These results reflected strong demand from commercial aerospace and
chemical processing industries for specialized metals such as nickel-based
superalloys, titanium, niobium, and zirconium.
Combined operating profits and sales from Allegheny Ludlum and Rodney
Metals fell 17 percent and 1 percent, respectively, for the third quarter and 22
percent and 7 percent, respectively, for the nine months from the stronger 1996
periods. Tons shipped from Allegheny Ludlum and Rodney Metals increased 3
percent and 1 percent in the 1997 third quarter and nine months compared to the
same periods in 1996, but sales dropped due to depressed prices.
Tons of flat-rolled specialty metals shipped in the third quarter and nine
months of 1997 were 130,000 and 414,000, respectively, compared to 126,000 and
409,000 for the same periods of 1996. The average price per ton shipped in the
third quarter was $2,417 compared to $2,554 in the 1996 third quarter.
AEROSPACE AND ELECTRONICS SEGMENT
Third quarter 1997 operating profit decreased 4 percent to $17.7 million
compared to the same period in 1996, and sales decreased 1 percent to $208.8
million. For the 1997 nine months, operating profit decreased 3 percent to $61.2
million and sales decreased 6 percent to $654.0 million compared to the same
period in 1996.
For the 1997 third quarter and nine months, Teledyne Ryan Aeronautical
experienced declines in sales and operating profit primarily due to the
scheduled wind-downs of certain phases of the Apache helicopter and Global Hawk
unmanned aerial vehicle programs. In September, 1997, Ryan received
authorization from the Pentagon to build two additional Global Hawk vehicles and
to begin procuring certain items for a fifth vehicle. For the nine months ended
September 30, 1997, nonrecurring write-offs, primarily research and
development-related expenses for avionics, resulted in declines in operating
11
<PAGE>
profit at Teledyne Controls. New process manufacturing difficulties reduced both
sales and operating profit at Teledyne Continental Motors. Teledyne Electronic
Technologies continued to be the largest contributor to the segment's sales and
profit for the quarter and nine months ended September 30, 1997. Demand for
electromechanical relays, circuit board contract manufacturing, and
microelectronic hybrid products paced these results.
INDUSTRIAL SEGMENT
Operating profit in the third quarter 1997 increased 39 percent to $12.1
million compared to the third quarter of 1996, and sales rose 4 percent to
$104.3 million. For the 1997 nine months, operating profit increased 22 percent
to $40.0 million while sales decreased 5 percent to $327.6 million.
Operating profit improved for Teledyne Metalworking Products, formerly
called Teledyne Advanced Materials. This business unit is the largest revenue
and profit producer in this segment. It manufactures tungsten and tungsten
carbide products, including cutting tools and inserts, for the global
metalforming market. Also, sales and operating profit improved for Teledyne
Specialty Equipment's mining and construction equipment and material handler
businesses. Shipments of Fluid Systems' metal stamping dies and plastic
compression molds declined for the 1997 nine months as the Company phases down
this business.
CONSUMER SEGMENT
Operating profit in the 1997 third quarter almost tripled to $9.3 million
compared to the third quarter 1996, and sales grew 10 percent to $75.0 million.
For the 1997 nine months, operating profit more than doubled to $25.9 million
and sales increased 9 percent to $226.5 million from the comparable 1996 period.
Profit improved at all of the segment's operating companies. Teledyne Water
Pik's improvement was particularly strong due to the favorable performance of
new products and cost reductions. Sales improved at Teledyne Laars due to the
successful introduction of a new pool heater product and increased seasonal
demand for commercial water heating systems.
SPECIAL ITEMS
Special items resulted in a net after-tax gain of $3.9 million, or $0.02
per share, in the 1997 third quarter. This after-tax gain included a gain on
sale of Teledyne Economic Development which was partially offset by a charge
relating to legal matters. Third quarter 1996 special items reduced after-tax
income by $26.3 million, or $0.15 per share, primarily due to charges related to
merger and restructuring.
In addition, the nine months ended September 1997 included after-tax gains
of $17.0 million on the sale of the Company's investment in Semtech Corporation
common stock, $9.2 million on the sale of the Company's investment in Nitinol
Development Corporation, and $1.9 million on other investments. These gains were
partially offset by after-tax charges of $4.1 million for a settlement of a U.S.
government contract dispute related to a unit divested in 1995, $3.5 million to
write-off a research and development venture and $6.3 million from merger and
restructuring costs.
In addition to the merger and restructuring costs discussed above, the nine
months ended September 30, 1996 also included an after-tax gain of $24.8 million
on the sale of the Company's defense vehicle business partially offset by a
charge of $3.6 million for costs related to a Teledyne, Inc. proxy contest.
Net gains from special items are expected to continue as Allegheny Teledyne
proceeds with previously announced non-strategic divestitures and the sale of
surplus real estate holdings.
12
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NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of this change on earnings per
share for the three and nine months ended September 30, 1997 and for the same
periods in 1996 was not material.
Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income," and Financial Accounting Standards Board Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information," were
also issued in 1997. These statements will be adopted by the Company in 1998,
and are not expected to have a material effect on the consolidated financial
statements.
INCOME TAXES
The Company's effective tax rate declined to 36.7 percent and 38.0 percent,
respectively, for the 1997 third quarter and nine months from 54.9 percent and
41.7 percent, respectively, for the same periods in 1996 primarily due to
non-deductible business combination costs incurred in 1996.
FINANCIAL CONDITION AND LIQUIDITY
Working capital increased to $695.3 million at September 30, 1997, compared
to $614.0 million at December 31, 1996. The current ratio increased to 2.3 from
2.0 in this same period. The increase in working capital was primarily due to a
reclassification to current assets of a tax refund formerly carried in other
assets, higher inventories and lower accounts payable balances.
In the first nine months of 1997, cash generated from operations of $141.0
million, proceeds from the sales of businesses and investments of $58.4 million
and proceeds from the exercise of stock options of $34.6 million were used to
purchase treasury stock of $86.7 million, pay dividends of $84.3 million, invest
$69.3 million in capital equipment and business expansion and reduce long-term
debt by $23.3 million. These transactions plus cash on hand at the beginning of
the year resulted in a cash position of $32.9 million at September 30, 1997.
Capital expenditures for 1997 are expected to approximate $100 million.
In mid-March 1997, the Company's Board of Directors authorized a 12 million
share repurchase program. As of October 31, 1997, the company had repurchased
3.7 million shares on the open market for a cost of $106.8 million at per-share
prices ranging from $25 1/8 to $32 3/4. However, the average common shares
outstanding is slightly higher than in the third quarter of 1996 because of
stock option exercises net of share repurchases. On October 31, 1997, the
Company announced that it had terminated its stock repurchase program.
The Company redeemed the Teledyne, Inc. 7% subordinated debentures on
September 23, 1997. Payment was made in an amount equal to 100% of the principal
amount of the debentures, in the aggregate amount of $19.5 million, plus accrued
interest to the redemption date.
On October 3, 1997, the Company announced that the sale of Teledyne
Economic Development had been completed. On October 31, 1997, the Company sold
the assets of Teledyne Packaging for approximately $31 million. These are two of
eight non-strategic businesses identified by the Company for divestiture earlier
in the year.
The Company believes that internally generated funds, current cash on hand
and borrowing from existing credit lines will be adequate to meet foreseeable
needs.
13
<PAGE>
On October 23, 1997, the Board of Directors declared a regular quarterly
dividend of $0.16 per share of common stock. The dividend is payable November
28, 1997 to shareholders of record at the close of business November 14, 1997.
OTHER MATTERS
ENVIRONMENTAL
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 Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund, and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws. The Company's reserves for
environmental investigation and remediation totaled approximately $36 million at
September 30, 1997. Based on currently available information, 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, 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.
With respect to proceedings brought under the federal Superfund laws, or
similar state statutes, the Company has been identified as a potentially
responsible party at approximately 35 such sites, excluding those at which it
believes it has no future liability. The Company's involvement is very limited
or de minimus at approximately 20 of these sites, and the potential loss
exposure with respect to any individual site is not considered to be material.
In 1996, Statement of Position 96-1, "Environmental Remediation
Liabilities," which was issued by the American Institute of Certified Public
Accountants, establishes accounting standards for recognition of environmental
costs. This statement, which became effective in 1997, did not have a material
effect on the consolidated financial statements.
For additional discussion of environmental matters, see Note 7 of the Notes
to Condensed Consolidated Financial Statements (Unaudited).
GOVERNMENT CONTRACTS
A number of the Company's subsidiaries perform work on contracts with the
U.S. government. Many of these contracts include price redetermination clauses,
and most are terminable at the convenience of the government. Certain of these
contracts are fixed-price or fixed-price incentive development contracts which
involve a risk that costs may exceed those expected when the contracts were
negotiated. Absent modification of these contracts, any costs incurred in excess
of the fixed or ceiling prices must be borne by the Company. In addition,
virtually all defense programs are subject to curtailment or cancellation due to
the year-to-year nature of the government appropriations and allocations
process. A material reduction in U.S. Government appropriations may have an
adverse effect on the Company's business, depending upon the specific programs
affected by any such reduction. Since certain contracts extend over a long
period of time, all revisions in cost and funding estimates during the progress
of work have the effect of adjusting the current period earnings on a cumulative
catch-up basis. When the current contract estimate indicates a loss, provision
is made for the total anticipated loss. The Company obtains many U.S. Government
contracts through the process of competitive bidding. There can be no assurance
that the Company will continue to be successful in having its bids accepted.
14
<PAGE>
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, including claims based on business
practices and cost classifications and actions under the False Claims Act. The
False Claims Act permits a person to assert the rights of the U.S. Government by
initiating a suit under seal against a contractor if such person purports to
have information that the contractor falsely submitted a claim to the U.S.
Government for payment. If it chooses, the U.S. Government may intervene and
assume control of the case.
Although government contracting claims may be resolved by detailed
fact-finding and negotiation, on those occasions when they are not so resolved,
civil or criminal legal or administrative proceedings may ensue. Depending on
the circumstances and the outcome, such proceedings could result in fines,
penalties, compensatory and treble damages or the cancellation or suspension of
payments under one or more U.S. Government contracts. Under government
regulations, a company, or one or more of its operating divisions or units, can
also be suspended or debarred from government contracts based on the results of
investigations. Given the extent of the Company's business with the U.S.
Government, a suspension or debarment of the Company could have a material
adverse effect on the future operating results and consolidated financial
condition of the Company. However, although the outcome of these matters cannot
be predicted with certainty, management does not believe there is any audit,
review or investigation currently pending against the Company of which
management is aware that is likely to result in suspension or debarment of the
Company, or that is otherwise 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.
For additional discussion of government contract matters, see Note 7 of the
Notes to Condensed Consolidated Financial Statements (Unaudited).
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 7 of the Notes to Condensed Consolidated Financial Statements (Unaudited),
including statements concerning the expected adequacy of available funds to meet
foreseeable needs, proposed acquisitions and divestitures, the outcome of any
government inquiries, litigation or other future proceedings related to
government contract or other matters, and environmental costs. These statements
are based on current expectations that involve a number of risks and
uncertainties, including those described above under the captions "Other Matters
- - Environmental" and "Other Matters - Government Contracts." In addition,
realization of the anticipated benefits of the combination of Allegheny Ludlum
and Teledyne could take longer than expected and implementation difficulties and
market factors could alter the anticipated benefits. Actual results may differ
materially from the results anticipated in the forward-looking statements.
Additional risk factors are described from time to time in the Company's filings
with the Securities and Exchange Commission, including its Report on Form 10-K
for the year ended December 31, 1996.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company becomes involved from time to time in various lawsuits, claims
and proceedings relating to the conduct of its business, including those
pertaining to environmental, government contracting, product liability, patent
infringement, commercial, employment, employee benefits and stockholder 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
matter is likely to have a material adverse effect on the Company's results of
operations for that period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
4 Assignment and Assumption Agreements dated as of August 22, 1997
and First Amendment to Credit Agreement dated as of August 31,
1997 relating to Credit Agreement dated as of August 30, 1996
27 Financial data schedule
(b) Registrant did not file any Form 8-K reports during the quarter for
which this report is filed.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLEGHENY TELEDYNE INCORPORATED
(Registrant)
Date: November 14, 1997 By /s/ James L. Murdy
---------------------------------------
James L. Murdy
Executive Vice President, Finance and
Administration and Chief Financial
Officer
(Duly Authorized Officer)
Date: November 14, 1997 By /s/ Dale G. Reid
---------------------------------------
Dale G. Reid
Vice President - Controller
(Principal Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page No.
- -------------- ----------- --------
4 Assignment and Assumption Agreements 19
dated as of August 22, 1997 and First
Amendment to Credit Agreement dated as
of August 31, 1997 relating to Credit
Agreement dated as of August 30, 1996
27 Financial data schedule 37
18
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of August 22, 1997
by and among ABN AMRO BANK N.V., as agent (the "Transferor Lender"), THE
TORONTO-DOMINION BANK (the "Purchasing Lender"), and PNC BANK, NATIONAL
ASSOCIATION, as the Documentation and Administrative Agent for the Lenders
under the Credit Agreement described below (in such capacity the "Agent").
WITNESSETH:
WHEREAS, this Assignment and Assumption Agreement is being
executed and delivered in accordance with Subsection 9.6a of that certain
Credit Agreement dated as of August 30, 1996 by and among the Borrower, the
Lenders party thereto, the Managing Agents party thereto and the Agent (the
Credit Agreement together with the exhibits and schedules thereto and all
amendments, modifications, extensions, renewals, substitutions and
replacements thereto and thereof is hereinafter referred to as the
"Agreement");
WHEREAS, the Purchasing Lender wishes to become a party to the
Agreement and assume the rights, obligations and commitments of a Lender
thereunder; and
WHEREAS, the Transferor Lender wishes to sell and assign to the
Purchasing Lender all of the Transferor Lender's rights, obligations,
commitments and Loans under the Agreement.
NOW, THEREFORE, in consideration of mutual promises contained
herein and other valuable consideration and with the intent to be legally
bound hereby, the parties hereto agree as follows:
1. All capitalized terms used herein as defined terms which
are not defined herein but which are defined in the Agreement shall have the
same meanings herein as given to them in the Agreement unless the context
clearly indicates otherwise.
2. Upon receipt by the Agent of four (4) counterparts of this
Assignment and Assumption Agreement which have been executed by the
Transferor Lender, the Purchasing Lender and the Agent and to each of which
is attached a fully completed Schedule I, the Agent will complete, execute
and deliver to the Borrower, the Transferor Lender, the Purchasing Lender and
the remaining Lenders, a Transfer Effective Notice substantially in the form
of Schedule II to this Assignment and Assumption Agreement (a "Transfer
Effective Notice"). Such Transfer Effective Notice shall set forth, inter
alia, the date on which the transfer affected by this Assignment and
Assumption Agreement shall become effective (the "Transfer Effective Date").
3. Effective upon the opening of business of the Agent on the
Transfer Effective Date, the Transferor Lender hereby sells, assigns,
delegates and transfers to the Purchasing Lender, without recourse and
without any representations or warranties except as set forth in paragraph 9
hereof, and the Purchasing Lender hereby buys, assumes and accepts, all of
the Transferor Lender' s rights, as set forth in item 2 of Schedule I hereto
in (i) the Transferor Lender's Revolving Credit Commitment, (ii) the
principal of, and all accrued and unpaid interest on, all outstanding Loans
of the Transferor Lender, (iii) all accrued but unpaid Fees owing to the
Transferor Lender under the Agreement and the other Loan Documents and (iv)
all of the Transferor Lender's other rights (including voting rights),
interests, duties, liabilities and obligations under the Agreement and the
other Loan Documents.
4. On the Transfer Effective Date, the Purchasing Lender shall
pay to the Agent at or before 12:00 Noon (Eastern time), in immediately
available funds, an amount equal to the principal of all outstanding Loans
being sold by the Transferor Lender to the Purchasing Lender. The Agent
shall pay such amount to the Transferor Lender, in immediately available
funds, on the Transfer Effective Date. The principal amount paid by the
Purchasing Lender to the Agent is referred to hereinafter as the "Purchase
Price". On and after the Transfer Effective Date, the Agent shall begin to
calculate interest on the outstanding Loans and all Fees under the Agreement
and the other Loan Documents which are owed to the Transferor Lender and the
Purchasing Lender, based on the Transferor Lender's and the Purchasing
Lender's Commitment Percentages set forth in items 3 and 4 of Schedule I
hereto.
5. From and after the Transfer Effective Date, (i) the
Purchasing Lender (A) shall be a Lender party to the Agreement, (B) subject
to the terms thereof, and to the extent provided in this Assignment and
Assumption Agreement, shall have the rights, interests, liabilities, duties
and obligations of the Transferor Lender thereunder and under the Loan
Documents and (C) shall have a Revolving Credit Commitment and Commitment
Percentage as set forth opposite the Purchasing Lender's name in item 3 of
Schedule I hereto and (ii) the Transferor Lender (A) shall, to the extent
provided in this Assignment and Assumption Agreement, relinquish such rights
and interests and be released from such liabilities, duties and obligations
under the Agreement and the other Loan Documents as shall have been assigned
to the Purchasing Lender hereunder and (B) shall have the reduced Revolving
Credit Commitment and Commitment Percentage as set forth opposite the
Transferor Lender's name in item 4 of Schedule I hereto.
6. The Transferor Lender has made arrangements with the
Purchasing Lender with respect to (i) the amount, if any, to be paid, and the
date or dates for payment, by the Transferor Lender to such Purchasing Lender
of any Fees heretofore received by the Transferor Lender pursuant to the
Agreement or any other Loan Document prior to the Transfer Effective Date and
(ii) the amount, if any, to be paid, and the date or dates for payment, by
such Purchasing Lender to the Transferor Lender of Fees or interest received
by such Purchasing Lender pursuant to the Agreement or any other Loan
Document from and after the Transfer Effective Date. Any such amount is in
addition to the Purchase Price.
7. (i) All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of the
Transferor Lender pursuant to the Agreement and the Notes payable to the
Transferor Lender shall instead be payable to or for the account of the
Transferor Lender and the Purchasing Lender in accordance with their
respective interests as reflected in this Assignment and Assumption Agreement
and on Schedule I hereto.
(ii) All interest, Fees and other amounts that would
otherwise accrue for the account of the Transferor Lender from and after the
Transfer Effective Date pursuant to the Agreement, the Notes payable to the
Transferor Lender or the other Loan Documents shall instead accrue for the
account of, and be payable to, the Transferor Lender and the Purchasing
Lender in accordance with their respective interests as reflected in this
Assignment and Assumption Agreement and on Schedule I hereto.
8. As soon as possible after the Agent has received from the
Transferor Lender the existing Notes payable to the Transferor Lender and
after the Borrower has executed and delivered to the Agent new Notes, the
Agent shall deliver to the Purchasing Lender a Revolving Credit Note payable
to the order of the Purchasing Lender in a principal amount equal to the
Revolving Credit Commitment of the Purchasing Lender set forth in item 3 of
Schedule I hereto and a Bid Rate Note.
9. Each of the Transferor Lender and the Purchasing Lender
represents and warrants to the other that (i) it has full power and legal
right to execute and deliver this Assignment and Assumption Agreement and to
perform the provisions of this Assignment and Assumption Agreement, (ii) the
execution, delivery and performance of this Assignment and Assumption
Agreement have been authorized by all necessary corporate action and (iii)
this Assignment and Assumption Agreement constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
10. By executing and delivering this Assignment and Assumption
Agreement, the Transferor Lender and the Purchasing Lender confirm to and
agree with each other, the Agent and the other Lenders as follows: (i) except
as set forth in paragraph 9 immediately above, the Transferor Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement or any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Agreement, any other
Loan Document or any other instrument or document furnished pursuant thereto;
(ii) the Transferor Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
of the Lenders or the performance or observance by the Borrower or any of the
Lenders of any of their respective obligations under the Agreement, the other
Loan Documents or any other instrument or document furnished pursuant
thereto; (iii) the Purchasing Lender confirms that it has received a copy of
the Agreement, together with copies of the financial statements delivered to
the Agent pursuant to Section 3.5 and Section 4.2 of the Agreement, if any,
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Assumption Agreement; (iv) the Purchasing Lender has not relied upon and will
continue independently and without reliance upon the Agent, the Transferor
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, make its own credit decision in taking or
not taking action under the Agreement and the other Loan Documents; (v) the
Purchasing Lender appoints and authorizes the Agent to take such action on
its behalf and to exercise such powers under the Agreement and the other Loan
Documents as are delegated to the Agent by the terms of the Agreement and the
other Loan Documents, together with such powers as are reasonably incidental
thereto, all in accordance with Article VIII of the Agreement and in certain
other Loan Documents; and (vi) the Purchasing Lender agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Agreement and the other Loan Documents are required to be
performed by it as a Lender.
11. Each of the parties to this Assignment and Assumption
Agreement agrees that, at any time and from time to time upon the written
request of any other party, it will execute and deliver such further
documents and do such further acts and things as such other party may
reasonably request in order to effect the purposes of this Assignment and
Assumption Agreement.
12. As of the Transfer Effective Date, the Agreement shall be
deemed to be amended (i) to make the Purchasing Lender a Lender for all
purposes of the Agreement and the other Loan Documents and (ii) to adjust the
Revolving Credit Commitment and Commitment Percentage of the Transferor
Lender to zero at which point the Transferor Lender shall cease to be a
Lender, and (iii) to provide for a Revolving Credit Commitment and Commitment
Percentage for the Purchasing Lender, all as set forth on Schedule I hereto.
13. Schedule I hereto sets forth in items 3 and 4 thereof the
Revolving Credit Commitment and Commitment Percentage of the Purchasing
Lender and the revised Revolving Credit Commitment and Commitment Percentage
of the Transferor Lender, and sets forth in item 2 certain administrative
information with respect to the Purchasing Lender.
14. The Agent hereby waives the service fee referred to in
item (iv) of Subsection 9.6 of the Agreement.
15. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT REFERENCE TO THE PROVISIONS THEREOF REGARDING CONFLICTS
OF LAW.
16. This Assignment and Assumption Agreement may be executed in
as many counterparts as shall be convenient, each of which, when executed by
the Transferor Lender, the Purchasing Lender or the Agent shall be regarded
as an original.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be executed as of the date first above written.
ABN AMRO BANK N.V.
By /s/ J. M. Janovsky
Name J. M. Janovsky
Title Group Vice President
By /s/ Gregory Amoroso
Name Gregory Amoroso
Title Vice President
THE TORONTO-DOMINION BANK
By /s/ David G. Parker
Name David G. Parker
Title Mgr. Cr. Admin.
PNC BANK, NATIONAL
ASSOCIATION,
as Agent for the Lenders
By /s/ Lawrence D. Jacobs
Name Lawrence D. Jacobs
Title Vice President
Consented to this 22nd day
of August, 1997
ALLEGHENY TELEDYNE INCORPORATED
By /s/ R. S. Park
Name R. S. Park
Title Vice President, Treasurer
<PAGE>
SCHEDULE I TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
1. TRANSFEROR BANK Existing Revolving
Credit Commitment: $25,000,000
Existing Pro Rata
Share: 5%
2. PURCHASING BANK Amount of Revolving
Credit Commitment
being purchased: $25,000,000
Address of Purchasing Bank for notice purposes:
The Toronto-Dominion Bank
_________________________
_________________________
Address for Euro-Rate funding, if different from above:
___________________________
___________________________
___________________________
Attention: ________________
Telephone: (___) ___-____
Telecopier: (___) ___-____
Telex: # __________
3. PURCHASING BANK Revolving Credit
Commitment: $25,000,000
New Pro Rata Share: 5%
4. TRANSFEROR BANK Revised Revolving
Credit Commitment: $ 0
Revised Pro Rata
Share: 0%
<PAGE>
SCHEDULE II TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
Transfer Effective Notice
TO: The Borrowers, the Transferor Bank, the Purchasing Bank and each
other Bank
The undersigned, the Agent pursuant to the Credit Agreement dated
as of August 30, 1996, as amended by and among Allegheny Teledyne
Incorporated, as the Borrower, the Lenders, the Managing Agents thereunder,
and PNC Bank, National Association, as the Documentation and Administrative
Agent, acknowledges receipt of fully executed counterparts of an Assignment
and Assumption Agreement, as described in Schedule I attached hereto.
Pursuant to such Assignment and Assumption Agreement, you are advised that
the Transfer Effective Date will be [August 14, 1997].
Capitalized terms used in this Transfer Effective Notice as
defined terms shall have the meanings given them in the above-referenced
Assignment and Assumption Agreement.
Dated as of ______________.
PNC BANK, NATIONAL ASSOCIATION, as Agent
for the Lenders and the Managing Agents
By
Name:
Title:
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of August 22, 1997
by and among FIRST UNION NATIONAL BANK OF NORTH CAROLINA (the "Transferor
Lender"), CORESTATES BANK, N.A. (the "Purchasing Lender"), and PNC BANK,
NATIONAL ASSOCIATION, as the Documentation and Administrative Agent for the
Lenders under the Credit Agreement described below (in such capacity the
"Agent").
WITNESSETH:
WHEREAS, this Assignment and Assumption Agreement is being
executed and delivered in accordance with Subsection 9.6a of that certain
Credit Agreement dated as of August 30, 1996 by and among the Borrower, the
Lenders party thereto, the Managing Agents party thereto and the Agent (the
Credit Agreement together with the exhibits and schedules thereto and all
amendments, modifications, extensions, renewals, substitutions and
replacements thereto and thereof is hereinafter referred to as the
"Agreement");
WHEREAS, the Purchasing Lender wishes to become a party to the
Agreement and assume the rights, obligations and commitments of a Lender
thereunder; and
WHEREAS, the Transferor Lender wishes to sell and assign to the
Purchasing Lender all of the Transferor Lender's rights, obligations,
commitments and Loans under the Agreement.
NOW, THEREFORE, in consideration of mutual promises contained
herein and other valuable consideration and with the intent to be legally
bound hereby, the parties hereto agree as follows:
1. All capitalized terms used herein as defined terms which
are not defined herein but which are defined in the Agreement shall have the
same meanings herein as given to them in the Agreement unless the context
clearly indicates otherwise.
2. Upon receipt by the Agent of four (4) counterparts of this
Assignment and Assumption Agreement which have been executed by the
Transferor Lender, the Purchasing Lender and the Agent and to each of which
is attached a fully completed Schedule I, the Agent will complete, execute
and deliver to the Borrower, the Transferor Lender, the Purchasing Lender and
the remaining Lenders, a Transfer Effective Notice substantially in the form
of Schedule II to this Assignment and Assumption Agreement (a "Transfer
Effective Notice"). Such Transfer Effective Notice shall set forth, inter
alia, the date on which the transfer affected by this Assignment and
Assumption Agreement shall become effective (the "Transfer Effective Date").
3. Effective upon the opening of business of the Agent on the
Transfer Effective Date, the Transferor Lender hereby sells, assigns,
delegates and transfers to the Purchasing Lender, without recourse and
without any representations or warranties except as set forth in paragraph 9
hereof, and the Purchasing Lender hereby buys, assumes and accepts, all of
the Transferor Lender' s rights, as set forth in item 2 of Schedule I hereto
in (i) the Transferor Lender's Revolving Credit Commitment, (ii) the
principal of, and all accrued and unpaid interest on, all outstanding Loans
of the Transferor Lender, (iii) all accrued but unpaid Fees owing to the
Transferor Lender under the Agreement and the other Loan Documents and (iv)
all of the Transferor Lender's other rights (including voting rights),
interests, duties, liabilities and obligations under the Agreement and the
other Loan Documents.
4. On the Transfer Effective Date, the Purchasing Lender shall
pay to the Agent at or before 12:00 Noon (Eastern time), in immediately
available funds, an amount equal to the principal of all outstanding Loans
being sold by the Transferor Lender to the Purchasing Lender. The Agent
shall pay such amount to the Transferor Lender, in immediately available
funds, on the Transfer Effective Date. The principal amount paid by the
Purchasing Lender to the Agent is referred to hereinafter as the "Purchase
Price". On and after the Transfer Effective Date, the Agent shall begin to
calculate interest on the outstanding Loans and all Fees under the Agreement
and the other Loan Documents which are owed to the Transferor Lender and the
Purchasing Lender, based on the Transferor Lender's and the Purchasing
Lender's Commitment Percentages set forth in items 3 and 4 of Schedule I
hereto.
5. From and after the Transfer Effective Date, (i) the
Purchasing Lender (A) shall be a Lender party to the Agreement, (B) subject
to the terms thereof, and to the extent provided in this Assignment and
Assumption Agreement, shall have the rights, interests, liabilities, duties
and obligations of the Transferor Lender thereunder and under the Loan
Documents and (C) shall have a Revolving Credit Commitment and Commitment
Percentage as set forth opposite the Purchasing Lender's name in item 3 of
Schedule I hereto and (ii) the Transferor Lender (A) shall, to the extent
provided in this Assignment and Assumption Agreement, relinquish such rights
and interests and be released from such liabilities, duties and obligations
under the Agreement and the other Loan Documents as shall have been assigned
to the Purchasing Lender hereunder and (B) shall have the reduced Revolving
Credit Commitment and Commitment Percentage as set forth opposite the
Transferor Lender's name in item 4 of Schedule I hereto.
6. The Transferor Lender has made arrangements with the
Purchasing Lender with respect to (i) the amount, if any, to be paid, and the
date or dates for payment, by the Transferor Lender to such Purchasing Lender
of any Fees heretofore received by the Transferor Lender pursuant to the
Agreement or any other Loan Document prior to the Transfer Effective Date and
(ii) the amount, if any, to be paid, and the date or dates for payment, by
such Purchasing Lender to the Transferor Lender of Fees or interest received
by such Purchasing Lender pursuant to the Agreement or any other Loan
Document from and after the Transfer Effective Date. Any such amount is in
addition to the Purchase Price.
7. (i) All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of the
Transferor Lender pursuant to the Agreement and the Notes payable to the
Transferor Lender shall instead be payable to or for the account of the
Transferor Lender and the Purchasing Lender in accordance with their
respective interests as reflected in this Assignment and Assumption Agreement
and on Schedule I hereto.
(ii) All interest, Fees and other amounts that would
otherwise accrue for the account of the Transferor Lender from and after the
Transfer Effective Date pursuant to the Agreement, the Notes payable to the
Transferor Lender or the other Loan Documents shall instead accrue for the
account of, and be payable to, the Transferor Lender and the Purchasing
Lender in accordance with their respective interests as reflected in this
Assignment and Assumption Agreement and on Schedule I hereto.
8. As soon as possible after the Agent has received from the
Transferor Lender the existing Notes payable to the Transferor Lender and
after the Borrower has executed and delivered to the Agent new Notes, the
Agent shall deliver to the Purchasing Lender a Revolving Credit Note payable
to the order of the Purchasing Lender in a principal amount equal to the
Revolving Credit Commitment of the Purchasing Lender set forth in item 3 of
Schedule I hereto and a Bid Rate Note.
9. Each of the Transferor Lender and the Purchasing Lender
represents and warrants to the other that (i) it has full power and legal
right to execute and deliver this Assignment and Assumption Agreement and to
perform the provisions of this Assignment and Assumption Agreement, (ii) the
execution, delivery and performance of this Assignment and Assumption
Agreement have been authorized by all necessary corporate action and (iii)
this Assignment and Assumption Agreement constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
10. By executing and delivering this Assignment and Assumption
Agreement, the Transferor Lender and the Purchasing Lender confirm to and
agree with each other, the Agent and the other Lenders as follows: (i) except
as set forth in paragraph 9 immediately above, the Transferor Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement or any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Agreement, any other
Loan Document or any other instrument or document furnished pursuant thereto;
(ii) the Transferor Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
of the Lenders or the performance or observance by the Borrower or any of the
Lenders of any of their respective obligations under the Agreement, the other
Loan Documents or any other instrument or document furnished pursuant
thereto; (iii) the Purchasing Lender confirms that it has received a copy of
the Agreement, together with copies of the financial statements delivered to
the Agent pursuant to Section 3.5 and Section 4.2 of the Agreement, if any,
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Assumption Agreement; (iv) the Purchasing Lender has not relied upon and will
continue independently and without reliance upon the Agent, the Transferor
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, make its own credit decision in taking or
not taking action under the Agreement and the other Loan Documents; (v) the
Purchasing Lender appoints and authorizes the Agent to take such action on
its behalf and to exercise such powers under the Agreement and the other Loan
Documents as are delegated to the Agent by the terms of the Agreement and the
other Loan Documents, together with such powers as are reasonably incidental
thereto, all in accordance with Article VIII of the Agreement and in certain
other Loan Documents; and (vi) the Purchasing Lender agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Agreement and the other Loan Documents are required to be
performed by it as a Lender.
11. Each of the parties to this Assignment and Assumption
Agreement agrees that, at any time and from time to time upon the written
request of any other party, it will execute and deliver such further
documents and do such further acts and things as such other party may
reasonably request in order to effect the purposes of this Assignment and
Assumption Agreement.
12. As of the Transfer Effective Date, the Agreement shall be
deemed to be amended (i) to make the Purchasing Lender a Lender for all
purposes of the Agreement and the other Loan Documents and (ii) to adjust the
Revolving Credit Commitment and Commitment Percentage of the Transferor
Lender to zero at which point the Transferor Lender shall cease to be a
Lender, and to provide for a Revolving Credit Commitment and Commitment
Percentage for the Purchasing Lender, all as set forth on Schedule I hereto.
13. Schedule I hereto sets forth in items 3 and 4 thereof the
Revolving Credit Commitment and Commitment Percentage of the Purchasing
Lender and the revised Revolving Credit Commitment and Commitment Percentage
of the Transferor Lender, and sets forth in item 2 certain administrative
information with respect to the Purchasing Lender.
14. The Agent hereby waives the service fee referred to in item
(iv) of Subsection 9.6a of the Agreement.
15. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT REFERENCE TO THE PROVISIONS THEREOF REGARDING CONFLICTS
OF LAW.
16. This Assignment and Assumption Agreement may be executed in
as many counterparts as shall be convenient, each of which, when executed by
the Transferor Lender, the Purchasing Lender or the Agent shall be regarded
as an original.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be executed as of the date first above written.
FIRST UNION NATIONAL BANK
(f/k/a FIRST UNION NATIONAL BANK OF NORTH
CAROLINA)
By /s/ Jane W. Workman
Name Jane W. Workman
Title Senior Vice President
CORESTATES BANK, N.A.
By /s/ Farina Rashid
Name Farina Rashid
Title Commercial Officer
PNC BANK, NATIONAL
ASSOCIATION,
as Agent for the Lenders
By /s/ Lawrence D. Jacobs
Name Lawrence D. Jacobs
Title Vice President
Consented to this 22nd day
of August, 1997
ALLEGHENY TELEDYNE INCORPORATED
By /s/ R. S. Park
Name R. S. Park
Title Vice President, Treasurer
<PAGE>
SCHEDULE I TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
1. TRANSFEROR BANK Existing Revolving
Credit Commitment: $25,000,000
Existing Pro Rata
Share: 5%
2. PURCHASING BANK Amount of Revolving
Credit Commitment
being purchased: $25,000,000
Address of Purchasing Bank for notice purposes:
___________________________
___________________________
___________________________
___________________________
Address for Euro-Rate funding, if different from above:
___________________________
___________________________
___________________________
Attention:_________________
Telephone: (___) ___-____
Telecopier: (___) ___-____
Telex: # __________
3. PURCHASING BANK Revolving Credit
Commitment: $25,000,000
New Pro Rata Share: 5%
4. TRANSFEROR BANK Revised Revolving
Credit Commitment: $ 0
Revised Pro Rata
Share: 0%
<PAGE>
SCHEDULE II TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
Transfer Effective Notice
TO: The Borrowers, the Transferor Bank, the Purchasing Bank and each
other Bank
The undersigned, the Agent pursuant to the Credit Agreement dated
as of August 30, 1996, as amended by and among Allegheny Teledyne
Incorporated, as the Borrower, the Lenders, the Managing Agents thereunder,
and PNC Bank, National Association, as the Documentation and Administrative
Agent, acknowledges receipt of fully executed counterparts of an Assignment
and Assumption Agreement, as described in Schedule I attached hereto.
Pursuant to such Assignment and Assumption Agreement, you are advised that
the Transfer Effective Date will be August 26, 1997.
Capitalized terms used in this Transfer Effective Notice as
defined terms shall have the meanings given them in the above-referenced
Assignment and Assumption Agreement.
Dated as of ______________.
PNC BANK, NATIONAL ASSOCIATION, as Agent
for the Lenders and the Managing Agents
By
Name:
Title:
<PAGE>
FIRST AMENDMENT TO
CREDIT AGREEMENT
Among
ALLEGHENY TELEDYNE INCORPORATED
as the Borrower
THE FINANCIAL INSTITUTIONS PARTY THERETO
as the Lenders
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
(formerly Bank of America - Illinois)
THE CHASE MANHATTAN BANK
MELLON BANK, N.A.
and
PNC BANK, NATIONAL ASSOCIATION
as Managing Agents
and
PNC BANK, NATIONAL ASSOCIATION
as the Documentation and Administrative Agent
Dated as of
August 31, 1997
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment")
made as of August 31, 1997 to that certain Credit Agreement dated as of
August 30, 1996 (the Credit Agreement together with the exhibits and
schedules thereto and all modifications, amendments, extensions, renewals,
substitutions or replacements prior to the date hereof, the "Existing
Agreement") among the FINANCIAL INSTITUTIONS listed on the signature pages
hereto and each other financial institution which from time to time becomes a
party hereto in accordance with Section 9.6a (individually a "Lender" and
collectively the "Lenders"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (formerly Bank of America-Illinois), THE CHASE MANHATTAN BANK,
MELLON BANK, N.A. and PNC BANK, NATIONAL ASSOCIATION as Managing Agents
(individually a "Managing Agent" and collectively the "Managing Agents") and
PNC BANK, NATIONAL ASSOCIATION, a national banking association, Documentation
and Administrative Agent for the Lenders (in such capacity the "Agent").
WITNESSETH:
WHEREAS, the Borrower and the initial Lenders, the Managing Agent
and the Agent entered into the Existing Agreement pursuant to which the
Lenders made certain financial accommodations available to the Borrower
including a Revolving Credit Commitment;
WHEREAS, the Borrower has requested that the Lenders, and the
Lenders are willing upon the following terms and conditions, to extend the
Termination Date to August 31, 2002; and
WHEREAS, the Borrower and the Lenders, the Managing Agents and
the Agent desire to amend the Existing Agreement as set forth herein.
NOW THEREFORE, in consideration of the mutual premises contained
herein and other good and valuable consideration, the Borrower and the Bank
with the intent to be legally bound hereby, agree that the Existing Agreement
shall be amended as follows:
ARTICLE I
AMENDMENTS TO EXISTING AGREEMENT
Section 1.01. Additional Definition. Section 1.1 of the
Existing Agreement is hereby amended such that the following definition shall
be added thereto in the appropriate alphabetical order:
"First Amendment Effective Date" shall mean August 31, 1997.
Section 1.02. Amended Definitions. Section 1.1 of the Existing
Agreement is hereby amended such that each of the following definition is
amended and restated in its entirety to read as follows:
"Termination Date" shall mean August 31, 2002 or such later date
as is ultimately determined in accordance with Section 2.8 hereof.
Section 1.03. Amendment to Section 5.5. Section 5.5 is hereby
amended by replacing Schedule 5.5 attached to the Existing Agreement with
restated Schedule 5.5 attached to the First Amendment.
Section 1.04. No Other Amendments or Waivers. The amendments to
the Existing Agreement set forth in Sections 1.01 through 1.03 inclusive
above do not either implicitly or explicitly alter, waive or amend, except as
expressly provided in this First Amendment, the provisions of the Existing
Agreement. The amendments set forth in Sections 1.01 through 1.03 hereof do
not waive, now or in the future, compliance with any other covenant, term or
condition to be performed or complied with nor do they impair any rights or
remedies of the Lenders or the Agent under the Existing Agreement with
respect to any such violation. Nothing in this First Amendment shall be
deemed or construed to be a waiver or release of, or a limitation upon, the
Lenders' or the Agents' exercise of any of their respective rights and
remedies under the Existing Agreement and the other Loan Documents, whether
arising as a consequence of any Events of Default which may now exist or
otherwise, and all such rights and remedies are hereby expressly reserved.
ARTICLE II
BORROWER'S SUPPLEMENTAL REPRESENTATIONS
Section 2.01 Incorporation by Reference. As an inducement to
the Lenders to enter into this First Amendment, the Borrower hereby repeats
herein, for the benefit of the Lenders, the representations and warranties
made by the Borrower in Sections 3.1 through 3.15, inclusive, of the Existing
Agreement, as amended hereby, except that for purposes hereof such
representations and warranties shall be deemed to extend to and cover this
First Amendment.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.01. Conditions Precedent. Each of the following shall
be a condition precedent to the effectiveness of this First Amendment:
(i) The Lenders shall have received, on or before the First
Amendment Effective Date, duly executed counterpart originals of this First
Amendment.
(ii) The following statements shall be true and correct on the
First Amendment Effective Date:
(A) except to the extent modified in writing by the
Borrower heretofore delivered to the Lenders, the representations and
warranties made pursuant to Section 2.01 of this First Amendment and in the
other Loan Documents are true and correct on and as of the First Amendment
Effective Date as though made on and as of such date in all material respects;
(B) no Event of Default or event which with the giving of
notice or passage of time or both would become an Event of Default has
occurred and is continuing, or would result from the execution of or
performance under this First Amendment;
(C) the Borrower has in all material respects performed
all agreements, covenants and conditions required to be performed on or prior
to the date hereof under the Existing Agreement and the other Loan Documents.
ARTICLE IV
GENERAL PROVISIONS
Section 4.01. Ratification of Terms. Except as expressly
amended by this First Amendment, the Existing Agreement and each and every
representation, warranty, covenant, term and condition contained therein is
specifically ratified and confirmed in all material respects.
Section 4.02. References. All notices, communications,
agreements, certificates, documents or other instruments executed and
delivered after the execution and delivery of this First Amendment in
connection with the Agreement, any of the other Loan Documents or the
transactions contemplated thereby may refer to the Existing Agreement without
making specific reference to this First Amendment, but nevertheless all such
references shall include this First Amendment unless the context requires
otherwise. From and after the First Amendment Effective Date, all references
in the Existing Agreement and each of the other Loan Documents to the
"Agreement" shall be deemed to be references to the Existing Agreement as
amended hereby.
Section 4.03. Counterparts. This First Amendment may be
executed in different counterparts, each of which when executed by the
Borrower and the Bank shall be regarded as an original, and all such
counterparts shall constitute one First Amendment.
Section 4.04. Capitalized Terms. Except for proper nouns and as
otherwise defined herein, capitalized terms used herein as defined terms
shall have the meanings ascribed to them in the Existing Agreement, as
amended hereby.
Section 4.05. Governing Law. THIS FIRST AMENDMENT AND THE
RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO
THE PROVISIONS THEREOF REGARDING CONFLICTS OF LAW.
Section 4.06. Headings. The headings of the sections in this
First Amendment are for purposes of reference only and shall not be deemed to
be a part hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have caused this First Amendment to be duly executed by their
proper and duly authorized officers the day first above written.
ALLEGHENY TELEDYNE INCORPORATED
By /s/ R. S. Park
Name R. S. Park
Title Vice President, Treasurer
PNC BANK, NATIONAL ASSOCIATION, BANK OF AMERICA NATIONAL TRUST AND
as Lender, Managing Agent and Agent SAVINGS ASSOCIATION
as Lender and Managing Agent
By /s/ Lawrence W. Jacobs By /s/ M. A. Detrick
Name Lawrence W. Jacobs Name M. A. Detrick
Title Vice President Title Vice President
THE CHASE MANHATTAN BANK, MELLON BANK, N.A.,
as Lender and Managing Agent as Lender and Managing Agent
By /s/ James H. Ramage By /s/ David Jardini
Name James H. Ramage Name David Jardini
Title Vice President Title Vice President
THE BANK OF NEW YORK MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Robert J. Joyce By /s/ Laura E. Loffredo
Name Robert J. Joyce Name Laura E. Loffredo
Title Vice President Title Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
[CONTINUATION OF SIGNATURE PAGE]
NATIONSBANK, N.A. THE TORONTO-DOMINION BANK
By /s/ Rajesh Sood By /s/ David G. Parker
Name Rajesh Sood Name David G. Parker
Title Vice President Title Mgr. Cr. Admin.
BANK OF TOKYO-MITSUBISHI TRUST CORESTATES BANK, N.A.
COMPANY
By /s/ Donna J. Emhart
By /s/ M. R. Marron Name Donna J. Emhart
Name M. R. Marron Title Vice President
Title Vice President
THE FIRST NATIONAL BANK OF NATIONAL CITY BANK OF
CHICAGO PENNSYLVANIA
By /s/ Christine Davis By /s/ William S. Harris
Name Christine Davis Name William S. Harris
Title Authorized Agent Title Vice President
THE FUJI BANK LIMITED, NEW YORK UNION BANK OF SWITZERLAND,
BRANCH NEW YORK BRANCH
By /s/ Raymond Ventura By /s/ Philippe R. Sandmeier
Name Raymond Ventura Name Philippe R. Sandmeier
Title Vice President and Manager Title Director
By /s/ Hamilton W. Bullard
Name Hamilton W. Bullard
Title Assistant Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statement of income for the fiscal nine months ended
September 30, 1997 and consolidated balance sheet as of September 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 598
<ALLOWANCES> (13)
<INVENTORY> 550
<CURRENT-ASSETS> 1244
<PP&E> 1597
<DEPRECIATION> 895
<TOTAL-ASSETS> 2639
<CURRENT-LIABILITIES> 548
<BONDS> 410
0
0
<COMMON> 18
<OTHER-SE> 946
<TOTAL-LIABILITY-AND-EQUITY> 2639
<SALES> 2824
<TOTAL-REVENUES> 2824
<CGS> 2147
<TOTAL-COSTS> 2147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 347
<INCOME-TAX> 132
<INCOME-CONTINUING> 215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
