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1996
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996
[ ] 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)
Registrant's telephone number, including area code: (412) 394-2800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of each class Name of each exchange on which registered
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Common Stock, $0.10 Par Value New York Stock Exchange
Teledyne, Inc. 7% Subordinated Debentures due 1999 New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 14, 1997, the Registrant had outstanding 176,093,974 shares of
its Common Stock. The aggregate market value of the Registrant's voting stock
held by non-affiliates at this date was approximately $3.9 billion, based on
the closing price of $28.625 as reported on the New York Stock Exchange. Shares
of common stock known by the Registrant to be beneficially owned by executive
officers or directors of the Registrant are not included in the computation.
The Registrant, however, has made no determination that such persons are
"affiliates" within the meaning of Rule 12b-2 under the Securities Exchange Act
of 1934.
Documents Incorporated By Reference
Selected portions of the 1996 Annual Report to Stockholders - Part I, Part II
and Part IV of this Report.
Selected portions of the 1997 Proxy Statement - Part III of this Report.
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ALLEGHENY TELEDYNE INCORPORATED
SEC FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1996
INDEX
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PART I PAGE NO.
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Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits and Financial Statement Schedules 23
SIGNATURES 24
EXHIBIT INDEX 26
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PART I
ITEM 1. BUSINESS
THE COMPANY
Allegheny Teledyne Incorporated is a Delaware corporation with its
principal executive offices located at 1000 Six PPG Place, Pittsburgh,
Pennsylvania 15222-5479, telephone (412) 394-2800. Allegheny Teledyne was
formed on August 15, 1996 by the combination of Allegheny Ludlum Corporation
("Allegheny Ludlum") and Teledyne, Inc. ("Teledyne"), which became wholly owned
subsidiaries of Allegheny Teledyne. In the combination, Allegheny Ludlum
shareholders received one share of Allegheny Teledyne common stock for each one
of their Allegheny Ludlum common shares, and Teledyne stockholders received
1.925 shares of Allegheny Teledyne common stock for each of their Teledyne
common shares. The combination was accounted for under the pooling of interests
method of accounting. References to "Allegheny Teledyne," the "Company" or the
"Registrant" mean Allegheny Teledyne Incorporated and its subsidiaries, unless
the context otherwise requires.
The Company is a group of technology-based manufacturing businesses
with significant concentration in specialty metals, complemented by aerospace
and electronics, industrial, and consumer products. The Company operates in
four business segments - specialty metals, aerospace and electronics,
industrial, and consumer - which accounted for 54.3%, 26.2%, 11.9%, and 7.6%,
respectively, of the Company's total operating revenues of $3.8 billion for the
year ended December 31, 1996. Additional financial information with respect to
the Company's business segments, including their contributions to operating
earnings and their identifiable assets, for the three years ended December 31,
1996 is presented under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations" on pages
23 to 29 of the 1996 Annual Report to Stockholders (the "1996 Annual Report")
and in Note 11 of Notes to Consolidated Financial Statements beginning on page
35 of the 1996 Annual Report and is incorporated herein by reference.
SPECIALTY METALS SEGMENT
The products of this business segment are representative of the
practical application of metallurgical science and technology as it is known
and practiced throughout the world. Their unique characteristics are derived
from the nature of the metals produced, the particular properties of the alloys
melted, and the various processes, methods, forms, shapes and end products
manufactured. Companies in the specialty metals segment include Allegheny
Ludlum, Allvac, Rodney Metals, Wah Chang, Casting Service, and Portland Forge.
These companies offer a number of products including:
Specialty Steels, Super Alloys and Other Alloys. The term "specialty
steel" refers to stainless steels, high speed and tool steels, high temperature
alloys (super alloys), electronic and thermostatic alloys, and electrical
steels. As compared with carbon steel, stainless steel alloys contain elements
such as chromium, nickel, and molybdenum to make them corrosion- and
heat-resistant; tool steel alloys, which contain more carbon than stainless
steel, include tungsten, molybdenum, and other metals to make them both hard
and malleable; and electrical steel contains silicon to minimize energy loss.
Most high temperature alloys, electronic alloys and
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thermostatic alloys are not steel by definition and are more properly referred
to as specialty metals.
Unlike high-volume carbon steel producers, specialty steelmakers
produce smaller quantities with special equipment. Because of the need to meet
more exacting technical and metallurgical requirements, stainless and other
specialty steels are made with special processing techniques and generally
utilize different alloying elements such as nickel, ferrochromium, molybdenum,
niobium, titanium and cobalt.
Specialty steel is produced in a variety of forms (sheet, strip, foil,
plate, wire, ingot, billet, rod, bar, tubing, and shapes) and is selected for
use in environments that demand materials having exceptional hardness,
toughness, strength, resistance to heat, corrosion or abrasion or a combination
of these characteristics. 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 and dies,
food and chemical processing equipment, medical and health equipment, and
aircraft and defense equipment.
High-purity and high-performance superalloys, other alloys, and
specialty steels are refined, partially finished, then sold to a wide variety
of customers worldwide for many different applications in diverse industries,
including aerospace, biomedical, marine, oil and gas, chemical processing,
nuclear, and transportation industries.
Allegheny Teledyne is able to produce a wide range of premium grade,
nickel-based, cobalt-based, and titanium alloys that are designed to meet the
high performance requirements of the aircraft, aerospace, gas turbine, nuclear
energy, and chemical processing industries. These products, in various forms,
are engineered to retain exceptional strength and corrosion resistance at
temperatures through 2,000 degrees Fahrenheit and are used in critical,
high-stress applications.
Allegheny Teledyne high-speed steels provide the high temperature
hardness required for lathe bits, drills, milling cutters, taps and dies, and
other cutting tools. Related alloy steels, including a cobalt-free maraging
grade, are produced for bearings, gears, special aerospace hardware, and
high-strength applications.
Thin-rolled metals are fabricated in a broad range of gauges, widths,
and coatings to meet the specialized needs of a diverse international customer
base. These customers then use the metal to fabricate a variety of different
products ranging from automobile components to photographic, personal computer,
and consumer products. A significant portion of these metals are distributed
through a network of Company service centers, some located in foreign
countries.
Refractory and Reactive Metals. High-purity metals that exhibit unique
properties (primarily zirconium, but including hafnium, vanadium, niobium, and
titanium) are melted, refined, partially finished, then sold to domestic and
foreign customers primarily in the nuclear energy, chemical processing,
medical, and aerospace industries.
Allegheny Teledyne is a leading U.S. producer of zirconium, a highly
corrosion-resistant metal that is transparent to neutrons. It is used for fuel
tubes and structural parts in nuclear power reactors and for
corrosion-resistant chemical industry applications. Other users of
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zirconium include the jewelry and personal hygiene industries. Hafnium, derived
as a by-product of zirconium, is used for control rods in nuclear reactors due
to its ability to absorb neutrons.
Niobium, also known as columbium, is a high-technology metal produced
by Allegheny Teledyne in various forms and alloys. It is used as an alloying
element in the manufacture of many steels. The higher quality grades produced
by Allegheny Teledyne are used in superalloys for jet engines and special
alloys for aerospace applications such as rocket nozzles. When alloyed with
titanium, niobium is used in applications requiring superconducting
characteristics for high-strength magnets. This area includes medical devices
for body-scanning, accelerators for high-energy physics, and fusion energy
projects for future generation of electricity.
Tantalum, one of the most corrosion-resistant metals, is produced by
Allegheny Teledyne for medical implants, chemical process equipment, and
aerospace engine components.
Forgings and Castings. Allegheny Teledyne also processes metals by
casting, forging, rolling, drawing, and extruding the metals into finished
forms that are used in a diverse number of industries. With the latest
screw-type forging presses, the Company is a major U.S. producer of carbon and
alloy steel forgings in sizes ranging from one pound to more than 200 pounds.
In addition to supplying the transportation, construction, and other basic
industries, the Company has the ability to forge the more difficult alloys,
which are used in aerospace, medical implants, and other critical applications.
Allegheny Teledyne also casts a variety of metals into forms ranging
from diesel locomotive engine blocks to lightweight aluminum and magnesium
aircraft parts. Housings and parts are also made for power generation
equipment, tools, and automobiles. Cold-drawn stainless steel and
custom-fabricated tubing is also produced.
AEROSPACE AND ELECTRONICS SEGMENT
Companies in the aerospace and electronics segment include Teledyne
Ryan Aeronautical, Teledyne Brown Engineering, Teledyne Electronic
Technologies, Teledyne Continental Motors, Teledyne Controls and Teledyne
Economic Development. These companies offer a variety of products and services
including:
Unmanned Aerial Vehicles and Targets. Unmanned aerial vehicles and
targets are designed, manufactured, and sold for defense-related purposes to
the U. S. Government and to the international market. Allegheny Teledyne's
background in airframe manufacture goes back to Charles Lindbergh's Spirit of
St. Louis, which was built by Ryan Airlines, Inc., the predecessor to today's
Teledyne Ryan Aeronautical. More than 25 types of remotely piloted aircraft,
usually called Unmanned Aerial Vehicles ("UAVs"), have been built by Ryan, in
both supersonic and subsonic versions. These recoverable and reusable vehicles
are used for sophisticated military missions, such as reconnaissance, with the
pilots safely flying them from remote control centers. Ryan heads the team
developing the Global Hawk UAV for the U.S. Government. Through the production
of sophisticated UAVs, Allegheny Teledyne has also developed broad experience
in the use of advanced materials, such as graphite composites, and has
facilities for the numerically controlled machining of airfoils from honey-comb
materials.
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Allegheny Teledyne has built the airframe for the U. S. Army's Apache
attack helicopter and, during 1997, expects to begin building this airframe for
attack helicopters used by the United Kingdom and The Netherlands.
Aviation Propulsion Systems. Aviation propulsion systems, including
small gas turbine engines and piston engines, are designed, manufactured and
sold domestically and internationally for general aviation and defense-related
purposes. Small gas turbine engines are used primarily in aerial targets and
missiles. The piston engine products, sold under the Teledyne Continental
Motors name, are used by several general aviation aircraft original equipment
manufacturers ("OEMs") and after-market suppliers. Continental Motors' piston
engines have been powering airplanes for 60 years, and today about half of the
general aviation piston engines produced in the U.S. are built by Allegheny
Teledyne.
Engineering Services. A wide range of engineering services is offered
to government defense and aerospace customers as well as commercial customers.
These services include payload integration for the space shuttle and systems
engineering for ballistic missile defense. In addition, computer software has
been developed for simulations and hardware performance evaluations.
Sensing, Analysis and Instrumentation Systems and Instruments. A
diverse range of sensing, analysis, and instrumentation systems and instruments
are designed, manufactured and sold to a number of customers, including the
U.S. Federal Aviation Administration, domestic and foreign airlines,
commercial aircraft OEMs, and a broad base of companies in different industrial
sectors.
Allegheny Teledyne currently produces equipment for telemetering data
from remote sources, which is used by major airlines and helicopter fleets to
record in-flight performance and maintenance data on their aircraft.
Sensors, analyzers (on-line and portable), and custom-engineered
systems incorporate a broad range of principles of measurement, including
electrochemical, electrolytic diffusion, chemiluminescence, absorption
photometry, thermal conductivity, flame ionization, and catalytic oxidation.
Oxygen sensors are designed to be accurate, sensitive, reliable, and
versatile in their applications. Photometric detectors for specific chemicals
cover the complete spectrum of absorption analysis, from ultraviolet to visible
to infrared wave-lengths. Polarographic sensors for carbon monoxide and
hydrogen sulfide gas analysis also monitor chlorine, fluorine, and reducing
gases.
Allegheny Teledyne produces equipment for geophysical exploration and
analysis for oil and gas exploration surveys and the measurement of seismic
earth motion. It is a leader in the production of a family of hydrophones based
on piezoelectric ceramics. For over a half century, precise seismometers
developed and manufactured by Allegheny Teledyne have been used for detecting
natural and man-made earth motion. Today, smaller, more sensitive instruments
and microprocessor-based, portable systems are designed to quickly extract and
analyze seismic information.
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Controlled Explosive Devices. Controlled explosive devices are
designed, manufactured, and sold for defense-related, aerospace and commercial
purposes. These devices are used in a wide range of pilot ejection systems,
airframe separation, and other similar aerospace-related systems. Commercially,
the devices are used in vehicle airbags and petroleum industry drilling
systems, among other uses.
Electronic Components and Subsystems. A wide range of electronic
chips, components and subsystems are designed, manufactured, and sold worldwide
for a variety of aerospace, defense-related, medical, industrial, and consumer
applications.
Allegheny Teledyne's hybrid microcircuits are used in a variety of
military, space, industrial, and medical applications. These compact and
complex electronic building blocks combine multiple transistors and integrated
circuits in multi-chip modules where small packaging sizes, reliability, and
light weight are of paramount importance. Thousands of these microcircuits, the
size of postage stamps, have been produced, and are being used for heart
pacemakers and interplanetary missions, as well as many other uses.
Using microcircuit technology and encryption algorithms, Allegheny
Teledyne is developing equipment to provide cryptographic security for
commercial wideband telecommunications applications.
Allegheny Teledyne's high power traveling wave tubes are used to
transmit thousands of telephone conversations or a dozen television channels
around the world simultaneously via satellite networks. Similar types of
traveling wave tubes are used in airborne and ground-based electronic
countermeasure equipment.
In the microwave industry, Allegheny Teledyne is a leading supplier of
ferrite components and switching devices, as well as filters, oscillators, and
integrated subsystems. Monolithic microwave integrated circuits are provided
for both commercial and military applications.
Other components include operational amplifiers, digital-analog
converters, miniature relays, hybrid switching devices, radar augmenters, lower
power microwave tubes, flexible printed-circuit interconnections, switches,
terminals, and a line of aircraft, tank and truck batteries.
INDUSTRIAL SEGMENT
Companies in Allegheny Teledyne's industrial segment include Teledyne
Advanced Materials, Teledyne Fluid Systems, and Teledyne Specialty Equipment.
These companies offer a variety of products including:
Cutting Tools and Tungsten Products. For the metalworking, mining and
other industries requiring tools with extra hardness, Allegheny Teledyne
produces a line of sintered tungsten carbide products, made under heat, to
produce a material that approaches diamond hardness. Cemented carbide products,
which may be coated or uncoated, are used as super-hard cutters in the
high-speed machining and cutting of steel and other applications where hardness
and wear resistance are important. Technical developments related to ceramics,
coatings, and other disciplines are incorporated in these products. In December
1995 the Company acquired the
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Stellram Group, manufacturers of high precision threading, milling, boring, and
drilling systems for the European market.
Allegheny Teledyne is a producer of tungsten for the worldwide market,
starting with numerous and varied tungsten-bearing raw materials and resulting
in tungsten and tungsten carbide powders and mill products. Previously used
cemented carbide parts are also recycled into tungsten carbide powder. Wrought
or ductile tungsten products are used in diverse applications including light
bulb filaments, inert gas welding electrodes, electrical contacts, x-ray
shielding, and aircraft counterweights.
Molybdenum, a sister metal to tungsten, which also has a very high
melting point, is produced by Allegheny Teledyne in powder form and then shaped
into solid forms through powder metallurgy techniques. It is an important
alloying element for steels and is used for plasma arc spraying of piston
rings, for electrodes in glass melting, and for structural parts in high
temperature furnaces.
Nitrogen Gas Systems. Nitrogen gas springs are designed, manufactured
and sold worldwide to industries that, as part of their manufacturing
processes, must form metal. Major industries served include automobile,
appliance, and can-making. Nitrogen gas systems overcome manufacturing
difficulties encountered in high speed metal forming operations.
Valves, Pumps and Boosters. Many different types of pressure relief
valves, pumps, and boosters are designed, manufactured and sold domestically
and internationally to a variety of industries, including transportation,
hydrocarbon and petrochemical processing, pharmaceutical, and industrial
components.
Transportable Material Handlers. Allegheny Teledyne designs and
manufactures, through domestic and foreign operations, a series of specialty
forklifts that ride as outriggers on delivery trucks. They are designed to save
valuable cargo space, and their design and stability make them an asset at
rough construction sites where positioning of the delivered product is
extremely important.
Mining and Construction Equipment. Rugged, high-performance mining and
construction equipment such as breakers, boom systems and scalers, are designed
and manufactured for the construction, quarry, and mining industries.
Dies and Molds. Metal stamping dies and plastic compression molds are
designed, manufactured and sold primarily to the domestic automotive and truck
parts industries.
CONSUMER SEGMENT
Companies in Allegheny Teledyne's consumer segment include Teledyne
Water Pik, Teledyne Laars, and Teledyne Packaging. These companies manufacture
a number of specialty products including:
Oral Health Products. A wide range of consumer and professional oral
health products and devices are designed, manufactured, and sold primarily
through retail and professional dental networks. These products include a
high-speed sonic plaque control toothbrush, a mechanical
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toothbrush model, and oral irrigation devices that are sold under the brand
name of Teledyne Water Pik. Allegheny Teledyne also produces apparatus and
products used in professional dental practices.
Shower Heads. Also marketed under the Teledyne Water Pik brand name
are pulsating shower heads in a wide range of models. Allegheny Teledyne
designs, manufactures and sells the shower heads through domestic and foreign
mass merchandise and specialty retail outlets.
Residential Water Filtration. A wide range of residential water
filtration devices are designed, manufactured, and sold to domestic and foreign
consumers primarily through mass merchandise and specialty retail outlets. The
Instapure(R) line includes faucet-mounted, under-the-counter, and whole house
water filters for improving the quality of water used in the home. The
Waterfresh(R) pour through water filter for home water filtration is designed to
remove up to 99% of the chlorine, sediment, bad taste, and odor from
residential water, employing a filter which is made up of 100% natural
ingredients and is biodegradable. Allegheny Teledyne's water filtration product
line can be adapted for many water delivery systems throughout the world.
Pool Equipment and Heating Systems. The Company manufactures under the
Teledyne Laars brand name a variety of heating systems and a water treatment
system for residential and commercial swimming pools and spas. The Hi-E(R)
line of swimming pool heaters is designed to be up to 97% efficient and to
produce low emissions. The pool sanitizing system uses highly effective ozone
technology. The Company also produces a broad line of water heating equipment
that provides hot water and heating for commercial, residential, and industrial
applications. Also included in this group are heating elements produced for
OEMs of consumer kitchen equipment. In 1996 the Company acquired Jandy
Industries, Inc., a United States producer of water flow control valves and
electronic control systems for the swimming pool industry.
Collapsible Tubes. Metal, laminate, and plastic collapsible tubes are
designed, manufactured and sold to domestic and foreign companies that sell
pharmaceutical, dentifrice, cosmetic, food, household, and industrial products.
COMPETITION
Markets for most of the Company's products and services in each of its
principal business segments are highly competitive. The Company competes with
many manufacturers which, depending on the product involved, range from large
diversified enterprises to smaller companies specializing in particular
products. Factors that effect the Company's competitive posture are the quality
of its products, services and delivery capabilities, its research and
development efforts, its marketing strategies, and price.
Through its specialty metals segment, the Company is a leading
producer of specialty steel. Companies in this segment face active competition
from domestic competitors and from foreign competitors, a number of which are
government subsidized. Sales for Allegheny Ludlum and Rodney Metals, which
consisted primarily of flat rolled products, declined 14% in 1996. The decline
was caused by lower shipments coupled with significant pricing pressure in
commodity stainless steel products. Allegheny Ludlum has announced price
increases of
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approximately 5% for its stainless steel sheet, strip and plate shipments
effective March 3, 1997 and price increases of approximately 4% for all tool
steel plates and bars cut from plate effective with shipments March 31, 1997.
Allegheny Ludlum has also announced price increases of approximately 5% for its
stainless steel sheet, strip, and plate shipments effective May 5, 1997. The
ability to effect and maintain these price increases will depend in part on
market pricing pressures, including pricing by foreign competitors.
Companies in Allegheny Teledyne's aerospace and electronics segment
obtain 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.
RAW MATERIALS AND SUPPLIES
Substantially all parts and materials required in the manufacture of
the Company's products are available from more than one supplier and, in the
Company's opinion, the sources and availability of raw materials essential to
its businesses are adequate.
The principal materials used by the Company in the production of its
specialty steel are scrap (including nickel-, chromium-, and molybdenum-bearing
scrap), nickel and nickel alloys, ferrochromium, ferrosilicon, molybdenum and
molybdenum alloys, manganese and manganese alloys, and other alloying materials.
Certain of these raw materials, such as ferrochromium and nickel, can be
acquired by the Company and its specialty steel industry competitors, in large
part, only from foreign sources. The Company purchases its nickel requirements
principally from producers in Australia, Canada, Norway, the Commonwealth of
Independent States, the Dominican Republic, and the U.S. Ferrochromium is
purchased primarily from producers in South Africa, Zimbabwe, Turkey, and the
Commonwealth of Independent States. Some of these foreign sources are located in
countries that may be subject to unstable political and economic conditions,
which might disrupt supplies or affect the price of these materials. More than
80% of the world's reserves of ferrochromium are located in South Africa,
Zimbabwe, Albania, and Kazakhstan. The Company's specialty metals businesses
also use large amounts of electricity and natural gas in the manufacture of
their products. See "Forward Looking and Other Statements."
GOVERNMENT CONTRACTS
For the year ended December 31, 1996, approximately 18% of the
Company's revenues were attributable to sales under contracts with the U.S.
Government. Sales to the Department of Defense accounted for approximately 12%
of total sales in 1996. Sales by the Company to the U.S. Government included
sales by the specialty metals segment of $77.1 million in 1996, $44.3 million
in 1995, and $50.5 million in 1994, the aerospace and electronics segment of
$581.8 million in 1996, $518.0 million in 1995, and $485.0 million in 1994, and
the industrial and consumer segments of $1.4 million in 1996, $2.8 million in
1995, and $3.5 million in 1994. Many of the Company's contracts with the U.S.
Government include price redetermination clauses, and most are terminable at
the convenience of the government.
See the discussion of related matters herein under the caption
"Forward Looking and Other Statements" and in Item 3. Legal Proceedings.
Additional related information is presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
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Operations--Other Matters--Government Contracts" on page 28 of the 1996 Annual
Report and in Note 13 of Notes to Consolidated Financial Statements beginning
on page 35 of the 1996 Annual Report.
EXPORT SALES AND FOREIGN OPERATIONS
Foreign sales represented approximately 17%, 15%, and 17% of the
Company's total sales in 1996, 1995, and 1994, respectively. These figures
include export sales by U.S. operations to customers in foreign countries,
which accounted for approximately 12% in 1996 and 13% in 1995 and 1994 of the
Company's total sales. See "Forward Looking and Other Statements." The
Company's overseas sales, marketing and distribution efforts are aided by 12
international marketing offices in Europe, Asia, South America, and the Middle
East.
During the fiscal years ended December 31, 1996, 1995, and 1994, the
Company and its subsidiaries did not engage in material manufacturing
operations in foreign countries. However, recent initiatives by the Company,
including those discussed below, have expanded the Company's presence
internationally.
In February 1996 Allegheny Teledyne established a joint venture
company in the People's Republic of China with Shanghai No. 10 Steel Limited
Company for the production and sale of precision rolled stainless steel strip.
The Company, which owns 60% of the joint venture company, will provide
technology and engineering, technical, and management services. The joint
venture will be known as Shanghai STAL Precision Stainless Steel Limited
Company. The new plant will be located in Shanghai to produce and sell up to
15,000 metric tonnes of the Company's Precision Rolled Strip( products.
Completion of the plant is anticipated in 1998. This venture should enable both
Allegheny Ludlum and Rodney Metals to participate more effectively in the Asian
market.
In January 1995 the Company acquired the material handling business of
Kooi B.V., a Netherlands company that is one of Europe's largest suppliers of
portable material handlers. In December 1995 the Company completed the
acquisitions of the Stellram Group, based in Europe, and Envases Comerciales,
S.A. in Costa Rica. With facilities in Great Britain, Germany, France and
Switzerland, the Stellram Group is a leader in highly engineered tooling for
milling, boring, threading, and drilling, and is expected to enhance the
position of Teledyne Advanced Materials in the global cutting tools market.
Envases Comerciales, S.A. is a Costa Rican manufacturer of specialty packaging
for pharmaceutical and food companies throughout Central America and Mexico.
The acquisition of Envases Comerciales should open new markets for Teledyne
Packaging's metal, laminate, and plastic collapsible tubes used for consumer
products.
BACKLOG, SEASONALITY AND CYCLICALITY
The Company's backlog of confirmed orders was approximately $1.2
billion at December 31, 1996 and $1.2 billion at December 31, 1995. During the
year ending December 31, 1997, it is anticipated that approximately 98% of
confirmed orders on hand at December 31, 1996 will be filled. Backlog of
confirmed orders of the specialty metals segment was $658.8 million at December
31, 1996 and $564.9 million at December 31, 1995. During the
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year ending December 31, 1997, it is anticipated that approximately 99% of the
confirmed orders on hand at December 31, 1996 for this segment will be filled.
Backlog of confirmed orders of the aerospace and electronics segment was $439.2
million at December 31, 1996 and $493.5 million at December 31, 1995. During
the year ending December 31, 1997, it is anticipated that approximately 96% of
the confirmed orders on hand at December 31, 1996 for this segment will be
filled.
Generally, sales and operations of the Company's business segments are
not seasonal. However, demand for products of the Company's specialty metals
businesses is cyclical over longer periods because the industries in which
customers in such businesses operate are cyclical and are subject to changes in
general economic conditions. See "Forward Looking and Other Statements."
RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES
Management of the Company believes that the Company's research and
development capabilities give it an edge in developing new products with
profitable growth potential on a long-term basis, although these projects may
not have immediate impact on profitability. Research and development is
conducted by the Company at its various operating locations both for its own
account and for customers on a contract basis. Estimates of the components of
research and development, including bid and proposal costs, for the years ended
December 31, 1996, 1995, and 1994 included the following:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Customer-Sponsored:
Specialty metals segment $ 3.8 $ 3.7 $ 5.2
Aerospace and electronics segment 295.4 204.2 166.7
Other 3.9 26.0 58.3
------- ------- -------
303.1 233.9 230.2
------- ------- -------
Company-Sponsored:
Specialty metals segment 16.8 20.4 17.1
Aerospace and electronics segment 35.4 30.0 31.0
Other 14.0 16.1 26.0
------- ------- -------
66.2 66.5 74.1
------- ------- -------
Total Research and Development $ 369.3 $ 300.4 $ 304.3
======= ======= =======
</TABLE>
Ongoing research and development efforts in the aerospace and
electronics segment include the following: Teledyne Ryan Aeronautical's
development of the Global Hawk for the U.S. Department of Defense; Ryan's
development of a new low-cost miniature air launched decoy UAV for the
Department of Defense; and Teledyne Brown Engineering's work, in a joint
venture, to determine the commercial feasibility of a new technology for safely
destroying old chemical weapons without incineration. In addition, NASA has
announced that Teledyne Continental Motors has been selected to lead an
industry team developing a new piston-driven engine for small aircraft.
12
<PAGE> 13
With respect to the specialty metals segment, the Company's research,
development and technical service activities are closely interrelated and are
directed toward cost reduction, process improvement, process control, quality
assurance and control, system development, the development of new manufacturing
methods, the improvement of existing manufacturing methods, the improvement of
existing products, and the development of new products where a proprietary
position is possible.
The Company owns over 500 United States patents, many of which are
also filed under the patent laws of other nations. Although these patents, as
well as the Company's numerous trademarks, technical information license
agreements, and other intellectual property, have been and are expected to be
of value, in the opinion of the Company, the loss of any single such item or
technically related group of such items would not materially affect the conduct
of its business.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company (and the industries in which it competes) is subject to
environmental laws and regulations concerning emissions to the air, discharges
to waterways, and the generation, handling, storage, transportation, treatment
and disposal of waste materials, and is also subject to other federal and state
laws and regulations regarding health and safety matters. Each of the Company's
production facilities has permits and licenses allowing and regulating air
emissions and water discharges. The Company believes its businesses are being
operated in compliance in all material respects with applicable environmental
laws and regulations.
The Company is currently involved in the investigation and remediation
of a number of sites under the environmental laws, including approximately 60
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, or similar state statutes. The
Company's involvement is very limited or de minimis at approximately 50 of
these sites, and the potential loss exposure with respect to any individual
site is not considered to be material.
During 1997, the Company expects to spend approximately $13.3 million
for additional or upgraded environmental control equipment and facilities. The
Company, like many manufacturers, would be required to expend significant
additional funds to meet stringent air emission limits if the U.S.
Environmental Protection Agency's proposed revisions to the National Ambient
Air Quality Standards for Ozone and Particulate Matter are adopted. The
proposed standards could increase the cost and the difficulty of obtaining
operating permits for new operations or major modifications to existing
operations.
See the discussion of related matters herein under the caption
"Forward Looking and Other Statements" and in Item 3. Legal Proceedings.
Additional related information is presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Other
Matters--Environmental" on page 28 of the 1996 Annual Report and in Notes 1 and
13 of Notes to Consolidated Financial Statements beginning on page 35 of the
1996 Annual Report.
13
<PAGE> 14
EMPLOYEES
The Company and its subsidiaries employ approximately 24,000 persons,
10,000 of whom are employed at companies in the specialty metals segment.
Approximately 26% of the Company's workforce is covered by various union
contracts, certain of which are described below.
Approximately 400 employees at Allegheny Ludlum's Washington Plant are
covered by a labor contract with the United Steelworkers of America ("USWA")
which is effective through September 30, 1999. Substantially all of Allegheny
Ludlum's 3,600 other production and maintenance employees are covered by a
four-year labor contract between the Company and the USWA, which is effective
though July 1, 1998. In addition, approximately 600 Wah Chang employees are
covered by a labor contract with the USWA which is effective through October
10, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company as of March 15, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Richard P. Simmons 65 Chairman, President and Chief Executive Officer
Robert P. Bozzone 63 Vice Chairman
Arthur H. Aronson 61 Executive Vice President
James L. Murdy 58 Executive Vice President, Finance and
Administration and Chief Financial Officer
Jon D. Walton 54 Vice President, General Counsel and Secretary
</TABLE>
Richard P. Simmons has been Chairman of the Board of the Company since
August 1996 and President and Chief Executive Officer since February 1997.
Previously, he was Chairman of the Board of Allegheny Ludlum, having begun his
service on that Board in 1980. He also served as Chief Executive Officer of
Allegheny Ludlum until 1990.
Robert P. Bozzone has been Vice Chairman of the Company since August
1996. He has served as Vice Chairman of Allegheny Ludlum beginning in August
1994, and previously was President and Chief Executive Officer of Allegheny
Ludlum.
Arthur H. Aronson has been Executive Vice President of the Company
since August 1996 and is responsible for the Company's specialty metals
businesses. He has been President of Allegheny Ludlum since August 1994 and has
served as a director of Allegheny Ludlum since 1990. Mr. Aronson was the Chief
Executive Officer of Allegheny Ludlum from August 1994 to August 1996.
Previously, he served as Executive Vice President and Chief Operating Officer
of Allegheny Ludlum.
James L. Murdy has been Chief Financial Officer and a Vice President
of the Company since August 1996 and Executive Vice President, Finance and
Administration since December 1996. Mr. Murdy previously served as the Senior
Vice President-Finance and Chief Financial Officer of Allegheny Ludlum.
14
<PAGE> 15
Jon D. Walton has been Vice President, General Counsel and Secretary
of the Company since August 1996, having previously served in the same capacity
as an officer of Allegheny Ludlum.
FORWARD LOOKING AND OTHER STATEMENTS
This Report on Form 10-K and the 1996 Annual Report contain various
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements, which represent the Company's
expectations or beliefs concerning various future events, include the
following: statements concerning anticipated effects of the combination of the
businesses of Allegheny Ludlum and Teledyne on future earnings, cost savings
and operations of the Company; announced price increases for stainless steel
sheet, strip and plate and tool steel; net cash flow; aviation industry trends;
certain expected capital expenditures; the outcome of any government inquiries,
litigation or other proceedings related to government contracts or other
matters; and future environmental costs. These statements are based on current
expectations that involve a number of risks and uncertainties, including the
following:
Demand for Specialty Metals. Demand for products of the Company's
specialty metals businesses, which accounted for a significant portion of the
Company's 1996 total sales and its 1996 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,
fluctuations in the value of the U.S. 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.
Raw Materials for Specialty Metals. 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. The Company enters into
raw material futures contracts from time to time to hedge its exposure to price
fluctuations. The Company believes that adequate controls are in place to
monitor these activities, which are not financially material.
Environmental Matters. 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
15
<PAGE> 16
regulations. The Company is a party to lawsuits and other proceedings involving
alleged violations of environmental laws. The Company records environmental
liabilities 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
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, management does not believe that 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.
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-priced 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.
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.
16
<PAGE> 17
Government for payment. If it chooses, the U.S. Government may intervene and
assume control of the case.
Although government contracting 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 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 future operating results and the 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.
Export Sales. It is anticipated that export sales will continue to
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 results of operations.
Uncertainties Relating to Synergies. There can be no assurance that
the Company will be able to realize, or do so within any particular time frame,
the cost reductions, cash-flow increases or other synergies expected to result
from the combination or generate additional revenue to offset any unanticipated
inability to realize such expected synergies. Realization of the anticipated
benefits of the combination could take longer than expected and implementation
difficulties and market factors could alter the anticipated benefits.
ITEM 2. PROPERTIES
The Company's principal domestic facilities as of December 31, 1996
are listed below by segment. Of those facilities listed below which are owned,
three are subject to mortgages or similar encumbrances securing borrowings
under certain industrial development authority financings. See Note 4 of the
Notes to Consolidated Financial Statements beginning on page 35 of the 1996
Annual Report. Although the facilities vary in terms of age and condition,
management believes that these facilities have generally been well-maintained.
17
<PAGE> 18
<TABLE>
<CAPTION>
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
- ----------------- ------------- --------------
<S> <C> <C>
SPECIALTY METALS
Allegheny Ludlum
Brackenridge Works Manufacturing of stainless steel and specialty 2,443,000 (owned)
Brackenridge and Natrona, PA metals strip, sheet, and plate, silicon electrical steel
strip and sheet, and other specialty steel strip and
sheet.
West Leechburg Works Manufacturing of stainless steel and specialty 1,415,000 (owned)
West Leechburg and metals strip and sheet, silicon electrical steel strip
Bagdad, PA and sheet, and other specialty steel strip and sheet.
Vandergrift Plant Manufacturing of stainless steel strip and sheet. 966,000 (owned)
Vandergrift, PA
Washington Plant Manufacturing of stainless steel and tool steel 615,000 (owned)
Washington, PA plate products.
Wallingford Plant Manufacturing of stainless steel and specialty 591,000 (owned)
Wallingford and metals strip and sheet and other specialty strip
Waterbury, CT and sheet.
Lockport Plant Manufacturing of stainless steel and other 282,000 (owned)
Lockport, NY specialty metals products.
New Castle Plant Manufacturing of stainless steel sheet. 178,000 (owned)
New Castle, IN
Allvac
Monroe, NC Production of nickel and titanium products, tool 587,000 (owned)
and high speed steel, and other specialty steel long
products.
Latrobe, PA Production of nickel and titanium products, tool 468,000 (owned)
and high speed steel, and other specialty steel long
products.
Richburg, SC Production of nickel and titanium products, tool 214,000 (leased)
and high speed steel, and other specialty steel long
products.
Casting Service
La Porte, IN Manufacturing of large ductile and grey iron 453,000 (owned)
castings for diesel engines, automotive dies,
machine tools and power generation.
Pomona, CA Manufacturing of aluminum and magnesium 231,000 (owned)
castings for air frames, turbine engines and
missiles.
Portland Forge
Portland, IN Manufacturing of carbon and alloy steel forgings 215,000 (owned)
as transmissions, pistons, and other power train
components.
Lebanon, KY Manufacturing of carbon and alloy steel forgings. 100,000 (owned)
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
Rodney Metals
New Bedford, MA Manufacturing of stainless steel precision rolled 250,000 (leased)
and coated thin sheet strip and foil, custom roll-
formed and stretch-formed shapes.
Koppel, PA Manufacturing of specialty welded, seamless, and 151,000 (owned)
fabricated tubing.
Wah Chang
Albany, OR Production of zirconium, halfnium, niobium, 1,125,000 (owned)
titanium, and tantalum.
AEROSPACE & ELECTRONICS
Teledyne Brown Engineering
Huntsville, AL Provision of engineered services and products, 475,000 (owned)
including systems engineering, optical 123,000 (leased)
engineering, software and hardware engineering, 28,000 (leased)
and instrumentation technology. 25,000 (leased)
Teledyne Continental Motors
Mobile, AL Design, development, and production of new and 1,141,000 (leased)
rebuilt piston engines, ignition systems, and spare 536,000 (leased)
parts for general aviation market.
Redlands, CA Manufacturing of batteries for the general aviation 91,000 (owned)
market.
Teledyne Controls Production of digital data acquisition systems for 154,000 (leased)
Los Angeles, CA monitoring commercial aircraft and engines.
Teledyne Electronic
Technologies
Los Angeles, CA Development and production of electronic 141,000 (leased)
components and subsystems. 83,000 (owned)
Lewisburg, TN Development and production of electronic 153,000 (leased)
components and subsystems.
Mt. View, CA Production of ferrite components, switching 100,000 (owned)
devices, filters, and monolithic microwave integrated
circuits.
Teledyne Ryan Aeronautical
San Diego, CA Production of unmanned aerial vehicles, airframes, 1,100,000 (leased)
and high-performance aerial target systems.
Toledo, OH Design, development, and production of small 351,000 (leased)
turbine engines for aerospace and automotive
markets.
Hollister, CA Manufacturing of controlled explosive devices. 221,000 (owned)
INDUSTRIAL
Teledyne Advanced Materials
Waynesboro, PA Production of thread-cutting and roll forming 386,000 (owned)
equipment and perishable tools.
Huntsville, AL Production of molybdenum, tungsten, and 244,000 (owned)
tungsten carbide powders and milled products.
Nashville, TN Production of tungsten carbide and cutting tools. 134,000 (owned)
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
Teledyne Fluid Systems
Brecksville, OH Manufacturing of nitrogen cylinder systems and 125,000 (owned)
industrial and pressure release valves.
Independence, OH Manufacturing of sheet metal stamping dies 121,000 (owned)
and plastic compression molds.
Teledyne Specialty Equipment Manufacturing of transportable material handlers. 41,000 (owned)
Canal Winchester, OH
CONSUMER
Teledyne Packaging
Carrollton, KY Manufacturing of aluminum, tin, foil, and non-foil 74,000 (owned)
laminate collapsible tubes.
Chester, PA Production of aluminum, tin, foil and non-foil 130,000 (owned)
laminate collapsible tubes.
Teledyne Laars
Moorpark, CA Manufacturing of pool heaters, pool filtration, and 200,000 (owned)
spa control equipment.
Cookeville, TN Manufacturing of heating elements. 91,000 (owned)
Rochester, NH Manufacturing of heating elements. 80,000 (owned)
Teledyne Water Pik Manufacturing of shower heads, water filtration 243,000 (owned)
Fort Collins, CO products, and oral health products. 46,000 (leased)
</TABLE>
The Company also owns or leases facilities in a number of foreign
countries, including the United Kingdom, Germany, France, The Netherlands,
Switzerland, Sweden, and Costa Rica.
Many of the Company's manufacturing facilities operated at or near
their productive capacities during 1996. With respect to the specialty metals
segment, Allegheny Ludlum's Brackenridge primary melting and continuous slab
casting facilities have operated at high levels for the past five years.
Allegheny Ludlum's stainless steel finishing plants have operated at
approximately 85% to 95% of capacity for the past five years. The Company's
plants that primarily produce silicon electrical steels have operated at
approximately 50% to 90% of capacity since 1980 and are currently operating at
a rate of approximately 70%.
The Company's executive offices, located at PPG Place in Pittsburgh,
Pennsylvania, and its West Coast Regional offices, located at Century Park in
Los Angeles, California, are leased from third parties. These facilities are
modern and sufficient for the Company to carry on its activities.
ITEM 3. 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,
20
<PAGE> 21
government contracting, product liability, patent infringement, commercial,
employment, employee benefits, and stockholder matters.
As reported by Teledyne prior to the combination, in January 1996,
Teledyne entered into a global settlement of several stockholder derivative
suits against certain of Teledyne's directors, executive officers and employees
and against Teledyne as a "nominal" defendant. These suits alleged, among other
things, breaches of fiduciary duty and gross mismanagement in connection with
the management and administration of certain Teledyne business units and with
respect to foreign military sales efforts. In March 1996 an objecting
stockholder in one of these cases appealed to the California Court of Appeal,
challenging the global settlement. The Company will take action to uphold the
validity of the settlement. In addition, prior to the combination, Teledyne
reported that in March 1995 a putative class of its stockholders had filed suit
against Teledyne and certain of its directors for breach of fiduciary duty
based on the Teledyne board's rejection of an unsolicited acquisition proposal
from WHX Corporation. Additional similar suits were consolidated with this suit
in March 1996. If this action is pursued by the plaintiffs, the Company will
seek its dismissal.
In June 1995 the U.S. Department of Justice commenced an action
against Allegheny Ludlum in the United States District Court for the Western
District of Pennsylvania, alleging multiple violations of the federal Clean
Water Act. The complaint seeks injunctive relief and assessment of penalties
of up to $25,000 per day of violation. Also, in January 1997 the U.S. EPA filed
suit in the United States District Court for the Western District of
Pennsylvania against Allegheny Ludlum alleging failure to comply with a
unilateral administrative order ("UAO") issued in May 1996. The complaint asks
for injunctive relief and assessment of penalties of up to $25,000 per day of
violation. The UAO seeks physical control of a portion of Allegheny Ludlum's
Natrona plant for at least 30 years for a treatment facility to be built by
another company in conjunction with that company's remediation of a nearby
Superfund site. The Company is challenging the UAO and has filed a declaratory
judgment action to protect its rights.
While the outcome of litigation, including the matters specified
above, 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.
See the discussion of related matters in Item 1 of Part I of this Form
10-K under the captions "Environmental, Health and Safety Matters" and
"Government Contracts."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this item is incorporated by reference from
Note 14 of the Notes to Consolidated Financial Statements beginning on page 35
of the 1996 Annual Report and from "Common Stock Price" on page 50 of the 1996
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference from
"Selected Financial Data" on pages 52 and 53 of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Information required by this item is incorporated by reference from
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 23 to 29 of the 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements listed in Item 14(a)(1) are incorporated by reference from
pages 30 to 49 of the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth under the caption "Executive
Officers of the Registrant" in Part I of this report, the information
concerning the directors of the Company required by this item is incorporated
by reference from "Election of Directors" as set forth in the 1997 Proxy
Statement filed by the Registrant pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from
"Information About the Board of Directors - Compensation of Directors,"
"Executive Compensation," and
22
<PAGE> 23
"Cumulative Total Stockholder Return," as set forth in the 1997 Proxy Statement
filed by the Registrant pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from
"Security Ownership" as set forth in the 1997 Proxy Statement filed by the
Registrant pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from
"Certain Transactions" as set forth in the 1997 Proxy Statement filed by the
Registrant pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements included on pages 30
through 49 of the 1996 Annual Report are incorporated by reference:
Consolidated Statements of Income - Years Ended December 31, 1996, 1995 and
1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995 and
1994
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The report of Arthur Andersen LLP relating to the consolidated balance
sheet of Teledyne, Inc. as of December 31, 1995 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years ended December 31, 1995 is filed herewith as Exhibit 99.1.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules set forth in the applicable accounting regulations of
the Commission either are not required under the related instructions or are
not applicable and, therefore, have been omitted.
(3) EXHIBITS
A list of exhibits included in this Report or incorporated by
reference is found in the Exhibit Index beginning on page 26 of this Report and
incorporated by reference.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1996:
None.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALLEGHENY TELEDYNE INCORPORATED
Date: March 27, 1997 By /s/ RICHARD P. SIMMONS
------------------------------------
Richard P. Simmons
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the 27th day of March 1997.
<TABLE>
<S> <C>
/s/ RICHARD P. SIMMONS /s/ JAMES L. MURDY
- ------------------------------------------------ ------------------------------------------------
Richard P. Simmons James L. Murdy
Chairman of the Board, President and Executive Vice President, Finance and
Chief Executive Officer and Director Administration and Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer and Principal
Accounting Officer)
/s/ ARTHUR H. ARONSON /s/ ROBERT P. BOZZONE
- ------------------------------------------------ ------------------------------------------------
Arthur H. Aronson Robert P. Bozzone
Executive Vice President and Director Vice Chairman of the Board and Director
/s/ PAUL S. BRENTLINGER /s/ FRANK V. CAHOUET
- ------------------------------------------------ ------------------------------------------------
Paul S. Brentlinger Frank V. Cahouet
Director Director
/s/ DIANE C. CREEL /s/ C. FRED FETTEROLF
- ------------------------------------------------ ------------------------------------------------
Diane C. Creel C. Fred Fetterolf
Director Director
/s/ THOMAS MARSHALL /s/ W. CRAIG McCLELLAND
- ------------------------------------------------ ------------------------------------------------
Thomas Marshall W. Craig McClelland
Director Director
/s/ ROBERT MEHRABIAN /s/ WILLIAM G. OUCHI
- ------------------------------------------------ ------------------------------------------------
Robert Mehrabian William G. Ouchi
Director Director
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
/s/ CHARLES J. QUEENAN, JR. /s/ GEORGE A. ROBERTS
- ------------------------------------------------ ------------------------------------------------
Charles J. Queenan, Jr. George A. Roberts
Director Director
/s/ JAMES E. ROHR /s/ FAYEZ SAROFIM
- ------------------------------------------------ ------------------------------------------------
James E. Rohr Fayez Sarofim
Director Director
/s/ HENRY E. SINGLETON
- ------------------------------------------------
Henry E. Singleton
Director
</TABLE>
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Allegheny Teledyne
Incorporated (incorporated by reference from Exhibit 3.1 to the
Company's Registration Statement on Form S-4 (No. 333-8235),
appears as Annex A to Appendix A of the Joint Proxy
Statement/Prospectus forming part of the Registration Statement).
3.2 Amended and Restated Bylaws of Allegheny Teledyne Incorporated
(incorporated by reference from Exhibit 3.1 to the Company's
Registration Statement on Form S-4 (No. 333-8235), appears as Annex
B to Appendix A of the Joint Proxy Statement/Prospectus forming
part of the Registration Statement).
4.1 Credit Agreement dated as of August 30, 1996 (incorporated by
reference from Exhibit 10 to Form 10-Q for the quarter ended
September 30, 1996 (File No. 1-12001)).
4.2 Indenture dated as of December 15, 1995 between Allegheny Ludlum
Corporation and The Chase Manhattan Bank (National Association), as
trustee (relating to Allegheny Ludlum Corporation's 6.95%
Debentures due 2025) (incorporated by reference from Exhibit 4(a)
to Allegheny Ludlum Corporation's Form 10-K for the year ended
December 31, 1995 (File No. 1-9498)).
4.3 Indenture dated as of June 1, 1969 between Continental Motors
Corporation and Bank of America National Trust and Savings
Association, as supplemented by First Supplemental Indenture dated
as of October 31, 1969 between Continental Motors Corporation and
Bank of America National Trust and Savings Association and Second
Supplemental Indenture dated as of December 16, 1969 among
Teledyne, Inc., Continental Motors Corporation, and Security
Pacific National Bank (relating to Teledyne, Inc.'s 7% Subordinated
Debentures due 1999) (incorporated by reference from Exhibit 4.1 to
Teledyne Inc.'s Form 10-K/A for the year ended December 31, 1992
(File No. 1-5212)).
4.4 Third Supplemental Indenture dated as of July 12, 1994 among
Teledyne, Inc., Bank of America National Trust and Savings
Association, and Harris Trust Company of California (relating to
Teledyne, Inc.'s 7% Subordinated Debentures due 1999) (incorporated
by reference from Exhibit 4.1 to Teledyne, Inc.'s Form 10-K for the
year ended December 31, 1994 (File No. 1-5212)).
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
4.5 Fourth Supplemental Indenture dated as of August 15, 1996 among
Allegheny Teledyne Incorporated, Teledyne, Inc., and Harris Trust
Company of California, as trustee (relating to Teledyne, Inc.'s 7%
Subordinated Debentures due 1999) (incorporated by reference from
Exhibit 4.2 to the Company's Form 8-K filed August 21, 1996 (File
No. 1-12001)).
10.1 Allegheny Teledyne Incorporated 1996 Incentive Plan (incorporated
by reference from Exhibit 10.1 to the Company's Registration
Statement on Form S-4 (No. 333-8235), appears as Annex E to
Appendix A of the Joint Proxy Statement/Prospectus forming part of
the Registration Statement).*
10.2 Allegheny Teledyne Incorporated Stock Acquisition and Retention
Program.*
10.3 Allegheny Teledyne Incorporated 1996 Non-Employee Director Stock
Compensation Plan, as amended and restated effective as of December
12, 1996.*
10.4 Allegheny Teledyne Incorporated Fee Continuation Plan for
Non-Employee Directors.*
10.5 Allegheny Ludlum Corporation Additional Compensation Plan
(presently known as the Performance Management System Plan)
(incorporated by reference from Exhibit 10(c) to Allegheny Ludlum
Corporation's Registration Statement on Form S-1 (No. 33-12940)).*
10.6 Allegheny Ludlum Corporation Key Man Salary Continuation Plan
(presently known as the Supplemental Pension Plan for certain key
employees of Allegheny Ludlum Corporation) (incorporated by
reference from Exhibit 10(e) to Allegheny Ludlum Corporation's
Registration Statement on Form S-1 (No. 33-12940)).*
10.7 Allegheny Ludlum Corporation Benefit Restoration Plan (incorporated
by reference from Exhibit 10(e) to Allegheny Ludlum Corporation's
Form 10-K for the year ended December 30, 1990 (File No. 1-9498)).
10.8 Allegheny Ludlum Corporation 1987 Stock Option Incentive Plan (as
amended and restated) (incorporated by reference from Exhibit 10(f)
to Allegheny Ludlum Corporation's Form 10-K for the year ended
December 31, 1995 (File No. 1-9498)).*
10.9 Allegheny Ludlum Corporation Performance Share Plan (as amended and
restated) (incorporated by reference from the Registration
Statement on Form S-4 (No. 333-8235) of Allegheny Teledyne
Incorporated, appears as Appendix F to the Joint Proxy
Statement/Prospectus forming part of the Registration Statement).*
10.10 Allegheny Ludlum Corporation Stock Acquisition and Retention Plan,
as restated effective as of August 15, 1996.*
10.11 Teledyne, Inc. 1990 Stock Option Plan (incorporated by reference
from Exhibit 10 to Teledyne, Inc.'s Form 10-K for the year ended
December 31, 1990 (File No. 1-5212)).*
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.12 Teledyne, Inc. 1994 Long-Term Incentive Plan (incorporated by
reference from Exhibit A to Teledyne, Inc.'s 1994 proxy statement
(File No. 1-5212)).*
10.13 Teledyne, Inc. 1995 Non-Employee Director Stock Option Plan
(incorporated by reference from Exhibit A to Teledyne, Inc.'s 1995
proxy statement (File No. 1-5212)).*
10.14 Teledyne, Inc. Senior Executive Performance Plan (incorporated by
reference form the Registration Statement on Form S-4 (No.
333-8235) of Allegheny Teledyne Incorporated, appears as Appendix G
to the Joint Proxy Statement/Prospectus forming part of the
Registration Statement).*
10.15 Summary of Teledyne, Inc. Executive Deferred Compensation Plan, as
restated effective September 1, 1994 (incorporated by reference
from Exhibit 10.2 to Teledyne, Inc.'s Form 10-K for the year ended
December 31, 1994 (File No. 1-5212)).*
10.16 First Amendment dated as of August 14, 1995 and Second Amendment
dated as of December 4, 1995 to the Summary of Teledyne, Inc.
Executive Deferred Compensation Plan (incorporated by reference
from Exhibit 10.2 to Teledyne, Inc.'s Form 10-K for the year ended
December 31, 1995 (File No. 1-5212)).*
10.17 Employment Agreement dated July 15, 1996 between Allegheny Teledyne
Incorporated and Arthur H. Aronson (incorporated by reference from
Exhibit 10.3 to the Company's Registration Statement on Form S-4
(No. 333-8235)).*
10.18 Employment Agreement dated July 15, 1996 between Allegheny Teledyne
Incorporated and James L. Murdy (incorporated by reference from
Exhibit 10.4 to the Company's Registration Statement on Form S-4
(No. 333-8235)).*
10.19 Employment Agreement dated July 15, 1996 between Allegheny Teledyne
Incorporated and Jon D. Walton (incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on Form S-4
(No. 333-8235)).*
10.20 Separation Agreement dated March 6, 1997 between Allegheny Teledyne
Incorporated and William P. Rutledge.*
10.21 Form of severance agreement dated as of March 5, 1995 between
Teledyne, Inc. and Douglas J. Grant (severance compensation
multiple of 2.25) (incorporated by reference from Exhibit 10 to
Teledyne, Inc.'s Form 10-Q for the quarter ended June 30, 1995
(File No. 1-5212)).*
13.1 Pages 23 through 53 inclusive of the Annual Report of Allegheny
Teledyne Incorporated for the year ended December 31, 1996.
21.1 Subsidiaries of the Registrant.
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
99.1 Report of Arthur Andersen LLP.
</TABLE>
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Report.
Certain instruments defining the rights of holders of long-term debt of the
Company and its subsidiaries have been omitted from the Exhibits in accordance
with Item 601(b)(4)(iii) of Regulation S-K. A copy of any omitted document will
be furnished to the Commission upon request.
29
<PAGE> 1
EXHIBIT 10.2
ALLEGHENY TELEDYNE INCORPORATED
1996 INCENTIVE PLAN
ADMINISTRATIVE RULES FOR THE
STOCK ACQUISITION AND RETENTION PROGRAM
EFFECTIVE AS OF JANUARY 1, 1997
ARTICLE I. ADOPTION AND PURPOSE OF THE PROGRAM
1.01 ADOPTION. These rules are adopted by the Personnel and
Compensation Committee and the Stock Incentive Award of the Board of
Directors pursuant to the authority reserved in Section 3.01 of the
Allegheny Teledyne Incorporated 1996 Incentive Plan (the "Plan").
Capitalized terms used but not defined in these rules shall have the
same meanings as in the Plan.
1.02 PURPOSE. The purpose of the Stock Acquisition and
Retention Program (the "SARP") is to assist ALC in retaining and
motivating selected key management employees who will contribute to
the success of ALC and the Corporation. The SARP encourages eligible
employees to hold a proprietary interest in the Corporation by
offering them an opportunity to receive grants of restricted shares of
Stock which, in accordance with the terms and conditions set forth
below, will vest only if the employees retain, for a specified period
of time, ownership of (i) shares of Stock purchased pursuant to the
SARP or (ii) already-owned shares of Stock which such employees
identify as being subject to the SARP. Awards under the SARP will act
as an incentive to participating employees to achieve long-term
objectives which will inure to the benefit of all stockholders of the
Corporation.
ARTICLE II. DEFINITIONS
For purposes of these rules, the capitalized terms set forth below
shall have the following meanings:
2.01 ALC means Allegheny Ludlum Corporation, a Pennsylvania
corporation.
2.02 AWARD AGREEMENT means a written agreement between the
Corporation and a Participant or a written acknowledgment from the
Corporation specifically setting forth the terms and conditions of an
award of Restricted Stock granted to a Participant pursuant to Article
VII of these rules.
2.03 BOARD means the Board of Directors of the Corporation.
2.04 BUSINESS DAY means any day on which the New York Stock
Exchange shall be open for trading.
2.05 CAUSE means a determination by the Committee that a
Participant has engaged in conduct that is dishonest or illegal,
involves moral turpitude or jeopardizes the Corporation's right to
operate its business in the manner in which it is now operated.
<PAGE> 2
2.06 CHANGE IN CONTROL means any of the events set forth
below:
(a) The acquisition in one or more transactions,
other than from the Corporation, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of a number
of Corporation Voting Securities in excess of 30% of the
Corporation Voting Securities unless such acquisition has
been approved by the Board; or
(b) Any election has occurred of persons to the
Board that causes two-thirds of the Board to consist of
persons other than (i) persons who were members of the Board
on August 15, 1996 and (ii) persons who were nominated for
election as members of the Board at a time when two-thirds of
the Board consisted of persons who were members of the Board
on August 15, 1996; provided, however, that any person
nominated for election by the Board at a time when at least
two-thirds of the members of the Board were persons described
in clauses (i) and/or (ii) or by persons who were themselves
nominated by such Board shall, for this purpose, be deemed to
have been nominated by a Board composed of persons described
in clause (i); or
(c) Approval by the stockholders of the Corporation
of a reorganization, merger or consolidation, unless,
following such reorganization, merger or consolidation, all
or substantially all of the individuals and entities who were
the respective beneficial owners of the Outstanding Stock and
Corporation Voting Securities immediately prior to such
reorganization, merger or consolidation, following such
reorganization, merger or consolidation beneficially own,
directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors or
trustees, as the case may be, of the entity resulting from
such reorganization, merger or consolidation in substantially
the same proportion as their ownership of the Outstanding
Stock and Corporation Voting Securities immediately prior to
such reorganization, merger or consolidation, as the case may
be; or
(d) Approval by the stockholders of the Corporation
of (i) a complete liquidation or dissolution of the
Corporation or (ii) a sale or other disposition of all or
substantially all the assets of the Corporation.
2.07 COMMITTEE means the Stock Incentive Award Committee of
the Board, in the case of individuals who are executive officers of
the Corporation, and the Personnel and Compensation Committee of the
Board, in the case of individuals who are not executive officers of
the Corporation.
2.08 CORPORATION means Allegheny Teledyne Incorporated, a
Delaware corporation, and its successors.
2.09 CORPORATION VOTING SECURITIES means the combined voting
power of all outstanding voting securities of the Corporation entitled
to vote generally in the election of the Board.
2.10 DATE OF GRANT means the date as of which an award of
Restricted Stock is granted in accordance with Article VII of these
rules.
2
<PAGE> 3
2.11 DESIGNATED STOCK means shares of Stock already owned by
a Participant that the Participant identifies as being subject to the
SARP, thereby triggering the grant of Restricted Stock to such
Participant pursuant to Article VII of these rules.
2.12 DESIGNATION NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant designates
previously-acquired shares of Stock as Designated Stock.
2.13 DISABILITY means any physical or mental injury or
disease of a permanent nature which renders a Participant incapable of
meeting the requirements of the employment performed by such
Participant immediately prior to the commencement of such disability.
The determination of whether a Participant is disabled shall be made
by the Committee in its sole and absolute discretion. Notwithstanding
the foregoing, if a Participant's employment by the Corporation or an
applicable subsidiary terminates by reason of a disability, as defined
in an Employment Agreement between such Participant and the
Corporation or an applicable subsidiary, such Participant shall be
deemed to be disabled for purposes of the SARP.
2.14 EFFECTIVE DATE means January 1, 1997.
2.15 EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended.
2.16 FAIR MARKET VALUE means, as of any given date, the
average of the high and low trading prices of the Stock on such date
as reported on the New York Stock Exchange or, if the Stock is not
then traded on the New York Stock Exchange, on such other national
securities exchange on which the Stock is admitted to trade, or, if
none, on the National Association of Securities Dealers Automated
Quotation System if the Stock is admitted for quotation thereon;
provided, however, if there were no sales reported as of such date,
Fair Market Value shall be computed as of the last date preceding such
date on which a sale was reported; provided, further, that if any such
exchange or quotation system is closed on any day on which Fair Market
Value is to be determined, Fair Market Value shall be determined as of
the first date immediately preceding such date on which such exchange
or quotation system was open for trading.
2.17 OUTSTANDING STOCK means, at any time, the issued and
outstanding Stock.
2.18 PARTICIPANT means any person selected by the Committee,
pursuant to Section 5.01 of these rules, as eligible to participate
under the SARP.
2.19 PERMITTED TRANSFEREE means a Participant's spouse, or
(by blood, adoption or marriage) parent, child, stepchild, descendant
or sibling, or the estate, any guardian, custodian, conservator or
committee of, or any trust for the benefit of, the Participant or any
of the foregoing persons.
2.20 PLAN means the Allegheny Teledyne Incorporated 1996
Incentive Plan, as the same may be amended from time to time.
2.21 PURCHASE AMOUNT means the dollar amount that a
Participant specifies in a Purchase Notice with respect to a
particular Purchase Date.
2.22 PURCHASE DATE means, with respect to any Window Period,
the Business Day immediately following the last day of the Window
Period.
3
<PAGE> 4
2.23 PURCHASED STOCK means Stock purchased by a Participant
pursuant to Article VI of these rules, which triggers the grant of
Restricted Stock to such Participant pursuant to Article VII of these
rules.
2.24 PURCHASE LOAN means a loan provided to a Participant by
the Corporation to facilitate the Participant's purchase of Stock
pursuant hereto.
2.25 PURCHASE NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant may elect to
purchase Stock as of a Purchase Date in accordance with Section 6.01
of these rules.
2.26 RELATED STOCK means, with respect to any share of
Restricted Stock, the two shares of Purchased Stock or Designated
Stock, as the case may be, which entitle such Participant to receive
such share of Restricted Stock pursuant to Article VII of these rules.
2.27 RESTRICTED STOCK means shares of Stock awarded to a
Participant subject to restrictions as described in Article VII of
these rules.
2.28 SARP means the Stock Acquisition and Retention Program,
as the same may be amended from time to time.
2.29 SARP YEAR means each of the calendar years 1997 through
and including 1998.
2.30 STOCK means the common stock, par value $0.10 per share,
of the Corporation.
2.31 WINDOW PERIOD means each of the four (4) periods in each
year consisting of the ten (10) consecutive Business Days beginning on
the third (3rd) Business Day following the release by the Corporation
of its quarterly or annual summary statements of sales and earnings
and ending on the twelfth (12th) Business Day following such date.
ARTICLE III. ADMINISTRATION
The SARP shall be administered by the Committee, which shall have
exclusive and final authority and discretion in each determination,
interpretation or other action affecting the SARP and its Participants. The
Committee shall have the sole and absolute authority and discretion to
interpret the SARP, to modify these administrative rules for the SARP, to
select, in accordance with Section 5.01 of these rules, the persons who will be
Participants hereunder, to impose such conditions and restrictions as it
determines appropriate and to take such other actions and make such other
determinations in connection with the SARP as it may deem necessary or
advisable.
ARTICLE IV. STOCK ISSUABLE UNDER THE SARP
4.01 NUMBER OF SHARES OF STOCK ISSUABLE. Subject to
adjustments as provided in Section 11.07 of the Plan, the maximum
number of shares of Stock available for issuance under the SARP shall
be 725,000. The Stock to be offered under the SARP shall be authorized
and unissued Stock, or Stock which shall have been reacquired by the
Corporation and held in its treasury.
4.02 SHARES SUBJECT TO TERMINATED AWARDS. Shares of Stock
forfeited as provided in Section 7.02 of these rules may again be
issued under the SARP.
4
<PAGE> 5
ARTICLE V. PARTICIPATION
5.01 DESIGNATION OF PARTICIPANTS. Participants in the SARP
shall be such officers of ALC at the level of Vice President or higher
as the Committee, in its sole discretion, may designate as eligible to
participate in the SARP. Prior to the commencement of each SARP Year
during the term of the SARP, the Committee shall designate the
Participants who are eligible to participate in the SARP during such
SARP Year; provided, however, that with respect to the initial SARP
Year of the SARP, such designations shall be made no later than thirty
(30) days following the Effective Date. The Committee's designation of
a Participant with respect to any SARP Year shall not require the
Committee to designate such person as a Participant with respect to
any other SARP Year. The Committee shall consider such factors as it
deems pertinent in selecting Participants. The Committee shall
promptly provide to each person selected as a Participant written
notice of such selection. The designation of a person as a Participant
with respect to a SARP Year shall permit such person to elect to
submit one or more Purchase Notices and/or Designation Notices during
such SARP Year irrespective of whether, in the case of Purchase
Notices, the applicable Purchase Date(s) fall within such SARP Year.
5.02 PARTICIPANT ELECTIONS. A person who is designated as a
Participant in accordance with Section 5.01 of these rules shall be
entitled to purchase Stock by delivering one or more Purchase Notices
in accordance with Article VI of these rules, and such Stock purchases
shall result in the award of Restricted Stock to such Participant in
accordance with Article VII of these rules. In addition, a Participant
shall be entitled to designate as Designated Stock, in one or more
Designation Notices delivered to the Corporation at any time during a
SARP Year, any even number of shares of Stock then owned by the
Participant, other than shares of Purchased Stock, shares of Stock
credited to the Participant's account under the Allegheny Ludlum
Corporation Retirement Savings Plan (RSP) and shares of Stock subject
to outstanding and as yet unexercised stock options. Such designation
of shares as Designated Stock shall result in the award of Restricted
Stock to the Participant in accordance with Article VII of these
rules. The sum of (i) the aggregate Purchase Amounts elected by a
Participant pursuant to one or more Purchase Notices submitted within
any one SARP Year and (ii) the Fair Market Value of the Designated
Stock designated by the Participant pursuant to one or more
Designation Notices submitted within such SARP Year (such Fair Market
Value being determined as of the date the applicable Designation
Notice is delivered), shall not exceed such Participant's gross annual
salary as in effect on the first day of such SARP Year.
ARTICLE VI. STOCK PURCHASES
6.01 STOCK PURCHASE ELECTIONS. A Participant shall have the
right to purchase Stock in accordance with the terms of this Article
VI of these rules. A Participant may elect to purchase Stock under
this SARP by delivering to the Corporation a Purchase Notice and cash
and/or a promissory note executed by the Participant in an amount
equal to the purchase price designated in such Participant's Purchase
Notice. Such Purchase Notice shall set forth, among other things, the
Purchase Amount elected by the Participant. Such promissory note which
shall evidence such Participant's Purchase Loan in accordance with
Section 6.03 of these rules, shall be in a principal amount equal to
the Purchase Amount designated in such Participant's Purchase Notice
and shall by its terms become effective as of the applicable Purchase
Date. All elections under this Section 6.01 shall be irrevocable. If
an election is submitted during a Window Period, such election shall
take effect as of the Purchase Date immediately following the close of
such Window Period. If an election is not submitted during a Window
Period, such election shall take effect as of the first Purchase Date
which occurs at least six (6) months after the date the election is
submitted.
5
<PAGE> 6
6.02 ISSUANCE OF AND PAYMENT FOR STOCK. As of each Purchase
Date, the Corporation shall credit to each Participant the number of
shares of Purchased Stock purchased pursuant to the Purchase Notice
submitted by such Participant. The number of shares of Purchased Stock
to be so credited shall be determined by dividing the Purchase Amount
designated by such Participant in his or her Purchase Notice by a
purchase price per share equal to the average Fair Market Value during
the Window Period. As of any Purchase Date, only an even number of
shares of Purchased Stock can be purchased by a Participant and in no
event shall the Corporation be required to issue fractional shares.
The Purchase Amount elected by a Participant, and the principal amount
of the related promissory note, shall be automatically reduced (and if
the entire Purchase Amount is paid in cash, cash shall be returned to
the Participant) to the minimum extent necessary in order that an even
number of whole shares of Purchased Stock is credited to such
Participant as of the Purchase Date. The purchase price for shares of
Purchased Stock credited to a Participant as of a Purchase Date shall
be paid in cash and/or by means of a Purchase Loan made by the
Corporation to the Participant in accordance with Section 6.03 of
these rules. The Participant shall have all of the rights of a
stockholder with respect to the shares of Purchased Stock credited to
him under this Section 6.02 including, but not limited to, the right
to vote such shares and the right to receive dividends (or dividend
equivalents) paid with respect to such shares.
6.03 TERMS OF PURCHASE LOAN.
(a) Purchase Loan. The promissory note delivered to
the Corporation by a Participant in accordance with Section
6.01 of these rules shall evidence a Purchase Loan in
principal amount equal to such Participant's Purchase Amount
reduced by the amount of cash paid, if any. Unless the
Committee shall otherwise determine prior to the applicable
Purchase Date, each Purchase Loan shall have a term not to
exceed ten years, and be secured by the shares of Purchased
Stock acquired with such Purchase Loan.
(b) Interest on Purchase Loan. Until the
Participant's Purchase Loan is paid in full, or otherwise
satisfied or discharged in full, interest on the outstanding
balance of the Purchase Loan shall accrue at a fixed rate per
annum equal to the lesser of the following rates, determined
as of the applicable Purchase Date, as certified by the
Treasurer of the Corporation: (i) the average annual
borrowing rate of the Corporation and (ii) the prime lending
rate of PNC Bank, National Association; provided, however,
that in no event shall such interest rate be less than the
minimum rate required to avoid imputed interest under the
applicable provisions of the Internal Revenue Code of 1986.
(c) Repayment of Purchase Loan. No principal or
interest payments with respect to a Purchase Loan shall be
required prior to the fifth anniversary of the date such
Purchase Loan is made; provided, however, that prior to such
fifth anniversary, cash dividends on shares of Purchased
Stock held as security for such Purchase Loan, and on the
related shares of Restricted Stock, shall be applied to pay
accrued interest on the Purchase Loan (any non-cash dividends
shall remain as part of the collateral securing such Purchase
Loan). After such fifth anniversary, level monthly payments
of principal and accrued interest with respect to a Purchase
Loan shall be required for the remaining term thereof. Unless
otherwise determined by the committee, all outstanding
principal and interest on a Participant's Purchase Loan shall
be immediately due and payable in full upon termination of
the Participant's employment with the Corporation and its
affiliates. All or any portion of the principal and/or
interest with respect to a Purchase Loan may, at the election
of the Participant, be paid by the delivery to the
Corporation of whole shares of Stock, other than
6
<PAGE> 7
(i) shares of Stock credited to the Participant's account
under the Allegheny Ludlum Corporation Retirement Savings
Plan (RSP), (ii) shares of Stock subject to outstanding and
as yet unexercised stock options, and (iii) shares of
Purchased Stock and Designated Stock; provided, however, that
shares of Purchased Stock and Designated Stock can be used to
pay interest and/or principal with respect to a Purchase Loan
if at the time of such payment the Participant is an active
employee of the Corporation or a subsidiary, or the
Participant's employment terminated due to death, disability
or retirement pursuant to the retirement policy of ALC. For
purposes of the immediately preceding sentence, shares of
Stock shall be valued at the Fair Market Value of such shares
on the Business Day immediately preceding the date such
shares are delivered to the Corporation.
(d) Other Terms. The promissory notes evidencing the
Purchase Loans shall contain such other terms and conditions
as the Committee may determine, including, without
limitation, any special terms relating to the retirement of a
Participant prior to the expiration of the term of one or
more Purchase Loans.
6.04 STOCK CERTIFICATES. As promptly as administratively
feasible after each Purchase Date, the Corporation shall deliver to
each Participant one or more stock certificates for the number of
shares of Stock purchased by such Participant as of such Purchase Date
in accordance with this Article VI. The Participant shall then deliver
certificates representing a number of shares with a value equal to the
principal amount of the Purchase Loan to the Corporation in pledge for
the related Purchase Loan along with an executed security agreement in
such form as the Committee shall specify. Upon satisfaction in full of
the Purchase Loan, the certificates shall be delivered to the
Participant free and clear of any restrictions except for any
restrictions that may be imposed by law.
ARTICLE VII. RESTRICTED STOCK
7.01 RESTRICTED STOCK AWARDS. As of each Purchase Date, there
shall automatically be granted to any Participant who purchases
Purchased Stock as of such Purchase Date pursuant to Article VI of
these rules an award of one share of Restricted Stock for each two
shares of Purchased Stock. The Purchase Date shall be the Date of
Grant of such Restricted Stock. As of any date that a Participant
delivers a Designation Notice to the Corporation, in accordance with
Section 5.02 of these rules, designating shares of Stock as Designated
Stock, there shall automatically be granted to such Participant an
award of one share of Restricted Stock for each two shares of
Designated Stock. The date of delivery of such Designation Notice
shall be the Date of Grant of such Restricted Stock. The terms of all
such Restricted Stock awards shall be set forth in an Award Agreement
between the Corporation and the Participant which shall contain such
forfeiture periods and conditions, restrictions and other provisions,
not inconsistent with these rules, as shall be determined by the
Committee.
(a) Issuance of Restricted Stock. As soon as
practicable after the Date of Grant of Restricted Stock, the
Corporation shall cause to be transferred on the books of the
Corporation shares of Stock, registered on behalf of the
Participant, evidencing such Restricted Stock, but subject to
forfeiture to the Corporation retroactive to the Date of
Grant if an Award Agreement delivered to the Participant by
the Corporation with respect to the Restricted Stock is not
duly executed by the Participant and timely returned to the
Corporation. Until the lapse or release of all restrictions
applicable to an award of Restricted Stock, the stock
certificates representing such Restricted Stock shall be held
in custody by the Corporation or its designee.
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<PAGE> 8
(b) Stockholder Rights. Beginning on the Date of
Grant of the Restricted Stock and subject to execution of the
Award Agreement as provided in Section 7.01(a) of these
rules, the Participant shall become a stockholder of the
Corporation with respect to all Stock subject to the Award
Agreement and shall have all of the rights of a stockholder,
including, but not limited to, the right to vote such Stock
and the right to receive dividends (or dividend equivalents)
paid with respect to such Stock; provided, however, that any
Stock distributed as a dividend or otherwise with respect to
any Restricted Stock as to which the restrictions have not
yet lapsed shall be subject to the same restrictions as such
Restricted Stock and shall be held as prescribed in Section
7.01(a) of these rules.
(c) Restriction on Transferability. None of the
Restricted Stock may be assigned, transferred (other than by
will or the laws of descent and distribution), pledged, sold
or otherwise disposed of prior to lapse or release of the
restrictions applicable thereto.
(d) Delivery of Stock Upon Release of Restrictions.
Upon expiration or earlier termination of the forfeiture
period without a forfeiture, the satisfaction of the Purchase
Loan, if any, for the Related Stock and the satisfaction of
or release from any other conditions prescribed by the
Committee, the restrictions applicable to the Restricted
Stock shall lapse. As promptly as administratively feasible
thereafter, subject to the requirements of Section 8.02 of
these rules, the Corporation shall deliver to the
Participant, or, in case of the Participant's death, to the
Participant's legal representatives, one or more stock
certificates for the appropriate number of shares of Stock,
free of all such restrictions, except for any restrictions
that may be imposed by law.
7.02 TERMS OF RESTRICTED STOCK.
(a) Forfeiture of Restricted Stock. Subject to
Section 7.02(b) of these rules, all Restricted Stock shall be
forfeited and returned to the Corporation and all rights of
the Participant with respect to such Restricted Stock shall
cease and terminate in their entirety if during the
forfeiture period (i) the Participant transfers, sells or
otherwise disposes of the Related Stock other than to a
Permitted Transferee or in a transaction constituting a
Change in Control or (ii) the employment of the Participant
with the Corporation and its affiliates terminates for any
reason or (iii) the Participant defaults on the Purchase
Loan, if any, for the Related Stock. Unless the Committee, in
its sole discretion, provides otherwise in the applicable
Award Agreement, the forfeiture period for any shares of
Restricted Stock shall be five years from the Date of Grant
of such Restricted Stock. Notwithstanding the foregoing, in
the event of the discharge by the Corporation and its
subsidiaries of a Participant without Cause or termination of
a Participant's employment by reason of death, Disability or
retirement pursuant to the retirement policy of the
Corporation or its applicable subsidiaries, all forfeiture
restrictions imposed on Restricted Stock shall immediately
and fully lapse. In addition, upon the occurrence of a Change
in Control, all forfeiture restrictions imposed on Restricted
Stock shall immediately and fully lapse.
(b) Waiver of Forfeiture Period. Notwithstanding
anything contained in this Article VII to the contrary, the
Committee may, in its sole discretion, waive the forfeiture
conditions set forth in any Award Agreement under appropriate
circumstances and subject to such terms and conditions
(including forfeiture of a proportionate number of the shares
of Restricted Stock) as the Committee may deem appropriate,
provided that the Participant shall at that time have
completed at least one year of employment after the Date of
Grant.
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<PAGE> 9
ARTICLE VIII. MISCELLANEOUS
8.01 LIMITATIONS ON TRANSFER. The rights and interest of a
Participant under the SARP may not be assigned or transferred other
than by will or the laws of descent and distribution. During the
lifetime of a Participant, only the Participant personally may
exercise rights under the SARP.
8.02 TAXES. The Corporation shall be entitled to withhold (or
secure payment from the Participant in lieu of withholding) the amount
of any withholding or other tax required by law to be withheld or paid
by the Corporation with respect to any Stock issuable under the SARP,
or with respect to any income recognized upon the lapse of
restrictions applicable to Restricted Stock, and the Corporation may
defer issuance of Stock hereunder until and unless indemnified to its
satisfaction against any liability for any such tax. The amount of
such withholding or tax payment shall be determined by the Committee
or its delegate and shall be payable by the Participant at such time
as the Committee determines. The Committee shall prescribe in each
Award Agreement one or more methods by which the Participant will be
permitted to satisfy his or her tax withholding obligation, which
methods may include, without limitation, the payment of cash by the
Participant to the Corporation and the withholding, at the appropriate
time, of shares of Stock otherwise issuable to the Participant in a
number sufficient, based upon the Fair Market Value of such Stock, to
satisfy such tax withholding requirements.
8.03 LEGENDS. All certificates for Stock delivered under the
SARP shall be subject to such transfer restrictions set forth in these
rules and such other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities law, and
the Committee may cause a legend or legends to be endorsed on any such
certificates making appropriate references to such restrictions.
8.04 AMENDMENT AND TERMINATION. The Committee shall have
complete power and authority to amend or terminate these rules at any
time it is deemed necessary or appropriate. No termination or
amendment of the SARP may, without the consent of the Participant to
whom any award shall theretofore have been granted under the SARP,
adversely affect the right of such individual under such award;
provided, however, that the Committee may, in its sole discretion,
make such provision in the Award Agreement for amendments which, in
its sole discretion, it deems appropriate.
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<PAGE> 1
EXHIBIT 10.3
ALLEGHENY TELEDYNE INCORPORATED
1996 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
As Amended and Restated Effective December 12, 1996
ARTICLE I. GENERAL
1.01 Purpose. It is the purpose of the Plan to promote the interests
of the Company and its stockholders by attracting, retaining and providing an
incentive to Non-Employee Directors through the acquisition of a proprietary
interest in the Company and an increased personal interest in its performance.
This purpose will be served by providing an opportunity for Non-Employee
Directors to elect to receive Stock Options and/or Common Stock in lieu of
Director's Fees, the automatic payment of a portion of the Director's Retainer
Fee Payment in the form of Common Stock to those Non-Employee Directors not
electing to receive such portion in the form of Stock Options and/or Common
Stock and granting each Non-Employee Director annually an option covering 1,000
shares of Common Stock.
1.02 Adoption and Term. The Plan has been approved by the Board and,
subject to approval by the stockholders of Allegheny Ludlum Corporation and
Teledyne, Inc., respectively, shall become effective as of the Effective Date
(as hereinafter defined). The Plan shall terminate without further action upon
the earlier of (a) the tenth anniversary of the Effective Date, and (b) the
first date upon which no shares of Common Stock remain available for issuance
under the Plan.
1.03 Definitions. As used herein the following terms have the
following meanings:
(a) "Annual Options" means the Stock Options issuable under Section
4.04(a) of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section
and any comparable section or sections of any future legislation
that amends, supplements or supersedes said section.
(d) "Common Stock" means the common stock, par value $0.10 per share,
of the Company.
(e) "Company" means Allegheny Teledyne Incorporated, a Delaware
corporation, and any successor thereto.
<PAGE> 2
(f) "Compensation Year" means each calendar year or portion thereof
during which the Plan is in effect.
(g) "Director" means a member of the Board.
(h) "Director's Fees" means the Director's Retainer Fee Payments and
the Director's Meeting Fee Payments.
(i) "Director's Meeting Fee Payment" means the dollar value of the
fees which the Non-Employee Director would be entitled to receive
for attending meetings of the Board or any committee of the Board
or for serving as the chair of the Board or any committee of the
Board.
(j) "Director's Retainer Fee Payment" means the dollar value of that
portion of the annual retainer fee payable by the Company to a
Non-Employee Director as of a particular Quarterly Payment Date,
as established by the Board and in effect from time to time.
(k) "Effective Date" means the date on which the "Effective Time"
occurs. The term "Effective Time" shall have the meaning set
forth in the Amended and Restated Agreement and Plan of Merger
and Combination, dated as of April 1, 1996, by and among the
Company, Allegheny Ludlum Corporation, ALS Merger Corporation,
Teledyne, Inc. and TDY Merger, Inc.
(1) "Employee" means any employee of the Company or an affiliate.
(m) "Fair Market Value" means, as of any given date, the average of
the high and low trading prices of the Common Stock on such date
as reported on the New York Stock Exchange, or, if the Common
Stock is not then traded on the New York Stock Exchange, on such
other national securities exchange on which the Common Stock is
admitted to trade, or, if none, on the National Association of
Securities Dealers Automated Quotation System if the Common Stock
is admitted for quotation thereon; provided, however, if there
were no sales reported as of such date, Fair Market Value shall
be computed as of the last date preceding such date on which a
sale was reported; provided, further, that if any such exchange
or quotation system is closed on any day on which Fair Market
Value is to be determined, Fair Market Value shall be determined
as of the first date immediately preceding such date on which
such exchange or quotation system was open for trading.
(n) "Meeting Fee Options" means the Stock Options issuable under
Section 4.04(c) of the Plan.
(o) "Non-Employee Director" means a Director who is not an Employee.
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<PAGE> 3
(p) "Non-Employee Director Notice" means a written notice delivered
in accordance with Section 4.02.
(q) "Plan" means this Allegheny Teledyne Incorporated 1996
Non-Employee Director Stock Compensation Plan, as it may
hereafter be amended from time to time.
(r) "Quarterly Payment Date" means each of the quarterly dates on
which the Director's Fee Payment is paid by the Company.
(s) "Retainer Fee Options" means the Stock Options issuable under
Section 4.04(b) of the Plan.
(t) "Stock Options" means options to purchase shares of Common Stock
of the Company issuable hereunder.
1.04 Shares Subject to the Plan. The shares to be offered under the
Plan shall consist of the Company's authorized but unissued Common Stock or
treasury shares and, subject to adjustment as provided in Section 5.01 hereof,
the aggregate amount of such stock which may be issued or subject to Stock
Options issued hereunder shall not exceed 700,000. If any Stock Option granted
under the Plan shall expire or terminate for any reason, without having been
exercised or vested in full, as the case may be, the unpurchased shares subject
thereto shall again be available for issuance under the Plan. Stock Options
granted under the Plan will not be qualified as "incentive stock options" under
Section 422 of the Code.
ARTICLE II. ADMINISTRATION
2.01 The Board. The Plan shall be administered by the Board. Subject
to the provisions of the Plan, the Board shall interpret the Plan, promulgate,
amend, and rescind rules and regulations relating to the Plan and make all
other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Board shall
be final and conclusive. Notwithstanding the foregoing, the Board shall have or
exercise no discretion with respect to the selection of persons eligible to
participate hereunder, the determination of the number of shares of Common
Stock or number of Stock Options issuable to any person or any other aspect of
Plan administration with respect to which such discretion is not permitted in
order for grants of shares of Common Stock and Stock Options to be exempt under
Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
ARTICLE III. PARTICIPATION
3.01 Participants. Each Non-Employee Director shall participate in the
Plan on the terms and conditions hereinafter set forth.
3
<PAGE> 4
ARTICLE IV. PAYMENT OF DIRECTOR'S FEES
4.01 General. The Director's Retainer Fee Payment shall be paid to
each Non-Employee Director, as of each Quarterly Payment Date, as set forth in
the Plan and subject to such other payment policies and procedures as the Board
may establish from time to time. Director's Meeting Fee payments shall be paid
reasonably promptly following the date of the meeting to which such payments
relate. If for the applicable Compensation Year such Non-Employee Director has
not made an election to receive Stock Options or Common Stock in lieu of at
least one-fourth (1/4) of the Director's Retainer Fee Payment pursuant to
Section 4.02, three-fourths (3/4) of the Director's Retainer Fee Payment shall
be paid in cash and one-fourth (1/4) of the Director's Retainer Fee Payment
shall be paid in the form of Common Stock.
4.02 Non-Employee Director Notice. A Non-Employee Director may file
with the Secretary of the Company or other designee of the Board of Directors,
at any time prior to the first day of December in the calendar year prior to
any Compensation Year, and at such other times as the Board may approve, a
Non-Employee Director Notice making an election to receive (i) a specified
portion (but not below 25%) of his or her Director's Retainer Fee Payment in
the form of Stock Options and/or Common Stock, and/or (ii) a specified portion
of his or her Director's Meeting Fee payment in the form of Stock Options
and/or Common Stock. Notwithstanding the foregoing, elections with respect to
the 1996 and 1997 Compensation Years and elections by newly elected or
appointed Non-Employee Directors may be made during the Compensation Years to
which such elections relate. Once filed, a Non-Employee Director Notice is
irrevocable with respect to the initial Compensation Year to which it relates
and will be effective and irrevocable for all subsequent Compensation Years
until another Non-Employee Director Notice is filed by such director in
accordance with the procedure described in the first sentence of this Section
4.02.
4.03 Conversion to Shares.
(a) Director's Retainer Fee Payment. Each Non-Employee Director who
pursuant to Section 4.01 or 4.02 is to receive Common Stock as part of his or
her Director's Retainer Fee Payment with respect to a Compensation Year and who
is elected or reelected or is a continuing Non-Employee Director as of the date
of commencement of such Compensation Year and as of the applicable Quarterly
Payment Date, shall receive as of each Quarterly Payment Date during such
Compensation Year a number of shares of Common Stock equal to the quotient
obtained by dividing (i) the amount of the Director's Retainer Fee Payment to
be paid in the form of Common Stock by (ii) the Fair Market Value of the Common
Stock per share on such Quarterly Payment Date. Cash shall be paid in lieu of
any fractional shares.
(b) Director's Meeting Fee Payment. Each Non-Employee Director who has
duly filed a Non-Employee Director Notice in accordance with Section 4.02 with
respect to a Compensation Year and elected to receive all or any portion of the
Director's Meeting Fee Payment in the form of Common Stock shall receive on the
first business day in January of the next following Compensation Year a number
of shares of Common Stock equal to the quotient obtained by dividing (i) the
amount of the Director's Meeting Fee Payment for the Compensation
4
<PAGE> 5
Year to be paid in the form of Common Stock by (ii) the Fair Market Value of
the Common Stock per share on the day immediately preceding the date of
issuance of such Common Stock. Cash shall be paid in lieu of any fractional
shares.
4.04 Stock Options.
(a) Annual Option Grants. Conditioned on the occurrence of the
Effective Time, an Annual Option covering 1,000 shares of Common Stock is
hereby granted to each Non-Employee Director as of (and with the date of grant
for all purposes of the Plan being), the first trading day for Common Stock
following the Effective Date. Thereafter, an Annual Option covering l,000
shares of Common Stock will be granted to each Non-Employee Director
automatically at the conclusion of each Company annual meeting. If, after the
date of adoption of this Plan, a director first becomes a Non-Employee Director
on a date other than an annual meeting date, an Annual Option covering 1,000
shares of Common Stock will be granted to such director on his or her first
date of Board service. The purchase price of the Common Stock covered by each
Annual Option will be the Fair Market Value of a share of Common Stock as of
the date of grant of the Annual Option.
(b) Retainer Fees Options. Retainer Fees Options for a Compensation
Year will be granted on January 2 of such Compensation Year (or if such January
2 is not a business day, on the next succeeding business day) for service
during such Compensation Year. The number of shares of Common Stock to be
subject to a Retainer Fees Option shall be equal to the nearest number of whole
shares determined by multiplying the Fair Market Value of a share of Company
Common Stock on the date of grant by 0.3333 and dividing the result into the
portion of the Director's Retainer Fee Payment elected to be received as Stock
Options by the Non-Employee Director for the Compensation Year. The purchase
price of each share covered by each Retainer Fee Option shall be equal to the
Fair Market Value of a share of Common Stock on the date of grant of the
Retainer Fee Option multiplied by 0.6666.
(c) Meeting Fee Options. Meeting Fee Options for a Compensation Year
will be granted on January 2 of the next following Compensation Year (or if
such January 2 is not a business day, on the next succeeding business day)
after the conclusion of the Compensation Year. The number of shares of Common
Stock to be subject to a Meeting Fee Option shall be equal to the nearest
number of whole shares determined by multiplying the Fair Market Value of a
share of Company Common Stock on the date of grant by 0.3333 and dividing the
result into the portion of the Director's Meeting Fee Payment elected to be
received as Stock Options by the Non-Employee Director. The purchase price of
each share covered by each Meeting Fee Option shall be equal to the Fair Market
Value of a share of Common Stock on the date of grant of the Meeting Fee Option
multiplied by 0.6666.
(d) Duration and exercise of Stock Options. Subject to Section 4.04(g)
below, Annual Options and Retainer Fee Options become exercisable on the first
anniversary of the date on which they were granted and Meeting Fee Options
become exercisable immediately upon grant. Stock Options shall terminate upon
the expiration of ten years from the date of grant. No
5
<PAGE> 6
Stock Option may be exercised for a fraction of a share and no partial exercise
of any Stock Option may be for less than one hundred (100) shares.
(e) Purchase Price. The purchase price for the shares shall be paid in
full at the time of exercise (i) in cash or by check payable to the order of
the Company, (ii) by delivery of shares of Common Stock of the Company owned by
the Stock Option holder, or (iii) by delivering a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly
to the Company the amount of sale or loan proceeds to pay the Stock Option
price (in which case the exercise will be effective upon receipt of such
proceeds by the Company). Shares of Common Stock used to satisfy the exercise
price of a Stock Option shall be valued at their Fair Market Value on the date
of exercise.
(f) Transferability. Stock Options granted hereunder shall not be
transferable, other than by will or the laws of descent and distribution and
shall be exercisable during a Stock Option holder's lifetime only by the Stock
Option holder or by his or her guardian or legal representative, except to the
extent (i) transfer is permitted by Rule 16b-3 promulgated under the Exchange
Act, and (ii) approved by the Committee. Subject to the foregoing, Stock
Options shall not be assigned, pledged or otherwise encumbered by the holder
thereof, either voluntarily or by operation of law.
(g) Termination of Directorship. All rights of a director in a Stock
Option, to the extent that the Stock Option has not been exercised, shall
terminate three months after the date of the termination of his or her services
as a director for any reason other than (i) the death of the director, (ii)
cessation of services as a director because the individual, although nominated
by the Board, is not elected by the stockholders to the Board, or (iii)
retirement because of total and permanent disability as defined in Section
22(e)(3) of the Code (collectively, "Termination Events"). If a director ceases
to be a director of the Company because of a Termination Event, (i) the nearest
whole number of unexercisable Stock Options shall immediately become
exercisable which equals the number of full months actually served by the
director as a Non-Employee Director during the Compensation Year at issue
divided by 12, multiplied by the number of unexercisable Stock Options on the
date of the Termination Event. The remaining unexercisable portion of all such
Stock Options shall terminate. All then exercisable Stock Options shall expire
twelve months after the date of a Termination Event.
ARTICLE V. MISCELLANEOUS
5.01 Adjustments Upon Changes in Common Stock. The number and kind of
shares available for issuance under the Plan, and the number and kind of shares
subject to, and the exercise price of, outstanding Stock Options, shall be
appropriately adjusted to prevent dilution or enlargement of rights by reason
of any stock dividend, stock split, combination or exchange of shares,
recapitalization, merger, consolidation or other change in capitalization with
a similar substantive effect upon the Plan or the shares issuable under the
Plan.
6
<PAGE> 7
5.02 Amendment and Termination. The Board shall have complete power
and authority to amend the Plan at any time; provided, however, that the Board
shall not, without the affirmative approval of the shareholders of the Company,
increase the number of shares of Common Stock available for issuance hereunder
or make any other amendment which requires shareholder approval under Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended, unless
the Board determines that such compliance is no longer desired, or under any
applicable law. The Board shall have the right and the power to terminate the
Plan at any time. No amendment or termination of the Plan may, without the
consent of the Non-Employee Director, adversely affect the right of such
Non-Employee Director with respect to any Stock Options then outstanding.
5.03 Requirements of Law. The issuance of Common Stock under the Plan
shall be subject to all applicable laws, rules and regulations and to such
approval by governmental agencies as may be required.
5.04 No Guarantee of Membership. Nothing in the Plan shall confer upon
a Non-Employee Director any right to continue to serve as a Director.
5.05 Construction. Words of any gender used in the Plan shall be
construed to include any other gender, unless the context requires otherwise.
7
<PAGE> 1
EXHIBIT 10.4
ALLEGHENY TELEDYNE INCORPORATED
FEE CONTINUATION PLAN FOR
NON-EMPLOYEE DIRECTORS
(AS AMENDED AND RESTATED)
<PAGE> 2
ALLEGHENY TELEDYNE INCORPORATED
FEE CONTINUATION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose
The purpose of this Fee Continuation Plan for Non-Employee Directors (the
"Plan") of Allegheny Teledyne Incorporated (the "Company") is to provide for
fee continuation payments for any person, including a retired officer or
employee of the Company, who meets a minimum service requirement as a
non-employee Director of the Company and meets other eligibility requirements
set forth herein. The existence of this Plan will better enable the Company to
attract and retain individuals of exceptional ability to serve as non-employee
Directors of the Company.
The Plan was originally adopted by the Board of Directors of Allegheny
Ludlum Corporation ("ALC") effective January 1, 1990, and prior to the
combination of the businesses of ALC and Teledyne, Inc. The Company desires to
assume the Plan and to amend and restate the Plan, effective January 1, 1997.
The Plan as in effect prior to this amendment and restatement shall apply only
to eligible non-employee Directors who retired prior to January 1, 1997.
<PAGE> 3
2. Administration
The Plan shall be administered by the Vice President, General Counsel and
Secretary of the Company who shall have authority to adopt rules and
regulations from time to time for carrying out the Plan and to interpret,
construe, and administer its provisions. The decisions of the Vice President,
General Counsel and Secretary shall be final and binding upon all parties.
3. Eligibility; Years of Service
A. Each person who is a non-employee member of the Board of Directors of
the Company shall become a Participant in the Plan as of the date such person
commences service as a non-employee Director, provided, however, that a
Participant shall be eligible to receive benefits under this Plan only upon
meeting the conditions set forth in Section 3.B.
B. Each Participant who has attained five (5) or more Years of Service
shall be eligible to receive payments under the Plan.
C. For the purposes of this Plan, "Years of Service" shall be the number
of years, whether or not consecutive, of the Participant's service as a
non-employee Director, up to a maximum of ten (10) years. A Participant who is
a Director on January 1, 1997 shall receive credit for all periods of service
as a Director of ALC or Teledyne, Inc. prior to August 15, 1996.
2
<PAGE> 4
4. Cash Payments
Fee continuation payments shall be payable in cash to a Participant
beginning the calendar quarter after the termination of service as a Director
or, if applicable, to a Participant's spouse or other designated beneficiary or
estate beginning the calendar quarter after the termination of service as a
Director, and shall continue at the rate of one year of benefit for each Year
of Service. The benefit shall be in an amount equal to the annual retainer fee
for Directors in effect immediately prior to the termination of such
Participant's service as a Director.
5. Disqualification
An individual shall be disqualified from participating in this Plan at any
time if he or she takes any action that is deemed to be contrary to the best
interest of the Company.
6. Amendment and Termination of Plan
The Board of Directors may from time to time amend, modify, suspend, or
terminate this Plan, provided however that no such amendment, modification,
suspension, or termination shall reduce or in any manner adversely affect any
Participant's rights with respect to benefits that are payable or may become
payable under Section 4 as of the date of such amendment, modification,
suspension, or termination.
3
<PAGE> 5
7. Miscellaneous
This Plan shall not be construed as conferring any rights upon any
Director to continue as a Director for any period of time, or at any particular
rate of compensation.
The right to receive fee continuation payments shall be a claim against
the general assets of the Company as an unsecured general creditor. The Company
may, in its absolute discretion, establish one or more trusts or reserves which
may be funded, by reference to the Company's fee continuation payment
obligations hereunder or otherwise.
The right to fee continuation payments under this Plan shall not be
assigned, anticipated, alienated, sold, transferred, pledged, or encumbered in
any manner.
If any individual ceases to be a Director of the Company before completing
five (5) Years of Service, all liability of the Company under this Plan shall
terminate.
This Plan shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania, excluding any choice of law
provisions which may indicate the application of the laws of another
jurisdiction.
4
<PAGE> 1
EXHIBIT 10.10
ALLEGHENY LUDLUM CORPORATION
STOCK ACQUISITION AND RETENTION PLAN
AS RESTATED EFFECTIVE AS OF AUGUST 15, 1996
ARTICLE I. PURPOSE AND ADOPTION OF THE PLAN
1.01 PURPOSE. The purpose of the Allegheny Ludlum Corporation
Stock Acquisition and Retention Plan is to assist the Corporation (as
hereinafter defined) in retaining and motivating selected key
management employees who will contribute to the Corporation's success.
The Plan encourages eligible employees to hold a proprietary interest
in the Corporation by offering them an opportunity to receive grants
of restricted shares of Stock (as hereinafter defined) which, in
accordance with the terms and conditions set forth below, will vest
only if the employees retain, for a specified period of time,
ownership of (i) shares of Stock purchased pursuant to this Plan or
(ii) already-owned shares of Stock which such employees identify as
being subject to this Plan. Awards under the Plan will act as an
incentive to participating employees to achieve long-term objectives
which will inure to the benefit of all stockholders of the
Corporation.
1.02 ADOPTION AND EFFECTIVE DATE. The Plan was originally
approved by the Board of Directors of ALC subject to the approval of
ALC's shareholders at the 1994 annual meeting of shareholders. The
Plan became effective as of January 1, 1994. This restatement of the
Plan effective August 15, 1996 is intended to reflect the consummation
of the combination of ALC and Teledyne, Inc. on August 15, 1996.
ARTICLE II. DEFINITIONS
For purposes of this Plan, the capitalized terms set forth below shall
have the following meanings:
2.01 ALC means Allegheny Ludlum Corporation, a Pennsylvania
corporation.
2.02 AWARD AGREEMENT means a written agreement between the
Corporation and a Participant or a written acknowledgement from the
Corporation specifically setting forth the terms and conditions of an
award of Restricted Stock granted to a Participant pursuant to Article
VII of the Plan.
2.03 BOARD means the Board of Directors of the Corporation.
2.04 BUSINESS DAY means any day on which the New York Stock
Exchange shall be open for trading.
2.05 CAUSE means a determination by the Committee that a
Participant has engaged in conduct that is dishonest or illegal,
involves moral turpitude or jeopardizes the Corporation's right to
operate its business in the manner in which it is now operated.
<PAGE> 2
2.06 CHANGE IN CONTROL means any of the events set forth
below:
(a) The acquisition in one or more transactions,
other than from the Corporation, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of a number
of Corporation Voting Securities in excess of 30% of the
Corporation Voting Securities unless such acquisition has
been approved by the Board; or
(b) Any election has occurred of persons to the
Board that causes two-thirds of the Board to consist of
persons other than (i) persons who were members of the Board
on August 15, 1996 and (ii) persons who were nominated for
election as members of the Board at a time when two-thirds of
the Board consisted of persons who were members of the Board
on August 15, 1996; provided, however, that any person
nominated for election by the Board at a time when at least
two-thirds of the members of the Board were persons described
in clauses (i) and/or (ii) or by persons who were themselves
nominated by such Board shall, for this purpose, be deemed to
have been nominated by a Board composed of persons described
in clause (i); or
(c) Approval by the stockholders of the Corporation
of a reorganization, merger or consolidation, unless,
following such reorganization, merger or consolidation, all
or substantially all of the individuals and entities who were
the respective beneficial owners of the Outstanding Stock and
Corporation Voting Securities immediately prior to such
reorganization, merger or consolidation, following such
reorganization, merger or consolidation beneficially own,
directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors or
trustees, as the case may be, of the entity resulting from
such reorganization, merger or consolidation in substantially
the same proportion as their ownership of the Outstanding
Stock and Corporation Voting Securities immediately prior to
such reorganization, merger or consolidation, as the case may
be; or
(d) Approval by the stockholders of the Corporation
of (i) a complete liquidation or dissolution of the
Corporation or (ii) a sale or other disposition of all or
substantially all the assets of the Corporation.
2.07 COMMITTEE means the Personnel and Compensation Committee
of the Board.
2.08 CORPORATION means Allegheny Teledyne Incorporated, a
Delaware corporation, and its successors.
2.09 CORPORATION VOTING SECURITIES means the combined voting
power of all outstanding voting securities of the Corporation entitled
to vote generally in the election of the Board.
2.10 DATE OF GRANT means the date as of which an award of
Restricted Stock is granted in accordance with Article VII.
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2.11 DESIGNATED STOCK means shares of Stock already owned by
a Participant that the Participant identifies as being subject to the
Plan, thereby triggering the grant of Restricted Stock to such
Participant pursuant to Article VII.
2.12 DESIGNATION NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant designates
previously-acquired shares of Stock as Designated Stock.
2.13 DISABILITY means any physical or mental injury or
disease of a permanent nature which renders a Participant incapable of
meeting the requirements of the employment performed by such
Participant immediately prior to the commencement of such disability.
The determination of whether a Participant is disabled shall be made
by the Committee in its sole and absolute discretion. Notwithstanding
the foregoing, if a Participant's employment by the Corporation or an
applicable subsidiary terminates by reason of a disability, as defined
in an Employment Agreement between such Participant and the
Corporation or an applicable subsidiary, such Participant shall be
deemed to be disabled for purposes of the Plan.
2.14 EFFECTIVE DATE means the date as of which the Plan shall
become effective, as determined in accordance with Section 1.02.
2.15 EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended.
2.16 FAIR MARKET VALUE means, as of any given date, the
average of the high and low trading prices of the Stock on such date
as reported on the New York Stock Exchange or, if the Stock is not
then traded on the New York Stock Exchange, on such other national
securities exchange on which the Stock is admitted to trade, or, if
none, on the National Association of Securities Dealers Automated
Quotation System if the Stock is admitted for quotation thereon;
provided, however, if there were no sales reported as of such date,
Fair Market Value shall be computed as of the last date preceding such
date on which a sale was reported; provided, further, that if any such
exchange or quotation system is closed on any day on which Fair Market
Value is to be determined, Fair Market Value shall be determined as of
the first date immediately preceding such date on which such exchange
or quotation system was open for trading.
2.17 OUTSTANDING STOCK means, at any time, the issued and
outstanding Stock.
2.18 PARTICIPANT means any person selected by the Committee,
pursuant to Section 5.01, as eligible to participate under the Plan.
2.19 PERMITTED TRANSFEREE means a Participant's spouse, or
(by blood, adoption or marriage) parent, child, stepchild, descendant
or sibling, or the estate, any guardian, custodian, conservator or
committee of, or any trust for the benefit of, the Participant or any
of the foregoing persons.
2.20 PLAN means the Allegheny Ludlum Corporation Stock
Acquisition and Retention Plan, as the same may be amended from time
to time.
2.21 PLAN YEAR means each of the calendar years 1994 through
and including 1998.
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2.22 PURCHASE AMOUNT means the dollar amount that a
Participant specifies in a Purchase Notice with respect to a
particular Purchase Date.
2.23 PURCHASE DATE means, with respect to any Window Period,
the Business Day immediately following the last day of the Window
Period.
2.24 PURCHASED STOCK means Stock purchased by a Participant
pursuant to Article VI, which triggers the grant of Restricted Stock
to such Participant pursuant to Article VII.
2.25 PURCHASE LOAN means a loan provided to a Participant by
the Corporation to facilitate the Participant's purchase of Stock
pursuant hereto.
2.26 PURCHASE NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant may elect to
purchase Stock as of a Purchase Date in accordance with Section 6.01.
2.27 RELATED STOCK means, with respect to any share of
Restricted Stock, the two shares of Purchased Stock or Designated
Stock, as the case may be, which entitle such Participant to receive
such share of Restricted Stock pursuant to Article VII.
2.28 RESTRICTED STOCK means shares of Stock awarded to a
Participant subject to restrictions as described in Article VII.
2.29 STOCK means the common stock, par value $0.10 per share,
of the Corporation.
2.30 WINDOW PERIOD means each of the four (4) periods in each
year consisting of the ten (10) consecutive Business Days beginning on
the third (3rd) Business Day following the release by the Corporation
of its quarterly or annual summary statements of sales and earnings
and ending on the twelfth (12th) Business Day following such date.
Notwithstanding the foregoing, for Plan Year 1994, the Plan will apply
only with respect to Window Periods that occur after the date of the
1994 annual meeting of shareholders.
ARTICLE III. ADMINISTRATION
The Plan shall be administered by the Committee, which shall have
exclusive and final authority and discretion in each determination,
interpretation or other action affecting the Plan and its Participants. The
Committee shall have the sole and absolute authority and discretion to
interpret the Plan, to establish and modify administrative rules for the Plan,
to select, in accordance with Section 5.01, the persons who will be
Participants hereunder, to impose such conditions and restrictions as it
determines appropriate and to take such other actions and make such other
determinations in connection with the Plan as it may deem necessary or
advisable.
ARTICLE IV. STOCK ISSUABLE UNDER THE PLAN
4.01 NUMBER OF SHARES OF STOCK ISSUABLE. Subject to
adjustments as provided in Section 8.03, the maximum number of shares
of Stock available for issuance under the Plan shall
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be 1 million. The Stock to be offered under the Plan shall be
authorized and unissued Stock, or Stock which shall have been
reacquired by the Corporation and held in its treasury.
4.02 SHARES SUBJECT TO TERMINATED AWARDS. Shares of Stock
forfeited as provided in Section 7.02 may again be issued under the
Plan.
ARTICLE V. PARTICIPATION
5.01 DESIGNATION OF PARTICIPANTS. Participants in the Plan
shall be such officers of the Corporation at the level of Vice
President or higher as the Committee, in its sole discretion, may
designate as eligible to participate in the Plan. Prior to the
commencement of each Plan Year during the term of this Plan, the
Committee shall designate the Participants who are eligible to
participate in the Plan during such Plan Year; provided, however, that
with respect to the initial Plan Year of the Plan, such designations
shall be made no later than thirty (30) days following the Effective
Date. The Committee's designation of a Participant with respect to any
Plan Year shall not require the Committee to designate such person as
a Participant with respect to any other Plan Year. The Committee shall
consider such factors as it deems pertinent in selecting Participants.
The Committee shall promptly provide to each person selected as a
Participant written notice of such selection. The designation of a
person as a Participant with respect to a Plan Year shall permit such
person to elect to submit one or more Purchase Notices and/or
Designation Notices during such Plan Year irrespective of whether, in
the case of Purchase Notices, the applicable Purchase Date(s) fall
within such Plan Year.
5.02 PARTICIPANT ELECTIONS. A person who is designated as a
Participant in accordance with Section 5.01 shall be entitled to
purchase Stock by delivering one or more Purchase Notices in
accordance with Article VI, and such Stock purchases shall result in
the award of Restricted Stock to such Participant in accordance with
Article VII. In addition, a Participant shall be entitled to designate
as Designated Stock, in one or more Designation Notices delivered to
the Corporation at any time during a Plan Year, any even number of
shares of Stock then owned by the Participant, other than shares of
Purchased Stock, shares of Stock credited to the Participant's account
under the Allegheny Ludlum Corporation Retirement Savings Plan (RSP)
and shares of Stock subject to outstanding and as yet unexercised
stock options. Such designation of shares as Designated Stock shall
result in the award of Restricted Stock to the Participant in
accordance with Article VII. The sum of (i) the aggregate Purchase
Amounts elected by a Participant pursuant to one or more Purchase
Notices submitted within any one Plan Year and (ii) the Fair Market
Value of the Designated Stock designated by the Participant pursuant
to one or more Designation Notices submitted within such Plan Year
(such Fair Market Value being determined as of the date the applicable
Designation Notice is delivered), shall not exceed such Participant's
gross annual salary as in effect on the first day of such Plan Year.
ARTICLE VI. STOCK PURCHASES
6.01 STOCK PURCHASE ELECTIONS. A Participant shall have the
right to purchase Stock in accordance with the terms of this Article
VI. A Participant may elect to purchase Stock under this Plan by
delivering to the Corporation a Purchase Notice and cash and/or a
promissory note executed by the participant in an amount equal to the
purchase price designated in such Participant's Purchase Notice. Such
Purchase Notice shall set forth, among other things, the
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<PAGE> 6
Purchase Amount elected by the Participant. Such promissory note which
shall evidence such Participant's Purchase Loan in accordance with
Section 6.03, shall be in a principal amount equal to the Purchase
Amount designated in such Participant's Purchase Notice and shall by
its terms become effective as of the applicable Purchase Date. All
elections under this Section 6.01 shall be irrevocable. If an election
is submitted during a Window Period, such election shall take effect
as of the Purchase Date immediately following the close of such Window
Period. If an election is not submitted during a Window Period, such
election shall take effect as of the first Purchase Date which occurs
at least six (6) months after the date the election is submitted.
6.02 ISSUANCE OF AND PAYMENT FOR STOCK. As of each Purchase
Date, the Corporation shall credit to each Participant the number of
shares of Purchased Stock purchased pursuant to the Purchase Notice
submitted by such Participant. The number of shares of Purchased Stock
to be so credited shall be determined by dividing the Purchase Amount
designated by such Participant in his or her Purchase Notice by a
purchase price per share equal to the average Fair Market Value during
the Window Period. As of any Purchase Date, only an even number of
shares of Purchased Stock can be purchased by a Participant and in no
event shall the Corporation be required to issue fractional shares.
The Purchase Amount elected by a Participant, and the principal amount
of the related promissory note, shall be automatically reduced (and if
the entire Purchase Amount is paid in cash, cash shall be returned to
the Participant) to the minimum extent necessary in order that an even
number of whole shares of Purchased Stock is credited to such
Participant as of the Purchase Date. The purchase price for shares of
Purchased Stock credited to a Participant as of a Purchase Date shall
be paid in cash and/or by means of a Purchase Loan made by the
Corporation to the Participant in accordance with Section 6.03. The
Participant shall have all of the rights of a stockholder with respect
to the shares of Purchased Stock credited to him under this Section
6.02 including, but not limited to, the right to vote such shares and
the right to receive dividends (or dividend equivalents) paid with
respect to such shares.
6.03 TERMS OF PURCHASE LOAN.
(a) Purchase Loan. The promissory note delivered to
the Corporation by a Participant in accordance with Section
6.01 shall evidence a Purchase Loan in principal amount equal
to such Participant's Purchase Amount reduced by the amount
of cash paid, if any. Unless the Committee shall otherwise
determine prior to the applicable Purchase Date, each
Purchase Loan shall have a term not to exceed ten years, and
be secured by the shares of Purchased Stock acquired with
such Purchase Loan.
(b) Interest on Purchase Loan. Until the
Participant's Purchase Loan is paid in full, or otherwise
satisfied or discharged in full, interest on the outstanding
balance of the Purchase Loan shall accrue at a fixed rate per
annum equal to the lesser of the following rates, determined
as of the applicable Purchase Date, as certified by the
Treasurer of the Corporation: (i) the average annual
borrowing rate of the Corporation and (ii) the prime lending
rate of PNC Bank, National Association; provided, however,
that in no event shall such interest rate be less than the
minimum rate required to avoid imputed interest under the
applicable provisions of the Internal Revenue Code of 1986.
(c) Repayment of Purchase Loan. No principal or
interest payments with respect to a Purchase Loan shall be
required prior to the fifth anniversary of the date such
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Purchase Loan is made; provided, however, that prior to such
fifth anniversary, cash dividends on shares of Purchased
Stock held as security for such Purchase Loan, and on the
related shares of Restricted Stock, shall be applied to pay
accrued interest on the Purchase Loan (any non-cash dividends
shall remain as part of the collateral securing such Purchase
Loan). After such fifth anniversary, level monthly payments
of principal and accrued interest with respect to a Purchase
Loan shall be required for the remaining term thereof. Unless
otherwise determined by the committee, all outstanding
principal and interest on a Participant's Purchase Loan shall
be immediately due and payable in full upon termination of
the Participant's employment with the Corporation and its
affiliates. All or any portion of the principal and/or
interest with respect to a Purchase Loan may, at the election
of the Participant, be paid by the delivery to the
Corporation of whole shares of Stock, other than (i) shares
of Stock credited to the Participant's account under the
Allegheny Ludlum Corporation Retirement Savings Plan (RSP),
(ii) shares of Stock subject to outstanding and as yet
unexercised stock options, and (iii) shares of Purchased
Stock and Designated Stock; provided, however, that shares of
Purchased Stock and Designated Stock can be used to pay
interest and/or principal with respect to a Purchase Loan if
at the time of such payment the Participant is an active
employee of the Corporation or a subsidiary, or the
Participant's employment terminated due to death, disability
or retirement pursuant to the retirement policy of the
Corporation. For purposes of the immediately preceding
sentence, shares of Stock shall be valued at the Fair Market
Value of such shares on the Business Day immediately
preceding the date such shares are delivered to the
Corporation.
(d) Other Terms. The promissory notes evidencing the
Purchase Loans shall contain such other terms and conditions
as the Committee may determine, including, without
limitation, any special terms relating to the retirement of a
Participant prior to the expiration of the term of one or
more Purchase Loans.
6.04 STOCK CERTIFICATES. As promptly as administratively
feasible after each Purchase Date, the Corporation shall deliver to
each Participant one or more stock certificates for the number of
shares of Stock purchased by such Participant as of such Purchase Date
in accordance with this Article VI. The Participant shall then deliver
certificates representing a number of shares with a value equal to the
principal amount of the Purchase Loan to the Corporation in pledge for
the related Purchase Loan along with an executed security agreement in
such form as the Committee shall specify. Upon satisfaction in full of
the Purchase Loan, the certificates shall be delivered to the
Participant free and clear of any restrictions except for any
restrictions that may be imposed by law.
ARTICLE VII. RESTRICTED STOCK
7.01 RESTRICTED STOCK AWARDS. As of each Purchase Date, there
shall automatically be granted to any Participant who purchases
Purchased Stock as of such Purchase Date pursuant to Article VI an
award of one share of Restricted Stock for each two shares of
Purchased Stock. The Purchase Date shall be the Date of Grant of such
Restricted Stock. As of any date that a Participant delivers a
Designation Notice to the Corporation, in accordance with Section
5.02, designating shares of Stock as Designated Stock, there shall
automatically be granted to such Participant an award of one share of
Restricted Stock for each two shares of Designated Stock.
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<PAGE> 8
The date of delivery of such Designation Notice shall be the Date of
Grant of such Restricted Stock. The terms of all such Restricted Stock
awards shall be set forth in an Award Agreement between the
Corporation and the Participant which shall contain such forfeiture
periods and conditions, restrictions and other provisions, not
inconsistent with this Plan, as shall be determined by the Committee.
(a) Issuance of Restricted Stock. As soon as
practicable after the Date of Grant of Restricted Stock, the
Corporation shall cause to be transferred on the books of the
Corporation shares of Stock, registered on behalf of the
Participant, evidencing such Restricted Stock, but subject to
forfeiture to the Corporation retroactive to the Date of
Grant if an Award Agreement delivered to the Participant by
the Corporation with respect to the Restricted Stock is not
duly executed by the Participant and timely returned to the
Corporation. Until the lapse or release of all restrictions
applicable to an award of Restricted Stock, the stock
certificates representing such Restricted Stock shall be held
in custody by the Corporation or its designee.
(b) Stockholder Rights. Beginning on the Date of
Grant of the Restricted Stock and subject to execution of the
Award Agreement as provided in Section 7.01(a), the
Participant shall become a stockholder of the Corporation
with respect to all Stock subject to the Award Agreement and
shall have all of the rights of a stockholder, including, but
not limited to, the right to vote such Stock and the right to
receive dividends (or dividend equivalents) paid with respect
to such Stock; provided, however, that any Stock distributed
as a dividend or otherwise with respect to any Restricted
Stock as to which the restrictions have not yet lapsed shall
be subject to the same restrictions as such Restricted Stock
and shall be held as prescribed in Section 7.01(a).
(c) Restriction on Transferability. None of the
Restricted Stock may be assigned, transferred (other than by
will or the laws of descent and distribution), pledged, sold
or otherwise disposed of prior to lapse or release of the
restrictions applicable thereto.
(d) Delivery of Stock Upon Release of Restrictions.
Upon expiration or earlier termination of the forfeiture
period without a forfeiture, the satisfaction of the Purchase
Loan, if any, for the Related Stock and the satisfaction of
or release from any other conditions prescribed by the
Committee, the restrictions applicable to the Restricted
Stock shall lapse. As promptly as administratively feasible
thereafter, subject to the requirements of Section 8.02, the
Corporation shall deliver to the Participant, or, in case of
the Participant's death, to the Participant's legal
representatives, one or more stock certificates for the
appropriate number of shares of Stock, free of all such
restrictions, except for any restrictions that may be imposed
by law.
7.02 TERMS OF RESTRICTED STOCK.
(a) Forfeiture of Restricted Stock. Subject to
Section 7.02(b), all Restricted Stock shall be forfeited and
returned to the Corporation and all rights of the Participant
with respect to such Restricted Stock shall cease and
terminate in their entirety if during the forfeiture period
(i) the Participant transfers, sells or otherwise disposes of
the Related Stock other than to a Permitted Transferee or in
a transaction constituting a Change in
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<PAGE> 9
Control or (ii) the employment of the Participant with the
Corporation and its affiliates terminates for any reason or
(iii) the Participant defaults on the Purchase Loan, if any,
for the Related Stock. Unless the Committee, in its sole
discretion, provides otherwise in the applicable Award
Agreement, the forfeiture period for any shares of Restricted
Stock shall be five years from the Date of Grant of such
Restricted Stock. Notwithstanding the foregoing, in the event
of the discharge by the Corporation and its subsidiaries of a
Participant without Cause or termination of a Participant's
employment by reason of death, Disability or retirement
pursuant to the retirement policy of the Corporation or its
applicable subsidiaries, all forfeiture restrictions imposed
on Restricted Stock shall immediately and fully lapse. In
addition, upon the occurrence of a Change in Control, all
forfeiture restrictions imposed on Restricted Stock shall
immediately and fully lapse.
(b) Waiver of Forfeiture Period. Notwithstanding
anything contained in this Article VII to the contrary, the
Committee may, in its sole discretion, waive the forfeiture
conditions set forth in any Award Agreement under appropriate
circumstances and subject to such terms and conditions
(including forfeiture of a proportionate number of the shares
of Restricted Stock) as the Committee may deem appropriate,
provided that the Participant shall at that time have
completed at least one year of employment after the Date of
Grant.
ARTICLE VIII. MISCELLANEOUS
8.01 LIMITATIONS ON TRANSFER. The rights and interest of a
Participant under the Plan may not be assigned or transferred other
than by will or the laws of descent and distribution. During the
lifetime of a Participant, only the Participant personally may
exercise rights under the Plan.
8.02 TAXES. The Corporation shall be entitled to withhold (or
secure payment from the Participant in lieu of withholding) the amount
of any withholding or other tax required by law to be withheld or paid
by the Corporation with respect to any Stock issuable under this Plan,
or with respect to any income recognized upon the lapse of
restrictions applicable to Restricted Stock, and the Corporation may
defer issuance of Stock hereunder until and unless indemnified to its
satisfaction against any liability for any such tax. The amount of
such withholding or tax payment shall be determined by the Committee
or its delegate and shall be payable by the Participant at such time
as the Committee determines. The Committee shall prescribe in each
Award Agreement one or more methods by which the Participant will be
permitted to satisfy his or her tax withholding obligation, which
methods may include, without limitation, the payment of cash by the
Participant to the Corporation and the withholding, at the appropriate
time, of shares of Stock otherwise issuable to the Participant in a
number sufficient, based upon the Fair Market Value of such Stock, to
satisfy such tax withholding requirements. The Committee shall be
authorized, in its sole discretion, to establish such rules and
procedures relating to any such withholding methods as it deems
necessary or appropriate, including, without limitation, rules and
procedures relating to elections by Participants who are subject to
the provisions of Section 16 of the Exchange Act to have Stock
withheld to meet such tax withholding obligations.
8.03 ADJUSTMENTS TO REFLECT CAPITAL CHANGES. The amount and
kind of Stock available for issuance under the Plan shall be
appropriately adjusted to reflect any stock dividend, stock
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<PAGE> 10
split, combination or exchange of shares, merger, consolidation or
other change in capitalization with a similar substantive effect upon
the Plan. The Committee shall have the power and sole discretion to
determine the nature and amount of the adjustment, if any, to be made
pursuant to this Section 8.02.
8.04 NO RIGHT TO AWARD; NO RIGHT TO EMPLOYMENT. No employee
or other person shall have any claim of right to be permitted to
participate or be granted an award under this Plan. Neither the Plan
nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Corporation or
its subsidiaries.
8.05 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Income
recognized by a Participant pursuant to the provisions of the Plan
shall not be included in the determination of benefits under any
employee pension benefit plan (as such term is defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974) or group
insurance or other benefit plans applicable to the Participant which
are maintained by the Corporation, except as may be provided under the
terms of such plans or determined by resolution of the Board.
8.06 GOVERNING LAW. The Plan and all determinations made and
actions taken pursuant to the Plan shall be governed by the laws of
the Commonwealth of Pennsylvania other than the conflict of laws
provisions of such laws, and shall be construed in accordance
therewith.
8.07 NO STRICT CONSTRUCTION. No rule of strict construction
shall be implied against the Corporation, the Committee, or any other
person in the interpretation of any of the terms of the Plan, any
award granted under the Plan or any rule or procedure established by
the Committee.
8.08 CAPTIONS. The captions (i.e., all Section and subsection
headings) used in the Plan are for convenience only, do not constitute
a part of the Plan, and shall not be deemed to limit, characterize or
affect in any way any provisions of the Plan, and all provisions of
the Plan shall be construed as if no captions had been used in the
Plan.
8.09 SEVERABILITY. Whenever possible, each provision in the
Plan and every Award Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision
of the Plan or any Award Agreement shall be held to be prohibited by
or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as
originally written to the fullest extent permitted by law and (b) all
other provisions of the Plan and every Award Agreement shall remain in
full force and effect.
8.10 LEGENDS. All certificates for Stock delivered under the
Plan shall be subject to such transfer restrictions set forth in the
Plan and such other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities law, and
the Committee may cause a legend or legends to be endorsed on any such
certificates making appropriate references to such restrictions.
8.11 AMENDMENT AND TERMINATION.
(a) Amendment. The Board shall have complete power
and authority to amend
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the Plan at any time it is deemed necessary or appropriate.
No termination or amendment of the Plan may, without the
consent of the Participant to whom any award shall
theretofore have been granted under the Plan, adversely
affect the right of such individual under such award;
provided, however, that the Committee may, in its sole
discretion, make such provision in the Award Agreement for
amendments which, in its sole discretion, it deems
appropriate.
(b) Termination. The Board shall have the right and
the power to terminate the Plan at any time. Unless sooner
terminated by action of the Board, the Plan shall
automatically terminate, without further action of the Board
or the Corporation's stockholders, on December 31, 1998. No
Designation Notice shall be effective, no Purchase Notice
shall be valid for a Purchase Date that will occur, and no
award shall be granted, under the Plan after the termination
of the Plan, but the termination of the Plan shall not have
any other effect and any award outstanding at the time of the
termination of the Plan may be exercised after termination of
the Plan at any time prior to the expiration date of such
award to the same extent such award would have been
exercisable had the Plan not terminated.
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EXHIBIT 10.20
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this "Agreement"), is entered into as of
March 6, 1997 by the following:
(i) William P. Rutledge, an individual (hereinafter "Rutledge");
and
(ii) Allegheny Teledyne Incorporated, a Delaware corporation
("ATI"), Teledyne, Inc., a Delaware corporation (the
"Company"), Allegheny Ludlum Corporation, a Pennsylvania
Corporation ("ALC"), for themselves and on behalf of their
respective parents, subsidiaries and affiliates (together
with the ATI, the Company and ALC, collectively, the "Company
Parties").
RECITALS
A. WHEREAS, Rutledge is a party to various agreements with certain of
the Company Parties, including (i) various non-qualified stock option
agreements with the Company (collectively, the "Option Agreements"), and (ii)
various other agreements or arrangements with certain of the Company Parties
(all such agreements or arrangements other than the Option Agreements
collectively, the "Rutledge Agreements"), including without limitation the
employment, severance and similar agreements; and
B. WHEREAS, Rutledge currently serves as a director and officer of ATI
and the Company;
C. WHEREAS, Rutledge has now decided to pursue other opportunities;
D. WHEREAS, ATI desires to have the benefit of Rutledge's services as
a consultant regarding its non-metals business and as a director of Teledyne
Industries International, Inc. ("TIII") for a period following the date hereof;
and
E. WHEREAS, subject to the terms and conditions of this Agreement,
Rutledge and the Company Parties wish (i) to provide for the termination of the
employment and other relationships (except as otherwise set forth herein)
between Rutledge, on the one hand, and each of the Company Parties, on the
other, (ii) to set forth the terms of the severance due to Rutledge in
connection with such termination, and (iii) to provide for Rutledge's continued
service to the Company as a consultant and director of TIII until April 1,
2000.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, conditions and releases set forth below, Rutledge and the Company
Parties hereby agree as follows:
<PAGE> 2
1. Termination of Employment; Release of Claims.
Subject to Rutledge's right to revoke his consent to this Agreement as
set forth in Paragraph 6 below:
a. Resignations and Termination of Employment. Effective upon
the execution of this Agreement (the "Effective Date"), Rutledge hereby resigns
from each position he holds as a director, officer or employee of ATI (and of
each direct and indirect subsidiary of ATI, except as to TIII as described
below) and ATI (on behalf of itself and its direct and indirect subsidiaries,
except as to TIII as described below) hereby accepts such resignation.
Notwithstanding the foregoing, until April 1, 2000 Rutledge shall serve as a
director of TIII, a wholly owned subsidiary of the Company and his services as
such will involve no managerial duties or responsibilities in addition to those
normally attendant to a director.
b. Release of Claims. As evidenced by their execution of
Attachment A hereto (which attachment is an integral part of this Agreement),
Rutledge, Rutledge's spouse and the Company Entities (as defined in said
Attachment A) hereby give the releases set forth in Attachment A. By the
releases set forth therein, Rutledge and Rutledge's spouse shall release all
claims against the Company Entities (except as otherwise set forth in this
Agreement), in consideration of the payment of the Severance Amount set forth
below and the releases given by the Company Entities in Attachment A.
2. Severance Arrangements.
a. Severance Payment. Unless Rutledge has revoked his consent
to this Agreement pursuant to Paragraph 6 hereof, Rutledge shall be entitled to
a single cash payment of $3,130,000 (the "Severance Payment") as severance pay
and in substitution for any other severance payment, reimbursements for
expenses, bonus payments or other amounts or benefits Rutledge may heretofore
have been entitled to in connection with the termination of his employment
(except for compensation earned pursuant to his services at the Company through
the date of his resignation as referred to in clause a. of Paragraph 1 hereof
and as set forth in clause c. of this Paragraph 2). Upon the Effective Date,
the Company shall pay the cash portion of the Severance Payment to Rutledge,
less applicable deductions, in a lump sum by business check or wire transfer of
funds to an account designated in advance by Rutledge. In addition to the
Severance Payment, Rutledge shall be entitled to receive the compensation for
services rendered in 1997 prior to his termination of employment which shall
include (i) a portion of the bonus he would have received had he served as an
executive employee of the Company for all of 1997 (pro rated to reflect the
portion of 1997 during which Rutledge so served), to be determined according to
the same standards and paid to Rutledge at the same time as the comparable
bonuses to other Company executives are paid, and (ii) the amount credited to
his Bank, as defined under the Teledyne, Inc. EVA Incentive Plan (the "EVA
Plan"), the aggregate amount of which is presently $213,849, in accordance with
the terms of the EVA Plan as if he remained an employee of one or more of the
Company Parties for the period such payment would be made.
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<PAGE> 3
b. Consulting Services. Commencing upon the Effective Date
and continuing until April 1, 2000, (the "Consulting Period") Rutledge agrees
(i) to make himself available from time to time as and to the extent the
Chairman of ATI may reasonably request in writing to provide services as a
consultant to the Chairman of ATI with regard to the non-metals businesses of
ATI for the number of hours requested in writing by the Chairman of ATI (the
"Consulting Services"); provided, however, that in no event will the Consulting
Services be so extensive as to preclude Rutledge taking other, full-time
employment. Rutledge shall during the period of this consultancy (x) be
entitled to use the title "Consultant to ATI," and (y) be reimbursed by the
Company for his reasonable and documented expenses incurred in connection with
the Consulting Services. In addition to the provision of benefits described in
subparagraph d. below and the use of a telephone, car and office space
described in this subparagraph b., Rutledge shall be entitled to a monthly
retainer of $23,000 per month and an hourly payment of $500 for each hour in
addition to forty Rutledge provides such services to ATI in a particular month
(the "Consulting Fees"). The Consulting Fees shall be paid as follows:
(1) at the end of each calendar month during which Rutledge
has been available to consult with ATI pursuant to this Agreement,
$23,000.00 (a "Monthly Payment"); and
(2) at the end of each calendar quarter, the excess, if any,
of (A) $500 for each hour that Rutledge actually consulted at the
request of the Chairman of ATI in excess of forty in any month during
that quarter.
The foregoing payments will be reflected on Form 1099, a copy of which will be
provided to Consultant. In addition, beginning on the Effective Date and
continuing throughout the Consulting Period (or, if earlier, until Rutledge
accepts other full-time employment), Rutledge (i) shall have the use, at
Rutledge's cost and expense for toll or other fees, of a Company telephone line
previously installed at Rutledge's residence and (ii) the exclusive use, at the
Company's expense, of the 1993 Ford Taurus provided by the Company to Rutledge
for Rutledge's use prior to the Effective Date. Furthermore, beginning on the
Effective Date and continuing until the earlier of December 31, 1997 or the
date on which the Company's office space at 2049 Century Park East in Los
Angeles is in whole or in part sublet, the Company shall provide Rutledge with
reasonable office space. No secretary shall be assigned to Rutledge. Rutledge
shall have reasonable access to secretarial and office services at 2049 Century
Park East in Los Angeles for the period of time office space is made available
to him hereunder to the extent Company secretarial personnel are available in
light of their normally assigned duties.
c. Accrued Benefits Under Pension and 401(k) Plans. Rutledge
shall have the right to receive any and all benefits accrued under any one or
more of the qualified and non-qualified retirement plans in which Rutledge
participated prior to the Effective Date (collectively, the "Retirement
Plans"), each in accordance with its respective terms and conditions. Severance
Payments, Consulting Fees and any other amounts paid in connection with this
Agreement (other than amounts earned pursuant to his services at the Company
through the date of resignation) shall not be taken into account for
determining the benefits under any Retirement Plan. Notwithstanding anything to
the contrary herein, nothing in this Agreement
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shall reduce the amount of Rutledge's benefits accrued under any one or more of
the Retirement Plans of the Company and its subsidiaries.
d. Continuation of Certain Benefits. As additional
compensation for the Consulting Services and subject to the ability of the
Company to provide such benefits consistent with applicable law and insurance
policies, if any, (i) until the earlier of (a) April 1, 2000 or (b) Rutledge's
being covered under the health plan of a subsequent employer which provides
Rutledge the opportunity to secure coverage for dependents without exclusion
for pre-existing conditions, Rutledge (and his spouse and dependents, if
elected by Rutledge) shall be eligible to participate on the same basis as
senior executive employees of the Company in the Company's group medical,
dental and comparable insurance plans, as if Rutledge had remained such a
senior executive employee. The period described in the foregoing sentence
shall include Rutledge's continuation period under the Consolidated Omnibus
Budget Reconciliation Act and (ii) until the second anniversary of the
Effective Date, Rutledge shall continue to be eligible to participate in the
Company's life insurance plans on the same basis as he currently participates
in such plans. After the Effective Date, and for so long as Rutledge continues,
pursuant to this Agreement, to provide services to the Company or its
subsidiaries as comprehended by the Company's stock option plans and the awards
thereunder, Rutledge shall continue to have all of the rights and benefits
under the Option Agreements in accordance with their terms.
e. Other Items. The Company shall assign, to the extent
assignable by the Company under the respective lease agreements without cost or
liability to the Company, the automobile leases with respect to the two
automobiles currently used by Rutledge and leased through the Company to
Rutledge and, from and after the assignment of such leases, Rutledge shall pay
all costs and expense in connection with such leases. The Company shall assign
to Rutledge, to the extent not presently personal to Rutledge and assignable by
the Company under the rules of the respective clubs, the memberships currently
used by Rutledge in the Los Angeles Country Club, Laurel Valley Golf Club, the
California Club and the Duquesne Club; provided, however, Rutledge shall
reimburse the Company for the $7,500 initiation fee paid by the Company in
connection with the Rutledge's membership in the Duquesne Club. Rutledge shall
pay all membership dues and other fees in connection with each and all
memberships from and after the Effective Date. Rutledge shall purchase from the
Company, and the Company shall sell to Rutledge, the office equipment and
furniture currently used by Rutledge at the offices of the Company in exchange
for a payment equal to the depreciated historical book value of such items on
the books of the Company.
3. Prior Agreements Superseded and Terminated.
As of the Effective Date, this Agreement shall supersede all of the
Rutledge Agreements but not the Option Agreements or the Retirement Plans,
which shall continue in full force and effect in accordance with their terms.
4. Rutledge's Continuing Obligations. Rutledge acknowledges and agrees
that he is obligated by existing contracts and by operation of law not to
disparage the business or operations of the Company and to maintain the
confidentiality of the trade secrets and other
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confidential information of any of the Company Parties not publicly known. In
light of these facts and in consideration of Rutledge's past employment by the
Company Parties, the payment to him of the Severance Payment and the Consulting
Fees, and the mutual covenants and releases contained herein, Rutledge
covenants and agrees with each of the Company Parties as follows:
a. Confidential Information; No Disparagement. Rutledge shall
not disparage the business or operations of the Company and shall protect, and
shall not use or divulge, disclose, or communicate to any other person or
entity, any of the trade secrets or confidential information of any of the
Company Parties (including without limitation through the sale, license or
other exploitation of any product or service which embodies, in whole or in
part, any such trade secret or confidential information), except as disclosure
shall be compelled by judicial process or otherwise required by law. The
non-disparagement provisions of this paragraph 4.a shall not apply to
litigation between Rutledge and one or more of the Company Parties concerning
this Agreement.
b. Confidentiality of this Agreement. This Agreement and its
provisions are intended to be confidential. Accordingly, except to the extent
made public to satisfy the public disclosure or financial or accounting
requirements of any of the Company Parties or as may be compelled by court
order or otherwise required by law, Rutledge shall not disclose or publicize to
any person or entity the terms of this Agreement without the consent of the
Company Parties. As reasonably necessary, Rutledge may discuss this Agreement
with his wife, attorney, financial advisor, tax advisor, benefit advisor or
compensation advisor, provided, however, that each agrees to be bound by the
terms of this paragraph to keep the information confidential. It shall not be a
breach of this confidentiality provision for Rutledge to advise any future
employer, prospective employer or financial institution of Rutledge of the
limitations set forth in Paragraph 4.a, above, provided, that no other term or
provision of this Agreement is disclosed thereby. This paragraph 4.b shall not
apply to litigation between Rutledge and any one or more of the Company Parties
concerning this Agreement.
c. Remedies for Breach. This Paragraph 4 shall inure to the
benefit of each of the Company Parties and their successors and assigns.
Rutledge acknowledges and agrees that if he breaches or threatens to breach his
covenants in this Paragraph 4, his actions may cause irreparable harm and
damage to the Company Parties which could not be adequately compensated in
damages. Accordingly, if Rutledge breaches or threatens to breach this
Paragraph 4, then the Company Parties, and each of them and any successor or
assign thereof, shall be entitled to injunctive relief, in addition to any
other rights or remedies of the Company Parties hereunder or otherwise,
provided, however, no such relief shall have the effect of terminating the
availability of coverage, to the extent then available under the plans or
provided under this Agreement, under the Company's group medical, dental and
comparable insurance plans prior to applicable date under Section 2.d of this
Agreement.
5. Obligations of Company Not to Disparage; Confidentiality of
Agreement. None of the Company Parties shall disparage Rutledge. Except to the
extent determined in good faith by one or more of the Company Parties to be
necessary or appropriate in connection with the public disclosure or financial
reporting requirements of any one or more of the Company Parties,
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<PAGE> 6
none of the Company Parties shall disclose to any person, other than their
respective attorneys or independent accountants or as may be compelled in any
judicial or administrative proceeding or as otherwise required by law, the
terms of this Agreement. This Paragraph 5 shall not apply to litigation between
Rutledge and any one or more of the Company Parties in connection with this
Agreement.
6. Excise Tax Gross-Up Payments.
a. Gross-Up Payment. The parties believe that no payment or
benefit (within the meaning of Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code")), to Rutledge or for
Rutledge's benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection
with, or arising out of, Rutledge's employment with any of the Company
Parties (any such payment(s) or benefit(s), a "Payment" or
"Payments"), would be subject to the excise tax imposed by Section
4999 of the Code. In the event that it is determined in a
determination (as defined in Section 1313(a) of the Code) from the
applicable government taxing authority (a "Final Determination") that
any such payment or benefit is so subject or that any interest or
penalties are due from Rutledge with respect to such excise tax (such
excise tax, together with any such interest and penalties,
collectively, the "Excise Tax"), then Rutledge will be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such
that after payment by Rutledge of all taxes (including any interest or
penalties imposed with respect to such taxes and the Excise Tax, other
than interest and penalties imposed by reason of Rutledge's failure to
file timely a tax return or pay taxes shown due on Rutledge's return),
including any Income Tax or Excise Tax imposed upon the Gross-Up
Payment, Rutledge retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments as a result of the Final
Determination.
(b) Company's Right to Defend. The Company may, at its option
and sole expense, defend, and control the prosecution and disposition
of any proceedings relating to, any assertion by any government taxing
authority that any Payment is subject to any Excise Tax. Rutledge
shall cooperate in all ways necessary for the Company to carry out
such defense.
7. Rutledge Right to Revoke. Rutledge shall have seven (7) days to
revoke this Agreement after he has executed it. This Agreement shall not become
effective or enforceable until after seven (7) days have passed following its
execution by Rutledge.
8. Indemnification and Limitations upon Liability. Notwithstanding
anything to the contrary in this Agreement (including without limitation the
releases set forth in Attachment A): (a) Rutledge shall continue to enjoy the
benefits of the limitations upon the liability and the right of indemnification
generally provided to persons in any of the capacities in which he served or
shall serve any of the Company Parties pursuant to the certificate of
incorporation, bylaws or other charter documents of the Company Parties
(collectively, the "Charter Documents") or applicable law, provided to any
other officer or director or former officer or director of ATI and
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<PAGE> 7
shall be entitled to enforce such limitations upon liability or right of
indemnification as provided in the Charter Documents or under applicable law;
and (b) Rutledge shall continue to enjoy the benefits of and have rights to
indemnification and insurance coverage provided pursuant to and described in
Section 4.12 of the Agreement and Plan of Merger and Combination dated as of
April 1, 1996, as amended and restated by and among ATI, ALC, ALS Merger
Corporation, the Company and TDY Merger, Inc. (the "Combination Agreement") in
connection with his service as an officer, director or employee of the Company
or other Company Parties, and shall be entitled to enforce such Section 4.12 as
provided in clause (d) thereof.
9. Recitals and Paragraph Headings. Each term of this Agreement is
contractual and not merely a recital. All recitals are incorporated by
reference into this Agreement. Captions and paragraph headings are used herein
for convenience only, are not part of this Agreement and shall not be used in
interpreting or construing it.
10. Additional Documents. The parties will execute all such further
and additional documents and undertake all such other actions as shall be
reasonable, convenient, necessary or desirable to document or carry out the
provisions of this Agreement (including without limitation such documents as
any Company Party may reasonably request in order to document Rutledge's
resignations pursuant to Paragraph 1 hereof).
11. California Law; Choice of Forum. This Agreement was negotiated,
executed and delivered within the State of California, and the rights and
obligations of the parties hereto shall be construed and enforced in accordance
with and governed by the laws of the State of California except with regard to
its principles of conflicts of laws. The parties hereto agree that the sole and
exclusive forum for any suit, action or proceeding under or arising out of this
Agreement shall be the state or federal courts located in Los Angeles County,
California, provided that the foregoing shall not preclude a suit, action or
proceeding in another forum or jurisdiction solely to enforce or realize upon
any judgment rendered in a state or federal court suit, action or proceeding
otherwise authorized by this Agreement. Each of the parties hereto consents to
the in personam jurisdiction of any state or federal court in Los Angeles
County, California and waives any objection to the venue of any such suit,
action or proceeding.
12. Entire Agreement; Amendments. This Agreement constitutes a single
integrated contract expressing the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous oral
and written agreements and discussions with respect to the subject matter
hereof (with the exception of the Option Agreements and the Retirement Plans).
There are no other agreements, written or oral, express or implied, between the
parties hereto, concerning the subject matter hereof, except as set forth
herein and in the Option Agreements and the Retirement Plans. This Agreement
may be amended only by written agreement.
13. Binding Effect. This Agreement is binding upon and shall inure to
the benefit of the parties hereto, their heirs, assignees and successors in
interest (including successors in any reorganization or merger with any other
entity).
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<PAGE> 8
14. Construction of Agreement. Each party has cooperated in the
drafting and preparation of this Agreement, and, accordingly, in any
construction or interpretation of this Agreement, the same shall not be
construed against any party by reason of the source of drafting.
15. Counterparts. This Agreement may be executed in counterparts,
including facsimile counterparts. When each party has signed and delivered at
least one such counterpart, each counterpart shall be deemed an original, and,
when taken together with other signed counterparts, shall constitute one
Agreement which shall be binding upon and effective as to all parties. No
counterpart shall be effective until all parties hereto have executed and
exchanged an executed counterpart hereof.
16. No Waiver. The failure to enforce at any time any of the
provisions of this Agreement, or to require at any time performance by the
other party of any of the provisions hereof, shall in no way be construed to be
a waiver of such provisions or to affect either the validity of this Agreement
or any part hereof or the right of any party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
17. Notices. Except as otherwise expressly provided in this Agreement
or by law, any and all notices or other communications required or permitted by
this Agreement or by law to be served on, given to, or delivered to any party
hereto shall be deemed duly served, given, delivered and received (A) when
personally delivered to the party to whom it is directed or (B) in lieu of such
personal delivery, three (3) days after the date mailed, with postage prepaid,
or when sent by facsimile transmission with receipt confirmed by the
transmitting facsimile machine, to:
(i) If to any of the Company Parties, to
Allegheny Teledyne Incorporated
Six PPG Place, Tenth Floor
Pittsburgh, Pennsylvania 15222
ATTN: Jon D. Walton, Vice President, Secretary
and General Counsel
FAX: (412) 394-3010
(ii) If to Rutledge, to
William P. Rutledge
237 Toyopa Drive
Pacific Palisades, CA 90272
FAX: (310) 551-4202
Any party may change his or its address for the purpose of this paragraph by
giving written notice of such change to the other parties in the manner
provided in this paragraph.
18. Rutledge's Legal Counsel; Reimbursement of Attorneys Fees.
Rutledge has been advised by legal counsel in connection with the negotiation,
preparation and execution of this Agreement and has been fully apprised of his
rights and the significance of the waivers and releases included in Attachment
A to this Agreement. Promptly upon Rutledge's demand
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<PAGE> 9
(accompanied by reasonable documentation), the Company shall reimburse Rutledge
his reasonable attorneys fees and costs relating to the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated hereby.
19. Limitation on Remedies. Notwithstanding anything contained herein
to the contrary, neither the Company Parties, on the one hand, nor Rutledge, on
the other hand, shall be entitled to rescind or terminate this Agreement or
their respective obligations hereunder on account of the other party's breach
hereof.
20. Prevailing Parties Entitled to Fees. In the event that litigation
is instituted between any of the parties in connection with any controversy or
dispute arising from or under or related to this Agreement, the judgment
therein shall include a reasonable sum to be paid to the prevailing party for
and on account of attorneys fees and costs incurred in such litigation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
EXECUTION AND ACKNOWLEDGMENT BY THE COMPANY PARTIES:
The following execute this Agreement for themselves and on behalf of
their respective subsidiaries and affiliates:
ALLEGHENY LUDLUM CORPORATION
By: /s/ R. P. SIMMONS Attest:
---------------------------------
Its: Chairman /s/ JON D. WALTON
------------------------ -----------------------------
Date: 3/10/97
-----------------------
TELEDYNE, INC.
By: /s/ R. P. SIMMONS Attest:
---------------------------------
Its: Chairman /s/ JON D. WALTON
------------------------ -----------------------------
Date: 3/10/97
-----------------------
ALLEGHENY TELEDYNE INCORPORATED
By: /s/ R. P. SIMMONS Attest:
---------------------------------
Its: Chairman /s/ JON D. WALTON
------------------------ -----------------------------
Date: 3/10/97
-----------------------
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<PAGE> 10
EXECUTION AND ACKNOWLEDGMENT BY WILLIAM P. RUTLEDGE:
I freely choose to sign this Agreement on March 6, 1997. I understand
that I will have seven (7) days thereafter within which to revoke my acceptance
of this expiration of that seven (7) day period.
/s/ WILLIAM P. RUTLEDGE Witness:
- ------------------------------
William P. Rutledge /s/ GERTRUDE C. RUTLEDGE
-----------------------------
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ATTACHMENT A
Releases of Rutledge, Rutledge's Spouse and the Company Entities
THIS ATTACHMENT A (this "Attachment") is an integral part of the
Separation Agreement to which it is attached (the "Agreement"). Each
capitalized term used in this Attachment and not otherwise defined herein shall
have the meanings given to such term in the main body of the Agreement. For
purposes of this Attachment A, the term "Company Entities" means each of the
Company Parties together with their respective parents, subsidiaries and
affiliates.
Rutledge and the Company Entities, each in order to induce the other
to enter into the Agreement, give the following releases as part of the
Agreement:
1. Releases by Rutledge
a. General Release. Excepting only obligations to be
performed by the Company Parties under the Agreement, the Option Agreements and
the Retirement Plans, and to the maximum extent permitted by applicable law,
Rutledge, on behalf of himself and his heirs, administrators, executors and
assigns, and each of them, shall and does hereby forever relieve, release and
discharge each of the Company Entities and the past and present parent,
subsidiary and affiliated corporations, partnerships, joint ventures, limited
liability companies or other entities of any of the Company Entities, as well
as their respective owners, shareholders, partners, joint venturers, officers,
directors, managers, members, agents, employees, attorneys and representatives,
past or present, as well as the heirs, administrators, executors, successors,
predecessors and assigns of any of the foregoing (all of the foregoing,
collectively, the "Company Entity Releasees"), from any and all causes of
action, actions, judgments, liens, acts, promises, agreements, debts,
indebtedness, obligations, damages, losses, claims, liabilities, demands, costs
and expenses (including without limitation attorneys' fees) of whatsoever kind
or character, known or unknown, suspected to exist or not suspected to exist,
anticipated or not anticipated, fixed or contingent, whether or not heretofore
brought before any state or federal court or before any state or federal agency
or other governmental entity or any arbitrator, whether statutory or
administrative or common law, heretofore or hereafter arising out of, connected
with or incidental to any dealings between the parties prior to the date of
this Agreement or any other fact or matter existing prior to the date of
execution of this Attachment (all of the foregoing, "Claims"), including
without limitation on the generality of the foregoing, any and all claims,
demands or causes of action attributable to, connected with, or incidental to
(i) the employment of Rutledge by any of the Company Parties or Rutledge's
status as an officer or director of any of the Company Parties, (ii) the
separation of that employment and termination of that status, (iii) any of the
Rutledge Agreements, or (iv) any dealings between the parties concerning any of
the foregoing matters. This release is intended to apply to (1) any claims
arising from federal, state or local laws including those which prohibit
discrimination on the basis of race, national origin, sex, religion, age,
marital status, pregnancy, handicap, perceived handicap, ancestry, sexual
orientation, family or personal leave or any other form of discrimination, (2)
any common
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<PAGE> 12
law claims of any kind whatever (including without limitation any contract,
tort, and property rights claims such as breach of contract, breach of the
implied covenant of good faith and fair dealing, tortious interference with
contract or current or prospective economic advantage, fraud, deceit, breach of
privacy, misrepresentation, defamation, wrongful termination, tortious
infliction of emotional distress, loss of consortium, breach of fiduciary duty,
violation of public policy and any other common law claim of any kind
whatever), (3) any claims for severance pay, sick leave, family leave,
vacation, life insurance, bonuses, incentive compensation, health insurance,
disability or medical insurance or any other fringe benefit or compensation,
(4) any claims under laws such as workers' compensation laws, which provide
rights and remedies for injuries sustained in the workplace, (5) all rights and
claims arising under the Employee Retirement Income Security Act of 1974
("ERISA"), or pertaining to ERISA regulated benefits, and (6) as set forth in
Paragraph 1.b below, all rights and claims arising under the federal Age
Discrimination in Employment Act.
b. Waiver and Release of Rights or Claims Arising Under the
ADEA. Rutledge specifically waives any and all rights or Claims he may have
against the Company Entity Releasees, or against any of them, which may have
arisen under the Age Discrimination in Employment Act of 1967 ("ADEA"), 29
U.S.C. Section 621 et. seq., as a result of Rutledge's employment, or
termination from employment, with the Company Parties. In connection with this
waiver and release, Rutledge hereby represents, warrants and agrees as follows:
(i) He has been informed that he has a period of at least
twenty-one (21) days to consider an unexecuted copy of this Agreement
and that, if he chooses to sign this Agreement prior to the expiration
of such period, he does so voluntarily;
(ii) He understands all of the terms and conditions of this
Agreement;
(iii) The Company Parties have advised him to consult with an
attorney prior to executing the Agreement and this Attachment;
(iv) He has consulted or shall consult with an attorney
regarding all of the terms and conditions of the Agreement and this
Attachment before executing the Agreement and this Attachment;
(v) This waiver of any and all ADEA claims is in exchange for
consideration in addition to anything of value to which Rutledge is
already entitled.
2. Release by the Company Entities. Excepting only obligations to be
performed by Rutledge under this Agreement, the Option Agreements or the
Retirement Plans and matters arising out of fraudulent or unlawful conduct by
Rutledge, each of the Company Entities does hereby release and forever
discharge Rutledge from any and all Claims, known or unknown, suspected to
exist or not suspected to exist, anticipated or, not anticipated, whether or
not heretofore brought before any state or federal court or before any state or
federal agency or other governmental entity or any arbitrator, whether
statutory or administrative or common law, heretofore or hereafter arising out
of, connected with or incidental to any dealings between the
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<PAGE> 13
parties prior to the date of this Attachment or any other matter existing prior
to the date of execution of this Attachment.
3. Unknown Claims Released. Each and all of the parties hereto intend
and do hereby release any and all claims, whether or not presently known to
them. Each of Rutledge and the Company Entities specifically waives the
benefits of the provisions of Section 1542 of the Civil Code of the State of
California and any other analogous state, federal or foreign law, right or
regulation, whether statutory, administrative or common law. Said Section 1542
of the California Civil Code reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Each of Rutledge and the Company Entities expressly waives and releases any
right or benefit which they have or may have under Section 1542 of the Civil
Code of the State of California, or any similar law or rule of any other
jurisdiction, to the full extent that they may waive all such rights and
benefits pertaining to the matters released herein. In connection with such
waiver and relinquishment, each of Rutledge and the Company Entities
acknowledge that he, she or it (i) has made such investigation of the facts
pertaining to the matters resolved by this Attachment and of all the matters
pertaining thereto, as he, she or it deems necessary, (ii) is aware that he,
she or it may hereafter discover claims or facts in addition to or different
from those he, she or it now knows or believes to be true with respect to the
matters resolved herein, and (iii) is aware that he, she or it may hereafter
discover claims presently unknown or unsuspected, or facts in addition to or
different from those which they now know or believe to be true with respect to
the matters released herein. Nevertheless, it is the intention of each party
hereto, through this Attachment, to settle and release fully, finally and
forever all such matters and all claims relative thereto which may exist or may
heretofore have existed between them. In furtherance of such intention, the
release herein given shall be and remain in effect as a full and complete
release of such matters notwithstanding the discovery or existence of any such
additional different claims or facts relative thereto.
4. No Assignment. Each of the parties represents and warrants that he
or it has not heretofore assigned, transferred or granted or purported to
assign, transfer or grant any claims, matters, demands or causes of action
herein released, disclaimed, discharged or terminated, and agrees to indemnify
and hold harmless any other party from and against any and all costs, expense,
loss or liability incurred as a consequence of any such assignment.
-3-
<PAGE> 14
EXECUTION AND ACKNOWLEDGMENT BY THE COMPANY ENTITIES:
The following execute this Attachment for themselves and on behalf of
their respective subsidiaries and affiliates:
TELEDYNE, INC. ALLEGHENY LUDLUM CORPORATION
By: /s/ R. P. SIMMONS By: /s/ R. P. SIMMONS
--------------------------------- ------------------------------
Its: Chairman Its: Chairman
------------------------- ----------------------
ALLEGHENY TELEDYNE INCORPORATED
By: /s/ R. P. SIMMONS
---------------------------------
Its: Chairman
-------------------------
EXECUTION AND ACKNOWLEDGMENT BY DR. WILLIAM P. RUTLEDGE
I freely choose to sign this agreement on March 6, 1997. I understand
that I will have seven (7) days thereafter within which to revoke my acceptance
of the Separation Agreement (including this Attachment) and that the Separation
Agreement (including this Attachment) shall not be effective until the
expiration of that seven (7) day period.
/s/ WILLIAM P. RUTLEDGE Witness:
- ------------------------------
William P. Rutledge /s/ GERTRUDE C. RUTLEDGE
-----------------------------
-4-
<PAGE> 15
ADDITIONAL CONSIDERATION
In order to induce the Company Parties (as defined in the Separation
Agreement to which this Attachment is a part (the "Agreement")) to enter into
the Agreement, I agree to forever release and discharge the Company Party
Releasees (as defined above in this Attachment) from any and all Claims (as
defined above in this Attachment), of whatsoever kind or character, known or
unknown, suspected to exist or not suspected to exist, anticipated or not
anticipated, fixed or contingent, whether or not heretofore brought before any
state or federal court or before any state or federal agency or other
governmental entity or any arbitrator, including without limitation on the
generality of the foregoing, any and all claims, demands or causes of action
attributable to, connected with, or incidental to the employment of my husband
by any of the Company Parties, the separation of that employment, the Rutledge
Agreements (as defined in the Agreement), and any dealings between the parties
concerning my husband's employment, the Rutledge Agreements, or any other
matter existing prior to the date of execution of this Agreement, excepting
only those obligations to be performed under the Agreement, the Option
Agreements and the Retirement Plans. This release is intended to apply to any
and all claims based on common law contract theories or state or federal
statutory or constitutional law theories.
I also specifically waive the benefits of the provisions of Section
1542 of the Civil Code of the State of California and any other analogous
state, federal or foreign law, right or regulation, whether statutory,
administrative or common law. Said Section 1542 of the California Civil Code
reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Executed this 6th day of March, 1997.
/s/ GERTRUDE (TRUDY) C. RUTLEDGE
--------------------------------
Trudy Rutledge,
Wife of William P. Rutledge
-5-
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward-looking statements.
Actual results could differ materially from those encompassed within such
forward-looking statements as a result of various factors, certain of which are
described below.
COMBINATION OF ALLEGHENY LUDLUM AND TELEDYNE
On August 15, 1996, Allegheny Ludlum Corporation ("Allegheny Ludlum") and
Teledyne, Inc. ("Teledyne") combined to form Allegheny Teledyne Incorporated
("Allegheny Teledyne"). Allegheny Ludlum shareholders received one share of
Allegheny Teledyne common stock for each of their Allegheny Ludlum common
shares. Teledyne stockholders received 1.925 shares of Allegheny Teledyne
common stock for each of their Teledyne common shares. The combination was
accounted for under the pooling of interests method of accounting. The
following discussion reflects the combination as if the companies had been
combined for all periods presented. Unless the context requires otherwise, the
"Company" refers to Allegheny Teledyne and its subsidiaries.
During the initial months following the formation of Allegheny Teledyne,
several actions were taken to capitalize on the Company's financial strength:
o $357 million of Teledyne's 10% subordinated notes were retired and
refinanced at an annual interest expense savings of approximately $16
million at current rates.
o A new $500 million revolving credit agreement was arranged with a group of
fourteen major banks to provide funds to redeem high cost debt as well as
to provide significant liquidity reserves for operations and for potential
new investment opportunities.
o Substantially all pension plans were merged into a single new plan with an
initial surplus of approximately $690 million and pension assets equal to
142% of accumulated pension liabilities. This saved an estimated $40
million of pension contributions which would otherwise have had to be
funded each year from the Company's operating cash flow.
o The pension investment surplus was also used to reimburse retiree medical
payments in 1996. On an annualized basis, this should amount to
approximately $30 million.
o Several components of the former separate insurance programs were combined
providing greater coverage at lower premium costs which should save
approximately $4 million on an annualized basis.
Cash from operating activities was strong during 1996 despite lower
operating results in the Company's flat-rolled stainless steel business.
Capital spending totaled $88.6 million in 1996.
With net debt at 29% of total capitalization, the Company is well-positioned
financially to carry through on its strategic plans. The Company expects free
cash flow to be consistently strong. This should provide sufficient financial
resources for the Company to capitalize on new profitable growth opportunities
while keeping its strong credit rating and low cost access to capital markets.
The Company's debt structure has several important attributes. First, 33% of
long-term debt has a maturity of 29 years with a fixed rate of 6.95%. Second,
the revolving credit agreement has a five-year maturity, which gives
significant stability to nearer term debt arrangements. Finally, low cost
interest rate pricing alternatives currently give the Company an after-tax
blended cost to borrow of approximately 3.1%. This low cost incremental
liquidity is an important strategic advantage for the Company.
The Company recorded a charge of $57.5 million ($42.9 million net of tax) in
1996 for financial advisory, legal, accounting, severance and other costs
associated with the integration of the combined companies.
RESULTS OF OPERATIONS
The Company's sales from continuing businesses were $3.8 billion in 1996 and
1995, and $3.1 billion in 1994. Foreign sales represented approximately 17%,
15% and 17% of total sales in 1996, 1995 and 1994, respectively. Sales under
contracts with the U.S. Government, which included contracts with the
Department of Defense, represented approximately 18%, 19% and 23% of total
sales in 1996, 1995 and 1994, respectively. Defense sales represented
approximately 12%, 15% and 17% of total sales in 1996, 1995 and 1994,
respectively.
Sales and operating profit for the Company's four business segments are
presented separately below and in Note 11 of the Notes to Consolidated
Financial Statements.
23
<PAGE> 2
<TABLE>
<CAPTION>
SPECIALTY METALS
(In millions) 1996 1995 1994
- --------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Sales $2,045.3 $2,203.6 $1,674.0
- --------------------------------------------------------------------------------
Operating Profit 278.9 301.1 106.8
- --------------------------------------------------------------------------------
</TABLE>
Foreign sales represented approximately 10% of total segment sales for 1996
and 1995 and 11% in 1994.
1996 COMPARED TO 1995
Sales and operating profit for the specialty metals segment declined 7% in 1996
compared to 1995. Strong demand by commercial aerospace and industrial markets
for highly specialized metals, such as nickel-based superalloys and titanium,
and improved profitability of zirconium products were offset by weak selling
prices for commodity flat-rolled stainless steel.
Sales of Allegheny Ludlum and Rodney Metals, which consisted primarily of
flat-rolled products, declined 14% in 1996. Lower shipments, primarily at
Allegheny Ludlum, coupled with significant pricing pressure in commodity
stainless steel products caused this sales decline. Tons shipped in 1996 were
535,000 compared to a record 589,000 in 1995.
Operating profit declined 31% reflecting the impact of European and Asian
pricing pressure and increased imports in the U.S. markets. Average selling
prices of flat-rolled specialty materials declined to $2,547 per ton in 1996
from a high of $2,680 in 1995. In addition, raw material surcharges declined
throughout 1996 and were virtually eliminated by year end. The raw material
surcharge mechanism remains in place. Raw material costs decreased in 1996 but
only partially offset lower selling prices of commodity products. Allegheny
Ludlum's two unplanned equipment outages in the first quarter of 1996 also
contributed to the decline in operating profit.
Allegheny Ludlum has announced price increases of approximately 5% for its
stainless steel sheet, strip and plate shipments effective March 3, 1997 and
price increases of approximately 4% for all tool steel plates and bars cut from
plate effective with shipments March 31, 1997. Allegheny Ludlum has also
announced price increases of approximately 5% for its stainless steel sheet,
strip and plate shipments effective May 5, 1997. The ability to effect and
maintain these price increases will depend in part on market pricing pressures,
including pricing by foreign producers.
Sales and operating profit at Allvac increased substantially in 1996
primarily due to increased shipments and higher average sales prices in
nickel-based and titanium-based alloys. The sales price increase reflected
strong demand from commercial aerospace, biomedical and recreation markets, and
was supplemented with continuing cost containment efforts.
Operating results at Wah Chang also increased substantially in 1996
primarily due to increased sales, especially of titanium products, and cost
reduction efforts begun in the fourth quarter of 1995. Titanium products
benefited from significant sales increases primarily due to the improved
commercial aerospace industry and the increasing use of titanium in
recreational products. The profitability of zirconium products benefited from
favorable sales mix shifts, lower raw material costs and price increases.
Earnings from niobium products increased primarily due to lower processing
costs and lower cost foreign-sourced raw materials.
1995 COMPARED TO 1994
Sales for the segment increased 32% and operating profit increased 182% in 1995
compared to 1994. Shipments of flat-rolled products improved to 589,000 tons in
1995 from 512,000 in 1994. The improvement in sales and operating results for
stainless steel were complemented by increased demand for nickel-based
superalloys, zirconium, and titanium for the commercial aerospace, power
generation and industrial markets. The results for 1994 were adversely affected
by a ten-week strike at Allegheny Ludlum called by the United Steelworkers of
America (USWA) and by a charge of $13.0 million to resolve a U.S. Government
export investigation matter involving Teledyne Wah Chang.
Sales and operating profit for Allegheny Ludlum and Rodney Metals, which
consisted primarily of flat-rolled products, increased 36% and 139%,
respectively, in 1995. The average price per ton of flat-rolled specialty
metals shipped by these two companies increased to $2,680 for 1995 from $2,290
for 1994. Flat-rolled products benefited from very strong market demand,
improved prices, raw material related selling price surcharges, higher volume
and improved product mix.
Operating profit at Allvac increased significantly in 1995 primarily due to
increased sales and improved operating margins in nickel-based and
titanium-based alloys which were partially offset by increased raw material
costs and higher research and development costs.
24
<PAGE> 3
Operating profit at Wah Chang increased in 1995 primarily due to increased
sales and lower environmental and legal costs which were partially offset by
decreased productivity related to protracted labor negotiations.
<TABLE>
<CAPTION>
AEROSPACE AND ELECTRONICS
(In millions) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $987.8 $914.4 $863.7
Operating Profit Before
Government Settlements 99.9 88.2 78.3
Government Settlements -- -- (85.0)
- ------------------------------------------------------------------------------------
Operating Profit (Loss) 99.9 88.2 (6.7)
- ------------------------------------------------------------------------------------
</TABLE>
The segment's U.S. Government sales represented 59%, 57% and 56% of total
segment sales in 1996, 1995 and 1994, respectively. Foreign sales, which
consisted primarily of exports, accounted for 20%, 22% and 24% of total segment
sales in 1996, 1995 and 1994, respectively.
1996 COMPARED TO 1995
Sales for the aerospace and electronics segment increased 8% and operating
profit increased 13% in 1996 compared to 1995. Sales increased in development
work on the Global Hawk High Altitude Endurance Unmanned Aerial
Surveillance/Reconnaissance Vehicle and in electronic devices,
electromechanical relays and avionics for commercial customers. The initial
test flights for the Global Hawk aircraft are scheduled for the second half of
1997.
Sales also improved in engineering services related to the environmental
cleanup of chemical munitions and engines for the general aviation market.
These sales improvements were partially offset by the scheduled wind-down of
the current phase of the U.S. Apache helicopter program and by the completion
of contracts to supply electronic countermeasure equipment for the
international market and fabricated products to the U.S. Government. In 1997,
work will commence on foreign orders for Apache helicopter airframes with
significant sales related to those contracts expected to occur beyond 1997.
Operating profit for the segment benefited from the increase in sales and
improved profitability on a contract to supply mid-range unmanned aerial
vehicles.
1995 COMPARED TO 1994
Sales for the segment increased 6% and operating profit before government
settlements increased 13% in 1995 compared to 1994. Principal areas of
improvement were in development work on the Global Hawk unmanned aerial
vehicle, electromechanical relays for commercial customers, airframe structures
and fabricated products for the U.S. Government, marine seismic cables for the
oil exploration industry, and avionics for the commercial aviation industry.
Decreased sales of and margins on piston engine rebuilds for the general
aviation market and lower shipments of aerial targets and certain other
military unmanned aerial vehicles partially offset the 1995 increases.
Operating results for the segment for 1994 were adversely affected by Teledyne's
settlements of certain U.S. Government contracting issues for $85.0 million.
<TABLE>
<CAPTION>
INDUSTRIAL
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $447.1 $378.5 $292.3
- ---------------------------------------------------------------------------
Operating Profit 44.0 33.5 21.1
- ---------------------------------------------------------------------------
</TABLE>
Foreign sales accounted for 42%, 30% and 24% of total segment sales in 1996,
1995 and 1994, respectively.
1996 COMPARED TO 1995
Sales for the industrial segment increased 18% and operating profit increased
31% in 1996 compared to 1995. Improvements were primarily the result of the
acquisition of the European-based Stellram Group, a
25
<PAGE> 4
manufacturer of high precision milling, boring and drilling systems, in
December 1995. Increased sales of nitrogen cylinder systems for the metal
stamping industry, improved operating efficiencies in the pressure relief valve
business and cost reductions in the material handling business also contributed
to the growth in the segment's operating profit.
1995 COMPARED TO 1994
Sales for the segment increased 29% and operating profit increased 59% in 1995
compared to 1994. Sales improved primarily in tungsten-based products for the
cutting tool market and metal stamping dies and plastic compression molds for
the automotive industry, and as a result of the January 1995 acquisition of
Kooi B.V., a European manufacturer of material handlers.
Operating profit for the segment in 1995 increased due to strong sales and
as a result of a gain on the sale of an industrial valve product line. The
improvement in operating profit was partially offset by costs associated with
the integration and rationalization of Kooi product lines, plant
rationalization expenses and decreased margins on certain machine tools as a
result of a labor dispute.
<TABLE>
<CAPTION>
CONSUMER
(In millions) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $287.9 $267.9 $255.5
- ------------------------------------------------------------------------------
Operating Profit 18.5 12.7 15.7
- ------------------------------------------------------------------------------
</TABLE>
Foreign sales accounted for 19% of total segment sales in 1996 and 16% of
total segment sales in 1995 and 1994.
1996 COMPARED TO 1995
Sales for the consumer segment increased 7% and operating profit increased 46%
in 1996 compared to 1995. Sales improved primarily due to two acquisitions:
Jandy Industries, a major United States producer of water flow control valves
and electronic control systems for the swimming pool industry, and Envases
Comerciales, S.A., a Costa Rican manufacturer of specialty packaging for
pharmaceutical and food companies. Residential and commercial heating systems
and home water treatment products also contributed to the improvement in sales.
Operating profit for the segment increased as a result of the acquisitions
and reduced product introduction expenses in 1996, which were partially offset
by costs associated with discontinuing products and restructuring manufacturing
facilities and by a settlement of patent litigation.
1995 COMPARED TO 1994
Sales for the segment increased 5% while operating profit declined 19% in 1995
compared to 1994. The increase in sales was primarily attributable to increased
demand for commercial and residential heating systems and the introduction of
three new products: Teledyne Water Pik's SenSonic(TM) Plaque Removal Instrument
and its WaterFresh(R) pour-thru water filter device, and Teledyne Laars'
MAXX-PURE(TM) ozone sanitizing system for swimming pools. Sales for pool
heaters decreased as a result of poor weather conditions and a slowdown in
spending on consumer durables.
Operating profit for the segment declined as a result of advertising and
start-up costs for the three new products and the sales decline for pool
heaters.
CORPORATE EXPENSES
Corporate expenses declined to $42.1 million in 1996 from $47.7 million in
1995, excluding a one-time gain discussed below, and $51.3 million in 1994. The
decline in 1996 resulted from a reduction in legal and compliance expenses.
In 1995, the New Piper Aircraft, Inc. emerged from bankruptcy with the
Company having exchanged its major creditor position for 24.2% equity ownership
and an option to purchase an additional 24.2%. As a result, the Company
recognized a gain of $5.9 million in 1995.
Corporate expenses for 1994 included a loss on a limited partnership
investment and costs associated with relocating offices. These expenses are
included in other income on the income statement.
26
<PAGE> 5
OPERATIONS SOLD OR HELD FOR SALE
Income from operations sold or held for sale in 1996 included pretax gains of
$41.0 million on the sale of the Company's defense vehicle business and $20.3
million on the sale of surplus California real estate.
For 1995, income from operations sold or held for sale included a pretax
gain of $50.7 million on the sale of the Company's defense electronics systems
business.
These amounts are included in other income on the income statement.
In 1994, loss from operations sold or held for sale included a $38.8 million
charge related to Teledyne's settlement of certain U.S. Government contracting
matters and is included in selling and administrative expenses.
INCOME TAXES
The Company's effective income tax rate increased in 1996 to 41.1% from 37.2%
in 1995 primarily as a result of non-deductible business combination costs. In
1994, the Company's effective income tax rate was unusually high primarily as a
result of government settlement expenses, part of which were not deductible for
tax purposes.
The Company has determined, based on its history of operating earnings,
expectations of future operating earnings and potential tax planning
strategies, that it is more likely than not that the deferred income tax assets
at December 31, 1996 will be realized.
FINANCIAL CONDITION AND LIQUIDITY
In 1996, cash generated from operations of $226.8 million, proceeds from the
sales of businesses of $124.8 million and cash on hand of $112.6 million were
used to reduce debt by $146.0 million, pay dividends on common and preferred
stock totaling $106.1 million, and invest $105.6 million in capital equipment
and business expansion. In addition, prior to the business combination, $41.4
million was used to redeem the outstanding Teledyne Series E Cumulative
Preferred Stock and $23.7 million was used to repurchase common stock. These
cash transactions plus cash on hand at the beginning of the year resulted in a
cash position of $62.5 million at December 31, 1996. Allegheny Ludlum and
Teledyne terminated their respective stock repurchase programs on or before
April 1, 1996.
Working capital decreased to $614.0 million at December 31, 1996 compared to
$679.8 million at the end of 1995. The current ratio declined to 2.0 in 1996
from 2.2 in 1995, largely due to the use of cash for the prepayment of debt and
the redemption of preferred stock.
In 1996, the domestic credit facilities of Allegheny Ludlum and Teledyne
were replaced with a new five-year credit agreement for Allegheny Teledyne
which provides for borrowings of up to $500 million on a revolving credit
basis. Interest is payable at prime or other alternative interest rate bases,
at the Company's option. Also in 1996, Allegheny Teledyne guaranteed the
payment of the outstanding Teledyne 7% subordinated debentures, due in 1999,
and the outstanding Allegheny Ludlum 6.95% debentures, due in 2025.
In the 1996 fourth quarter the Company redeemed the Teledyne 10%
subordinated debentures, due in 2004, utilizing $250 million from the new
credit facility discussed above and $107 million from cash on hand. As a
result, an extraordinary pretax loss of $22.3 million was recognized to
write-off the related unamortized original issue discount.
As a result of retiring debt and preferred stock in 1996, the Company's debt
to capitalization ratio declined to 34% in 1996 from 42% in 1995. The Company's
net debt to total capitalization ratio declined to 29% in 1996 from 34% in
1995.
Total capital expenditures for 1997 are expected to approximate $130 million
with the largest item being $12 million of the total cost of approximately $40
million for a Sendzimir Mill which is expected to go on stream at Allegheny
Ludlum's Vandergrift, PA plant in late 1999.
In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum
were merged with overfunded defined benefit pension plans of Teledyne. The
resulting pension plan is fully funded with assets significantly in excess of
the projected benefit obligations. As a result, for the indefinite future, the
Company does not anticipate that it will have to contribute to its defined
benefit pension plan. Under current Internal Revenue Code regulations, certain
amounts paid for retiree medical expenses may be reimbursed annually from the
excess pension plan assets. In 1996, the Company recovered the pretax amount of
$30.5 million under these regulations. While not affecting reported operating
profit, cash flow increased by the after-tax effect of the recovered amount.
The Company believes that internally generated funds, current cash on hand
and borrowings from existing credit lines will be adequate to meet foreseeable
needs.
In March 1997, the Company's Board of Directors authorized a stock
repurchase program to acquire up to 12 million shares of common stock in the
open market from time to time using internally generated funds.
27
<PAGE> 6
OTHER MATTERS
COSTS AND PRICING
Although inflationary trends in recent years have been moderate, during the
same period certain critical raw material costs have been volatile. The Company
primarily uses the last-in, first-out method of inventory accounting which
reflects current costs in the cost of products sold. The Company considers
these costs, the increasing costs of equipment and other costs in establishing
its sales pricing policies and has instituted raw material surcharges on
certain of its products to the extent permitted by competitive factors in the
marketplace. The Company continues to emphasize cost containment in all
aspects of its business.
HEDGING
The Company uses derivative financial instruments from time-to-time to hedge
ordinary business risks regarding foreign currencies on product sales and to
partially hedge against volatile raw material cost fluctuations in the
specialty metals segment. The Company believes that adequate controls are in
place to monitor these activities which are not financially material.
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 investigations and remediation totaled approximately $44 million
at December 31, 1996. 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 60 of such sites, excluding those at which
it believes it has no future liability. The Company's involvement is very
limited or de minimis at approximately 50 of these sites, and the potential
loss exposure with respect to any individual site is not considered to be
material.
In 1996, AICPA Statement of Position 96-1, Environmental Remediation
Liabilities, was issued which establishes accounting standards for recognition
of environmental costs. This statement, which is effective in 1997, is not
expected to have a material effect on the consolidated financial statements.
For additional discussion of environmental matters, see Notes 1 and 13 of
the Notes to Consolidated Financial Statements.
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.
28
<PAGE> 7
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 13 of the
Notes to Consolidated Financial Statements.
FORWARD LOOKING AND OTHER STATEMENTS
This annual report contains various "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements, which represent the Company's expectations or beliefs concerning
various future events, include the following: statements concerning anticipated
effects of the combination of the businesses of Allegheny Ludlum and Teledyne
on future earnings, cost savings and operations of the Company; announced price
increases for stainless steel sheet, strip and plate and tool steel; net cash
flow; aviation industry trends; certain expected capital expenditures; the
outcome of any government inquiries, litigation or other proceedings related to
government contracts or other matters; and future environmental costs. These
statements are based on current expectations that involve a number or risks and
uncertainties, including those described under the captions "Other Matters -
Environmental" and "Other Matters - Government Contracts." Other important
factors that could cause actual results to differ from those in such
forward-looking statements include the following:
Demand for Specialty Metals. Demand for products of the Company's specialty
metals businesses is cyclical because the industries in which customers in such
businesses operate are cyclical and are subject to changes in general economic
conditions. As a result, the Company's operating results could be subject to
significant fluctuation.
Raw Materials for Specialty Metals. Certain of the principal raw materials
used to produce specialty metals can be acquired 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.
Export 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, political and economic instability,
accounts receivable collection and the seasonality of foreign sales. Any of
these factors could have an adverse effect on the Company's results of
operations.
Uncertainties relating to Realization of Synergies. There can be no
assurance that the Company will be able to realize, or do so within any
particular time frame, the cost reductions, cash-flow increases or other
synergies expected to result from the combination or generate additional
revenue to offset any unanticipated inability to realize such expected
synergies. Realization of the anticipated benefits of the combination could
take longer than expected and implementation difficulties and market factors
could alter the anticipated benefits.
Additional risk factors are described from time to time in the Company's
filings with the Securities and Exchange Commission.
29
<PAGE> 8
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In millions except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
For the Years Ended 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 3,815.6 $ 4,048.1 $ 3,457.3
- ---------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 2,901.7 3,158.9 2,766.8
Selling and administrative expenses 515.5 479.0 622.1
Merger and restructuring costs 57.5 6.4 --
Interest expense, net 34.7 37.6 44.0
- ---------------------------------------------------------------------------------------------------------------------------
3,509.4 3,681.9 3,432.9
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before Other Income 306.2 366.2 24.4
Other Income 78.5 74.7 4.8
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 384.7 440.9 29.2
PROVISION FOR INCOME TAXES 158.2 164.1 19.4
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 226.5 276.8 9.8
EXTRAORDINARY LOSS ON REDEMPTION
OF DEBT, NET OF INCOME TAX BENEFIT (13.5) (2.9) --
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 213.0 273.9 9.8
Dividends on Preferred Stock 2.0 1.6 --
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 211.0 $ 272.3 $ 9.8
- ---------------------------------------------------------------------------------------------------------------------------
Per Common Share:
Income before Extraordinary Loss $ 1.28 $ 1.56 $ 0.06
Extraordinary Loss (0.08) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1.20 $ 1.54 $ 0.06
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 9
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In millions except share and per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 62.5 $ 112.6
Accounts receivables 525.3 554.5
Inventories 518.4 465.9
Deferred income taxes 70.1 75.7
Prepaid expenses and other current assets 23.5 27.2
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,199.8 1,235.9
Property, plant and equipment 731.4 755.9
Prepaid pension cost 352.5 314.9
Cost in excess of net assets acquired 177.1 161.0
Other assets 145.6 161.2
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,606.4 $ 2,628.9
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 241.7 $ 223.9
Accrued liabilities 344.1 332.2
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 585.8 556.1
Long-term debt 443.4 561.1
Accrued postretirement benefits 567.5 563.9
Other 138.2 128.9
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,734.9 1,810.0
- ---------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock (redeemed in 1996) -- 33.1
- ---------------------------------------------------------------------------------------------------------------------------
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 - 174,389,377 shares in 1996 and 174,486,110 shares in 1995 17.4 17.4
Additional paid-in capital 246.6 255.8
Retained earnings 596.7 498.1
Other 10.8 14.5
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 871.5 785.8
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,606.4 $ 2,628.9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE> 10
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
For the Years Ended 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 213.0 $ 273.9 $ 9.8
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 105.3 110.9 108.4
Gains on sales of businesses (64.5) (51.1) --
Deferred income taxes 18.6 42.4 44.0
Extraordinary loss on redemption of debt 13.5 2.9 --
Change in operating assets and liabilities:
Inventories (67.1) (12.9) (4.4)
Prepaid pension costs (41.8) (83.6) (75.4)
Accounts payable 21.3 (46.3) 68.4
Accrued income taxes 17.9 12.5 (5.6)
Accrued liabilities (13.8) (30.8) (47.4)
Accounts receivables 13.0 (7.5) (112.4)
Long-term postretirement liability 11.6 (0.6) 1.3
Other (0.2) 3.3 (14.2)
- ---------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 226.8 213.1 (27.5)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from the sales of businesses 124.8 69.0 7.2
Purchases of property, plant and equipment (88.6) (93.8) (117.2)
Purchases of businesses (17.0) (43.2) (25.0)
Disposals of property, plant and equipment 16.0 14.8 11.2
Sales of short-term investments -- -- 50.5
Other (9.3) (15.1) (6.6)
- ---------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 25.9 (68.3) (79.9)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (436.5) (114.9) (67.9)
Increase in long-term debt 290.5 167.3 56.7
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in long-term debt (146.0) 52.4 (11.2)
Dividends paid - common and preferred stock (106.1) (57.1) (34.0)
Redemption of preferred stock (41.4) -- --
Purchases of common stock (23.7) (75.6) (10.9)
Exercises of stock options 13.9 6.4 0.4
Other 0.5 0.8 0.9
- ---------------------------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (302.8) (73.1) (54.8)
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (50.1) 71.7 (162.2)
Cash and cash equivalents at beginning of year 112.6 40.9 203.1
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 62.5 $ 112.6 $ 40.9
- ---------------------------------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Preferred stock dividends on common stock $ 8.3 $ 33.1 $ --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE> 11
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In millions except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
Additional
Common Paid-In Retained Stockholders'
Stock Capital Earnings Other Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 17.8 $ 326.0 $ 339.0 $ 3.5 $ 686.3
Net income -- -- 9.8 -- 9.8
Cash dividends on common
stock (Allegheny Ludlum
$0.48 per share) -- -- (34.0) -- (34.0)
Employee stock plans -- 4.3 (0.5) -- 3.8
Purchase and cancellation
of common stock -- (10.9) -- -- (10.9)
Increase in net unrealized appreciation -- -- -- 0.5 0.5
Currency translation adjustment -- -- -- (0.1) (0.1)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 17.8 319.4 314.3 3.9 655.4
Net income -- -- 273.9 -- 273.9
Preferred stock dividends on common
stock (Teledyne $0.31 per share) -- -- (33.1) -- (33.1)
Cash dividends on common and
preferred stock (Allegheny Ludlum
$0.49 per common share,
Teledyne $0.21 per common share
and $0.60 per preferred share) -- -- (57.1) -- (57.1)
Employee stock plans -- 11.6 0.1 -- 11.7
Purchase and cancellation
of common stock (0.4) (75.2) -- -- (75.6)
Increase in net unrealized appreciation -- -- -- 9.9 9.9
Currency translation adjustment -- -- -- 0.7 0.7
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 17.4 255.8 498.1 14.5 785.8
Net income -- -- 213.0 -- 213.0
Preferred stock dividends on common
stock (Teledyne $0.08 per share) -- -- (8.3) -- (8.3)
Cash dividends on common and preferred
stock (Allegheny Teledyne $0.16
per common share, Allegheny Ludlum
$0.42 per common share, Teledyne
$0.44 per common share and
$1.20 per preferred share) -- -- (106.1) -- (106.1)
Employee stock plans -- 14.5 -- -- 14.5
Purchase and cancellation
of common stock -- (23.7) -- -- (23.7)
Decrease in net unrealized appreciation -- -- -- (1.6) (1.6)
Currency translation adjustment -- -- -- (2.1) (2.1)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ 17.4 $ 246.6 $ 596.7 $ 10.8 $ 871.5
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE> 12
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
ALLEGHENY TELEDYNE INCORPORATED
We have audited the accompanying consolidated balance sheets of Allegheny
Teledyne Incorporated and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
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 audit. We did not audit the 1995 and 1994 financial statements of
Teledyne, Inc., a wholly owned subsidiary, which statements reflect total
assets constituting 61.1% of the related consolidated totals as of December 31,
1995, and total revenues constituting 63.1% and 68.9% of the related
consolidated totals for the years ended December 31, 1995 and 1994,
respectively. Those statements were audited by other auditors whose report
thereon dated January 13, 1996 has been furnished to us, and our opinion,
insofar as it relates to data included for Teledyne, Inc., is based solely on
the report of the other auditors.
We conducted our audit 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 audit and the report of other
auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Allegheny Teledyne
Incorporated at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1996 the
Company changed its method of accounting for depreciation.
/s/ ERNST & YOUNG LLP
- ------------------------
Pittsburgh, Pennsylvania
January 22, 1997
34
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Allegheny
Teledyne Incorporated ("Allegheny Teledyne") and its subsidiaries. As described
in Note 2, on August 15, 1996 Allegheny Ludlum Corporation ("Allegheny Ludlum")
and Teledyne, Inc. ("Teledyne") combined to form Allegheny Teledyne. The
combination was accounted for under the pooling of interests method of
accounting and these consolidated financial statements reflect the combined
financial position, operating results and cash flows of Allegheny Ludlum and
Teledyne as if they had been combined for all periods presented. Significant
intercompany accounts and transactions have been eliminated. Unless the context
requires otherwise, the "Company" refers to Allegheny Teledyne and its
subsidiaries.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts and related disclosures. Actual results could
differ from those estimates. Management believes that the estimates are
reasonable.
Cash Equivalents
Marketable securities with original maturities of three months or less are
included in cash equivalents. The carrying amounts approximate market.
ACCOUNTS RECEIVABLE
Receivables are presented net of a reserve for doubtful accounts of $13.0
million at December 31, 1996 and $11.0 million at December 31, 1995. 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.
INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out; first-in,
first-out and average cost methods) or market, less progress payments. Costs
include direct material, direct labor and applicable manufacturing and
engineering overhead, and other direct costs.
PROPERTY AND EQUIPMENT
Property, plant and equipment are carried at cost. The straight-line method of
depreciation was adopted for all property placed into service after July 1,
1996. For buildings and equipment acquired prior to July 1, 1996, depreciation
is computed using a combination of accelerated and straight-line methods. The
Company believes the new method will more appropriately reflect its financial
results by better allocating costs of new property over the useful lives of
these assets. In addition, the new method more closely conforms with that
prevalent in the industries in which the Company operates and with that used by
Allegheny Ludlum. The effect of this change on net income for 1996 was not
material.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired related to businesses purchased after
November 1970 is being amortized on a straight-line basis over periods not
exceeding 40 years.
FINANCIAL INSTRUMENTS
The fair values of financial instruments approximated their carrying values at
December 31, 1996. Fair values have been determined through information
obtained from quoted market sources and management estimates.
The Company's investments in debt and equity securities are classified as
available-for-sale and are reported at fair values, with net unrealized
appreciation and depreciation on investments reported as a separate component
of stockholders' equity.
35
<PAGE> 14
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. Environmental liabilities are recorded when the Company's liability
is probable and the costs are reasonably estimable, but generally not later
than the completion of the feasibility study or the Company's recommendation of
a remedy or commitment to an appropriate plan of action. The accruals are
reviewed periodically and, as investigations and remediations proceed,
adjustments are made as necessary. Accruals for losses from environmental
remediation obligations do not consider the effects of inflation, and
anticipated expenditures are not discounted to their present value. The
accruals are not reduced by possible recoveries from insurance carriers or
other third parties, but do reflect anticipated allocations among potentially
responsible parties at federal Superfund sites or similar state-managed sites
and an assessment of the likelihood that such parties will fulfill their
obligations at such sites. 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 in
consultation with outside environmental specialists, when necessary.
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.
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.
RESEARCH AND DEVELOPMENT
Company-funded research and development costs ($66.2 million in 1996, $66.5
million in 1995 and $74.1 million in 1994), which include bid and proposal
costs, 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.
INCOME TAXES
Provision for income taxes included 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.
NET INCOME PER COMMON SHARE
The weighted average number of shares of common stock used in the computation
of net income per share was 174,082,298 in 1996, 176,386,341 in 1995 and
177,561,482 in 1994. The potential dilution of common stock equivalents is not
material and, therefore, is not included in the computation of per share data.
NOTE 2. COMBINATION OF ALLEGHENY LUDLUM AND TELEDYNE --
On August 15, 1996, Allegheny Ludlum and Teledyne became wholly owned
subsidiaries of Allegheny Teledyne. Allegheny Ludlum shareholders received one
share of Allegheny Teledyne common stock for each one of their Allegheny Ludlum
common shares. Teledyne stockholders received 1.925 shares of Allegheny
Teledyne common stock for each of their Teledyne common shares. There were
174.2 million shares of Allegheny Teledyne issued in the combination of the two
companies. Revenues and net income for the six months ended June 30, 1996 (the
most recent interim period prior to the pooling) were $691.7 million and $39.6
million, respectively, for Allegheny Ludlum and $1.3 billion and $102.4
million, respectively, for Teledyne. Intercompany transactions prior to the
combination were not material.
36
<PAGE> 15
The Company recorded merger and restructuring costs of $57.5 million ($42.9
million net of tax) in 1996 for financial advisory, legal, accounting,
severance and other costs associated with the integration of the combined
companies.
NOTE 3. INVENTORIES --
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $153.8 $141.7
Work-in-process 515.1 544.4
Finished goods 104.8 97.1
- ---------------------------------------------------------------------------------------------------------------------------
Total inventories at current cost 773.7 783.2
Less allowances to reduce current cost values to LIFO basis (229.6) (273.0)
Progress payments (25.7) (44.3)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $518.4 $465.9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventories, before progress payments, determined on the last-in, first-out
method were $423.3 million at December 31, 1996 and $411.5 million at December
31, 1995. The remainder of the inventory was determined using the first-in,
first-out and average cost methods. These inventory values do not differ
materially from current cost.
During 1996, 1995 and 1994, 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 liquidations was to increase
net income by $4.9 million in 1996, $8.0 million in 1995 and $8.5 million in
1994.
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 recognized in cost of sales upon
expiration of the contract period. These contracts are not significant to the
Company's total raw material purchases and are not material from a financial
point of view.
Inventories, before progress payments, related to long-term contracts were
$8.1 million and $25.3 million at December 31, 1996 and 1995, respectively.
Progress payments related to long-term contracts were $8.5 million and $24.1
million at December 31, 1996 and 1995, respectively.
NOTE 4. LONG-TERM DEBT --
CREDIT AGREEMENTS
In August 1996, Allegheny Teledyne entered into a five-year credit agreement
with a group of banks that provides for borrowings of up to $500 million on a
revolving credit basis. Interest is payable at prime or other alternative
interest rate bases, at the Company's option. The agreement provides for an
annual facility fee of 0.075%. The agreement has various covenants that 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 that can also limit the amount of dividend payments
and share repurchases. Under the most restrictive requirement, approximately
56% of the Company's retained earnings is currently free of restrictions
pertaining to cash dividend distributions and share repurchases.
The Company's subsidiaries also maintain credit agreements with various
foreign banks which provide for additional borrowings of up to $66.0 million.
These agreements provide for annual facility fees of 0.15%.
Borrowings outstanding under the credit agreements are unsecured.
Commitments under separate standby letters of credit outstanding were $38.3
million at December 31, 1996 and $72.0 million at December 31, 1995.
DEBENTURES
In 1996, Allegheny Teledyne guaranteed the outstanding Allegheny Ludlum 6.95%
debentures and Teledyne 7% subordinated debentures. In addition, utilizing $250
million from the credit agreement discussed above and $107 million from cash on
hand, the Company redeemed the Teledyne 10% subordinated debentures. As a
result, an extraordinary loss of $13.5 million, net of a tax benefit of $8.8
million, was recognized to write-off the unamortized original issue discount.
37
<PAGE> 16
In 1995, $150 million of Allegheny Ludlum 6.95% debentures were issued. A
portion of the proceeds from this issue was used to extinguish, at a premium to
book value, $100 million of Allegheny Ludlum 5-7/8% convertible subordinated
debentures resulting in an extraordinary loss of $2.9 million, net of a tax
benefit of $2.0 million.
Long-term debt at December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit agreements $ 241.3 $ 29.1
Allegheny Ludlum 6.95% debentures, due 2025 150.0 150.0
Teledyne 7% subordinated debentures, due 1999,
$1.9 payable annually 20.7 22.4
Industrial revenue bonds due 1997 through 2007 16.6 18.0
Teledyne 10% subordinated debentures, due 2004, Series A
and C (net of unamortized discount of $24.6 in 1995) -- 332.4
Capitalized leases and other 19.3 17.9
- ---------------------------------------------------------------------------------------------------------------------------
447.9 569.8
Current portion (4.5) (8.7)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 443.4 $ 561.1
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rate of borrowings outstanding under the
credit agreements was 5.2% at December 31, 1996 and 4.4% at December 31, 1995.
Scheduled maturities of long-term borrowings during the next five years are
$4.5 million in 1997, $58.4 million in 1998, $19.3 million in 1999, $1.3
million in 2000, and $191.5 million in 2001 including borrowings under
revolving credit agreements of $51.3 million in 1998 and $190.0 million in
2001.
Interest expense was $48.5 million in 1996, $50.6 million in 1995, and $52.0
million in 1994. Interest and commitment fees paid were $48.5 million in 1996,
$48.1 million in 1995, and $48.6 million in 1994.
NOTE 5. SUPPLEMENTAL BALANCE SHEET INFORMATION --
Cash and cash equivalents were as follows:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 27.9 $ 22.1
Repurchase agreements, at cost which approximates market -- 13.0
Other short-term investments, at cost which approximates market 34.6 77.5
- ---------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents $ 62.5 $ 112.6
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Property, plant and equipment were as follows:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 41.1 $ 36.6
Buildings 281.4 289.6
Equipment and leasehold improvements 1,256.9 1,227.0
- ---------------------------------------------------------------------------------------------------------------------------
1,579.4 1,553.2
Accumulated depreciation and amortization (848.0) (797.3)
- ---------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment $ 731.4 $ 755.9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 17
Accounts payable included $30.6 million at December 31, 1996 and $9.6
million at December 31, 1995 for checks outstanding in excess of cash balances.
Accrued liabilities included salaries and wages of $80.7 million and $75.2
million in 1996 and 1995, respectively, and accrued severance costs of $11.9
million in 1996.
NOTE 6. REDEMPTION OF PREFERRED STOCK --
On August 14, 1996, all of the outstanding shares of the Teledyne Series E
Cumulative Preferred Stock were redeemed at $15.60 per share.
NOTE 7. STOCKHOLDERS' EQUITY --
PREFERRED STOCK
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, 1996, there were no shares of preferred stock
issued.
COMMON STOCK
In connection with the combination of Allegheny Ludlum and Teledyne,
Allegheny Teledyne assumed stock options and awards, as well as purchase and
designation rights and related awards outstanding under stock-based
compensation plans maintained by Allegheny Ludlum and Teledyne prior to the
combination. In addition, Allegheny Teledyne's Board of Directors adopted the
Allegheny Teledyne Incorporated 1996 Incentive Plan and the 1996 Non-Employee
Director Stock Compensation Plan, which were approved by the stockholders on
August 15, 1996. The 1996 Incentive Plan provides for awards of up to
9,000,000 shares of Allegheny Teledyne common stock to officers and key
employees of the Company. A maximum of 700,000 shares may be issued under the
1996 Non-Employee Director Stock Compensation Plan to directors who are not
employees of the Company.
FASB Statement 123, "Accounting for Stock-based Compensation," became
effective in 1996. Compensation cost for the Company's stock option plans,
determined on the basis of the fair values at the grant dates for awards under
those plans consistent with the method of FASB Statement 123, was not material
to net income and earnings per share.
The Company has elected to continue to account for its stock option plans in
accordance with APB Opinion 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Under APB Opinion 25, no compensation expense is
recognized because the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of the grant.
39
<PAGE> 18
Stock option transactions under the Company's employee plans, which reflect
options granted prior to the combination which were assumed by the Company, are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number of Average Number of Average Number of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
beginning
of year 7,937,884 $10.90 7,626,897 $10.51 6,033,937 $11.47
Granted 2,058,200 $16.57 1,207,301 $12.54 2,115,918 $ 8.68
Exercised (1,074,512) $ 9.35 (723,339) $ 9.28 (164,488) $ 9.12
Cancelled (374,389) $11.75 (172,975) $11.31 (358,470) $10.03
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding
end of year 8,547,183 $12.42 7,937,884 $10.90 7,626,897 $10.51
- ---------------------------------------------------------------------------------------------------------------------------
Exercisable at
end of year 4,003,054 $10.49 3,500,875 $ 9.71 2,830,269 $ 9.70
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$8.33 to $22.94. The weighted-average remaining contractual life of those
options is 7.6 years.
In addition to the Company's stock option plans, at December 31, 1996, a
maximum of 357,600 shares were issuable to forty-four employees under the
Allegheny Ludlum Performance Share Plan based on units awarded to such
participants for the 1995-1996 award period, which are payable in three annual
installments beginning in 1997.
Compensation expense related to the various stock-based plans was $5.5
million in 1996, $10.0 million in 1995 and $0.2 million in 1994.
NOTE 8. INCOME TAXES --
Provision for income taxes was as follows:
<TABLE>
<CAPTION>
(In millions) Year Ended
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current - Federal $114.6 $100.4 $(31.7)
- State 19.0 17.3 5.1
- Foreign 6.0 4.0 2.0
- ---------------------------------------------------------------------------------------------------------------------------
- Total 139.6 121.7 (24.6)
- ---------------------------------------------------------------------------------------------------------------------------
Deferred - Federal 11.2 29.8 40.9
- State 7.2 12.6 3.1
- Foreign 0.2 -- --
- ---------------------------------------------------------------------------------------------------------------------------
- Total 18.6 42.4 44.0
- ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $158.2 $164.1 $ 19.4
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes paid $115.4 $ 55.0 $ 15.3
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 19
Income before income taxes and extraordinary loss included income from
domestic operations of $366.6 million in 1996, $437.1 million in 1995 and $23.6
million in 1994.
The following is a reconciliation of the statutory federal income tax rate
to the actual effective income tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit 4.3 4.4 18.3
Capitalization of merger and restructuring costs 1.8 -- --
Amortization of cost in excess of net assets acquired 0.3 0.3 4.3
Foreign sales corporation exemption (0.6) (0.4) (7.5)
Non-deductible settlement expenses -- -- 16.3
Other 0.3 (2.1) --
- ---------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 41.1% 37.2% 66.4%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes 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. Deferred income taxes 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 expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Income Tax Assets
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefits other than pensions $219.0 $219.6
Deferred compensation and other benefit plans 37.0 37.4
Self-insurance reserves 16.1 17.0
Long-term contracts 6.6 13.6
Other items 84.8 71.6
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 363.5 359.2
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Income Tax Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Pension asset 136.7 128.3
Bases of property, plant and equipment 110.7 106.8
Inventory valuation 15.8 10.6
Other items 26.6 26.7
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 289.8 272.4
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred income tax asset $ 73.7 $ 86.8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 9. PENSION PLANS AND OTHER POSTEMPLOYMENT BENEFITS --
In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum were
merged with over-funded defined benefit pension plans of Teledyne, and
Allegheny Teledyne became the plan sponsor.
The Company has defined benefit pension plans and defined contribution
plans, covering substantially all of its employees. Benefits under the defined
benefit pension plans 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, and the Internal Revenue Code.
41
<PAGE> 20
Components of pension expense (income) for the Company's defined benefit
plans included the following:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
Expense (Income)
--------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 33.9 $ 28.4 $ 38.7
Interest cost on benefits earned in prior years 124.1 121.8 104.3
Expected return on plan assets (202.7) (164.1) (146.5)
Net amortization of unrecognized amounts (22.3) (42.8) (57.2)
- ---------------------------------------------------------------------------------------------------------------------------
Pension income for defined benefit plans (67.0) (56.7) (60.7)
Other -- -- (2.9)
- ---------------------------------------------------------------------------------------------------------------------------
Pension income $ (67.0) $(56.7) $(63.6)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Actual return on plan assets was income of $28.8 million in 1996, income of
$375.6 million in 1995 and loss of $48.5 million in 1994. Pension costs for
defined contribution plans were $16.2 million in 1996, $14.9 million in 1995
and $13.5 million in 1994.
Actuarial assumptions used to develop the components of pension expense
(income) were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7.9% 7.4%
Rate of increase in future compensation levels 3%-4.5% 3%-4.5% 3%-4.5%
Expected long-term rate of return on assets 8.6% 7.8% 6.6%
</TABLE>
Plan assets in excess of projected benefit obligation were as follows:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily listed stocks,
government securities and pooled investment funds $2,359.2 $2,415.3
- ---------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation
Vested benefit obligation 1,573.4 1,539.8
Non-vested benefit obligation 91.1 41.5
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 1,664.5 1,581.3
Additional benefits related to future compensation levels 172.8 166.1
- ---------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 1,837.3 1,747.4
Plan assets in excess of projected benefit obligation $ 521.9 $ 667.9
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation:
Included in balance sheet:
Prepaid pension cost $ 352.5 $ 314.9
Other long-term liabilities (4.0) (5.9)
Not included in balance sheet:
Unrecognized net gain due to experience different from
that assumed and changes in the discount rate 90.5 251.5
Unrecognized net asset at adoption of SFAS No. 87, net of amortization 161.9 195.6
Unrecognized prior service cost (79.0) (88.2)
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 521.9 $ 667.9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 21
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.
Discount rates of 7.25% at December 31, 1996 and 7.3% at December 31, 1995
were used for the valuation of pension obligations.
OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors several defined benefit postretirement plans covering
certain salaried and hourly employees. The plans provide health care and life
insurance benefits for eligible retirees. In certain plans, Company
contributions towards premiums are capped based on the cost as of a certain
date thereby creating a defined contribution.
Cash from excess pension assets of $30.5 million in 1996 and $17.5 million
in 1995 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 benefit expenses included the following:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
Expense (Income)
--------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 7.9 $ 6.9 $ 7.4
Interest cost on benefits earned in prior years 46.1 46.7 42.2
Expected return on plan assets (6.5) (4.7) (2.7)
Net amortization of unrecognized amounts 2.3 0.5 (0.8)
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefit expense $ 49.8 $ 49.4 $ 46.1
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Actual return on plan assets was $5.4 million in 1996, $4.8 million in 1995
and $2.7 million in 1994.
Discount rates of 7.5% in 1996, 7.7% in 1995 and 7.5% in 1994 were used in
determining the post-retirement benefit expense.
The annual assumed rate of increase in the per capita cost of covered
benefits (the health care cost trend rate) for health care plans was 9.03% in
1996 and was assumed to decrease to 5.25% percent in the year 2002 and remain
at that level thereafter. The health care cost trend rate assumption had 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 accumulated postretirement benefit obligation (APBO) for health
care plans at December 31, 1996 by $70.1 million and the postretirement benefit
expense for 1996 by $7.6 million.
The following table sets forth the postretirement benefit plans' combined
funded status reconciled with the amounts recognized in the balance sheet:
<TABLE>
<CAPTION>
(In millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $441.7 $482.4
Other fully eligible plan participants 72.5 82.4
Other active plan participants 121.9 134.4
- ---------------------------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 636.1 699.2
Less plan assets at fair value, primarily investment in limited
partnership funds 52.5 45.6
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess of plan assets 583.6 653.6
Unrecognized net loss (35.1) (82.3)
Unrecognized prior service cost 19.0 (7.4)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $567.5 $563.9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 22
The Company intends to make transfers of excess pension assets to the extent
and for each year permitted under Section 420 of the Internal Revenue Code.
Under the assumptions set forth above and assuming that the expiration date of
Section 420 of the Internal Revenue Code is deferred, the present value of
excess pension assets available for transfer under Section 420 is sufficient to
fund more than 50% of the present value of the accumulated postretirement
benefit cost of the Company as a whole including those attributable to each of
its subsidiaries.
The Company's Chairman, President and Chief Executive Officer serves on the
advisory boards of the limited partnership funds.
The discount rates used in determining the APBO were 7.25% at December 31,
1996 and 7.2% at December 31, 1995. The expected long-term rate of return on
plan assets ranged from 9% to 15% in 1996 and 1995.
NOTE 10. ACQUISITIONS --
In May 1996, the Company acquired Jandy Industries, a United States producer of
water flow control valves and electronic control systems for the swimming pool
industry. The business was purchased for $13.5 million in cash. In connection
with the purchase, the Company acquired operating assets with a fair value of
$20.9 million and assumed operating liabilities of $7.4 million.
In January 1995, the Company acquired the material handling business of Kooi
B.V., a Netherlands company that is a European supplier of material handlers.
In December 1995, the Company acquired two businesses: 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.
NOTE 11. BUSINESS SEGMENTS --
Allegheny Teledyne is a group of technology-based manufacturing businesses
serving worldwide customers with specialty metals for consumer, industrial and
aerospace applications; commercial and government-related aerospace and
electronics products; and industrial and consumer products. Approximately 26%
of the Company's workforce is covered by various union contracts.
Information on the Company's business segments was as follows:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Specialty metals $2,045.3 $2,203.6 $1,674.0
Aerospace and electronics 987.8 914.4 863.7
Industrial 447.1 378.5 292.3
Consumer 287.9 267.9 255.5
- ---------------------------------------------------------------------------------------------------------------------------
Total continuing operations 3,768.1 3,764.4 3,085.5
Operations sold or held for sale 47.5 283.7 371.8
- ---------------------------------------------------------------------------------------------------------------------------
Total sales $3,815.6 $4,048.1 $3,457.3
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 23
The Company's backlog of confirmed orders was approximately $1.2 billion at
December 31, 1996 and 1995. Backlog of the specialty metals segment was $658.8
million at December 31, 1996 and $564.9 million at December 31, 1995.
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to the U.S. Government including direct sales as
prime contractor and indirect sales as subcontractor:
Specialty metals $ 77.1 $ 44.3 $ 50.5
Aerospace and electronics 581.8 518.0 485.0
Industrial and consumer 1.4 2.8 3.5
Operations sold or held for sale 22.4 195.3 246.8
- ---------------------------------------------------------------------------------------------------------------------------
Total sales to U.S. Government $682.7 $760.4 $785.8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Sales to the U.S. Government included sales to the Department of Defense of
$450.5 million in 1996, $613.4 million in 1995 and $599.5 million in 1994.
Total foreign sales were $652.6 million in 1996, $626.2 million in 1995 and
$586.3 million in 1994. Of these amounts, sales by operations in the United
States to customers in other countries were $440.5 million in 1996, $517.1
million in 1995 and $448.2 million in 1994. Sales between business segments,
which were not material, generally were priced at prevailing market prices.
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit:
Specialty metals $278.9 $301.1 $106.8
Aerospace and electronics 99.9 88.2 (6.7)
Industrial 44.0 33.5 21.1
Consumer 18.5 12.7 15.7
- ---------------------------------------------------------------------------------------------------------------------------
Total operating profit 441.3 435.5 136.9
Merger and restructuring costs (57.5) (6.4) --
Corporate expenses (42.1) (41.8) (51.3)
Interest expense, net (34.7) (37.6) (44.0)
Operations sold or held for sale 60.5 83.9 (29.8)
Excess pension income 17.2 7.3 17.4
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary loss $384.7 $440.9 $ 29.2
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Operating results for operations sold or held for sale included pretax gains
of $41.0 million on the sale of the Teledyne defense vehicle business and $20.3
million on the sale of surplus real estate in California in 1996 and $50.7
million on the sale of the Teledyne defense electronic systems business in
1995. These amounts are included with other income in the statements of income
for the respective periods. In addition, operating results for operations sold
or held for sale for 1996 included a charge of $7.7 million to settle certain
U.S. Government contracting legal issues relating to two former Teledyne
units. Merger and restructuring expenses included proxy expenses in 1995.
For 1994, operating results were adversely affected by pretax charges
totalling $136.8 million related to Teledyne's settlements of certain
litigation concerning U.S. Government contracting and export matters. Operating
results of the specialty metals segment, aerospace and electronics segment and
operations sold or held for sale included $13.0 million, $85.0 million and
$38.8 million, respectively, for these settlements.
Excess pension income represents the amount of pension income in excess of
amounts allocated to business segments to offset pension and other
postretirement benefit expenses.
45
<PAGE> 24
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization:
Specialty metals $ 69.6 $ 69.2 $ 63.7
Aerospace and electronics 12.8 14.9 14.7
Industrial 11.3 9.6 9.1
Consumer 6.7 7.8 7.7
Corporate and operations sold or held for sale 4.9 9.4 13.2
- ---------------------------------------------------------------------------------------------------------------------------
$ 105.3 $ 110.9 $ 108.4
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures:
Specialty metals $ 47.3 $ 58.4 $ 75.7
Aerospace and electronics 15.3 12.7 13.9
Industrial 13.4 13.0 8.3
Consumer 9.1 6.4 11.1
Corporate and operations sold or held for sale 3.5 3.3 8.2
- ---------------------------------------------------------------------------------------------------------------------------
$ 88.6 $ 93.8 $ 117.2
- ---------------------------------------------------------------------------------------------------------------------------
Identifiable assets:
Specialty metals $1,290.6 $1,331.4 $1,247.8
Aerospace and electronics 267.3 249.2 236.4
Industrial 226.6 179.5 143.8
Consumer 149.8 131.4 114.1
Corporate and operations sold or held for sale 672.1 737.4 737.3
- ---------------------------------------------------------------------------------------------------------------------------
$2,606.4 $2,628.9 $2,479.4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 12. SUMMARIZED FINANCIAL INFORMATION OF ALLEGHENY LUDLUM AND TELEDYNE --
Summarized financial information for Allegheny Ludlum and Teledyne is presented
below:
<TABLE>
<CAPTION>
Balance Sheets:
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
Allegheny Ludlum Teledyne
December 31 December 31
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $ 450.8 $ 454.3 $ 748.0 $ 788.1
Non-current assets 862.3 690.0 449.1 818.1
Current liabilities 196.7 183.5 394.4 403.7
Non-current liabilities 489.0 585.3 585.1 773.8
Redeemable preferred stock -- -- -- 33.1
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations:
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
Allegheny Ludlum Teledyne
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,277.8 $1,494.3 $1,076.9 $2,551.5 $2,553.8 $2,380.4
Gross profit 130.1 234.2 87.1 804.6 655.0 603.4
Net income (loss) before
extraordinary loss on
redemption of debt 73.2 114.8 18.2 144.1 162.0 (8.4)
Net income (loss) 73.2 111.9 18.2 130.6 162.0 (8.4)
</TABLE>
46
<PAGE> 25
In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum
were merged with overfunded defined benefit pension plans of Teledyne, and
Allegheny Teledyne became the plan sponsor. As a result, the 1996 summarized
balance sheet information presented for Allegheny Ludlum and Teledyne does not
include the Allegheny Teledyne net prepaid pension asset or the related
deferred taxes. Pension income has been allocated to Allegheny Ludlum and
Teledyne to offset pension and postretirement expenses which may be funded with
the pension assets.
NOTE 13. COMMITMENTS AND CONTINGENCIES --
Rental expense under operating leases was $31.1 million in 1996, $30.2 million
in 1995, and $34.1 million in 1994. Future minimum rental commitments under
operating leases with non-cancelable terms of more than one year as of December
31, 1996, were as follows: $20.4 million in 1997, $18.4 million in 1998, $16.4
million in 1999, $13.9 million in 2000, $11.0 million in 2001 and $41.8 million
thereafter.
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.
In accordance with the Company's accounting policy disclosed in Note 1,
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 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
that 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 December 31, 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 $17 million for federal Superfund and
comparable state-managed sites; $7 million for formerly owned or operated sites
for which the Company has remediation or indemnification obligations; $9
million for owned or controlled sites at which Company operations have been
discontinued; and $11 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 is effective in 1997, is not expected to have a material
effect on the consolidated financial statements.
47
<PAGE> 26
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 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.
In October 1996, the Company reached an agreement in principle with the U.S.
Government for a joint settlement of two cases (one involving the Company's
former Teledyne Neosho unit, divested in 1992 and the other involving the
Company's former Thermatics unit, divested in 1996) for an aggregate of $11.5
million. The settlement was finalized and the Company made payment in December
1996. The matter involving the former Neosho unit involved an action brought in
1991 under the False Claims Act in the U.S. District Court for the Western
District of Missouri and related to alleged misappropriations of
government-owned aircraft parts and falsification of inventory control
documents. The matter involving the former Thermatics unit commenced in 1993
when Thermatics sought admission into the Department of Defense Voluntary
Disclosure Program with respect to testing practices at variance from military
specifications. Established reserves for these matters in 1994 amounted to $3.8
million.
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 could 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.
48
<PAGE> 27
NOTE 14. QUARTERLY DATA (UNAUDITED) --
(In millions except share and per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Quarter Ended
--------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 --
Sales $1,017.9 $ 997.7 $ 879.7 $ 920.3
Gross profit 222.3 237.5 215.7 238.4
Income before extraordinary loss 81.6 60.4 19.6 64.9
Extraordinary loss on redemption of debt -- -- -- (13.5)
Net income 81.6 60.4 19.6 51.4
Net income per common share:
Income before extraordinary loss $ 0.46 $ 0.34 $ 0.11 $ 0.38
Extraordinary loss -- -- -- (0.08)
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 0.46 $ 0.34 $ 0.11 $ 0.30
- ---------------------------------------------------------------------------------------------------------------------------
Average shares outstanding 174,122,080 173,841,171 174,068,161 174,297,782
- ---------------------------------------------------------------------------------------------------------------------------
1995 --
Sales $1,018.2 $1,094.8 $ 962.8 $ 972.3
Gross profit 229.2 234.7 216.6 208.7
Income before extraordinary loss 93.2 67.0 64.7 51.9
Extraordinary loss on redemption of debt -- -- -- (2.9)
Net income 93.2 67.0 64.7 49.0
Net income per common share:
Income before extraordinary loss $ 0.53 $ 0.38 $ 0.36 $ 0.30
Extraordinary loss -- -- -- (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 0.53 $ 0.38 $ 0.36 $ 0.28
- ---------------------------------------------------------------------------------------------------------------------------
Average shares outstanding 177,406,678 177,041,325 176,186,299 174,868,670
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income for 1996 included after-tax gains of $24.8 million on sale of the
Teledyne defense vehicle business in the first quarter, and $12.8 million on
the sale of surplus California real estate in the fourth quarter.
Net income for 1996 was adversely affected by after-tax merger and
restructuring charges of $5.2 million in the second quarter, $26.3 million in
the third quarter and $11.4 million in the fourth quarter. In addition, the
1996 fourth quarter included an after-tax charge of $4.7 million for settlement
of legal cases involving U.S. Government contracting issues related to divested
operations of Teledyne.
For the 1995 first quarter, net income included an after-tax gain of $30.3
million on the sale of Teledyne's defense electronics systems business.
The Company paid a cash dividend of $0.16 per share on its common stock in
the 1996 fourth quarter.
Allegheny Ludlum paid cash dividends in 1996 of $0.13 per share in each of
the first and second quarters, and $0.16 per share in the third quarter. In
1995, Allegheny Ludlum paid cash dividends of $0.12 per share in each of the
first three quarters and $0.13 per share in the fourth quarter.
Teledyne paid cash dividends in 1996 of $0.12 per equivalent common share in
the first quarter and $0.16 per equivalent common share in each of the second
and third quarters. In addition, a dividend of $0.08 per equivalent share in
face amount of Teledyne's Series E Cumulative Preferred Stock was paid in the
1996 first quarter. For each quarter of 1995, Teledyne paid dividends
consisting of $0.052 per equivalent share in cash and $0.08 per equivalent
share in face amount of Teledyne's Series E Cumulative Preferred Stock.
49
<PAGE> 28
COMMON STOCK PRICE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Quarters
---------------------------------------------------------------
1996 1st 2nd 3rd 4th
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allegheny Teledyne Incorporated (from August 16)
High -- -- $23-1/2 $23-3/4
Low -- -- $19-7/8 $20-1/8
Allegheny Ludlum Corporation (through August 15)
High $21-1/16 $21-3/8 $21-1/8 --
Low $18 $17-3/8 $18-1/4 --
Teledyne, Inc. (through August 15)
High $29-3/4 $40-1/8 $40-5/8 --
Low $24-1/8 $27-3/4 $34-3/4 --
- -----------------------------------------------------------------------------------------------------------------
Quarters
---------------------------------------------------------------
1995 1st 2nd 3rd 4th
- -----------------------------------------------------------------------------------------------------------------
Allegheny Ludlum Corporation
High $21-3/8 $23 $22-5/8 $20-1/2
Low $18-3/8 $18-3/4 $19-3/4 $16-3/8
Teledyne, Inc.
High $27-3/8 $26-1/2 $27-3/8 $27-5/8
Low $20 $23-3/8 $22-1/8 $23-1/8
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All stock prices are as historically presented.
On August 15, 1996, Allegheny Ludlum Corporation ("Allegheny Ludlum") and
Teledyne, Inc. ("Teledyne") became wholly owned subsidiaries of Allegheny
Teledyne Incorporated ("Allegheny Teledyne"). Allegheny Ludlum shareholders
received one share of Allegheny Teledyne common stock for each one of their
Allegheny Ludlum common shares. Teledyne stockholders received 1.925 shares of
Allegheny Teledyne common stock for each of their Teledyne common shares.
Allegheny Teledyne common stock is listed on the New York Exchange, under
the symbol "ALT." As of December 31, 1996, there were approximately 9,342
record holders of Allegheny Teledyne common stock.
50
<PAGE> 29
MANAGEMENT'S REPORT
The accompanying consolidated financial statements of Allegheny Teledyne
Incorporated and subsidiaries have been prepared in accordance with generally
accepted accounting principles and include some amounts that are based upon
Management's best estimates and judgments. Management has the primary
responsibility for the information contained in the financial statements and in
other sections of this Annual Report and for their integrity and objectivity.
The Company has a system of internal controls designed to provide reasonable
assurance that assets are safeguarded and transactions are properly executed
and recorded for the preparation of financial information. The concept of
reasonable assurance is based on the recognition that there are inherent
limitations in all systems of internal accounting control and that the cost of
such systems should not exceed the benefits to be derived.
The Company maintains a staff of professional internal auditors, who assist
in audit coverage with the independent accountants and conduct operational and
special audits. The independent accountants express their opinion on the
Company's financial statements based on procedures, including an evaluation of
internal controls, which they consider to be sufficient to form their opinion.
The Audit and Finance Committee of the Board of Directors is composed of
five non-employee members. Among its principal duties, the Committee is
responsible for recommending the independent accountants to conduct the annual
audit of the Company's financial statements and for reviewing the financial
reporting and accounting practices.
/s/ R. P. SIMMONS
- ---------------------------
R. P. Simmons
Chairman, President
and Chief Executive Officer
/s/ J. L. MURDY
- ---------------------------
J. L. Murdy
Executive Vice President,
Finance and Administration
and Chief Financial Officer
51
<PAGE> 30
SELECTED FINANCIAL DATA
For the Years Ended December 31,
<TABLE>
<CAPTION>
(In millions except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales:
Continuing $3,768.1 $3,764.4 $3,085.5 $3,072.3 $3,070.3
Operations sold or held for sale 47.5 283.7 371.8 489.7 827.5
- ---------------------------------------------------------------------------------------------------------------------------
$3,815.6 $4,048.1 $3,457.3 $3,562.0 $3,897.8
- ---------------------------------------------------------------------------------------------------------------------------
Income, after tax, before
extraordinary loss and
cumulative effect of
accounting changes $ 226.5 $ 276.8 $ 9.8 $ 143.6 $ 92.8
Extraordinary loss on
redemption of debt (13.5) (2.9) -- (3.7) (2.7)
Cumulative effect of
accounting changes -- -- -- (185.6) (135.2)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 213.0 $ 273.9 $ 9.8 $ (45.7) $ (45.1)
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share:
Income after tax, before
extraordinary loss
and cumulative effect
of accounting changes $ 1.28 $ 1.56 $ 0.06 $ 0.83 $ 0.54
Extraordinary loss on
redemption of debt (0.08) (0.02) -- (0.02) (0.02)
Cumulative effect of
accounting changes -- -- -- (1.07) (0.78)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss)
per common share $ 1.20 $ 1.54 $ 0.06 $ (0.26) $ (0.26)
- ---------------------------------------------------------------------------------------------------------------------------
Dividends declared:
Allegheny Teledyne $ 0.16 $ -- $ -- $ -- $ --
Allegheny Ludlum $ 0.42 $ 0.49 $ 0.48 $ 0.47 $ 0.44
Teledyne $ 0.52 $ 0.52 $ -- $ 0.42 $ 0.42
- ---------------------------------------------------------------------------------------------------------------------------
Working capital $ 614.0 $ 679.8 $ 540.1 $ 635.8 $ 787.6
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $2,606.4 $2,628.9 $2,479.4 $2,535.1 $2,304.9
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 443.4 $ 561.1 $ 489.7 $ 495.5 $ 587.8
- ---------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock $ -- $ 33.1 $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 871.5 $ 785.8 $ 655.4 $ 686.3 $ 698.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 31
The historical selected financial data reflects the results of Allegheny
Ludlum and of Teledyne as if they had been combined for all periods presented.
Net income included after-tax gains of $37.6 million on the sale of the
Teledyne defense vehicle business and surplus California real estate in 1996,
$30.3 million on the sale of the Teledyne defense electronic systems business
in 1995, $24.2 million on the sale of an investment in Litton Industries common
stock in 1993, and $14.8 million on sales of other operations in 1992.
Net income was adversely affected by after-tax merger, restructuring and
proxy contest charges of $42.9 million in 1996 and $3.9 million in 1995.
Results of operations included after-tax charges of $4.7 million in 1996,
$88.0 million in 1994, $10.7 million in 1993 and $19.0 million in 1992 related
to Teledyne's settlement of certain legal matters with the U.S. Government.
Results for 1994 were adversely affected by a ten-week strike at Allegheny
Ludlum called by the United Steelworkers of America.
Net losses for 1993 and 1992 included charges of $185.6 million and $125.2
million, respectively, for the cumulative effect of changing the accounting for
postretirement health care and life insurance benefits for Teledyne in 1993 and
Allegheny Ludlum in 1992. Prior year financial statements have not been
restated.
Effective January 1, 1992, Allegheny Ludlum and Teledyne changed their
method of accounting for income taxes to comply with the provisions of SFAS No.
109. The cumulative effect of the accounting change was a charge of $10.0
million.
Teledyne dividends declared included $0.08 per equivalent share in 1996 and
$0.31 per equivalent share in 1995 paid in face amount of Teledyne's Series E
Cumulative Preferred Stock. The Teledyne Series E Cumulative Preferred Stock
was redeemed for cash in 1996.
53
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
The following lists the subsidiaries of Allegheny Teledyne
Incorporated as of March 27, 1997, excluding those subsidiaries which,
considered in the aggregate as a single subsidiary, do not constitute a
significant subsidiary. The subsidiaries listed are all wholly owned, either
directly or indirectly.
Allegheny Ludlum Corporation Pennsylvania
Teledyne, Inc. Delaware
Teledyne Industries, Inc. California
Jessop Steel Company Pennsylvania
AII Acquisition Corp. Delaware
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Form 10-K of
Allegheny Teledyne Incorporated of our report dated January 22, 1997, included
in the 1996 Annual Report to Stockholders of Allegheny Teledyne Incorporated.
We also consent to the incorporation by reference in Registration
Statements 333-8235, 333-10225, 333-10227, 333-10229 and 333-10245 of Allegheny
Teledyne Incorporated of our report dated January 22, 1997, with respect to
the consolidated financial statements incorporated herein by reference.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 27, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated January 13, 1996, included in this Form 10-K, on the
consolidated financial statements of Teledyne, Inc. as of December 31, 1995
and for each of the two years in the period ended December 31, 1995, into
the Registration Statements 333-8235, 333-10225, 333-10227, 333-10229 and
333-10245 previously filed by Allegheny Teledyne Incorporated.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statement of income for the fiscal year ended December
31, 1996 and consolidated balance sheet as of December 31, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 63
<SECURITIES> 0
<RECEIVABLES> 538
<ALLOWANCES> 13
<INVENTORY> 518
<CURRENT-ASSETS> 1,200
<PP&E> 1,579
<DEPRECIATION> 848
<TOTAL-ASSETS> 2,606
<CURRENT-LIABILITIES> 586
<BONDS> 443
0
0
<COMMON> 17
<OTHER-SE> 854
<TOTAL-LIABILITY-AND-EQUITY> 2,606
<SALES> 3,816
<TOTAL-REVENUES> 3,816
<CGS> 2,902
<TOTAL-COSTS> 2,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 385
<INCOME-TAX> 158
<INCOME-CONTINUING> 227
<DISCONTINUED> 0
<EXTRAORDINARY> (14)
<CHANGES> 0
<NET-INCOME> 213
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
<PAGE> 1
EXHIBIT 99.1
To the Board of Directors of Allegheny Teledyne Incorporated:
We have audited the consolidated balance sheets of Teledyne, Inc. (a Delaware
corporation) and subsidiaries (the Company) as of December 31, 1995 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the two 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 the results of their operations
and their cash flows for each of the two 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.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 13, 1996
