UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUAN T TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
Commission File Number 1-12001
ALLEGHENY TELEDYNE INCORPORATED
-------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 25-1792394
-------------------------------- ----------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
-------------------------------- ----------------------------
(Address of Principal Executive Offices) (Zip Code)
(412) 394-2800
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
At May 8, 1998, the Registrant had outstanding 196,625,335 shares of its Common
Stock.
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ALLEGHENY TELEDYNE INCORPORATED
SEC FORM 10-Q
QUARTER ENDED MARCH 31, 1998
INDEX
Page No.
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 18
PART II. - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
(Unaudited)
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 51.4 $ 53.7
Short-term investments available for sale -- 34.4
Accounts receivable 623.3 576.0
Inventories 698.5 697.9
Deferred income taxes 37.4 40.3
Tax refund 9.3 9.4
Prepaid expenses and other current assets 35.1 32.3
---------- -----------
Total Current Assets 1,455.0 1,444.0
Property, plant and equipment 778.1 753.8
Prepaid pension cost 385.3 379.7
Cost in excess of net assets acquired 251.3 186.5
Other assets 136.5 134.2
---------- -----------
Total Assets $ 3,006.2 $ 2,898.2
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 258.1 $ 267.9
Accrued liabilities 328.0 328.8
Current portion of long-term debt 4.1 4.7
---------- -----------
Total Current Liabilities 590.2 601.4
Long-term debt 432.9 330.4
Accrued postretirement benefits 574.1 574.5
Other 153.0 147.3
---------- -----------
Total Liabilities 1,750.2 1,653.6
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STOCKHOLDERS' EQUITY:
Preferred value, par value $0.10: authorized-
50,000,000 shares; issued-None -- --
Common stock, par value $0.10,
authorized-600,000,000 shares;
issued-197,937,664 shares
at March 31, 1998 and
197,730,720 shares at
December 31, 1997; outstanding-196,527,612
shares at March 31, 1998
and 195,713,604 shares at
December 31, 1997 19.8 19.8
Additional paid-in capital 449.4 463.5
Retained earnings 830.5 822.6
Treasury stock: 1,410,052 shares at March 31, 1998
and 2,017,116 shares at December 31, 1997 (42.0) (60.2)
Foreign currency translation losses (3.7) (2.4)
Unrealized gains on securities 2.0 1.3
---------- -----------
Total Stockholders' Equity 1,256.0 1,244.6
---------- -----------
Total Liabilities and Stockholders' Equity $ 3,006.2 $ 2,898.2
========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
3
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ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Sales $1,002.2 $1,029.9
Costs and expenses:
Cost of sales 773.3 785.5
Selling and administrative expenses 119.0 125.8
Merger and restructuring costs 60.6 7.2
Interest expense, net 3.9 5.1
----------- ----------
956.8 923.6
Earnings before other income 45.4 106.3
Other income 0.3 10.5
----------- ----------
Income before income taxes 45.7 116.8
Provision for income taxes 18.8 45.7
----------- ----------
Net income 26.9 71.1
=========== ==========
Basic net income per common share $0.14 $0.36
=========== ==========
Diluted net income per common share $0.14 $0.35
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
March 31,
-------------------------------
1998 1997
-------------- ---------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 26.9 $ 71.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash restructuring costs 33.9 --
Depreciation and amortization 28.0 26.0
Deferred income taxes (1.6) 12.5
Gains on sales of businesses and investments -- (14.6)
Change in operating assets and liabilities:
Accounts payable (26.7) (51.3)
Prepaid pension cost (25.2) (15.8)
Accounts receivable (24.4) (56.5)
Inventories 22.9 38.2
Accrued income taxes (19.9) 4.9
Accrued liabilities 6.8 (5.4)
Accrued postretirement benefits (0.4) 2.3
Other 2.6 7.0
------ -----
CASH PROVIDED BY OPERATING ACTIVITIES 22.9 18.4
INVESTING ACTIVITIES:
Short-term investments - sales 34.4 23.7
Short-term investments - purchases -- (2.5)
------ -----
34.4 21.2
Purchases of businesses and investment
in ventures (107.7) (4.1)
Purchases of property, plant and equipment (32.7) (22.1)
Disposals of property, plant and equipment 1.6 2.3
Proceeds from the sales of businesses
and investments -- 25.6
Other (0.5) (2.6)
------ -----
CASH (USED) PROVIDED BY INVESTING ACTIVITIES (104.9) 20.3
FINANCING ACTIVITIES:
Increase in long-term debt 106.8 1.7
Payments on long-term debt (3.1) (4.4)
------ -----
Net increase (decrease) in long-term debt 103.7 (2.7)
Cash dividends (27.9) (28.0)
Exercises of stock options 3.9 15.1
Purchases of treasury stock -- (0.9)
Other -- (0.8)
------ -----
CASH PROVIDED (USED) IN FINANCING ACTIVITIES 79.7 (17.3)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2.3) 21.4
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 53.7 64.0
------ -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 51.4 $ 85.4
====== =====
The accompanying notes are an integral part of these statements.
</TABLE>
5
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ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of
Allegheny Teledyne Incorporated and its subsidiaries ("Allegheny Teledyne" or
the "Company"). As described in Note 6, on March 24, 1998, Allegheny Teledyne
acquired the stock of Oregon Metallurgical Corporation ("OREMET"). The merger
was accounted for under the pooling of interests method of accounting and these
unaudited consolidated financial statements reflect the combined financial
position, operating results and cash flows of Allegheny Teledyne and OREMET as
if they had been combined for all periods presented.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and note
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments (which
include only normal recurring adjustments) considered necessary for a fair
presentation have been included. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1997 Annual Report. The
results of operations for these interim periods are not necessarily indicative
of the operating results for a full year.
ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" was issued in June 1997. This
statement has been adopted by the Company in 1998, and did not have a material
effect on the consolidated financial statements.
Financial Accounting Standards Board Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," was issued in
February 1998. This statement revises employers' disclosures about pension and
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Company will adopt this statement in 1998.
NOTE 2. INVENTORIES
<TABLE>
<CAPTION>
Inventories were as follows (in millions):
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials and supplies $ 197.3 $ 212.8
Work-in-process 571.2 561.2
Finished goods 146.7 145.5
--------- ---------
Total inventories at current cost 915.2 919.5
Less allowances to reduce current cost
values to LIFO basis (200.5) (206.4)
Progress payments (16.2) (15.2)
--------- ---------
Total inventories $ 698.5 $ 697.9
========= =========
</TABLE>
6
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NOTE 3. BUSINESS SEGMENTS
Information on the Company's business segments was as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1998 1997
---------------- ----------------
Sales:
<S> <C> <C>
Specialty metals $ 544.8 $ 562.6
Aerospace and electronics 237.9 235.7
Industrial 138.3 133.3
Consumer 51.5 54.1
---------------- ----------------
Total continuing operations 972.5 985.7
Operations sold or held for sale 29.7 44.2
---------------- ----------------
Total sales $ 1,002.2 $ 1,029.9
================ ================
Operating Profit:
Specialty metals $ 70.4 $ 83.3
Aerospace and electronics 21.9 24.9
Industrial 14.7 15.6
Consumer 1.8 2.9
---------------- ----------------
Total operating profit 108.8 126.7
Merger and restructuring costs (60.6) (7.2)
Corporate expenses (9.1) (11.3)
Interest expense, net (3.9) (5.1)
Operations sold or held for sale (0.1) 9.9
Excess pension income 10.6 3.8
---------------- ----------------
Income before income taxes $ 45.7 $ 116.8
================ ================
</TABLE>
In the 1998 first quarter, merger and restructuring costs included deal costs
of $10.3 million related to the acquisition of OREMET, along with pretax charges
of $5.8 million for a planned salaried workforce reduction related to
integrating the operations of OREMET and Wah Chang. Allegheny Ludlum also
recorded a $12.1 million pretax charge due to a planned salaried workforce
reduction. In addition, pretax charges of $32.4 million were recorded for
equipment write-offs and other reserves at Allegheny Ludlum and reserves for
pending asset sales at other specialty metals units.
In the 1997 first quarter, operations sold or held for sale included a pretax
gain of $15.3 million on the sale of the Company's investment in Nitinol
Development Corporation and a pretax charge of $5.3 million to write-off a
research and development venture.
Pension income in excess of amounts allocated to business segments to offset
pension and other postretirement benefit expenses is presented separately.
7
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NOTE 4. NET INCOME PER SHARE
In 1997, the Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings per Share." Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is computed in a manner similar to fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement No. 128 requirements.
The following table sets forth the computation of basic and diluted net income
per common share (in millions, except per share amounts):
Three Months Ended
March 31,
---------------------------
1998 1997
------------ ------------
Numerator:
Numerator for basic and diluted
net income per common share -
net income available to common
stockholders $ 26.9 $ 71.1
============ ============
Denominator:
Weighted average shares 196.1 196.1
Contingent issuable stock 0.1 0.2
------------ ------------
Denominator for basic net income
per common share 196.2 196.3
Effect of dilutive securities:
Employee stock options 2.2 4.2
------------ ------------
Dilutive potential common shares 2.2 4.2
Denominator for diluted net income
per common share - adjusted
weighted average shares and
assumed conversions 198.4 200.5
============ ============
Basic net income per common share $ 0.14 $ 0.36
============ ============
Diluted net income per common share $ 0.14 $ 0.35
============ ============
NOTE 5. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income". Statement No. 130
establishes new rules for the reporting and display of comprehensive income
and its components. Statement No. 130 requires unrealized gains or losses on
the Company's available-for-sale securities and foreign currency translation
gains or losses, which are reported separately in stockholders' equity, to be
included in other comprehensive income. The adoption of this statement had no
impact on the Company's net income or stockholders' equity.
8
<PAGE>
The components of comprehensive income were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Net income $ 26.9 $ 71.1
Foreign currency translation losses (1.3) (2.9)
Unrealized gains on securities 0.7 2.3
--------- ---------
Comprehensive income $ 26.3 $ 70.5
========= =========
</TABLE>
NOTE 6. ACQUISITION OF OREMET
On March 24, 1998, Allegheny Teledyne completed its acquisition of the stock
of OREMET. Under the terms of the merger agreement, OREMET shareholders received
1.296 shares of Allegheny Teledyne common stock in a tax-free exchange for each
share of OREMET common stock. There were 21.6 million shares of Allegheny
Teledyne stock issued in connection with the merger. The merger was accounted
for under the pooling of interests accounting method. Revenues and net income
for the year ended December 31, 1997 (the most recent period prior to the
pooling) were $3,745.1 million and $297.6 million, respectively, for Allegheny
Teledyne and $285.0 million and $31.2 million, respectively, for OREMET.
Intercompany transactions prior to the merger were not material. The effect of
conforming accounting policies is not expected to be material.
The Company recorded merger and restructuring costs of $16.1 million ($13.8
million net of tax) in the 1998 first quarter for financial advisory, legal,
accounting, severance and other costs associated with the merger.
OREMET is an integrated producer and distributor of titanium sponge, ingot,
mill products and castings for use in the aerospace, industrial, recreational
and military markets. It operates manufacturing and finishing facilities in
Oregon and Pennsylvania and has nine service centers in the United States, with
additional centers in the United Kingdom, Germany, Singapore and Canada.
NOTE 7. AEROSPACE DIVISION OF SHEFFIELD FORGEMASTERS
In February 1998, the Company acquired the assets of the aerospace division
of Sheffield Forgemasters Limited, a private company in the United Kingdom, for
approximately $110 million in an all-cash transaction. This acquisition is being
accounted for under the purchase method of accounting. The financial statements
reflect results since the date of acquisition.
Sheffield Forgemasters' aerospace division, now known as Allvac-SMP, produces
high integrity vacuum melted and remelted steel and nickel alloys in various
forms and non-magnetic drill collars and downhole components for the oil and gas
industry. It also offers high technology testing services to the steel and
related metals manufacturing industries.
9
<PAGE>
NOTE 8. AGREEMENTS WITH BETHLEHEM STEEL CORPORATION
In January 1998, Bethlehem Steel Corporation ("Bethlehem") and the Company
jointly announced that they had entered into three agreements that would become
effective after Bethlehem closes its previously announced acquisition of Lukens
Inc. ("Lukens").
Under these agreements, Bethlehem would provide the Company with conversion
services for stainless steel hot bands and coiled plate wider than the Company
can currently produce; the Company would purchase certain assets that Lukens
uses in the manufacture of stainless steel products; and the Company would
supply hot roll bands to Bethlehem for further processing on the stainless steel
coil finishing facilities that Lukens currently owns.
Under the conversion agreement, Bethlehem has agreed, for a 20-year period,
to provide the Company with up to 15 percent of the available time on Lukens'
Coatesville, Pennsylvania electric furnace melt shop and caster and Lukens'
Conshohocken, Pennsylvania Steckel mill for the melting, casting and rolling of
the Company's requirements for wide stainless steel products.
Under the asset sales agreement, the Company would acquire certain assets of
Lukens for $175 million. These assets include the Houston, Pennsylvania plant of
Lukens' Washington Steel Division, which is used for the melting, casting and
rolling of stainless steel hot bands; the wide anneal and pickle line recently
installed at the Lukens' Massillon, Ohio plant; and the vacuum-oxygen
decarburization unit used in the refining of stainless steel at Lukens'
Coatesville, Pennsylvania plant.
Under the hot band supply agreement, the Company would supply Bethlehem with
up to 150,000 tons of stainless bands for further processing at Lukens'
stainless cold finishing facilities at its Washington, Pennsylvania and
Massillon, Ohio plants until Bethlehem sells these facilities, as previously
announced.
The agreements are subject to the completion of Bethlehem's acquisition of
Lukens as well as customary closing conditions. Subject to satisfactory
completion of the Company's due diligence, it is anticipated that the agreements
will be effective and that the asset purchases will be closed soon after
Bethlehem's acquisition of Lukens is consummated.
NOTE 9. STOCKHOLDERS' EQUITY
Allegheny Teledyne paid a cash dividend of $0.16 per common share in both the
1998 and 1997 first quarters. OREMET did not pay any dividends during these
quarters.
On March 12, 1998, the Company's Board of Directors unanimously adopted a
stockholder rights plan under which preferred share purchase rights were
distributed as a dividend on shares of Allegheny Teledyne common stock.
The rights will be exercisable only if a person or group acquires 15 percent
or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15
percent or more of the common stock. Each right will entitle stockholders to buy
one one-hundredth of a share of a new series of junior participating preferred
stock at an exercise price of $100.
10
<PAGE>
The dividend distribution was made on March 23, 1998, payable to stockholders
of record on that date. The rights will expire on March 12, 2008, subject to
earlier redemption or exchange by Allegheny Teledyne as described in the plan.
The rights distribution is not taxable to stockholders.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws.
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 the amounts, and the possible range
of loss in excess of amounts accrued, are not reasonably estimable. Based on
currently available information, however, management does not believe future
environmental costs in excess of those accrued with respect to sites with which
the Company has been identified are likely to have a material adverse effect on
the Company's financial condition or liquidity. However, there can be no
assurance that additional future developments, administrative actions or
liabilities relating to environmental matters will not have a material adverse
effect on the Company's financial condition or results of operations.
At March 31, 1998, the Company's reserves for environmental remediation
obligations totaled approximately $42.3 million, of which approximately $7.8
million was included in other current liabilities. The reserve includes
estimated probable future costs of $11.7 million for federal Superfund and
comparable state-managed sites; $7.4 million for formerly owned or operated
sites for which the Company has remediation or indemnification obligations; $4.7
million for owned or controlled sites at which Company operations have been
discontinued; and $18.5 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 for which it has identified remediation obligations in
up to thirty years.
11
<PAGE>
In 1996, AICPA Statement of Position 96-1, "Environmental Remediation
Liabilities," was issued and established accounting standards for recognition of
environmental costs. This statement, which was adopted in 1997, did not have a
material effect on the consolidated financial statements.
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, including claims based on business
practices and cost classifications and actions under the False Claims Act.
Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal
legal or administrative proceedings may ensue. Depending on the circumstances
and the outcome, such proceedings could result in fines, penalties, compensatory
and treble damages or the cancellation or suspension of payments under one or
more U.S. Government contracts. Under government regulations, a company, or one
or more of its operating divisions or units, can also be suspended or debarred
from government contracts based on the results of investigations. However,
although the outcome of these matters cannot be predicted with certainty,
management does not believe there is any audit, review or investigation
currently pending against the Company of which management is aware that is
likely to result in suspension or debarment of the Company, or that is otherwise
likely to have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
The Company learns from time to time that it has been named as a defendant in
civil actions filed under seal pursuant to the False Claims Act. Generally,
since such cases are under seal, the Company does not in all cases possess
sufficient information to determine whether the Company will sustain a material
loss in connection with such cases, or to reasonably estimate the amount of any
loss attributable to such cases.
A number of other lawsuits, claims and proceedings have been or may be
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, patent infringement, commercial,
employment, employee benefits, tax, 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.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Allegheny Teledyne Incorporated is a group of technology-based manufacturing
businesses with significant concentration in specialty metals, complemented by
aerospace and electronics, industrial, and consumer products. The Company's
specialty metals business segment accounted for 56 percent of the Company's
total sales from continuing operations of $972.5 million for the quarter ended
March 31, 1998. Its aerospace and electronics, industrial and consumer business
segments accounted for 25 percent, 14 percent and 5 percent, respectively, of
total sales from continuing operations. Such percentages were approximately the
same for the first quarter of 1997, where total sales from continuing operations
were $985.7 million.
The following discussion should be read in conjunction with the information in
the Company's consolidated financial statements and notes to the consolidated
financial statements contained herein and in the Company's 1997 Annual Report
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1997 Annual Report.
Sales and operating profit for the Company's four business segments are
discussed below.
SPECIALTY METALS
First quarter operating profit declined to $70.4 million from $83.3 million
in the same year-ago period. Sales decreased 3 percent to $544.8 million.
Operating profit as a percent of sales decreased to 12.9 percent from 14.8
percent in the same 1997 period.
FLAT-ROLLED PRODUCTS
Operating profits for Allegheny Ludlum Corporation and Rodney Metals, whose
products consist primarily of flat-rolled products, declined 29 percent from the
1997 first quarter reflecting the impact of European and Asian pricing pressure
and increased imports into the U.S. market.
Sales declined 11 percent compared to the year-ago quarter due primarily to
significant competitive pressure in commodity stainless steel products. The
average price of flat-rolled specialty materials declined 7 percent to $2,251
per ton in the quarter from $2,408 in the same period last year. Tons of
flat-rolled specialty metals shipped decreased 5 percent in the quarter to
139,000 tons from 147,000 tons in the comparable year-ago period.
Raw material costs were lower for flat-rolled products in the first quarter of
1998, as compared to the same year-ago period. Costs of nickel, a key raw
material in the manufacture of stainless steel, continued to decline during the
first 1998 quarter.
HIGH PERFORMANCE METALS
Operating results for high performance metals such as nickel-based
superalloys, titanium and zirconium include the results of two acquisitions:
OREMET, which was accounted for using the pooling of interests method of
accounting; and the aerospace division of Sheffield Forgemasters, acquired for
$110 million in an all-cash transaction in February 1998. The business acquired
from Sheffield Forgemasters is now known as Allvac-SMP.
13
<PAGE>
Operating profit for high performance metals declined 2 percent compared to
the same period in 1997. Sales increased 11 percent in the quarter compared to
the same period a year ago. Sales and operating profit for the 1998 first
quarter were adversely affected by inventory adjustments at jet engine
manufacturers although consumption remains at high levels. An equipment outage
at a major customer of nickel-based products also reduced sales. Operating
profits were lower due to operating inefficiencies in certain businesses within
this segment.
AEROSPACE AND ELECTRONICS SEGMENT
Operating profit decreased to $21.9 million for the quarter from $24.9 million
in the same 1997 period. Sales increased 1% to $237.9 million. Operating profit
as a percent of sales decreased to 9.2 percent from 10.6 percent in the same
year-ago period.
Businesses involved in instrumentation products and investment castings for
the aerospace market performed particularly well in both operating profit and
sales. However, operating results for the quarter in the unmanned aerial vehicle
business did not match the strong first quarter results of a year ago when a
major unmanned aerial target and vehicles program concluded. Sales improved for
businesses in electronic technologies and piston aircraft engines, but operating
results in these businesses were adversely affected by new product development
costs.
INDUSTRIAL SEGMENT
Operating profit declined to $14.7 million for the first quarter 1998 compared
to $15.6 million for the same quarter of 1997. Sales increased 4 percent to
$138.3 million. Operating profit as a percent of sales decreased to 10.6 percent
from 11.7 percent in the same year-ago period.
Operating profit and sales increased for material handling equipment and at
the segment's forging operation. Operating profit for tungsten powder and
semi-finished tungsten products was below first quarter 1997 levels as these
businesses incurred higher product marketing expenses to invest in future
growth. Sales and profit for the Company's gray iron casting business were
adversely affected by discontinuation of certain product lines in the quarter.
CONSUMER SEGMENT
Operating profit decreased to $1.8 million in the first quarter from $2.9
million in the same 1997 period. Sales declined 5 percent to $51.5 million.
Operating profit as a percent of sales decreased to 3.5 percent from 5.4 percent
during the same year-ago period.
Demand for oral health products declined in the first quarter. Operating
profit decreased in the swimming pool heating systems business compared to the
same period a year ago when the business benefited from a new product
introduction.
In relation to the businesses in the consumer segment, consisting of Water Pik
and Laars, the Company is currently working with investment bankers to examine
the possibility of a limited public offering of shares of a new stand-alone
company and/or its tax-free spin-off to the Company's stockholders.
14
<PAGE>
SPECIAL ITEMS
Non-recurring events resulted in an after-tax charge of $40.9 million, or
$0.21 per share in the 1998 first quarter. These events included deal costs of
$10.3 million, or $0.05 per share, related to the acquisition of OREMET, along
with charges of $3.5 million, or $0.02 per share, for a planned salaried
workforce reduction related to integrating the operations of OREMET and Wah
Chang.
Allegheny Ludlum also recorded a $7.4 million, or $0.04 per share, charge due
to a planned salaried workforce reduction. In addition, charges of $19.7
million, or $0.10 per share, were recorded for equipment write-offs and other
reserves at Allegheny Ludlum and reserves for pending asset sales at other
specialty metals units.
In the 1997 first quarter, special items resulted in gains of $1.3 million, or
$0.01 per share. These items included a gain of $9.2 million on the sale of a
company investment, largely offset by $7.9 million from merger and restructuring
costs and the write-off of a research and development venture.
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" was issued in June 1997. This
statement has been adopted by the Company in 1998, and did not have a material
effect on the consolidated financial statements.
Financial Accounting Standards Board Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," was issued in
February 1998. This statement revises employers' disclosures about pension and
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Company will adopt this statement in 1998.
INCOME TAXES
The Company's effective tax rate increased to 41.1 percent for the 1998 first
quarter from 39.1 percent for the same period in 1997 primarily due to
non-deductible business combination costs incurred in the 1998 first quarter.
FINANCIAL CONDITION AND LIQUIDITY
Working capital increased to $864.8 million at March 31, 1998, compared to
$842.6 million at December 31, 1997. The current ratio increased to 2.5 from 2.4
in this same period. The increase in working capital was primarily due to higher
receivables and lower accounts payable balances offset by lower short-term
investments available for sale.
In the first quarter of 1998, cash generated from operations of $22.9 million,
proceeds from the sale of short-term investments of $34.4 million, proceeds from
the increase in long-term debt of $103.7 million and proceeds from the exercise
of stock options of $3.9 million were used to pay dividends of $27.9 million,
and invest $140.4 million in capital equipment and business expansion. Cash
transactions plus cash on hand at the beginning of the year resulted in a cash
position of $51.4 million at March 31, 1998. Capital expenditures for 1998 are
expected to approximate $200 million, of which $32.7 million were spent during
the first quarter.
On May 14, 1998, the Board of Directors declared a regular quarterly
dividend of $0.16 per share of common stock. The dividend is payable on June 16,
1998 to stockholders of record at the close of business on June 1, 1998.
The Company believes that internally generated funds, current cash on hand and
borrowing from existing credit lines will be adequate to meet foreseeable needs.
15
<PAGE>
OTHER MATTERS
ENVIRONMENTAL
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund, and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws. The Company's reserves for
environmental investigation and remediation totaled approximately $42.3 million
at March 31, 1998. 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 36 such sites, excluding those at which it
believes it has no future liability. The Company's involvement is very limited
or de minimus at approximately 16 of these sites, and the potential loss
exposure with respect to any of these 36 sites is not considered to be material.
In 1996, AICPA Statement of Position 96-1, "Environmental Remediation
Liabilities," was issued which established accounting standards for recognition
of environmental costs. This statement, which became effective in 1997, did not
have a material effect on the consolidated financial statements.
For additional discussion of environmental matters, see Note 10 to the
consolidated financial statements of the Company.
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.
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
16
<PAGE>
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 10 to the
consolidated financial statements of the Company.
IMPACT OF YEAR 2000 ON COMPUTER SYSTEMS
The Company continues to work on modifying or replacing portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. Year 2000 identification, solution
development and implementation initiatives are in process at each of the
operating companies and are included in the Company's integration plans for
OREMET-WAH CHANG and Allvac-SMP. Efforts continue to be made to identify and
resolve customer and supplier-based Year 2000 issues that could affect the
Company. The Company anticipates spending approximately $11 million in 1998 and
another estimated $7 million in 1999 to address the Year 2000 issue. These
amounts include estimated expenditures at OREMET-WAH CHANG and Allvac-SMP.
Additional amounts may be spent in subsequent years.
Based upon internal assessments, formal communications with suppliers and
customers with which the Company exchanges electronic data, and work completed
to date, the Company expects that all necessary modifications will be completed
prior to any significant impact on the Company's operating systems.
FORWARD-LOOKING STATEMENTS
From time to time the Company has made and may continue to make
forward-looking statements. Certain forward-looking statements are contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 10 to the consolidated financial statements of the Company,
including statements concerning the expected adequacy of available funds to meet
foreseeable needs, proposed divestitures, proposed and completed acquisitions,
anticipated expenditures to address and the impact of Year-2000-computer-systems
issues, the outcome of any government inquiries, litigation or other future
proceedings related to government contract or other matters, and environmental
costs. These statements are based on current expectations that involve a number
of risks and uncertainties, including those described above under the captions
"Other Matters - Environmental" and "Other Matters - Government Contracts" and
elsewhere herein. In addition, realization of the anticipated benefits of the
combination of Allegheny Teledyne and OREMET and other acquisitions could take
longer than expected and implementation difficulties and market factors could
alter the anticipated benefits. Realization of the anticipated benefits of the
Company's international sales and manufacturing expansion initiatives could be
affected by export controls, exchange rate fluctuations and domestic and foreign
political and economic conditions, among other factors. Actual results may
differ materially from the results anticipated in the forward-looking
statements. Additional risk factors are described from time to time in the
Company's filings with the Securities and Exchange Commission, including its
Report on Form 10-K for the year ended December 31, 1997. The Company assumes no
duty to update its forward-looking statements.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As previously reported in the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 13, 1998, the Company adopted a
stockholders rights plan, whereby a dividend of one preferred share purchase
right for each outstanding share of common stock was paid to stockholders of
record at the close of business on March 23, 1998. Such stockholder rights plan
may have an anti-takeover effect.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
4 Second Amendment to Credit Agreement dated as of March 24, 1998 to
certain Credit Agreement dated as of August 30, 1996, as amended by
First Amendment to Credit Agreement dated as of August 31, 1997.
27.1 Financial Data Schedule for Three Months Ended March 31, 1998 and
Restated Financial Data Schedule for Three Months Ended March 31,
1997.
27.2 Restated Financial Data Schedule for Year Ended December 31, 1997.
27.3 Restated Financial Data Schedule for Year Ended December 31, 1996.
27.4 Restated Financial Data Schedule for Nine Months Ended September 30,
1997.
27.5 Restated Financial Data Schedule for Six Months Ended June 30, 1997.
(b) Current Reports on Form 8-K were filed by the Company on January 30,
1998 (with respect to a press release concerning the Company's
agreement with Bethlehem Steel Corporation), March 13, 1998 (with
respect to the dividend declaration by the Company of one preferred
share purchase right for each outstanding share of common stock),
March 17, 1998 (with respect to a press release on the Company's
earnings outlook), and April 4, 1998 (with respect to consummation by
the Company of the acquisition of Oregon Metallurgical Corporation).
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLEGHENY TELEDYNE INCORPORATED
- --------------------------------------------------------------------------------
(REGISTRANT)
Date: May 15, 1998 By /s/ James L. Murdy
----------------------------------------
James L. Murdy
Executive Vice President, Finance and
Administration and Chief Financial
Officer
(Duly Authorized Officer)
Date: May 15, 1998 By /s/ Dale G. Reid
---------------------------------------
Dale G. Reid
Vice President - Controller and Chief
Accounting Officer
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4 Second Amendment to Credit Agreement dated as of March 24,
1998 to certain Credit Agreement dated as of Augus 30, 1996,
as amended by First Amendment to Credit Agreement dated as of
August 31, 1997.
27.1 Financial Data Schedule for Three Months Ended March 31, 1998
and Restated Financial Data Schedule for Three Months Ended
March 31, 1997.
27.2 Restated Financial Data Schedule for Year Ended December 31,
1997.
27.3 Restated Financial Data Schedule for Year Ended December 31,
1996.
27.4 Restated Financial Data Schedule for Nine Months Ended
September 30, 1997.
27.5 Restated Financial Data Schedule for Six Months Ended June 30,
1997.
Exhibit 4
SECOND AMENDMENT TO
CREDIT AGREEMENT
Among
ALLEGHENY TELEDYNE INCORPORATED
as the Borrower
THE FINANCIAL INSTITUTIONS PARTY THERETO
as the Lenders
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
THE CHASE MANHATTAN BANK
MELLON BANK, N.A.
and
PNC BANK, NATIONAL ASSOCIATION
as Managing Agents
and
PNC BANK, NATIONAL ASSOCIATION
as the Documentation and Administrative Agent
Dated as of
March 24, 1998
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Second Amendment")
made as of March 24, 1998 to that certain Credit Agreement dated as of August
30, 1996 as amended by the First Amendment to Credit Agreement dated as of
August 31, 1997 (the Credit Agreement together with the exhibits and schedules
thereto and all modifications, amendments, extensions, renewals, substitutions
or replacements prior to the date hereof, the "Existing Agreement") among the
FINANCIAL INSTITUTIONS listed on the signature pages hereto and each other
financial institution which from time to time becomes a party hereto in
accordance with Section 9.6a (individually a "Lender" and collectively the
"Lenders"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, THE CHASE
MANHATTAN BANK, MELLON BANK, N.A. and PNC BANK, NATIONAL ASSOCIATION as Managing
Agents (individually a "Managing Agent" and collectively the "Managing Agents")
and PNC BANK, NATIONAL ASSOCIATION, a national banking association,
Documentation and Administrative Agent for the Lenders (in such capacity the
"Agent").
WITNESSETH:
WHEREAS, the Borrower and the initial Lenders, the Managing Agent
and the Agent entered into the Existing Agreement pursuant to which the Lenders
made certain financial accommodations available to the Borrower including a
Revolving Credit Commitment;
WHEREAS, the Borrower and the Lenders, the Managing Agents and the
Agent desire to amend the Existing Agreement as set forth herein.
NOW THEREFORE, in consideration of the mutual premises contained
herein and other good and valuable consideration, the Borrower and the Bank with
the intent to be legally bound hereby, agree that the Existing Agreement shall
be amended as follows:
ARTICLE I
AMENDMENTS TO EXISTING AGREEMENT
SECTION 1.01. ADDITIONAL DEFINITIONS. Section 1.1 of the Existing
Agreement is hereby amended such that the following definition shall be added
thereto in the appropriate alphabetical order:
"Effective Time of Merger" means March 24, 1998 or such other date
and time when the Merger (as defined below) becomes effective.
<PAGE>
"Merger" means the merger pursuant to the Agreement and Plan of
Merger dated as of October 31, 1997 among OREMET, the Borrower and a wholly
owned Subsidiary of the Borrower pursuant to which (i) a wholly-owned Subsidiary
of the Borrower was merged with and into OREMET, with OREMET being the surviving
corporation of the merger and (ii) with certain limited exceptions, each share
of common stock of OREMET outstanding immediately prior to the Effective Time of
the Merger was automatically converted, at the Effective Time of the Merger into
the right to receive shares of the common stock of the Borrower.
"OREMET" means Oregon Metallurgical Corporation, an Oregon
corporation which prior to the Effective Time of the Merger was a publicly held
corporation and at the Effective Time of the Merger, as the surviving
corporation of the Merger, became a wholly-owned Subsidiary of the Borrower. Any
reference to OREMET in the Agreement, in respect of an event or occurrence prior
to the Effective Time of the Merger, shall be a reference to OREMET as a
publicly held corporation, and any reference to OREMET herein, in respect of an
event or occurrence after the Effective Time of the Merger, shall be in
reference to OREMET as a wholly-owned Subsidiary of the Borrower.
"Second Amendment" means the Second Amendment to Credit Agreement
among the Borrower, the Lenders, the Managing Agents and the Agent dated as of
March 24, 1998.
"Second Amendment Effective Date" shall mean March 24, 1998.
"Year 2000 Problem" means the risk that computer applications used
by or for the benefit of the Borrower and its Subsidiaries may be unable to
recognize and perform properly date sensitive functions involving certain dates
prior to and any date after December 31, 1999.
SECTION 1.02. NEW SECTION 3.16. The Existing Agreement shall be
amended by adding a new Section 3.16 which shall read as follows:
Section 3.16. YEAR 2000 ANALYSIS. The Borrower and its Subsidiaries are
reviewing the areas within their respective businesses and operations which
could reasonably be expected to be adversely affected by, and have developed or
are developing programs to address on a timely basis the Year 2000 Problem.
Based on such review and programs the Borrower reasonably believes that the Year
2000 Problem will not have a Material Adverse Effect on the Borrower and its
Subsidiaries taken as a whole.
SECTION 1.03. AMENDMENT TO SECTION 4.11. Section 4.11 of the
Existing Agreement is amended and restated in its entirety to read as follows:
Section 4.11. OWNERSHIP OF ALC, TI AND OREMET. At all times during the term
hereof the Borrower shall be the legal and beneficial owner of, and shall retain
all voting rights
2
<PAGE>
relating to, all of the issued and outstanding capital stock of ALC and TI. At
all times during the term hereof after the Effective Time of the Merger, the
Borrower shall be the legal and beneficial owner of, and shall retain all voting
rights relating to, all of the issued and outstanding capital stock of OREMET.
SECTION 1.04. NEW SECTION 4.12. The Existing Agreement shall be
amended by adding a new Section 4.12 which shall read as follows:
Section 4.12. YEAR 2000. The Borrower shall take all action necessary to assure
the Borrower's and its Subsidiaries' computer-based systems are able, in all
material respects, to effectively process data including dates on and after
January 1, 2000, such that there will be no Material Adverse Effect on the
Borrower and its Subsidiaries taken as a whole as a result of the Year 2000
Problem.
SECTION 1.05. NO OTHER AMENDMENTS OR WAIVERS. The amendments to the
Existing Agreement set forth in Sections 1.01 through 1.04 inclusive above do
not either implicitly or explicitly alter, waive or amend, except as expressly
provided in this Second Amendment, the provisions of the Existing Agreement. The
amendments set forth in Sections 1.01 through 1.04 hereof do not waive, now or
in the future, compliance with any other covenant, term or condition to be
performed or complied with nor do they impair any rights or remedies of the
Lenders or the Agent under the Existing Agreement with respect to any such
violation. Nothing in this Second Amendment shall be deemed or construed to be a
waiver or release of, or a limitation upon, the Lenders' or the Agents' exercise
of any of their respective rights and remedies under the Existing Agreement and
the other Loan Documents, whether arising as a consequence of any Events of
Default which may now exist or otherwise, and all such rights and remedies are
hereby expressly reserved.
ARTICLE II
BORROWER'S SUPPLEMENTAL REPRESENTATIONS
SECTION 2.01 INCORPORATION BY REFERENCE. As an inducement to the
Lenders to enter into this Second Amendment, the Borrower hereby repeats herein,
for the benefit of the Lenders, the representations and warranties made by the
Borrower in Sections 3.1 through 3.15, inclusive, of the Existing Agreement, as
amended hereby, except that for purposes hereof such representations and
warranties shall be deemed to extend to and cover this Second Amendment.
3
<PAGE>
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. CONDITIONS PRECEDENT. Each of the following shall
be a condition precedent to the effectiveness of this Second Amendment:
(i) The Lenders shall have received, on or before the Second
Amendment Effective Date, duly executed counterpart originals of this Second
Amendment.
(ii) The following statements shall be true and correct on the
Second Amendment Effective Date:
(A) except to the extent modified in writing by the Borrower
heretofore delivered to the Lenders, the representations and warranties made
pursuant to Section 2.01 of this Second Amendment and in the other Loan
Documents are true and correct on and as of the Second Amendment Effective Date
as though made on and as of such date in all material respects;
(B) no Event of Default or event which with the giving of
notice or passage of time or both would become an Event of Default has occurred
and is continuing, or would result from the execution of or performance under
this Second Amendment;
(C) the Borrower has in all material respects performed all
agreements, covenants and conditions required to be performed on or prior to the
date hereof under the Existing Agreement and the other Loan Documents.
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.01. RATIFICATION OF TERMS. Except as expressly amended by
this Second Amendment, the Existing Agreement and each and every representation,
warranty, covenant, term and condition contained therein is specifically
ratified and confirmed in all material respects.
SECTION 4.02. REFERENCES. All notices, communications, agreements,
certificates, documents or other instruments executed and delivered after the
execution and delivery of this Second Amendment in connection with the
Agreement, any of the other Loan Documents or the transactions contemplated
thereby may refer to the Existing Agreement without making specific reference to
this Second Amendment, but nevertheless all such references shall include this
Second Amendment unless the context requires otherwise. From and after the
Second Amendment Effective Date, all references in the Existing Agreement and
each of the other Loan Documents to the "Agreement" shall be deemed to be
references to the Existing Agreement as amended hereby.
4
<PAGE>
SECTION 4.03. COUNTERPARTS. This Second Amendment may be executed in
different counterparts, each of which when executed by the Borrower and a Lender
shall be regarded as an original, and all such counterparts shall constitute one
Second Amendment.
SECTION 4.04. CAPITALIZED TERMS. Except for proper nouns and as
otherwise defined herein, capitalized terms used herein as defined terms shall
have the meanings ascribed to them in the Existing Agreement, as amended hereby.
SECTION 4.05. GOVERNING LAW. THIS SECOND AMENDMENT AND THE RIGHTS
AND OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE PROVISIONS
THEREOF REGARDING CONFLICTS OF LAW.
SECTION 4.06. HEADINGS. The headings of the sections in this
Second Amendment are for purposes of reference only and shall not be deemed to
be a part hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have caused this Second Amendment to be duly executed by their
proper and duly authorized officers the day first above written.
ALLEGHENY TELEDYNE INCORPORATED
By /S/ R. S. PARK
--------------------------------
Name R. S. PARK
--------------------------------
Title VICE PRESIDENT, TREASURER
--------------------------------
PNC BANK, NATIONAL ASSOCIATION, BANK OF AMERICA NATIONAL
as Lender, Managing Agent and Agent TRUST AND SAVINGS ASSOCIATION,
as Lender and Managing Agent
By /S/ DAVID B. GOOKIN By /S/ M. A. DETRICK
---------------------------- --------------------------------
Name DAVID B. GOOKIN Name M. A. DETRICK
---------------------------- --------------------------------
Title VICE PRESIDENT Title VICE PRESIDENT
---------------------------- --------------------------------
THE CHASE MANHATTAN BANK, MELLON BANK, N.A.,
as Lender and Managing Agent as Lender and Managing Agent
By /S/ JAMES H. RAMAGE By /S/ ROGER N. STANIER
---------------------------- --------------------------------
Name JAMES H. RAMAGE Name ROGER N. STANIER
---------------------------- --------------------------------
Title VICE PRESIDENT Title VICE PRESIDENT
---------------------------- --------------------------------
THE BANK OF NEW YORK MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /S/ ROBERT J. JOYCE By /S/ CHRISTOPHER C. KUNHARDT
---------------------------- --------------------------------
Name ROBERT J. JOYCE Name CHRISTOPHER C. KUNHARDT
---------------------------- --------------------------------
Title VICE PRESIDENT Title VICE PRESIDENT
---------------------------- -------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
6
<PAGE>
[CONTINUATION OF SIGNATURE PAGE]
NATIONSBANK, N.A. THE TORONTO-DOMINION BANK
By /S/ PHILIP DURAND By /S/ DAVID G. PARKER
---------------------------- --------------------------------
Name PHILIP DURAND Name DAVID G. PARKER
---------------------------- --------------------------------
Title VICE PRESIDENT Title MANAGER CREDIT ADMINISTRATION
---------------------------- --------------------------------
BANK OF TOKYO-MITSUBISHI TRUST CORESTATES BANK, N.A.
COMPANY
By /S/ M.R. MARRON By /S/ DONNA J. EMHART
---------------------------- --------------------------------
Name M. R. MARRON Name DONNA J. ENHART
---------------------------- --------------------------------
Title VICE PRESIDENT Title VICE PRESIDENT
---------------------------- --------------------------------
THE FIRST NATIONAL BANK OF NATIONAL CITY BANK OF
CHICAGO PENNSYLVANIA
By /S/ KENNETH J. KRAMER By /S/ WILLIAM S. HARRIS
---------------------------- --------------------------------
Name KENNETH J. KRAMER Name WILLIAM S. HARRIS
---------------------------- --------------------------------
Title AS AUTHORIZED AGENT Title VICE PRESIDENT
---------------------------- --------------------------------
THE FUJI BANK LIMITED, NEW YORK UNION BANK OF SWITZERLAND,
BRANCH NEW YORK BRANCH
By /S/ RAYMOND VENTURA By /S/ HAMILTON W. BULLARD
---------------------------- --------------------------------
Name RAYMOND VENTURA Name HAMILTON W. BULLARD
---------------------------- --------------------------------
Title VICE PRESIDENT AND MANAGER Title ASSISTANT TREASURER
---------------------------- --------------------------------
By /S/ PAUL R. MORRISON
--------------------------------
Name PAUL R. MORRISON
--------------------------------
Title DIRECTOR
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statements of income for the three months ended March
31, 1998 and 1997 and consolidated balance sheets as of March 31, 1998 and 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001018963
<NAME> ALLEGHENY TELEDYNE INCORPORATED
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 51 85
<SECURITIES> 0 47
<RECEIVABLES> 638 629
<ALLOWANCES> 15 13
<INVENTORY> 699 598
<CURRENT-ASSETS> 1,455 1,425
<PP&E> 1,800 1,677
<DEPRECIATION> 1,022 927
<TOTAL-ASSETS> 3,006 2,866
<CURRENT-LIABILITIES> 590 577
<BONDS> 433 435
0 0
0 0
<COMMON> 20 20
<OTHER-SE> 1,236 1,128
<TOTAL-LIABILITY-AND-EQUITY> 3,006 2,866
<SALES> 1,002 1,030
<TOTAL-REVENUES> 1,002 1,030
<CGS> 773 786
<TOTAL-COSTS> 773 786
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4 5
<INCOME-PRETAX> 46 117
<INCOME-TAX> 19 46
<INCOME-CONTINUING> 27 71
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 27 71
<EPS-PRIMARY> 0.14 0.36
<EPS-DILUTED> 0.14 0.35
</TABLE>
<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, 1997 and consolidated balance sheet as of December 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001018963
<NAME> ALLEGHENY TELEDYNE INCORPORATED
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 54
<SECURITIES> 34
<RECEIVABLES> 594
<ALLOWANCES> 18
<INVENTORY> 698
<CURRENT-ASSETS> 1,444
<PP&E> 1,709
<DEPRECIATION> 955
<TOTAL-ASSETS> 2,898
<CURRENT-LIABILITIES> 601
<BONDS> 330
0
0
<COMMON> 20
<OTHER-SE> 1,255
<TOTAL-LIABILITY-AND-EQUITY> 2,898
<SALES> 4,030
<TOTAL-REVENUES> 4,030
<CGS> 3,040
<TOTAL-COSTS> 3,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 524
<INCOME-TAX> 195
<INCOME-CONTINUING> 329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.64
</TABLE>
<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>
<CIK> 0001018963
<NAME> ALLEGHENY TELEDYNE INCORPORATED
<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> 64
<SECURITIES> 63
<RECEIVABLES> 573
<ALLOWANCES> 13
<INVENTORY> 638
<CURRENT-ASSETS> 1,427
<PP&E> 1,684
<DEPRECIATION> 918
<TOTAL-ASSETS> 2,864
<CURRENT-LIABILITIES> 632
<BONDS> 448
0
0
<COMMON> 20
<OTHER-SE> 1,055
<TOTAL-LIABILITY-AND-EQUITY> 2,864
<SALES> 4,053
<TOTAL-REVENUES> 4,053
<CGS> 3,081
<TOTAL-COSTS> 3,081
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 418
<INCOME-TAX> 169
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> (14)
<CHANGES> 0
<NET-INCOME> 235
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statements of income for the nine months ended
September 30, 1997 and consolidated balance sheets as of September 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001018963
<NAME> ALLEGHENY TELEDYNE INCORPORATED
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 35
<SECURITIES> 34
<RECEIVABLES> 610
<ALLOWANCES> 14
<INVENTORY> 667
<CURRENT-ASSETS> 1,462
<PP&E> 1,723
<DEPRECIATION> 969
<TOTAL-ASSETS> 2,922
<CURRENT-LIABILITIES> 587
<BONDS> 414
0
0
<COMMON> 20
<OTHER-SE> 1,179
<TOTAL-LIABILITY-AND-EQUITY> 2,922
<SALES> 3,039
<TOTAL-REVENUES> 3,039
<CGS> 2,304
<TOTAL-COSTS> 2,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 386
<INCOME-TAX> 147
<INCOME-CONTINUING> 239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statement of income for the six months ended June 30,
1997 and consolidated balance sheet as of June 30, 1997 and is qualified in its
.entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001018963
<NAME> ALLEGHENY TELEDYNE INCORPORATED
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 47
<SECURITIES> 54
<RECEIVABLES> 624
<ALLOWANCES> 13
<INVENTORY> 630
<CURRENT-ASSETS> 1,470
<PP&E> 1,689
<DEPRECIATION> 946
<TOTAL-ASSETS> 2,870
<CURRENT-LIABILITIES> 590
<BONDS> 390
0
0
<COMMON> 20
<OTHER-SE> 1,161
<TOTAL-LIABILITY-AND-EQUITY> 2,870
<SALES> 2,054
<TOTAL-REVENUES> 2,054
<CGS> 1,552
<TOTAL-COSTS> 1,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 270
<INCOME-TAX> 104
<INCOME-CONTINUING> 166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.83
</TABLE>
